Frequent question: How is discount on issue of debentures an asset?

The loss or discount on the issue of debentures is typically a capital loss or a fictitious asset and, hence, has to be written-off during the debentures’ lifetime. … The loss or discount, hence, considered as a capital loss.

Why discount on issue of debenture is an asset?

Discount on issue of debentures is a loss of capital nature. It will appear on the asset side of balance sheet till it is written off. It is desirable that it is written off as quickly as possible. Discount on issue of debentures, being a loss of capital nature, it can be written off in two ways.

Is debenture discount a current asset?

At the end of Year 5, the amount of discount on issue of debentures will be completely written off.

Note No. Particulars Amount (Rs)
Discount of Issue of Debentures 18,000
2 Other Current Assets
Discount of Issue of Debentures 6,000

Which type of asset is discount on issue of debenture?

Discount on issue of debentures is treated as a capital loss. As per the revised schedule VI of the Companies Act, it should be shown on the Asset side of balance sheet under “Miscellaneous Expenditures” heading until it is written off.

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How is discount on issue of debentures treated?

The discount on issue of debentures can be written-off either by debiting it to profit and loss or to securities premium account. The Companies Act, 1956 does not impose any restrictions upon the issue of debentures at a discount.

What is discount on debenture?

When debentures are issued by the company at a price less than its nominal value (face value) it is said to be issued at discount. … For example, if a debenture of Rs. 2,000 is offered to the public at Rs. 1,950, it is issued at a discount.

Under Which expense head is loss discount on issue of debentures shown in Statement of Profit and Loss?

Loss on issue of Debentures(only written off value) is to be shown on the head of expense & the sub head of Finance cost on statement of profit & loss (As per Part II , Schedule III of Companies Act 2013).

When debentures are issued at a discount the discount must be written off?

The amount of loss or discount on issue of debentures has to be not be written-off during the year of its issue since the benefit of the debentures would accumulate to the enterprise till their restitution or redemption. The loss or discount, hence, considered as a capital loss.

How do you calculate discount on debentures?

Amount of discount to be written off from Statement of Profit and Loss every year: Nominal Value of Debentures = 3,000 × ` 100 each = ` 3,00,000 5% Discount on Issue of Debentures i.e., ` 15,000. = ` 3,000. Note: Debentures are to be redeemed on maturity, i.e., at the end of 5 years.

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