CBSE Class 12 Accountancy Chapter 8 Important Questions – Free PDF Download
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CBSE Class 12 Accountancy Important Questions Chapter 8 Accounting For Debentures
1. What is the Meaning of Debenture?
Ans: A Debenture is a certificate or voucher acknowledging a debt. A Debenture is a long-term Debt Instrument issued for the purpose of raising funds.
According to Section 2 (12) of the Companies Act “Debenture” includes debenture stock, bonds and any other securities of a company, whether or not constituting a charge on the assets of the company.
2. Explain the concept of Collateral Security.
Ans: Collateral security” means additional security to the main obligation in a contract. A company may issue its debentures in addition to the Primary Security when it takes loan from bank or any financial institution. It is called ‘issue of debentures as collateral security’. The lender may take possession only if company is not able to repay the loan amount and the principal security is exhausted. In such a case company pays interest on loan, thus no interest will be paid on the debentures issued as collateral Security.
3. What is meant by issue of debentures for consideration other than cash?
Ans. When a company does not have sufficient Cash to acquire the fixed Assets for the business or Company is not able to meet its obligations, in such a case a company may offer and allot its debentures to the outsiders in lieu of cash. This is known as issue of debentures for consideration other than cash. For example Machinery is purchased and debentures are issued to Vendor instead of paying cash.
4. Give the meaning of Convertible and Non convertible debentures.
Ans: Convertible Debentures: Debentures which are convertible into Equity shares at the issuer’s notice. After conversion of Debentures into Equity Shares the investors enjoy the same status as ordinary shareholders of the company. Such conversion should be approved by passing special resolution.
Non-Convertible Debentures: These are totally opposite to the convertible debentures. These debentures do not have the option of their conversion into the equity share.
5. What does an irredeemable debenture mean?
Ans. Irredeemable Debentures: Debentures which do not have any fixed Period of redemption. These debentures are redeemable at the time of winding up and not redeemable during the life time of the company.
6. Distinguish between a Share and a debenture (any two).
Ans:
| BASIS | SHARE | DEBENTURE |
|---|---|---|
| Meaning | Share means share capital of the company. Share Capital is the Internal Liability of the firm. | Debenture means Loan or debt of the company. Debenture is the external liability of the firm |
| Status of Holder | Share Holders are treated as the owners of the company | Debenture Holders are the Creditors of the company |
| Dividend Vs Interest | Dividend is paid to the Shareholders. It is an appropriation of Profit | Interest is paid to the Debenture Holders at a fixed rate. It is charge against the profit |
7. Why would an investor prefer to invest partly in Shares and partly in Debentures at a company?
Ans.
- Main purpose of investing in shares is to enjoy the firm’s profit in the form of dividend.
- The main purpose of investing in debentures is to ensure the regular interest and safety of investment.
8. What is the nature of Interest on Debentures?
Ans. Interest on debentures is a charge against the profits. It means that whether there is profit or loss it will be paid to the debenture holders.
9. What is meant by Redemption of Debentures?
Ans. Repayment of the amount borrowed by a company is called redemption of debentures. Debentures can be redeemed at Par or Premium. Students must remember that debentures are redeemed on the due date by paying the lump sum amount to the debenture holders or by paying in installments.
10. Give two sources of finance for Redemption of Debentures.
Ans.
- Out of profits
- issue of fresh Share Capital and Debentures.
11. Define Secured and Unsecured Debentures.
Ans. Secured or Mortgaged Debentures: Debentures are secured by a charge on the fixed assets of the company. If the company fails on payment of the principal amount or interest amount, assets under charge are sold to repay the amount due to the debenture holders.
Unsecured Debentures: Debentures are called unsecured in the sense that if the company defaults on payment of the principal amount or interest, debenture holder has to be along with other unsecured creditors of the company. In simple words, these debentures are not secured by the charge of fixed assets.
12. Give two reasons why a company buy its own debentures from open market.
Ans.
- To maintain the solvency ratio.
- To utlize the surplus money or funds which are lying idle with the company.
