On 1st April, 2016, Krayon Lid, issued $8, 000$ , $12 %$ Debentures of $R s . 100$ each, redeemable at par after $5$ years. The issue was fully subscribed.
According to the terms of issue, interest on debentures is payable annually on 31 $^{s t}$ March. Tax deducted at source is $20 %$ .
You are required to pass journal entries for the year 2016-17, regarding issue of debentures and interest on debentures.

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Solution

Journal entries for the year 2016 -17
1. On receipt of application money
1st April Bank A/c Dr. (8000 * 100) 800000
To Debenture Application and Allotment A/c 800000
(Being the application money received)
2. On Adjustment of application money
1st April Debenture Application and Allotment A/c Dr. 800000
To 12% Debentures A/c 800000
3. When interest is due
(Rs. 800000 * 12%) Debenture interest A/c Dr. 9600
(Rs. 9600 * 20%) To Income tax A/c 1920
(Rs. 9600 - Rs. 1920) To Debenture holder A/c 7680
(Being interest is due to debenture holders)
4. When payment of interest is made
Debenture holder A/c 7680
To Bank A/c 7680
(Being payment made for debenture interest)

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