NCERT Solutions for Class 12 Accountancy Part 2 Chapter 2 Issue and Redemption of Debentures
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1. What is meant by a Debenture?
Ans. Debenture The word ‘Debenture’ has been derived from a Latin word ‘debere’ which means to borrow. Debenture is a written instrument acknowledging a debt under the common seal of the company. It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates. As per section 2(30) of the companies Act, 2013 : ”Debenture includes debenture stock, bonds and any other instrument of the company evidencing a debt, whether constituting a change on the assets of the company or not.”
2. What does a Bearer Debenture mean?
Ans. Name and addresses of the holders of such debentures are not recorded in the company and these debentures are transferring by mere delivery. Coupons are attached with these debentures and the interest is paid to such persons who produce the coupons in the specified bank.
3. State the meaning of ‘Debentures issued as a Collateral Security’.
Ans. Collateral security is given in addition to the primary security to the loan provider. In case when a company takes some loan it may issue debentures for additional security besides the primary security to that particular bank or financial institution.
Here it is to be remember that issue of debenture in ordinary course is different from issue of debenture as collateral security, in ordinary course debenture holders are entitled to get interest at an specified coupon rate where as in case of debenture issued as collateral security the holder of these debenture is not entitled
to any such interest.
But in case of any default in payment of principle or interest of loan it may recover its amount from the issue of such debenture in the secondary market. Here it should be remembered that first of all the primary security will be sold after that debenture as collateral security will be used.
4. What is meant by Issue of debentures for consideration other than Cash’?
Ans. When a company purchase some assets it is supposed to pay the purchase consideration in cash but sometimes due to lack of sufficient fund, company may issue debenture for the payment of such purchase consideration. This is known as issue of debenture for consideration other than cash.
The issue of debenture for consideration other than cash serves the purpose of both the vendor as well as of the purchaser (company). From the purchaser’s point of view, purchasing an asset against the issue of debentures requires no additional cost for raising loans or arranging funds immediately.
On the other hand, the vendor gets interest on the amount of debentures received. Such debentures can be issued at par, premium or discount to the vendor.
5. What is meant by ‘Issue of debentures at discount and redeemable at premium?
Ans. As per the prevailing market circumstances sometimes company has to manage funds by issuing debenture below its par value and to attract the investor when these are redeemed at price higher than its par value, then it is termed as issue of debenture at discount and redeemable at premium.
The difference between the issue price and the redemption price is treated as loss on issue of debenture and posted in assets side of the company as miscellaneous expenditure.
Example: A 10% debenture of `100 each is issued at 5% discount and is redeemed at 5% premium. The following Journal Entry will be passed for that
| Date | Particulars | L.F. | Amt. (Dr.) | Amt. (Cr.) | |
| Bank A/c | Dr. | 95 | |||
| Discount on issue of Debenture A/c | Dr. | 5 | |||
| Loss on issue of Debenture A/c | Dr. | 5 | |||
| To 10% debentures A/c | 100 | ||||
| To Premium on Redemption of Debenture A/c | |||||
| (Being 10% debenture are issued at 5% discount and redemable at 5% premium) | 5 |
6. What is ‘Capital Reserve’?
Ans. Capital Reserve is a reserve that is created out of capital profits. Capital profits are those profits arising out of those activity which are not part of the business operations e.g., premium on issue of share and debentures, profits of sale of fixed asset, profit on redemption on debenture and profit on reissue of forfeited share and so on.
A capital reserve can be utilised for meeting the future capital losses. Capital reserve cannot be used for distributing dividend to the share holders but bonus shares can be issued out of the capital reserve.
8. What is a ‘Convertible Debenture?
Ans. Convertible Debentures are those debentures which are convertible in equity shares after some specified time generally mentioned at the time of issue of such debentures. These convertible debentures are divided into two categories:
(i) Partly Convertible Debenture: In this type of debenture only a part of such debenture is convertible in equity shares which is mentioned at the time of issue.
(ii) Fully Convertible Debenture: These are fully convertible into equity shares. It means in case of fully convertible debenture the whole amount of such debenture, is convertible in equity share after the period mentioned in the prospectus.
9. What is meant by ‘Mortgaged Debentures’?
Ans. Debentures which are secured against assets of a company known as Mortgaged Debenture. Mortgage Debentures are of two types first fixed charge mortgage debenture and second floating charge mortgage debentures.
When debentures are secured against a particular asset, then they are called fixed charge whereas, if the debentures are secured against all the assets of a company, then it is called floating charge. Mortgage debentures can only be sold by the holder when company fails to pay its loan or interest there on.
10. What is discount on issue of debentures?
Ans. Debenture is said to have been issued at discount where an applicant is required to pay a total sum less than the face value of the debenture. The excess of the face value over the issue price is regarded as the discount. Companies Act requires that the amount of discount must be shown on the assets side of the Balance Sheet till written off under the head “Miscellaneous Expenditure.” under ”Other Current Assets’.
11. What is meant by ‘Premium on Redemption of Debentures’?
Ans. When the debentures are redeemed at a price more than its face value or the par value, then it is said that the debentures are redeemed at premium. The difference between the redeemed price and the par value is regarded as a capital loss and his loss is written off.
12. How debentures are different from shares? Give two points.
Ans. (i) Nature: A share is a part of the capital of the company and a debenture is a part of loan of the company.
(ii) Dividend or Interest: Dividend on shares is paid only when there are profits in the company on the other hand debenture interest has to be paid, even if the company does not have profit or even suffer a loss.
(iii) Ownership: Equity share holders are the owners of the company on the other hand debenture holders are the creditors of the company.
13. What is meant by redemption of debentures?
Ans. The term redemption implies the discharge of an obligation arising out of the contractual obligations created through the debenture Trust Deed. In other words, discharge of the liability on account of debentures is called redemption of debenture. In more simpler terms redemption of debentures means the repayment of debentures.
The redemption of debentures is made by the company in accordance with the terms and conditions of issue. Debentures may be redeemable at par, premium or discount. The redemption can be done out of profits or from the fresh issue of debentures or shares.
Redemption of debentures may be done by the following methods:
(i) By paying after stipulated period
(ii) By of lots drawing
(iii) By conversion into shares or new debentures
(iv) By purchasing own debentures in the open market
(v) At the option of the company
14. Can the company purchase its own debentures?
Ans. Yes, a company, if authorised by its Articles of Association, can purchase its own debentures in the open market. The main purposes of such purchase may be as follows:
(i) A company may purchase its own debenture for immediate cancellation for reducing the debenture liability especially in case when the interest rate on its debenture is higher than the market rate of interest.
(ii) A company may also purchase its own debentures with the motive of investment and sell them at higher price in future and thereby earn profit.
15. What is meant by redemption of debentures by conversion?
Ans. Debentures are usually redeemed in cash but sometimes privilege is given to the debenture holders to exchange their debentures either for shares or for new debentures of the company. The redemption of debentures by means of shares or new debentures is known as redemption by conversion and the debentures which carry such a right are called convertible debentures.
16. How would you deal with ‘Premium on Redemption of Debentures?
Ans. When the debentures are redeemed at a price more than its face value or the par value, then it is said that the debentures are redeemed at premium. The difference between the redeemed price and the par value is regarded as a capital loss and this loss is written off till the redemption of the debentures.
The Premium on Redemption of Debenture is shown on the Liabilities side of the Balance Sheet under the head of Current Liabilities and Provisions until debentures are redeemed.
Accounting Treatment for Premium on Redemption on Debentures:
At the Time of the Issue of Debenture
| Date | Particulars | L.F. | Amt. (Dr.) | Amt. (Cr.) | |
| Debenture Allotment A/c | Dr. | ||||
| Loss on Issue of Debenture A/c | Dr. | ||||
| To Debenture A/c | |||||
| To Premium on Redemption of Debenture A/c | |||||
| (Being 10% debenture are issued at 5% discount and redemable at 5% premium) |
For Loss Written off
| Date | Particulars | L.F. | Amt. (Dr.) | Amt. (Cr.) | |
| Statement of Profit & Loss | Dr. | ||||
| To Loss on Issue of Debenture A/c | |||||
| (Being loss on issue of debenture written of) |
At the time of Redemption of Debentures
| Date | Particulars | L.F. | Amt. (Dr.) | Amt. (Cr.) | |
| Debenture A/c | Dr. | ||||
| Premium on Redemption A/c | Dr. | ||||
| To Debenture Holders A/c | |||||
| (Being amount of debenture due to debenture holders) |
17. What is meant by redemption of debentures by ‘Purchase in the Open Market?
Ans. A company, if authorised by its Articles of Association, can redeem its own debentures by purchasing them in the open market. This is advantageous for several reasons:
(i) It would be saving the amount of interest on debentures purchased and cancelled.
(ii) Sometimes the own debentures are being sold at a discount. It would enable the company to save money equal to the amount of discount i.e., profit on redemption of debentures.
(iii) Debentures so purchased may be kept alive as investment. In need of fund, they can again be sold off in the market.
Objectives: There may be the following objectives for purchasing own debentures in the open market:
(i) For immediate cancellation of debentures.
(ii) For investment in the own debentures.
Long Answer Type Questions
1. Explain the different types of debentures?
Ans. Debenture: The word ‘Debenture’ has been derived from a Latin ward ‘Debere’ which means to borrow. Debenture is a written instrument acknowledging a debt under the common seal of the company.
There are various types of Debentures:
(i) From Security Point of View: From security point of view debentures can be classified into two broad categories naked or simple debentures and Mortgaged debentures.
(a) Naked or Simple Debentures: Naked or Simple Debentures are those debentures which do not carry any security in respect of payment of interest or repayment of the principal. The general solvency of the company is the only security for the holders of simple debentures.
(b) Mortgaged Debentures: Mortgaged Debentures are the debentures which are secured by a charge on the asset or properties of the company. The debenture holders have the right to recover their principal amount as well as unpaid interest out of the assets mortgaged by the company.
(ii) From Permanence Point of View: The debentures may be Redeemable or Irredeemable debentures.
(a) Redeemable Debentures: Redeemable debentures provide for the payment of principal amount on the expiry of certain period. Redeemable debentures can be reissued even after they have been redeemed until they have been cancelled.
