Question

Grand Hotels Ltd.issued 30,000, 7% Debentures of ₹ 100 each at a discount of 5% redeemable at a premium of 5% . It decided to write off loss on issue of debentures first from Capital Reserve then from Securities Premium Reserve and balance from Statement of Profit and Loss. It has balances as follows:
Capital Reserve$—$ ₹ 80,000 and Securities Premium Reserve$—$₹ 1,00,000 .
Pass the journal entry for writing off loss on Issue of Debentures .

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
	Capital Reserve A/c	Dr.		80,000
	Securities Premium A/c	Dr.		1,00,000
	Statement of Profit & Loss	Dr.		1,20,000
	To Discount on Issue of Debentures A/c				3,00,000
	(Loss on issue of debentures written off)

Working Notes:
WN1: Calculation of discount amount to be written-off
$\begin{array}{l}\mathrm{Discount}=30,00,000\times \frac{10}{100}=3,00,000\\ \mathrm{First}\mathrm{Rs}80,000\mathrm{will}\mathrm{be}\mathrm{set}-\mathrm{off}\mathrm{from}\mathrm{Capital}\mathrm{Reserve}\\ \mathrm{Next}\mathrm{Rs}1,00,000\mathrm{will}\mathrm{be}\mathrm{set}-\mathrm{off}\mathrm{from}\mathrm{Securities}\mathrm{Premium}\\ \mathrm{Remaining}\mathrm{Rs}\mathrm{1,20,000\; (3,00,000}-80,000-1,00,000)\mathrm{will}\mathrm{be}\mathrm{set}-\mathrm{off}\mathrm{from}\mathrm{Statement}\mathrm{of}\mathrm{Profit}\&\mathrm{Loss}\end{array}$