Question

Difference between premium on issue of debentures and premium on redemption of debentures.

Answer 1

PREMIUM ON ISSUE OF DEBENTURES:
                                                                  The debentures are said to be used at a premium when the price is more than the normal value of a debenture.
                                                                  It is paid by the debenture holder at the time of debenture.
                                                                  It is the gain to the company as it results in cash inflow.
                                                                  The journal entry for an issue of a debenture at a premium and payment of the same on the application is referred Exhibit:1.

EXHIBIT:1
               a] Bank A/C
                               To debenture application A/C
                              [Debenture application money received]
Dr.
No. of debentures × Issue price [Face value + Premium]

                b]Debenture Application A/C
                                To debenture A/C
                                To securities premium A/C
       [Debentures issued at premium and redeemable at par]
Dr.
No. of debentures ×Issue price[Face value + Premium]
No. of debentures ×Face value
No. of debentures ×Premium


PREMIUM ON REDEMPTION OF DEBENTURES:
                                                                               The premium on redemption os debenture implies that the company is paying more than it got at the issue of the debenture to the debenture holder at the time of redemption.
                                                                               It is paid by the company to the debenture holder at the time of redemption of the debenture.
                                                                               It is a loss to the company as it results in cash outflow.
                                                                               The following Journal entry is passed at the time of issue of debentures in case of redemption of debenture on Premium Refer Exhibit: 2.

EXHIBIT:2
                a]Bank A/C
                       To debenture application A/C
              [Debenture application money received]
Dr.
No. of debenture × Face value
No. of debenture × Premium
               b]Debenture Application A/C
                  Loss on Issue of Debentures A/C
                             To debenture A/C
                             To Premium on Redemption A/C
                [Debentures issued at discount and reddemable at premium]
Dr.
No. of debentures × Face value
No. of debentures × Redemption Premium
No. of debentures × Face value
No. of debentures × Redemption Premium




I HOPE IT HELPS U.




             

Answer 2

Answer:

Explanation:

Premium on issue of debentures is predicted on the asset side of the balance sheet.

When the issue price is more than the nominal face value of the debentures. Then it is send to be issued at premium

Premium on redemption of debentures is predicted on the liabilities side on the balance sheet. It is define as the organization is paying more than whatever it got at the issue of the debenture to the debenture holder at the hour of recovery