13. What is meant by Debenture Redemption Reserve?
Ans. Debenture redemption reserve is a reserve representing retentions out of profit made for the purpose of redemption of debentures. Amount of DRR to be created: Section 117 (c) of the Indian Companies Act 1956 requires that, an adequate amount of profit should be transferred to DRR before redemption commences. However the adequate amount is not specified by the companies Act.
14. What is meant by Redemption out of profit?
Ans. Redemption out of profit means that adequate amount of profits are transferred to DRR A/c from Statement of P/L before the redemption of debenture commences. This reduce the amount available for dividends to shareholders.
15. What Journal entry is recorded when a company purchases its own debentures from the open market?
Ans. Following Journal entry is recorded in the books of accounts when a company purchases its own debentures from the open market:
Own Debentures A/c Dr.
To Bank A/c
(Being own debentures purchased)
16. Distinguish between Shareholders and debenture holders.
Ans. Distinction between Shareholders and Debenture holders
| BASIS | SHAREHOLDERS | DEBENTURE HOLDERS |
|---|---|---|
| Ownership | Shareholders are considered as the owners of the company | Debenture holders are considered as Creditors of the company |
| Participation in Management | They are entitled to take part in the management | They are not entitled to take part in the management |
| Share of Profit | They enjoy the share of profit as dividend | They get interest and are not entitled to share the profits |
| Risk Taker | Shareholders are the Risk Taker | Debenture holders are safe in comparison of shareholders (for secured debentures) |
| Voting Rights | They have right to vote | They don’t have right to vote |
| Option of Convertibility | Shareholders can not convert their shares in debentures | Debenture holders can convert their debentures in Equity Shares |
17. What is meant by issue of debentures as ‘Purchase Consideration’?
Ans. When a company purchases some assets but do not make the payment in cash to vendor, instead of paying cash to vendor, company issues fully paid debentures for the same amount, is called debentures issued for purchase consideration.
Illustration 1 : Raj Ltd. Issued 2,000 12% Debentures of Rs.100 each at par payable Rs.25 Application, Rs.50 on Allotment and the balance on first and final call. In all 3,000 application were received.
Allotment was made to 2,000 applicant other were rejected. Give Journal entries.
Solution:
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c Dr. | 75,000 | |||
| To Debentures Application A/c | 75,000 | |||
| (Being the application money received on 3,000 Debentures at Rs. 25 per Debentures) | ||||
| Debentures Application Account Dr. | 75,000 | |||
| To 12% Debentures Account | 50,000 | |||
| To Bank A/c | 25,000 | |||
| (Being the transfer of applicant money on 2,000 Debentures of 12% Debentures A/c) | ||||
| Debentures allotment Account Dr. | 1,00,000 | |||
| To 12% Debentures Account | 1,00,000 | |||
| (Being the amount due on 2,000 Debentures at Rs. 50 per Debentures | ||||
| Bank A/c Dr. | 1,00,000 | |||
| To Debentures Allotment A/c | 1,00,000 | |||
| (Being the receipt of Rs. 50 on 2,000 Debentures) | ||||
| Debentures First & Final Call A/c dr. | 50,000 | |||
| To 12% Debentures Account | 50,000 | |||
| (Being the amount due on 2,000 Debentures at Rs. 25 per Debentures) | ||||
| Bank A/c Dr. | 50,000 | |||
| To Debentures First & Final Call A/c | 50,000 | |||
| (Being the receipt of RS. 25 on 2,000 Debentures) |
Illustration 2 : Z Ltd. Invited application for 5,000, 8% Debentures of Rs.100 each at a premium of 2%, Rs.40 were payable on Application and balance on allotment. Applications were received for 4,800 shares and accepted in full. All money duly received. Journalise the transactions.
