Question

On January 01, 2002, X.Ltd. issued 40,000, 9% debentures of Rs.100 each at Rs.95.

The terms of issue provided that, beginning with 1999, Rs.2,00,000 debentures should be redeemed either by drawings at par or by purchase in the open market every year. The expenses of issue amounted to Rs.12,000 which were written-off in 2002. The company also wrote off Rs.40,000 every year from Discount on Debentures Account. At the end of 2004, debentures to be redeemed were repaid by drawings. During 2005, the company purchased for cancellation 2,000 debentures at the market price of Rs.98 on December 31, the expenses being Rs.400. Interest on debentures is payable at the end of every calendar year.

Pass the journal entries in the books of the company to record these transactions.

Answer 1

In the books of X. Ltd.

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

2002

Jan 1

Bank A/c

Dr.

38,00,000

To 9% Debentures Application and Allotment A/c

38,00,000

(Debentures Application and Allotment money received)

Expense on Issue of Debenture A/c

Dr.

12,000

To Bank A/c

12,000

(Expenses paid on issue of debentures)

9% Debenture Application and Allotment A/c

Dr.

38,00,000

Discount on Issue of Debenture A/c

Dr.

2,00,000

To Debentures A/c

40,00,000

(Debenture Application Money transferred to Debenture Account)

Debenture Interest A/c

Dr.

3,60,000

To Debenture Holders

3,60,000

(Amount of Interest due)

Debenture Holders A/c

Dr.

3,60,000

To Bank A/c

3,60,000

(Interest paid)

Dec 31

Profit and Loss A/c

Dr.

4,12,000

To Discount on Issue of Debenture A/c

40,000

To Debenture Interest A/c

3,60,000

To Expense on Issue of Debentures A/c

12,000

(Discount and Expense on issue of debentures written off)

2003

Dec 31

Debenture Interest A/c

Dr.

3,60,000

To Debenture Holders A/c

3,60,000

(Amount of Interest due)

Debenture Holders A/c

Dr.

3,60,000

To Bank A/c

3,60,000

(Interest paid)

Profit and Loss A/c

Dr.

4,00,000

To Debenture Interest A/c

3,60,000

To Discount on Issue of Debentures A/c

40,000

(Discount written off and Interest charged to profit and loss account)

2004

Dec 31

Debenture Interest A/c

Dr.

3,60,000

To Debenture Holders A/c

3,60,000

(Amount of Interest due)

Debenture Holders A/c

Dr.

3,60,000

To Bank A/c

3,60,000

(Interest paid)

Profit and Loss A/c

Dr.

4,00,000

To Debenture Interest A/c

3,60,000

To Discount on Issue of Debentures A/c

3,60,000

(Discount written off and Interest charged to Profit and Loss Account)

9% Debenture Interest A/c

Dr.

2,00,000

To Bank A/c

2,00,000

(2,000 9% Debentures were redeem)

2005

Dec 31

Debenture Interest A/c

Dr.

3,60,000

To Debenture Holders A/c

3,60,000

(Amount of Interest due)

Debenture Holders A/c

Dr.

3,60,000

To Bank A/c

3,60,000

(Interest paid)

9% Debentures A/c

Dr.

2,00,000

To Bank A/c

1,96,400

To Profit on Redemption of Debentures A/c

3,600

(Purchase of 2,000 9% Debentures @ 98 less Rs 400 for expenses)

Profit on Redemption of Debenture A/c

Dr.

3,600

To Capital Reserve A/c

3,600

(Transfer of profit on redemption of debentures to Capital Reserve Account)

Profit and Loss A/c

Dr.

3,82,000

To Debenture Interest A/c

3,42,000

To Discount on Issue of Debentures A/c

40,000

(Discount on Issue of debenture written off and Interest charged to Profit and Loss Account)

Working Notes:-

1) Interest on Debentures for 2005

Debenture outstanding = 38,00,000