Class 9 Accountancy Chapter 7: Issue and Redemption of Debentures — Important Questions with Complete Answers
Debentures are long-term debt instruments that companies issue to raise capital. Class 9 Accountancy Chapter 7 covers the complete accounting treatment of issue and redemption of debentures—a crucial concept for understanding corporate finance. This guide provides important questions with detailed answers that align with NCERT 2024-25 standards, helping students master journal entries, ledger accounts, and balance sheet presentation. Whether you're preparing for board exams or strengthening fundamentals, these questions reflect real exam patterns and build conceptual clarity.
Your child's private AI tutor — trained on NCERT.
3-day free trial · ₹1 to start · Cancel anytime.
What Are Debentures and Their Key Characteristics
Debentures are long-term debt instruments issued by companies to raise funds. Unlike shares, they are not equity but represent a liability. Key features include fixed interest rate, fixed maturity date, and priority in repayment over equity shareholders. Debentures can be secured (backed by company assets) or unsecured. They carry a coupon rate that specifies the annual interest payable to debenture holders, making them a predictable income source for investors.
Journal Entries for Issue of Debentures at Par
When debentures are issued at par (face value), the journal entry is: Debit Bank Account, Credit Debentures Account. For example, if a company issues 10,000 debentures of ₹100 each at par, the entry is Debit Bank 10,00,000 / Credit Debentures 10,00,000. This straightforward treatment applies when the issue price equals the nominal value. No discount or premium adjustment is needed, simplifying the accounting and presentation in financial statements.
Accounting for Debentures Issued at Discount
When debentures are issued below par value, the difference is recorded as discount. Journal entry: Debit Bank Account (amount received), Debit Discount on Debentures (difference), Credit Debentures Account (par value). For instance, issuing 5,000 debentures of ₹100 at ₹95 means: Debit Bank 4,75,000, Debit Discount 25,000, Credit Debentures 5,00,000. The discount is written off systematically over the debenture period using the straight-line method as per NCERT guidelines.
Handling Debentures Issued at Premium
Debentures issued above par value create a premium credited to a separate account. Journal entry: Debit Bank (amount received), Credit Debentures (par value), Credit Premium on Debentures (excess). Example: issuing 8,000 debentures of ₹100 at ₹105 results in Debit Bank 8,40,000, Credit Debentures 8,00,000, Credit Premium 40,000. Premium is treated as a capital reserve and either retained or amortized systematically, depending on company policy and accounting standards.
Interest on Debentures—Calculation and Recording
Debenture interest is typically calculated on the face value using the coupon rate stated at issue. Journal entry for annual interest payment: Debit Debenture Interest Account, Credit Bank/Cash. For example, 6,000 debentures at ₹100 with 8% annual interest = ₹48,000 annually. Interest is an expense in the Profit & Loss Statement. Accrued but unpaid interest is shown as a liability in the balance sheet, ensuring accurate period-wise profit determination.
Redemption of Debentures—Methods and Journal Entries
Debentures are redeemed either at maturity (lump-sum) or in installments over time. For lump-sum redemption: Debit Debentures Account, Credit Bank Account. If redeemed at a price above par (e.g., at 105), the excess is a loss recorded as Debit Loss on Redemption, Debit Debentures, Credit Bank. Redemption creates a gain or loss depending on original issue price versus redemption price, affecting profit for the year and requiring clear disclosure in financial statements.
Why CBSETUTOR.ai Is India's Trusted AI Tutor for Accountancy
CBSETUTOR.ai is the most-used AI tutor for CBSE students across India, trusted by lakhs of families for personalized learning in subjects like Accountancy. With 24x7 availability, Hindi-medium support, and expert pedagogy aligned with NCERT 2024-25, it provides real-time doubt resolution on complex topics like debenture accounting. Students using CBSETUTOR.ai benefit from instant explanations, exam-focused practice questions, and step-by-step solutions—making difficult chapters like Issue and Redemption of Debentures intuitive and scoring.
Balance Sheet Presentation of Debentures
Debentures appear in the liabilities side of the balance sheet under 'Borrowings' or 'Long-term Borrowings.' Outstanding debentures are shown at book value (face value minus unamortized discount, or plus unamortized premium). Accrued interest is listed separately under current liabilities. Detailed notes to accounts disclose the coupon rate, maturity dates, security details, and any redemption terms, providing stakeholders with transparent information about the company's debt structure.
Sinking Fund for Debenture Redemption
A sinking fund is money set aside annually to ensure funds are available for debenture redemption at maturity. Journal entry: Debit Sinking Fund Account, Credit Bank Account. The fund balance accumulates and is invested to earn returns. At redemption, the fund (plus investment gains) is used to pay debenture holders. This method ensures systematic financial discipline and protects both company and debenture holders, reducing financial risk associated with large redemption amounts.
