Redemption of Debentures

Meaning: Repayment of the amount borrowed by a company is called redemption of debentures. The amount required for the redemption can come from the following ways:
- Out of the profits.
- Through a sinking fund set up for the purpose of such redemption.
- Out of the proceeds of new shares/debentures issue.

Redemption may be at par, at a discount, or at a premium. For example:
(1) A denture loan of $250,000 is redeemed at par. The double entries are:
Dr Debenture Loan Account $250,000
Cr Bank Account $250,000

(2) A debenture loan of $200,000 is redeemed at 98 (ie, $98 out of $100). The double entries are:
Dr Debenture Loan Account $200,000
Cr Discount on Redemption of Debentures $4,000
Cr Bank Account $196,000

(3) A debenture loan of $100,000 is redeemed at 103 (ie, $103 out of $100). The double entries are:
Dr Debenture Loan Account $100,000
Dr Premium on Redemption of Debentures $3,000
Cr Bank Account $103,000
(The Premium on Redemption of Debentures is written off to the profit and loss account or to the share premium account)

* Featured Articles:

Features of Debentures

How to Calculate Debenture Interest
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Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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