Ts grewal practical problems of Company Accounting - Issue of Debentures (2023-2024)

 Company Accounting - Issue of Debentures Ts grewal solution volume-2(2023-2024):part-1

Question 1:

JS Ltd. issued 2,000; 9% Debentures of ` 100 each payable as follows:
` 25 on application; ` 25 on allotment and ` 50 on first and final call.
Applications were received for all the debentures along with the application money did allotment was made. Call money was also received on the due date.
Pass necessary Journal entries in the books of the company.

 

Answer:

Books of JS Ltd.
Journal
Date	Particulars		L.F.	Debit `	Credit `
	Bank A/c	Dr.		50,000
	To 9% Debenture Application A/c				50,000
	(Debenture application money received for 2,000 debentures at ` 25 each)
	9% Debenture Application A/c	Dr.		50,000
	To 9% Debenture A/c				50,000
	(Debenture application money transferred to 9% Debentures A/c)
	9% Debenture Allotment A/c	Dr.		50,000
	To 9% Debentures A/c				50,000
	(Debenture allotment money due on 2,000 Debentures at ` 25 each)
	Bank A/c	Dr.		50,000
	To 9% Debenture Allotment A/c				50,000
	(Debenture allotment money received)
	9% Debenture First and Final Call A/c	Dr.		1,00,000
	To 9% Debentures A/c				1,00,000
	(Debenture first and final call money due on 2,000 debentures at ` 50 each)
	Bank A/c	Dr.		1,00,000
	To 9% Debenture First and Final Call A/c				1,00,000
	(Debenture first and final call received)

 

Question 2:

Droga  Ltd. issued 2,000; 9% Debentures of ` 100 each on the following terms:
`20 on applications ;` 20 on allotment ; ` 30 on first call ; ` 30 on final call.
The public applied for 2,400 debentures. Applications for 1,800 debentures were accepted in full. Applications for 400 debentures were allotted 200 debentures and applications for 200 debentures were rejected. Pass necessary Journal entries.

Answer:

Books of Droga Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
	Bank A/c	Dr.		48,000
	To 9% Debenture Application A/c				48,000
	(Debenture application money received for 2,400 debentures at ` 20 each)
	9% Debenture Application A/c	Dr.		48,000
	To 9% Debentures A/c				40,000
	To 9% Debentures Allotment A/c				4,000
	To Bank A/c				4,000
	(Debenture application money transferred to 9% Debenture account for 2,000 Debenture, adjusted to Debenture Allotment account for 200 Debentures and money refunded for 200 debentures)
	9% Debenture Allotment A/c	Dr.		40,000
	To 9% Debentures A/c				40,000
	(Debenture allotment money due on 2,000 debentures at ` 20 each)
	Bank A/c	Dr.		36,000
	To 9% Debentures Allotment A/c				36,000
	(Debenture allotment money received)
	Debenture First Call A/c	Dr.		60,000
	To 9% Debentures A/c				60,000
	(Debenture first call money due on 2,000 9% debenture at ` 30 each)
	Bank A/c	Dr.		60,000
	To Debenture First Call A/c				60,000
	(Debenture first call money received)
	Debenture Final Call A/c	Dr.		60,000
	To 9% Debentures A/c				60,000
	(Debentures final call money due on 2,000 9% Debentures at ` 30 each)
	Bank A/c	Dr.		60,000
	To Debenture Final Call A/c				60,000
	(Debenture final call received on 2,000 9% Debenture at ` 30 each)

 

Question 3:

Venus Ltd. issued 40,000; 10% Debentures of ` 100 each at par for cash payable in full along with the application. Applications  were received for 60,000 debentures . Debentures were allotted and excess application money was refunded. Pass Journal entries in the books of the company.

Answer:

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
	Bank A/c (60,000 ×100)	Dr.		60,00,000
	To Debenture Application and Allotment A/c				60,00,000
	(Received application money on 60,000 Debenture)
	Debenture Application and Allotment A/c	Dr.		60,00,000
	To 10% Debentures  A/c (40,000 ×100)				40,00,000
	To Bank A/c				20,00,000
	(Application money transferred to Debentures A/c)

 

Question 4:

Nipa Limited issued ` 10,00,000 Debentures of ` 100 each at a premium of 10% , payable 25% on application (including premium) and the balance on allotment . The debentures were applied for and the amount was dully received.
You are required to give Journal entries and prepare Cash Book.

Answer:

Face Value of Debenture = ` 100

Premium (` 100 × 10%) = ` 10

∴ Issue Price = ` 110

Amount Payable as:

 

Journal
Date	Particulars		L.F.	Debit `	Credit `
	Debenture Application A/c	Dr.		2,50,000
	To Debentures A/c				1,50,000
	To Securities Premium A/c				1,00,000
	(Debenture application money received for 10,000 debentures at ` 25 including premium of `10 each transferred to debenture account)
	Debenture Allotment A/c	Dr.		8,50,000
	To Debentures A/c				8,50,000
	(Debentures allotment due on 10,000 Debentures at ` 85 each)

 

Cash Book
Dr.							Cr.
Date	Particulars	L.F.	Bank `	Date	Particulars	L.F.	Bank `
	Debenture Application		2,50,000
	Debenture Allotment		8,50,000
					Balance c/d		11,00,000
			11,00,000				11,00,000

On Application (25%)	` 25 including premium of ` 10 (i.e. ` 10 + 15)
On Allotment (85%)	` 85 per debenture

Question 5:

Raj Ltd. issued 5,000; 8% 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.
Pass necessary Journal entries.

Answer:

Books of Raj Ltd.
Journal
Date	Particulars		L.F.	Debit `	Credit `
	Bank A/c	Dr.		50,000
	To 8% Debenture Application A/c				50,000
	(Debenture application money received for 5,000 debentures at ` 10 each)
	8% Debenture Application A/c	Dr.		50,000
	To 8% Debentures A/c				50,000
	(Debenture application money transferred to 8% Debentures A/c)
	8% Debenture Allotment A/c	Dr.		1,00,000
	To 8% Debentures A/c				75,000
	To Securities Premium A/c				25,000
	(Debenture allotment due on 5,000 8% Debentures at ` 20 including premium of ` 5)
	Bank A/c	Dr.		1,00,000
	To 8% Debentures Allotment A/c				1,00,000
	(Debenture allotment money received)
	8% Debentures First and Final Call A/c	Dr.		3,75,000
	To 8% Debenture A/c				3,75,000
	(Debenture first and final call due on 5,000 Debentures at ` 75 each)
	Bank A/c	Dr.		3,75,000
	To 8% Debenture First and Final Call A/c				3,75,000
	(Debenture first and final call received)

 

Question 6:

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.

Answer:

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
	Bank A/c (7,000×200)	Dr.		14,00,000
	To Debenture Application A/c				14,00,000
	(Received application money on 7,000 debentures)
	Debenture Application A/c	Dr.		14,00,000
	To 10% Debentures A/c				14,00,000
	(Transfer of application money to Debentures A/c)
	Debenture Allotment A/c (7,000×350)	Dr.		24,50,000
	Loss on issue of Debentures A/c (7,000×50)	Dr.		3,50,000
	To 10% Debentures A/c (7,000×300)				21,00,000
	To Securities Premium Reserve A/c (7,000×50)				3,50,000
	To Premium on Redemption of Debentures A/c(7,000×50)				3,50,000
	(Allotment due on 7,000 Debentures at a premium of ` 50 per debentures and redeemable at premium of 10%)
	Bank A/c	Dr.		24,50,000
	To Debenture Allotment A/c				24,50,000
	(Allotment money received)

 

Question 7:

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.