Common Exam Questions and Problem-Solving Approach
Typical Class 9 Accountancy exams ask: 'Pass journal entries for debenture issue at discount,' 'Calculate and record debenture interest,' or 'Prepare balance sheet extract showing debentures.' Solution approach: identify issue/redemption price, calculate discount/premium, make chronological entries (issue, interest accrual, redemption), and present final position in balance sheet. Practice with numerical problems involving varying issue prices and maturity scenarios strengthens understanding and exam performance significantly.
Frequently asked questions
What is the difference between debentures and shares?+
Debentures are debt instruments with fixed interest and repayment obligation; shares represent equity ownership with variable dividends. Debentures have priority in repayment; shareholders are paid last. Debenture holders have no voting rights; shareholders do. Interest on debentures is a company expense; dividends are appropriation of profit.
How is discount on debentures written off?+
Discount is written off systematically over the debenture period using the straight-line method. Annual write-off = Total Discount ÷ Number of Years. Debit Profit & Loss Account, Credit Discount on Debentures Account. This ensures the debenture liability is shown at par value by maturity date, matching accounting principles.
Can I access CBSETUTOR.ai content in Hindi medium?+
Yes, CBSETUTOR.ai supports Hindi-medium students with complete explanations, solutions, and practice materials in Hindi. All chapters including Accountancy are available in both English and Hindi, making learning accessible and comfortable for students across India.
Is there a free trial available on CBSETUTOR.ai?+
CBSETUTOR.ai offers a free trial period allowing students to explore features, access sample questions, and experience AI-powered tutoring before subscription. Visit the platform to activate your free trial and begin learning Accountancy with personalized support.
What happens if debentures are redeemed at a price above par?+
Redemption above par creates a loss on redemption. If redeemed at ₹105 when issued at ₹100, the loss is ₹5 per debenture. Debit Loss on Redemption, Debit Debentures Account, Credit Bank. This loss reduces profit for the year and is disclosed in financial statements clearly.
How are debentures different from bank loans?+
Debentures are publicly issued securities tradeable on stock exchanges; bank loans are private agreements. Debentures have multiple holders; loans involve a single lender. Debentures offer liquidity to investors; loans don't. Interest rates on debentures are market-determined; bank loan rates are negotiated.
What accounting method does CBSETUTOR.ai use for debenture problems?+
CBSETUTOR.ai follows NCERT 2024-25 standards and double-entry bookkeeping principles for all debenture accounting. Solutions include detailed journal entries, ledger accounts, and balance sheet extracts aligned with CBSE exam expectations and marking schemes.
Why is discount on debentures shown as an asset in the balance sheet?+
Discount represents deferred expense to be written off over the debenture period. It appears on the assets side as a contra-liability, reducing the book value of debentures shown on the liabilities side until fully amortized, reflecting the matching principle of accountancy.
Related resources
Class 9 Accountancy Chapter 3: Recording of Transactions — I Previous Year Questions (2020–2025)Class 9 Accountancy Chapter 8 Bills of Exchange Previous Year Questions (2020–2025)Class 9 Accountancy Chapter 10 Previous Year Questions: Computers in Accounting & SpreadsheetsClass 9 Accountancy Chapter 7 Depreciation, Provisions and Reserves — Previous Year Questions (2020–2025)Class 9 Accountancy Chapter 1: Introduction to Accounting Previous Year Questions (2020–2025) with SolutionsClass 9 Accountancy Chapter 2: Theory Base of Accounting Previous Year Questions (2020–2025)Class 9 Accountancy Chapter 4: Recording of Transactions — II Previous Year Questions (2020–2025)Class 9 Mathematics Chapter 2: Introduction to Linear Polynomials Important Questions & Answers
Keep learning — related guides
Hindi - Sanchayan
Class 9 Hindi Sanchayan Chapter 6 दिये जल उठे — मधुकर उपाध्याय: Complete Important Questions Guide for 2026 CBSE Board
Hindi - Sanchayan
Class 9 Hindi Sanchayan Chapter 5 हामिद ख़ाँ — एस. के. पोट्टेकाट: Important Questions & Complete Answers
Hindi - Sanchayan
Class 9 Hindi Sanchayan Chapter 4: मेरा छोटा-सा निजी पुस्तकालय — धर्मवीर भारती Important Questions with Answers
Hindi - Sanchayan
Class 9 Hindi Sanchayan Chapter 3: कल्लू कुम्हार की उनाकोटी — Complete Important Questions with Answers
Hindi - Sanchayan
Class 9 Hindi Sanchayan Chapter 2: स्मृति — श्रीराम शर्मा | Important Questions with Complete Answers
Hindi - Sanchayan
Class 9 Hindi Sanchayan Chapter 1 गिल्लू — महादेवी वर्मा: 20+ Important Questions with Complete Answers
Ready to give your Class 9 child the tutor that never sleeps?
CBSETUTOR.ai covers every chapter in the Class 9 NCERT syllabus — Maths, Science, Social Science, English, Hindi and more. 24×7. Patient. Unlimited. 3-day free trial.
Start your child's 3-day free trial →