Issued at a Discount and Redeemed at Par

Q. X ltd issued 1, 000 debentures at discount of 10% having face value of Rs.100 & redeemable at par. The company will pay back at the time of redemption.

1. Rs. 1, 10, 000
2. Rs. 1, 20, 000
3. Rs. 90, 000
4. Rs. 1, 00, 000

Q. Wye Ltd . purchased an established business for ​₹ 2, 00, 000 payable as ​₹ 65, 000 by cheque and the balance by issuing 9% Debentures of ​₹ 100 each at a discount of 10%.
Give journal entries in the books of Wye Ltd.

Q. A limited company issued ₹ 10, 00, 000;9% Debentures at a discount of 6% on 1st April, 2014. These debentures are to be redeemed equally, in 5 annual installments starting from 31st March, 2015. Discount on Issue of Debentures is written off during the tenure of debentures.
Pass the journal entries for issue of debentures and writing off the discount.

Q. Reliance Ltd. purchased machinery costing ​₹ 1, 35, 000 . It was agreed that the purchase consideration be paid by issuing 9% Debentures of ​₹ 100 each . Assume debentures have been issued
(i) at par and
(ii)at a discount of 10%.
Give necessary journal entries.

Q. Prepare cash flow statement from the following information:

Balance Sheet
$\begin{array}{cccccc}\text{Capital and Liabilities}& \text{2010 (Rs.)}& \text{2011 (Rs.)}& \text{Assets}& \text{2010 (Rs.)}& \text{2011 (Rs.)}\\ \text{Equity Share Capital}& \text{5, 00, 000}& \text{7, 00, 000}& \text{Cash/Bank}& \text{3, 00, 000}& \text{4, 00, 000}\\ \text{8\% Debentures}& 6,00,000& 4,00,000& \text{Sundry Debtors}& \text{4, 00, 000}& \text{6, 00, 000}\\ \text{Profit and Loss Account}& \text{3, 00, 000}& \text{5, 00, 000}& \text{Stock}& \text{5, 00, 000}& \text{6, 00, 000}\\ \text{Creditors}& \text{6, 00, 000}& \text{9, 00, 000}& \text{Goodwill}& \text{2, 50, 000}& \text{1, 70, 000}\\ & & & \text{Discount on Debenture}& 50,000& 30,000\\ & & & \text{Plant}& \text{5, 00, 000}& \text{7, 00, 000}\\ & \overline{\underset{–}{20,00,000}}& \overline{\underset{–}{25,00,000}}& & \overline{\underset{–}{20,00,000}}& \overline{\underset{–}{25,00,000}}\end{array}$

Additional information:
Depreciation charged on plant amounts to Rs. 80, 000.

Q.

When debentures are issued at discount & redeemed at par, the debentures account is credited with___

1. Premium on issue of debentures

2. Nominal value of the debentures

3. Discount on issue

4. Not debited

Q. A limited company bought a Building for ​₹ 9, 00, 000 and the consideration was paid by issuing 10% Debentures of the normal (face) value of ​₹ 100 each at a discount of 10%.
Give journal entries.

Q. A company issued 9% Debentures of ₹ 10, 00, 000 at 8% discount, redeemable at par. The debentures are to be redeemed by drawings method in the following manner:
Year-end Amount (Face Value ) ( ₹)
2 1, 00, 000
3 2, 00, 000
4 3, 00, 000
5 4, 00, 000
Calculate the amount of discount on issue of debentures to be written off each year.

Q. Newton Ltd. purchased a Machinery from B for ​₹ 5, 76, 000 to be paid by the issue of 9% Debentures of ​₹ 100 each at 4% discount. Journalise the trasactions.

Q. X Ltd. issued 30, 000, 10% Debentures of ₹ 100 each at a discount of 5% on 1st April, 2015. As per the terms of issue , debentures are to be redeemed at the end of five years . Show the amount of discount to be written off from Statement of Profit and Loss every year.

Q. The Bank Column of Mukesh's Cash Book as on 31st March, 2018 showed an overdraft of Rs. 1, 80, 000. His Bank Statement Showed an overdraft of Rs. 1, 13, 900. Prepare Bank Reconciliation Statement taking the following into account:
(i) Cheque deposited into bank but entry is not passed in the Cash Book. Rs. 3000.
(ii) Cheque received and entered into the Cash Book but was not sent to bank. Rs. 10, 000.
(iii) Credit side of the Bank column casted short by Rs. 1, 000
(iv) Insurance premium paid directly by the bank under standing instructions was not recorded in the Cash Book. Rs. 5, 000
(v) Bank charges entered in the Cash book twice. Rs. 100
(vi) Cheque 'received' returned on technical grounds but entry was not passed. Rs. 4, 000
(vii) Cheque 'issued' returned on technical grounds but entry was not passed. Rs. 3, 000
(viii) Bill discounted dishonoured. Rs. 40, 000
(ix) Bills Recievable directly collected by the bank. Rs. 20, 000
An amount of Rs. 1, 00, 000 being collection of Mahesh's cheque was wrongly credited to the account of Mukesh by the bank in his bank statement.

Q. On 1st April 2012, Z Ltd. issued ₹ 10, 00, 000, 10% Debentures of ₹ 100 each at 94% redeemable at par. The debentures are to be redeemed by drawings method in the following manner:

Year end	2nd	3rd	4th	5th
Nominal value of Debentures to be Redeemed	10%	20%	30%	40%

Calculate the amount of discount on issue of debentures to be written off each year.

