Class 12 Accountancy - KERALA
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy under the Kerala SCERT syllabus explores how companies raise long-term borrowed capital through debentures and the subsequent repayment of these loans. Students will learn journal entries for issuing debentures at par, premium, and discount, as well as considerations for writing off loss on issue. The chapter also covers various methods of redemption, including out of profits and proceeds of fresh issues. This topic holds significant weightage in the board examinations, often featuring practical numerical problems on journal entries and the preparation of ledger accounts.
Start Learning FreeKey Concepts
Debenture
A written instrument acknowledging a debt by a company, containing a contract for the repayment of principal at a specified date and payment of interest at a fixed rate.
Issue of Debentures for Consideration other than Cash
Debentures can be issued to vendors for purchasing assets or businesses, recorded either at par, premium, or discount based on the purchase agreement.
Collateral Security
Debentures issued as an additional security for a primary loan, where entry can either be made by debiting 'Debentures Suspense Account' or omitted from the books with a footnote disclosure.
Writing off Loss on Issue of Debentures
Loss incurred on issuing debentures (like discount on issue or premium on redemption) must be written off against Capital Reserve or Securities Premium Reserve first, and then from the Statement of Profit and Loss.
Redemption of Debentures
The repayment of the liability of debentures by the company, which can be done out of capital, out of profits, or through the conversion into shares/new debentures.
Important Formulas
Board Exam Info
In the Kerala (SCERT) Class 12 Accountancy board examination, this chapter typically carries around 8 to 12 marks. Questions usually include a mix of theoretical definitions (like types of debentures) and comprehensive practical problems requiring journal entries for the issue and redemption of debentures.
Frequently Asked Questions
What is the difference between shares and debentures?
Shares represent ownership capital and shareholders are owners of the company who get dividends. Debentures represent borrowed capital and debentureholders are creditors who receive a fixed rate of interest.
Is creating a Debenture Redemption Reserve (DRR) mandatory for all companies?
No, DRR is not required for All India Financial Institutions regulated by RBI, banking companies, NBFCs registered with RBI, and housing finance companies. For other companies, a 15% to 10% DRR is required depending on the type of issue.
How is collateral security disclosed in the Balance Sheet?
It is shown as a note to the main loan liability. If Debenture Suspense Account is debited upon issue, it is shown as a deduction from 'Percentage Debentures' under Non-Current Liabilities.
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