Class 12 Accountancy - TAMILNADU
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy under the Tamil Nadu Samacheer Kalvi syllabus introduces students to long-term sources of corporate finance. A debenture is a written acknowledgment of debt issued by a company under its common seal. This chapter covers the accounting treatment for issuing debentures at par, premium, and discount, as well as issuing them as collateral security and for considerations other than cash. Additionally, it explains the methods of redeeming debentures—repayment of the borrowed amount. This is a high-scoring chapter with heavy practical problems frequently asked in board exams.
Start Learning FreeKey Concepts
Debenture
A formal certificate of indebtedness issued by a company under its seal, acknowledging a loan taken from the public carrying a fixed rate of interest.
Issue of Debentures for Consideration Other than Cash
When a company purchases assets or a running business from vendors and issues debentures to them instead of paying cash.
Debentures as Collateral Security
Debentures pledged as a secondary security to a lender against a primary loan taken by the company.
Writing off Discount/Loss on Issue of Debentures
The loss or discount suffered on the issue of debentures must be written off against Capital Reserve, Securities Premium, or Statement of Profit and Loss within the useful tenure.
Redemption of Debentures
The discharge of the liability on debentures by repaying the principal amount to the debentureholders as per the terms of the issue.
Important Formulas
Board Exam Info
In the Tamil Nadu (Samacheer Kalvi) Class 12 Accountancy board exam, this chapter typically carries around 10 to 15 marks. Questions commonly include 1-mark objective questions, 3-mark or 5-mark short answers regarding journal entries for issue and redemption, and comprehensive 10-mark practical problems involving purchase of business or collateral security.
Frequently Asked Questions
What is the main difference between shares and debentures?
Shares represent ownership in a company and holders get dividends, whereas debentures represent debt/borrowing and holders get fixed interest irrespective of profits.
How are debentures shown in the Balance Sheet?
Debentures are shown under 'Non-Current Liabilities' as 'Long-term Borrowings' in the company's Balance Sheet as per Schedule III.
What journal entry is passed when debentures are issued at a discount?
Bank A/c Dr., Discount on Issue of Debentures A/c Dr. To Debentures A/c. The discount is treated as a capital loss.
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