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Treatment of Discount on Issue of Debentures

Discount on issue of debentures is a capital loss to be written off over a period of time depending upon the terms of issue, before the redemption of such debentures.

Such discount shall be written off against securities premium or profit and loss account by passing the following journal entry:

The unwritten off portion of discount on issue of debentures is shown on the assets side of the balance sheet under the head miscellaneous expenditure.


If debentures which are redeemable after a fixed period of time are issued, then the discount amount, if any, should be written off over that period.

If the debentures are irredeemable, then the loss should be amortized over a period of time. Such a time period must be decided by the company on a prudent basis.

If the debentures are redeemable at different dates, the loss must be amortized based on the outstanding amount.

Companies can write off any higher amount of discount out of the balance available in securities premium or accumulated profits.


Note: Like the discount on the issue of debentures, loss on issue of debentures also represents a capital loss and is treated in the accounts in the same manner as the discount on issue of debentures.


Illustration 1


A Ltd. Issues 7 per cent debentures of ₹ 10 lakhs at a discount of 5 per cent in January 2012. Show the discount on issue of debentures if:

  1. Such debentures are redeemable after 5 years
  2. 1/5th of the debentures are redeemed every year, beginning from December 2012.


  1. When debentures are redeemable after 5 years:
    Total discount allowed (1,000,000 × 5%) = ₹ 50,000
    Period for which the debentures are held = 5 years
    Amount to be written off to P&L A/c every year = 50,000/5 = ₹ 10,000
  2. When 1/5th of the debentures are redeemed every year:

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