(b) Irredeemable Debentures: Irredeemable Debentures are retained as a part of the permanent capital structure during the life time of the company. Such debt becomes due for payment only when the company goes into liquidation or when the payment of interest is not made regularly.
Company has the option of cancelling its liability to the debenture holders at any time by giving due notice to them.
(iii) From Recording Point of View: From recording point of view debentures can be classified into two categories bearer and registered debentures.
(a) Bearer Debentures: Name and addresses of the holders of such debentures are not recorded in the company and these debentures are transferable by mere delivery. Payment of principal and interest is mode to the bearer of such debentures.
(b) Registered Debentures: Registered debentures are made out in the name of a particular person who is registered by the company as a holder and are transferable in the same way as shares.
The payment of interest and repayment of capital is made to those whose name are registered with the company and duly entered in the register of debenture holders.
(iv) From Conversion Point of View: From conversion point of view debentures may be convertible or non-convertible.
(a) Convertible Debentures: Convertible debenture holders are given an option to convert them into equity or preference shares at a stated rate of exchange after a certain period.
(b) Non-Convertible Debentures: Non-convertible debentures are not convertible into equity or preference shares afterwards.
2. Distinguish between a debenture and a share. Why debenture is known as loan capital? Explain.
Ans. The following are the difference between Shares and Debentures:
| Basis of Difference | Shares | Debentures |
| Nature | Share holders are the owners of the company. | Debenture holders are creditors of the company. |
| Voting Rights | Share holders have the voting rights. | Debenture holders do not have any voting rights. |
| Returns | Share holders are entitled for returns in the form of dividend which may vary from year to year. | Debenture holders are entitled for returns in the form of interest which is fixed. |
| Conversion | Shares cannot be converted into debentures. | Debentures can be converted into shares. |
| Obligations of Return | Dividend is appropriation of profit. Dividend will not be paid if losses are incurred by the company. | Interest is changed against profit, interest is payable even if there is no profit. |
| Risk | Investment in Shares is unsecured. | If debentures are secured against asset. They are less risky as the risk involved is secured against the assets. |
| Issue at discount | Shares cannot be issued at discount. | There are no such restrictions for issuing debentures on discount. |
| Payment at Liquidation | Payment to the share holders is made after settlement of all external liabilities i.e., after debenture holders. | Payment to the debenture holders is made before the share holders. |
The issuance of debentures involves taking on long-term debt. Debentures are typically issued by businesses to obtain long-term borrowings necessary to meet their long-term goals and expand. Interest is also due on the principal amount of thd debenture, just like the owner’s capital. According to the Income Tax Act, the company’s expense for the interest paid is debuctible. Debentures are therefore also referred to as loan capital due of their long redemption periods.
3. Describe the meaning of ‘Debenture Issued as Collateral Securities’. What accounting treatment is given to the issue of debentures in the books of accounts?
Ans. When a company takes a loan, it has to give some asset as primary security and some as collateral security, it may provide collalteral security by giving debentures to the party from whom loan is taken. If on the due date principal is paid back by the Company and interest is also paid, the loan-giver will return the debentures to the Company and then they will be cancelled by the Company. If the Company makes a default, the bank may either keep the debenture and become debenture-holder or sell them and realise money. This type of issue by the Company is called Issue of Debenture as Collateral Security.
When debentures are issued by the company, they are not really alive and no accounting entry is made in the books of the Company for it. Only a note is given in the balance sheet for it as under.
| Liabilities | Amt (₹) | Assets | Amt. (₹) |
| Loan (Secured by the issued of Debentures of ₹ ........ As Collateral Security. | |||
| Debentures (In addition to these debentures debentures of ₹ …… has been issued as Collateral Security). |
If an accounting record for these debentures is to be made Debentures Suspense A/c is debited and debentures A/c is credited, debentures are shown in the liability side and balance of debentures Suspense A/c is shown in the assets side of the Balance Sheet. When debt is paid off by the Company, Debentures A/c is debited and Debentures Suspense A/c is credited.
4. Explain the different terms for the issue of debentures with reference to their redemption.
Ans. Debentures can be issued at par, at premium and at discount in the same way they can be redeem at par and at premium. Debentures can never be redeemed at discount. The following are the six situation under which debentures can be issued to their redemption.
(i) Issue at Par and Redeemable at Par: When the debentures are issued and are redeemed at their face value, then the following Journal entry is passed.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| Bank A/c | Dr. | ||||
| To Debenture Application and Allotment A/c | |||||
| (Being debentures application money received) | |||||
| Debenture Application and allotment A/c | Dr. | ||||
| To Debenture A/c | |||||
| To Securities Premium Reserve A/c | |||||
| (Being debentures issues at premium and redeemable at par) |
(iii) Issue at Discount and Redeemable at Par: When the debentures are issued at discount and redeemable at par, then the following Journal entry is passed.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| Bank A/c | Dr. | ||||
| To Debenture Application and Allotment A/c | |||||
| (Being debentures application money received) | |||||
| Debenture Application and allotment A/c | Dr. | ||||
| Discount on issue of Debenture A/c | |||||
| To Debenture A/c | |||||
| (Being debentures issues at premium and redeemable at par) |
(iv) Issue at Par and Redeemable at Premium: When debentures are issued at par and redeemable at premium, then the following Journal entry is passed. In such case, the company did not suffer any loss at the time of issue but there will be loss at the time of redemption.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| Bank A/c | Dr. | ||||
| To Debenture Application and Allotment A/c | |||||
| (Being debentures application money received) | |||||
| Debenture Application and allotment A/c | Dr. | ||||
| Loss on Issue of Debenture A/c | Dr. | ||||
| To Debenture A/c | |||||
| To Premium on Redemption of Debenture A/c | |||||
| (Being debentures issues at par and redeemable at premium) |
(v) Issue at Premium and Redemption at Premium: When the debentures are issued at premium and redeemable at premium, then the following Journal entry is passed.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| Bank A/c | Dr. | ||||
| To Debenture Application and Allotment A/c | |||||
| (Being debentures application money received) | |||||
| Debenture Application and allotment A/c | Dr. | ||||
| Loss on Issue of Debenture A/c | Dr. | ||||
| To Debenture A/c | |||||
| To Securities Premium Reserve A/c | |||||
| To Premium on Redemption of Debentures A/c | |||||
| (Being debentures issued at premium and redemable at premium) |
(vi) Issued at Discount and Redemption at Premium: When debentures are issued at discount and redeemed at premium, then the following journal entry is passed.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| Bank A/c | Dr. | ||||
| To Debenture Application and Allotment A/c | |||||
| (Being debentures application money received) | |||||
| Debenture Application and allotment A/c | Dr. | ||||
| Discount on Issue of Debentures A/c | Dr. | ||||
| Loss on Issue of Debenture A/c | Dr. | ||||
| To Debenture A/c | |||||
| To Premium on redemption of debentures A/c | |||||
| (Being debentures issued at discount and redemable at premium) |
5. Differentiate between redemption of debentures out of capital and out of profits.
Ans. Redemption of Debentures out of Capital: When no profits are set aside for redemption of debentures it is called redemption out of capital. In such a case no profits are transferred to Debenture Redemption Reserve.
In view of section 71(4) of the companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines specifies a category of companies requiring creation of Debenture Redemption Reserve equivalent to atleast 10% of the amount of debentures issued before redemption commences, it is not possible for such specified componies to redeem debentures purely out of capital.
Redemption of Debentures out of Profit: Redemption out of profits means that an amount equal to debentures issued (i.e., 100% of the amount of debentures) is transferred from surplus in statement of profit and loss to a newly opened account named. Debenture Redemption Reserve Account. It is called redemption of profits because the transfer of profit to Debenture Redemption Reserve (DRR) reduces the amount of profit available for dividend.
6. Explain the guidelines of SEBI for creating Debenture Redemption Reserve.
Ans. SEBI guidelines for redemption of debenture are:
(i) The creation of Debenture Redemption Reserve (i.e., DRR) is obligatory only for non-convertible debenture and portion of partly convertible debentures.
(ii) A company shall create DRR equivalent to atleast 10% of the amount of debentures issued before starting of the redemption of debenture.
Hence a company cannot redeem its debentures purely out of capital. Atleast 10% of debentures issued must be redeemed out of profits by creating a “Debenture Redemption Reserve” and the balance of debentures issued may be redeemed out of profits or out of capital.
Exemptions to the rule of creating DRR: Following categories of companies are exempted from creating DRR:
- All India Fiancial Institutions (AIFIs) regulated by Reserve Bank of India.
- Other Financial Institutional regulated by RBI.
- Banking Companies for both Public as well as privately placed debentures and
- Housing Financial Companies registered with the National Housing Bank.
7. Describe the steps for creating Sinking Fund for redemption of debentures.
Ans. The steps involved in creation of Sinking Fund on redemption of Debenture are:
(i) Calculate the amount of profit to be set-aside annually with the help of sinking fund table.
(ii) Set aside the amount of profit at the end of each year and credit to Debenture Redemption Reserve (DRR) Account.
(iii) Purchase the investments of value equal to 15% of face value of debenture to be redeemed upto 30th April before redemption and debit Debenture Redemption Fund Investment (DRFI) Account.
(iv) Receive interest on investment at the end of each subsequent year.
(v) Encash the investment at the end of the year of redemption.
(vi) Make payment to debenture holders.
(vii) Transfer Debenture Redemption Reserve A/c balance to General Reserve.
8. Can a company purchase its own debentures in the open market? Explain.
Ans. Yes, a company, if authorised by its Articles of Association, can purchase its own debentures in the open market. The main purposes of such purchase may be as follows:
(i) A company may purchase its own debenture for immediate cancellation for reducing the debenture liability especially in case when the interest rate on its debenture is higher than the market rate of interest.
(ii) A company may also purchase its own debentures with the motive of investment and sell them at higher price in future and thereby earn profit.
When a company purchase its own debenture,in the open market it can happen in either of the two ways first debentures may be purchased at premium for cancellation and debenture may be purchase at discount for cancellation. The following will be the accounting treatment in both situation.
