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542 views23 pagesChapter 9 Issue of Debentures
Uploaded by
kalpana jadiyaCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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/ 23
ia a Nts
1, Debenture
2. Debentureholder
Issue of Debentures for Cash
4, Issue of Debentures for
Consideration other than Cash
Issue of Debentures as
Collateral Security
6, Issue of Debentures at Par
Issue of Debentures at Premium
8, Issue of Debentures at Discount
9. Redemption of Debentures at Par
10, Redemption of Debentures
at Premium
1
). Interest on Debentures
yeamaa cnet
IN THE CHAPTER
Debentures a written acknowledgement of Debt issued by the
‘company.
‘According to Section 2(30) of the Companies Act, 2013,
‘Debenture’ includes debenture stock, bonds or any other
instrument of @ company evidencing a debt, whether
constituting a charge on the assets of the company or not.
Debentureholder is the person to whom debentures are
Issued,
It means issue of debentures against consideration being
receivedincash,
Itmeans issue of debentures against consideration not
bbeing received in cash but received in kind, ie, assets
or services.
It means that the debentures have not been issued for
consideration received in cash orn kind but have been issued as
2 security forloan taken.
‘It means that the issue price and the nominal (face) value of
debentures are same,
‘It means thatthe issue price ofthe debenture is higher than its
‘nominal (face) value.
| means that the issue price of the debenture is lower than its
‘nominal (face) value.
It means that the redemption value and the nominal (face)
value of debentures same.
It means that the redemption value of the debenture Is,
higher than its nominal face) value.
It is the cost of servicing the loans raised by the issue of
debentures torent
+ Debenture: Debentureis a written acknowledgement of a debt by the company. It contains the terms for
the repayment of the principal debt on a specified date and for payment of interest at afxed per cent until
‘the principal sum is paid.
Disclosure of Debentures in Company's Balance Sheet: As per Schedule Ill of the Companies Act, 2013,
Debentures are shown in the Balance Sheet as Long-term Borrowings under Non-current Liabilities. But
debentures, shown a Long-term Borrowings and payable within 12 months from the date of Balance Sheet
Cr within the period of Operating Cycle is shown as Current Maturity of Long-term Debts under Short-term
Borrowings under the head Current Liabilities. Interest Accrued (due and not due) is shown as Other Current
Liability under Current Liabilities.
Characteristics of a Debenture
() Adebenture isa written document or certificate which acknowledges the debt by the company.
(i) The debenture certificate is issued under the common seal of the company, if the company has 2
common seal.
(i). Mode and period of payment of principal and interests fixed and is stated in the debenture.
(iv) Rate of interest is fixed and is stated in the debenture,
(W) The debt taken by issue of debentures is usualy secured by a charge on the asses ofthe company,
(ui) Its considered as an external equity or Long-term Borrowings of the company,
‘Types of Debentures
(i) Secured Debenturesare those debentures which are secured either ona particular asset or onallthe assets
(of the company in general.
(i) Unsecured Debentures are those debentures which are not secured by any charge on assets of.
the company.
(i). Redeemable Debentures are those debentures which will be repaid by the company at the end of
specified period.
(lv) redeemable Debentures ate those debentures which are not repayable during the if ofthe company.
(v) Registered Debentures are those debentures, where the name, address and number of debentures held
by the debentureholders are registered with the company.
(wi) Unregistered or Bearer Debentures are those debentures which can be transferred to any other person by
‘mere delivery. No record of such debentureholders is maintained by the company.
(ull) Fist Debentures are those debentures which are to be repaid before the other debentures.
(vii). Second Debentures are those debentures which are to be repaid after the first debentures.
(ix) Specific Coupon Rate Debentures are those debentures which cary specified rate of interest.
(0) Zero Coupon Debentures Bands) are those debentures which do not cary any rate of interest.
(i) Convertible Debentures are those debentures which can be converted into shares after a specified period.
(ai) Fully Convertible Debentures (FCD) are those debentures where the whole amount is tobe converted into
Equity Shares.
(xi) Partly Convertible Debentures (PCD) are those debentures where only a part ofthe amount of debenture
|s convertible into Equity Shares.
(xiv). Non-Convertble Debentures are those debentures that are not convertible into shares of the company.
+ Debentures Trust Deed isa document created by the company whereby trustees are appointed to protect
the interest of debentureholders before they are offered for public subscription,
2 + Issue of Debentures: Debentures like shares, can be issued fori) cash and i) consideration other than cash.
“These debentures can be issued at: (a) par or (b) premium or (¢) discount.
‘Accounting for issue of debentures for cash is the same as the accounting for issue of shares with one
change, ie, the word ‘Share’ shall be replaced by ‘Debentures’ and ‘Share Capita’ by ‘Debentures! The
terms used forthe issue of shares willbe changed at the time of issue of debentures
Terms fr sue of Shares Terms for ksue of Debentures
1. Shares Application’ Allotments Call. etc. 1. Debentures Application/AlotmentFist Call etc.
2. Share Capital 2 Debentures
3. Discount ontssue of Debentures
Note: Premium on the issue of shares or debentures i called Securities
+ Premium on Redemption of Debentures: Disclosure in the
lance Sheet
(0 fdebentures are shown as ‘Long-term Borrowings; then its shown in the Equity and Liabilities Part of
the Balance Sheet under the head Non-Current Liabilities and sub-head ‘Other Long-term Liabilities.
