Class 12 Accountancy - WEST-BENGAL
Issue and Redemption of Debentures
The chapter 'Issue and Redemption of Debentures' in Class 12 Accountancy is a crucial segment of corporate accounting prescribed by the West Bengal Council of Higher Secondary Education (WBCHSE). It covers the legal and financial procedures of raising long-term borrowed capital through debentures and paying it back. Students will learn journal entries for issuing debentures at par, premium, and discount, as well as considerations for issue at par/discount and redeemable at premium. The chapter also explains various methods of redemption such as lump sum, draw of lots, open market purchase, and conversion, alongside the creation of a Debenture Redemption Reserve (DRR). Mastering this chapter is essential for solving comprehensive numerical problems in the board exams.
Start Learning FreeKey Concepts
Debenture
A written instrument or certificate issued by a company acknowledging a debt to the holder, carrying a fixed rate of interest.
Issue of Debentures for Consideration other than Cash
Debentures can be issued to vendors for purchasing assets or running businesses, recorded at the purchase price.
Collateral Security
Debentures issued as an additional security against a primary loan, requiring specific journal entries either with or without creating an entry for liability.
Terms of Issue and Redemption
Accounting treatment for debentures issued at par, premium, or discount and redeemable at par or premium, involving the 'Loss on Issue of Debentures' account.
Debenture Redemption Reserve (DRR)
A statutory reserve fund that certain companies must create out of their profits before redeeming debentures to protect investors' interests.
Important Formulas
Board Exam Info
In the West Bengal (WBCHSE) Class 12 Accountancy board exam, this chapter typically carries around 8 to 12 marks. Questions usually include a mix of short 1-mark or 2-mark conceptual questions and a compulsory long 6 or 8-mark numerical problem focusing on journal entries for the issue of debentures with different terms of redemption or methods of redemption.
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 debentureholders receive fixed interest regardless of profit.
How is 'Loss on Issue of Debentures' treated in accounting?
It is a capital loss treated as a fictitious asset. It is written off over the tenure of the debentures using Securities Premium Reserve, Capital Reserve, or Statement of Profit and Loss.
Is creating a Debenture Redemption Reserve (DRR) mandatory for all companies?
No, DRR is not required for All India Financial Institutions, banking companies, NBFCs registered with RBI, and for debentures issued by the government or public utilities, as per company law rules.
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