NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2

Accountancy is an important part of the Commerce subject. Accountancy is defined as the profession of an accountant. The profession involves measuring, monitoring, processing and communicating financial information of a company. It also includes managing financial transactions and recording them, preparing tax returns and keeping records of all financial transactions. A lot of practice is required to grasp the fundamentals of accounting.

 

The chapter Issue and Redemption of Debentures covers the account handling of debenture issues, redemptions, and other relevant topics.

  • NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2- Issue and Redemption of Debentures, created by the Extramarks, help students prepare this chapter in detail through well explained answers of the NCERT questions. Students have already learnt some of its concepts in the previous class. Hence, this chapter presents further explanations of the already learned relevant concepts.
  • NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2 proves significantly fruitful for the students in their forthcoming Board Examination. Not just these Solutions, students can use the Extramarks website to access several other study tools. NCERT books, CBSE revision notes, CBSE sample papers, CBSE past years’ question papers, and other study materials are available to registered students.

 

Key Topics Covered In NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2

Below is a list of primary topics covered in NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2- Issue and Redemption of Debentures.

Differentiating between Shares and Debentures
Types of Debentures
Issue of Debentures
Over Subscription
Issue of Debentures for Consideration other than Cash
Issue of Debentures as a Collateral Security
Terms of Issue of Debentures
Interest on Debentures
Loss on Issue of Debentures
Redemption of Debentures

Let us dive into the detailed notes on each sub-topic in NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2- Issue and Redemption of Debentures.

 

Differentiating between Shares and Debentures

When it comes to putting your finances into the stock market, shares and debentures are standard terms. Equity and debt are the two most common paths for businesses to generate funds for development and growth.

  • Meaning of Debenture:

A Debenture is a financial instrument that a firm uses to fund long-term borrowing. In this case, the money is borrowed capital, making the Debenture holder a creditor of the company. The debentures are redeemable and non-redeemable, with a set interest rate and unfettered transferability. It is unsecured and is solely supported by the issuer’s reputation. Unlike shareholders, debenture holders, who are the company’s creditors, have no voting rights. 

Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2 tells about the types of Debentures:

  • Bearer debentures
  • Non-convertible debentures
  • Secured debentures
  • Convertible debentures
  • Registered debentures
  • Unsecured debentures
  • Meaning of Shares

A small portion of a company’s capital is designated as shares, often sold in the stock market to raise cash for the company. The share price is the price at which an investor purchases a share. Because they possess a percentage of the company’s stock, shareholders are eligible to receive the dividend specified by the organisation. 

The shares are transferable and transportable, and they are divided into two portions:

  • Equity shares
  • Preference shares 

 

Types of Debentures

From The Point Of View Of Security:

  • Secured Debentures:  Secured debentures are when a charge is placed on the enterprise’s properties or assets to make a payment. The fee may be either floating or fixed.
  • Unsecured Debentures:  They do not have a specific charge on the company’s assets. By default, a floating charge on these debentures may be formed. These debentures are often not distributed.

 

From The Point Of View Of Tenure:

  • Redeemable Debentures:  These debentures are due at the end of the period, which can be paid either in one lump payment or in installments during the business’s life.
  • Irredeemable Debentures:  These debentures are also known as Perpetual Debentures since the corporation makes no attempt to return money obtained or borrowed by circulating such debentures.

 

From The Point Of View Of Convertibility:

  • Convertible Debentures:  Convertible Debentures are debt instruments that can be converted into equity shares or any other security at the discretion of the company or the debenture holders.
  • Non-convertible Debenture:  Non-convertible debentures cannot be converted into shares or other securities.

 

From the Point Of View Of The Coupon Rate:

  • Specific Coupon Rate Debentures:  These debentures are issued with a specified rate of interest, which is referred to as the coupon rate.
  • Zero-Coupon Rate Debentures:  The interest rate on these debentures is usually not specified. Such debentures are circulated at a significant discount to recover investors. The difference between the nominal value and the distributed price is the amount of interest connected with the debentures’ tenure.

 

From The Point Of View Of Registration:

  • Registered Debentures:  These debentures are those in which all of the debenture holders’ information, including addresses, names, and holding details, is recorded in a register maintained by the company.
  • Bearer Debentures:  These debentures can be transferred by delivery, and the firm does not maintain track of who owns them. The individual who delivers the interest coupon attached to debentures receives the interest.

 

Issue of Debentures

The issue of Debenture appears to be quite similar to a company’s stock offering. Money can be gathered in a flat sum or installments here. The two are treated similarly in terms of accounting. The debentures can now be issued for various reasons, including cash. Debentures are frequently issued or circulated as collateral security.

 

Over Subscription

The term “oversubscription of shares” refers to a situation in which a corporation obtains applications for many more shares than the company has made available to the public. The SEBI standards do not allow for outright rejection of applications, although they can be refused if the information is inaccurate or the application money is insufficient.

As a result, the company can allocate shares to individuals in three ways or alternatives. In the following lines, several options are described:

  • Total rejection of some applications.
  • Accepting some applications in total.
  • Pro-rata allotment to some applicants.

 

Issue of Debentures for Consideration other than Cash

Debentures can sometimes be granted for reasons that involve no cash. A firm may buy any other company or purchase assets from a vendor. Instead of paying by cash, the corporation will settle the payment by issuing debentures to the vendors.

Debentures can be issued in different ways:

  • For purchase of Assets.
  • For issue of debentures at par.
  • For issue of debentures at a discount.
  • For issue of debentures at a premium.

 

Issue of Debentures as a Collateral Security

Collateral Security is a subsidiary (secondary) protection mechanism frequently demanded by banks and implied to ensure a debtor’s compliance with the loan obligation. The primary security on a significant trading loan is usually the portion that is being funded, such as a shipment or a corporate automobile or a factory. Nevertheless, the bank may require collateral or secondary security to assist in the guarantee process to return the loan on time. In such cases, the company may issue its debentures to the lenders and other guaranteed assets. Debentures issued as Collateral Security’ is the name given to this form of debenture.

In the records of the company, debentures issued as collateral security can be traded in two ways:

  • Method 1:  No entry is made in the books of accounts since such an issue creates no responsibility. On the liability side of the balance sheet, however, a notation is attached to the section loan stating that the circulation of debentures has safeguarded it as collateral security.
  • Method 2: Debenture circulation as collateral security may be noted in the journal’s books.

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Terms of Issue of Debentures

The activity of a firm issuing a certificate under its seal to recognise any debt that the company has taken is referred to as the issue of debentures. The procedure of issuing debentures is similar to that of giving shares by a corporation. A prospectus will be issued, applications from interested parties will be accepted, and letters of allocation will be issued.

If your application is denied, your money will be reimbursed, and if your application is only partially accepted, your money will be utilised in future calls. Extramarks NCERT Solutions Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2 discusses the issuance of Debenture in the following ways.

Debentures can be issued in the following ways:

  • As a Collateral security
  • By Cash
  • Consideration other than Cash

Debentures can also be issued in three different ways, depending on the terms of the issue:

  • At Par
  • At Discount
  • At Premium

 

Interest on Debentures

The interest payment is a reward given to all the debenture holders for investing in the company’s debentures. Interest is usually paid on the face value of the debentures in a periodic systematic way at a defined rate of interest, and it is recognised as a charge on earnings.

Interest on debentures is a charge that runs counter to the business’s profit and must be paid whether or not the company makes a profit. If a firm exceeds the suggested limit, the Income Tax Act of 1981 requires it to deduct income tax at the recommended interest rate due to debentures. TDS is collected and lodged with the appropriate tax authorities.

 

Loss on Issue of Debentures

The loss/discount on the issuance of debentures is usually a capital loss or a bogus asset that must be written off throughout the life of debentures. The advantage of debentures would accumulate to the company until their restitution or redemption. The amount of loss or discount on issuing debentures cannot be written off during the year of issue.

The reduction might be charged to either a Securities Premium A/c or wiped down over three to five years via the profit and loss statement, according to ICAI advice (The Institute of Chartered Accountants of India).

There are two techniques for writing off losses or discounts on debenture issues against revenue earnings that can be accepted. 

  • Fixed instalment method.
  • Fluctuating the instalment method.

 

Redemption of Debentures

The payment of the number of debentures by the company is called debenture redemption. Liability on account of debentures is discharged when debentures are recovered. To put it differently, the quantity of money required to redeem debentures is substantial. Therefore economic businesses set aside sufficient profits and accumulate capital to reclaim debentures.

The debentures can be redeemed in four different ways, namely:

  • By converting the debt into stock or debentures.
  • Purchase in the open market.
  • Installment payments.
  • Lump-sum payments.

 

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The following are some significant reasons why students should choose Extramarks:

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Q.1 What is meant by a Debenture?

Ans.

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 fixed rate payable usually half yearly on fixed dates.

Q.2 What does a Bearer Debenture mean?

Ans.

Bearer debentures are the debentures which can be transferred by way of delivery and the company does not keep any record of the debentureholders. Interest is paid to the person who produces the interest coupon attached to such debentures.

Q.3 State the meaning of ‘Debentures issued as a collateral security’.

Ans.