(if debentures are shown as Short-term Borrowings, then itis shown in the Equity and Liabilities part of
the Balance Sheet under the head ‘Curcent Liabilities’ and sub-head “Other Current Liabilities’
(if debentures are shown as'Current Maturities of Long-term Debts; then its shown under the head ‘Current
Liabilities and sub-head ‘Other Current Liabilities
+ Interest on Debentures is considered as an expense. It's a charge against the profit ofthe company and is
payable whether the company earns profit or not
+ Issue of Debentures for Consideration other than Cash: A company can issue debentures to the vendors
asa payment forthe purchase ofthe assets, such an issue of debentures is known as issue of debentures for
consideration other than cash,
+ Issue of Debentures as Collateral Security means issue of debentures as a subsidiary or secondary security.
Collateral security means additional security, ie, in addition tothe prime secur Itisonly to be realised when
the prime security fails to pay the amount ofthe loan.
Debentures issued as Collateral Security may or may not be recorded in the books of account. fan accounting
entry is not passed, itis disclosed under the loan fan accounting entry is passe, its shown below the loan
first as Debentures Issued and thereafter Debentures Suspense Account is deducted,
+ Writing off Discount or Loss on Issue of Debentures Discount or Loss on Issue of Debentures is written off
Inthe yearit is incurred, e, in the year debentures are allotted. It may be writen off from Securities Premium,
and/or from Statement of Profit & Loss. Accounting entry willbe as follows:
Securities Premium Ae Dr
Andlor
Statement of Profit & Loss De
To Discount or Loss on Issue of Debentures A/c a
than cash | promotors or Undecwntars As Colors Secury
f 1
pa er a ee
eel ES eae Sewers &
“Journal ‘Journal Ent = aa
aowae De Bank Ale ” De oe Promoters Ae or
a eee) cs
erate a H Eater]
fest 2 | (imine eae
Siete | [amgeecane a
Ee mula
a a oe
se eS
—_
Te aT aa
ee & cae] Ee
: a — x
pean a
ee eee Oe Vendor's Ale .Or.| | Vendors Ale -Br.| | Vendor's Ae Dr
[loon some na Ft leet
“To Securit Premium A
“babes Ae
—
—
“i puraoo eonedaton gue are hn rl oan nrc osbioa f Goodwill
purchase conseraton pons se Menta, ton dans odtoaa Capa Reserve A|
2
(ins) (arene)
[Fae] [Eizwaten| ee ([fae=) [imanen] | | | |
‘Alot Datentres and | [Alot Oabentaes andtanstor | [Alot Debentures and [ot Debentures and ranster | Aloe Deoortures and | [Alot Debentures and wantor
Tranter Apptesion || Apteaton Maney transfer Aoplcston Aopteatin Maney fraser Azpicaton || Apaton Money
‘anaAtoment Money —||0--s¢Dedortures At: andteemen Money oe 3 Debentures Ae JandAtoment Money | |t0"% Debentures Ae:
0. Debontses Ate |] Debenures AopicatonAe..0r| 0% Debeaures Ae: | | Debentures Application Ale..0r| |t..%6 Debentures Ae: || Dobotuos Apoteaton Aer
Debentures Appteaten ||""To xs Debentures Ne Debentures Aplin “ore bebertures Ne ||[DabartresApgeaton_| | Dactunt on tous ot
fandAlotment Alc Dr || ToDebentree AleimentAve ||adAlomentAec cr || ToBankAe! landAtoimentac Or] | Debentures Ae or
"o..tsbebentues Ac || To Bank Ale! “o.-% Deberies Ne Calsi-aavance Ne || Discounten suet "|| "To Debentures Ne
‘Cale Aavance Ale ‘ToSecuries Premium Ac’| | Gfeverubecrbed) DesonurosAte” — .0c|| To DaberaresAletment lc
roaaissEeh| ToBanine “Tom Debentues Ae || To Banke?
(oversubscribed) Todencale Caliradvance Ae
(overibsertes) || (foversbscrbed)
mi ale le
esd a Par [eet Prema] Teese at Oienint
(ietimesm] = estan] ce ee [eiinesom] = [naive]
7 T T T 7 T
‘it Daventres and | [Alot Dabantres and wanser | [Alot Debentures and | [Alt Dabantires and wanater | [Alot Dabentres and | [Alet Debentures and wanatar
frensterApotcaion | | Appicaion Nonoy lranstorApotcaton | | Apaleaton Morey IranstorAppicaton | | Applicaton Money
‘andalcmen Money | | ta” 3 Debanues Ate JandAtomentueney | |10-% Debortes Ae: [anaatoment Money | | os Debentures Ae
o..% Dabenures A: | | Debentures Apleaten Ne. |io.% Dabontres At: | |Debortures Appleton Nc .Or| |10..% Dsbontres At | | Detentuos Appleaton Ae.
