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.

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Solution

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

2014

Apr.01

Bank A/c( $10, 00, 000 - 10, 00, 000 \times \frac{6}{100}$ )

Dr.

9,40,000

To Debenture Application and Allotment A/c

9,40,000

(Application money received on issue of Debenture)

Apr.01

Debenture Application and Allotment A/c

Dr.

9,40,000

Discount on Issue of Debenture A/c

Dr.

60,000

To 9% Debentures A/c

10,00,000

(Application money transferred to Debentures A/c)

2015

Mar.31

Statement of P&L A/c

Dr.

20,000

To Discount on Issue of Debenture A/c

20,000

(Proportionate discount on Issue of Debenture written off)

2016
Mar.31

2017
Mar.31

2018
Mar.31

2019
Mar.31

Statement of P&L A/c Dr.
To Discount on Issue of Debenture A/c
(Proportionate discount on Issue of Debenture written off)

Statement of P&L A/c Dr.
To Discount on Issue of Debenture A/c
(Proportionate discount on Issue of Debenture written off)

Statement of P&L A/c Dr.
To Discount on Issue of Debenture A/c
(Proportionate discount on Issue of Debenture written off)

Statement of P&L A/c Dr.
To Discount on Issue of Debenture A/c
(Proportionate discount on Issue of Debenture written off)

16,000

12,000

8,000

4,000

16,000

12,000

8,000

4,000

Working Notes:

Calculation of amount of Discount to be written off every year:
$A m o u n t o f D i s c o u n t = 10, 00, 000 \times \frac{6}{100} = 60, 000$

Year End Outstanding Amount (Rs.) Ratio Discount

31st March, 2015 10,00,000 10 $60, 000 \times \frac{10}{30} = 20, 000$

31st March, 2016 8,00,000 8 $60, 000 \times \frac{8}{30} = 16, 000$

31st March, 2017 6,00,000 6 $60, 000 \times \frac{6}{30} = 12, 000$

31st March, 2018 4,00,000 4 $60, 000 \times \frac{4}{30} = 8, 000$

31st March, 2019 2,00,000 2 $60, 000 \times \frac{2}{30} = 4, 000$

Total 30 60,000

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Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
2014
Apr.01	Bank A/c( $10, 00, 000 - 10, 00, 000 \times \frac{6}{100}$ )	Dr.		9,40,000
	To Debenture Application and Allotment A/c				9,40,000
	(Application money received on issue of Debenture)

Apr.01	Debenture Application and Allotment A/c	Dr.		9,40,000
	Discount on Issue of Debenture A/c	Dr.		60,000
	To 9% Debentures A/c				10,00,000
	(Application money transferred to Debentures A/c)
2015
Mar.31	Statement of P&L A/c	Dr.		20,000
	To Discount on Issue of Debenture A/c				20,000
	(Proportionate discount on Issue of Debenture written off)

2016 Mar.31 2017 Mar.31 2018 Mar.31 2019 Mar.31	Statement of P&L A/c Dr. To Discount on Issue of Debenture A/c (Proportionate discount on Issue of Debenture written off) Statement of P&L A/c Dr. To Discount on Issue of Debenture A/c (Proportionate discount on Issue of Debenture written off) Statement of P&L A/c Dr. To Discount on Issue of Debenture A/c (Proportionate discount on Issue of Debenture written off) Statement of P&L A/c Dr. To Discount on Issue of Debenture A/c (Proportionate discount on Issue of Debenture written off)			16,000 12,000 8,000 4,000	16,000 12,000 8,000 4,000

Year End	Outstanding Amount (Rs.)	Ratio	Discount
31st March, 2015	10,00,000	10	$60, 000 \times \frac{10}{30} = 20, 000$
31st March, 2016	8,00,000	8	$60, 000 \times \frac{8}{30} = 16, 000$
31st March, 2017	6,00,000	6	$60, 000 \times \frac{6}{30} = 12, 000$
31st March, 2018	4,00,000	4	$60, 000 \times \frac{4}{30} = 8, 000$
31st March, 2019	2,00,000	2	$60, 000 \times \frac{2}{30} = 4, 000$
	Total	30	60,000