Answer:

In the Books of Vijay Laxmi Ltd. Journal
Date	Particulars		L.F.	Debit `	Credit `
	Bank A/c	Dr.		22,95,000
	To Debenture Application and Allotment A/c				22,95,000
	(Application money received on 13,500 12% debenture)
	Debenture Application and Allotment A/c	Dr.		22,95,000
	To 12% Debentures A/c				10,00,000
	To Securities Premium Reserve A/c				7,00,000
	To Bank A/c				5,95,000
	(10,000; 12% Debentures issued at a premium of ` 70 and excess money refunded)

Question 8:

Narain Laxmi Ltd. invited applications for issuing 7,500; 12% Debentures of ` 100 each at a premium of ` 35 per debenture. The full amount was payable on application. Applications were received for 10,000 Debentures. Allotment was made to all the applications on pro rata.
Pass necessary Journal entries for the above transactions in the books of Narain Laxmi Ltd.

Answer:

 

In the Books of Narain Laxmi Ltd. Journal
Date	Particulars		L.F.	Debit `	Credit `
	Bank A/c (10,000 debentures × 135)	Dr.		13,50,000
	To Debenture Application and Allotment A/c				13,50,000
	(Application money received on 10,000 12% debenture)
	Debenture Application and Allotment A/c	Dr.		13,50,000
	To 12% Debentures A/c				7,50,000
	To Securities Premium Reserve A/c				2,62,500
	To Bank A/c				3,37,500
	(7,500; 12% Debentures of ` 100 each issued at a premium of ` 35 and excess money refunded)

 

Question 9:

Iron Products Ltd. issued 5,000; 9% Debentures of ` 100 each at a premium of ` 40 payable as follows;
(i) ` 40 , including premium of ` 10 on applications;
(ii) ` 45, including premium of ` 15 on allotment ; and
(iii) Balance as first and final call.
The issue was subscribed and allotment made. Calls were made and due amount  was received .
Pass Journal entries.

Answer:

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
	Bank A/c (5,000×40)	Dr.		2,00,000
	To Debenture Application A/c				2,00,000
	(Application money received)
	Debenture Application A/c	Dr.		2,00,000
	To 9% Debentures A/c (5,000×30)				1,50,000
	To Security Premium Reserve A/c (5,000×10)				50,000
	(Application money adjusted)
	Debenture Allotment A/c (5,000×45)	Dr.		2,25,000
	To 9% Debentures A/c  (5,000×30)				1,50,000
	To Security Premium Reserve A/c (5,000×15)				75,000
	(Allotment money due)
	Bank A/c (5,000×45)	Dr.		2,25,000
	To Debenture Allotment A/c				2,25,000
	(Allotment money received)
	Debenture First and Final call A/c (5,000×55)	Dr.		2,75,000
	To 9% Debentures A/c (5,000×40)				2,00,000
	To Security Premium Reserve A/c (5,000×15)				75,000
	(First call money due)
	Bank A/c	Dr.		2,75,000
	To Debenture Final and Final call A/c				2,75,000
	(First Call money Received)

 

Question 10:  Kati Ltd. issued 8,000, 99% Debentures of ` 100 each at a discount of 10%. The full amount was payable on application. Applications were received for 9,000 debentures and allotment was made on pro rata basis.

Pass the necessary Journal entries for the above transactions in the books of Kati Ltd. (CBSE 2020)

Answer:

Books of Kati Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
	Bank A/c	Dr.		8,10,000
	To 9% Debenture Application and Allotment A/c				8,10,000
	(Debenture application money received for 9,000 debentures at ` 90 each face value `100 at 10% discount)
	9% Debenture Application A/c Discount on issue of Debenture A/c	Dr. Dr.		8,10,000 80,000
	To 9% Debentures A/c				8,00,000
	To Bank A/c				90,000
	(Debenture application money transferred to 9% Debenture account for 8,000 Debenture, and money refunded for 1,000 debentures)

Question 11:

Linux Ltd. issued 12,000; 8% Debentures of  ` 100 each at a discount of 5% payable as 25% on application;20% on allotment and balance after three months.
Pass Journal entries.

Answer:

Face Value of Debenture = ` 100

Discount (` 100 × 5%) = ` 5

∴ Issue Price = ` 95

Amount Payable as:

On Application (25%)	` 25 per debenture
On Allotment (20%)	` 20 (25 – 5) per debenture
On First and Final Call (50%)	` 50 per debenture

 

Journal
Date	Particulars		L.F.	Debit `	Credit `
	Bank A/c	Dr.		3,00,000
	To 8% Debenture Application A/c				3,00,000
	(Application money received for 12,000 8% Debentures at ` 25 each)
	8% Debenture Application A/c	Dr.		3,00,000
	To 8% Debentures A/c				3,00,000
	(Debenture application money transferred to 8% Debentures account)
	8% Debentures Allotment A/c	Dr.		2,40,000
	Discount on Issue of Debentures A/c	Dr.		60,000
	To 8% Debentures A/c				3,00,000
	(Allotment money due on 12,000 8% Debentures at ` 20 each at discount of ` 5)
	Bank A/c	Dr.		2,40,000
	To 8% Debenture Allotment A/c				2,40,000
	(Allotment money received)
	8% Debenture First and Final Call A/c	Dr.		6,00,000
	To 8% Debentures A/c				6,00,000
	(First and final call money due on 12,000 8% Debentures at ` 50 each)
	Bank A/c	Dr.		6,00,000
	To 8% Debentures First and Final Call A/c				6,00,000
	(First and Final call money received)

 

Question 12:

Alka Ltd . issued 5,000, 10% Debentures of  `  1,000 each at a discount of 10% redeemable at a premium of 5% after 5 years . According to the terms of issue  `  500 was payable  on application and the balance amount on allotment of debentures. Record necessary entries regarding issue of 10% Debentures. (Delhi 2015 C)

Answer:

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
	Bank A/c (5,000×500)	Dr.		25,00,000
	To Debenture Application A/c				25,00,000
	(Received application money on 5,000 debentures)
	Debenture Application A/c	Dr.		25,00,000
	To 10% Debentures A/c				25,00,000
	(Transfer of application money to Debentures A/c)
	Debenture Allotment A/c (5,000×400)	Dr.		20,00,000
	Discount on issue of Debentures A/c (5,000×100)			5,00,000
	Loss on issue of Debentures A/c (5,000×50)	Dr.		2,50,000
	To 10% Debentures A/c (5,000×500)				25,00,000
	To Premium on Redemption of Debentures A/c (5,000×50)				2,50,000
	(Allotment due on 5,000 Debentures at a discount of ` 100 per debentures and redeemable at premium of 5%)
	Bank A/c	Dr.		20,00,000
	To Debenture Allotment A/c				20,00,000
	(Allotment money received)

Question 13:

Joy Ltd. company bought a Building for  ` 9,00,000 and the consideration was paid by issuing 10% Debentures of the normal (face) value of  ` 100 each at a discount of 10%.

Give Journal entries.

Answer:

Books of Joy Limited Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
	Building A/c	Dr.		9,00,000
	To Vendor A/c				9,00,000
	(Building purchased)
	Vendor A/c	Dr.		9,00,000
	Discount on Issue of Debentures A/c	Dr.		1,00,000
	To 10% Debentures A/c				10,00,000
	(Issued 10,000, 10% debentures at 10% discount)

 

Working Note:

Number of debentute to be issued= Purchase consideration/issue price=9,00,000/90=10,000 Debentures

 

Question 14:

Amrit Ltd . was promoted by Amrit and Bhaskar with an authorised capital of  `  10,00,000 divide into 1,00,000 shares of  `  10 each.
The company decided to issue 1,000,6% Debentures of  `  100 each to Amrit and Bhaskar  each for their services in incorporating the company.
Pass journal entry.

