Class 12 Accountancy - UP
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy is a crucial segment of company accounts under the UPMSP curriculum. It covers the legal and financial process by which a company raises long-term borrowed capital by issuing debentures at par, premium, or discount, and the various methods of their repayment. For UPMSP board exams, this chapter is high-scoring and frequently features practical numerical problems involving journal entries for issue of debentures, collateral security, writing off discount on issue, and different modes of redemption including creation of Debenture Redemption Reserve (DRR) and sinking fund.
Start Learning FreeKey Concepts
Debenture
A written instrument acknowledging a debt issued by a company under its common seal, containing a contract for the repayment of principal at a specified date and payment of interest at a fixed rate.
Issue of Debentures as Collateral Security
When a company takes a loan from a bank or financial institution and issues its own debentures as secondary or additional security alongside the principal security.
Terms of Issue of Debentures
Debentures can be issued at par, at premium, or at discount, and they may be redeemable at par or at premium, requiring specific journal entries to account for future losses on redemption.
Debenture Redemption Reserve (DRR)
A statutory reserve fund that certain companies must create out of their profits available for dividend before the redemption of debentures begins, to protect the interest of debenture holders.
Redemption of Debentures
The discharge of liability on account of debentures by repayment of the principal amount to the debenture holders through lump sum, drawing of lots, purchase in open market, or conversion into shares.
Important Formulas
Board Exam Info
In the Uttar Pradesh (UPMSP) Class 12 Accountancy board examination, this chapter typically carries around 8 to 12 marks. Questions usually include a mix of short-answer conceptual questions and a compulsory long numerical problem (6 to 8 marks) on journal entries for issue of debentures with various terms of redemption and creation of DRR/investment.
Frequently Asked Questions
What is the difference between Shares and Debentures?
Shares represent ownership capital and shareholders get dividends, whereas debentures represent borrowed capital and debenture holders get fixed interest irrespective of profits.
Is creation of DRR mandatory for all companies under UPMSP rules?
No, DRR is not required for All India Financial Institutions regulated by RBI, banking companies, NBFCs, and housing finance companies, but it is mandatory for other companies as per Companies Act guidelines.
How do we pass journal entries when debentures are issued at par and redeemable at premium?
At the time of issue, we debit 'Loss on Issue of Debentures Account' and credit 'Premium on Redemption of Debentures Account' along with the usual bank and debenture application entries.
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