Why Loss on issue of debentures is an asset?

Meaning of Writing off Discount 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.

Where is loss on issue of debentures shown in balance sheet?

On the liabilities side of Balance Sheet.

How will you treat loss on issue of debentures in final accounts?

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.

Under which head is loss on issue of debentures shown?

Answer: Loss on issue of Debentures(only written off value) is to be shown on the head of expense & the sub head of Finance cost on statement of profit & loss (As per Part II , Schedule III of Companies Act 2013).

When debentures are issued as collateral security?

An issue of debentures as a collateral security implies that debentures are issued for procuring or obtaining a loan. Here, debentures act as a security in case of the company fails to meet the debt obligations (Principal Amount + Interest Amount) on time.

What is the treatment of Discount on issue of debentures in cash flow statement?

The increase in discount should be deducted from the face value of shares / Debentures and only net proceeds shall be treated as cash flow from Financing Activities. Decrease in Discount on issue of Shares/Debentures will be added back to current year’s profit to calculate ‘Cash from Operating Activities’.

How is discount or loss on issue of debentures written off?

Discount on issue of debentures is a capital loss of the company and it is required to be shown on the assets side of the Balance Sheet under the heading Other Current or other Non Current Asset until written off. Discount on issue of debentures being a capital loss, can be written off against capital profits.

What will be the treatment of premium on redemption of debentures account?

At Premium: This is when the redemption is at a higher value than the face value of the debenture. Such a premium to be paid will be treated as a capital loss. And while the premium amount is only paid at redemption, it will be shown as a liability since the issue of the debentures.

Is loss on issue of debentures deferred revenue expenditure?

The loss or discount on issue of debentures is basically a capital loss or a fictitious asset and, therefore, has to be written-off during the debentures’ lifetime.

What are debenture holders?

Debentures are debt instruments issued by a company to raise capital. The registered holders of such debentures are called debenture holders. The debenture holder is a creditor of the company. They get a fixed rate of interest for the amount they have invested in the debentures.

Under what head will share discount be recorded in the balance sheet?

In the balance sheet, ‘Discount on Issue of Shares Account’ appears on the “Assets” side under the heading ‘Miscellaneous Expenditure’. The account represents a fictitious asset and should be gradually written off by transfer to Profit and Loss Account although there is no legal compulsion to do so.

What should be the accounting treatment of debentures as collateral security?

(ii) Sometimes issue of debentures as collateral security is recorded by making journal entry as follows: The Debentures Suspense Account will appear on the assets side of the balance sheet and Debentures on the liabilities side. When the loan is re-paid the entry is reversed in order to cancel it.