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Question

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(10,00,000-10,00,000×6100)

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:
Amount of Discount=10,00,000×6100=60,000

Year End Outstanding Amount (Rs.) Ratio Discount
31st March, 2015 10,00,000 10 60,000×1030=20,000
31st March, 2016 8,00,000 8 60,000×830=16,000
31st March, 2017 6,00,000 6 60,000×630=12,000
31st March, 2018 4,00,000 4 60,000×430=8,000
31st March, 2019 2,00,000 2 60,000×230=4,000

Total 30 60,000

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