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c | 1,92,000 | |||
| To Debentures Application A/c | 1,92,000 | |||
| (Being the application money Received on 4800 Debentures @ Rs. 40 per Debentures) | ||||
| Debentures application A/c Dr. | 1,92,000 | |||
| To Debentures A/c | 1,92,000 | |||
| (Being the transfer of application Money to 8% debentures account) | ||||
| Debentures Allotment A/c | 2,97,600 | |||
| To 8% Debentures A/c | 2,88,000 | |||
| To Security Premium Reserve A/c | 9600 | |||
| (Being the allotment money due on 4,800 debentures @ Rs. 60 and premium of Rs. 2 Share) | ||||
| Bank A/c Dr. | 2,97,600 | |||
| To Debentures Allotment A/c Dr. | 2,97,600 | |||
| (Being the application Money received) |
Illustration 3 : Ganga Ltd. issued 2,000 12% debentures of Rs.100 each at a premium of 10% payable Rs.25 on application; Rs.40 (including premium) payable on allotment and balance on First and Final Call. In all 3,500 application were received 500 application were rejected and allotment was made to applicants to 3,000 debentures on Pro-rata basis. The excess money was adjusted on allotment. Give journal entries.
Solution :
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c Dr. | 87,500 | |||
| To 12% Debentures Application A/c | 87,500 | |||
| (Being the application money received on 3,500 Debentures @ Rs. 25 per Debentures) | ||||
| 12 % Debentures Application A/c Dr. | 87,500 | |||
| To 12% Debentures A/c | 50,000 | |||
| To Bank Account | 12,500 | |||
| To Debentures Allotment A/c | 25,000 | |||
| (Being the transfer of application money to Debentures A/c and refund made on rejected Application) | ||||
| 12% Debentures Allotment A/c Dr. | 80,000 | |||
| To 12% Debentures Account | 60,000 | |||
| To Security Premium A/c | 20,000 | |||
| (Being the allotment money due on 2,000 Debentures @ Rs. 30 and premium of Rs. 10) | ||||
| Bank A/c Dr. | 55,000 | |||
| To 12% Debentures Allotment A/c | 55,000 | |||
| (Being the Allotment money Received Rs. 80,000 – Rs. 25000) | ||||
| 12% Debentures First & Final Call A/c Dr. | 90,000 | |||
| To 12% Debentures Account | 90,000 | |||
| (Being the call money due on, 2000 debentures @ Rs. 45) | ||||
| Bank A/c Dr. | 90,000 | |||
| To 12% Debentures First & call A/c | 90,000 | |||
| (Being the call money received) |
Illustration 4 : A company purchased assets of book value of Rs.99,000 from Girish. It was agreed that Purchase consideration be paid by issuing 11% Debentures of Rs.100 each. Assume Debentures have been issued (i) at par (ii) at a premium of 10% Give journal entries in the books of company.
Solution
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| (i) | Sundry Assets A/c Dr. | 99,000 | ||
| To Girish | 99,000 | |||
| (Assets Purchased From Girish) | ||||
| (ii) | Debentures are issued at par | |||
| Girish Dr. | 99,000 | |||
| To 11% Debentures A/c | 99,000 | |||
| (For the issue of Debentures at par) | ||||
| Debentures are issued at premium : | ||||
| (iii) | Girish Dr. | 99,000 | ||
| To 11% Debentures A/c | 99,000 | |||
| To Security Premium Reserve A/c | 9,000 | |||
| For Issue of 900 Debentures of Rs. 100 each at 9,000 10% Premium) |
When Purchases consideration is more than net value of assets
Illustration 5 : A Company issued debentures of Rs.100 each at par for the purchases of the following assets and liabilities from Gupta Bros. at purchase consideration of Rs.5,00,000
| Plant – | Rs.3,50,000 | Stock | Rs.4,50,000 |
| Land and Building | Rs.6,00,000 | Sundry Creditors | Rs.1,00,000 |
Pass necessary Journal Entries.