(i) If Debentures are Purchased at Discount for Cancellation: When the company purchase its own debentures at discount for cancellation, then the following Journal entries are recorded.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| Own Debentures A/c | Dr. | ||||
| To Bank A/c | |||||
| (Being own debentures purchased in the open market) | |||||
| Debenture A/c | Dr. | ||||
| To Own Debentures A/c | |||||
| To Profit on Redemption of Debenture A/c | |||||
| (Being own debentures cancelled) | |||||
| Profit on Cancellation of Own Debentures A/c | Dr. | ||||
| To Capital Reserve A/c | |||||
| (Being profit on cancellation of own debentures transferred capital reserve account) |
(ii) If Debentures are Puchased at Premium for Cancellation:
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| Own Debentures A/c | Dr. | ||||
| To Bank A/c | |||||
| (Being own debentures purchased in the open market) | |||||
| Debenture A/c | Dr. | ||||
| Loss on Redemption of Debenture A/c | Dr. | ||||
| To Own Debentures A/c | |||||
| (Being own debentures cancelled) | |||||
| Profit on Cancellation of Own Debentures A/c | Dr. | ||||
| To Capital Reserve A/c | |||||
| (Being profit on cancellation of own debentures transferred capital reserve account) |
10. What is meant by conversion of debentures? Describe the method of such a conversion.
Ans. The debentures can also be redeemed by converting them into shares or new debentures. If debenture holders find that the offer is beneficial to them they may convert his/her debentures into shares or new debentures after the expiry of a specified period of time, then this whole process is known as redemption of debentures by conversion.
It is worth mentioning here that in such a case no Debenture Redemption Reserve is required because no funds are required for redemption.
If a debenture holder exercises the conversion option, then the issue price of shares must be equal to or less than the amount actually received from debentures. The accounting treatment in that case will be as follows:
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| Debentures A/c | Dr. | ||||
| To Debenture Holder’s A/c | |||||
| (Being debentures are redeemed) | |||||
| Debenture Holders’ | Dr. | ||||
| To Share / Debentures (New) A/c | |||||
| (Being amount due to debenture holders is discharged) |
Numerical Type Questions
1. G. Ltd. a listed company issued 75,00,000, 6% Debenture of ₹50 each at par payable ₹15 on application and ₹35 on allotment, redeemable at par after 7 years from the date of issue of debenture. Record necessary entries in the books of Company.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c | Dr. | 11,25,00,000 | ||
| To 6% Debentures Application A/c | 11,25,00,000 | ||||
| (Being application money @ ₹ 15 each received for 75,00,000 debentures) | |||||
| (ii) | 6% Debentures Application A/c | Dr. | 11,25,00,000 | ||
| To 6% Debentures A/c | 11,25,00,000 | ||||
| (Being application money of 75,00,000 debentures transferred to 6% debentures account) | |||||
| (iii) | 6% Debenture Allotment A/c | Dr. | 26,25,00,000 | ||
| To 6% Debenture A/c | 26,25,00,000 | ||||
| (Being allotment money @ ₹35 each due to 75,00,000 debentures) | |||||
| (iv) | Bank A/c | Dr. | 26,25,00,000 | ||
| To 6% Debenture Allotment A/c | Dr. | 26,25,00,000 | |||
| (Being allotment money received @ ₹35 each on 75,00,000 debentures) |
Note: The entries for issue of debentures are same as that of shares with only difference that capital word is not used.
2. Y.Ltd. issued 2,000, 6% Debentures of ₹100 each payable as follows: ₹25 on application; ₹50 on allotment and ₹25 on First and Final call. Record necessary entries in the books of the company.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c | Dr. | 50,000 | ||
| To 6% Debentures Application A/c | 50,000 | ||||
| (Being application money @ ₹25 each received for 2,000 6% debentures) | |||||
| (ii) | 6% Debentures Application A/c | Dr. | 50,000 | ||
| To 6% Debentures A/c | 50,000 | ||||
| (Being application money on 2,000 debentures transferred to 6% debentures account) | |||||
| (iii) | 6% Debenture Allotment A/c | Dr. | 1,00,000 | ||
| To 6% Debenture A/c | 1,00,000 | ||||
| (Being allotment money @ ₹50 each due to 20,000 6% debentures) | |||||
| (iv) | Bank A/c | Dr. | 1,00,000 | ||
| To 6% Debenture Allotment A/c | 1,00,000 | ||||
| (Being allotment money for 2,000 6% debentures received) | |||||
| (v) | 6% Debenture First and Final Call A/c | Dr. | 50,000 | ||
| To 6% debenture A/c | 50,000 | ||||
| (Being debenture first and final call @ ₹25 each due on 2,000 6% debentures) | |||||
| (vi) | Bank A/c | Dr. | 50,000 | ||
| (vi) | To 6% Debenture First and Final Call A/c | 50,000 | |||
| (Being first and final call for 2,000 6% debentures received) |
3. A.Ltd. issued 10,000, 10% Debentures of ₹100 each at a premium of 5% payable as follows:
₹10 on Application; ₹20 along with premium on allotment and balance on First and Final call. The debentures were fully subscribed and all money was duly received.
Record necessary Journal Entries. Also know how the amount will appear in the balance sheet.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c | Dr. | 1,00,000 | ||
| To 10% Debenture Application A/c | 1,00,000 | ||||
| (Being application money received for 10,000, 10% debentures application @ ₹10 each) | |||||
| (ii) | 10% Debenture Application A/c | Dr. | 1,00,000 | ||
| To 10% Debentures A/c | 1,00,000 | ||||
| (Being application money @ ₹ 10 each transferred to 10% debenture account) | |||||
| (iii) | 10% Debenture Allotment A/c | Dr. | 2,50,000 | ||
| To 10% Debenture A/c | 2,00,000 | ||||
| To Securities Premium Reserve A/c | 50,000 | ||||
| (Being allotment due @ ₹25 each including premium ₹5 on 10,000, 10% debentures) | |||||
| (iv) | Bank A/c | Dr. | 2,50,000 | ||
| To 10% Debenture Allotment A/c | 2,50,000 | ||||
| (Being allotment money received on allotment @ ₹25 each for 10,000 10% debentures) | |||||
| (v) | 10% Debenture First and Final Call A/c | Dr. | 7,00,000 | ||
| To 10% debenture A/c | 7,00,000 | ||||
| (Being first and final call @ ₹70 each on 10,000 10% debentures due) | 7,00,000 | ||||
| (vi) | Bank A/c | Dr. | 7,00,000 | ||
| To 10% Debenture First and Final Call A/c | 7,00,000 | ||||
| (Being debenture first and final call received @ ₹70 each for 10,000 10% debentures) |
| Particulars | L.F. | Current Year | Previous Year |
| 1. Shareholder’s funds | |||
| (a) Reserves and Surplus | 1 | 50,000 | |
| 2. Non-current liabilities | |||
| (a) Long term borrowings | 2 | 10,00,000 | |
| Total | 10,50,000 | ||
| II. ASSETS | |||
| 1. Current Assets | |||
| Cash and Cash equivalent | 3 | 10,50,000 | |
| Total | 10,50,000 |
Notes to account:
| Particulars | Amount (₹) |
| 1. Reserves and Surplus | |
| Securities Premium Receives A/c | 50,000 |
| 2. Long Term Borrowings | |
| 10,000, 10% debentures of ₹100 each | 10,00,000 |
| 3. Cash and cash equivalents | |
| Cash | 10,50,000 |
4. A. Ltd. issued 90,00,000, 9% Debenture of `50 each at a discount of 8%, redeemable at par any time after 9 years. Record necessary entries in the books of A. Ltd. for issue of debentures.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c | Dr. | 41,40,00,000 | ||
| To 9% Debentures Application and allotment A/c | 41,40,00,000 | ||||
| (Being debenture Application money received @ ₹ 46 each on 90,00,000 9% debentures) | |||||
| (ii) | 9% Debentures Application and allotment A/c | Dr. | 41,40,00,000 | ||
| Discount on issue of Debentures A/c | Dr. | 3,60,00,000 | |||
| To 9% Debenture A/c | 45,00,00,000 | ||||
| (Being 9% debentures money transferred to 9% debenture account) |
Note: A single compound entry can also be passed with Bank and discount on issue of debenture debit and 9% debenture account credit.
5. A.Ltd. issued 4,000, 9% Debentures of ₹100 each on the following terms:
₹20 on Application;
₹20 on Allotment;
₹30 on First call; and
₹30 on Final call.
