Class 12 Accountancy - MP
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy is a crucial part of company accounts. It covers how companies raise long-term capital by issuing debentures—acknowledgments of debt—at par, premium, or discount, and the various methods of their repayment or redemption. For MPBSE board exams, this chapter holds high weightage, frequently featuring practical numerical problems on journal entries for issue, writing off discount/loss on issue of debentures, and creating Debenture Redemption Reserve (DRR) for redemption.
Start Learning FreeKey Concepts
Debenture
A written instrument issued by a company acknowledging a debt under its common seal, carrying a fixed rate of interest.
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.
Collateral Security
Debentures issued as an additional or secondary security to lenders against a primary loan, recorded by creating the Entry: Debenture Suspense A/c Dr. To % Debentures A/c.
Terms of Issue of Debentures regarding Redemption
Accounting treatment for debentures issued at par, premium, or discount, keeping in mind the loss suffered when they are redeemable at a premium.
Debenture Redemption Reserve (DRR)
A statutory fund created out of profits by companies before the redemption of debentures to protect the interest of investors, as per SEBI guidelines.
Important Formulas
Board Exam Info
In the Madhya Pradesh Board (MPBSE) Class 12 Accountancy exam, this chapter typically carries around 6 to 8 marks. Questions usually include a mix of objective questions, short-answer theory questions, and a major 4 or 6-mark practical numerical problem focusing on journal entries for the issue of debentures with different redemption terms or collateral security.
Frequently Asked Questions
What is the difference between Shares and Debentures?
Shares represent ownership in the company and holders get dividends, whereas debentures represent a loan to the company and holders get fixed interest.
Is Debenture Redemption Reserve (DRR) mandatory for all companies?
No, as per recent MCA and SEBI updates, DRR is not required for All India Financial Institutions, Banking companies, and for debentures issued by NBFCs registered with RBI and HFCs, but is required for other companies.
How is 'Loss on Issue of Debentures' treated in accounting?
Loss on issue of debentures is a capital loss. It is written off against Capital Reserve or Securities Premium Reserve first, and the remaining amount is written off from the Statement of Profit and Loss over the tenure of the debentures.
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