Solution
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| (i) | Plant A/c Dr. | 3,50,000 | ||
| Land and Building A/c dr. | 6,00,000 | |||
| Stock A/c Dr. | 4,50,000 | |||
| Good will A/c Dr. | 2,00,000 | |||
| To Sundry Creditors A/c | 1,00,000 | |||
| To Gupta Bros. | 15,00,000 | |||
| (Being the purchase of business) | ||||
| Gupta Bros. Dr. | 15,00,00 | |||
| To Debentures A/c | 15,00,000 | |||
| (Being issue of 15,000 shares of Rs. 100 each as payment of business price) |
Calculation : Goodwill = Purchases consideration + liabilities – assets = Rs.15,00,000 + Rs.1,00,000 – Rs.14,00,000 = Rs.2,00,000
When Purchases consideration is less than net value of assets
Illustration 6 : Zee Ltd. Took over the following assets and liabilities of business of Usha Ltd. Assets : Machinery-Rs.1,00,000, Furniture Rs.1,80,000 Stock Rs.20,000 Liabilities-Creditors Rs.80,000
The purchases price was agreed at Rs.1,08,000. This is to settle by issue of 12%
Debentures at premium of 20% pass necessary Journal entries.
Solution :
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Machine A/c Dr. | 1,00,000 | |||
| Furniture A/c Dr. | 1,80,000 | |||
| Stock A/c Dr. | 20,000 | |||
| To Creditors A/c | 80,000 | |||
| To Capital Reserve A/c (B/F) | 1,12,000 | |||
| To Usha Co. Ltd. | 1,08,000 | |||
| (Being the purchases of Business) | ||||
| Usha Co. Ltd | 1,08,000 | |||
| To 12% Debentures A/c | 90,000 | |||
| To Security Premium A/c | 18,000 | |||
| (Being issue of 900 Dentures of Rs. 100 each at premium of 20%) |
Calculations Net assets = Total assets-liabilities = Rs.3,00,000 – Rs.80,000 = Rs.2,20,000 Capital reserve = Net assets – Purchases consideration = Rs.2,20,000 – Rs.1,08,000 = Rs.1,12,000
Illustration 7 : Kirloskar Multimedia Ltd. Purchased machinery costing L16,72,000.
It was agreed that the purchase consideration be paid by issuing 13% Debentures of Rs.100 each. Assume debentures are issued (i) at par, (ii) at a premium of 10% and (iii) at a discount of 5%. Give necessary journal entries.
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Machinery A/c Dr. | 16,72,000 | |||
| To Vendor | 16,72,000 | |||
| (Machinery purchased from vendor) | ||||
| (i) | Vendor Dr. | 16,72,000 | ||
| To 13% Debentures | 16,72,000 | |||
| (16,720 13% debentures of Rs. 100 each issued at par) | ||||
| (ii) | Vendor Dr. | 16,72,000 | ||
| To 13% Debentures | 15,20,000 | |||
| To Securities Premium Reserve A/c | 1,52,000 | |||
| (15,200 13% debentures of Rs. 100 each Issued at a premium of Rs. 10%) | ||||
| (iii) | Vendor Dr. | 16,72,000 | ||
| Discount on issue of debentures A/c Dr. | 88,000 | |||
| To 13% debentures A/c | 17,60,000 | |||
| To 13% debentures of Rs. 1,00 each issued at a discount of 5%) |
Illustration 8 : X Ltd. Had Rs.12,00,000, 11% Debentures outstanding on 1st April, 2012. During the year, it took a loan of Rs.4 Lakh from Canara Bank for which company deposited debentures of Rs. Lakh as collateral security.
Pass journal entries and show how these transactions will appear in Balance Sheet of the company.
FIRST METHOD. NO ENTRY IS PASSED FOR DEBENTURES
Journal
| Date | Particulars | LF. | Debit (Rs.) | Credit (Rs.) |
| 2012 1st April | Bank A/c Dr. To Canara Bank’s loan A/c | 4,00,000 | ||
| (Loan taken from bank against collateral security of debentures worth L5 Lakhs) | 4,00,000 |
Balance Sheet of X Ltd.
As at 1st April, 2012
| Particulars | Notes No. | (Rs.) |
| Equity And Liabilities | ||
| 3. Non-Current Liabilities | ||
| (a) Long-term Borrowing | 1 | 16,00,000 |
| Notes to Balance Sheet |
| Note No. 1 | (Rs.) |
| Long-Term Borrowings: | |
| 11% Debentures | 12,00,000 |
| Bank Loan (Against Collateral Security of Debentures Rs. 5,00,000) | 4,00,000 |
| 16,00,000 |
Second Method. Entry for issue of Debentures is passed.