Answer:

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
	Incorporation Cost A/c (2,000 × 100)	Dr.		2,00,000
	To 6% Debentures A/c				2,00,000
	( Debentures issued to promoters)

 

Question 15:   B Ltd. issued 9% Debentures of ` 100 each at a premium of 20% to Vendors for purchase of plant costing ` 6,00,000.

Pass the necessary Journal entry for the payment made to vendors. (CBSE 2020)

Answer:

Books of B Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
	Plant A/c	Dr.		6,00,000
	To Vendor’s A/c				6,00,000
	(Being purchase of plant)
	Vendor’s A/c                                             Dr.			6,00,000
	To 9% Debentures A/c				5,00,000
	To Securities Premium Reserve A/c				1,00,000
	(Being 9% Debentures issued of ` 100 each at a premium of 20% to Vendors for purchase of plant costing ` 6,00,000 at `120)

Question 16:

Ananya Ltd . purchased an established business for  `  2,00,000 payable as  `  65,000 by cheque and the balance by issuing 9% Debentures of  `  100 each at a discount of 10%.
Give journal entries  in the books of Wye Ltd.

Answer:

Books of Ananya Ltd.
Journal
Date	Particulars		L.F.	Debit `	Credit `
	Sundry Assets A/c	Dr.		2,00,000
	To Vendor A/c				2,00,000
	(Business purchased)
	Vendor A/c	Dr.		65,000
	To Bank A/c				65,000
	(Amount paid to Vendor in cash)
	Vendor A/c	Dr.		1,35,000
	Discount on Issue of Debentures A/c	Dr.		15,000
	To 9% Debentures A/c				1,50,000
	(Issued 1,500 debentures at 10% discount)

 

Working Note:

Number of debentute to be issued= Purchase consideration/issue price=1,35,000/90=1,500 Debentures

 

Question 17:

Reliance Ltd. purchased machinery costing  `  1,35,000 . It was agreed that the purchase consideration be paid by issuing 9% Debentures of  `  100 each . Assume debentures have been issued
(i) at par and
(ii)at a discount of 10%.
Give necessary journal entries.

Answer:

Case 1

Books of Reliance Ltd.
Journal
Date	Particulars		L.F.	Debit `	Credit `
	Machinery A/c	Dr.		1,35,000
	To Vendor A/c				1,35,000
	(Machinery Purchases)
	Vendor A/c	Dr.		1,35,000
	To 9% Debenture A/c				1,35,000
	(Issued 1,350 debentures at par)

Working Note:

Number of debentute to be issued= Purchase consideration/issue price =1,35,000/100=1,350 Debentures

 

Case 2

Journal
Date	Particulars		L.F.	Debit `	Credit `
	Machinery A/c	Dr.		1,35,000
	To Vendor A/c				1,35,000
	(Machinery purchased)
	Vendor A/c	Dr.		1,35,000
	Discount on Issue of Debentures A/c	Dr.		15,000
	To 9% Debenture A/c				1,50,000
	(Issued 1,500 debentures at 10% discount)

 

Working Note:

Number of debentute to be issued= Purchase consideration/issue price =1,35,000/=1,500 Debentures

 

Question 18:

Romi Ltd. acquired assets of  `20 lakhs and took over creditors of  `2 lakhs from Kapil Enterprises.
Romi Ltd. issued 8% Debentures  of  `100 each at a discount of 10% as purchase consideration.
Record necessary journal entries in the books of Romi Ltd.

Answer:

Books of Romi Ltd.
Journal
Date	Particulars		L.F.	Debit `	Credit `
	Assets A/c	Dr.		20,00,000
	To Creditors A/c				2,00,000
	To Kapil Enterprises				18,00,000
	(Assets purchased and Creditors took over from Kapil Enterprises)
	Kapil Enterprises	Dr.		18,00,000
	Discount on Issue of Debentures A/c	Dr.		2,00,000
	To 8% Debentures A/c				20,00,000
	(Issued 20,000 8% Debentures of ` 100 each at discount of 10% to Kapil Enterprises)

 

Working Note:

Number of debentute to be issued= Purchase consideration/issue price =18,00,000/100-10

=18,00,000/90=20,000 Debentures

 

Question 19:

Exe Ltd. purchased the assets of the book value  `4,00,000 and took over the liabilities of ` 50,000 from Mohan Bros. It was agreed that the  purchase consideration, settled at `3,80,000 be paid by issuing debentures of `100 each.
Pass journal entries if debenture are issued:
(a) at par
(b) at a discount of 10% and
(c) at a premium of 10%.
It was agreed that any fraction of debentures be paid in cash.

 

Answer:

 

Journal
Date	Particulars		L.F.	Debit `	Credit `
	Assets A/c	Dr.		4,00,000
	Goodwill A/c (balancing figure)	Dr.		30,000
	To Liabilities A/c				50,000
	To Mohan Bros. A/c				3,80,000
	(Asset and liabilities purchased from Mohan Bros.)

 

Case 1 When Debentures are issued at Par

Journal
Date	Particulars		L.F.	Debit `	Credit `
	Mohan Bros.	Dr.		3,80,000
	To Debenture A/c				3,80,000
	(Issued 3,800 debentures at par)

Working Note:

Number of debentute to be issued= Purchase consideration/issue price =3,80,000/100 =3,800 Debentures

 

Case 2 When Debentures are issued at 10% discount

Journal
Date	Particulars		L.F.	Debit `	Credit `
	Mohan Bros.	Dr.		3,80,000
	Discount on issue of Debenture A/c	Dr.		42,220
	To Debenture A/c				4,22,200
	To Bank A/c				20
	(Issued 4,222 Debentures of ` 100 each at 10% discount to Mohan Bros. and fraction of debentures is paid in cash)

Working Note:

Number of debentute to be issued= Purchase consideration/issue price =3,80,000/100-10

=18,00,000/90=4,222.2 Debentures

 

 

Case 3 When Debentures are issued at 10% premium

 

Journal
Date	Particulars		L.F.	Debit `	Credit `
	Mohan Bros.	Dr.		3,80,000
	To Debenture A/c				3,45,400
	To Securities Premium A/c				34,540
	To Bank A/c				60
	(Issued 3,454 Debentures of ` 100 each at 10% premium to Mohan Bros. and fraction of debentures is paid in cash)

Working Note:

 

Number of debentute to be issued= Purchase consideration/issue price =3,80,000/100+10

=18,00,000/110=3454.6 Debentures

 

Question 20:   Rama Ltd. took over following assets and liabilities of Krishna Ltd. on 1st April, 2019:

	`
Land and Building	50,00,000
Furniture	10,00,000
Stock	5,00,000
Creditors	7,00,000

 

                   
The purchase consideration of ` 60,00,000 was paid by issuing 12% Debentures of ` 100 each at a premium of 20%.

Pass the necessary Journal entries for the above in the books of Rama Ltd. (CBSE 2020)

Answer:

Books of B Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
	Goodwill A/c Land and Building A/c Furniture A/c Stock A/c	Dr. Dr. Dr. Dr.		2,00,000 50,00,000 10,00,000 5,00,000
	To Krishna Ltd.’s A/c To Creditors A/c				60,00,000 7,00,000
	(Being purchase of plant)
	Krishna Ltd.’s A/c                                       Dr.			60,00,000
	To 9% Debentures A/c				50,00,000
	To Securities Premium Reserve A/c				10,00,000
	(Being 12% 50,000 Debentures issued of ` 100 each at a premium of 20% to Vendors for purchase of plant costing ` 6,00,000 at `120)

Question 21:

Green Ltd. purchased the assets of Strong Ltd. for ` 40,00,000 and took over liabilities of 7,00,000 at an agreed value of ` 32,40,000. Payment was made by issuing 10% Debentures of 100 each at a discount of 10%. Pass the necessary Journal entries in the books of Green Ltd.