Debentures Anpteaton | | Loesontssue of Desenures Apaieaton | |Loss on leew of Debentures Agteaten_ | | Daceuntoesonatue of
JandAiotnentAc De | Debentures Ae cr Jentalotment dle Dr| | Debentures le .0«| |andAtomenAc Dr | Debentures Ale be
Loss on ese of “To. Oabentros Ne Leeson ese o| “To. Debantres Ne DiscountRoss on sue | | To. % Debentures Ne
Desentures We On| | ToBebentaesatmentAc | [Debentures vo, or. | | ToGebentres tment Ac | |otDebertuas No -.| | To Debentures Alatment Ac
“o.s Debennuesc | |” (roversubsones) “o..%6 Debentures | | (oversubscribed) To..J6 Debentures Ae | | (foversbscrbos)
ToDebentios. ‘oPremumn Resemgton || To Secunies Premium | | ToPremum en Redemption || To remum an Res. | | To Premum on Res
‘Aetment Ae ‘of Debentures Ne Ae ‘of Debentures Ne of Debentures Ac ‘of Debentres Ae
(oversubserbes) ‘ToPremum on Re,
‘ToPremumon Re. ‘of Debentres Ae
ot Debentras Ne
—L — —
1 f
“iatant Maney Dos “Ga Recabng Alaina’ Money: “Ga Fat and Fl Ga Menay Dust “noun Received on Fa and Pal Ca
Debentures Asient Nc oe |_| Baneae or |__,J Seventies Fret ona Fina Cale Or | | Baniale OF
“po. % Debentures Ne “To Debentures Aletment Ne “ou % Debentures Ne “To Debentures First ang Final Callie
‘To Secure Premium Ne
oo
"sue al Searites Premium is recived long wih te Aplaion Maney.
“Assume thal discount alowed is along wih Appleton Money Mlustration 1.
A Ltd. issued 5,000; 9% Debentures of € 100 each at par and also raised a loan of & 80,000 from
bank, collaterally secured by % 1,00,000; 9% Debentures. How will be the Debentures shown
in the Balance Sheet of the company when the company has passed Journal entry for issue of
Debentures as collateral security in the books?
Solution: Alta.
[AN EXTRACT OF BALANCE SHEET as at.
Particulars Noten] &
EQUITY AND LIABILITIES
Non-Current Liabilities
Long-term Borrowings 1 580,000
Note to Accounts
1. Long-term Borrowings z
+5900; 9% Debentures of 100 each 500000
Loan from Bank 80000
1,000; 9% Debentures of 100 each sued as Collateral Securty
Less: Debentures Suspense A/c
580,000
Mlustration 2.
‘On Ist April, 2022, Welfare Ltd. took over assets of % 4,50,000 and liabilities of & 60,000 of
Himalyan Ltd. for the purchase consideration of € 4 40,000, It paid the purchase consideration
by issuing 8% Debentures of @ 100 each at 10% premium, On the same date it issued another
3,000, 8% Debentures of € 100 each ata discount of 10%, redeemable at a premium of 5% after
5 years. According to the terms of the issue 30 is payable on application and the balance on
the allotment of debentures.
You are required to pass Journal entries in the books of Welfare Ltd. to record the above
transactions.
Solution: JOURNAL OF WELFARE LTD.
Date | Particulars un] me@ | ce
22
‘Aptl 1 | Sundhy Assets Alc Dr. 450000
Goodwill Al (Balancing Figure) Dr. 50,000
To. Himalyan Ltd 440,000
To. Sundry Liabilities Ale 60000
(Assets and liabilities of Himalyan Ltd taken over for
net consideration of& 440,000)
Himalyan td Or 44000
To. BDebentues Ale 400,000
To. Secuties Premium Ale oco
(4000; 8% Debentures of 100 each issued ata
premium of 108) 2023
March 31
Bank Ale
To. Debentures Application Ale
(pplication money received fr 3000,
8% Debentures)
Debentures Application Nic
To. 8%Debentures Alc
(8,000; 8% Debentures allotted)
Debentures Allotment A/c
Losson sue of Debentures Alc
To 8% Debentures Alc
‘To. Premium on Redemption of Debentures Ac
(Allotment money due on 3,000; 8% Debentures at
10% Discount and redeemable at 5% premium)
Bank Arc
To. Debentures Allotment A/c
(Allotment money received)
Securities Premium Ne
Statement of Profit &Loss Finance Cost)
To. Losson ssue of Debentures Alc
(loss on ssue of Debentures written of)
De
Dr.
Dr
Dr.
Dr.
Dr.
Dk
90,000
90000
90,000
90000
1180000
45,000
210000
15000
11800000
180000
40000
5000
45000
Mlustration 3.
Lemon Tree Ltd. purchased a piece of land from JSS Ltd. and paid the consideration as follows:
(i) Issued a cheque for ® 10,00,000;
(ii) Issued a Bill of Exchange for 3 months for & 5,00,000;
iii) Issued 5,000; 9% Debentures of 100 each at par redeemable at 10% premium after 5 years.
Pass the Journal entries.
Solution: JOURNAL OF LEMON TREE LTD.
Date | Particulars oe | Ce
Land Ne De 20,00,000
To JSSutd 200,000
(Land purchased)
Asse, De 20,00,000
Loss on Issue of Debentures Alc Dx. 50000
To Bank Nc 100,000,
To Bills Payable Ale 390.000
To 9%5Debentures Ne 50,000
‘To. Premium on Redemption of Debentures Nc 50000
(Purchase consideration paid)
Statement of Profit & Loss Finance Cost) 5000
To Lossonlssue of Debentures A/c 50000
(Loss on issue of debentures written of) Mlustration 4.
‘Good Blankets Ltd.’ are the manufacturers of woollen blankets. The company, to meet
the requirements of funds for starting its new factory, issued 50,000 equity shares of 810
‘each at par and 2,000; 8% Debentures of & 100 each to the vendors of machinery purchased
for & 7,00,000.
Pass necessary Journal entries for the above transactions in the books of the company.
Solution: In the Books of Good Blankets Ltd.
JOURNAL
Date_| Particulars Le] OF | GR
Machinery Ac 7.00000
To Vendor’ Alc 790,000
(Purchase of machinery from the Vendor)
‘Vendors Alc De 7.00000
To. Equity Share Capital 500000
To BY Debentures Ac 290,000
(sue of 50000 Equty Shares of 10 each and 2000; 8% Debentures
of 100 each at part the Vendor of Machinery
Mlustration 5 (Issue of Debentures at Par and Redeemable at Premium—Issue Price Payable
in Iustalments.