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c Dr. | 4,00,000 | |||
| To Canara Bank’s Loan A/c | 4,00,000 | |||
| (Loan Taken from bank) | ||||
| Debentures Suspense A/c Dr. | 5,00,000 | |||
| To 11% Debentures A/c | 5,00,000 | |||
| (Issue of Rs. 5,00,000 Debentures issued as collateral Securities) |
Presentation of Debentures and Bank Loan will remain same as explained Balance Sheet Under 1st Method, however, presentation of information in note will differ.
Balance Sheet of X Ltd.
As at 31st March, 2012 (ASSUMED)
| Particulars | Notes No. | (Rs.) |
| 1. Equity and Liabilities | ||
| 2. Non-Current Liabilities | ||
| 3. Long-term Borrowings | 1 | 16,00,000 |
IInd Method
Notes to Balance Sheet
| (Rs.) | (Rs.) | |
| Note No. 1 | ||
| Other Long-term Borrowings: | ||
| 11% Debentures (12,00,000 + 5,00,000) | 17,00,000 | |
| Less: Debentures Suspense A/c | 5,00,000 | 12,00,000 |
| Bank Loan (Against Collateral Security of Debentures Rs. 5,00,000 | 4,00,000 | |
| 16,00,000 |
Illustration 9 : On 1st April, 2012 A Ltd. took a loan of Rs.5,00,000 from the State Bank of India for which the company issued 8% Debentures of Rs.6,00,000 as collateral security. Record the issue of debentures in the books of the Co. and also show how the debentures and bank loan will appear in the Balance Sheet of the company.
Solution :
Journal
| Date | Particulars | L.F | Debit (Rs.) | Credit (Rs.) |
| Bank A/c Dr. | 5,00,000 | |||
| To Bank’s loan A/c | 5,00,000 | |||
| (Loan Taken from bank) | ||||
| Debentures Suspense A/c Dr. | 6,00,000 | |||
| To 8% Debentures A/c | 6,00,000 | |||
| (Issue of Rs. 6,00,000 Debentures as collateral Securities) |
Balance Sheet of A Ltd.
As at 1st April, 2012
| Particulars | Notes no. | Figures as at the end of current accounting period | Figure as at the end of previous accounting period |
| 1. Equity and Liabilities | |||
| (1) Shareholders Funds | |||
| (2) Share Application Money Pending Allotment | |||
| (3) Non-Current Liabilities | 1 | 5,00,000 | |
| Total | 5,00,000 |
| (Rs.) | (Rs.) | |
| Note No. 1 | ||
| Other Long term Borrowings : | ||
| 8% Debentures | 6,00,000 | |
| Less : Debentures Suspense A/c | (6,00,000) | Nil |
| Bank Loan | 5,00,000 | |
| 5,00,000 |
Illustration 10 : ABC Ltd had Rs.15,00,000, 10% Debentures outstanding as on April, 2012. On 1st Sept. 2012 Company took a loan of Rs.5,00,000 from the Punjab National Bank for which the company placed with the bank, 10% Debentures for Rs.7,00,000 as collateral Security. Pass journal entries, if any. Also show how the debentures and Bank Loan will appear in the company’s Balance Sheet as on 31st March, 2013.
Journal of ABC Ltd.
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| 2012 1st Sept | Bank A/c Dr. | 5,00,000 | ||
| To Bank Loan A/c | 5,00,000 | |||
| (Loan taken from bank of 5,00,000) | ||||
| Debentures Suspense A/c Dr. | 7,00,000 | |||
| To 10% Debentures A/c | 7,00,000 | |||
| (Issue of Debentures as Collateral Security) |
Balance Sheet of ABC Ltd.
