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What is Debenture interest in accounting?

3 min read

Asked by: Rene Arsov

Interest on debenture is a charge opposite to the profit of the enterprise and has to be paid whether the enterprise has acquired any profit. According to the Income Tax Act, 1961, an enterprise must deduct income tax at the recommended rate from the interest payable on debentures if it surpasses the guided limit.

Is debentures interest an expense?

Treatment of Interest on Debentures
It is a charge against profit. Interest payment may be subject to tax deducted at source (TDS). We show Interest on Debentures as ‘Finance Cost’ in Statement of Profit and Loss.

What is interest on debentures called?

Interest on debentures is also called coupon rate.

What does debenture mean in accounting?

A debenture is a type of debt instrument that is not backed by any collateral and usually has a term greater than 10 years. Debentures are backed only by the creditworthiness and reputation of the issuer. Both corporations and governments frequently issue debentures to raise capital or funds.

Where is debenture interest in balance sheet?

Because debenture bonds fall into this category, they are placed on the balance sheet in the long-term liabilities section.

Is debenture an asset?

In the US, a debenture is a medium to long-term loan, issued to a company by an investor. Think of it as an unsecured loan that is supplied in good faith – unlike UK debentures, the loan is not backed up by physical assets; only by the company’s good reputation in the eyes of the investor.

Where is interest on debentures recorded under double entry system?

Interest on loan and Interest on debentures are shown on the debit side of the Net Revenue Account, i.e., treated as an appropriation of profit since debentures and loans (long-term) are considered as a part of capital.

What is debenture with example?

An entity that issues debentures and has lower credit quality can expect to pay a high interest rate, to compensate investors for the increased risk associated with these instruments. Both corporations and governments make use of debentures. Examples of debentures are Treasury bonds and Treasury bills.

What is difference between debenture and bond?

Bonds are debt financial instruments issued by large corporations, financial institutions and government agencies that are backed up by collaterals or physical assets. Debentures are debt financial instruments issued by private companies, but any collaterals or physical assets do not back them up.

When the debenture interest is payable?

Interest on debentures is a charge against profits and, therefore, its payment is not subject to the earning of profits. The amount so deducted must be paid to the Central Government on behalf of the debenture-holders.

Is interest on debentures current liabilities?

The interest accrued (due or not due) on debentures is shown under the head Current Liabilities under the subhead other current Liabilities.

Is a debenture a current liability?

No, debentures are long-term liabilities of the company as it must be repaid in the future.

Will debentures come under current liabilities?

Debentures issued by the company represents a long term debt which carries a charge of interest. Redeemable debentures are not current liabilities.

How do you record debentures?

There are different journal entries in connection with the issue of debentures:

  1. On the receipt of Application Money.
  2. On allotment, the application money on debentures allotted is transferred to debentures account.
  3. Amount Due on Allotment (Along with Premium)
  4. Receipt of debenture allotment money.
  5. Amount Due On First Call.

Is debenture a debt?

A debenture is a marketable security (a type of investment) issued by a business or other organization to raise money for long-term activities and growth. It is a form of debt capital so it is accounted for as debt on the balance sheet of the issuing company.