Question

A company issued debentures of the face value of Rs 5,00,000 at a discount of 6% on April 01, 2012. These debentures are redeemable by annual drawings of Rs,1,00,000 made on March 31 each year. The directors decided to write off discount based on the debentures outstanding each year.

Calculate the amount of discount to be written-off each year. Give journal entries also.

Answer 1

Journal
Date	Particulars					L.F.	Debit Amount Rs	Credit Amount Rs
2012
Apr 1	Bank A/c			Dr.			4,70,000
		To Debenture Application and Allotment A/c						4,70,000
	(Debenture Application money received)
Apr 1	Debenture Application and Allotment A/c				Dr.		4,70,000
	Discount on Issue of Debenture A/c				Dr.		30,000
		To Debentures A/c						5,00,000
	(Debenture Application money transferred to Debenture Account)

Assuming that the amount of discount on issue of debentures is to be written off in 5 years.

Year	Debenture outstanding	Ratio	Amount written off
2012	5,00,000	5		=	10,000
2013	4,00,000	4		=	8,000
2014	3,00,000	3		=	6,000
2015	2,00,000	2		=	4,000
2016	1,00,000	1		=	2,000
		15			30,000

Date	Particulars					L.F.	Debit Amount Rs	Credit Amount Rs
2013 Mar 31	Profit and Loss A/c				Dr.		10,000
		To Discount on Issue of Debentures A/c						10,000
	(Discount on issue of debentures written off)
2014
Mar 31	Profit and Loss A/c				Dr.		8,000
		To Discount on Issue of Debentures A/c						8,000
	(Discount on issue of debentures written off)
2015
Mar 31	Profit and Loss A/c				Dr.		6,000
			To Discount on Issue of Debenture A/c					6,000
	(Discount on issue of debentures written off)
2016
Mar 31	Profit and Loss A/c				Dr.		4,000
		To Discount on issue of Debentures A/c						4,000
	(Discount on issue of debenture written off)
2017
Mar 31	Profit and Loss A/c				Dr.		2,000
		To Discount on Issue of Debenture A/c						2,000
	(Discount on issue of debenture written off)