Adarsh Cosmetics Ltd. issued 5,000; 9% Debentures of € 100 each on Ist April, 2023 redeemable
at a premium of 8% after 10 years. According to the terms of prospectus @ 40 is payable on
application and balance on allotment of debentures.
Pass the necessary entries regarding issue of debentures.
Solution: JOURNAL OF ADARSH COSMETICS LTD.
Date [Particulars LE] ® | Ge
2023 | Bank Nc De 200000
‘Apt 1| To. Debentures Application Alc 290,000
(Aopicaion money received for 5,000 debentures © 40 per debenture)
‘Aptil_1 | Debentures Application Alc 200000
To 984 Debentures Ne 290,000
(Application money transfered to % Debentures Account)
‘Apt 1 | Debentures Allotment Vc De 300000
Loss on Issue of Debentures Alc De 40000
‘To. 9% Debentures Alc 300,000
‘To. Premium on Redemption of Debentures Ac 40000
(lotment of 9% Debentures at par and redeemable at 8% premium)
Bank Nec De 3.00000
‘To Debentures Allotment Nic 300,000
(llotment money received) Mlustration 6.
KTR Ltd, issued 365, 9% Debentures of 1,000 each on 4th March, 2016. Pass necessary Journal
entries for the issue of debentures in the following situations:
(@ When debentures were issued at par, redeemable at a premium of 10%.
Gi) When debentures were issued at 6% discount, redeemable at 5% premium. (Delhi 2016)
Solution: (i) JOURNAL
Date | Particulars LE] @ | oe
2016
March 4) Bank Ac 365,000
‘To Debentures Application and Allotment Ac 365,000
(Application and allotment money received on 365; % Debentures
2 1000 each)
March 4) Debentures Application and Allotment A/c De 3.65000
Loss on issue of Debentures AC De 36500
‘To. 9% Debentures A/c 365,000
‘To. Premium on Redemption of Debentures A/c 36500
(265; 9% Debentures allotted and premium payable on redemption
2 10% provides)
(i, JOURNAL
Date | Particolars Le] ee | oe
2016
March 4) Bank Ac De 343,100
‘To Debentures Application and Allotment Ac 343,100
(Application and allotment money received on 365;9% Debentures,
(2 1,000 per debenture es 6 Discount)
March 4) Debentures Application and Allotment A/c De 343,100
Loss on issue of Debentures Nc De 40,150
‘To. 9% Debentures Alc 365,000
‘To. Premium on Redemption of Debentures A/c 18250
(265; 9% Debentures allotted at 6% Discount and premium payable
‘on redemption of debentures @ 5% provided)
Illustration 7.
During the year ended 31st March, 2023, Anderson Ltd. issued 12% Debentures of & 100 each,
as per the details given below:
(@) 900 Debentures issued as collateral security to a bank against a loan of & 60,000.
(b) The underwriters were to be paid a commission of & 48,000, 25% of the amount was paid
to them in cash and the balance was paid by the issue of Debentures at a discount of 10%
to be redeemed at par.
(©) A machine was purchased for 2,18,500. The vendor was paid by the issue of Debentures
at a premium of 15% to be redeemed at par.
4 (@) 5,000 Debentures were issued to the public at 5% premium, to be redeemed at a premium
of 5%.
‘The company wrote off all capital losses arising from the issue of Debentures at the end of the
year from its capital profits and if need be from its revenue profits.
You are required to Journalise the above transactions in the books of Anderson Ltd.
Solution:
JOURNAL
Inthe Books of Anderson Ltd,
Date
Particulars
Lr
0.8)
ce)
@
o
Bank Ne
To BankLoan Ne
{Bankloan raised)
Debentures Suspense Alc
‘To. 12% Debentures Alc
(900, 12% Debentures sued as Collateral Security)
Undernriing Commision Ale
To. Underwriters Nc
(Commission due to underwriters)
Underwiters’Ae
Discount on sue of Debentures A/c
To Bank Nc
To 12% Debentures Nc
(Cash paid and 400; 12% Debentures of 100 each sued ata discount of 10%)
Machinery Nc
To Vendor’ Alc
(Machinery purchased)
De
Vendor’ Nc
To 12%6 Debentures A/c (1,900 x 100)
To Securities Premium A/c (19008 15)
(1,900; 12% Debentures issue to Vendor a 15% premium)
Bank Nc
‘To Debentures Application and Allotment Ac
(Application money received for 5,000 debentures of € 100 each
ata premium of),
Debentures Application and Allotment A/c
Loss on sue of Debentures A/c
To. 12% Debentures A/c
To Secures Premium Alc
‘To. Premium on Redemption of Debentures Nic
(6000; 12% Debentures of 100 each issued at 5% premium and
redeemable at 5% premium)
‘Secuties Premium Alc
‘Statement of Profit &:Loss Finance Cost)
‘To Underwriting Commission Ac
To Discount on Issue of Debentures Nic
To. Loss on ksue of Debentures Nc
(Capital osses writen off)
‘60000
50,000
48000
48000
218500
218500
5.25000
5.25000
25000
53500
23500
0000
90000
48000
12000
40000
218500
190000
28500
525,000
590,000
25,000
25,000
48000
+4000
25,000 Mlustration 8.
