Redemption of Debentures at a Premium

The provision for the premium payable on redemption of debentures may be made in either of the following two ways :

  1. The total amount of premium payable on redemption may be debited to an account denominated as “Loss on Issue of Debentures” and credited to “Premium payable on Redemption of Debentures Account or subsequently, the debit balance in the first mentioned account should be carried forward till it is written off, while the latter account would be closed on payment of the premium, on redemption of debentures.
  2.  The fact that the debentures will have to be redeemed at a premium maybe disclosed by way of a note in the Balance Sheet along with the date of redemption and, as and when redemption is made, the amount paid as a premium should be debited to the Premium on Redemption of Debentures Accounts.

It may be noted that the second method is only a slight variation of the first in so far that, in the latter case, the premium paid on debentures is written off subsequent to the redemption.

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