Class 12 Accountancy - KARNATAKA
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy under the Karnataka (KSEEB) curriculum explores how companies raise long-term borrowed capital by issuing debentures and the various methods used to repay them. Students learn journal entries for issuing debentures at par, premium, and discount, along with conditions of redemption. The chapter also covers writing off discount on issue of debentures, interest on debentures, and methods of redemption such as lump sum, draw of lots, and purchase in the open market. Mastering this chapter is crucial for solving high-scoring numerical problems in board exams.
Start Learning FreeKey Concepts
Debenture
A written instrument acknowledging a debt issued by a company under its common seal, containing a contract for repayment of principal at a specified date and payment of interest at a fixed rate.
Issue of Debentures for Consideration Other Than Cash
When a company purchases assets or a running business and issues debentures to the vendor instead of paying cash, recorded as Sundry Assets to Vendors and then Vendors to Debentures.
Collateral Security
Debentures issued as a secondary or additional security to lenders against a primary loan, which can be recorded in the books using a journal entry or shown in the balance sheet.
Terms of Redemption of Debentures
Debentures can be issued on terms that affect their redemption, such as issuing at par/discount and redeeming at a premium, which requires creating a 'Loss on Issue of Debentures' account.
Redemption of Debentures
The discharge of liability by repayment of the principal amount of debentures to the holders, which can be done through lump sum payment, draw of lots, or purchase in the open market.
Important Formulas
Board Exam Info
In the Karnataka (KSEEB) Class 12 Accountancy board exam, this chapter typically carries around 8 to 12 marks. Questions usually include one 1-mark or 2-mark theoretical or short problem, and a major 6-mark or 8-mark numerical problem focusing on journal entries for the issue and redemption of debentures.
Frequently Asked Questions
What is the difference between shares and debentures?
Shares represent ownership in a company and holders are members (owners) who receive dividends. Debentures represent debt and holders are creditors who receive a fixed rate of interest.
Is creating a Debenture Redemption Reserve (DRR) mandatory for all companies?
No, as per recent guidelines, DRR is not required for All India Financial Institutions, banking companies, NBFCs registered with RBI, and for privately placed debentures by housing finance companies and other non-banking companies.
How is 'Loss on Issue of Debentures' treated in financial statements?
It is a capital loss and is written off against Capital Reserve, Securities Premium, or Statement of Profit and Loss over the tenure of the debentures.
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