On Ist April, 2022, Romi Ltd. issued % 10,00,000, 15% Debentures of € 100 each at 8%
discount payable:
740 on application, and
‘The balance on allotment,
‘These debentures were to be redeemed at a premium of 5% after five years. All the debentures
were subscribed by the public.
Interest on these debentures was to be paid half-yearly which was duly paid by the company.
You are required to:
(@)_ Pass Joural entries in the first year of debenture issue (including entries for debenture interest)
(ii) Prepare 15% Debentures Account for the year ending 31st March, 2023,
Solution: JOURNAL OF ROMI LTD.
Date | Particulars up] me | ce
202
‘Apil 1) Bank Alc Dr 400,000
To. Debentures Application Ale 490,000
{pplication money received for 10,000,
158 Debentures @ €40 per debenture)
Debentures Application A De 400000
To. 15%Debentures Ale +490,000
(10000, 15% Debentures allotted)
Debentures Allotment Alc De 520000
Loss Isue of Debentures A/c De 4,30,000
To 15% Debentures Alc 690,000
‘To. Premium on Redemption of Debentures Ac 30000
(Ailoument money due on 10000, 15% Debentures
Issued at 85 dlscount and redeemable at 5% premium)
Bank Ale De 5.20000
To Debentures Allotment A/c 520000
{Allotment money received)
Sept. 30) Debentures'iterest Ac De 75900
To. Debentureholders' Ac 75000
(intrest payable @ 15% pa, on debentures for 6 months)
Debenturehoides Alc De 75900
To Bank Alc 75000
(interest paid to debentureholdes)
208
March 31) Debentures Interest Nic De 7500
To. Debentureholders' Ac 75000
Ainterest payable @ 15% pa. for 6 months)
‘Debentureholdes A/c Dr 75,000
To BankAlc 75000
(interest paid to debentureholdes)
‘Statement of Profit & Loss Finance Cost) De 1130000
To. Losson sue of Debentures Ac 130000
(oss on ssue of Debentures written of) by 15% DEBENTURES ACCOUNT
Date [Particulars © [Date | Particulars x
003 202
March 31 To Balance cid 1099000 | Apsl 1 By Debentures Application Alc | 400.00,
By Debentures Allotment Alc | $,20000
By Lossonisve of
Debentures Alc 30,000
70001000 [1970000
203
‘Aptil_1/ By Balance bid 100,000,
Mlustration 9.
Pilot Pens Ltd. issued 50,000, 6% Debentures of @ 100 each at a discount of 20%. It had balance
in Securities Premium of % 6,00,000 and % 1,00,000 in Surplus, ie,, Balance in Statement
‘of Profit & Loss, Profit for the year before writing off balance of Discount on Issue of Debentures
is &2,00,000.
Show the Notes to Accounts writing off the Discount on Issue of Debentures.
Solution:
Note to Accounts
Particulars z z
1. Reserves and Surplus
Securities Premium
Opening Balance 600000
Less: Discount onlsue of Debentures written off
Surplus, e, Balance in Statement of Profit & Loss
‘Opening Balance 100,000,
‘Ad: roft fr the year before writing off Discount on Issue of Debentures 200,000
3,00,000
Les: Balance Discount on lssue of Debentures 400000
Note: Balance amount of Discount on Issue of Debentures (€ 400,000) is written off fom Statement of
Prof & Loss. Hence the balance in Surplus, ie, Balance in Statement of rot & Loss shows negative
balance of 100,000,
lustration 10 (Issue of Debentures to Vendors at Discount with Part Payment in Cast).
Blue Ltd. purchased from HCL Ltd, computers of €3,00,000 and software for 5,00,000 payable
80,000 by cheque and balance by issue of 7% Debentures of € 100 each at a discount of 10%
‘The company has balance in Securities Premium of % 40,000,
Pass the Journal entries in the books of Blue Ltd
7 Solutio: JOURNAL OF BLUELTD.
Date | Particulars ur] oe | ae
‘Computers Ale De 300000
Software Nc “De. 5.00000
To HCL. 800,000
(Computers and Software purchased from HCL Ltd)
HeLa De 300000
Discount on sue of Debentures AYe De 20.00
To Bank Ac 80000
To 79Debentures Ne 800,000
(Cheque for ® 80,000 and 8,000, 7% Debentures issued at discount
of 10%)
‘Secures Premium Ac 40000
‘Statement of Profit &:Loss (Finance Cost) 40,000
Ta. Discount on Issue of Debentures Alc 80000
(Discount on Issue of Debentures written off)
Notes:
1. Discount on Issue of Debentures is written offin the year debentures are alloted,
2. Itis written off from Securities Premium and Statement of Profit & Loss in that order
7,20,000
3. Number of Debentures Issued = =8,000 Debentures
790
[Nominal Value of Debentures Issued =8,000 Debentures x € 100 = 8,00,000.
Mlustration 11.
Alok Ltd. issued 7,000, 10% Debentures of % 500 each at a premium of & 50 per debenture
redeemable at a premium of 10% after 5 years. According to the terms of issue, 200 was
payable on application and balance on allotment.
Record necessary Journal entries at the time of issue of 10% Debentures. (0D 2015.0)
Solution: In the Books of Alok Ltd.