As at 31 march 2013 (Rs. In ‘000)
| Particulars | Notes No. | 2012-13 | 2011-12 |
| 1. EQUITY AND LIABILITIES | |||
| (1) Shareholder’s Funds | |||
| (2) Non-Current Liabilities Long – Term Borrowing | 1 | 2,000 | 1,500 |
| (3) Current Liabilities |
Notes to Accounts :
Note 1.
| Particulars | As on 31.03.2012 (Rs.) | As on 31.03.2012 (Rs.) |
| Long term Borrowing | ||
| (i) 10% Debentures 22,00,000 | ||
| Less : Debentures Suspense A/c (7,00,000) | 15,00,000 | 15,00,000 |
| (ii) Bank Loan | 5,00,000 | – |
| Total | 20,00,000 | 15,00,000 |
Various cases for the issue of debentures from Redemption point of view.
| Case No. | Condition Issue | Condition of Redemption |
| 1. | Issued at Par | Redemption at par |
| 2. | Issued at premium | Redemption at par |
| 3. | Issued at par | Redemption at premium |
| 4. | Issued at premium | Redemption at premium |
| 5. | Issued at Discount | Redemption at par |
| 6. | Issued at Discount | Redemption at premium |
1. when Debentures are issued at par and redeemable at par
Journal
| Date | Particulars | L.F | Debit (Rs.) | Credit (Rs.) |
| Bank A/c Dr. | ||||
| To % Debentures Application and Allotment A/c | ||||
| (Being the application and Allotment A/c Dr. | ||||
| Debentures Application and Allotment A/c Dr. | ||||
| To % Debentures A/c | ||||
| (Being the transfer of application money to % Debenture A/c) | ||||
Illustration 11 : Larson and Turbo Ltd. Issued 50,000 8% debentures of Rs.100 each payable on. Application at par and redeemable at par any time after 7 years from the date of the issue. Record necessary entries for the issue of debentures in the book of Company.
Solution:
In the books of Larson & Toubro Ltd.
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c Dr. | 50,00,000 | |||
| To % Debentures Application and Allotment A/c | 50,00,000 | |||
| (Being the application money received) | ||||
| Debentures Application and Allotment A/c Dr. | 50,00,000 | |||
| To 8% Debentures A/c | 50,00,000 | |||
| (Being the transfer of application money to debenture account) |
2. Debentures are issued at Premium Redeemable at par
Journal
| Date | Particulars | L.F | Debit (Rs.) | Credit (Rs.) |
| Bank A/c | ||||
| To 9% Debentures Application and Allotment A/c | ||||
| (Being the application money received) | ||||
| Debentures Application and Allotment A/c Dr. | ||||
| To % Debentures A/c | ||||
| To Securities Premium Reserve A/c | ||||
| (Being the debentures issued at premium and redeemable at par) |
Illustration 12 : Green Ltd. Issued Rs.80,000, 9% Debenture at a premium of 5% redeemable at par Give the necessary Journal entry
Solution :
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c Dr. | 84,000 | |||
| To 9% Debentures Application and Allotment A/c | 84,000 | |||
| (Being the application money received) | ||||
| 9% Debentures Application and Allotment A/c Dr. | 84,000 | |||
| To 9% Debenture A/c | 80,000 | |||
| To Securities Premium Reserve A/c | 4,000 | |||
| (Being the debenture issued at premium and redeemable at par) |
3. When Debentures are issued at par redemption at premium
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c Dr. | ||||
| To % Debenture Application & Allotment A/c | ||||
| (Being the application money Received) | ||||
| % Debenture Application & Allotment A/c Dr. | ||||
| Loss on issue of Debentures A/c Dr. | ||||
| To % Debentures Account | ||||
| To Premium on redemption of Debentures A/c | ||||
| (Being the debentures issued at par and redeemable at premium) |
Illustration 13 : White Ltd. Issued Rs.60,000 Debenture at par and redeemable at 10% premium. Give the necessary Journal entry.
