Question

Ashwathi Ltd. issued 40,00,000, $10\%$ Debentures of Rs 50 each at a discount of $8\%$ on April 1, 2010, redeemable in four equal annual instalments starting with March 31, 2013. Securities premium account shows a balance of Rs 70,00,000. Compute the amount of discount/loss to be written off and also record the journal entries in the books of Ashwathi Ltd.

Answer 1

$\begin{array}{cc}\text{Total Discount}=40,00,000\times 50\times \frac{8}{100}& =1.6\text{Crores}\\ \text{Less : Securities Premium}& =0.7\text{Crores}\\ \text{Discount to be written off to Statement of P and L}& =\overline{0.9}\text{Crores}\end{array}$

$\begin{array}{cccc}& \text{Debentures}& & \text{Amount of Discount to be written}\\ \text{Year ending}& \text{Outstanding}& \text{Ratio *}& \text{off to Statement P and L}\\ & \text{Rs(in Crores)}& & \text{Rs (in Crores)}\\ \text{31 st March 2011}& 20& 4& \frac{4}{18}\times \text{Rs}0.9=0.2\\ \text{31 st March 2012}& 20& 4& \frac{4}{18}\times \text{Rs}0.9=0.2\\ \text{31 st March 2013}& 20& 4& \frac{4}{18}\times \text{Rs}0.9=0.2\\ \text{31 st March 2014}& 15& 3& \frac{3}{18}\times \text{Rs}0.9=0.15\\ \text{31 st March 2015}& 10& 2& \frac{2}{18}\times \text{Rs}0.9=0.1\\ \text{31 st March 2016}& 5& 1& \frac{1}{18}\times \text{Rs}0.9=0.05\\ & & \overline{\underset{–}{\underset{–}{18}}}& \overline{\underset{–}{\underset{–}{0.9}}}\end{array}$

* Ratio has been obtained by dividing Debenture Outstanding by 5.

Books of Ashwathi Ltd.
JOURNAL (Rs in Crores)

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ 2010& & & & & \\ \text{April 1}& \text{Bank A/c}& \text{Dr}& & 18.4& \\ & \text{To}10\%\text{Debenture Application and Allotment A/c}& & & & 18.4\\ & \text{(Application money received)}& & & & \\ \text{April 1}& 10\%\text{Debenture Application and Allotment A/c}& \text{Dr}& & 18.4& \\ & \text{Discount on Issue of Debenture A/c}& & & 1.6& \\ & \text{To}10\%\text{Debenture A/c}& & & & 20.00\\ & \text{(Transfer of application money to Debentures}& & & & \\ & \text{Account, issued at a discount of}8\%& & & & \\ 2011& & & & & \\ \text{March 31}& \text{Securities Premium A/c}& \text{Dr}& & 0.7& \\ & \text{To Discount on Issue of Debentures A/c}& & & & 0.7\\ & \text{(Utilisation of securities premium for writing off)}& & & & \\ & \text{discount)}& & & & \\ 2011& & & & & \\ \text{March 31}& \text{Statement of Profit and Loss}& \text{Dr}& & 0.2& \\ & \text{To Discount on Issue of Debentures A/c}& & & & 0.2\\ & \text{Discount written off)}& & & & \\ 2012& & & & & \\ \text{March 31}& \text{Statement of Profit and Loss}& \text{Dr}& & 0.2& \\ & \text{To Discount on Issue of Debentures A/c}& & & & 0.2\\ & \text{Discount written off)}& & & & \\ 2013& & & & & \\ \text{March 31}& \text{Statement of Profit and Loss}& \text{Dr}& & 0.2& \\ & \text{To Discount on Issue of Debentures A/c}& & & & 0.2\\ & \text{(Discount written off)}& & & & \\ 2014& & & & & \\ \text{March 31}& \text{Statement of Profit and Loss}& \text{Dr}& & 0.15& \\ & \text{To Discount on Issue of Debentures A/c}& & & & 0.15\\ & \text{(Discount written off)}& & & & \\ 2015& & & & & \\ \text{March 31}& \text{Statement of Profit and Loss}& \text{Dr}& & 0.1& \\ & \text{To Discount on Issue of Debentures A/c}& & & & 0.1\\ & \text{(Discount written off)}& & & & \\ 2016& & & & & \\ \text{March 31}& \text{Statement of Profit and Loss}& \text{Dr}& & 0.05& \\ & \text{To Discount on Issue of Debentures A/c}& & & & 0.05\\ & \text{(Discount written off)}& & & & \end{array}$