Answer:

In the books of Green Ltd. Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
	Sundry Assets A/c	Dr.		40,00,000
	To Sundry Liabilities A/c				7,00,000
	To Strong Ltd.				32,40,000
	To Capital Reserve A/c				60,000
	(Being the purchase of business of Strong Ltd.)
	Strong Ltd. A/c	Dr.		32,40,000
	Discount on Issue of Debentures A/c (36,000×10)	Dr.		3,60,000
	To 10% Debentures A/c				36,00,000
	(Being 36,000, 10% debentures issued as purchase consideration)

Working Notes:

Number of Debentures issued= (32,40,000/90) = 36,000 debentures

 

Question 22:

Wellbeing Ltd. took over assets of ` 9,80,000 and liabilities of ` 40,000 of HDR Ltd. at an agreed value of ` 9,00,000. Wellbeing Ltd. paid to HDR Ltd. by issue of 9% Debentures of ` 100 each at a premium of 20%. Pass necessary Journal entries to record the above transactions in the books of Wellbeing Ltd.

Answer:

In the books of Wellbeing Ltd. Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
	Sundry Assets A/c	Dr.		9,80,000
	To Sundry Liabilities A/c				40,000
	To HDR Ltd.				9,00,000
	To Capital Reserve A/c				40,000
	(Being the purchase of business of HDR Ltd.)
	HDR Ltd. A/c	Dr.		9,00,000
	To 9% Debentures A/c (7,500 × 100)				7,50,000
	To Securities Premium Reserve A/c (7,500 × 20)				1,50,000
	(Being 36,000, 10% debentures issued as purchase consideration)

Working Notes:

Number of Debentures issued = (9,00,000/120) = 7,500 debentures

 

Question 23:   Neeraj Ltd. took over business of Ajay Enterprises on 1-04-2020. The details of the agreement regarding the assets and liabilities to be taken over are:

Particulars	(Book Value)	(Agreed Value)
Building	20,00,000	35,00,000
Plant and Machinery	12,00,0000	8,00,000
Stock	4,00,000	4,00,000
Trade receivables	5,00,000	4,00,000
Creditors	2,00,000	3,00,000
Outstanding Expenses	50,000	1,00,000

It was decided to pay for purchase consideration as ` 7,00,000 through Cheque and balance by issue of

2,00,000, 9% Debentures of 20 each at a premium of 25%. Journalise. (CBSE Sample Paper 2020)

Answer:

Books of Neeraj Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
	Building A/c Plant and Machinery A/c Stock A/c Trade receivables A/c	Dr. Dr. Dr. Dr.		35,00,000 8,00,000 4,00,000 4,00,000
	To Creditors A/c				3,00,000
	To Outstanding Expenses A/c To Ajay Enterprises’s A/c				1,00,000 47,00,000
	(Being purchase of Business)
	Ajay Enterprises’s A/c                                 Dr.			47,00,000
	To Bank A/c To 9% Debentures A/c				7,00,000 32,00,000
	To Securities Premium Reserve A/c				8,00,000
	(Being 12% 1,60,000 Debentures issued of ` 20 each at a premium of 25% at `25)

 

Question 24:

Grown Ltd. issued 500, 10% Debentures of ` 1,000 each credited as fully paid-up to the promoters for their services to incorporate the company. It also issued 100, 10% Debentures of ` 1,000 each credited as fully paid-up to the underwriters towards their commission. Pass the Journal entries.

Answer:

In the books of Grown Ltd. Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
	Incorporation Expenses A/c	Dr.		5,00,000
	To Promoters A/c				5,00,000
	(Being amount due to promoters for their services)
	Promoters A/c	Dr.		5,00,000
	To 10% Debentures A/c (500 × 1,000)				5,00,000
	(Being 500, 10% debentures issued as purchase consideration)
	Underwriting Commission A/c	Dr.		1,00,000
	To Underwriters A/c				1,00,000
	(Being amount due to underwriters for their services)
	Underwriters A/c	Dr.		1,00,000
	To 10% Debentures A/c (100 × 1,000)				1,00,000
	(Being 100, 10%  debentures issued as purchase consideration)
	Statement of Profit and Loss A/c	Dr.		6,00,000
	To Incorporation Expenses A/c				5,00,000
	To Underwriting Commission A/c				1,00,000
	(Being expenses transferred to statement of profit and loss at the end of year)

 

 

Question 25:

Bright Ltd. took over the assets of ` 6,60,000 and liabilities of ` 80,000 of Star Ltd. for an agreed purchase consideration of ` 6,00,000 payable 10% in cash and the balance by the issue of 12% Debentures of ` 100 each. Give necessary Journal entries in the books of Bright Ltd., assuming that:
Case (a): The debentures are issued at par.
Case (b): The debentures are issued at 20% premium.
Case (c): The debentures are issued at 10% discount.

Answer:

Books of Bright Ltd. Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
	Assets A/c	Dr.		6,60,000
	Goodwill A/c(Balancing Figure)	Dr.		20,000
	To Liabilities A/c				80,000
	To Star Ltd.				6,00,000
	(Purchase of business of Star Ltd.)
				60,000
	Star Ltd.	Dr.			60,000
	To Cash A/c
	(Payment made in cash)
(a)	Star Ltd.	Dr.		5,40,000
	To 12% Debentures A/c				5,40,000
	( Purchase consideration discharged by issue of 12% Debentures)
(b)	Star Ltd.	Dr.		5,40,000
	To 12% Debentures A/c				4,50,000
	To Security Premium Reserve A/c				90,000
	( Purchase consideration discharged by issue of 12% Debentures)
(c)	Star Ltd.	Dr.		5,40,000
	Discount on Issue of Debentures A/c	Dr.		60,000
	To 12% Debentures A/c				6,00,000
	( Purchase consideration discharged by issue of 12% Debentures)

 

Working Note:

1) Number of Debentures to issued=5,40,000/120=4,500 Debentures
2) Number of Debentures to issued=5,40,000/90=6,000 Debentures

Question 26:

Star Ltd. took over the assets of ` 6,60,000 and liabilities of ` 80,000 of Moon Ltd. for ` 6,00,000. Give necessary Journal entries in the books of Star Ltd. assuming that:
Case (a): The purchase consideration was payable 10% in cash and the balance in 5,400; 12% Debentures of ` 100 each.
Case (b): The purchase consideration was payable 10% in cash and the balance in 4,500; 12% Debentures of ` 100 each issued at 20% premium.

Answer:

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
	Assets A/c	Dr.		6,60,000
	Goodwill A/c (Balancing Figure)	Dr.		20,000
	To Liabilities A/c				80,000
	To Moon Ltd.				6,00,000
	(Purchase of business took over)
a.	Moon Ltd.	Dr.		6,00,000
	To Cash A/c				60,000
	To 12% Debentures A/c				5,40,000
	(Purchase consideration discharged)
b.	Moon Ltd.	Dr.		6,00,000
	To Cash A/c				60,000
	To 12% Debentures A/c				4,50,000
	To Security Premium Reserve A/c				90,000
	( Purchase consideration discharged)

 

Question 27:

A company took a loan of  ` 4,00,000 from Bandhan Bank Ltd. and issued  8% Debentures of  ` 4,00,000 as a collateral security.