A collateral security may be defined as a subsidiary security or additional security besides the primary security when a company obtains a loan or overdraft from bank or any other financial institutions. It may pledge or mortgage some assets as a secured loan against the said loan. But the lending institutions may insist on additional assets as collateral security so that the amount of loan can be realised in full with the help of collateral security in case the amount from the sale of principal security falls short of the loan money. In such situation, the company may issue its own debentures to the lenders in addition to some assets already pledged. Such an issue of debentures is known as ‘Debentures issued as Collateral Security’.

Q.4 What is meant by ‘Issue of debentures for consideration other than cash’?

Ans.

Sometimes a company purchase assets from vendors and instead of making payment in cash issues debentures for consideration thereof. Such issue of debentures is called ‘Issue of debentures for consideration other than cash’. The debentures may be issued at par, premium or discount.

Q.5 What is meant by ‘Issue of debentures at discount and redeemable at premium’?

Ans.

In this debentures are issued at discount and repayable at premium. For example, debenture of face value of ₹100, issued at price of ₹95, but on the date of redemption the debentureholder will get ₹105.

Q.6 What is ‘Capital Reserve’?

Ans.

A reserve created out of capital profits is Capital Reserve. It is not created out of the profits earned in the normal course of business. Capital reserve may be created out of profit on sale of fixed assets, profit on revaluation of assets and liabilities etc.

Q.7 What is meant by an ‘Irredeemable Debenture’?

Ans.

In such debentures the company does not give any undertaking for the repayment of money borrowed by issuing such debentures. These debentures are repayable on the winding up of the company.

Q.8 What is a ‘Convertible Debenture’?

Ans.

Debentures which are convertible into equity shares or in any other security either at the option of the company or the debentureholders are called ‘Convertible Debenture’.

Q.9 What is meant by ‘Mortgaged Debentures’?

Ans.

Mortgage debentures are debentures in which the loan is secured against a company’s fixed assets. In a mortgage debenture specific funds or property are pledged as security.

Q.10 What is discount on issue of debentures?

Ans.

When a debenture is issued at a price below its nominal value. It is said to be issued at discount. For example, the issue of ₹100 debenture at ₹95, ₹5 being the amount of discount.

Q.11 What is meant by ‘Premium on Redemption of Debentures’?

Ans.

Premium on redemption of debentures means discharge of liability on account of debentures by the repayment made to the debenture holders at a premium (higher than the nominal value).

Q.12 How debentures are different from shares? Give two points.

Ans.

Basis Debentures Shares
Ownership A debenture is acknowledgement of debt and is a part of borrowed capital. A share is a part of owned capital and represents ownership capital.
Return The return is called interest and is charge on profits of the company. The return is called dividend and is appropriation of profits.

Q.13 Name the head under which ‘discount on issue of debentures’ appears in the balance sheet of a company.

Ans.

The portion of discount on issue of debentures to be written off within 12 months is shown under the head ‘Other Current Assets’. The portion to be written off after 12 months is shown under the head ‘Other Non-current Assets’.

Q.14 What is meant by Redemption of Debentures?

Ans.

Redemption of debentures refers to discharging the liability on account of debentures in accordance with the terms of the issue. In other words, redemption of debentures means repayment of the amount of debentures by the company.

Q.15 Can the company purchase its own debentures?

Ans.

Yes, a company can purchase its own debentures for the purpose of cancellation. Such an act of purchasing and cancelling the debentures constitutes redemption of debentures by purchase in the open market.

Q.16 What is meant by redemption of debentures by conversion?

Ans.

A company can redeem its debentures by converting them into shares. If the debentureholders finds the offer is beneficial to them, they can exercise their right of converting their debentures into shares.

Q.17 How would you deal with ‘Premium on redemption of debentures’?

Ans.

Premium on redemption of debentures is credited at the time of issue of debentures. It is debited at the time of redemption of debentures with premium on redemption.

Q.18 What is meant by redemption out of capital?

Ans.

Redemption out of capital implies no profits are set aside for redemption of debentures. In such a case no profits are transferred to Debenture Redemption Reserve.

Q.19 What is meant by redemption of debentures by purchase in the open market?

Ans.

When a company purchases its own debentures in the open market for the purpose of immediate cancellation, the purchase and cancellation of such debentures are termed as redemption by purchase in the open market.

Q.20 Under which head is the Debenture Redemption Reserve shown in the Balance Sheet?

Ans.

Debenture redemption reserve is shown under the main head Shareholders’ Funds and sub-head Reserves and Surplus in the Equity and Liabilities part of the Balance Sheet.

Q.21 Explain the different types of debentures.

Ans.

A company may issue different kinds of debentures which can be classified as follows:

From the point of view of Security:

(1) Secured debentures: It refers to those debentures where a charge is created on the assets of the company for the purpose of payment in case of default.

(2) Unsecured debentures: These debentures do not have a specific charge on the assets of the company.

From the point of view of Tenure:

(1) Redeemable debentures: Debentures which are payable on the expiry of the specific period either in lump sum or in installments during the life of the company.

(2) Irredeemable debentures: In case of these debentures the company does not give any undertaking for the repayment of money borrowed by issuing such debentures.

From the point of view of Convertibility:

(1) Convertible debentures: These are the debentures which are convertible into equity shares or in any other security either at the option of the company or debentureholders.

(2) Non-Convertible debentures: These are the debentures which cannot convertible into equity shares or in any other security.

From the point of view of Coupon rate:

(1) Specific coupon rate debentures: These debentures are issued with a specified rate of interest. The specified rate may either be fixed or floating. The floating rate is usually tagged with the bank rate.

(2) Zero coupon rate debentures: These debentures do not carry any interest. In order compensate the investors such debentures are issued at substantial discount and difference between the nominal value and the issue price is treated as the amount of interest related to the duration of the debentures.

From the point of view of Registration:

(1) Registered debentures: These are the debentures in respect of which all details including names, addresses and particulars of holding of the debenture holders are entered in a register kept by the company.

(2) Bearer debentures: The record of such debentures is not available with the company and bearer debentures are transferred by mere delivery. Interest on debentures is paid to a person who produces the interest coupon attached to such debentures.

Q.22 Distinguish between a debenture and a share. Why debenture is known as loan capital. Explain.

Ans.

Basis Debentures Shares
Ownership A debenture is acknowledgement of debt and is a part of borrowed capital. A share is a part of owned capital and represents ownership capital.
Return The return is called interest and is charge on profits of the company. The return is called dividend and is appropriation of profits.
Repayment These are issued for a specified period and repayable on the expiry of that period. The amount is not returned during the life of company.
Voting rights Debentureholders normally do not have any voting rights. Shareholders enjoy voting rights.
Issue at discount These are no restrictions on issue of debentures at discount. Shares cannot be issued at discount except Sweat Equity Shares.
Risk Debentureholders are safe as they are normally secured. They are at a greater risk. Even they can lose the amount invested in shares.

Debenture represents debt capital as it is an acknowledgement of debt by the company, which carries specified rate of interest, normally are secured against the assets of the company and are repayable as per the terms of the issue.

Q.23 Describe the meaning of ‘Debentures issued as a collateral securities’. What accounting treatment is given to the issue of debentures in the books of accounts?

Ans.

A collateral security may be defined as a subsidiary security or additional security besides the primary security when a company obtains a loan or overdraft from bank or any other financial institutions. It may pledge or mortgage some assets as a secured loan against the said loan. But the lending institutions may insist on additional assets as collateral security so that the amount of loan can be realised in full with the help of collateral security in case the amount from the sale of principal security falls short of the loan money. In such situation, the company may issue its own debentures to the lenders in addition to some assets already pledged. Such an issue of debentures is known as ‘Debentures issued as Collateral Security’.

Debentures issued as a collateral security can be dealt in two ways in the books of accounts of the company.

First method:

No entry is made in the books of accounts since no liability is created by such issue. However, on the liability side of the Balance Sheet, below the items of the loan a note to the effect that it has been secured by issue of debentures as a collateral security is appended. For example, 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. This fact may be shown in the Balance Sheet as under:

Balance Sheet (Extract)

Particulars Note no. ₹
I. Equity and Liabilities
1. Non-current Liabilities
Long-term Borrowings 25,000

Notes to Accounts:

Particulars ₹
1. Long-term Borrowings
Bank Loan 25,000
(Secured by issue of 300, 12% debentures of ₹100 each as Collateral Security)

Second method: The issue of debentures as a collateral security may be recorded by means of journal entry as follows:

At the time of issue of debentures as collateral security:

 12% debenture suspense a/c Dr. 30,000
To 12% debentures a/c 30,000
(300, 12% debentures of ₹100 each issued as a collateral security to a bank)

Balance Sheet (Extract)

Particulars Note no. ₹
I. Equity and Liabilities
1. Non-current Liabilities
Long-term Borrowings 25,000

Notes to Accounts:

Particulars ₹
1. Long-term Borrowings
Bank Loan 25,000
300 12% debentures of ₹100 each as Collateral Security) 30,000
Less: Debenture Suspense 30,000 —-
25,000

At the time of cancellation of debentures issued as collateral security (after repayment of loan amount):

(ii) 12% debentures a/c Dr. 30,000
To 12% debenture suspense a/c 30,000
(Debenture and debenture suspense account closed)

Q.24 Explain the different terms for the issue of debentures with reference to their redemption.