JOURNAL
Date | Particulars Lr] ee | ee
Bank Nc 1400.00,
To. Debentures Application Ni 1400.00,
(Debentures aplication money received fr 7,000;
10% Debentures @ 200 each)
Debentures Application Ale 14000000,
To 10% Debentures A/c 1400.00,
(Application money adjusted on allotment)
Debentures Allotment Alc De 2450000
Loss on issue of Debentures Ac De 350,000
To. 10% Debentures A/c 200,000
To Secures Premium Ne 350,000
‘To. Premium on Redemption of Debentures Alc 350,000
(Amount due on 7,000; 108 Debentures of 500 each on allotment
(@ 8350 per debenture including premium of €50 each and
redeemable at 10% premium)
Bank Nc 2450000
To Debentures Allotment A/c (21,0900 + 3.50000) 245,000
(Amount received against allotment) Ilustration 12.
Vijay Laxmi Ltd. invited applications for 10,000; 12% Debentures of @ 100 each at a premium
‘of 70 per debenture. The full amount was payable on application.
Applications were received for 13,500 debentures. Applications for 3,500 debentures were
rejected and application money was refunded. Debentures were allotted to the remaining
applications.
ass necessary Journal entries in the books of Vijay Laxmi Ltd. for the above transactions,
(Foreign 2012)
Solutio: In the Books of Vijay Laxmi Ltd.
JOURNAL
Date | Particulars LE] &@ | ae
Bank A/c (13,500 x 8170) 22.95,000
‘To Debentures Application and Allotment A/c 22,95,000
(Application money received on 13,500 debentures @ 170 per
debenture including ® 70 per debenture as premium)
Debentures Application and Allotment A/c 295,000
To. 12% Debentures A/c (10,000 x 100) 1000,000
“To. Securities Premium Alc (10,000 x 70) 790,000
To. Bank A/c (3,500 170) 595,000
(Application money adjusted and surplus refunded on allotment) 1. Complete the following Journal entries:
Date | Paticlars LE] cm | oe
‘Sundty Assets Ale De 25.00.00
? De. 200000
‘To. Sundry Liabilities Alc 50,000
To? 500000
To BSRLd, ?
(Business of SR Ltd purchased and ised a cheque for® 5.00000)
To s%Debentures Alc ?
@
Solutio
Date | Particulars Le] em | oe
‘Sundty Assets A/c De 25,0000
Goodwill Ae De 200000
‘To. Sundry Liabilities Ale 500000
‘To Bank Alc 0,000
To BSR, 170,000
(Business of SR Ltd purchased and isued a cheque for 5.00000)
BSR Ltd, 1¥7,00,000
‘To s¥Debentures Alc 117.0000
(mount due to BSRLtd settled by issue of 9% Debentures)
2. Perfect Barcode id, purchased computes om WV Computer Mart and pad the consideration as follows
(2) 1000, 10% Debentures of & 100 each ata discount of 108 and
(0) sued a cheque for 80,00 forthe balance amount
ass the Joural entry inthe books of Perfect Barcode ltd,
(Ans. 0x Computers Ale 1,70,000 and Discount on ssue of Debentures A/e—t 10.000;
10% Debentures A/c—R 100000 and Bank A/e—R 80000}
3. Lotus Lid. took over assets of 250,000 and liabilities of ® 30,000 of Goneby Company forthe purchase consideration
‘of 330,000 Lotus Ltd. pad the purchase consideration by issuing debentures of € 100 each at 10% premium.
‘Give Jounal entries inthe books of Lotus td. (Ans: GooduilX 1.10000)
4, Pass Journal entries inthe allowing cass:
(2) ACo. Lid. ssued® 40,00; 12% Debentures ata premium of 59% redeemable at pa.
(b) Ao. tt issued€ 40.000; 12% Debentures at a discount of 1% redeemable at pa.
(©) A Co.Ltd issued 40,000; 125 Debentures at par redeemable at 10% premium.
(@) Ao. tt. issued% 40000; 1295 Debentures at a discount of $8 and redeemable at 5% premium.
(@) ACo.ttdissued€ 40.000; 12% Debentures at a premium of 10% redeemable at 110%.
5. Pass necessary Journal entries and prepare 9% Debentures Account for the isue of 7,500, 9% Debentures
‘of @ 50 each ata discount of 6%, redeemable at a premium of 10%. (ase2019
1 6. ‘Sangam Woollens Ltd: Ludhiana, are the manufacturers and exporters of woollen garments. The
company decided to distribute free of cost woollen garments to 10 villages of Lahaul and Spiti District of
Himachal Pradesh. The company also decided to employ 50 young persons from these villages in its newly
established factory. The company isued 40,000 Equity Shares of & 10 each and 1,000, 9% Debentures of
100 each tothe vendor forthe purchase of machinery of ®5,00,000.
Pass necessary Journal entries. (Dabi2015, Mees)
{Ans.:() Dr. Machinery A/c and Cr. Vendors A/c by&5,00,000.
(i) Dr. Vendors A/c by&5,00,000: Cr. Equity Share Capital A/c by&4,00,000 and
996 Debentures A/c by 8 1,00,000}
7. ass Journal entries in the following cases:
(a) Rohit Ltd issued ® 40,000; 12% Debentures ata premium of 5% redeemable at par
(6) Virat Lt. issued & 40,000; 12% Debentures at a discount of 108% redeemable at par.
(0) Rahul Ltd. issued ® 40,000; 12% Debentures at par redeemable at 10% premium.
(d) Prithvi Ltd. isued ® 40,000; 12% Debentures ata discount of 5% and redeemable at 5% premium.
(e)_Shikhar Ltd. issued € 40,000; 12% Debentures ata premium of 10% redeemable at 110%.
8. Ltd. issued 1,000, 9% Debentures off 100 each ata discount of 6% These Debentures were redeemable
‘ata premium of 1036 after five years.
