Premium on debentures payable is spread over the term of the debentures and reduces total interest expense.

Question

Quizplus · Accepted Answer

Premium on debentures payable is the excess amount paid by investors over the face value of the debentures. This premium is spread over the term of the debentures and reduces the total interest expense. This is because the premium is treated as a capital receipt and is gradually written off over the debenture's term. Therefore, the net cost of debentures reduces, leading to a decrease in total interest expense.

Premium on Debentures Payable Is Spread Over the Term of the Debentures