Ans.

When a company issues debentures, it usually mentions the terms on which they will be redeemed on their maturity. Depending upon the terms and conditions of issue and redemption of debentures, the following six situations are commonly found in practice:

(i) Issued at par, redeemable at par

(ii) Issued at discount, redeemable at par

(iii) Issued at premium, redeemable at par

(iv) Issued at par, redeemable at premium

(v) Issued at discount, redeemable at premium

(vi) Issued at premium, redeemable at premium

(i) Issued at par, redeemable at par: In this case debenture of face value of ₹100, issued at ₹100 and repayable at ₹100.

(ii) Issued at discount, redeemable at par: In this case debenture of face value of ₹100, issued at ₹90 and repayable at ₹100.

(iii) Issued at premium, redeemable at par: In this case debenture of face value of ₹100, issued at ₹110 and repayable at ₹100.

(iv) Issued at par, redeemable at premium: In this case debenture of face value of ₹100, issued at ₹100 and repayable at ₹110.

(v) Issued at discount, redeemable at premium: In this case debenture of face value of ₹100, issued at ₹90 and repayable at ₹110.

(vi) Issued at premium, redeemable at premium: In this case debenture of face value of ₹100, issued at ₹105 (or ₹110) and repayable at ₹110 (or ₹105).

Q.25 Differentiate between redemption of debentures out of capital and out of profits.

Ans.

1. Redemption of debentures out of capital: When before or at the time of redemption profits are neither required by law nor otherwise transferred to DRR, such redemption is said to be out of capital. Section 73 of the Companies Act, 2013 restricts redemption of debentures out of capital by requiring every company (except All India Financial Institutions and Banking Companies) to create Debenture Redemption Reserve out of profits available for dividends.

2. Redemption of Debentures out of Profits: It implies adequate amount of profits are transferred to Debenture Redemption Reserve out of profit available for dividend. According to section 71(4) of the Companies Act 2013, company requires creating a debenture redemption reserve account out of profits of the company available for payment of dividend and the balance in debenture redemption reserve account shall be utilised for the purpose of redemption of debentures only. The company is required to transfer at least 25% of the value of debentures to DRR before the redemption of debentures.

Q.26 Explain the guidelines of SEBI for creating DRR.

Ans.

SEBI Guidelines for redemption of debentures:

  1. The creation of Debenture Redemption Reserve (i.e., DRR) is obligatory only for non-convertible debentures and non-convertible portion of partly convertible debentures.
  2. A company shall create DRR equivalent to at least 25% of the amount of debentures issued before starting the redemption of debentures.

Hence, a Company cannot redeem its debentures purely out of capital. Atleast 25% 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 and out of capital.

Q.27 Describe the steps for creating Sinking Fund for redemption of debentures.

Ans.

The steps involved in the working of sinking fund method are:

  1. Calculate the amount of profit to be set aside annually with the help of sinking fund table.
  2. Set aside the amount of profit at the end of each year and credit to Debenture Redemption Fund (DRF) account.
  3. Purchase the investments of the equivalent amount at the end of first year and debit Debenture Redemption Fund Investment (DRFI) Account.
  4. Receive interest on investment at the end of each subsequent year.
  5. Purchase the investments equivalent to the fixed amount of profit set aside and the interest earned every year except last year (i.e. year of redemption).
  6. Receive interest on investment for the last year.
  7. Set aside the fixed amount of profit for the last year.
  8. Encash the investments at the end of the year of redemption.
  9. Transfer the profit/loss on sale of investments reflected in the balance of Debenture Redemption Fund Investment Account to Debenture Redemption Fund Account.
  10. Make payment to debentureholders
  11. Transfer Debenture Redemption Fund Account balance to General Reserve.

Note: Presently sinking fund method of redemption of debentures is not in CBSE syllabus.

Q.28 Can a company purchase its own debentures in the open market? Explain.

Ans.

Yes a company can purchase its own debentures for the purpose of cancellation. Such an act of purchasing and cancelling the debentures constitutes redemption of debentures by purchase in the open market. The advantage of such an option is that a company can redeem the debentures at its convenience, whenever it has surplus funds. Secondly, the company can purchase them when they are available in market at a discount.

When debentures are redeemed by purchasing them in the open market

Journal Entries

(i) When out of profits

Particulars Dr. ₹ Cr. ₹
(i) Profit and loss app. a/c Dr.
To Deb. Redemption reserve a/c
(Profit transferred to debenture redemption reserve)
Own debentures a/c Dr.
To Bank a/c
(Own debentures purchased from open market)
Debentures’ a/c Dr.
To Own debentures a/c
(Own debentures cancelled)

(ii) When out of capitals

Particulars Dr. ₹ Cr. ₹
Own debentures a/c Dr.
To Bank a/c
(Own debentures purchased from open market)
Debentures’ a/c Dr.
To Own debentures a/c
(Own debentures cancelled)

Presently conversion of debentures is not in CBSE syllabus.

Q.29 What is meant by Conversion of debentures? Describe the method of such a conversion.

Ans.

A company can redeem its debentures by converting them into shares or new class of debentures. If the debentureholders find that the offer is beneficial for them, they can exercise their right of converting their debentures into shares or new class of debentures. These new debentures (or shares) can be issued at par, at a discount or at a premium. It should be noted that only actual proceeds of debentures are to be taken into account for ascertaining the number of shares to be issued in lieu of the debentures to be converted. If debentures were originally issued at discount, the actual amount realised from them at the time of issue would be used as the basis for computing the actual number of shares to be issued. It may be remembered that this method is applicable only to convertible debentures.

Q.30

G. Ltd. a listed company issued 75,00,000, 6% debentures 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 debentures.
Record necessary entries in the books of Company.

Ans.

Journal Entries

Particulars Dr. ₹ Cr. ₹
Bank a/c Dr. 11,25,00,000
To 6% debenture application a/c 11,25,00,000
(Application money received on 75,00,000 6% debentures @ ₹15 per debenture)
6% debenture application a/c Dr. 11,25,00,000
To 6% debentures a/c 11,25,00,000
(Application money transferred to 6% debentures account)
6% debenture allotment a/c Dr. 26,25,00,000
To 6% debentures a/c 26,25,00,000
(Debenture allotment money due on 75,00,000 debentures @ ₹35 per debenture)
Bank a/c Dr. 26,25,00,000
To 6% debenture allotment a/c 26,25,00,000
(Allotment money received on 75,00,000 debentures @ ₹35 per debenture)

Q.31

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.

Journal Entries

Particulars Dr. ₹ Cr. ₹
Bank a/c Dr. 50,000
To 6% debenture application a/c 50,000
(Application money received on 2,000 debentures @ ₹25 per debenture)
6% debenture application a/c Dr. 50,000
To 6% debentures a/c 50,000
(Application money transferred to 6% debentures account)
6% debenture allotment a/c Dr. 1,00,000
To 6% debentures a/c 1,00,000
(Debenture allotment money due on 2,000 debentures @ ₹50 per debenture)
Bank a/c Dr. 1,00,000
To 6% debenture allotment a/c 1,00,000
(Allotment money received on 2,000 debentures @ ₹50 per debenture)
6% debentures first and final call Dr. 50,000
To 6% debentures a/c 50,000
(Debenture first and final call money due on 2,000 debentures @ ₹25 each)
Bank a/c Dr. 50,000
To 6% debentures first and final call 50,000
(Debenture first and final call money received on 2,000 debentures @ ₹25 each)

Q.32

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 and also show how the amount will appear in the balance sheet.

Ans.

Journal Entries

Particulars

Dr. ₹

Cr. ₹
Bank a/c

Dr.

1,00,000

To 10% debenture application a/c

1,00,000
(Application money received on 10,000 debentures @ ₹10 per debenture)
10% debenture application a/c

Dr.

1,00,000
To 10% debentures a/c

1,00,000
(Application money transferred to 10% debentures account)
10% debenture allotment a/c

Dr.

2,50,000
To 10% debentures a/c

2,00,000
To securities premium a/c

50,000
(Debenture allotment money due on 10,000 debentures @ ₹25 per debenture including premium)
Bank a/c

Dr.

2,50,000
To 10% debenture allotment a/c

2,50,000
(Allotment money received on 10,000 debentures @ ₹25 per debenture including premium)
10% debentures first and final call a/c

Dr.

7,00,000
To 10% debentures a/c

7,00,000
(Debenture first and final call money due on 10,000 debentures @ ₹70 each)
Bank A/c

Dr.

7,00,000

To 10% debentures first and final call a/c

7,00,000
(Debenture first and final call money received on 10,000 debentures @ ₹70 each)

Balance Sheet (Extract)

Particulars

Note no.

₹
I. Equity and Liabilities

1. Shareholders’ Funds

Reserves and Surplus

50,000
2. Non-current Liabilities

Long-term Borrowings

10,00,000
II Assets

1. Cash and cash equivalents

10,50,000

Notes to Accounts:

Particulars

₹
1. Reserves and Surplus
Securities premium reserve

50,000
2. Long-term Borrowings

10,000 10% debentures of ₹100 each

10,00,000
3. Cash and Cash Equivalents
Cash at bank

10,50,000

Q.33  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 applications are received for 3,00,000 debentures 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 debentures.

