Question

Journalise the following

(i) A Debenture issued at Rs.95, repayable at Rs.100.

(ii) A Debenture issued at Rs.95, repayable at Rs.105.

(iii) A Debenture issued at Rs.100, repayable at Rs.105.

The face value of debenture in each of the above cases is Rs.100.

Answer 1

$\text{Journal Entries}$
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ \text{(i)}& \text{Bank A/c}& \text{Dr}& & 95& \\ & \text{Discount on Issue of Debenture A/c}& \text{Dr}& & 5& \\ & \text{To Debentures A/c}& & & & 100\\ & \text{(Debenture of Rs.100 issued at Rs.5 discount}& & & & \\ & \text{with the term repayable at Rs.100)}& & & & \\ & \underset{–}{}& & & & \\ \text{(ii)}& \text{Bank A/c}& \text{Dr}& & 95& \\ & \text{Loss on Issue of Debenture A/c}& \text{Dr}& & 10& \\ & \text{To Debentures A/c}& & & & 100\\ & \text{To Premium on Redemption of}& & & & 5\\ & \text{Debenture A/c}& & & & \\ & \text{(Debenture of Rs.100 issued at a discount}& & & & \\ & \text{of Rs.5 and with the term repayable at Rs.105)}& & & & \\ & \underset{–}{}& & & & \\ \text{(iii)}& \text{Bank A/c}& \text{Dr}& & 100& \\ & \text{Loss on issue of Debenture A/c}& \text{Dr}& & 5& \\ & \text{To Debentures A/c}& & & & 100\\ & \text{To Premium on Redemption of}& & & & 5\\ & \text{Debenture A/c}& & & & \\ & \text{(Debenture of Rs.100 issued with the}& & & & \\ & \text{term repayable at Rs.105)}& & & & \end{array}$

Note : Whenever the information in question gives condition of redemption, assure that the effect of profit or loss on redemption (discount on redemption or premium on redemption) is to taken at the time of issue.

(i) Debentures are repayable at par, hence no profit no loss.

(ii) Debentures are repayable at Rs. 105 (face valuer 100) hence, it will give a loss of 5 and at the time of issue it is already discount of Rs. 5 which is again a loss so loss will be debit with Rs. 10 (5+5) on issue.

(iii) The transaction is same as case (ii) except for issue at par Rs. 100 hence, loss will be only Rs. 5 (premium on redemption).