Question

B Ltd. issued 1,000, 12% debentures of Rs.100 each on January 1, 2005 at a discount of 5% redeemable at a premium of 10%. Give journal entries relating to the issue of debentures and debentures interest for the period ending December 31, 2005 assuming that interest is paid half yearly on June 30 and December 31 and tax deducted at source is 10%. B Ltd. follows calendar year as its accounting year. 1

Answer 1

$\text{Journal Entries}$
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ 2001& & & & & \\ \text{Jan 1}& \text{Bank A/c}& \text{Dr}& & 95,000& \\ & \text{Loss on Issue on Debentures A/c (W/Note)}& \text{Dr}& & 15,000& \\ & \text{To 12\% Debentures A/c}& & & & 1,00,000\\ & \text{To Premium on Redemption of Debenture A/c}& & & & 10,000\\ & \text{(Being debenture issued at discount and}& & & & \\ & \text{redeemable premium)}& & & & \\ & \underset{–}{}& & & & \\ \text{Jan 30}& \text{Debenture Interest A/c}& \text{Dr}& & 6,000& \\ & \text{To Income Tax Payable A/c (TDS)}& & & & 600\\ & \text{To Debenture Holder A/c}& & & & 5,400\\ & \text{(Being amount of interest on 12\% debentures}& & & & \\ & \text{Rs.10,00,000 due for 6 months and 10\% tax deducted}& & & & \\ & \text{at source)}& & & & \\ & \underset{–}{}& & & & \\ \text{Jun 30}& \text{Debenture Holders A/c}& \text{Dr}& & 5,400& \\ & \text{To Bank A/c}& & & & 5,400\\ & \text{(Being interest paid to debenture holders)}& & & & \\ & \underset{–}{}& & & & \\ \text{Dec 31}& \text{Debenture Interest A/c}& \text{Dr}& & 6,000& \\ & \text{To Income Tax Payble A/c}& & & & 600\\ & \text{To Debentures Holders A/c}& & & & 5,400\\ & \text{(Being amount of interest on 12\% debentures}& & & & \\ & \text{Rs.1,00,000 due for 6 months and 10\% Tax}& & & & \\ & \text{deducted at source)}& & & & \\ & \underset{–}{}& & & & \\ \text{Dec 31}& \text{Debenture Holders A/c}& \text{Dr}& & 5,400& \\ & \text{To Bank A/c}& & & & 5,400\\ & \text{(Being interest paid to debentures holders)}& & & & \\ & \underset{–}{}& & & & \\ \text{Dec 31}& \text{Profit and Loss A/c}& \text{Dr}& & 12,000& \\ & \text{To Debentures Interest A/c}& & & & 12,000\\ & \text{(Being interest on debentures transferred to}& & & & \\ & \text{profit and loss account)}& & & & \end{array}$

Working Note :

Loss on issue indicate 5% discount of issue of Debentu res and 10% premium of redemption i,e. total loss 15% (5 + 10) on issue of debentures