Pass necessaty Journal entries for issue of debentures and prepare 9% Debentures Account. (C85E2019)
9. Pass necessary Journal entries for the issue of Debentures inthe following cases
(a) © 40,000; 15% Debentures of 100 each issued ata discount of 10% redeemable at pa.
(0) ® 80,000; 15% Debentures of % 100 each issued at a premium of 10% redeemable at a premium
of 10%, 2013)
10. XYZ Ltd. sted 5,000, 10% Debentures of & 100 each on 1st April, 2022 at a discount of 10% redeemable
‘ata premium of 10% after 4 years. Give Journal entries forthe year ended 31st March, 2023, ifnterest was
payable half-yearly on 30th September and 31st March. Taxis to be deducted @ 10%,
11. Office Products Ltd issued on Ist Apri, 2019, 20,000, 9% Debentures of & 100 each at a premium of
10% redeemable ata premium of 5% after 5 years. Issue price was payable along with application.
Pass the necessary Journal entries.
Aen Rel Sey eae ue RLU RUE INR ZU}
1. Fill the missing values in the following:
JOURNAL OF ABLTD.
Date [Particulars Le] om | ce
To? 2
Apelication money received on 2000; 1294 Debentures of 100 each
Issued ata premium of 10% and redeemable at premium of 10%)
? De ?
7 De ?
To? z
To? z
To? ?
Kota
(0D 2016 €) Solution: JOURNAL OF AB TO,
Date | Particulars
LE] DER)
Bank Alc
‘To Debentures Application and Allotment lc
(Application money received on 2,00; 12% Debentures of 100 each
issued ata premium of l0%and redeemable at premium of 10%)
Debentures Application and Allotment A/c
Loss on issue of Debentures A/c
“To. 129% Debentures Alc
“To Securities Premium Ale
‘To Premium on Redemption of Debentures Alc
(issue of 2,000; 12% Debentures of 100 each ata premium of
10% and redeemable at a premium of 10%)
2,20,000
2,20,000
20,000
200,000
20,000
20,000
2. Complete the following Journal entries:
Date | Particulars
LE] De)
2021
‘Aptil 1 | Sundey Asets A/c
To Sundry Liabilities Ne
To ShivShankar Ltd.
(shiv Shankar Lt. taken over by Parvati ltd fora purchase
consideration of €1820,000)
‘pil 1 Shiv Shankar Ltd.
To?
“To S%Debentures Alc
(Shiv Shankar Ltd. paid by issuing abil of € 20,000 andthe balance
pad by Issue of 8% Debentures of 100 each ata discount of 10%)
25.00.00
1820000
7
780,000
1820000,
Solutio JOURNAL
(Sample Paper 2018-19)
Date | Particulars
LE] De)
ce
2021
‘Aptil 1 Sundry Assets Alc
‘Goodwill Alc (Balancing Fig
To Sundry Lialities Ale
To Shiv Shankar Lid
(Shiv Shankar Lt. taken over by Parvati Ltd fora purchase
consideration of 1820,000)
‘Aptil 1 | Shiv Shankar Lt
Discount on Issue of Debentures Alc
“To BillsPayable Alc
‘To B¥Debentures Alc
(Shiv Shankar Lt. paid by issuing abil o€ 20,000 an the balance
pad by issue of 8% Debentures of € 100 each at a discount of 10%)
De.
25,00,00
100,000
1820000
2,00,000
780,000
18200000,
20000
20,00,000
Working Note:
No, of Debentures Issued = %18,00,000 + €90 = 20,000,
3 Se,
@ ANSWERS
Le)
2
3. id)
40)
5. id)
6 6
ne
a
9.)
a)
no)
ne
3 ©
we
Working Note:
Interest on Debentures
55,000,
© 10,00,000 x
So
100
15. (a)
Working Note:
%8,10,000
No. of Debentures to be issued = "S200
Debentures Account will be credited with & 9,00,000 (90,000 x ® 100).
90,000 Debentures
16. (b)
Working Note:
450,000
No of Debentures to be issued = © 450.000
° * 120
Debentures Account will be credited with € 375,000 (3,750 x € 100)
= 3,750 Debentures
©
Working Note:
Premium payable at the time of redemption @ 1096 = € 10,00,000, out of this amount € 400,000 have
been debited to Statement of Profit & Loss It means & 6,00,000 (ie, € 10,00,000 ~ 8 4,00,000) have been
written off from Securities Premium.
6,00,000
7,00,00,000
Rate of Premium on Isue of Debentures = x 100 = 6%,
1 ©
Working Note:
Premium payable on Redemption @ 20% = 1,60,000 x & 20 =
32,00,000
Total loss written off from Secures Premium = 500,000 ~ ¥10,00,000 = & 40,00,000
Discount on lsue of Debentures = & 40,00,000 - & 3200.00 = &8,00,000,
Rate of discount on isue of debentures = =€ 800000 x 199 = 556,
1,60,00,000
19. 0a)
20.
JOURNAL OF CHROME LT.
Date | Parculas LE] ee | GR
Sundry Assets Ale Dx | | 600000
‘oodwil A Balancing ure) De 70000
To Sundry Liabiltes Ale 40000
To olymerttd 30000
(Assets an bites tok over of Polymer td)
Polymer itd Dr) 630000
Discount on sue of Debentures Ac Or 71,000
To 10% Debentures A 7790000
{7000 e, 630,000 +€ 50, 10% Debentures of 100 each
‘ssued at 90 each nfl satisfaction
Statement of Poi Loss Finance Cost) De 71,000
To Discount on sue of Debentures Ale 70000
(Ciscount on issu of Debentures writen of
Discount/Loss on Issue of Debentures is writen off in the year debentures ae allotted from Securities
Premium and Statement of Profit & Loss, in that ordtIn the absence of balance in Securities Premium,
it is written off form Statement of Profit & Loss.