Solution:
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c | 60,000 | |||
| To % Debenture Application and Allotment A/c | 60,000 | |||
| (Being the application money received) | ||||
| % Debenture Application and Allotment A/c Dr. | 60,000 | |||
| Loss on issue of Debentures A/c Dr. | 6,000 | |||
| To % Debentures A/c | 60,000 | |||
| To Premium on Redemption of Debentures A/c | 6,000 | |||
| (Being the debentures issued at par and redeemable at premium) |
4. When Debentures are issued at premium redeemable at premium
Journal
| Date | Particulars | L.F | Debit (Rs.) | Credit (Rs,) |
| Bank A/c | ||||
| To % Debentures Application and Allotment A/c | ||||
| (Being the application money receive) | ||||
| % Debenture Application & Allotment A/c Dr. | ||||
| Loss on issue of Debenture A/c | ||||
| To % Debenture A/c | ||||
| To Securities Premium Reserve A/c | ||||
| To Premium on Redemption Reserve A/c | ||||
| To Premium on Redemption of Debenture A/c | ||||
| (Being the Debentures issued at premium and redeemable at premium) |
Illustration 14 : Gives Journal Entry assuming the face value of 10% debentures at Rs.100 issued at Rs.105 and repayable at Rs.110.
Solution:
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c Dr. | 105 | |||
| To % Debentures Application and Allotment A/c | 105 | |||
| (Being the application money received) | ||||
| % Debenture application and Allotment A/c Dr. | 105 | |||
| Loss on Issue of Debentures A/c Dr. | 10 | |||
| To % Debentures A/c | 100 | |||
| To Securities Premium Reserve A/c | 5 | |||
| To Premium on Redemption of Debenture A/c | 10 | |||
| (Being the debentures issued at 5% Premium and Redeemable at 10% premium) |
5. When Debentures are issued at Discount but Redeemable at par
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c | ||||
| To % Debentures Application and Allotment A/c | ||||
| (Being the application money received) | ||||
| % Debenture Application & Allotment A/c Dr. | ||||
| Discount on Issue of Debenture A/c Dr. | ||||
| To % Debentures A/c | ||||
| (Being debenture issued at discount but redeemable at part) |
6. When Debentures are issued at discount and Redeemable at premium
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c | ||||
| To % Debenture Application % Allotment A/c | ||||
| (Being the Application & allotment A/c Dr. | ||||
| Discount on Issue of Debenture A/c Dr. | ||||
| Loss on Issue of Debenture A/c Dr. | ||||
| To % Debenture A/c | ||||
| To Premium on Redemption of Debentures A/c | ||||
| (Being the Debentures issued at discount and redeemable at premium) |
Illustration 15 : Claris Life Sciences Ltd. issued 5,000 14% Debentures of Rs. 100 each at a discount of 10%. Pass the necessary journal entries in the books of the company for the issue of debentures when debentures were to be:
(i) Redeemed at par.
(ii) Redeemed at a premium of 5%.
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Bank A/c Dr. | 4,50,000 | |||
| To Debenture Application and Allotment | 4,50,000 | |||
| (Application money received on 5,000 debentures @ Rs. 90 each) | ||||
| (i) | Debentures Application and Allotment Dr. | 4,50,000 | ||
| Discount on issue of Debentures Dr. | 50,000 | |||
| To 14% Debentures | 5,00,000 | |||
| (5,000 14% Debentures of Rs. 100 each issues at a discount of 10%) | ||||
| (ii) | Debentures Application and Allotment Dr. | 4,50,000 | ||
| Loss on issue of Debentures A/c Dr. | 75,000 | |||
| To 14% Debentures | 5,00,000 | |||
| To Premium on redemption of Debentures | 25,000 | |||
| (5,000, 14% Debentures of Rs. 100 each issues at a discount of 10% but redeemable at a Premium of 5%) |
Illustration 16 : ABC Company Ltd., had 6% debentures of Rs.1,00,000 on 1st January 2009 on which interest is paid on 3th June and 31st December. Pass necessary journal entries for the payment of interest for the year 2009, 10% tax is deducted at source from interest and remitted immediately. Books are closed on 31st December.
Solution:
ABC Ltd.