Answer:

When Debentures Issued as Collateral Security are shown separately

 

Date	Particulars		L.F.	Debit `	Credit `
	Bank A/c	Dr.		4,00,000
	To Loan from Bandhan Bank Ltd.				4,00,000
	(Loan taken against issuing 8% Debentures as collateral security)
	Debenture Suspense A/c	Dr.		4,00,000
	To 8% Debenture A/c				4,00,000
	(Debentures issued as collateral security)

 

Posting in the Company's Balance Sheet (When Debentures Issued as Collateral Security are shown separately)

 

Balance Sheet
Particulars	Note No.	(`)
I Equity and Liabilities
1.Shareholders’ Funds
2.Non-Current Liabilities
a. Long-Term Borrowings	1	4,00,000
3.Current Liabilities
Total		4,00,000
II Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents	2	4,00,000
Total		4,00,000

 

NOTES TO ACCOUNTS

Note No.	Particulars		(`)
1	Long-Term Borrowings
	Secured:
	Loan from Bandhan Bank (Secured by issue of  Debentures of ` 4,00,000)		4,00,000
	8% Debentures (Issued as Collateral Security to Bank against Loan)	4,00,000
	Less: Debenture Suspense Account	4,00,000	-
			4,00,000
2	Cash and Cash Equivalents
	Cash at Bank		4,00,000

 

Alternative Method: When debentures Issued as Collateral Security are not shown separately

 

Date	Particulars		L.F.	Debit `	Credit `
	Bank A/c	Dr.		4,00,000
	To Loan From Bandhan Bank Ltd.				4,00,000
	(Loan taken from Bandhan Bank secured by issuing Debentures as collateral security)

 

(When Debentures Issued as Collateral Security are not shown separately)

Balance Sheet
Particulars	Note No.	(`)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings	1	4,00,000
3. Current Liabilities
Total		4,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents	2	4,00,000
Total		4,00,000

 

NOTES TO ACCOUNTS

Note No.	Particulars	(`)
1	Long-Term Borrowings
	Secured:
	Loan from Bandhan Bank (Secured by issue of  8% Debentures of ` 4,00,000 as Collateral Security)	4,00,000
2	Cash and Cash Equivalents
	Cash at Bank	4,00,000

 

Question 28:

Best Barcode Ltd. took a loan of  ` 5,00,000 from a bank giving  ` 6,00,000; 9% Debentures as collateral security. Pass journal entries regarding issue of debentures , if any, and show this loan in the Balance Sheet of the company.

Answer:

Best Barcode Ltd.
Balance Sheet
Particulars	Note No.	(`)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings	1	5,00,000
3. Current Liabilities
Total		5,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents	2	5,00,000
Total		5,00,000

 

NOTES TO ACCOUNTS

Note No.	Particulars	(`)
1	Long-Term Borrowings
	Loan (Secured by issue of  9% Debentures of ` 6,00,000 as Collateral Security)	5,00,000
2	Cash and Cash Equivalents
	Cash at Bank	5,00,000

 

Date	Particulars		L.F.	Debit `	Credit `
	Bank A/c	Dr.		5,00,000
	To Loan A/c				5,00,000
	(Loan taken against issuing 9% Debentures as collateral Security)

Alternative Method:  

Date	Particulars		L.F.	Debit `	Credit `
	Bank A/c	Dr.		5,00,000
	To Loan A/c				5,00,000
	(Loan taken against issuing 9% debentures as collateral Security)
	Debenture Suspense A/c	Dr.		6,00,000
	To 9% Debentures A/c				6,00,000
	(Issued 9% Debentures of ` 6,00,000 as collateral security)

Posting in the Company's Balance Sheet

Best Barcode Ltd.
Balance Sheet
Particulars	Note No.	(`)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings	1	5,00,000
3. Current Liabilities
Total		5,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents	2	5,00,000
Total		5,00,000

 

NOTES TO ACCOUNTS

Note No.	Particulars		(`)
1	Long-Term Borrowings
	Secured:
	Loan (Secured by issue of  9% Debentures of ` 6,00,000 as Collateral Security)		5,00,000
	9% Debentures (Issued as Collateral Security to Bank against loan)	6,00,000
	Less: Debenture Suspense Account	6,00,000	-
			5,00,000
2	Cash and Cash Equivalents
	Cash at Bank		5,00,000

 

Question 29:

X Ltd. took a loan of  ` 3,00,000 from IDBI Bank . The company issued 4,000; 9% Debentures of  ` 100 each as a collateral security for the same . Show how these items will be presented in the Balance Sheet of the company. (AI 2010)

Answer:

When Debentures Issued as Collateral Security is shown separately

X Ltd.
Balance Sheet
Particulars	Note No.	(`)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings	1	3,00,000
3. Current Liabilities
Total		3,00,000
II. Assets
1.Non-Current Assets
2.Current Assets
a. Cash and Cash Equivalents	2	3,00,000
Total		3,00,000

 

NOTES TO ACCOUNTS

Note No.	Particulars		(`)
1	Long-Term Borrowings
	Secured:
	Loan  From IDBI(Secured by issue of  Debentures of ` 4,00,000)		3,00,000
	9 % Debentures (Issued as Collateral Security against loan)	4,00,000
	Less: Debenture Suspense Account	4,00,000	-
			3,00,000
2	Cash and Cash Equivalents
	Cash at Bank		3,00,000

 

Alternative Method: When Debentures Issued as Collateral Security are not shown separately

X Ltd.
Balance Sheet
Particulars	Note No.	(`)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings	1	3,00,000
3.Current Liabilities
Total		3,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents	2	3,00,000
Total		3,00,000

 

NOTES TO ACCOUNTS

Note No.	Particulars	(`)
1	Long-Term Borrowings
	Secured:
	Loan From IDBI (Secured by issue of  9% Debentures of ` 4,00,000 as Collateral Security)	3,00,000
2	Cash and Cash Equivalents
	Cash at Bank	3,00,000

 

Question 30:

S. Singh Limited obtained a loan of ` 5,00,000 from State Bank of India @ 10% p.a. interest. The company issued ` 7,50,000, 10% Debentures of ` 100 each in favour of State Bank of India as Collateral Security. Pass necessary Journal entries for the above transactions:
(i) When company decided not to record the issue of 10% Debentures as Collateral Security.
(ii) When company decided to record the issue of 10% Debentures as Collateral Security.  (Sample Paper 2018-19)

Answer:

(i) When company decided not to record the issue of 10% debentures as Collateral Security

In the books of S. Singh Ltd. Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
	Bank A/c	Dr.		5,00,000
	To Bank Loan A/c				5,00,000
	(Being bank loan taken from State Bank of India @10% p.a. interest)

(ii) When company decided to record the issue of 10% debentures as Collateral Security

In the books of S. Singh Ltd. Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
	Bank A/c	Dr.		5,00,000
	To Bank Loan A/c				5,00,000
	(Being bank loan taken from State Bank of India @10% p.a. interest)
	Debentures Suspense A/c	Dr.		7,50,000
	To 10% Debentures A/c				7,50,000
	(Being 7,500, 10% Debentures issued as collateral security)

Question 31:

Journalise the following:
(a) A debenture issued at `95, repayable at ` 100.
(b) A debenture issued at `95, repayable at ` 105.
(c) A debenture issued at `95, repayable at ` 105.
The face value of debenture is  ` 100 in each of the above cases.