The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400 Debentures were rejected. All money called and duly received record necessary journal entries.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c (4800 × 20) | Dr. | 96,000 | ||
| To 9% Debenture Application A/c | 96,000 | ||||
| (Being 9% debenture application money received on 4,800 debentures @ ₹20 each) | |||||
| (ii) | 9% Debenture Application A/c | Dr. | 96,000 | ||
| To 9% Debentures A/c (4,00 × 20) | 80,000 | ||||
| To 9% Debenture Allotment A/c (4,000 × 20) | 8,000 | ||||
| To Bank A/c (400 × 20) | 8,000 | ||||
| (Being 9% debenture application money of 4000 debentures transferred to debentures account 400 debentures rejected returned and remaining amount adjusted on allotment) |
|||||
| (iii) | 9% Debenture Allotment A/c | Dr. | 80,000 | ||
| To 9% Debenture A/c | 80,000 | ||||
| (Being 9% debenture allotment due on 4,000 debentures @ ₹ 20 each) | |||||
| (iv) | Bank A/c (Working note) | Dr. | 72,000 | ||
| To 9% Debentures Allotment A/c | 72,000 | ||||
| (Being 9% debenture allotment money received) | |||||
| (v) | 9% Debenture First Call A/c | Dr. | 1,20,000 | ||
| To 9% Debenture A/c | 1,20,000 | ||||
| (Being 9% debenture first call due on 4,000 debenture @ ₹30 each) | |||||
| (vi) | Bank A/c | Dr. | 1,20,000 | ||
| To Debenture First Call A/c | 1,20,000 | ||||
| (Being 9% debenture first call received for 4,000 debentures @ ₹30 each) | |||||
| (vii) | 9% Debenture Final Call A/c | Dr. | 1,20,000 | ||
| To 9% Debenture A/c | 1,20,000 | ||||
| (Being 9% debenture finall call due on 4,000 debentures @ ₹30 each) | |||||
| (viii) | Bank A/c | Dr. | 1,20,000 | ||
| To 9% Debenture Final Call A/c | 1,20,000 | ||||
| (Being 9% debenture final call received on 4,000 debentures @ ₹ 30 each) | 1,20,000 |
Working Note:
Amount due on allotment 4,000 × 20 = 80,000
(–) Amount received on applicable 400 × 20 = (8,000)
Net amount received on allotment = 72,000
6. T. Ltd. offered 2,00,000, 8% Debenture of `500 each on June 30, 2014 at a premium of 10% payable as `200 on application (including premium) and balance on allotment, redeemable at par after 8 years. But application are received for 3,00,000 debenture and the allotment is made on pro-rata basis. All the money due on application and allotment is received. Record necessary entries regarding issue of debenture.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 2014 | Bank A/c | Dr. | 6,00,00,000 | ||
| 30 June | To 8% Debenture Application A/c | 6,00,00,000 | |||
| (Being 8% debenture application money received on 3,00,000 debentures @ ₹ 200 each) | |||||
| 30 June | 8% Debenture Application A/c | Dr. | 6,00,00,000 | ||
| To 8% Debentures A/c (2,00,000 × 150) | 3,00,00,000 | ||||
| To 8% Debenture Allotment A/c (1,00,000 × 200) | 2,00,00,000 | ||||
| To Securities Premium Reserve A/c (2,00,000 × 50) | 1,00,00,000 | ||||
| (Being 8% debenture application money of 2,00,000 debentures @ ₹ 200 each including ₹50 premium transferred to debenture account and rest of the amount adjusted on allotment) |
|||||
| (iii) | 8% Debenture Allotment A/c | Dr. | 7,00,00,000 | ||
| To 8% Debenture A/c | Dr. | 7,00,00,000 | |||
| (Being 8% debenture allotment on 2,00,000 debentures @ ₹ 350 due) | |||||
| (iv) | Bank A/c | Dr. | 5,00,00,000 | ||
| To 8% Debentures Allotment A/c | 5,00,00,000 | ||||
| (Being 8% debenture allotment money received) |
7. X.Ltd. invited applications for the issue of 10,000, 14% debentures of ₹100 each payable as to ₹20 on application, ₹60 on allotment and the balance on call. The company receives applications for 13,500 debentures, out of which applications for 8,000 debentures are allotted in full, applications for 5,000 debentures were alloted 40% of received application and the remaining applications were rejected. The surplus money on partially allotted applications is utilised towards allotment. All the sums due are duly received. Record necessary journal entries regarding issued of debentures.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c | Dr. | 2,70,000 | ||
| To 14% Debenture Application A/c | 2,70,000 | ||||
| (Being 14% debenture application money for 13,500 debentures @ ₹ 20 each received) | |||||
| (ii) | 14% Debenture Application A/c | Dr. | 2,70,000 | ||
| To 14% Debenture A/c (10,000 × 20) | 2,00,000 | ||||
| To 14% Debenture Allotment A/c (3,000 × 20) | 60,000 | ||||
| To Bank A/c (500 × 20) | 10,000 | ||||
| (Being 14% debenture application money of 10,000 @ ₹ 20 each transferred to 14% debentures account and 500 debentures were rejected and returned and rest of the amount adjusted on allotment) |
|||||
| (iii) | 14% Debenture Allotment A/c | Dr. | 6,00,000 | ||
| To 14% Debenture A/c | 6,00,000 | ||||
| (Being 14% debenture allotment money due to 10,000 debentures @ ₹ 60 each) | |||||
| (iv) | Bank A/c | Dr. | 5,40,000 | ||
| To 14% Debenture Allotment A/c | 5,40,000 | ||||
| (Being 14% debenture allotment money received) | |||||
| (V) | 14% Debenture First and Final Call A/c | Dr. | 2,00,000 | ||
| To 14% debenture A/c | 2,00,000 | ||||
| (Being 14% debenture first and final call money due on 10,000 debentures @ 20 each) | |||||
| (vi) | Bank A/c | Dr. | 2,00,000 | ||
| To 14% Debenture First and Final Call A/c | 2,00,000 | ||||
| (Being 14% debenture first and final call money received on 10,000 debentures @ ₹ 20 each) |
8. R.Ltd. offered 20,00,000, 10% Debenture of ₹200 each at a discount of 7% redeemable at premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c | Dr. | 37,20,00,000 | ||
| To 10% Debenture Application and Allotment A/c | 37,20,00,000 | ||||
| (Being debenture application and allotment money received by 20,00,000, 10% debentures @ ₹ 200 each at 7% discount) |
|||||
| (ii) | 10% Debenture Application and Allotment A/c | Dr. | 37,20,00,000 | ||
| Loss on issue of Debenture A/c | Dr. | 3,20,00000 | |||
| Discount on issue of Debenture A/c | Dr. | 2,80,00,000 | |||
| To 10% Debenture A/c | 40,00,00,000 | ||||
| To Premium on Redemption of Debenture A/c | 3,20,00,000 | ||||
| (Being Allotment of 20,00,000 debenture @ ₹ 200 each at 7% discount with the term of 8% premium on redemption) |
9. M.Ltd. took over assets of ₹9,00,00,000 and liabilities of ₹70,00,000 of S.Ltd. and issued 8%Debenture of ₹100 each. Record necessary entries in the books of M. Ltd.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Sundry Assets | Dr. | 9,00,00,000 | ||
| To Sundry Liabilities A/c | 70,00,000 | ||||
| To S Ltd. (Balance figure as Capital) | 8,30,00,000 | ||||
| (Being assets and liabilities of S Ltd. taken over) | |||||
| (ii) | S Ltd. | Dr. | 8,30,00,000 | ||
| To 8% Debentures A/c (Working Note) | 8,30,00,000 | ||||
| (Being 8,30,000 8% debentures @ 100 each issued to S Ltd. in consideration of assets and liabilities) |
Working Note:
Amount Payable to S, Ltd. by M Ltd = ₹ 8,30,00,000
No. of 8% Debentures of ₹ 100 each to be issued =
$$=\frac{8,30,00,000}{100}$$
= 8,30,000 Debentures.
10. B. Ltd. purchased assets of the book value of ₹ 4,00,000 and took over the liability of ₹50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at ₹3,80,000, be paid by issuing debentures of ₹100 each. What Journal entries will be made in the following three cases, if debentures are issued: (a) at par; (b) at 10% discount; (c) at premium of 10%. It was agreed that any fraction of debentures be paid in cash.
Ans. (a)
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Sundry Assets A/c | Dr. | 4,00,000 | ||
| Goodwill A/c (Balancing figure) | Dr. | 30,000 | |||
| To Sundry Liabilities A/c | 50,000 | ||||
| To Mohan Bros | 3,80,000 | ||||
| (Being assets and liabilities of Mohan Bros taken over) | |||||
| (ii) | Mohan Bros | Dr. | 3,80,000 | ||
| To Debenture A/c | 3,80,000 | ||||
| (Being 3,800 debentures of 100 each issued to Mohan Bros in consideration of assets and liabilities) |
Working Note:
Amount payable to Mohan Bros = ₹ 3,80,000
Number of Debenture to be issued at par =
$$\frac{3,80,000}{100}$$
= 3,800 Debentures.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Sundry Assets A/c | Dr. | 4,00,000 | ||
| Goodwill A/c | Dr. | 30,000 | |||
| To Sundry Liabilities A/c | 50,000 | ||||
| To Mohan Bros | 3,80,000 | ||||
| (Being assets and liabilities of Mohan Bros taken over) | |||||
| (ii) | Mohan Bros | Dr. | 3,80,000 | ||
| Discount on Issue of Debenture A/c | Dr. | 42,220 | |||
| To Debenture A/c | 4,22,200 | ||||
| To Bank A/c | 20 | ||||
| (Being 4,222 debentures of ₹100 each issued at 10% discount) |
Working Note:
Amount payable to Mohan Bros = ₹ 3,80,000
Number of debentures to be issued at discount of 10%
$$\text{Number of debentures to be issued}\\ =\frac{3,80,000}{90}=4222.22\space\text{debenture}$$
No of debentures issued = 4222 debentures.
(c)
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Sundry Assets A/c | Dr. | 4,00,000 | ||
| Goodwill A/c | Dr. | 30,000 | |||
| To Sundry Liabilities A/c | 50,000 | ||||
| To Mohan Bros | 3,80,000 | ||||
| (Being assets and liabilities of Mohan Bros taken over) | |||||
| (ii) | Mohan Bros | Dr. | 3,80,000 | ||
| To Debenture A/c | 3,45,400 | ||||
| To Securities Premium Reserve A/c | 34,540 | ||||
| To Bank A/c (Balance figure) | 60 | ||||
| (Being issue of 3,454 debentures at 10% premium and balance paid in cash) |
Working Note:
Amount payable to Mohan Bros = ₹ 3,80,000
Number of debentures to be issued at premium of 10%
$$=\frac{3,80,000}{110}=\text{3,454 Debentures.}$$
11. X.Ltd. purchased a Machinery from Y Ltd. at an agreed purchase consideration of ₹4,40,000 to be satisfied by the issue of 12% debentures of ₹100 each at a premium of Rs.10 per debenture. Journalise the transactions.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Machinery A/c | Dr. | 4,40,000 | ||
| To Y Ltd. | 4,40,000 | ||||
| (Being machinery purchased from Y) | |||||
| (ii) | Y | Dr. | 4,40,000 | ||
| To 12% Debentures A/c | 4,00,000 | ||||
| To Securities Premium Reserve A/c | 40,000 | ||||
| (Being issued of 4,000 debentures at premium of 10%) |
Working Note:
Amount payable to Y = ₹4,40,000
Number of debentures to be issued at 10% premium
$$=\frac{4,40,000}{110}$$
= 4,000 Debentures.
12. X.Ltd. issued 15,000, 10% debentures of ₹100 each. Give journal entries present in it the Balance Sheet in each of the following cases:
(i) The debentures are issued at a premium of 10%;
(ii) The debentures are issued at a discount of 5%;
(iii) The debentures are issued as a collateral security to bank against a loan of ₹12,00,000; and
(iv) The debentures are issued to a supplier of machinery costing ₹13,50,000.