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| 2009 June 30 | Interest on Debenture A/c Dr. | 3,000 | ||
| To Debentures holder A/c | 27,00 | |||
| To Income Tax Payable A/c | 300 | |||
| (Half yearly debentures interest due and tax deducted at source) | ||||
| June 30 | Debentures holder A/c Dr. | 2,700 | ||
| Income Tax Payable A/c Dr. | 300 | |||
| To Bank | 3,000 | |||
| (Interest & Tax paid) | ||||
| Dec 31 | Interest on Debentures A/c Dr. | 3,000 | ||
| To debentures holder A/c | 2,700 | |||
| To Income Tax Payable | 300 | |||
| (Half yearly debentures interest due and tax deducted at source) | ||||
| Dec 31 | Debentures Holders A/c Dr. | 2,700 | ||
| Income Tax Payable Dr. | 300 | 2,700 | ||
| To Bank A/c | 3,000 | |||
| (Being Interest & Tax Paid) | ||||
| Dec 31 | Statement of Profit and Loss Dr. | 6,000 | ||
| To Interest on Debentures A/c | 6,000 | |||
| (Debentures Interest (3000+3000) | ||||
| Transferred to Statement of Profit and loss) |
Illustration 17 : B.G. Ltd. issued 2,000, 12% debentures of L100 each on 1st April 2012. The issue was fully subscribed. According to the terms of issue, interest on debentures is payable half yearly on 30th September and 31st March and tax deducted at source is 10%.
Pass necessary journal entries related to the debenture interest for the half-yearly ending 31st March, 2013 and transfer of interest on debentures of the year to the Statement of Profit & Loss.
Solution :
Books of B.G. Ltd.
Journal
| Date | Particulars | L.F | Debit (Rs.) | Credit (Rs.) |
| 2013 March 31 | Interest on Debentures A/c Dr. | 12,000 | ||
| To Debenture holder’s A/c | 10,800 | |||
| To income Tax Payable A/c /TDS from Debentures interest A/c | 1,200 | |||
| (Half yearly interest due on debentures and tax deducted at sources) | ||||
| March 31 | Debenture’s A/c Dr. | 10,800 | ||
| To Bank A/c | 10,800 | |||
| (Payment of Interest) | ||||
| March 31 | Income Tax Payable / TDS from | |||
| Debentures Interest A/c Dr. | 1,200 | |||
| To bank A/c | 1,200 | |||
| (TDS Deposited with income tax authorities) | ||||
| March 31 | Statement of Profit & Loss | 24,000 | ||
| To interest on Debentures A/c | 24,000 | |||
| (Interest transferred to Statement of P/L) |
Question 1: Fill in the missing figures in the following entries: –
Journal
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
| Case 1 | ||||
| Bank A/c | …. | |||
| To Debentures Application & Allotment A/c | …. | |||
| (Being application money received) | ||||
| Debentures Application & allotment A/c Dr. | 40,000 | |||
| Loss on issue of Debentures A/c Dr. | …. | |||
| To 10% Debentures A/c | …. | |||
| To Premium on Redemption A/c | …. | |||
| (Being issue of 400, 10% Debentures of Rs. 100 each at par and redeemable at premium of 10%) | ||||
| Case 2 | ||||
| Bank A/c | …. | |||
| To Debentures Application & Allotment A/c | …. | |||
| (Being Application money Received) | ||||
| Debentures application & Allotment A/c Dr. | …. | |||
| Loss an issue of Debentures A/c dr. | …. | |||
| To 12% Debentures A/c | …. | |||
| To Premium on Redemption of Debentures A/c | …. | |||
| (Being 200, 12% Debentures issued at Rs. 90 repayable at Rs. 110) | ||||
| Case 3 | ||||
| Bank A/c Dr. | …. | |||
| To Debentures Application & Allotment A/c | …. | |||
| (Being Application money Received) | ||||
| Debentures Application & Allotment A/c Dr. | …. | |||
| Loss on issue of Debentures A/c | …. | |||
| To 10% Debentures A/c | …. | |||
| To Securities Premium Resources A/c | …. | |||
| To Premium of Redemption of Debentures A/c | …. | |||
| (Being 100, 10% Debentures issued at Rs. 105 repayable Rs. 110) |