Interest on Debentures

The rate of interest is a prefix value to the debenture, say 9% Debentures and, therefore, is payable even if the company incurs a loss. It is a charge against profit. Interest payment may be subject to tax deducted at source (TDS).

Accounting Entries

Entries for interest on debentures and Tax Deducted at Source are as follows:

1. When interest is due and we ignore Tax:

2. When interest is due and tax is deducted at source:

3. On payment of interest:

4. On deposit of TDS in Government Account:

5. On transfer of Interest to Statement of Profit and Loss at the end of the year:

 Points To Remember for Interest on Debentures:

1. Interest on Debentures is a charge against the profit of the company.
2. We calculate Interest on Debentures at a fixed rate of interest on the nominal value.
3. Interest is not payable on debentures issued as collateral security.
4. The interest rate is prefixed.
5. We need to transfer the balance in Interest on Debenturesto the Statement of Profit and Loss at the end of the year.
6. If the amount of interest accrued and due is not paid, it is known as Interest Accrued and Due or Interest Outstanding.
7. If the date of paymentof interest and accounting date is different, we will credit the Interest Accrued and Due account at the end of the year to maintain accounting record on an accrual basis.
8. We show the Interest Accrued (whether due or not) on debentures is under the head ‘Current Liabilities,’ and sub-head ‘Other Current Liabilities’