Ans.

Journal Entries

Particulars Dr. ₹ Cr. ₹
Bank a/c Dr. 6,00,00,000
To 8% debenture application a/c 6,00,00,000
(Application money received on 3,00,000 debentures @ ₹200 per debenture)
8% debenture application a/c Dr. 6,00,00,000
To 8% debentures a/c 3,00,00,000
To 8% debenture allotment a/c 2,00,00,000
To securities premium a/c 1,00,00,000
(Application money transferred to 8% debentures account, allotment a/c and money of rejected application refunded)
8% debenture allotment a/c Dr. 7,00,00,000
To 8% debentures a/c 7,00,00,000
(Debenture allotment money due on 2,00,000 debentures @ ₹350 per debenture)
Bank a/c Dr. 5,00,00,000
To 8% debenture allotment a/c 5,00,00,000
(Allotment money received on debentures)

Q.34 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.

Journal Entries

Particulars Dr. ₹ Cr. ₹
Bank A/c Dr. 41,40,00,000
To 9% debenture application a/c 41,40,00,000
(Application money received on 90,00,000 9% debentures @ ₹46 per debenture)
9% debenture application a/c Dr. 41,40,00,000
Disc. on issue of debentures a/c Dr. 3,60,00,000
To 9% debentures a/c 45,00,00,000
(Application money transferred to 9% debentures account)
At the end of first year
Statement of Profit and Loss…….Dr. 3,60,00,000
To Disc. on issue of debentures a/c 3,60,00,000
(Being loss on issue of debentures written off against statement of profit and loss)

Q.35 X. Ltd. invites application 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 5000 debentures was allotted 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 issue of debentures.

Ans.

Journal Entries

Particulars Dr. ₹ Cr. ₹
Bank a/c Dr. 2,70,000
To 14% debenture application a/c 2,70,000
(Application money received on 13,500 debentures @ ₹20 per debenture)
14% debenture application a/c Dr. 2,70,000
To 14% debentures a/c 2,00,000
To 14% debenture allotment a/c 60,000
To Bank a/c 10,000
(Application money transferred to 14% debentures account, allotment account and refunded)
14% debenture allotment a/c Dr. 6,00,000
To 14% debentures a/c 6,00,000
(Debenture allotment money due on 10,000 debentures @ ₹60 per debenture)
Bank a/c Dr. 5,40,000
To 14% debenture allotment a/c 5,40,000
(Allotment money received on debentures)
14% debentures first and final call Dr. 2,00,000
To 14% debentures a/c 2,00,000
(Debenture first and final call money due on 10,000 debentures @ ₹20 each)
Bank a/c Dr. 2,00,000
To 14% debentures first and final call 2,00,000
(Debenture first and final call money received on 10,000 debentures @ ₹20 each)

Q.36 R. Ltd. offered 20,00,000, 10% debentures 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.

Journal Entries

Particulars Dr. ₹ Cr. ₹
Bank a/c Dr. 37,20,00,000
To 10% deb. Appl. & allotment a/c 37,20,00,000
(Application and allotment money received on 20,00,000 10% debentures @ ₹200 per debenture at 7% discount)
10% deb. Appl. & allotment a/c Dr. 37,20,00,000
Loss on issue of debentures a/c Dr. 6,00,00,000
To 10% debentures a/c 40,00,00,000
To premium on red. of deb. a/c 3,20,00,000
(Allotment of 20,00,000 debenture @ ₹200 each at 7% discount with the term of 8% premium on redemption)
At the end of first year
Statement of Profit and Loss…….Dr. 6,00,00,000
To Loss on issue of debentures a/c 6,00,00,000
(Being loss on issue of debentures written off against statement of profit and loss)

Q.37 M. Ltd. took over assets of ₹9,00,00,000 and liabilities of ₹70,00,000 of S. Ltd. and issued 8% debentures of ₹100 each.

Record necessary entries in the books of M. Ltd.

Ans.

Journal Entries

Particulars Dr. ₹ Cr. ₹
Sundry assets A/c Dr. 9,00,00,000
To Sundry liabilities a/c 70,00,000
To S. Ltd. 8,30,00,000
(Assets and liabilities of S Ltd. taken over)
S. Ltd. Dr. 8,30,00,000
To 8% debentures a/c 8,30,00,000
(8,30,000 8% debentures @ ₹100 each issued to S Ltd. in consideration of assets taken over)

Q.38 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 considerations 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 discount 10%
(c) at premium of 10%? It was agreed that any fraction of debentures be paid in cash.

Ans.

Case (a)

Journal Entries

Particulars Dr. ₹ Cr. ₹
Sundry assets a/c Dr. 4,00,000
Goodwill a/c (B. Figure) Dr. 30,000
To Sundry liabilities a/c 50,000
To Mohan Bros. 3,80,000
(Assets and liabilities of Mohan Bros. taken over)
Mohan Bros. Dr. 3,80,000
To debentures a/c 3,80,000
(3,800 debentures @ ₹100 each issued to Mohan Bros. in consideration of assets taken over)

Number of debentures to be issued at par = 3,80,000 100  = 3,800 debentures MathType@MTEF@5@5@+=feaaguart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbwvMCKfMBHbqeduuDJXwAKbYu51MyVXgaruWqVvNCPvMCG4uz3bqefqvATv2CG4uz3bIuV1wyUbqeeuuDJXwAKbsr4rNCHbGeaGqiVv0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=xfr=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@7D0E@

Case (b)

Journal Entries

Particulars Dr. ₹ Cr. ₹
Sundry assets A/c Dr. 4,00,000
Goodwill a/c (B. Figure) Dr. 30,000
To Sundry liabilities a/c 50,000
To Mohan Bros. 3,80,000
(Assets and liabilities of Mohan Bros. taken over)
Mohan Bros. Dr. 3,80,000
Disc. on issue of debentures a/c Dr. 42,220
To debentures a/c 4,22,200
To Bank A/c 20
(4,222 debentures @ ₹100 each issued at 10% discount to Mohan Bros. in consideration of assets taken over)

Case (c)

Journal Entries

Particulars Dr. ₹ Cr. ₹
Sundry assets a/c Dr. 4,00,000
Goodwill a/c (B. Figure) Dr. 30,000
To Sundry liabilities a/c 50,000
To Mohan Bros. 3,80,000
(Assets and liabilities of Mohan Bros. taken over)
Mohan Bros. Dr. 3,80,000
To debentures a/c 3,45,400
To securities premium a/c 34,540
To bank a/c 60
(Issued 3454 debentures at 10% premium and balance paid in cash)

Number of debentures to be issued at 10% premium = 3,80,000 110  = 3,454 debentures MathType@MTEF@5@5@+=feaaguart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbwvMCKfMBHbqeduuDJXwAKbYu51MyVXgaruWqVvNCPvMCG4uz3bqefqvATv2CG4uz3bIuV1wyUbqeeuuDJXwAKbsr4rNCHbGeaGqiVv0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=xfr=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@838E@

Q.39 . 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 ₹10 per debenture. Journalise the transactions.

Ans.

Journal Entries

Particulars Dr. ₹ Cr. ₹
Machinery A/c Dr. 4,40,000
To Y 4,40,000
(Machinery purchased from Y)
Y Dr. 4,40,000
To 12% debentures a/c 4,00,000
To securities premium a/c 40,000
(Issued 4,000 debentures at 10% premium)

Number of debentures to be issued at 10% premium = 4,40,000 110  = 4,000 debentures MathType@MTEF@5@5@+=feaaguart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbwvMCKfMBHbqeduuDJXwAKbYu51MyVXgaruWqVvNCPvMCG4uz3bqefqvATv2CG4uz3bIuV1wyUbqeeuuDJXwAKbsr4rNCHbGeaGqiVv0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=xfr=xb9adbaqaaeaacaGaaiaabeqaamaaeaqbaaGceaqabeaacaqGobGaaeyDaiaab2gacaqGIbGaaeyzaiaabkhacaqGGaGaae4BaiaabAgacaqGGaGaaeizaiaabwgacaqGIbGaaeyzaiaab6gacaqG0bGaaeyDaiaabkhacaqGLbGaae4CaiaabccacaqG0bGaae4BaiaabccacaqGIbGaaeyzaiaabccacaqGPbGaae4CaiaabohacaqG1bGaaeyzaiaabsgacaqGGaGaaeyyaiaabshacaqGGaGaaeymaiaabcdacaqGLaGaaeiiaiaabchacaqGYbGaaeyzaiaab2gacaqGPbGaaeyDaiaab2gacaqGGaaabaGaaeypamaalaaabaGaaeinaiaabYcacaqG0aGaaeimaiaabYcacaqGWaGaaeimaiaabcdacaqGGaGaaeiiaaqaaiaabgdacaqGXaGaaeimaiaabccacaqGGaGaaeiiaaaacaaMc8UaaeypaiaabccacaqG0aGaaeilaiaabcdacaqGWaGaaeimaiaabccacaqGKbGaaeyzaiaabkgacaqGLbGaaeOBaiaabshacaqG1bGaaeOCaiaabwgacaqGZbaaaaa@837F@

Q.40 X. Ltd. issued 15,000, 10% debentures of ₹100 each. Give journal entries and present it in the balance sheet in each of the following cases:

  1. The debentures are issued at a premium of 10%.
  2. The debentures are issued at a discount of 5%;
  3. The debentures are issued as a collateral security to bank against a loan of ₹12,00,000; and
  4. The debentures are issued to a supplier of machinery costing ₹13,50,000.

