Why debentures are not redeemed at discount?

If the debentures are not redeemed at discount or premium, the lump sum amount, calculated by the summation of the principal value of all debentures, is paid out on the prefixed or maturity date that is mentioned on debenture agreement. The issuing company may decide to pay off the debenture amount before its maturity.

How is discount on issue of debentures treated?

Discount on issue of debentures can be treated as deferred revenue expenditure and written off against revenue over the period of life of the debentures.

Why are debentures issued at premium?

Debentures are said to be issued at a premium when the amount collected for it, is greater than the nominal value (face value) of the debentures.

What are the purpose of issuing debentures?

Debentures. Debentures generally have a more specific purpose than other bonds. While both are used to raise capital, debentures typically are issued to raise capital to meet the expenses of an upcoming project or to pay for a planned expansion in business.

When debenture are issued at a discount and are redeemable at premium?

When debentures are issued below its par value (or the face value) but are redeemed at price higher than its par value, then it is termed as issue of debenture at discount and redeemable at premium. The difference between the issue price and the redemption price is treated as loss on issue of debenture.

Can debentures be issued at discount as per Companies Act 2013?

As per section 54 of the Companies Act, 2013 there is restriction on the Companies for the issue of shares at a discount. But there is no prohibition on issue of Debentures on discount.

What is debenture discount?

When debentures are issued by the company at a price less than its nominal value (face value) it is said to be issued at discount. For example, if a debenture of Rs. 2,000 is offered to the public at Rs. 1,950, it is issued at a discount.

When debentures are issued at a discount the discount must be written off?

The amount of loss or discount on issue of debentures has to be not be written-off during the year of its issue since the benefit of the debentures would accumulate to the enterprise till their restitution or redemption. The loss or discount, hence, considered as a capital loss.

What are the benefits of debentures?

The following are the advantages of debentures:

• Secured investments. Debentures provide greatest security to the investors.
• Fixed return. Debentures guarantee a fixed rate of interest.
• Stable prices.
• Non-interference in management.
• Economical.
• Availability of funds.
• Regular source of income.

When debentures are issued at a discount the discount is written off?

Discount on issue of debentures is a capital loss and over a period of 3 to 5 years or is charged to “Securities Premium Account” as per the guidelines issued by ICAI. The discount on issue of debentures can be written-off either by debiting it to profit and loss or to securities premium account.

When debenture are issued at a discount and are redeemable at a premium which of the following account is debited at the time of issue?

Premium on Redemption of Debentures A/c is debited.