Answer:

Journal
Date	Particulars		L.F.	Debit  `	Credit `
(a)	Bank A/c	Dr.		95
	To Debenture Application A/c				95
	(Debenture application money received)
	Debenture Application A/c	Dr.		95
	Discount on Issue of Debentures A/c			5
	To Debenture A/c				100
	(Debenture of ` 100 each issued at ` 95 with the term repayable at par)
(b)	Bank A/c	Dr.		95
	To Debenture Application A/c				95
	(Debenture application money received)
	Debenture Application A/c	Dr.		95
	Discount on Issue of Debentures A/c	Dr.		5
	Loss on Issue of Debentures A/c	Dr.		5
	To Debentures A/c				100
	To Premium on Redemption A/c				5
	(Debenture of ` 100 each issued of ` 95 with the term repayable at ` 105)
(c)	Bank A/c	Dr.		100
	To Debenture Application A/c				100
	(Debenture Application received)
	Debenture Application A/c	Dr.		100
	Loss on Issue of Debentures A/c	Dr.		5
	To Debentures A/c				100
	To Premium on Redemption A/c				5
	(Debenture of ` 100 each issued at par with the term repayable at ` 105)

 

Question 32:

ZK Ltd issued T 4,00,000, 99% Debentures of R 100 each at a discount of 5% redeemable at a premium of 10%

Pass necessary Journal entries for the above transactions in the Books of ZK Ltd. (CBSE 2019)

 

Answer:

 

In the books of ZK Ltd. Journal
Date	Particulars			L.F.	Debit `	Credit `
(e)	Bank A/c	Dr.			3,80,000
	To 9% Debenture Application A/c					3,80,000
	(Debenture application money received at 5% discount)
	9% Debenture Application A/c		Dr.		3,80,000
	Discount on Issue of Debentures A/c		Dr.		20,000
	Loss on Issue of Debentures A/c		Dr.		40,000
	To 9% Debentures A/c					4,00,000
	To Premium on Redemption A/c					40,000
	(Debenture of ` 4,00,000 issued at 5% Discount with the term payable at 10% premium)

 

Question 33:   On 1st April, 2018, Sakshi Ltd. issued 1,000, 11% Debentures of ` 100 each at a discount of 6%, redeemable at a premium of 5% after three years.

Pass the necessary Journal entries for the issue of debentures in the books of Sakshi Ltd. (CBSE 2020)

Answer:

Books of Sakshi Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
	Bank A/c	Dr.		94,000
	To Debenture Application A/c				94,000
	(Being Application Money Received for 1,000 at `94)
	Debenture Application A/c                          Dr.			94,000
	Discount on issue of Debenture A/c             Dr.			6,000
	Loss on Redemption on Debenture A/c        Dr.			5,000
	To 11% Debentures A/c				1,00,000
	To Premium on redemption of debenture A/c				5,000
	(Being  1,60,000, 11% Debentures issued of ` 100 each at a premium of  at `6)

 

Question 34:

Pass necessary Journal entries relating to the issue of debentures for the following:

(a) Issued  ` 28,000; 10% Debentures of  ` 100 each at a premium of 15% redeemable at par.
(b) Issued  ` 30,000; 10% Debentures of  ` 100 each at a premium of 10% and redeemable at a premium of 15%.
(c) Issued  ` 80,000; 10% Debentures of  ` 100 each at par repayable at a premium of 10%.

Answer:

Journal
Date	Particulars		L.F.	Debit `	Credit  `
(a)	Bank A/c (280 debentures × 115)	Dr.		32,200
	To Debenture Application and Allotment A/c				32,200
	(Application money received)
	Debenture Application and Allotment A/c	Dr.		32,200
	To 10% Debentures A/c				28,000
	To Securities Premium Reserve A/c				4,200
	(280; 10% Debentures issued at a premium of 15%)
(b)	Bank A/c	Dr.		33,000
	To Debenture Application and Allotment A/c				33,000
	(Application money received)
	Debenture Application and Allotment A/c	Dr.		33,000
	Loss On Issue of debentures A/c	Dr.		4,500
	To 10% Debentures A/c				30,000
	To Securities Premium Reserve A/c				3,000
	To Premium on Redemption of debentures A/c				4,500
	(300; 10% Debentures issued at a premium of 10% and redeemable at a premium of 15%)
(c)	Bank A/c	Dr.		80,000
	To Debenture Application and Allotment A/c				80,000
	(Application money received)
	Debenture Application and Allotment A/c	Dr.		80,000
	Loss On Issue of debentures A/c	Dr.		8,000
	To 10% Debentures A/c				80,000
	To Premium on Redemption of debentures A/c				8,000
	(800; 10% Debentures issued at par and redeemable at premium of 10%)

 

Question 35:

Pass necessary Journal entries for the issue of debentures in the following cases:

(a) 40,000; 12% Debentures of `100 each issued at a premium of 5% redeemable at par.

(b) 70,000; 12% Debentures of `100 each issued at a premium of 5% redeemable at `110. (Delhi2013)

Answer:

(a)

Journal
Date	Particular		L.F.	Debit `	Credit `
	Bank A/c	Dr.		40,00,000
	To Debenture Application A/c				40,00,000
	(Being Application Money Received for 40,000 at `10)
	Debenture Application A/c                          Dr.			40,00,000
	Loss on Redemption on Debenture A/c        Dr.			2,00,000
	To 12% Debentures A/c				40,00,000
	To Premium on redemption of debenture A/c				2,00,000
	(Being  40,000, 12% Debentures issued of `100 each at a premium of  at `5)

 

(b)

Journal
Date	Particular		L.F.	Debit `	Credit `
	Bank A/c	Dr.		73,50,000
	To Debenture Application A/c				73,50,000
	(Being Application Money Received for 70,000 at `105)
	Debenture Application A/c                          Dr.			73,50,000
	Loss on Redemption on Debenture A/c        Dr.			7,00,000
	To 12% Debentures A/c				70,00,000
	To Securities premium reserve A/c				3,50,000
	To Premium on redemption of debenture A/c				7,00,000
	(Being  70,000, 12% Debentures issued of `100 each at a premium of  at `5, redeemable at `110)

 

Question 36:   Care Cosmetics Ltd. issued 50,000; 9%6 Debentures of ` 10 each on 1st April, 2021 redeemable at a premium of 10% after 10 years. According to the terms of issue, ` 4 is payable on application and balance on allotment of debentures. Record necessary Journal entries regarding issue of debentures.

Answer:

Books of Care Cosmetics Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
1-4-2021	Bank A/c	Dr.		2,00,000
	To Debenture Application A/c				2,00,000
	(Being Application Money received for 50,000 debenture for `4)
1-4-2021	Debenture Application A/c              Dr.			2,00,000
	To 9% Debenture A/c				2,00,000
	(Being interest paid)
1-4-2021	Debenture Allotment A/c                 Dr.			3,00,000
	Loss on Redemption on Debenture A/c                                                 Dr.			30,000
	To 9% Debenture A/c				3,00,000
	To Premium on redemption of debenture A/c				30,000
	(Being interest allowed on debenture)

Question 37:   Agam Ltd. issued 40,000; 9% Debentures of ` 100 each on 1st April, 2021 at a discount of 10% redeemable at a premium of 10%. Assuming that the interest was paid half yearly on 30th September and 31st March, give Journal entries relating to debenture interest for the half year ended 31st March, 2022.

Answer:

Books of Agam Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
1-9-2021	Debenture Interest A/c	Dr.		1,80,000
	To Debenture Holders’ A/c				1,80,000
	(Being interest allowed on debenture)
1-9-2021	Debenture Holders’ A/c                   Dr.			1,80,000
	To Bank A/c				1,80,000
	(Being interest paid)
31-3-2022	Debenture Interest A/c                     Dr.			1,80,000
	To Debenture Holders’ A/c				1,80,000
	(Being interest allowed on debenture)
31-3-2022	Debenture Holders’ A/c                   Dr.			1,80,000
	To Bank A/c				1,80,000
	(Being interest paid)
31-3-2022	Statement of P&L A/c                     Dr.			3,60,000
	To Debenture Interest A/c				3,60,000
	(Being Debenture Interest transferred to Statement P&L)

Question 38:

Bright Ltd. issued 5,000; 10% Debentures of ` 100 each on 1st April, 2021 . The issue was fully subscribed. According to the terms of issue, interest on the debentures is payable half-yearly on 30th September and 31st March and the tax deducted at source is 10%.
Pass necessary journal entries related to the debenture interest for the year ending 31st March, 2022 and transfer of interest on debentures of the year to the Statement of Profit and Loss.