Ans.

Case (i)

Journal Entries

Particulars Dr. ₹ Cr. ₹
Bank a/c Dr. 16,50,000
To 10% debentures a/c 15,00,000
To securities premium a/c 1,50,000
(Issued 15,000 10% debentures of ₹100 each at 10% premium)

Balance Sheet (Extract)

Particulars Note no. ₹
I. Equity and Liabilities
1. Shareholders’ Funds
Reserves and Surplus 1,50,000
2. Non-current Liabilities
Long-term Borrowings 15,00,000
II Assets
1. Cash and cash equivalents 16,50,000

Notes to Accounts:

Particulars ₹
1. Reserves and Surplus
Securities premium reserve 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

Case (ii)
Journal Entries

Particulars Dr. ₹ Cr. ₹
Bank a/c Dr. 14,25,000
Disc. on Issue of debentures a/c Dr. 75,000
To 10% debentures a/c 15,00,000
(Issued 15,000 10% debentures of ₹100 each at 5% discount)

Balance Sheet (Extract)

Particulars Note no. ₹
I. Equity and Liabilities
1. Non-current Liabilities
Long-term Borrowings 15,00,000
II Assets
Current Assets
1. Cash and cash equivalents 14,25,000
2. Other Current Assets 75,000

Notes to Accounts:

Particulars ₹
1. Long-term Borrowings
15,000 10% debentures of ₹100 each 15,00,000
2. Cash and Cash Equivalents
Cash at bank 14,25,000
3. Other Current Assets
Disc. on issue of debentures (unamortised) 75,000
(To be written off within 12 months from the date of Balance Sheet)

Case (iii)

Balance Sheet (Extract)

Particulars Note no. ₹
I. Equity and Liabilities
1. Non-current Liabilities
Long-term Borrowings 12,00,000
II Assets
1. Cash and cash equivalents 12,00,000

Notes to Accounts:

Particulars ₹
1. Long-term Borrowings
Bank Loan

(Secured by issue of 15,000 10% debentures of ₹100 each as Collateral Security)

 12,00,000
2. Cash and Cash Equivalents
Cash at bank 12,00,000

Case (iv)

Journal Entries

Particulars Dr. ₹ Cr. ₹
Machinery a/c Dr. 13,50,000
To Vendor Company 13,50,000
(Machinery purchased from Vendor)
Vendor Company Dr. 13,50,000
Disc. on issue of debentures a/c Dr. 1,50,000
To 10% debentures a/c 15,00,000
(15,000 10% debentures issued to the vendor at 10% discount in consideration of the machinery purchased)

Balance Sheet (Extract)

Particulars Note no. ₹
I. Equity and Liabilities
1. Non-current Liabilities
Long-term Borrowings 15,00,000
II Assets
Non-Current Assets
Fixed Assets
1. Tangible Assets 13,50,000
Current Assets
1. Other Current Assets 1,50,000

Notes to Accounts:

Particulars ₹
1. Long-term Borrowings
15,000 10% debentures of ₹100 each 15,00,000
2. Fixed Assets – Tangible
Machinery 13,50,000
3. Other Current Assets
Disc. on issue of debentures (unamortised) 1,50,000
(To be written off within 12 months from the date of Balance Sheet)

Price of Debentures = 13,50,000 15,000  = ₹90 each MathType@MTEF@5@5@+=feaaguart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbwvMCKfMBHbqeduuDJXwAKbYu51MyVXgaruWqVvNCPvMCG4uz3bqefqvATv2CG4uz3bIuV1wyUbqeeuuDJXwAKbsr4rNCHbGeaGqiVv0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=xfr=xb9adbaqaaeaacaGaaiaabeqaamaaeaqbaaGceaqabeaacaqGqbGaaeOCaiaabMgacaqGJbGaaeyzaiaabccacaqGVbGaaeOzaiaabccacaqGebGaaeyzaiaabkgacaqGLbGaaeOBaiaabshacaqG1bGaaeOCaiaabwgacaqGZbGaaeiiaiaabccaaeaacaqG9aWaaSaaaeaacaqGXaGaae4maiaabYcacaqG1aGaaeimaiaabYcacaqGWaGaaeimaiaabcdacaqGGaGaaeiiaaqaaiaabgdacaqG1aGaaeilaiaabcdacaqGWaGaaeimaiaabccacaqGGaGaaeiiaaaacaaMc8UaaeypaiaabccacaqGGbGaaeyoaiaabcdacaqGGaGaaeyzaiaabggacaqGJbGaaeiAaiaabccaaaaa@67F5@

Q.41 Journalise the following:

  1. A debenture issued at ₹95, repayable at ₹100;
  2. A debenture issued at ₹95, repayable at ₹105; and
  3. A debenture issued at ₹100, repayable at ₹105;

The face value of debenture in each of the above cases is ₹100.

Ans.

Journal Entries

Particulars Dr. ₹ Cr. ₹
(i) Bank a/c Dr. 95
Disc. on issue of Deb. a/c Dr. 5
To Debenture a/c 100
(Debenture issued at a discount of ₹5 and repayable at par)
(ii) Bank a/c Dr. 95
Loss on issue of debentures a/c Dr. 10
To Debenture a/c 100
To premium on redemption of deb. a/c 5
(Debenture issued at discount of ₹5 and repayable at premium of ₹5 )
(iii) Bank a/c Dr. 100
Loss on issue of debentures a/c Dr. 5
To Debenture a/c 100
To premium on redemption of deb. a/c 5
(Debenture issued at par and repayable at premium of ₹5 )

Q.42 A listed company issues the following debentures:

  1. 10,000, 12% debentures of ₹100 each at par at a discount but redeemable at premium of 5% after 5 years.
  2. 10,000, 12% debentures of ₹100 each at a discount of 10% but redeemable at par after 5 years.
  3. 5,000, 12% debentures of ₹1000 each at a premium of 5% but redeemable at par after 5 years.
  4. 1,000, 12% debentures of ₹100 each issued to a supplier of machinery costing ₹95,000. The debentures are repayable after 5 years and
  5. 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.

Journal Entries

Particulars Dr. ₹ Cr. ₹
(i) Bank a/c Dr. 95
Disc. on issue of Deb. a/c Dr. 5
To Debenture a/c 100
(Debenture issued at a discount of ₹5 and repayable at par)
(ii) Bank a/c Dr. 95
Loss on issue of debentures a/c Dr. 10
To Debenture a/c 100
To premium on redemption of deb. a/c 5
(Debenture issued at discount of ₹5 and repayable at premium of ₹5 )
(iii) Bank a/c Dr. 100
Loss on issue of debentures a/c Dr. 5
To Debenture a/c 100
To premium on redemption of deb. a/c 5
(Debenture issued at par and repayable at premium of ₹5 )

Q.43 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 entries for issue of debentures, writing off the discount and regarding redemption of debentures.

Ans.

Journal Entries

Particulars Dr. ₹ Cr. ₹
Bank a/c Dr. 4,70,000
To deb. Appl. & allotment a/c 4,70,000
(Debenture application money received, issued at a discount of 6%)
Deb. Appl. & allotment a/c Dr. 4,70,000
Disc. on issue of debentures a/c Dr. 30,000
To Debentures a/c 5,00,000
(Debenture application money transferred to debentures account)
Statement of Profit and Loss Dr. 30,000
To Disc. on issue of debentures a/c 30,000
(Being discount on issue of debentures written off)

Amount of discount on debentures = 5,00,000 x 6 100  = ₹30,000 MathType@MTEF@5@5@+=feaaguart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbwvMCKfMBHbqeduuDJXwAKbYu51MyVXgaruWqVvNCPvMCG4uz3bqefqvATv2CG4uz3bIuV1wyUbqeeuuDJXwAKbsr4rNCHbGeaGqiVv0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=xfr=xb9adbaqaaeaacaGaaiaabeqaamaaeaqbaaGceaqabeaacaqGbbGaaeyBaiaab+gacaqG1bGaaeOBaiaabshacaqGGaGaae4BaiaabAgacaqGGaGaaeizaiaabMgacaqGZbGaae4yaiaab+gacaqG1bGaaeOBaiaabshacaqGGaGaae4Baiaab6gacaqGGaGaaeizaiaabwgacaqGIbGaaeyzaiaab6gacaqG0bGaaeyDaiaabkhacaqGLbGaae4CaiaabccaaeaacaqG9aGaaGPaVlaabwdacaqGSaGaaeimaiaabcdacaqGSaGaaeimaiaabcdacaqGWaGaaeiiaiaabIhacaqGGaGaaeiiamaalaaabaGaaeOnaaqaaiaabgdacaqGWaGaaeimaaaacaaMc8UaaeypaiaabccacaqGGbGaae4maiaabcdacaqGSaGaaeimaiaabcdacaqGWaGaaeiiaaaaaa@70CA@

Q.44 A company issued 10% debentures of the face value of ₹1,20,000 at a discount of 6% on April 01, 2011. The debentures are payable by annual drawings of ₹40,000 commencing from the end of third year. How will you deal with discount on debentures?

Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on March 31 every year.

Ans.

Discount on Issue of Debentures A/c
Date Particulars ₹ Date Particulars ₹
2011 To 10% deb. a/c 7,200 2012 By P& L a/c 1,800
Apr.1 Mar.31 By bal. c/d 5,400
7,200 7,200
2012
Apr.1 To balance b/d 5,400 2013 By P& L a/c 1,800
Mar.31 By bal. c/d 3,600
5,400 5,400
2013
Apr.1 To balance b/d 3,600 2014 By P& L a/c 1,800
Mar.31 By bal. c/d 1,800
3,600 3,600
2014
Apr.1 To balance b/d 1,800 2015 By P& L a/c 1,200
Mar.31 By bal. c/d 600
1,800 1,800
2015
Apr.1 To balance b/d 600 2016 By P& L a/c 600
Mar.31
600 600

Amount of discount on debentures = 1,20,000 x 6 100  = ₹7,200 MathType@MTEF@5@5@+=feaaguart1ev2aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbwvMCKfMBHbqeduuDJXwAKbYu51MyVXgaruWqVvNCPvMCG4uz3bqefqvATv2CG4uz3bIuV1wyUbqeeuuDJXwAKbsr4rNCHbGeaGqiVv0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=xfr=xb9adbaqaaeaacaGaaiaabeqaamaaeaqbaaGceaqabeaacaqGbbGaaeyBaiaab+gacaqG1bGaaeOBaiaabshacaqGGaGaae4BaiaabAgacaqGGaGaaeizaiaabMgacaqGZbGaae4yaiaab+gacaqG1bGaaeOBaiaabshacaqGGaGaae4Baiaab6gacaqGGaGaaeizaiaabwgacaqGIbGaaeyzaiaab6gacaqG0bGaaeyDaiaabkhacaqGLbGaae4CaiaabccaaeaacaqG9aGaaGPaVlaabgdacaqGSaGaaeOmaiaabcdacaqGSaGaaeimaiaabcdacaqGWaGaaeiiaiaabIhacaqGGaGaaeiiamaalaaabaGaaeOnaaqaaiaabgdacaqGWaGaaeimaaaacaaMc8UaaeypaiaabccacaqGGbGaae4naiaabYcacaqGYaGaaeimaiaabcdacaqGGaaaaaa@701B@

Calculation of amount to be written off every year:

At the end of the year Debenture outstanding Ratio Loss to be written off every year
Mar. 2012 1,20,000 3 1,800
Mar. 2013 1,20,000 3 1,800
Mar. 2014 1,20,000 3 1,800
Mar. 2015 80,000 2 1,200
Mar. 2016 40,000 1 600
12 7,200

Q.45 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 March 31, 2015 assuming that interest is paid half-yearly on September 30 and March 31 and tax deducted at source is 10%.

Ans.

Journal Entries

Date Particulars Dr. ₹ Cr. ₹
2014 Bank a/c Dr. 95,000
Apr. Loss on issue of debentures a/c Dr. 15,000
01 To 12% debentures a/c 1,00,000
To premium on red. of deb. a/c 10,000
(Debenture issued at discount and redeemable at premium)
Sept. Debenture interest a/c Dr. 6,000
30 To TDS payable a/c 600
To Debenture holders a/c 5,400
(Half yearly interest due on ₹1,00,000 debenture holders and TDS deducted @ 10%)
Sept. Debenture holders a/c 5,400
30 To Bank a/c 5,400
(Interest paid to debenture holders)
2015 Debenture interest a/c Dr. 6,000
Mar. To TDS payable a/c 600
31 To Debenture holders a/c 5,400
(Half yearly interest due on ₹1,00,000 debenture holders and TDS deducted @ 10%)
2015 Debenture holders a/c 5,400
Mar. To Bank a/c 5,400
31 (Interest paid to debenture holders after deducting TDS)
2015 Profit and loss a/c Dr. 12,000
Mar. To debenture interest a/c 12,000
31 (Interest on debentures transferred to profit and loss account)

Loss on issue of debentures = 5% discount on issue + 10% premium on redemption

Q.46 What journal entries will be made in the following cases when company redeems debentures at the expiry of period by serving the notice:
(a) when debentures were issued at par with a condition to redeem them at premium;
(b) when debentures were issued at premium with a condition to redeem at par; and
(c) when debentures were issued at discount with a condition to redeem them at premium?

Ans.

Journal Entries

At the time of repayment of debentures

Particulars Dr. ₹ Cr. ₹
(a) Debentures a/c Dr.
Premium on red. of deb. a/c Dr.
To Debenture holders’ a/c
(Amount due on redemption of debentures at a premium)
Debenture holders’ a/c Dr.
To Bank a/c
(Payment made to debenture holders)
(b) Debentures a/c Dr.
To Debenture holders’ a/c
(Amount due on redemption of debentures)
Debenture holders’ a/c Dr.
To Bank a/c
(Payment made to debenture holders)
(c) Debentures a/c Dr.
Premium on red. of deb. a/c Dr.
To Debenture holders’ a/c
(Amount due on redemption of debentures at a premium)
Debenture holders’ a/c Dr.
To Bank a/c
(Payment made to debenture holders)

The issue of debentures at par, premium or discount does not affect the entry at the time of redemption of debentures.

Q.47 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 debentures.

Ans.

Date Particulars Dr. (₹) Cr. (₹)
2011 Bank A/c 3,76,000
April, 1 To Debentures Application and Allotment A/c 3,76,000
(Being the receipt of debentures application money)
Debentures Application and Allotment A/c 3,76,000
Discount on issue of debentures A/c 24,000
To Debentures A/c 4,00,000
(Being the issue of Debentures at 5% discount)
2012 Statement of Profit and Loss 24,000
March, To Discount on issue of Debentures Account 24,000
31 (Being Discount on issue of debentures written off)

Q.48 A. Ltd. issued 50,00,000, 8% debentures 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 of debentures. Prepare discount: loss on issue of debenture account.

Ans.

In the Books of A. Ltd.

Journal Entries

(amount in 00000’)
Particulars Dr. ₹ Cr. ₹
At the time of issue (April 01,2018)
Bank a/c Dr. 4,700
To deb. Appl. & allotment a/c 4,700
(Debenture application money received, issued at a discount of 6%)
Deb. Appl. & allotment a/c Dr. 4,700
Loss on issue of debentures a/c Dr. 500
To 8%Debentures a/c 5,000
To premium on red. Of debentures a/c 200
(Debenture application money transferred to debentures account)
At the end of first year (March 31, 2019)
Statement of Profit and Loss…….Dr. 500
To Loss on issue of debentures a/c 500
(Being loss on issue of debentures written off against statement of profit and loss)

Loss on issue of debentures = 6% discount on issue + 4% premium on redemption = 10% =  50,00,0000 × 100 ×  10 100   = ram 5,00,00,000 MathType@MTEF@5@5@+= feaahqart1ev3aaatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbwvMCKf MBHbqeduuDJXwAKbYu51MyVXgaruWqVvNCPvMCG4uz3bqefqvATv2C G4uz3bIuV1wyUbqeeuuDJXwAKbsr4rNCHbGeaGqiVv0Je9sqqrpepC 0xbbL8F4rqqrFfpeea0xe9Lq=Jc9vqaqpepm0xbba9pwe9Q8fs0=yq aqpepae9pg0FirpepeKkFr0xfr=xfr=xb9adbaqaaeaacaGaaiaabe qaamaaeaqbaaGceaqabeaaqaaaaaaaaaWdbiaabYeacaqGVbGaae4C aiaabohacaqGGaGaae4Baiaab6gacaqGGaGaaeyAaiaabohacaqGZb GaaeyDaiaabwgacaqGGaGaae4BaiaabAgacaqGGaGaaeizaiaabwga caqGIbGaaeyzaiaab6gacaqG0bGaaeyDaiaabkhacaqGLbGaae4Cai aabccacaqG9aGaaeiiaiaabAdacaqGLaGaaeiia8aadaqadaqaa8qa caqGKbGaaeyAaiaabohacaqGJbGaae4BaiaabwhacaqGUbGaaeiDai aabccacaqGVbGaaeOBaiaabccacaqGPbGaae4CaiaabohacaqG1bGa aeyzaaWdaiaawIcacaGLPaaapeGaaeiiaiaabUcaaeaacaqG0aGaae yjaiaabccapaWaaeWaaeaapeGaaeiCaiaabkhacaqGLbGaaeyBaiaa bMgacaqG1bGaaeyBaiaabccacaqGVbGaaeOBaiaabccacaqGYbGaae yzaiaabsgacaqGLbGaaeyBaiaabchacaqG0bGaaeyAaiaab+gacaqG UbaapaGaayjkaiaawMcaa8qacaqGGaGaaeypaiaabccacaqGXaGaae imaiaabwcaa8aabaGaaeypaiaaysW7caaMc8UaaeynaiaabcdacaqG SaGaaeimaiaabcdacaqGSaGaaeimaiaabcdacaqGWaGaaeimaiaays W7cqGHxdaTcaaMe8UaaeymaiaabcdacaqGWaGaaGjbVlabgEna0kaa ysW7daWcaaqaaiaabgdacaqGWaaabaGaaeymaiaabcdacaqGWaaaai aaysW7caaMc8UaaeypaiaaysW7caqGYbGaaeyyaiaab2gacaaMc8Ua aeynaiaabYcacaqGWaGaaeimaiaabYcacaqGWaGaaeimaiaabYcaca qGWaGaaeimaiaabcdacaqGGaaaaaa@B3C4@

Loss on issue of debentures a/c (amount in 00000’)
Date Particulars ₹ Date Particulars ₹
2018 To 8% deb. a/c 500 2019 By P& L a/c 500
Apr.1 Mar.31
500 500

Q.49 How is ‘Discount on Issue of Debentures’ treated in the books of accounts? How will you deal with the ‘discount in issue of debentures’ when the debentures are to be redeemed in instalments?

