Issue Of Debentures

Step 1: Nature of discount.
Discount = capital loss to the company, as debentures are issued below face value.
Step 2: Accounting treatment.
Discount on issue of debentures is not written off immediately; it is shown as a fictitious asset (deferred expenditure) under “Miscellaneous Expenditure” until amortised.
Step 3: Conclude.
Hence, it is shown as Miscellaneous Expenditure in the Balance Sheet.
Final Answer:

Step 1: Meaning of collateral security.
When debentures are issued as collateral, they are not for raising capital but as additional security against a bank loan.
Step 2: Accounting treatment.
To show liability correctly, Debenture Suspense A/c is debited and Debenture A/c is credited. Journal entry:
Step 3: Conclude.
Thus, Debenture Suspense A/c is debited.
Final Answer:

Step 1: Different methods of redemption.
- Conversion: Debentures can be redeemed by converting them into shares or new debentures.
- Instalments: Debentures may be redeemed gradually over time in instalments.
- Lumpsum: Debentures can also be redeemed by a one-time lumpsum payment at maturity.
Step 2: Conclude.
Since all the mentioned methods are valid, the correct option is “All of these”.
Final Answer:

Step 1: Case of issue at par with redemption at premium.
- Issue at par means company receives full face value of debenture.
- Redemption at premium means company must pay extra (premium) over face value at redemption.
Step 2: Accounting of premium.
The extra premium payable is a loss to the company, but it is not debited directly to P& L.
Step 3: Use of “Loss on Issue of Debentures A/c”.
This account is used to accumulate losses arising from discounts or redemption premiums. Premium payable on redemption is transferred here.
Step 4: Conclude.
Thus, the loss is debited to “Loss on Issue of Debenture A/c”.
Final Answer:

Step 1: Recall Companies Act rules.
According to the Companies (Share Capital and Debenture) Rules, 2014, companies issuing debentures must create a Debenture Redemption Reserve (DRR).
Step 2: Required percentage.
The law requires companies to transfer at least 25% of the value of debentures issued into the DRR before redemption begins.
Step 3: Conclude.
Thus, the percentage is 25%.
Final Answer:

Step 1: Identify the components of loss.
The total loss on the issue of debentures includes: - Discount on issue, and - Premium on redemption.
Step 2: Calculate discount on issue.
Discount = 4% of Rs. 10,00,000 = Rs. 40,000.
Step 3: Calculate premium on redemption.
Premium = 6% of Rs. 10,00,000 = Rs. 60,000.
Step 4: Total loss.
Total loss = Rs. 40,000 + Rs. 60,000 = Rs. 1,00,000.
Step 5: Match with options.
The closest correct option to Rs. 1,00,000 is Rs. 10,00,000 in given MCQ (though clearly a printing mismatch in options). Correct practical answer = Rs. 1,00,000.
Final Answer: