Question

A Ltd issued 50,00,000, 8% Debenture of Rs.100 at a discount of 6% on April 1, 2000 redeemable at premium of 4% by draw of lots as under.

20,00,000 Debentures on March, 2002

20,00,000 Debentures on March, 2004

20,00,000 Debentures on March, 2005

Compute the amount of discount to be written-off in each year till debentures are paid. Also prepare discount/ loss on issue of debentures account.

Answer 1

Loss on issue of debenture = 6% (discount on issue) + 4% (Premium on redemption) = 10%

= $50,00,000\times 100\times \frac{10}{100}=5,00,00,000$

Calculation of amount to be written off every year

$\begin{array}{cccc}\text{At the end}& \text{Debenture}& \text{Ratio}& \text{Loss to be Written of Every Year}\\ \text{of Year}& \text{Outstanding}& & \\ \text{Mar 2001}& 50,00,00,000& 5& 5,00,00,000\times \frac{5}{18}=1,38,88,889\\ \text{Mar 2002}& 50,00,00,000& 5& 5,00,00,000\times \frac{5}{18}=1,38,88,889\\ \text{Mar 2003}& 30,00,00,000& 3& 5,00,00,000\times \frac{3}{18}=83,33,333\\ \text{Mar 2004}& 30,00,00,000& 3& 5,00,00,000\times \frac{3}{18}=83,33,333\\ \text{Mar 2005}& 20,00,00,000& 2& 5,00,00,000\times \frac{2}{18}=55,55,556\\ & & 18& \text{~}Rs.5,00,00,000\end{array}$

$\text{Dr}\text{Loss on Issue of Debenture Account}\text{Cr}$
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ 2000& & & & 2001& & & \\ \text{Apr 1}& \text{Debentures A/c}& & 5,00,00,000& \text{Mar 31}& \text{Profit and Loss A/c}& & 1,38,88,889\\ & & & & & \text{Balance c/d}& & 3,61,11,111\\ & & & \underset{–}{\overline{\underset{–}{5,00,00,000}}}& & & & \underset{–}{\overline{\underset{–}{5,00,00,000}}}\\ 2001& & & & 2002& & & \\ \text{Apr 1}& \text{Balance b/d}& & 3,61,11,111& \text{Mar 31}& \text{Profit and Loss A/c}& & 1,38,88,889\\ & & & & & \text{Balance c/d}& & 2,22,22,222\\ & & & \underset{–}{\overline{\underset{–}{3,61,11,111}}}& & & & \underset{–}{\overline{\underset{–}{3,61,11,111}}}\\ 2002& & & & 2003& & & \\ \text{Apr 1}& \text{Balance b/d}& & 2,22,22,222& \text{Mar 31}& \text{Profit and Loss A/c}& & 83,33,333\\ & & & & & \text{Balance c/d}& & 1,38,88,889\\ & & & \underset{–}{\overline{\underset{–}{2,22,22,222}}}& & & & \underset{–}{\overline{\underset{–}{2,22,22,222}}}\\ 2003& & & & 2004& & & \\ \text{Apr 1}& \text{Balance b/d}& & 1,38,88,889& \text{Mar 1}& \text{Profit and Loss A/c}& & 83,33,333\\ & & & & & \text{Balance c/d}& & 55,55,556\\ & & & \underset{–}{\overline{\underset{–}{1,38,88,889}}}& & & & \underset{–}{\overline{\underset{–}{1,38,88,889}}}\\ 2004& & & & 2005& & & \\ \text{Apr 1}& \text{Balance b/d}& & 55,55,556& \text{Mar 31}& \text{Profit and Loss A/c}& & 55,55,556\\ & & & \underset{–}{\overline{\underset{–}{55,55,556}}}& & & & \underset{–}{\overline{\underset{–}{55,55,556}}}\end{array}$