CBSE Class 12 Accountancy: Issue and Redemption of Debentures NCERT Solutions

Reviewed by · Updated on

NCERT Solutions PDF Class 12 PDF

This chapter focuses on the accounting treatment for the issue and redemption of debentures, a crucial aspect of corporate finance for Class 12 Accountancy students. The NCERT Solutions provide detailed explanations and journal entries for various scenarios, including issuing debentures at par, premium, and discount, and their subsequent redemption at par or premium. Key concepts covered involve understanding the difference between face value and issue price, calculating premium and discount amounts, and recording these transactions accurately in the books of accounts. These solutions are designed to help students grasp the practical application of accounting principles related to long-term debt financing, ensuring they can confidently tackle exam questions on this topic. By working through these examples, students will build a strong foundation for their board exam preparation.

Home

Quick info

BoardCBSE
ClassClass 12
SubjectAccountancy
Session2026
LanguageEnglish
TypeNCERT Solutions
ChapterPart 2 - 2. Issue and Redemption of Debentures

Chapter summary

This chapter's NCERT Solutions for Class 12 Accountancy cover the essential accounting procedures for issuing and redeeming debentures. It includes practical examples and journal entries for scenarios involving debentures issued at par, at a premium, and at a discount. The solutions also address the redemption of debentures at par and at a premium, providing a clear understanding of how to record these transactions. This section is vital for students to master the accounting treatment of long-term liabilities.

Learning outcomes

  • Understand the accounting treatment for issuing debentures at par, premium, and discount.
  • Record journal entries for the purchase of assets and payment through debentures.
  • Apply the concept of premium and discount in debenture issuance.
  • Record journal entries for the redemption of debentures at par and premium.
  • Differentiate between issue price and redemption price of debentures.
  • Calculate the number of debentures issued based on purchase consideration and issue price.

Topics covered

Paper topics

  • Issue of Debentures
  • Redemption of Debentures
  • Debentures Issued at Par
  • Debentures Issued at Premium
  • Debentures Issued at Discount
  • Redemption of Debentures at Par
  • Redemption of Debentures at Premium
  • Purchase of Assets for Debentures
  • Journal Entries for Debentures
  • Accounting Treatment of Discount on Issue of Debentures
  • Accounting Treatment of Premium on Redemption of Debentures
  • Calculation of Number of Debentures Issued

Important topics

  • Journal entries for issuing debentures at par, premium, and discount
  • Accounting for business purchase settled by debentures
  • Recording redemption of debentures at par and premium
  • Calculating the number of debentures issued
  • Distinguishing between discount on issue and premium on redemption

PDF preview

Read page by page below. PDF is streamed from the official NCERT website — no download button on this page.

Loading document …
Page of
Loading page …

Questions and Solutions

Question 1

Amrit Company Limited purchased assets of the book value of Rs. 2,20,000 from another company and agreed to make the payment of the purchase consideration by issuing 2,000, 10% debentures of Rs. 100 each at a premium of 10%. Record the necessary journal entries in the books of Amrit Company Limited.
Solution:

The transaction involves the purchase of assets and the issuance of debentures at a premium. Here are the necessary journal entries:

  1. To record the purchase of assets:

    Particulars | Amount (Dr) | Amount (Cr)

    Assets A/c | 2,20,000 |

    To Vendor A/c | | 2,20,000

    (Being assets purchased worth Rs. 2,20,000)

  2. To record the issuance of debentures at a premium:

    First, calculate the issue price per debenture: Rs. 100 (face value) + 10% premium (Rs. 10) = Rs. 110.

    Total amount of premium = 2,000 debentures * Rs. 10 (premium per debenture) = Rs. 20,000.

    Total value of debentures issued = 2,000 debentures * Rs. 100 (face value) = Rs. 2,00,000.

    Particulars | Amount (Dr) | Amount (Cr)

    Vendor A/c | 2,20,000 |

    To 10% Debentures A/c | | 2,00,000

    To Securities Premium A/c | | 20,000

    (Being 2,000 debentures of Rs. 100 each issued at 10% premium to the vendor)

Question 2

A company purchased assets of the value of Rs. 1,90,000 from another company and agreed to make the payment of the purchase consideration by issuing 2,000, 10% debentures of Rs. 100 each at a discount of 5%. Record the necessary journal entries in the books of the company.
Solution:

This transaction involves purchasing assets and issuing debentures at a discount. The journal entries are as follows:

  1. To record the purchase of assets:

    Particulars | Amount (Dr) | Amount (Cr)

    Assets A/c | 1,90,000 |

    To Vendor A/c | | 1,90,000

    (Being assets purchased worth Rs. 1,90,000)

  2. To record the issuance of debentures at a discount:

    Calculate the issue price per debenture: Rs. 100 (face value) - 5% discount (Rs. 5) = Rs. 95.