Q.

Discount on issue of debentures is debited at the time of issue & then is charged to the ___

1. Statement of profit & loss

2. None of these

3. Either Statement of profit & loss or Securities premium

4. Securities premium

Q.

In case debentures are issued at discount but redeemable at par. If the face value of debenture is Rs. 100 and the discount is 10%. It means company will get Rs. 90 and it will pay back ________ at the time of redemption

1. None of these

2. Rs 90

3. Rs 100

4. Rs 110

Q. When debentures are issued at discount & redeemed at par, the debentures account is credited with of debentures.

1. discount amount
2. premium amount
3. nominal value
4. issue price

Q.

Neel Kamal Ltd. issued 16, 000, 10% Debentures of Rs. 100 each at 10% discount redeemable at par. What amount shall be received at the time of issue ?

1. None of these

2. Rs 15, 00, 000

3. Rs 14, 40, 000

4. Rs 16, 00, 000

Q. Neel Kamal Ltd. issued 16, 000, 10% Debentures of Rs.100 each at 10% discount redeemable at par. The amount of shall be received at the time of issue.

1. Rs. 17, 00, 000
2. Rs. 15, 00, 000
3. Rs. 14, 40, 000
4. Rs. 16, 00, 000

Q. Goods worth Rs. $10,000$ were purchased by B on which the traders allowed Rs. $500$ trade discount and offer to give $5\%$ cash discount if immediate payment is made. The Purchase A/c will be debited by _________.

1. Rs. $9,800$
2. Rs. $10,000$
3. Rs. $9,000$
4. Rs. $9,500$

Q. If a debenture of Rs.200 is issued for Rs.197, The discount allowed is debited to a separate account known as:

1. Discount on Issue of Debentures Account
2. Discount at the time of Allotment
3. Securities premium Account
4. None of the above

Q.

Debentures can be issued ___

1. For cash

2. As a collateral security

3. For consideration other than cash

4. All of these

Q.

PRACTICAL PROBLEMS

On 5^th September, 2010 Prakash Patil accepted a bill of Rs 16, 000 drawn by Chandu Chaudhari for 3 months. This bill was drawn for amount which Prakash Patil owed to Chandu Chaudhari. On same date Chandu Chaudhari purchased goods from Magan Mahajan for Rs 20, 000 for this Chandu Chaudhari endorsed Prakash Patil’s acceptance in favour of Magan Mahajan and accepted 2 months bill for the balance due. On 5^th October, 2010 Magan Mahajan discounted both the bill with his bank @ 12% p.a.

On the due date Prakash Patil’s honoured his acceptance while Chandu Chaudhari unable to meet the payment for his acceptance. Magan Mahajan’s bank paid noting charges Rs 100.

Pass Journal entries in the books of Magan Mahajan and also prepare Prakash Patil’s and Magan Mahajan ledger account in the books of Chandu Chaudhari.

Q. Discount is a personal account.

1. True
2. False

Q. Certificates of deposit (CD) help to mobilize a large amount of money for short periods.

1. True
2. False

Q. State to whether the following statements are True/False.

The issue of debentures less than face value of debenture to termed as issue of debentures at discount.

Q.

PRACTICAL PROBLEMS

Sudhatai sold goods to Chhayatai on credit for 4 months for Rs 10, 000 on 7^th Sept., 2009. Chhayatai paid on her account of Rs 4, 000 at 2% cash discount and accepted bill for the balance at 2 months. On the same date Sudhatai discounted with her bank at 12% p.a. on due date Chhayatai honoured her bill.

A. You required to write journal of Sudhatai.

B. Pass journal entries in the books of Sudhatai assuming that on due date the bill is dishonoured and Sudhatai’s bank paid noting chargers Rs 100.

Q.

PRACTICAL PROBLEMS

On 1^st August, 2012 Omprakash drew a bill of Rs 10, 000 for 60 days after date on Sharadchandra. On 15^th August, 2012 Omprakash purchased goods from Hariprasad for Rs 12, 000. On the same date Omprakash endorsed Sharadchandra’s bill in favour of Hariprasad and paid the balance by cheque at 1% cash discount. On the same date Hariprasad discounted the bill with his bank for Rs 9, 500.

On the due date Sharadchandra honoured his acceptance presented by Hariprasad.

You are required to pass journal entries in the books of Omprakash, Sharadchandra and Hariprasad.

Q. In certainty-equivalent approach, adjusted cash flows are discounted at __________.

1. Internal Rate of Return
2. Accounting Rate of Return
3. Hurdle Rate
4. Risk-free Rate

Q. Discount on issue of debenture is treated as income for the company.

1. False
2. True

Q. In Risk-Adjusted Discount Rate method, __________ has to be adjusted.

1. Cash flows
2. Life of proposal
3. Rate of discount
4. Salvage value

Q. Redeemable preference shares of Rs. 1, 00, 000 are redeemed at par for which purpose fresh equity shares of Rs. 80, 000 are issued at a discount of 10%. The amount to be transferred to Capital Redemption Reserve Fund will be ______________.

1. Rs. 20, 000
2. Rs. 28, 000
3. Rs. 80, 000
4. Rs. 1, 00, 000