On 1st April 2019, Jet Computers Ltd. Issued 20,000 6% Debentures of Rs. 100
each at a discount of 4% redeemable at a premium of 5% after three years. The
amount was payable as follows:
6
On Application Rs. 50 per debenture
Balance on Allotment.
Jet Computers has a balance of Rs. 50,000 in Securities Premium Reserve and
Rs. 1,00,000 in General Reserve. Profit for the year was Rs. 75,000.
Pass necessary journal entries for issue of debentures and writing off the loss
on issue of debentures.
Answers
Answer:
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The loss on issue of debentures written off by transferring Rs. 40,000 from Securities Premium Reserve Account and Rs. 15,000 from General Reserve Account to Debenture Loss Account.
The issue of 6% Debentures of Rs. 100 each at a discount of 4% redeemable at a premium of 5% after three years can be recorded with the following journal entries:
On Application:
Bank Account Dr. 10,00,000
To Debenture Application Account 10,00,000
(Being the application money received for 20,000 debentures @ Rs. 50 per debenture)
On Allotment:
Debenture Application Account Dr. 10,00,000
To Debenture Allotment Account 9,60,000
To Securities Premium Reserve Account 40,000
(Being the allotment money received for 20,000 debentures @ Rs. 50 per debenture and the discount of 4% is written off by transferring it to Securities Premium Reserve Account)
Debenture Allotment Account Dr. 20,000
To Debentures Account 20,000
(Being the allotment of 20,000 debentures @ Rs. 100 each)
Paying off the Debenture Issue Loss:
Securities Premium Reserve Account Dr. 40,000
General Reserve Account Dr. 15,000
To Debenture Loss Account 55,000
(Being the loss on the issuance of debentures that was transferred Rs.40,000 from Securities Premium Reserve Account and Rs. 15,000 from General Reserve Account to Debenture Loss Account)
Note: The amount of Rs. 75,000 profit for the year is not relevant to the journal entries for the issue of debentures and writing off the loss on issue of debentures.
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