    Total discount allowed = 2,000 debentures * Rs. 5 (discount per debenture) = Rs. 10,000.

    Total value of debentures issued = 2,000 debentures * Rs. 100 (face value) = Rs. 2,00,000.

    Particulars | Amount (Dr) | Amount (Cr)

    Vendor A/c | 1,90,000 |

    Discount on Issue of Debentures A/c | 10,000 |

    To 10% Debentures A/c | | 2,00,000

    (Being 2,000 debentures of Rs. 100 each issued at a 5% discount to the vendor)

Question 3

Rose Bond Limited purchased a business for Rs. 22,00,000. The purchase price was paid by issuing 6% debentures. Debentures of Rs. 20,00,000 (face value) were issued at a premium of 10% for the purpose. Record the necessary journal entries.
Solution:

This entry records the purchase of a business and the subsequent issuance of debentures at a premium to settle the purchase consideration. The journal entries are:

  1. To record the purchase of the business (assuming it's a net asset purchase for simplicity, or specific assets and liabilities are taken over):

    Particulars | Amount (Dr) | Amount (Cr)

    Sundry Assets A/c | 22,00,000 |

    To Vendor A/c | | 22,00,000

    (Being business purchased for Rs. 22,00,000)

  2. To record the issuance of 6% debentures at a premium:

    The face value of debentures issued is Rs. 20,00,000. The premium is 10% of Rs. 20,00,000, which is Rs. 2,00,000.

    The total amount paid to the vendor through debentures is Rs. 20,00,000 (face value) + Rs. 2,00,000 (premium) = Rs. 22,00,000.

    Particulars | Amount (Dr) | Amount (Cr)

    Vendor A/c | 22,00,000 |

    To 6% Debentures A/c | | 20,00,000

    To Securities Premium A/c | | 2,00,000

    (Being 20,000 debentures of Rs. 100 each issued at 10% premium to settle purchase consideration)

Question 4

Nikhil and Ashwin Limited bought the business of Agarwal Limited consisting of sundry assets of Rs. 3,60,000 and sundry creditors of Rs. 1,00,000 for a consideration of Rs. 3,07,200. The company issued 14% debentures of Rs. 100 each, fully paid, at a discount of 4% in satisfaction of the purchase consideration. Record the necessary journal entries.
Solution:

This problem involves purchasing a business where assets and liabilities are taken over, and the purchase consideration is settled by issuing debentures at a discount. We need to pass entries for the business purchase and the debenture issue.

  1. To record the purchase of the business from Agarwal Limited:

    First, determine the net assets acquired: Sundry Assets (Rs. 3,60,000) - Sundry Creditors (Rs. 1,00,000) = Rs. 2,60,000. The purchase consideration is Rs. 3,07,200. Since the purchase consideration is higher than the net assets, the difference represents Goodwill.

    Particulars | Amount (Dr) | Amount (Cr)

    Sundry Assets A/c | 3,60,000 |

    Goodwill A/c | 47,200 |

    To Sundry Creditors A/c | | 1,00,000

    To Agarwal Ltd (Vendor) A/c | | 3,07,200

    (Being business purchased from Agarwal Ltd)

  2. To record the issuance of 14% debentures at a discount:

    The purchase consideration is Rs. 3,07,200. The debentures are issued at a 4% discount. The issue price per debenture is Rs. 100 (face value) - 4% discount (Rs. 4) = Rs. 96.

    Number of debentures issued = Purchase Consideration / Issue Price per debenture

    Number of Debentures = \frac{3,07,200}{96} = 3,200

    Total discount on issue = 3,200 debentures * Rs. 4 (discount per debenture) = Rs. 12,800.

    Total face value of debentures issued = 3,200 debentures * Rs. 100 = Rs. 3,20,000.

    Particulars | Amount (Dr) | Amount (Cr)

    Agarwal Ltd (Vendor) A/c | 3,07,200 |

    Discount on Issue of Debentures A/c | 12,800 |

    To 14% Debentures A/c | | 3,20,000

    (Being 3,200 debentures of Rs. 100 each issued at a 4% discount)

    Working Note:

    The calculation for the number of debentures issued is shown above. The discount on issue of debentures is a loss to the company and is debited to the 'Discount on Issue of Debentures A/c'.

Question 1 (Part 1 of DO IT YOURSELF II)

Record the necessary journal entries for the issue and redemption of 27,000, 7% debentures of Rs. 100 each issued at par and redeemable at par.
Solution:

This case involves issuing debentures at their face value and redeeming them at the same value.

1. Journal Entry for Issue of Debentures:

Face value of debentures = 27,000 * Rs. 100 = Rs. 27,00,000.

