Question

A company had Rs 10,00,000, $12\%$ Debentures outstanding as on 1st April 2017. During the year company took a loan of Rs 2,00,000 from the State Bank of India for which the Company placed with the bank debentures for Rs 2,50,000 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 at 31st March 2018.

Answer 1

First Method : No entry is passed for the issue of debentures in this method. Entry is passed only for taking a loan from the bank, as under:
$\begin{array}{cccc}\text{Bank A/c}& \text{Dr}& 2,00,000& \\ \text{To Bank Loan A/c}& & & 2,00,000\\ \text{(Loan taken from the bank and Rs 2,50,000}& & & \\ \text{debentures deposited as collateral security)}& & & \end{array}$

EXTRACT OF BALANCE SHEET as at 31st March, 2018

$\begin{array}{cccc}\text{Particulars}& \text{Note}& \text{31st March}& \text{31st March}\\ & \text{No}& 2018& 2017\\ 1.\text{EQUALITY AND LIABILITIES:}& & Rs& Rs\\ \text{Non- current Liabilities:}& & & \\ \text{Long -term Borrowings}& 1& \underset{–}{\underset{–}{12,00,000}}& 10,00,000\end{array}$

Notes to Accounts :
$\begin{array}{cc}\left(1\right)\text{Long -term Borrowings:}& \\ 12\%\text{Debentures (In addition, Debentures for Rs 2,50,000}& 10,00,000\\ \text{have been issued as collateral security)}& \\ \text{Bank Loan (On collateral security of Debentures of Rs 2,50,000)}& 2,00,000\\ & \overline{\underset{–}{\underset{–}{12,00,000}}}\end{array}$

Second Method : Following entries are passed in this method:

$\begin{array}{cccc}1\text{Bank A/c}& \text{Dr}& 2,00,000& \\ \text{To Bank Loan A/c}& & & 2,00,000\\ \text{(Loan taken from the bank)}& & & \end{array}$

$\begin{array}{cccc}2\text{Debentures Suspense A/c}\text{Dr}2,50,000& & & \\ \text{To}12\%\text{Debentures A/c}& 2,50,000& & \\ \text{(Issue of Rs 2,50,000 deberature as collateral}& & & \\ \text{security to secure a loan of 2,00,000 from the Bank)}& & & \end{array}$

EXTRACT OF BALANCE SHEET
as at 31st March ,2018

$\begin{array}{cccc}\text{Particulars}& \text{Note}& \text{31st March}& \text{31st March}\\ & \text{No}& 2018& 2017\\ 1.\text{EQUALITY AND LIABILITIES:}& & Rs& Rs\\ \text{Non- current Liabilities:}& & & \\ \text{Long -term Borrowings}& 1& \underset{–}{\underset{–}{12,00,000}}& 10,00,000\end{array}$

Notes to Accounts:

$\begin{array}{ccc}\left(1\right).\text{Long -term Borrowing :}& & Rs\\ 12\%\text{Debenture}& 12,50,000& \\ \text{Less: Debentures Suspense A/c}& \underset{–}{2,50,000}& 10,00,000\\ \text{Bank Loan}& & 2,00,000\\ \text{(On collateral security of Debentures of Rs 2,50,000)}& & \\ & & \overline{\underset{–}{\underset{–}{12,00,000}}}\end{array}$