Ans.

Discount on Issue of Debentures is a capital loss to the company. It must be written off before such debentures are redeemed.

Until the discount on issue is written off, it is required to be shown as Unamortized Expenses on the Assets side of the Balance Sheet.
Payment in Installments:

Under this method, normally redemption of debenture is made in instalments on the specified date during the tenure of the debentures. The total amount of debenture liability is divided by the number of years. It is to note that the actual debentures redeemable are identified by means of drawing the requisite number of lots out of the debentures outstanding for payment.

Q.50 Jay Kay Ltd. another listed company’ issued 60,000 12% debentures of Rs. 100 each at par redeemable at the end of 5 years at a premium of 20%. On this date, there existed a balance of Rs.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 service is 10%.
(iv) Regarding redemption of debentures.

Ans.

Date Particulars Dr. (₹) Cr. (₹)
2013 Bank A/c 60,00,000
April, 1 To Debentures Application and Allotment A/c 60,00,000
(Being the receipt of debentures application money)
Debenture Application and Allotment A/c 60,00,000
Loss on Issue of Debentures A/c 12,00,000
To 12% Debentures A/c 60,00,000
To Premium on Redemption of Debentures A/c 12,00,000
(Being the issue of debentures at par and redeemable at 20% premium)
Statement of Profit and Loss 7,00,000
Securities Premium Reserve 5,00,000
To Loss on Issue of Debenture A/c 12,00,000
(Being Loss on Issue of Debenture written off)
2017
Mar, Surplus, i.e., Balance in Statement in Profit and Loss A/c 5,00,000
31 To Debentures Redemption Reserve A/c 5,00,000
(Being the creation of DRR as per rule 10(7), 25% of Rs. 60,00,000 divided by 3)
Debenture Interest A/c 7,20,000
To Debentureholders’ A/c 6,48,000
To TDS payable A/c 72,000
(Being interest due on debentures and tax deducted at source)
Debentureholders’A/c 6,48,000
To Bank A/c 6,48,000
(Bing Payment of interest)
TDS Payable 72,000
To Bank A/c 72,000
(Being TDS deposited in government Account)
Statement of P/L 7,20,000
To Interest on Debentures A/c 7,20,000
(Being Interest on debentures transferred to Statement of Profit and Loss)
2018
Mar, Surplus, i.e., Balance in Statement in Profit and Loss A/c 5,00,000
31 To Debentures Redemption Reserve A/c 5,00,000
(Being the creation of DRR as per rule 10(7), 25% of Rs. 60,00,000 divided by 3)
Debenture Interest A/c 7,20,000
To Debentureholders’ A/c 6,48,000
To TDS payable A/c 72,000
(Being interest due on debentures and tax deducted at source)
Debentureholders’A/c 6,48,000
To Bank A/c 6,48,000
(Bing Payment of interest)
TDS Payable 72,000
To Bank A/c 72,000
(Being TDS deposited in government Account)
Statement of P/L 7,20,000
To Interest on Debentures A/c 7,20,000
(Being Interest on debentures transferred to Statement of Profit and Loss)
April, Debenture Redemption Investment 9,00,000
1 To Bank A/c 9,00,000
(Being Investment in Securities @ 15% of 60,00,000)
2019
Mar, Surplus, i.e., Balance in Statement in Profit and Loss A/c 5,00,000
31 To Debentures Redemption Reserve A/c 5,00,000
(Being the creation of DRR as per rule 10(7), 25% of Rs. 60,00,000 divided by 3)
Debenture Interest A/c 7,20,000
To Debentureholders’ A/c 6,48,000
To TDS payable A/c 72,000
(Being interest due on debentures and tax deducted at source)
Debentureholders’A/c 6,48,000
To Bank A/c 6,48,000
(Bing Payment of interest)
TDS Payable 72,000
To Bank A/c 72,000
(Being TDS deposited in government Account)
Statement of P/L 7,20,000
To Interest on Debentures A/c 7,20,000
(Being Interest on debentures transferred to Statement of Profit and Loss)
Bank A/c 9,00,000
To Debenture Redemption Investment 9,00,000
(Being Sale of Investment)
March, 12% Debentures A/c 60,00,000
31 Premium on Redemption of Debenture A/c 12,00,000
To Debentureholders’ A/c 72,00,000
(Being the amount due on redemption)
March, Debentureholders’ A/c 72,00,000
31 To Bank A/c 72,00,000
(Being the payment made to debentureholders)
March, Debenture Redemption Reserve A/c 15,00,000
31 To General Reserve A/c 15,00,000
(Being the balance of Debentures Redemption Reserve transferred to General Reserve)

Q.51 Madhur Ltd. has outstanding 9% debentures of Rs. 50,00,000 redeemable at par on January 01, 2020. Debenture Redemption Reserve of Rs.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. Debenture 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.

In the Books of Madhur Ltd.

Date Particulars Dr. (Rs.) Cr. (Rs)
2019 Surplus, i.e., Balance in Statement in Profit and Loss A/c 10,50,000
March, To Debentures Redemption Reserve A/c 10,50,000
31 (Being the creation of DRR as per rule 10(7), 25% of Rs. 50,00,000 less balance in DRR)
April, Debenture Redemption Investment A/c 7,50,000
01 To Bank A/c 7,50,000
(Being the DRI made equal to 15% of Rs. 50,00,000)
2020
Jan, 1 Bank A/c 7,50,000
To Debenture Redemption Investment A/c 7,50,000
(Being the Debenture Redemption Investment realized)
Jan, 1 9% Debentures A/c 50,00,000
To Debentureholders’ A/c 50,00,000
(Being the amount due on redemption)
Jan, 1 Debentureholders’ A/c 50,00,000
To Bank A/c 50,00,000
(Being the payment made to debentureholders)
March, Debenture Redemption Reserve A/c 12,50,000
31 To General Reserve A/c 12,50,000
(Being the balance of Debentures Redemption Reserve transferred to General Reserve)
Dr. 9% Debentures Account Cr.
2020 2019
Jan, 1 To Debenture holders 50,00,000 April, 1 By Balance b/d 50,00.,000
50,00,000 50,00,000
Dr. DEBENTURES REDEMPTION RESERVE ACCOUNT Cr.
2020 2019
Mar. April By Balance b/d 2,00,000
31 To General Reserve 12,50,000 , 1 By Surplus, i.e., Balance in Statement of Profit and Loss A/c 10,50.,000
12,50,000 12,50,000
Dr. DEBENTURES REDEMPTION INVESTMENT ACCOUNT Cr.
2019 2020
April, 1 To Bank A/c 7,50,000 Jan, 1 By Bank A/c 7,50,000
7,50,000 7,50,000

Q.52

Date Particulars Dr. (Rs.) Cr. (Rs)
2019 Surplus, i.e., Balance in Statement in Profit and Loss A/c 5,00,000
April, To Debentures Redemption Reserve A/c 5,00,000
01 (Being the creation of DRR as per rule 10(7), 25% of Rs. 20,00,000)
April, Debenture Redemption Investment A/c 3,00,000
01 To Bank A/c 3,00,000
(Being the DRI made equal to 15% of Rs. 20,00,000)
June, Bank A/c 3,00,000
30 To Debenture Redemption Investment A/c 3,00,000
(Being the Debenture Redemption Investment realized)
June, 12% Debentures A/c 20,00,000
30 To Debentureholders’ A/c 20,00,000
(Being the amount due on redemption)
June, Debentureholders’ A/c 20,00,000
30 To Bank A/c 20,00,000
(Being the payment made to debentureholders)
2020
March, Debenture Redemption Reserve A/c 5,00,000
31 To General Reserve A/c 5,00,000
(Being the balance of Debentures Redemption Reserve transferred to General Reserve)

Ans.