Since issued at par, amount received = Rs. 27,00,000.

Particulars | Amount (Dr) | Amount (Cr)

Bank A/c | 27,00,000 |

To 7% Debentures A/c | | 27,00,000

(Being 27,000 debentures of Rs. 100 each issued at par)

2. Journal Entry for Redemption of Debentures:

Since redeemable at par, the amount to be paid = Rs. 27,00,000.

Particulars | Amount (Dr) | Amount (Cr)

7% Debentures A/c | 27,00,000 |

To Bank A/c | | 27,00,000

(Being 27,000 debentures of Rs. 100 each redeemed at par)

Question 1 (Part 2 of DO IT YOURSELF II)

Record the necessary journal entries for the issue and redemption of 25,000, 7% debentures of Rs. 100 each issued at par and redeemable at 4% premium.
Solution:

In this scenario, debentures are issued at face value but redeemed at a higher price (premium).

1. Journal Entry for Issue of Debentures:

Face value of debentures = 25,000 * Rs. 100 = Rs. 25,00,000.

Issued at par, so amount received = Rs. 25,00,000.

Particulars | Amount (Dr) | Amount (Cr)

Bank A/c | 25,00,000 |

To 7% Debentures A/c | | 25,00,000

(Being 25,000 debentures of Rs. 100 each issued at par)

2. Journal Entry for Redemption of Debentures:

Redemption is at a 4% premium. Premium amount = 4% of Rs. 25,00,000 = Rs. 1,00,000.

Total amount payable on redemption = Rs. 25,00,000 (face value) + Rs. 1,00,000 (premium) = Rs. 26,00,000.

The premium on redemption is a loss on issue, so it's debited at the time of redemption (or issue, depending on accounting policy, but typically debited at redemption if not recognized at issue).

Particulars | Amount (Dr) | Amount (Cr)

7% Debentures A/c | 25,00,000 |

Premium on Redemption of Debentures A/c | 1,00,000 |

To Bank A/c | | 26,00,000

(Being 25,000 debentures of Rs. 100 each redeemed at 4% premium)

Question 1 (Part 3 of DO IT YOURSELF II)

Record the necessary journal entries for the issue and redemption of 20,000, 7% debentures of Rs. 100 each issued at a 5% discount and redeemable at par.
Solution:

This case involves issuing debentures at a discount and redeeming them at their face value.

1. Journal Entry for Issue of Debentures:

Face value of debentures = 20,000 * Rs. 100 = Rs. 20,00,000.

Discount on issue = 5% of Rs. 20,00,000 = Rs. 1,00,000.

Amount received = Rs. 20,00,000 - Rs. 1,00,000 = Rs. 19,00,000.

Particulars | Amount (Dr) | Amount (Cr)

Bank A/c | 19,00,000 |

Discount on Issue of Debentures A/c | 1,00,000 |

To 7% Debentures A/c | | 20,00,000

(Being 20,000 debentures of Rs. 100 each issued at 5% discount)

2. Journal Entry for Redemption of Debentures:

Redemption is at par, so the amount to be paid = Rs. 20,00,000.

Particulars | Amount (Dr) | Amount (Cr)

7% Debentures A/c | 20,00,000 |

To Bank A/c | | 20,00,000

(Being 20,000 debentures of Rs. 100 each redeemed at par)

Question 1 (Part 4 of DO IT YOURSELF II)

Record the necessary journal entries for the issue and redemption of 30,000, 7% debentures of Rs. 100 each issued at a 5% discount and redeemable at a 2½ % premium.
Solution:

This scenario involves issuing debentures at a discount and redeeming them at a premium.

1. Journal Entry for Issue of Debentures:

Face value of debentures = 30,000 * Rs. 100 = Rs. 30,00,000.

Discount on issue = 5% of Rs. 30,00,000 = Rs. 1,50,000.

Amount received = Rs. 30,00,000 - Rs. 1,50,000 = Rs. 28,50,000.

Particulars | Amount (Dr) | Amount (Cr)

Bank A/c | 28,50,000 |

Discount on Issue of Debentures A/c | 1,50,000 |

To 7% Debentures A/c | | 30,00,000

(Being 30,000 debentures of Rs. 100 each issued at 5% discount)

2. Journal Entry for Redemption of Debentures:

Redemption is at a 2½ % premium. Premium amount = 2.5% of Rs. 30,00,000 = Rs. 75,000.

Total amount payable on redemption = Rs. 30,00,000 (face value) + Rs. 75,000 (premium) = Rs. 30,75,000.

The premium on redemption is debited here.

