Answer
The auditors should verify the provision for the premium payable on redemption of debentures. Such provision is made in either of the following two ways:
The amount of premium payable on redemption may be debited to an account denominated as ‘Loss on Issue of Debentures’ and credited to ‘Premium payable on Redemption of Debentures
Account’ or subsequently, the debit balance in the first mentioned account should be carried forward till it is written off, while the latter account would be closed on payment of the premium, on redemption of debentures.
The fact that the debentures will have to be redeemed at premium may be disclosed by way of a note in the Balance sheet along with the date of redemption and, as and when redemption is made, the amount paid as a premium should be debited to the Premium on Redemption of Debentures Accounts.