Question

J Ltd issued Rs 20,00,000, $15\%$ Debentures at $8\%$ discount. Debentures are to be redeemed in the following manner :

$\begin{array}{cc}\text{Year-end}& \text{Face value of Debentures}\\ & \text{Rs}\\ 2& 2,00,000\\ 3& 4,00,000\\ 4& 6,00,000\\ 5& 8,00,000\end{array}$

Pass journal entry for issue of Debentures and prepare Discount on Issue of Debentures Account for 5 years.

Answer 1

Discount allowed on the issue of Debentures = $20,00,000\times \frac{8}{100}$= Rs 1,60,000.

This discount of Rs 1,60,000 will be written off from Statement of P & L in the following manner:

$\begin{array}{cccc}\text{Year}& \text{Debentures}& \text{Ratio *}& \text{Amount to be written off}\\ & \text{Outstanding}& & \\ & \text{Rs}& & \text{Rs}\text{Rs}\\ 1& 20,00,000& 20\text{or}20/80& 1,60,000\times 20/80=40,000\\ 2& 20,00,000& 20\text{or}20/80& 1,60,000\times 20/80=40,000\\ 3& 18,00,000& 18\text{or}18/80& 1,60,000\times 18/80=36,000\\ 4& 14,00,000& 14\text{or}14/80& 1,60,000\times 14/80=28,000\\ 5& 8,00,000& 8\text{or}8/80& 1,60,000\times 8/80=16,000\\ & & \overline{\underset{–}{80}}& \overline{\underset{–}{1,60,000}}\end{array}$

$\begin{array}{ccccccc}& & & & \text{JOURNAL ENTRIES FOR ISSUE OF DEBENTURES}& & \end{array}\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ & \text{Bank A/c}& \text{Dr}& & 18,40,000& \\ & \text{To}15\%\text{Debenture Application and Allotment A/c}& & & & 18,40,000\\ & \text{(Receipt of application money on debentures)}& & & & \\ & 15\%\text{Debenture Application and Allotment A/c}& \text{Dr}& & 18,40,000& \\ & \text{Discount on Issue of Debenture A/c}& \text{Dr}& & 1,60,000& \\ & \text{To}15\%\text{Debentures A/c}& & & & 20,00,000\\ & \text{(Transfer of application money to Debentures}& & & & \\ & \text{Account on the issue of debentures at a discount}& & & & \\ & \text{of}8\%)& & & & \end{array}$

$\begin{array}{ccccccc}\text{Dr}& & & & \text{DISCOUNT ON ISSUE OF DEBENTURES ACCOUNT}& & \text{Cr}\end{array}\begin{array}{cccccc}\text{Date}& \text{Particulars}& Rs& \text{Year}& \text{Particulars}& Rs\\ \text{I}& 15\%\text{Debentures A/c}& 1,60,000& \text{I}& \text{Statement of P and L}& 40,000\\ & & & & \text{Balance c/d}& 1,20,000\\ & & \overline{\underset{–}{\underset{–}{1,60,000}}}& & & \overline{\underset{–}{\underset{–}{1,60,000}}}\\ \text{II}& \text{Balance b/d}& 1,20,000& \text{II}& \text{Statement of P and L}& 40,000\\ & & & & \text{Balance c/d}& 80,000\\ & & \overline{\underset{–}{\underset{–}{1,20,000}}}& & & \overline{\underset{–}{\underset{–}{1,20,000}}}\\ \text{III}& \text{Balance b/d}& 80,000& \text{III}& \text{Statement of P and L}& 36,000\\ & & & & \text{Balance c/d}& 44,000\\ & & \overline{\underset{–}{\underset{–}{80,000}}}& & & \overline{\underset{–}{\underset{–}{80,000}}}\\ \text{IV}& \text{Balance b/d}& 44,000& \text{IV}& \text{Statement of P and L}& 28,000\\ & & & & \text{Balance c/d}& 16,000\\ & & \overline{\underset{–}{\underset{–}{44,000}}}& & & \overline{\underset{–}{\underset{–}{44,000}}}\\ \text{V}& \text{Balance b/d}& 16,000& \text{V}& \text{Statement of P and L}& 16,000\\ & & \overline{\underset{–}{\underset{–}{16,000}}}& & & \overline{\underset{–}{\underset{–}{16,000}}}\end{array}$