Sarthaks APP
0 votes
in Accounts by (59.5k points)

How is ‘Discount on Issue of Debentures’ treated in the books of accounts? How will you deal with the ‘discount in issue of debentures’ when the debentures are to be redeemed in installments?

1 Answer

+1 vote
by (64.4k points)
selected by
Best answer

When the debentures are issued at a price below its par value or face value, then it is said that the debentures are issued at discount. The difference between the issue price and the face value of the debenture is regarded as a capital loss. As per the Revised Schedule VI of the Companies Act, Discount on Issue of Debentures is sown in the Notes to Accounts of Other Non-Current Assets. The final balance is shown on the Assets side of the Company’s Balance Sheet under the main head of Non-Current Assets.

The following are the two methods of writing-off discount on issue of debentures, when debentures are redeemable in installments.

Fixed Installment Method/Equal Installment Method: Under this method, the total amount of discount (loss) is written off in equal installments over the life of the debenture. It is used when debentures are redeemable in lump sum after a specified period of time. The formula for calculating amount of discount written off every year is given by

Fluctuating Installment Method/Variable Installment Method/Propon Method: This method is used when the debentures are redeemed in installments. The discount on issue of debentures is written off in proportion’to the debentures outstanding at the end of each year.

Welcome to Sarthaks eConnect: A unique platform where students can interact with teachers/experts/students to get solutions to their queries. Students (upto class 10+2) preparing for All Government Exams, CBSE Board Exam, ICSE Board Exam, State Board Exam, JEE (Mains+Advance) and NEET can ask questions from any subject and get quick answers by subject teachers/ experts/mentors/students.