Question

A company issued debentures of the face value of Rs 10,00,000 at a discount of $6\%$ on 1st April, 2012. These debentures are redeemable by annual drawings of Rs 2,00,000 made on 31st March each year. The directors decided to write off discount based on the debentures outstanding each year. Prepare Discount on Issue of Debentures account for five years.

Answer 1

Total Discount on the issue of debentures = Rs 10,00,000 $\times \frac{6}{100}=$ Rs 60,000.

Since debentures amounting to Rs 2,00,000 are to be redeemed each year, the amount of discount written off from Statement of P & L is determined as follows:
$\begin{array}{cccc}\text{Year}& \text{Debentures}& \text{Ratio *}& \text{Amount of Discount}\\ \text{ending}& \text{Outstanding}& & \text{to be written off}\\ & & & \text{each year}\\ & \text{Rs}& & \text{Rs}\text{Rs}\\ \text{31st March 2013}& 10,00,000& 5\text{or}5/15& 60,000\times 5/15=20,000\\ \text{31st March 2014}& 8,00,000& 4\text{or}4/15& 60,000\times 4/15=16,000\\ \text{31st March 2015}& 6,00,000& 3\text{or}3/15& 60,000\times 3/15=12,000\\ \text{31st March 2016}& 4,00,000& 2\text{or}2/15& 60,000\times 5/15=8,000\\ \text{31st March 2017}& 2,00,000& 1\text{or}5/15& 60,000\times 5/15=4,000\\ & & \overline{\underset{–}{15}}& \overline{\underset{–}{60,000}}\end{array}$

*Ratio has been obtained by dividing Debentures Outstanding by 2,00,000.

$\begin{array}{ccccccc}& & & & & & \\ \text{Dr}& & & & \text{DISCOUNT ON ISSUE OF DEBENTURES ACCOUNT}& & \text{Cr}\end{array}\begin{array}{cccccc}\text{Date}& \text{Particulars}& Rs& \text{Date}& \text{Particulars}& Rs\\ 2012& & & 2013& & \\ \text{April 1}& \text{Debentures A/c}& 60,000& \text{March 31}& \text{Statement of P and L}& 20,000\\ & & & \text{March 31}& \text{Balance c/d}& 40,000\\ & & \overline{\underset{–}{\underset{–}{60,000}}}& & & \overline{\underset{–}{\underset{–}{60,000}}}\\ 2013& & & 2014& & \\ \text{April 1}& \text{Balance b/d}& 40,000& \text{March 31}& \text{Statement of P and L}& 16,000\\ & & & \text{March 31}& \text{Balance c/d}& 24,000\\ & & \overline{\underset{–}{\underset{–}{40,000}}}& & & \overline{\underset{–}{\underset{–}{40,000}}}\\ 2014& & & 2015& & \\ \text{April 1}& \text{Balance b/d}& 24,000& \text{March 31}& \text{Statement of P and L}& 12,000\\ & & & \text{March 31}& \text{Balance c/d}& 12,000\\ & & \overline{\underset{–}{\underset{–}{24,000}}}& & & \overline{\underset{–}{\underset{–}{24,000}}}\\ 2015& & & 2016& & \\ \text{April 1}& \text{Balance b/d}& 12,000& \text{March 31}& \text{Statement of P and L}& 8,000\\ & & & \text{March 31}& \text{Balance c/d}& 4,000\\ & & \overline{\underset{–}{\underset{–}{12,000}}}& & & \overline{\underset{–}{\underset{–}{12,000}}}\\ 2016& & & 2017& & \\ \text{April 1}& \text{Balance b/d}& 4,000& \text{March 31}& \text{Statement of P and L}& 4,000\\ & & \overline{\underset{–}{\underset{–}{4,000}}}& & & \overline{\underset{–}{\underset{–}{4,000}}}\\ & & & & & \end{array}$