Question

XYZ Ltd.issued 5,000, 10% Debentures of ₹ 100 each on 1st April, 2015 at a discount of 10% redeemable at a premium of 10% after 4 years. Give journal entries for the year ended 31st March, 2016, assuming that the interest was payable half-yearly on 30th September and 31st March. Tax is to be deducted @ 10%.

Answer 1

Solution:

                                            Books of XYZ Ltd.

                                             Journal Entries  

Date       Particulars                                                      Debit Rs.    Credit Rs.

2015        Bank A/C                                               Dr.   4.50,00

To Debenture Application Ac 4,50,000

(Being application money received)

In April Debenture Application A/c                     Dr. 4,50,00

( Lou On Issue of Debentures Ac                        Dr. 1,00,00

To 10% Debenture A/C                                                                 5,00,000

To premium on Redemption A/c                                                   50,000

(Beta 5.000 debentures of Rs.100 each issued at 10% discount with the term repayable at premium of 10%)

2015

30 Sep             Interest on Debentures ke       Dr.   25,000

                    To Debenture holders Ac                                         22,500        

                   To Income Tax Payable Ac                                         2,500

(Being interest due on 10% debentures)  

                 Debenture holders A/c                  Dr.   22,500

                   To Bank A/c                                                                22,500

(Being interest on debentures paid to debenture holders)

30' Sep       Income Tax Payable A/c              Dr.    2,500

                       To Bank AC                                                            2,500

(Bens payment of tax on interest on debentures)

2016

31" Mar              Interest on debentures Ac         Dr. 25,03

                       To Debentures holders Ac                                     22,500

                     To Income Tax Payable A/c                                      2,500

(Being interest due on 10% debentures)  

31" Mar             Debenture holders Ac               Dr.   22,500

                            To Bank Ac                                                          22,500

(Being interest on debentures pad to debenture bolder.)

                     Income Tax Payable A/c              Dr.   2,500

                             To Bank Ac                                                           2,500

(Being payment of tax on interest on debentures)

                       Profit and Loss Ac                     Dr.   50,000

            To Interest on debentures A/c                                         50,000

(Being interest on debentures transferred to profit and loss account)  

Working Note:

Interest on Debentures (6 months) = 5,00,000 x $\frac{6}{12}$ x $\frac{10}{100}$ = 25,000