How to Calculate Debenture Interest

Debenture is a liability instrument with a fixed rate of interest, and the holders of debenture are considered as creditors of the limited company. Interest on debentures is calculated at a fixed rate of interest on the face value (not on the issue price), and is charged to Profit and Loss Account. Note that such interest must be paid to the debenture holders even if the company is not making a profit or incurring losses.

Learn how to calculate interest on debentures with the following examples:

(1) A company issued 8% Debentures of the face value of $100,000 in Year 2 (repayable in Year 12). Then, the debenture interest due for the year = 8% * $100,000 = $8,000.

(2) CK Company issued 10% Debentures of the face value of $200,000 at a discount of 6% on 1 January 2010. A half-year's debenture interest is unpaid during the year. Calculate the debenture interest that must be transfered to profit and loss account for the year ended 31 December 2010.
Solution:
Total interest on debentures = 10% * $200,000 = $20,000 (Note that this full amount must be charged to the profit and loss account, whether paid or not).

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