Ans. (i)
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c | Dr. | 16,50,000 | ||
| To 10% debenture application and allotment A/c | 16,50,000 | ||||
| (Being debenture money received on 15,000 debenture of ₹ 100 each at a pennium of ₹ 10) | |||||
| (ii) | 10% debenture application and allotment A/c | Dr. | 16,50,000 | ||
| To 10% debenture A/c | 15,00,000 | ||||
| To securities premium Reserve A/c | 1,50,000 | ||||
| (Debenture money transferred to debenture A/c) |
| Particulars | L.F. | Current Year | Previous Year |
| I. EQUITY AND LIABILITIES | |||
| 1. Shareholders funds | |||
| (a) Reserves and Surplus | 1 | 1,50,000 | |
| 2. Non-current liabilities | |||
| (a) Long term borrowings | 2 | 15,00,000 | |
| Total | 16,50,000 | ||
| II. ASSETS | |||
| 1. Current Assets | |||
| (a) Cash and cash equivalent | 3 | 16,50,000 |
Notes to account:
| Particulars | Amount (₹) |
| 1. Reserves and Surplus | |
| Securities Premium Reserves A/c | 1,50,000 |
| 2. Long Term Borrowings | |
| 15,000, 10% debentures of ₹ 100 each | 15,00,000 |
| 3. Cash and cash equivalents | |
| Cash at Bank | 16,50,000 |
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c | Dr. | 14,25,000 | ||
| To 10% debenture application and allotment A/c | 14,25,000 | ||||
| (Debenture money received) | |||||
| (ii) | 10% debenture application and allotment A/c | Dr. | 14,25,000 | ||
| Discussed on issue of debenture A/c | Dr. | 75,000 | |||
| To 10% debentures A/c | 15,00,000 | ||||
| (Debentures money transferred to debenture A/c) |
| Particulars | L.F. | Current Year | Previous Year |
| I. EQUITY AND LIABILITIES | |||
| 1. Non-current liabilities | |||
| (a) Long term borrowings | 1 | 15,00,000 | |
| II. ASSETS | |||
| 1. Current Assets | |||
| (a) Cash and cash equivalents | 2 | 14,25,000 | |
| (b) Other Current Assets | 3 | 75,000 |
Notes to Account:
| Particulars | Amount (₹) |
| 1. Long-term borrowings | |
| 15,000, 10% debentures of ₹100 each | 15,00,000 |
| 2. Cash and Cash equivalents | 1 |
| Cash at bank | 14,25,000 |
| 3. Other Current Assets | |
| Miscellaneous expenditure discount on issue of debentures | 75,000 |
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | First Method: | ||||
| Bank A/c | Dr. | 12,00,000 | |||
| To Bank loan A/c | 12,00,000 | ||||
| (Loan raised from bank) | |||||
| (ii) | No entry for debentures issued as collateral | ||||
| (i) | Second Method: | ||||
| Bank A/c | Dr. | 12,00,000 | |||
| To Bank loan A/c | 12,00,000 | ||||
| (loan raised from bank) | |||||
| (ii) | Debenture suspense A/c | Dr. | 15,00,000 | ||
| To 10% debenture A/c | 15,00,000 |
Balance Sheet
| Particulars | L.F. | Current Year | Previous Year |
| I. EQUITY AND LIABILITIES | |||
| 1. Non-current liabilities | |||
| (a) Long term borrowings | 1 | 12,00,000 | |
| II. ASSETS | 1 | 12,00,000 | |
| 1. Current Assets | |||
| (a) Cash and cash equivalents | 2 | 12,00,000 |
Notes to Account:
| Particulars | Amount (₹) | |
| 1. Long-term borrowings | ||
| Bank loan | 12,00,000 | |
| 15,000, 10% debentures of ₹ 100 each | 15,00,000 | |
| 10% debenture suspense A/c | (15,00,000) | |
| 2. Cash and Cash equivalents | ||
| Cash at bank | 12,00,000 |
(iv)
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| Machinery A/c | Dr. | 13,50,000 | |||
| To vendor A/c | 13,50,000 | ||||
| (Being machinery purchased from vendor) | |||||
| Vendor A/c | Dr. | 13,50,000 | |||
| Discount on issue of debenture | Dr. | 1,50,000 | |||
| To 10% of debentures A/c | 15,00,000 | ||||
| (Being 15,000, 10% debentures @ ₹ 100 each issued at 10% discount to the vendor) |
| Particulars | L.F. | Current Year | Previous Year |
| I. EQUITY AND LIABILITIES | |||
| 1. Non-current liabilities | |||
| (a) Long-term borrowings | 1 | 15,00,000 | |
| Total | 15,00,000 | ||
| II. ASSETS | |||
| 1. Non-Current Assets | 2 | 13,50,000 | |
| (a) Fixed assets | |||
| 2. Current Assets | |||
| Other Current Assets | 3 | 1,50,000 | |
| Total | 15,00,000 |
Notes to Account:
| Particulars | Amount (₹) |
Amount (₹) |
| 1. Long-term borrowings | ||
| 15,000, 10% debentures of ₹100 each | 15,00,000 | |
| 2. Fixed Assets | ||
| Machinery | 13,50,000 | |
| 3. Other Current-Assets | ||
| Miscellaneous expenditure | ||
| Discount on issue of debentures | 1,50,000 |
13. Journalise the following:
(i) A debenture issued at ₹95, repayable at ₹100;
(ii) A debenture issued at ₹95, repayable at ₹105; and
(iii) A debenture issued at ₹100, repayable at ₹105;
The face value of debenture in each of the above cases is ₹100.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c | Dr. | 95 | ||
| To debenture application and allotment A/c | 95 | ||||
| (Debenture money received) | 95 | ||||
| Debenture application and allotment A/c | Dr. | 95 | |||
| Discount on issue of debentures A/c | Dr. | 5 | |||
| To debentures A/c | |||||
| (Being debenture money received @ ₹ 95 on discount of ₹ 5 transferred to debenture A/c) | 100 | ||||
| (ii) | Bank A/c | Dr. | 95 | ||
| To debenture application and allotment A/c | |||||
| (Debenture money received) | |||||
| Debenture application and allotment A/c | Dr. | 95 | |||
| Discount on issue of debenture A/c | Dr. | 5 | |||
| Loss on issue of debenture A/c | Dr. | 5 | |||
| To debenture A/c | 100 | ||||
| To premium on redemption of debentures A/c | 5 | ||||
| (Debenture money transferred) | |||||
| (iii) | Bank A/c | Dr. | 100 | ||
| To 10% debenture application and allotment A/c | 100 | ||||
| (Debenture money received) | |||||
| 10% debenture application and allotment A/c | Dr. | 100 | |||
| Loss on issue of debenture A/c | Dr. | 5 | |||
| To 10% debentures A/c | 100 | ||||
| To premium on redeption of debenture | 5 | ||||
| (Money received transferred to debenture A/c) | 5 |
14. A.Ltd. issued 50,00,000, 8% Debenture of `100 at a discount of 6% on April 01,
2018 redeemable at premium of 4% by draw of lots as under:
20,00,000 Debentures on March, 2020
10,00,000 Debentures on March, 2021
20,00,000 Debentures on March, 2022
Record journal entries for issue for debentures. Prepare discount/loss on issue of debenture account.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 2018 | Bank A/c | Dr. | 47,00,00,000 | ||
| 1 April | To 8% debenture application and allotment A/c | 47,00,00,000 | |||
| (Debenture money received) | |||||
| 1 April | 8% debenture application and allotment A/c | Dr. | 47,00,00,000 | ||
| Discount on issue of debentures A/c | Dr. | 3,00,00,000 | |||
| Loss on issue of debentures A/c | Dr. | 2,00,00,000 | |||
| To 8% debentures A/c | 2,00,00,000 | 50,00,00,000 | |||
| To premium on redemption of debentures A/c | 2,00,00,000 | ||||
| (Money transferred to debentures A/c) | |||||
| 2019 | Statement a profit and loss | Dr. | 5,00,00,000 | ||
| 31 March | To discount on issue of debentures A/c | 3,00,00,000 | |||
| To loss on issue of debentures A/c | 2,00,00,000 | ||||
| (Discount and loss on issue written off) |
| Date | Particulars | Amount | Date | Particulars | Amount |
| 2018 | 2019 | ||||
| 1 April | To 8% debentures A/c | 3,00,00,000 | 31 March | By statement of profit and loss | 5,00,00,000 |
| 1 April | To premium on redemption of debentures A/c | 2,00,00,000 | |||
| 5,00,00,000 | 5,00,00,000 |
15. A listed company issues the following debentures:
(i) 10,000, 12% debentures of ₹100 each at par but redeemable at premium of 5% after 5 years;
(ii) 10,000, 12% debentures of ₹100 each at a discount of 10% but redeemable at par after 5 years;
(iii) 5,000, 12% debentures of ₹1000 each at a premium of 5% but redeemable at par after 5 years;
(iv) 1,000, 12% debentures of ₹100 each issued to a supplier of machinery costing ₹95,000. The debentures are repayable after 5 years; and
(v) 300, 12% debentures of ₹100 each as a collateral security to a bank which has advanced a loan of ₹25,000 to the company for a period of 5 years. Pass the journal entries to record the: (a) issue of debentures; and (b) repayment of debentures after the given period.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | Bank A/c | Dr. | 10,00,000 | Amt. (Cr) | |
| To 12% Debenture Application and allotment A/c | 10,00,000 | ||||
| (Being debenture application money of 10,000 12% debenture @ ₹100 each received) | |||||
| 12% Debenture Application and allotment A/c | Dr. | 10,00,000 | |||
| Loss on Issue of Debenture A/c | Dr. | 50,000 | |||
| To 12% Debenture A/c | 10,00,000 | ||||
| To Premum or Redemption of Debenture A/c | 50,000 | ||||
| (Being debenture application money of 10,000 12% debentures @ ₹100 each transferred to 12% debentures account and the debentures are issued with term of repayable at 5% premium) |
|||||
| (ii) | Bank A/c | Dr. | 9,00,000 | ||
| (Being debenture application money received excluding discount on issue) | |||||
| 12% Debenture Application and Allotment A/c | Dr. | 9,00,000 | |||
| Discount on Issue of Debenture A/c | Dr. | 1,00,000 | |||
| To 12% Debenture A/c | Dr. | 10,00,000 | |||
| (Being debenture allotment made due) | |||||
| Statement of profit and loss | Dr. | 1,00,000 | |||
| To Discount on issue of debenture A/c | 1,00,000 | ||||
| (iii) | Bank A/c | Dr. | 52,50,000 | ||
| To 12% Debenture Application and Allotment A/c | 52,50,000 | ||||
| (Being debenture application money received) | |||||
| Debenture Application and Allotment A/c | Dr. | 52,50,000 | |||
| To 12% Debenture A/c | 50,00,000 | ||||
| To Security Premium Reserves A/c (5,000 × 50) | 2,50,000 | ||||