Particulars | Amount (Dr) | Amount (Cr)

7% Debentures A/c | 30,00,000 |

Premium on Redemption of Debentures A/c | 75,000 |

To Bank A/c | | 30,75,000

(Being 30,000 debentures of Rs. 100 each redeemed at 2.5% premium)

Question 1 (Part 5 of DO IT YOURSELF II)

Record the necessary journal entries for the issue and redemption of 35,000, 7% debentures of Rs. 100 each issued at a 4% premium and redeemable. (Note: The redemption terms are not specified, so we assume redemption at par for illustration, as is common when not stated).
Solution:

This case involves issuing debentures at a premium. Since the redemption terms are not specified, we will assume redemption at par for the purpose of recording the redemption entry. If redemption were at a premium, an additional 'Premium on Redemption of Debentures A/c' would be involved.

1. Journal Entry for Issue of Debentures:

Face value of debentures = 35,000 * Rs. 100 = Rs. 35,00,000.

Premium on issue = 4% of Rs. 35,00,000 = Rs. 1,40,000.

Amount received = Rs. 35,00,000 + Rs. 1,40,000 = Rs. 36,40,000.

Particulars | Amount (Dr) | Amount (Cr)

Bank A/c | 36,40,000 |

To 7% Debentures A/c | | 35,00,000

To Securities Premium A/c | | 1,40,000

(Being 35,000 debentures of Rs. 100 each issued at 4% premium)

2. Journal Entry for Redemption of Debentures (Assuming Redemption at Par):

Amount to be paid on redemption = Rs. 35,00,000.

Particulars | Amount (Dr) | Amount (Cr)

7% Debentures A/c | 35,00,000 |

To Bank A/c | | 35,00,000

(Being 35,000 debentures of Rs. 100 each redeemed at par)

Common mistakes

  • Incorrectly calculating the amount of premium or discount on debenture issue.
  • Failing to record the 'Loss on Issue of Debentures' or 'Discount on Issue of Debentures' account when debentures are issued at a discount.
  • Confusing the face value of debentures with their issue price or redemption price.
  • Errors in calculating the number of debentures to be issued when the purchase consideration is paid through debentures at a discount or premium.
  • Not distinguishing between the entry for issuing debentures and the entry for redeeming them.

Revision tips

  • Focus on understanding the journal entries for each type of issue (par, premium, discount).
  • Practice calculating the number of debentures issued, especially when purchase consideration is involved.
  • Pay close attention to the distinction between 'Discount on Issue of Debentures' and 'Premium on Redemption of Debentures'.
  • Work through all the 'Do It Yourself' examples to solidify your understanding of different scenarios.
  • Review the working notes provided, as they clarify the calculations for issuing debentures.

Practice MCQs

Q1. When debentures are issued at a discount and redeemable at par, which account is debited in the journal entry for issuance?

Q2. If a company issues 2,000 debentures of Rs. 100 each at a premium of 10%, what is the total amount received from the issue?

Q3. In the case of business purchase, if the purchase consideration is paid by issuing debentures at a discount, the discount is debited to:

Q4. When debentures are redeemed at a premium, the 'Premium on Redemption of Debentures A/c' is:

Q5. If Rs. 3,07,200 is the purchase consideration paid by issuing debentures at a 4% discount, and each debenture has a face value of Rs. 100, how many debentures were issued?

Frequently asked questions

What is the main focus of the NCERT Solutions for Class 12 Accountancy, Chapter 2?

The main focus is on the accounting treatment for the issue and redemption of debentures, covering various scenarios like issuing at par, premium, and discount, and redeeming at par or premium.

How are journal entries recorded when debentures are issued at a discount?

When debentures are issued at a discount, the 'Bank A/c' is debited with the amount received, 'Discount on Issue of Debentures A/c' (or 'Loss on Issue A/c') is debited with the discount amount, and the 'X% Debentures A/c' is credited with the face value.

What is the accounting treatment for redeeming debentures at a premium?

When debentures are redeemed at a premium, the 'X% Debentures A/c' is debited with the face value, 'Premium on Redemption of Debentures A/c' is debited with the premium amount, and the 'Bank A/c' is credited with the total redemption amount.

How do these solutions help in exam preparation?

These solutions provide clear, step-by-step journal entries and explanations for complex scenarios, helping students understand the concepts thoroughly and practice for their board exams.

What is the significance of the 'Working Note' in these solutions?

The 'Working Note' is crucial for understanding how to calculate the number of debentures to be issued when the purchase consideration is paid partly or fully through debentures, especially when issued at a discount or premium.

Are there any entries related to the purchase of assets using debentures?

Yes, the solutions include journal entries for purchasing assets and paying the purchase consideration by issuing debentures, which may involve premium or discount.

Important links

Content reviewed by the NCERT Help team. Editorial Team and update policy

NCERT Solutions PDF PDF on NCERT Help. URL unchanged for search indexing.