Question

B.Ltd. issued debentures at 94% for Rs 4,00,000 on April 01, 2011 repayable by five equal drawings of Rs 80,000 each. The company prepares its final accounts on March 31* every year.

Indicate the amount of discount to be written-off every accounting year assuming that the company decides to write off the debentures discount during the life of debentures. (Amount to be written-off: 2011 Rs 6,000; 2012 Rs 6,800; 2013 Rs 5,200; 2014 Rs 3,600; 2015 Rs 2,000; 2016 Rs 400).

*It should be December 31

Answer 1

Amount of discount to written off every year

In 2011 = Rs 6,000

In 2012 = 2,000 + 4,800 = Rs 6,800

In 2013 = 1,600 + 3,600 = Rs 5,200

In 2014 = 1,200 + 2,400 = Rs 3,600

In 2015 = 800 + 1,200 = Rs 2,000

In 2016 = Rs 400

Working Notes

i) Amount of discount to be written off every year

Year	Debenture Outstanding	Ratio	Months	New Ratio (Ratio $\times$ Months)	Amount written off
2011
Apr-Dec	4,00,000	5	9	45		=	6,000
2012
Jan-Mar	4,00,000	5	3	15		=	2,000
Apr-Dec	3,20,000	4	9	36		=	4,800
2013
Jan-Mar	3,20,000	4	3	12		=	1,600
Apr-Dec	2,40,000	3	9	27			3,600
2014
Jan-Mar	2,40,000	3	3	9		=	1,200
Apr-Dec	1,60,000	2	9	18			2,400
2015
Jan-Mar	1,60,000	2	3	6		=	800
Apr-Dec	80,000	1	9	9		=	1,200
2016
Jan-Dec	80,000	1	3	3		=	400
				180			24,000

Date	Particulars				L.F.	Debit Amount Rs	Credit Amount Rs
Dec 31	Debenture Holders A/c			Dr.		5,400
		To Bank A/c					5,400
	(Interest paid)
	Debenture Interest A/c			Dr.		6,000
		To Income Tax Payable A/c					600
		To Debenture Holders A/c					5,400
	(Amount of interest due for 6 months and tax deducted at source)
	Debenture Holders A/c			Dr.		5,400
		To Bank A/c					5,400
	(Interest paid)
	Income Tax Payable A/c			Dr.		1,200
		To Bank A/c					1,200
	(Tax deducted at source on interest paid)
	Profit and Loss A/c			Dr.		1,200
		To Debenture Interest A/c					1,200
	(Debenture interest transferred to Profit and Loss Account)

Note: In the question, the closing date of the accounting year is March 31, however, it should be December 31.