| (Being allotment of debenture at premium) | |||||
| (iv) | Machinery A/c | Dr. | 95,000 | ||
| To Vendor A/c | 95,000 | ||||
| (Being machinery purchased from supplier) | |||||
| Vendor A/c | Dr. | 95,000 | |||
| Discount on Issue of Debenture A/c | Dr. | 5,000 | |||
| To 12% Debenture A/c | 1,00,000 | ||||
| (Being debenture issue at discount to vendor of machinery) | 1,00,000 | ||||
| (v) | 12% Debenture Suspense A/c | Dr. | 30,000 | ||
| To Debenture A/c | 30,000 | ||||
| (Being 300, 12% Debentures of ₹100 each issued as collateral security to the back against a loan of ₹25,000) |
(b)
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| (i) | 12% Debenture A/c | Dr. | 10,00,000 | ||
| Premium on Redemption of Debenture A/c | Dr. | 50,000 | |||
| To Debenture Holders A/c | 10,50,000 | ||||
| (Being amount due on redemption of debentures) | |||||
| Debenture Holders A/c | Dr. | 10,50,000 | |||
| To Bank A/c | 10,50,000 | ||||
| (Being payment made to debenture holders) | |||||
| (ii) | 12% Debenture A/c | Dr. | 10,00,000 | ||
| To Debenture Holders A/c | 10,00,000 | ||||
| (Being amount due on redemption of debentures) | |||||
| Debenture Holders A/c | Dr. | 10,00,000 | |||
| To Bank A/c | 10,00,000 | ||||
| (Being payment made to debenture holders) | |||||
| (iii) | 12% Debenture A/c | Dr. | 50,00,000 | ||
| To Debenture Holders A/c | 50,00,000 | ||||
| (Being amount due on redemption of debentures) | |||||
| Debenture Holders | Dr. | 50,00,000 | |||
| To Bank A/c | 50,00,000 | ||||
| (Being payment made to debenture holders) | |||||
| (iv) | 12% Debenture A/c | Dr. | 1,00,000 | ||
| To Vendor A/c | 1,00,000 | ||||
| (Being amount due to vendor) | |||||
| Vendor A/c | Dr. | 1,00,000 | |||
| To Bank A/c | 1,00,000 | ||||
| (Being payment made to vendor) | |||||
| (v) | 12% Debenture A/c | Dr. | 30,000 | ||
| To Debenture Suspense A/c | 30,000 | ||||
| (Being debenture and debenture suspense account closed) |
16. A listed company issued debentures of the face value of ₹5,00,000 at a discount of 6% on April 01, 2014. These debentures are redeemable by annual drawings of ₹1,00,000 made on March, 31 each year. starting from March, 31, 2016. Give journal for issue of debentures, writing off discount and regarding redemption also.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 2014 | Bank A/c | Dr. | 4,70,000 | ||
| 1 April | To Debenture application and allotment A/c | Dr. | 4,70,000 | ||
| (Debenture money received) | |||||
| 1 April | Debenture application and allotment A/c | Dr. | 4,70,000 | ||
| Discount on issue of debentures A/c | Dr. | 30,000 | |||
| To Debentures A/c | 5,00,000 | ||||
| (Debenture money transferred to debenture A/c) | |||||
| 2015 | Statement of profit and loss | Dr. | 30,000 | ||
| 31 March | To Discount on issue of debentures A/c | 30,000 | |||
| (Discount on debentures written off | |||||
| 3 March | Surplus in statement of profit and loss | 50,000 | |||
| To Debenture Redemption Reserve A/c | 50,000 | ||||
| (5,00,000 × 10%, ₹50,000; transferred to DRR) | |||||
| 30 April | Debenture Redemption Investment A/c | Dr. | 15,000 | ||
| To Bank A/c | 15,000 | ||||
| (Investment equal to 1,00,000 × 15% = 15,000 made) | |||||
| 2016 | Debentures A/c | Dr. | 1,00,000 | ||
| 31 March | To debenture holders A/c | 1,00,000 | |||
| (Amount transferred to debenture holders) | |||||
| 31 March | Debenture holders to A/c | Dr. | 1,00,000 | ||
| To Bank A/c | 1,00,000 | ||||
| (Payment made to debenture holder) | |||||
| 31 March | Debentures Redemption Reserve | Dr. | 10,000 | ||
| To General Reserve A/c | 10,000 | ||||
| (DRR money transferred to General Reserve) | |||||
| 2017 | Debentures A/c | Dr. | 1,00,000 | ||
| 31 March | To debenture holder A/c | 1,00,000 | |||
| (Amount transferred to debenture holders for redemption) | |||||
| 31 March | Debenture Redemption Research A/c | Dr. | 10,000 | ||
| To General Reserve A/c | 10,000 | ||||
| Proportionate amount transformed from DRR to General reserve) | |||||
| 2018 | Debentures A/c | Dr. | 1,00,000 | ||
| 2018 | To Debenture holders A/c | 1,00,000 | |||
| (Money transferred to debenture holder for redemption) | |||||
| Debenture holders A/c | Dr. | 1,00,000 | |||
| To bank A/c | 1,00,000 | ||||
| (Payment made to debenture holders) | |||||
| Debenture Redemption Reserve A/c | Dr. | 10,000 | |||
| To General Reserve A/c | 10,000 | ||||
| (Proportionate amount transferred from DRR) to General Reserve | |||||
| 2019 | Debentures A/c | Dr. | 1,00,000 | ||
| To Debenture holders A/c | 1,00,000 | ||||
| (Money transferred to debenture holders for redemption | |||||
| Debenture holders A/c | Dr. | 1,00,000 | |||
| To Bank A/c | 1,00,000 | ||||
| (Payment made to debenture holders) | |||||
| Debenture Redemption Reserve A/c | Dr. | 10,000 | |||
| To General Reserve A/c | 10,000 | ||||
| (Proportionate amount transferred from DRR to General reserve) | |||||
| 2020 | Bank A/c | Dr. | 15,000 | ||
| To Debenture Redemption Investment A/c | 15,000 | ||||
| (Investments enchased) | |||||
| Debenture A/c | Dr. | 1,00,000 | |||
| To Debenture holders A/c | 1,00,000 | ||||
| (Money transferred to debenture holders for redemption) | |||||
| Debentures A/c | Dr. | 1,00,000 | |||
| To Bank A/c | 1,00,000 | ||||
| (Payment made to debenture holders) | |||||
| Debenture Redemption Reserve A/c | Dr. | 10,000 | |||
| To General Reserve A/c | 10,000 | ||||
| (Proportional amount transferenced to General reserve) |
17. B. Ltd. a listed company issued debentures at 94% for ₹4,00,000 on April 01, 2011 repayable by five equal drawings of ₹80,000 each. The company prepares its final accounts on March 31 every year. Give journal entries for issues and redemption of debenture.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 2011 | Bank A/c | Dr. | 3,76,000 | ||
| 1 April | To Debenture application and allotment A/c | Dr. | 3,76,000 | ||
| (Debentures money received) | |||||
| 1 April | Debenture application and allotment A/c | Dr. | 3,76,000 | ||
| Discount on issue of debentures A/c (6% on 4,00,000) | Dr. | 24,000 | |||
| To Debentures A/c | 4,00,000 | ||||
| (Being debenture money transferred to debenture A/c) | |||||
| 2012 | Statement of profit and loss | Dr. | 24,000 | ||
| 31 March | To Discount on issue of debentures A/c | 24,000 | |||
| (Discount written off) | |||||
| Statement of profit and loss | Dr. | 40,000 | |||
| To Debenture Redemption Reserve A/c | 40,000 | ||||
| (DRR created @ 10% on value of debentures | |||||
| Debenture Redemption Investment A/c | Dr. | 12,000 | |||
| To Bank A/c (15% of 80,000) | 12,000 | ||||
| (DRI created @ 15% of value of debenture tot he redremed) | |||||
| Debentures A/c | Dr. | 80,000 | |||
| To debenture holders A/c | 80,000 | ||||
| (Amount of debentures to be redeemed transferred to debenture holders) | |||||
| (Amount of debentures to be redeemed transferred to debenture holders) | |||||
| Debenture holders to A/c | Dr. | 80,000 | |||
| To Bank A/c | 80,000 | ||||
| (Payment made to debenture holders) | |||||
| Debentures Redemption Reserve A/c | Dr. | 8,000 | |||
| To General Reserve A/c | 8,000 | ||||
| (Proportionate amount of DRR transferred to General reserve) $$\bigg(\frac{40000}{5}=8000\bigg)$$ | |||||
| Debentures A/c | Dr. | 80,000 | |||
| To debentureholders A/c | 80,000 | ||||
| (Amount of debentures transferred to debenture holders) | |||||
| Debentureholders A/c | Dr. | 80,000 | |||
| To Bank A/c | 80,000 | ||||
| (Payment made to debenture holders) | |||||
| Debenture Redemption Reserve A/c | Dr. | 8,000 | |||
| To debenture holder A/c | 80,000 | ||||
| (Amount of debentures to the redemption transferred to debenture holders) | 80,000 | ||||
| Debentureholders A/c | Dr. | 80,000 | |||
| To bank A/c | 80,000 | ||||
| (Payment made to debenture holders) | |||||
| Debenture Redemption Reserve A/c | Dr. | 8,000 | |||
| To General Reserve A/c | 8,000 | ||||
| (Proportionate amount of DRR transferred to General Reserve) | |||||
| Bank A/c | Dr. | 12,000 | |||
| To Debenture Redemption Investment A/c | 12,000 | ||||
| (Investments enchased) | |||||
| Debentures A/c | Dr. | 80,000 | |||
| To debentureholders A/c | 80,000 | ||||
| (Amount of debentures to be redeemed transferred to debenture holders) | |||||
| Debenture holders A/c | Dr. | 80,000 | |||
| To bank A/c | 80,000 | ||||
| (Payment made to debenture holders) | |||||
| Debenture Redemption Reserve A/c | Dr. | 8,000 | |||
| To General Reserve A/c | 8,000 | ||||
| (Proportionate amount transferred from DRR to General reserve) |
18. B. Ltd. issued 1,000, 12% debentures of ₹100 each on April 01, 2014 at a discount of 5% redeemable at a premium of 10%. Give journal entries relating to the issue of debentures and debentures interest for the period ending March 31, 2015 assuming that interest is paid half yearly on September 30 and March 31 and tax deducted at source is 10%.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 2014 | |||||
| 1 April | Bank A/c | Dr. | 95,000 | ||
| To 12% debenture application and allotment A/c | 95,000 | ||||
| (debenture money received) | |||||
| 1 April | 12% Debenture Application and allotment A/c | Dr. | 95,000 | ||
| Loss on issue on Debentures A/c (W.Note) | Dr. | 15,000 | |||
| To 12% Debenture A/c | 1,00,000 | ||||
| To Premium on Redemption of Debenture A/c | 10,000 | ||||
| (Being debenture issued at discount and redeemable at premium) | |||||
