Question

B. Ltd. issued 1,000, 12% debentures of Rs 100 each on April 01, 2014 at a discount of 5% redeemable at a premium of 10%. Give journal entries relating to the issue of debentures and debentures interest for the period ending March 31, 2015 assuming that interest is paid half yearly on September 30 and March 31 and tax deducted at source is 10%.

Answer 1

Given : B. Ltd. issued 1,000, 12% debentures of Rs 100 each on April 01, 2014 at a discount of 5% redeemable at a premium of 10%.  

Concept :  

DEBENTURE :  

• Debenture is a written acknowledgement of debt taken by the company.
• Debentures can be issued with /without charge on the assets.
• Debentures may be issued at par, at premium or at discount.  
• When a debenture is issued at a price below its nominal value, it is said to be issued at a discount
• Journal entries on issue of debenture are also the same as in case of issue of shares.  The difference is that instead of 'Share capital A/c , a debenture A/c'  is opened in the books of accounts and the rate of interest on debenture is prefixed on the issue of debentures.
• Debentures can be converted into equity shares.
• The debentures can be redeemed in lump sum or in installments.
• Debentures are shown under the head Non current liabilities and subhead long term borrowings.

REDEMPTION OF DEBENTURE:  

Debentures are part of  liabilities of a company and as it borrowed capital.  Repayment or discharge of liability on account of debentures is called redemption of debentures.

 

For a record of the above  journal entries relating to the issue of debentures and debentures interest is in the attachment below :  

Note : Change the month and date according to the question.

Hope this answer will help you…..

Some more questions :  

A. Ltd. issued 4,000, 9% Debentures of Rs 100 each on the following terms Rs 20 on Application; Rs 20 on Allotment; Rs 30 on First call; and Rs 30 on Final call. The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400 Debentures were rejected.

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X.Ltd. purchased a Machinery from Y for an agreed purchase consideration of Rs 4,40,000 to be satisfied by the issue of 12% debentures of Rs 100 each at a premium of Rs 10 per debenture. Journalise the transactions.

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