Question

Z.Ltd. issued 2,000, 14% debentures of Rs.100 each on April 01, 2013 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years out of profits. Give journal entries both at the time of issue and redemption of debentures. (Ignore the treatment of loss on issue of debentures and interest.)

Answer 1

Given: Z.Ltd. issued 2,000, 14% debentures of Rs.100 each on April 01, 2013 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years out of profits.  

 

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 the above the journal entries both at the time of issue and redemption of debentures are in the attachment below :  

Change the date and month according to question.

Hope this answer will help you..

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