Answer:

Journal In the books of Bright Ltd.
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
2022
Mar. 31	Debentures Interest A/c	Dr.		25,000
	To Debenture Holder’s A/c				22,500
	To Income Tax Payable A/c				2,500
	(Debentures interest due)
	Debenture Holder’s A/c	Dr.		22,500
	Income Tax Payable A/c			2,500
	To Bank A/c				25,000
	(Interest on debentures paid)
Mar. 31	Statement of Profit & Loss A/c	Dr.		50,000
	To Debentures Interest A/c				50,000
	(Interest transferred to profit and loss)

 

Question 39:

On 1st April, 2020,V.V.L.Ltd issued 1,000, 9% Debentures of  ` 100 each at a  discount of 6%, redeemable at a premium of 10% after three years. Pass necessary journal entries for the issue of debentures and debenture interest for the year ended 31st March, 2021, assuming that interest is payable on 30th September and 31st March and the rate of tax deducted at source is 10%. The company closes its books on 31st March every year.

Answer:

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
2020
Apr. 01	Bank A/c	Dr.		94,000
	To Debenture Application and Allotment A/c				94,000
	(Money received on the issue of debentures)
	Debenture Application and Allotment A/c	Dr.		94,000
	Loss on Issue of Debentures A/c	Dr.		16,000
	To 9% Debentures A/c				1,00,000
	To Premium on Redemption of Debentures A/c				10,000
	(Debenture application and allotment money transferred to Debentures A/c)
Sept 30	Debenture Interest A/c	Dr.		4,500
	To Debenture holders’ A/c				4,050
	To TDS Payable A/c				450
	(Interest due)
	Debenture holders’ A/c	Dr.		4,050
	To Bank A/c				4,050
	(Payment of interest)
	TDS Payable A/c	Dr.		450
	To Bank A/c				450
	(Payment of tax)
2021
Mar 31	Debenture Interest A/c	Dr.		4,500
	To Debenture holders’ A/c				4,050
	To TDS Payable A/c				450
	(Interest due)
	Debenture holders’ A/c	Dr.		4,050
	To Bank A/c				4,050
	(Payment of interest)
	TDS Payable A/c	Dr.		450
	To Bank A/c				450
	(Payment of tax)

 

Question 40:

Kitply Ltd. issued T2,00,000, 10% Debentures at a discount of 5%. The terms of issue provide the repayment

at the end of 4 years. Kitply Ltd. has a balance of 5,00,000 in Securities Premium Reserve.

Pass the Journal entries for issue of debentures and writing off the discount.

Answer:

In the books of Kitply Ltd. Journal
Date	Particulars			L.F.	Debit `	Credit `
1 April	Bank A/c	Dr.			1,90,000
	To 10% Debenture Application A/c					1,90,000
	(Debenture application money received at 5% discount)
1 April	10% Debenture Application A/c		Dr.		1,90,000
	Discount on Issue of Debentures A/c		Dr.		10,000
	To 10% Debentures A/c					1,00,000
	(Debenture of  ` 2,00,000 issued at 5% Discount with the term payable at 10% premium)
31March	Securities premium reserve A/c              Dr.				10,000
	To Discount on Issue of Debentures A/c					10,000
	(Discount written-off)

Question 41:

Mercury limited company issued `1,00,000, 9% Debentures at a discount of 6% on 1st April, 2022. These debentures are to be redeemed equally, spread over 5 annual installments.

Pass the Journal entries for issue of debentures and writing off the discount.

Answer:

In the books of S. Singh Ltd. Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
2022
April 01	Bank A/c	Dr.		94,000
	To Debentures Application & Allotment A/c				94,000
	(Being application money received on 9% Debentures issued at 6% discount)
April 01	Debentures Application & Allotment A/c	Dr.		94,000
	Discount on Issue of Debentures A/c	Dr.		6,000
	To 9% Debentures A/c				1,00,000
	(Being application & allotment money adjusted)
2023
March 31	Statement of Profit & Loss A/c	Dr.		6,000
	To Discount on Issue of Debentures A/c				6,000
	(Being discount on issue of debentures written off)

 

Question 42:   Gladiators Ltd. issued 10,000; 8% Debentures of ` 100 each at a discount of 5%, redeemable at a premium of 5% payable along with application. It had balance of ` 70,000 in Securities Premium Reserve and ` 50,000 in Capital Reserve. The debentures were fully subscribed and amounts were duly received.

Pass the necessary Journal entries for issue of debentures and writing off Loss on Issue of Debentures.

Answer:

Books of Gladiators Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
	Bank A/c	Dr.		9,50,000
	To Debenture Application A/c				9,50,000
	(Being Application Money received for 10,000 debenture for `95)
	Debenture Application A/c                       Dr.			9,50,000
	Discount on issue of Debenture A/c          Dr.			50,000
	Loss on Redemption on Debenture A/c     Dr.			50,000
	To 8% Debenture A/c				10,00,000
	To Premium on redemption of debenture A/c				50,000
	(Being issued 10,000; 8% Debentures of ` 100 each at a discount of 5%, redeemable at a premium of 5% payable along with application)
	Securities Premium Reserve A/c               Dr.			70,000
	Capital Reserve A/c                                 Dr.			30,000
	To Discount on issue of Debenture A/c				50,000
	To Loss on Redemption on Debenture A/c				50,000
	(Being Discount on issue of Debenture and Loss on Redemption on Debenture written off)

 

Question 43:   DB Ltd. issued 20,000; 7% Debentures of ` 100 each at a discount of 10% redeemable at a premium of 10% payable ` 50 on application and balance on allotment. It had balance in Securities Premium Reserve of `1,50,000 and in Capital Reserve of  `1,00,000.

The debentures were fully subscribed and amounts were duly received.

 

Pass the Journal entries for issue of Debentures and writing off loss on Issue of Debentures.

Answer:

Books of DB Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
	Bank A/c	Dr.		18,00,000
	To Debenture Application A/c				18,00,000
	(Being Application Money received for 20,000 debenture for `90)
	Debenture Application A/c                       Dr.			18,00,000
	Discount on issue of Debenture A/c          Dr.			2,00,000
	Loss on Redemption on Debenture A/c     Dr.			2,00,000
	To 7% Debenture A/c				20,00,000
	To Premium on redemption of debenture A/c				2,00,000
	(Being issued 20,000; 7% Debentures of ` 100 each at a discount of 10%, redeemable at a premium of 10% payable along with application)
	Securities Premium Reserve A/c              Dr.			1,50,000
	Capital Reserve A/c                                 Dr.			1,00,000
	Statement of Profit and loss A/c               Dr.			1,50,000
	To Discount on issue of Debenture A/c				2,00,000
	To Loss on Redemption on Debenture A/c				2,00,000
	(Being Discount on issue of Debenture and Loss on Redemption on Debenture written off)

 

Question 44:   On 1st January, 2018, Raha Ltd. issued 6,000, 8% Debentures of nominal (face) value of ` 100 each redeemable at 5% premium in equal proportions at the end of 5, 10 and 15 years. It has a balance of ` 10,000 in Securities Premium Reserve.

 

Pass Journal entries. Also give Journal entries for writing off Loss on Issue of Debentures.

