Terms of issue and redemption

Debentures may be issued at par, a discount or a premium, and redeemed (repaid) at par or a premium. That gives six terms:

• issued at par, redeemed at par;
• issued at a discount, redeemed at par;
• issued at a premium, redeemed at par;
• issued at par, redeemed at a premium;
• issued at a discount, redeemed at a premium;
• issued at a premium, redeemed at a premium.

The rule: when the company promises to pay more later (a premium on redemption), that promise is a loss now. It is debited to Loss on Issue of Debentures, together with any discount, and Premium on Redemption of Debentures is credited.

Premium on Redemption is a liability until it is paid, shown under long-term borrowings with the debentures.

A premium on issue still goes to Securities Premium, as usual.

Example: 2,00,000 of debentures are issued at par and redeemable at a 10% premium. Loss on Issue Dr. 20,000; Premium on Redemption credited 20,000. If they had also been issued at a 5% discount, the loss would be 10,000 + 20,000 = 30,000.