Debentures Issued at Par, Premium, and Discount

Debentures look difficult in Class 12 Accountancy because one small word can change the journal entry.

If the question says debentures are issued at par, the entry is straightforward. If it says issued at premium, one extra credit appears. If it says issued at discount, one extra debit appears. The logic is simple, but only if you keep the face value and issue price separate in your mind.

Think of a debenture as a written promise by the company to repay money in the future. The person who buys the debenture is not becoming an owner of the company. That person is lending money to the company and will usually receive interest.

Once this idea is clear, the entries stop feeling random.

First Understand the Three Prices

Before writing any entry, identify two things:

• the face value of the debenture
• the issue price received by the company

The face value is the amount printed on the debenture. It is also the amount normally credited to Debentures Account at the time of issue.

The issue price is the amount the company asks investors to pay.

Situation	Meaning	Simple example
Issued at par	Issue price is equal to face value	Rs. 100 debenture issued for Rs. 100
Issued at premium	Issue price is more than face value	Rs. 100 debenture issued for Rs. 110
Issued at discount	Issue price is less than face value	Rs. 100 debenture issued for Rs. 95

This comparison is the heart of the topic.

Why the Debentures Account Uses Face Value

Suppose a company issues a Rs. 100 debenture for Rs. 95. The company receives only Rs. 95 today, but the debenture is still a Rs. 100 debenture. The company has accepted a liability of Rs. 100.

That is why Debentures Account is credited with Rs. 100, not Rs. 95.

Now suppose a Rs. 100 debenture is issued for Rs. 110. The company receives Rs. 110, but the debenture liability is still Rs. 100. The extra Rs. 10 is not part of the debenture liability. It is credited separately to Securities Premium Reserve.

This is the reason entries have two sides of thinking:

Side	What it shows
Bank or application money	How much cash is received
Debentures Account	The face value of the liability created
Securities Premium Reserve	Extra amount received above face value
Discount on Issue of Debentures	Shortfall when issue price is below face value

Debentures Issued at Par

When debentures are issued at par, the company receives exactly the face value.

For example, 1,000 debentures of Rs. 100 each are issued at par.

Particulars	Amount
Face value per debenture	Rs. 100
Issue price per debenture	Rs. 100
Number of debentures	1,000
Total money received	Rs. 1,00,000
Debenture liability created	Rs. 1,00,000

Because the money received and the liability created are the same, there is no premium and no discount.

Entry When Money Is Received Directly

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 1,00,000
To 10% Debentures A/c		Rs. 1,00,000

The company receives bank money, so Bank Account is debited. The company creates a debenture liability, so Debentures Account is credited.

Entry Through Application and Allotment

Sometimes the question uses Debenture Application and Allotment Account. Then the entry is usually written in two steps.

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 1,00,000
To Debenture Application and Allotment A/c		Rs. 1,00,000

Particulars	Debit	Credit
Debenture Application and Allotment A/c Dr.	Rs. 1,00,000
To 10% Debentures A/c		Rs. 1,00,000

Debentures Issued at Premium

When debentures are issued at premium, the company receives more than the face value.

For example, 1,000 debentures of Rs. 100 each are issued at a premium of Rs. 10 per debenture. This means each debenture is issued for Rs. 110.

Particulars	Amount
Face value per debenture	Rs. 100
Premium per debenture	Rs. 10
Issue price per debenture	Rs. 110
Number of debentures	1,000
Total money received	Rs. 1,10,000
Debenture liability created	Rs. 1,00,000
Securities premium	Rs. 10,000

The extra Rs. 10,000 is credited to Securities Premium Reserve.

Entry When Money Is Received Directly

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 1,10,000
To 10% Debentures A/c		Rs. 1,00,000
To Securities Premium Reserve A/c		Rs. 10,000

Notice the three amounts carefully:

• Bank is debited with the full money received.
• Debentures Account is credited with face value.
• Securities Premium Reserve is credited with the extra amount.