Answer:

Books of Raha Ltd.
Journal
Date	Particular		L.F.	Debit `	Credit `
2018 1st January	Bank A/c	Dr.		6,00,000
	To Debenture Application A/c				6,00,000
	(Being Application Money received for 6,000 debenture for `100)
	Debenture Application A/c                      Dr.			6,00,000
	Loss on Redemption on Debenture A/c    Dr.			30,000
	To 8% Debenture A/c				6,00,000
	To Premium on redemption of debenture A/c				30,000
	(Being issued 6,000; 8% Debentures of ` 100 each, redeemable at a premium of 5% payable along with application)
2018 31 March	Securities Premium Reserve A/c              Dr.			10,000
	Statement of Profit and loss A/c               Dr.			20,000
	To Loss on Redemption on Debenture A/c				30,000
	(Being Discount on issue of Debenture and Loss on Redemption on Debenture written off)

 

Question 45:

Global Ltd. issued 10,000, 8% Debentures of  ` 100 each redeemable in four equal instalments by draw of lots from the end of 3 years at a premium of ` 9.
Pass the Journal entries for writing off the Loss on Issue of Debentures. Also prepare Loss on issue of Debentures Account.

Answer:

In the books of Raha Ltd. Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
By the end of year of Allotment	Statement of Profit & Loss A/c	Dr.		90,000
	To Loss on Issue of Debentures A/c				90,000
	(Being loss on issue of debentures written off)

 

Dr.	Loss on Issue of Debentures A/c						Cr.
Date		Particulars	(`)	Date	Particulars	(`)
On the date of Issue		To 8% Debentures A/c	90,000	By the end of Year of allotment	By Statement of Profit & Loss A/c	90,000
			90,000

Question 46:

Garvit Ltd. invited applications for issuing 3,000, 11% Debentures of 100 each at a discount of 6%. The full amount was payable on application. Applications were received for 3,600 debentures. Applications for 600 debentures were rejected and the application money was refunded. Debentures were allotted to the remaining applicants.

Pass the necessary Journal entries for the above transactions, including writing off the Discount on Issue of Debentures, in the books of Garvit Ltd.

Answer:

 

In the books of Garvit Ltd. Journal
Date	Particulars		L.F.	Debit (`)	Credit (`)
2018
April 01	Bank A/c (3,600 × 94)	Dr.		3,38,400
	To Debentures Application & Allotment A/c  (3,600 × 94)				3,38,400
	(Being application money received on 11% Debentures issued at 6%)
April 01	Debentures Application & Allotment A/c	Dr.		3,38,400
	Discount on Issue of Debentures A/c (3,000×4)	Dr.		18,000
	To 11% Debentures A/c (3,000×100)				3,00,000
	To Bank A/c (600×94)				56,400
	(Being application & allotment money adjusted)
31 March 19	Securities Premium Reserve A/c	Dr.		10,000
	Statement of Profit & Loss A/c	Dr.		20,000
	To Loss on Issue of Debentures A/c				30,000
	(Being loss on issue of debentures written off)

 

Question 47:

On 1st June, 2021, R Energy Ltd. issued 10,000, 7% Debentures of  ` 100 each at a discount of 10% redeemable at a premium of 10% at the end of five years. All the debentures were subscribed and allotment was made.

Prepare the Balance Sheet (extract) as at 31st March, 2022.

Answer:

In the books of R Energy Ltd. An Extract of Balance Sheet As at 31st March, 2022
Particulars			Note No.		(`)
I. EQUITIES AND LIABILITIES
1. Shareholders’ Funds
Reserves and Surplus			3		(2,00,000)
2. Non-Current Liabilities
a. Long-term Borrowings			1		10,00,000
b. Other long-term Liabilities			2		1,00,000
Total					9,00,000
II. Assets
Current Assets
Cash and Cash Equivalents			4		9,00,000
Total					9,00,000
Notes to Accounts:
Note No.	Particulars			(`)
1.	Long-term Borrowings
	10,000, 7% Debentures of `100 each issued at			10,00,000
2.	Other long-term Liabilities
	Premium on Redemption of Debentures			1,00,000
3.	Reserves and Surplus
	Statement of Profit & Loss
	Less: Loss on Issue of Debentures written off	(2,00,000)		(2,00,000)
4.	Cash and Cash Equivalents
	On 7% debentures @ ` 90 each (10,000 × 90)			9,00,000

 

Question 48:

On 1st April, 2021, Solar Power Ltd. issued 10,000, 8% Debentures of ` 100 each at a discount of 5% redeemable at a premium of 15% at the end of five years. All the debentures were subscribed and allotment was made. The company had balance in Securities Premium Reserve of ` 80,000.
Prepare the Balance Sheet (extract) as at 31st March, 2022.

Answer:

In the books of Solar Power Ltd. An Extract of Balance Sheet As at 31st March, 2022
Particulars	Note No.	(`)
I. EQUITIES AND LIABILITIES
1. Shareholders’ Funds
Reserves and Surplus	3	(1,20,000)
2. Non-Current Liabilities
a. Long-term Borrowings	1	10,00,000
b. Other long-term Liabilities	2	1,50,000
Total
II. Assets
Current Assets
Cash and Cash Equivalents	4	9,50,000
Total

         

Notes to Accounts:
Note No.	Particulars		(`)
1.	Long-term Borrowings
	10,000, 8% Debentures of `100 each issued		10,00,000
2.	Other long-term Liabilities
	Premium on Redemption of Debentures		1,50,000
3.	Reserves and Surplus
	Securities Premium Reserve	80,000
	Less: Loss on Issue of Debentures written off	(80,000)
	Statement of Profit and Loss	–
	Less: Loss on Issue of Debentures written off	(1,20,000)	(1,20,000)
4.	Cash and Cash Equivalents
	On 8% debentures @ ` 95 each (10,000 × 95)		9,50,000

 

Question 49: On 1st April, 2018. Mathew Ltd. issued 10,000, 9% Debentures of ` 100 each at a discount of 5%, redeemable at a premium of 5%. These debentures were redeemable as follows:

On 31st March, 2019	2,000 Debentures;
On 31st March, 2020	5,000 Debentures;
On 31st March, 2021	3,000 Debentures.

Prepare the Loss on Issue of Debentures Account, Debentures Account and Premium on Redemption of Debentures Account for three years.

Answer:

	In the books of Mathew Ltd.
Dr.	Loss on Issue of Debentures A/c						Cr.
Date		Particulars	(`)	Date	Particulars	(`)
2018				2019
April 01		To 9% Debentures A/c	1,00,000	March 31	By Statement of Profit & Loss A/c	1,00,000
			1,00,000			1,00,000

 

Dr.	9% Debentures A/c						Cr.
Date		Particulars	(`)	Date	Particulars	(`)
2019				2018
March 31		To Debentureholder’s  A/c	2,00,000	April 01	By Debenture Application & Allotment A/c	9,50,000
March 31		To balance c/d	8,00,000	April 01	By Loss on Issue of Debentures A/c	50,000
			10,00,000			10,00,000
2020				2019
March 31		To Debentureholder’s  A/c	5,00,000	April 01	By balance b/d	8,00,000
March 31		To balance c/d	3,00,000
			8,00,000			8,00,000
2021				2020
March 31		To Debentureholder’s  A/c	3,00,000	April 01	By balance b/d	3,00,000
			3,00,000			3,00,000

 

Dr.	Premium on Redemption of Debentures A/c						Cr.
Date		Particulars	(`)	Date	Particulars	(`)
2019				2018
March 31		To Debentureholder’s  A/c	10,000	April 01	By Loss on Issue of Debentures A/c	50,000
March 31		To balance c/d	40,000
			50,000			50,000
2020				2019
March 31		To Debentureholder’s  A/c	25,000	April 01	By balance b/d	40,000
March 31		To balance c/d	15,000
			40,000			40,000
2021				2020
March 31		To Debentureholder’s  A/c	15,000	April 01	By balance b/d	15,000
			15,000			15,000