| 30 Sept. | Debenture interest A/c | Dr. | 6,000 | ||
| To Income Tax Payable A/C (TDS) | 600 | ||||
| To Debentures Holder A/c | 5,400 | ||||
| (Being amount of interest on 12% debentures ₹10,00,000 due for 6 months and 10% tax deducted at source) |
|||||
| 30 Sept. | Income Tax Payable A/c | Dr. | 600 | ||
| To bank A/c | 600 | ||||
| (TDS paid) | |||||
| 30 Sept. | Debenture Holders A/c | Dr. | 5,400 | ||
| To Bank A/c | 54,00 | ||||
| (Being interest paid to debenture holders) | |||||
| 2015 | Debenture Interest A/c | Dr. | 6,000 | ||
| 31 March | To Income Tax Payable A/c (TDS) | 600 | |||
| To Debenture holders A/c | 5,400 | ||||
| (Being amount of interest on 12% debentures ₹1,00,000 due for 6 months and 10% tax deduction at source) |
|||||
| 31 March | Income Tax Payables A/c | Dr. | 600 | ||
| To Bank A/c | 600 | ||||
| (TDS paid) | |||||
| 31 March | Debenture holders to A/c | Dr. | 5,400 | ||
| To Bank A/c | 5,400 | ||||
| (Being interest paid to debenture holders) | |||||
| 31 March | Statement of profit and loss | Dr. | 27,000 | ||
| To Debenture Interest A/c | 12,000 | ||||
| To Loss on issue of debentures A/c | 15,000 | ||||
| (Being interest debenture and loss on issue of debentured written off) |
19. Jay Kay Ltd. an ‘other listed company’ issued 60,000 12% debentures of ₹100 each at par redeemable at the end of 5 years at a premium of 20%. On this date, there existed a balance of ₹5,00,000 in securities premium reserve account. The company created the required amount of debenture redemption reserve in 3 equal instalments on March 31, 2017, 2018 and 2019. It invested in specified securities (DRI) the required amount on April, 01 of the financial year Debentures were duly redeemed on the record necessary journal entries for :
(i) Issue of debentures
(ii) Writing off loss on issue of debentures.
(iii) Interest and debentures for 2015-16 assuring if is paid annually & tax deducted at source is 10%.
(iv) Regarding redemption of debentures.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 1. | Bank A/c | Dr. | 60,00,000 | ||
| To 12% Debenture application and allotment A/c | 60,00,000 | ||||
| (Being debenture money received) | |||||
| 2. | 12% Debenture application and allotment A/c | Dr. | 60,00,000 | ||
| Loss on issue on debenture A/c | 12,00,000 | ||||
| To 12% Debenture A/c | 60,00,000 | ||||
| To Premium on redemption of debentures A/c | 12,00,000 | ||||
| (Being amount transfer to Debenture A/c) | |||||
| 3. | Securities Premium Reserve A/c | Dr. | 5,00,000 | ||
| Statement of Profit and Loss | Dr. | 7,00,000 | |||
| To Loss on issue of debenture A/c | 12,00,000 | ||||
| (Being loss charged to securities premium reserve A/c and statement of profit and loss) | |||||
| 4. | Debenture Interest A/c | Dr. | 7,20,000 | ||
| To Debenture holder A/c | 6,48,000 | ||||
| To Tax deducted at Source | 72,000 | ||||
| (Being Debenture interest due) | |||||
| 5. | Tax deducted at Source A/c | Dr. | 72,000 | ||
| To Bank A/c | 72,000 | ||||
| (Being T.D.S. deposited) | |||||
| 6. | Debenture holder A/c | Dr. | 6,48,000 | ||
| To Bank A/c | 6,48,000 | ||||
| (Being net interest paid to holder) | |||||
| 7. | Statement of profit and loss | Dr. | 6,00,000 | ||
| To Debenture Redemption Reserve A/c | 6,00,000 | ||||
| (DRR made @ 10% of value to debenture to be redeemed) | |||||
| 8. | Debenture Redemption Investment A/c | Dr. | 9,00,000 | ||
| To Bank A/c | 9,00,000 | ||||
| (Investments made for redemption) | |||||
| 9. | Bank A/c | Dr. | 9,00,000 | ||
| To Debendure Redemption Investment A/c | 9,00,000 | ||||
| (Investments encashed) | |||||
| 10. | 12% Debenture A/c | Dr. | 60,00,000 | ||
| Premium on redemption A/c | Dr. | 12,00,000 | |||
| To Debenture holder A/c | 72,00,000 | ||||
| (Being amount paid to debenture holder) | |||||
| 11. | Debenture A/c | Dr. | 72,00,000 | ||
| To Bank A/c | 72,00,000 | ||||
| (Being amount paid to debenture holder) | |||||
| Debenture Redemption Reserve A/c | Dr. | 6,00,000 | 6,00,000 | ||
| To General Reserve A/c |
20. Madhur Ltd., has outstanding 9% debentures of ₹50,00,000 redeemable at par on January 01, 2020. Debenture Redemption Reserve of ₹2,00,000 on March 31, 2018 and balance of required amount of DRR was created on March 31, 2019. The company invested in specified securities (DRI) the required amount on April 01, 2019. Debentures were redeemed on the due date. Record necessary journal entries in the books of the company and also prepare the ledger accounts (ignore interest).
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 2019 | |||||
| 31 March | Surplus in statement of profit and loss | Dr. | 3,00,000 | ||
| To Debenture Redemption Reserve A/c | 3,00,000 | ||||
| (Balance of required amount of DRR transferred Total DRR = 50,00,000 × 10% = ₹5,00,000) | |||||
| 2019 | Debenture Redemption Investment A/c | Dr. | 7,50,000 | ||
| 1 April | To Bank A/c (50,00,000 × 15%) | 7,50,000 | |||
| To Bank A/c (50,00,000 × 15%) | |||||
| (Investments made) | |||||
| 2020 | Bank A/c | Dr. | 7,50,000 | ||
| 1 Jan. | To Debenture Redemption Investment A/c | 7,50,000 | |||
| (Investments encashed) | |||||
| 1 Jan. | 9% Debentures A/c | Dr. | 50,00,000 | ||
| To Debenture holders A/c | 50,00,000 | ||||
| (Amount to be rapid transferred to debenture holders) | |||||
| 1 Jan. | Debenture holders A/c | Dr. | 50,00,000 | ||
| To Bank A/c | 50,00,000 | ||||
| (Payment made to debenture holders) | |||||
| 1 Jan. | Debenture Redemption Reserve A/c | Dr. | 5,00,000 | ||
| To General Reserve A/c | 5,00,000 |
| Date | Particulars | Amount | Date | Particulars | Amount |
| 2020 | 2019 | ||||
| 1 Jan. | To debenture holders A/c | 50,00,000 | 31 March | By balance b/d | 50,00,000 |
| 50,00,000 | 50,00,000 |
| Date | Particulars | Amount | Date | Particulars | Amount |
| 2020 | 2018 | ||||
| 1 Jan. | To General Reserve A/c | 5,00,000 | 31 March | By balanced b/d | 2,00,000 |
| 2019 | |||||
| 31 March | |||||
| By surplus in statement of profit and loss | |||||
| 3,00,000 | |||||
| 5,00,000 | 5,00,000 |
| Date | Particulars | Amount | Date | Particulars | Amount |
| 2019 | 2020 | ||||
| 1 April | By bank A/c | 7,50,000 | 1 Jan. | To Bank A/c | 7,50,000 |
| 7,50,000 | 7,50,000 |
| Date | Particulars | Amount | Date | Particulars | Amount |
| 2020 | 2020 | ||||
| 1 Jan. | To Bank A/c | 5,00,000 | 1 Jan. | By 99% debenture A/c | 50,00,000 |
21. MK Ltd. has outstanding ₹30,000 11% debentures of `100 each redeemable at 10% premium as follows :
March 31, 2018 - 10,000 debentures
March 31, 2019 - 12,000 debentures
March 31, 2020 - Remaining debentures
Pass necessary journal entries in the books of the company.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 2017 | Surplus in statement of profit and loss | Dr. | 3,00,000 | ||
| 31 March | To Debenture Redemption Reserve A/c | 3,00,000 | |||
| (DRR created equal to (30,000 × 100) × 10% = 3,00,000) | |||||
| 2017 | Debenture Redemption Investment A/c | Dr. | 1,50,000 | ||
| 30 April | To Bank A/c | 1,50,000 | |||
| (Investments made @ 15% value of investments = 10,000 × 100 × 15% = 1,50,000) | |||||
| 2018 | 11% Debentures A/c | Dr. | 10,00,000 | ||
| 31 March | Premium on redemption of debentures A/c | 1,00,000 | |||
| To Debenture holders A/c | 11,00,000 | ||||
| (Payment to be made to debenture holder) | |||||
| 31 March | Debenture holders | Dr. | 11,00,000 | ||
| To Bank A/c | 11,00,000 | ||||
| (Payment made of debenture holders) | |||||
| 31 March | Debenture Redemption Reserve A/c | Dr. | 1,00,000 | ||
| To General Reserve A/c | 1,00,000 | ||||
| (Proportionate amount transferred to general reserve : $$\frac{3,00,000}{30,000}×10,000=1,00,000)$$ | |||||
| 2018 | Debenture Redemption Investment A/c | Dr. | 30,000 | ||
| 30 April | To Bank A/c | 30,000 | |||
| (Additional investments made 2,000 × 100 × 15% = 30,000) | |||||
| 2019 | Bank A/c | Dr. | 60,000 | ||
| 31 March | To Debenture Redemption Investment A/c | 60,000 | |||
| (Investments enchased) (4,000 × 100 × 15% = 60,000) | |||||
| 31 March | 11% debentures A/c | Dr. | 12,00,000 | ||
| Premium redemption of debentures A/c | Dr. | 1,20,000 | |||
| To debenture holders A/c | 13,20,000 | ||||
| (Payment to be made to debenture holder) | |||||
| 31 March | Debenture holders A/c | Dr. | 13,20,000 | ||
| To bank A/c | 13,20,000 | ||||
| (Payment made to debenture holders) | |||||
| 31 March | Debenture Redemption Reserve A/c | Dr. | 1,20,000 | ||
| To General Reserve A/c | 1,20,000 | ||||
| (Proportional amount transferred to general reserve $$\frac{3,00,000}{30,000}×12,000=1,20,000)$$ | |||||
| 2020 | Bank A/c | Dr. | 1,20,000 | ||
| 31 March | To Debenture Redemption Investment A/c | 1,20,000 | |||
| (Investments enchased) | |||||
| 31 March | 11% debentures A/c | Dr. | 8,00,000 | ||
| Premium on redemption of debentures A/c | 80,000 | ||||
| To debenture holder A/c | 8,80,000 | ||||
| (Payment to be made to debenture holders) | |||||
| 31 March | Debenture holders A/c | Dr. | 8,80,000 | ||
| To bank A/c | 8,80,000 | ||||
| (Payment made to debenture holders) | |||||
| 31 March | Debenture Redemption Reserve A/c | Dr. | 80,000 | ||
| To General Reserve A/c | 80,000 | ||||
| (Proportionate amount transferred from DRR to General Reserve, $$\frac{3,00,000}{30,000}×8,000=80,000)$$ |
22. X Ltd. had outstanding 20,000 12% debentures of ₹100 each redeemable on June 30, 2019. Record necessary journal entries at the time of redemption.