Entry Through Application and Allotment

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 1,10,000
To Debenture Application and Allotment A/c		Rs. 1,10,000

Particulars	Debit	Credit
Debenture Application and Allotment A/c Dr.	Rs. 1,10,000
To 10% Debentures A/c		Rs. 1,00,000
To Securities Premium Reserve A/c		Rs. 10,000

This is often where students make a mistake. They debit the application and allotment account only with face value. That is wrong if the account has received the total amount including premium.

Debentures Issued at Discount

When debentures are issued at discount, the company receives less than the face value.

For example, 1,000 debentures of Rs. 100 each are issued at a discount of Rs. 5 per debenture. This means each debenture is issued for Rs. 95.

Particulars	Amount
Face value per debenture	Rs. 100
Discount per debenture	Rs. 5
Issue price per debenture	Rs. 95
Number of debentures	1,000
Total money received	Rs. 95,000
Debenture liability created	Rs. 1,00,000
Discount on issue	Rs. 5,000

The company receives Rs. 95,000 but creates a liability of Rs. 1,00,000. The shortfall of Rs. 5,000 is debited to Discount on Issue of Debentures Account.

Entry When Money Is Received Directly

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 95,000
Discount on Issue of Debentures A/c Dr.	Rs. 5,000
To 10% Debentures A/c		Rs. 1,00,000

The debit side must equal the credit side. Bank shows cash received. Discount on Issue of Debentures shows the loss or cost of issuing below face value. Debentures Account shows the liability at face value.

Entry Through Application and Allotment

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 95,000
To Debenture Application and Allotment A/c		Rs. 95,000

Particulars	Debit	Credit
Debenture Application and Allotment A/c Dr.	Rs. 95,000
Discount on Issue of Debentures A/c Dr.	Rs. 5,000
To 10% Debentures A/c		Rs. 1,00,000

The One Table That Makes the Topic Easy

Use this comparison whenever you feel confused.

Issue condition	Bank amount	Debentures Account	Extra account
At par	Issue price	Face value	No extra account
At premium	Face value plus premium	Face value	Securities Premium Reserve credited
At discount	Face value minus discount	Face value	Discount on Issue of Debentures debited

If you remember only one idea, remember this:

This sentence can save you from most errors in this chapter.

How to Read a Debenture Issue Question

Do not start writing entries immediately. Read the question in layers.

First, find the number of debentures. Then find the face value. Then find whether the debentures are issued at par, premium, or discount. After that, decide whether the amount is received in one step or through application, allotment, and calls.

Use this small checklist:

Step	What to ask
1	How many debentures are issued?
2	What is the face value of each debenture?
3	What is the issue price or percentage?
4	Is there premium or discount?
5	Is the question asking for direct entry or staged entries?
6	Is any amount unpaid, overpaid, or adjusted?

For a basic question, the first five checks are enough. For longer questions, the sixth check becomes important.

What If Premium or Discount Is Given as a Percentage?

Sometimes the question says:

• issued at 10% premium
• issued at 5% discount

The percentage is usually calculated on face value.

If the face value is Rs. 100 and the debentures are issued at 10% premium, premium is Rs. 10 and issue price is Rs. 110.

If the face value is Rs. 100 and the debentures are issued at 5% discount, discount is Rs. 5 and issue price is Rs. 95.

For 2,000 debentures of Rs. 100 each:

Situation	Calculation	Total
10% premium	2,000 x Rs. 10	Rs. 20,000 premium
5% discount	2,000 x Rs. 5	Rs. 10,000 discount

The base is face value, not the amount actually received.

A Mixed Practice Example

Let us compare all three cases with the same face value.

A company issues 500, 12% debentures of Rs. 100 each.

Case	Issue condition	Money received	Debenture liability	Extra amount
Case 1	At par	Rs. 50,000	Rs. 50,000	Nil
Case 2	At 10% premium	Rs. 55,000	Rs. 50,000	Rs. 5,000 premium
Case 3	At 5% discount	Rs. 47,500	Rs. 50,000	Rs. 2,500 discount

Now the direct journal entries become clear.

