Discount on issue of 8% debentures is shown in the balance sheet as
Discount on issue of 8% debentures is shown in the balance sheet as
Solution
When debentures are issued at a price less than their face value, the difference is called Discount on Issue of Debentures. This discount represents a capital loss to the company.
The discount is written off over the tenure of the debentures, typically in proportion to the debenture period or in equal installments.
The unamortized (unwritten off) balance of the discount is shown in the Balance Sheet as an asset because it represents a loss that is yet to be charged to the Statement of Profit and Loss.
As per Schedule III of the Companies Act, 2013:
- The portion of discount to be written off in the current year is shown under "Other Current Assets"
- The portion to be written off in subsequent years is shown under non-current assets
Since discount needs to be systematically written off every year until maturity of debentures, there will always be a current portion (to be amortized within 12 months), which is classified under Other Current Assets.
Example: If debentures are issued for 5 years with a total discount of ₹50,000, and the company writes off ₹10,000 annually:
- Current year's portion (₹10,000) → Other Current Assets
- Balance (₹40,000) → Non-current assets
The correct classification is Other Current Assets for the portion to be written off in the current accounting period.