Ans.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 2019 | |||||
| June 30 | 12% Debenture A/c | Dr. | 20,00,000 | ||
| To Debenture holders A/c | 20,00,000 | ||||
| (Being the amount due on redemption of 20,000, 12% debentures of ₹100 each) | |||||
| June 30 | Debenture holders A/c | Dr. | 20,00,000 | ||
| To Bank A/c | 20,00,000 | ||||
| (Being the payment made to debenture holders for 20,000, 12% debentures of ₹100 each) |
Calculation the amount due on redemption:
Outstanding debentures = 20,000
Redemption price = ₹ 100 per debenture
Total Amount due on redemption = Outstanding Debentures × Redemption price
= 20,000 × ₹100
= ₹ 20,00,000.
23. XYZ Ltd. Issued 6,000, 12% Debentures of `50 each on April 1, 2014. Interest on these debenture is payable annually 31 March each year. The debentures are redeemable in four equal installments at end of third, fourth, fifth and sixth year. You are required to pass the journal entries at the time of issue and redemption of debentures in the books of the company under following cases:
(i) Debentures are issued at par and redeemable at par.
(ii) Debentures are issued at a premium of 10% and redeemable at par.
(iii) Debentures are issued at a discount of 10% and redeemable at par.
(iv) Debenture are issued at par but redeemable at a premium of 10%.
(v) Debentures are issued at a premium of 10% and redeemable at premium of 10%.
(vi) Debenture are issued at a discount of 10% and redeemable at a premium of 10%.
Ans. (i) Debentures are issued at par and redeemable at par.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 1. | Bank A/c | Dr. | 3,00,000 | ||
| 1. | To Debenture application and allotment A/c | 3,00,000 | |||
| (Being debenture money received) | |||||
| 2. | Debenture application and allotment A/c | Dr. | 3,00,000 | ||
| To 12% Debenture A/c | 3,00,000 | ||||
| (Being amount transfer to debenture) | |||||
| 3. | 12% Debenture A/c | Dr. | 75,000 | ||
| To Debenture holder A/c | 75,000 | ||||
| (Being amount transfer to debenture holder) | |||||
| 4. | Debenture holder A/c | Dr. | 75,000 | ||
| To Bank A/c | 75,000 | ||||
| (Being amount paid to debenture holder) |
(ii) Debentures are issued at a premium of 10% and redeemable at par.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 1. | Bank A/c | Dr. | 3,30,000 | ||
| To Debenture application and allotment A/c | 3,30,000 | ||||
| (Being debenture money received) | |||||
| 2. | Debenture application and allotment A/c | Dr. | 3,30,000 | ||
| To 12% Debenture A/c | 3,00,000 | ||||
| To Securities Premium Reserve A/c | 30,000 | ||||
| (Being amount transfer to debenture) | |||||
| 3. | 12% Debenture A/c | Dr. | 75,000 | ||
| To Debenture holder A/c | 75,000 | ||||
| (Being amount transfer to debenture holder) | |||||
| 4. | Debenture holder A/c | Dr. | 75,000 | ||
| To Bank A/c | 75,000 | ||||
| (Being amount paid to debenture holder) |
(iii) Debentures are issued at a discount of 10% and redeemable at par.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 1. | Bank A/c | Dr. | 2,70,000 | ||
| To Debenture application and allotment A/c | 2,70,000 | ||||
| (Being debenture money received) | |||||
| 2. | Debenture application and allotment A/c | Dr. | 2,70,000 | ||
| Discount on issue of Debenture A/c | Dr. | 30,000 | |||
| To 12% Debenture A/c | 3,00,000 | ||||
| (Being amount transfer to debenture) | |||||
| 3. | Statement of profit and loss | Dr. | 30,000 | ||
| To loss on issue of debenture A/c | 30,000 | ||||
| (Discount written off) | |||||
| 4. | 12% Debenture A/c | Dr. | 75,000 | ||
| To Debenture holder A/c | 75,000 | ||||
| (Being amount transfer to debenture holder) | |||||
| 5. | Debenture holder A/c | Dr. | 75,000 | ||
| To Bank A/c | 75,000 | ||||
| (Being amount paid to debenture holder) |
(iv) When debenture are issued at par but redeemable at a premium of 10%.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 1. | Bank A/c | Dr. | 3,00,000 | ||
| To Debenture application and allotment A/c | 3,00,000 | ||||
| (Debenture money received) | |||||
| 2. | Debenture application and allotment A/c | Dr. | 3,00,000 | ||
| Loss on issue of debenture A/c | Dr. | 30,000 | |||
| To 12% debenture A/c | 3,00,000 | ||||
| To premium on redemption of debenture A/c | 30,000 | ||||
| (Debenture money transferred) | |||||
| 3. | Statement of profit and loss | Dr. | 30,000 | ||
| To loss on issue of debenture A/c | 30,000 | ||||
| (Loss on issue of debenture written off) | |||||
| 4. | 12% debenture A/c | Dr. | 75,000 | ||
| Premium on Redemption Debenture A/c | 7,500 | ||||
| To Debenture holder A/c | 82,500 | ||||
| (Payment due to debenture holder) | |||||
| 5. | Debenture holder A/c | Dr. | 82,500 | ||
| To Bank A/c | 82,500 | ||||
| (Payment made to debenture holder) |
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 1. | Bank A/c | Dr. | 3,30,000 | ||
| To Debenture application and allotment A/c | 3,30,000 | ||||
| (Being debenture amount received) | |||||
| 2. | Debenture application and allotment A/c | Dr. | 3,30,000 | ||
| Loss on issue of Debenture A/c | Dr. | 30,000 | |||
| To 12% Debenture A/c | 3,00,000 | ||||
| To Securities Premium Reserve A/c | 30,000 | ||||
| To Premium on Redemption A/c | 30,000 | ||||
| (Being amount transfer to debenture) | |||||
| 3. | Securities Premium Reserve A/c | Dr. | 30,000 | ||
| To loss on issue of debenture A/c | 30,000 | ||||
| (Loss on issue written off) | |||||
| 4. | 12% Debenture A/c | Dr. | 75,000 | ||
| Premium on Redemption A/c | 7,500 | ||||
| To Debenture holder A/c | 82,500 | ||||
| (Being amount transfer to debenture holder) | |||||
| 5. | Debenture holder A/c | Dr. | 82,500 | ||
| (Being amount paid to debenture holder) |
(vi) Debenture are issued at a discount of 10% and redeemable at a premium of 10%.
| Date | Particulars | L.F. | Amt. (Dr) | Amt. (Cr) | |
| 1. | Bank A/c | Dr. | 2,70,000 | ||
| To Debenture application and allotment A/c | 2,70,000 | ||||
| (Being debenture amount received) | |||||
| 2. | Debenture application and allotment A/c | Dr. | 2,70,000 | ||
| Loss on issue of Debenture A/c | Dr. | 60,000 | |||
| To 12% Debenture A/c | 3,00,000 | ||||
| To premium on redemption of debenture A/c | 30,000 | ||||
| (Being amount transfer to debenture) | |||||
| 3. | Statement of profit & loss | Dr. | 60,000 | ||
| To loss on issue of debenture A/c | 60,000 | ||||
| 4. | 12% Debenture A/c | Dr. | 75,000 | ||
| Premium on Redemption Debenture A/c | 7,500 | ||||
| To Debenture holder A/c | 82,500 | ||||
| (Being amount transfer to debenture holder) | |||||
| 5. | Debenture holder A/c | Dr. | 82,500 | ||
| To Bank A/c | 82,500 | ||||
| (Being amount paid to debenture holder) |