Case 1: At Par

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 50,000
To 12% Debentures A/c		Rs. 50,000

Case 2: At Premium

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 55,000
To 12% Debentures A/c		Rs. 50,000
To Securities Premium Reserve A/c		Rs. 5,000

Case 3: At Discount

Particulars	Debit	Credit
Bank A/c Dr.	Rs. 47,500
Discount on Issue of Debentures A/c Dr.	Rs. 2,500
To 12% Debentures A/c		Rs. 50,000

Common Mistakes Students Make

Debenture issue entries are not hard, but they are easy to spoil with small careless errors.

The most common mistakes are:

• crediting Debentures Account with the issue price instead of face value
• forgetting Securities Premium Reserve when debentures are issued above face value
• crediting premium to an income account
• forgetting to debit Discount on Issue of Debentures when issue price is lower than face value
• calculating premium or discount on the wrong base
• calculating debenture interest on issue price instead of face value
• mixing up issue of debentures with redemption of debentures

If a question only says issued at premium, you are dealing with extra money received at the time of issue. If a question says redeemable at premium, you are dealing with an extra amount payable at the time of repayment. Those are different treatments.

How to Present the Answer Neatly

In exams and school tests, presentation matters because the entry must be readable.

Use this approach:

1. Write the working note first.
2. Mention number of debentures, face value, issue price, and premium or discount.
3. Write the journal entry with proper Dr. and To format.
4. Keep the account names exact.
5. Check that debit total equals credit total.

For longer answers, do not squeeze everything into one rough-looking entry. A clean table or proper journal format makes the logic much easier to follow.

How to Practise This Topic

The best way to practise debentures issued at par, premium, and discount is to solve the same question in three versions.

Take one base question:

“A company issued 1,000, 10% debentures of Rs. 100 each.”

Now change only the issue condition:

• issued at par
• issued at 10% premium
• issued at 5% discount

When you do this, your mind starts seeing the pattern. The number of debentures and face value stay the same. Only Bank, Securities Premium Reserve, or Discount on Issue of Debentures changes.

After that, move to questions where money is received through application and allotment. Then try questions with calls. Build the difficulty slowly.

Final Thought

Debentures issued at par, premium, and discount are really about one comparison: what the company promises to repay and what the company receives at issue.

If both are equal, the debentures are issued at par. If the company receives more than face value, the extra amount is premium. If the company receives less than face value, the shortfall is discount.

Keep face value and issue price separate. Let Bank Account follow the money received. Let Debentures Account follow the liability. Let premium or discount explain the gap.

Once that becomes natural, debenture issue entries become much cleaner.

Frequently Asked Questions

What does it mean when debentures are issued at par?

Debentures are issued at par when the issue price is equal to the face value. For example, a Rs. 100 debenture issued for Rs. 100 is issued at par.

What is the journal entry for debentures issued at premium?

When debentures are issued at premium, Bank Account is debited with the full amount received. Debentures Account is credited with face value, and Securities Premium Reserve Account is credited with the premium amount.

What is the journal entry for debentures issued at discount?

When debentures are issued at discount, Bank Account is debited with the amount received, Discount on Issue of Debentures Account is debited with the discount, and Debentures Account is credited with the face value.

Is debenture interest calculated on face value or issue price?

Debenture interest is usually calculated on face value. For example, interest on 10% debentures of Rs. 100 each is calculated on Rs. 100 per debenture, even if the debenture was issued at premium or discount.

Is securities premium an income?

No. Securities Premium Reserve is not treated like normal income from business operations. It is a reserve created when securities are issued above face value.

Why is Discount on Issue of Debentures debited?

It is debited because the company receives less than the face value but still creates a liability for the full face value. The shortfall is recorded separately as Discount on Issue of Debentures.

What is the biggest mistake in debenture issue entries?

The biggest mistake is recording Debentures Account at issue price. Debentures Account should normally be credited with face value. The issue price affects Bank Account, and the difference is recorded as premium or discount.