Date Particulars Dr. (Rs.) Cr. (Rs)
2017 Surplus, i.e., Balance in Statement in Profit and Loss A/c 7,50,000
April, To Debentures Redemption Reserve A/c 7,50,000
01 (Being the creation of DRR as per rule 10(7), 25% of Rs. 30,00,000)
April, Debenture Redemption Investment A/c 1,50,000
01 To Bank A/c 1,50,000
(Being the DRI made equal to 15% of Rs. 10,00,000)
2018 Statement of Profit and Loss 3,00,000
March, To Loss on Issue of Debenture A/c 3,00,000
31 (Being Loss on Issue of Debenture written off)
March, Bank A/c 1,50,000
31 To Debenture Redemption Investment A/c 1,50,000
(Being the Debenture Redemption Investment realized)
March, 11% Debentures A/c 10,00,000
31 Premium on Redemption of Debenture A/c 1,00,000
To Debentureholders’ A/c 11,00,000
(Being the amount due on redemption)
March, Debentureholders’ A/c 11,00,000
31 To Bank A/c 11,00,000
(Being the payment made to debentureholders)
2018
April, Debenture Redemption Investment A/c 1,80,000
01 To Bank A/c 1,80,000
(Being the DRI made equal to 15% of Rs. 12,00,000)
2019
March, Bank A/c 1,80,000
31 To Debenture Redemption Investment A/c 1,80,000
(Being the Debenture Redemption Investment realized)
March, 11% Debentures A/c 12,00,000
31 Premium on Redemption of Debenture A/c 1,20,000
To Debentureholders’ A/c 13,20,000
(Being the amount due on redemption)
March, Debentureholders’ A/c 13,20,000
31 To Bank A/c 13,20,000
(Being the payment made to debentureholders)
2019
April, Debenture Redemption Investment A/c 1,20,000
01 To Bank A/c 1,20,000
(Being the DRI made equal to 15% of Rs. 8,00,000)
2020
March, Bank A/c 1,20,000
31 To Debenture Redemption Investment A/c 1,20,000
(Being the Debenture Redemption Investment realized)
March, 11% Debentures A/c 8,00,000
31 Premium on Redemption of Debenture A/c 80,000
To Debentureholders’ A/c 8,80,000
(Being the amount due on redemption)
March, Debentureholders’ A/c 8,80,000
31 To Bank A/c 8,80,000
(Being the payment made to debentureholders)
March, Debenture Redemption Reserve A/c 7,50,000
31 To General Reserve A/c 7,50,000
(Being the balance of Debentures Redemption Reserve transferred to General Reserve)

Q.53 X Ltd. has outstanding 20,000 12% debentures of Rs.100 each redeemable on June 30, 2019. Record necessary journal entries at the time of redemption.

Ans.

Date Particulars Dr. (Rs.) Cr. (Rs)
2019 Surplus, i.e., Balance in Statement in Profit and Loss A/c 5,00,000
April, To Debentures Redemption Reserve A/c 5,00,000
01 (Being the creation of DRR as per rule 10(7), 25% of Rs. 20,00,000)
April, Debenture Redemption Investment A/c 3,00,000
01 To Bank A/c 3,00,000
(Being the DRI made equal to 15% of Rs. 20,00,000)
June, Bank A/c 3,00,000
30 To Debenture Redemption Investment A/c 3,00,000
(Being the Debenture Redemption Investment realized)
June, 12% Debentures A/c 20,00,000
30 To Debentureholders’ A/c 20,00,000
(Being the amount due on redemption)
June, Debentureholders’ A/c 20,00,000
30 To Bank A/c 20,00,000
(Being the payment made to debentureholders)
2020
March, Debenture Redemption Reserve A/c 5,00,000
31 To General Reserve A/c 5,00,000
(Being the balance of Debentures Redemption Reserve transferred to General Reserve)

Q.54 XYZ Ltd. Issued 60,000, 12% Debentures of Rs.50 each on April 1, 2014. Interest on these debenture is payable annually 31 March each year. You are required to pass journal entries at the time of issue and redemption of debentures in the books of the company under the following cases:
(i) Debentures are issued at par and redeemable at par.
(ii) Debentures are issued at premium of 10% and redeemable at par.
(iii) Debentures are issued at a discount of 10% and redeemable at par.
(iv) Debentures are issued at par but redeemable at a premium of 10%.
(v) Debenture are issued at a premium of 10% and redeemable at premium of 10%.
(vi) Debentures are issued at discount of 10% and redeemable at a premium of 10%.

Ans.

(i)

Date Particulars Dr. (Rs.) Cr. (Rs)
2014 Bank A/c 30,00,000
April, 1 To Debentures Application and Allotment A/c 30,00,000
(Being the receipt of debentures application money)
Debentures Application and Allotment A/c 30,00,000
To 12% Debentures A/c 30,00,000
(Being the issue of debentures at par)

(ii)

Date Particulars Dr. (Rs.) Cr. (Rs)
2014 Bank A/c 33,00,000
April, 1 To Debentures Application and Allotment A/c 33,00,000
(Being the receipt of debentures application money)
Debenture Application and Allotment A/c 33,00,000
To 12% Debentures A/c 30,00,000
To Security Premium Reserve A/c 3,00,000
(Being the issue of debentures at 5% premium)

(iii)

Date Particulars Dr. (Rs.) Cr. (Rs)
2014 Bank A/c 27,00,000
April, 1 To Debentures Application and Allotment A/c 27,00,000
(Being the receipt of debentures application money)
Debentures Application and Allotment A/c 27,00,000
Discount on issue of debentures A/c 3,00,000
To 12% Debentures A/c 30,00,000
(Being the issue of Debentures at 5% discount)

(iv)

Date Particulars Dr. (Rs.) Cr. (Rs)
Date Bank A/c 30,00,000
2014 To Debentures Application and Allotment A/c 30,00,000
April, 1 (Being the receipt of debentures application money)
Debenture Application and Allotment A/c 30,00,000
Loss on Issue of Debentures A/c 3,00,000
To 12% Debentures A/c 30,00,000
To Premium on Redemption of Debentures A/c 3,00,000
(Being the issue of debentures at par and redeemable at 5% premium)

(v)

Date Particulars Dr. (Rs.) Cr. (Rs)
2014 Bank A/c 30,00,000
April, 1 To Debentures Application and Allotment A/c 30,00,000
(Being the receipt of debentures application money)
Debenture Application and Allotment A/c 30,00,000
Loss on Issue of Debentures A/c 6,00,000
To 12% Debentures A/c 30,00,000
To Securities Premium Reserve A/c 3,00,000
To Premium on Redemption of Debentures A/c 3,00,000
(Being the issue of debentures at 5% premium and redeemable at 5% premium)

(vi)

Date Particulars Dr. (Rs.) Cr. (Rs)
2014 Bank A/c 27,00,000
April, 1 To Debentures Application and Allotment A/c 27,00,000
(Being the receipt of debentures application money)
Debenture Application and Allotment A/c 27,00,000
Loss on Issue of Debentures A/c 6,00,000
To 12% Debentures A/c 30,00,000
To Premium on Redemption of Debentures A/c 3,00,000
(Being the issue of debentures at 5% discount and redeemable at 5% premium)

Q.55 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.

Journal Entries

Particulars Dr. ₹ Cr. ₹
Bank a/c Dr. 96,000
To 9% debenture application a/c 96,000
(Application money received on 4,800 debentures @ ₹20 per debenture)
9% debenture application a/c Dr. 96,000
To 9% debentures a/c 80,000
To 9% debenture allotment a/c 8,000
To Bank a/c 8,000
(Application money transferred to 9% debentures account, allotment a/c and money of rejected application refunded)
9% debenture allotment a/c Dr. 80,000
To 9% debentures a/c 80,000
(Debenture allotment money due on 4,000 debentures @ ₹20 per debenture)
Bank a/c Dr. 72,000
To 9% debenture allotment a/c 72,000
(Allotment money received on debentures)
9% debentures first call a/c Dr. 1,20,000
To 9% debentures a/c 1,20,000
(Debenture first call money due on 4,000 debentures @ ₹30 each)
Bank a/c Dr. 1,20,000
To 9% debentures first call a/c 1,20,000
(Debenture first call money received on 4,000 debentures @ ₹30 each)
9% debentures final call a/c Dr. 1,20,000
To 9% debentures a/c 1,20,000
(Debenture final call money due on 4,000 debentures @ ₹30 each)
Bank a/c Dr. 1,20,000
To 9% debentures final call a/c 1,20,000
(Debenture final call money received on 4,000 debentures @ ₹30 each)

 

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Related Chapters

Chapter 1 - Accounting for Share Captial

Chapter 3 - Financial Statements of a Company

Chapter 4 - Analysis of Financial Statements

Chapter 5 - Accounting Ratios

Chapter 6 - Cash Flow Statement

FAQs (Frequently Asked Questions)

According to Accountancy of Class 12, a Debenture is a piece of paper that details the terms of a loan agreement between the lender and the borrower. It specifies that the principal amount borrowed from the lender will be repaid over a certain period.

Debentures can be purchased at face value, a premium, or a discount. Two transactions are submitted for first recognition when debentures are issued at par.

  • The bank account is debited first, followed by the debenture application account.
  • The following item would be a debit to the debentures application account and a credit to the x per cent debenture account.