21. JOURNAL OF SUNDER LTD.
Date | Particulars LE] oem | cee
Builaing Ne Oe 3300000
Plant and Machinery Ale i 100000
Stock le re 200.000
Sundry Debtors Ac =o.) | 100000
To Sundry Creditors Ne 0000
To India Bulls Ld 600000
To Captl Reserve Ae (Balancing Figure} 20000
[Purchase of business fom India Bulls td)
Ind Bulls Ld Oe 0000
To Bank Ne 60.000
[Pact payment made to vendor by cheque)
Ind Bulls Ud 540000
To 10% Debentures Nc 450000
To Secures Premium Ale 90.000
{issue of 4500 debentures t 20% premium to India Bulls Ltd)
No, of Debentures to be issued = 5,40,000/% 120
2
500 Debentures. 22.
@ JOURNAL OF 200M LTD.
Date
Particulars
Lr.
De®)
ce)
Bank A (6,000 x & 100)
“To Debentures Application and Allotment Ac
(Debentures application money received)
Debentures Application and Allotment Alc
“To 10% Debentures Alc
(6,000; 10% Debentures of € 100 each issued at par)
1600000
600000
600,000
00,000
) JOURNAL OF ZOLA LTD.
Date
Patiulars
Lr
De®)
eR
Bank Ae
‘To Debentures Application and Allotment Ac
(Debentures application money received)
Discount on Issue of Debentures A/c De
To 10% Debentures Alc
(sue of 000, 10% Debentures of & 100 each ata dscount of 198)
Debentures Application and Allotment A/c De
‘Statement of Profit & Loss (Finance Cost)
To. Discount on fsue of Debentures Ac
(Discount on isue of Debentures written off)
450000
450000
50000
0900
450,000
590,000
0,000
o JOURNAL OF ZUBIC LTD.
Date
Particulars
LF
De®)
R)
Bank Ale
‘To Debentures Application and Allotment Ac
(Debentures application money received)
Debentures Application and Allotment A/c
“To 10% Debentures Alc
“To. Securities Premium Alc
(sue of 10% Debentures ofthe value of € 1200000 a a premium of 5%)
120,000,
260,000,
1260,000
12,.00,000
0,000
JOURNAL OF RUBY LTD.
Date
Patiulars|
Lr.
De®)
ae
Bank A 5.00000 + 5% of ® 5.00000)
‘To Debentures Application and Allotment Ac
(Debentures application money received)
Debentures Application and Allotment A/c De
Loss on issue of Debentures Ac De
“To 10% Debentures Alc
‘To_Premium on Redemption of Debentures Nc
“To Securities Premium A
(ssue of 10% Debentures of ® 500,00 ata premium of
'5% and redeemable a a premium of 10%)
‘Statement of Profit & Loss (Finance Cost) De
Ta. Loss on Issue of Debentures Ne
(Loss on issue of Debentures writen off)
‘Securities Premium Ae De
525,000
525000
50,000
25000
25000
525,000
590,000
50000
25,000
50000 Note: Discount/Loss on Issue of Debentures is written off at the end of the financial year. At the end of the
financial year, balance in Securities Premium Account was & 25,000 due to issue of debentures. Its
used for writing off Loss on Issue of Debentures and balance Is writen off from Statement of Profit
& Loss as Finance Cost.
wo) JOURNAL OF EMERALD LTD.
Date
Particulars
Le
De®)
R)
Bank Alc (000 x € 93)
‘To Debentures Application and Allotment Ac
(Debentures application money received)
Debentures Application and Allotment Ae
Loss on issue of Debentures Ac (€ 21,000 + 30,000)
To. 9% Debentures Alc
‘To_ Premium on Redemption of Debentures Nc
(ssue of 3,000; 9% Debentures of € 100 each ata discount
‘of 7% and repayable at a premium of 105)
‘Statement of Profit Loss (Finance Cost)
Ta Loss on Issue of Debentures Ne
‘oss on Issue of Debentures written off
279000
279000
51,000
51,000
279000
300,000
30000
5,000
o JOURNAL OF NEWBIE LTD.
Date
Particulars
o@)
ce)
Bank Alc 000 x ® 94)
To Debentures Application and Allotment Nic
(Debentures application money received)
Debentures Application and Alotment Alc
Discount on sue of Debentures Ac
To 9% Debentures Ne
{Debentures issued at a discount of 6% and redeemable at par)
ee
‘Statement of Profit & Loss (Finance Cost)
To Discount on ssue of Debentures Ac
{Discount on issue of debentures writen off)
188}000,
188,000,
12000
12000
188.000
200000
12000
24,
JOURNAL OF JAYPEE LTD.
Date
Particulars
m8)
c.®)
Bank Nc
To Debentures Application and Allotment Ac
(Debentures application money received)
Debentures Application and Alotment Alc
To 9% Debentures Ac
{issue of 5000, 9% Debentures of & 100 each at par)
Dr
Debentures Suspense Ni
To 9% Debenture Ale
loan from bank SB)
{issue of 1,000, 3 Debentures of @ 100 each as collateral security for a
500,000,
+5,00000
100,000
500,000
500.000
4 [AN EXTRACT OF BALANCE SHEET OF JAYPEE LTD,
asat
Particulars Note No] &
|. EQUITY AND LIABILITIES
‘Non-
