Question

On January 1, 2012, X Ltd issued 40,000, 9% debentures of Rs. 100 each at Rs. 95.
The terms of issue provided that, beginning with 2014 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 2012. The company also wrote off Rs. 40,000 every year from Discount on Debentures Account. At the end of 2014, debentures to be redeemed were repaid by drawing. During 2015, to company purchased for cancellation 2,000 debentures at the market price or Rs. 98 on December 31, the expense being Rs. 400. Interest on debentures is payable at the end of every calender year.
Pass the journal entries in the books of the company to record these transactions.

Answer 1

$\text{Journal Entries}\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ \text{2012}& & & & & \\ \text{Jan 1}& \text{Bank A/c}& \text{Dr}& & 38,00,000& \\ & \text{To 9\% Debenture Application and Allotment A/c}& & & & 38,00,000\\ & \text{(Debentures application and allotment}& & & & \\ & \text{money received)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Expense on Issue of Debenture A/c}& \text{Dr}& & 12,000& \\ & \text{To Bank A/c}& & & & 12,000\\ & \text{(Expenses paid on issue of debentures)}& & & & \\ & \underset{–}{}& & & & \\ & \text{9\% Debentures Application and Allotment A/c}& \text{Dr}& & 38,00,000& \\ & \text{Discount on Issue of Debenture A/c}& \text{Dr}& & 2,00,000& \\ & \text{To Debentures A/c}& & & & 40,00,000\\ & \text{(Debenture application money transferred}& & & & \\ & \text{to debenture account}& & & & \\ & \underset{–}{}& & & & \\ \text{Dec 31}& & & & & \\ & \text{Debenture Interest A/c}& \text{Dr}& & 3,60,000& \\ & \text{To Debenture Holders A/c}& & & & 3,60,000\\ & \text{(Amount of interest due)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debenture Holders A/c}& \text{Dr}& & 3,60,000& \\ & \text{To Bank A/c}& \text{Dr}& & & 3,60,000\\ & \text{(Interest paid)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Profit and Loss A/c}& \text{Dr}& & 4,12,000& \\ & \text{To Discount on Issue of Debenture A/c}& & & & 40,000\\ & \text{To Debenture Interest A/c}& & & & 3,60,000\\ & \text{To Expense on Issue of Debenture A/c}& & & & 12,000\\ & \text{(Discount and expense of issue of}& & & & \\ & \text{debentures written off)}& & & & \\ & \underset{–}{}& & & & \\ 2013& & & & & \\ \text{Dec 31}& & & & & \\ & \text{Debenture Interest A/c}& \text{Dr}& & 3,60,000& \\ & \text{To Debenture Holders A/c}& & & & 3,60,000\\ & \text{(Amount of interest due)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debenture Holders A/c}& \text{Dr}& & 3,60,000& \\ & \text{To Bank A/c}& \text{Dr}& & & 3,60,000\\ & \text{(Interest paid)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Profit and Loss A/c}& \text{Dr}& & 4,00,000& \\ & \text{To Debenture Interest A/c}& & & & 3,60,000\\ & \text{To Discount on Issue of Debenture A/c}& & & & 40,000\\ & \text{(Discount written off and interest charged}& & & & \\ & \text{to profit and loss account)}& & & & \\ & \underset{–}{}& & & & \\ 2014& & & & & \\ \text{Dec 31}& & & & & \\ & \text{Debenture Interest A/c}& \text{Dr}& & 3,60,000& \\ & \text{To Debenture Holders A/c}& & & & 3,60,000\\ & \text{(Amount of interest due)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debenture Holders A/c}& \text{Dr}& & 3,60,000& \\ & \text{To Bank A/c}& \text{Dr}& & & 3,60,000\\ & \text{(Interest paid)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Profit and Loss A/c}& \text{Dr}& & 4,00,000& \\ & \text{To Debenture Interest A/c}& & & & 3,60,000\\ & \text{To Discount on Issue of Debenture A/c}& & & & 40,000\\ & \text{(Discount written off and interest charged}& & & & \\ & \text{to profit and loss account)}& & & & \\ & \underset{–}{}& & & & \\ & \text{9\% Debenture A/c}& \text{Dr}& & 2,00,000& \\ & \text{To Bank A/c}& \text{Dr}& & & 2,00,000\\ & \text{(2,000, 9\% debentures were redeem)}& & & & \\ & \underset{–}{}& & & & \\ 2015& & & & & \\ \text{Dec 31}& & & & & \\ & \text{Debenture Interest A/c}& \text{Dr}& & 3,42,000& \\ & \text{To Debenture Holders A/c}& & & & 3,42,000\\ & \text{(Amount of interest due)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debenture Holders A/c}& \text{Dr}& & 3,42,000& \\ & \text{To Bank A/c}& \text{Dr}& & & 3,42,000\\ & \text{(Interest paid)}& & & & \\ & \underset{–}{}& & & & \\ & \text{9\% Debenture A/c}& \text{Dr}& & 2,00,000& \\ & \text{To Bank A/c}& \text{Dr}& & & 1,96,000\\ & \text{To Profit on Redemption of Debentures A/c}& \text{Dr}& & & 3,600\\ & \text{(Purchase of 2,000, 9\% debentures at 98}& & & & \\ & \text{less Rs. 400 for expenses}& & & & \\ & \underset{–}{}& & & & \\ & \text{Profit on Redemption of Debentures A/c}& \text{Dr}& & 3,600& \\ & \text{To Capital Reserve A/c}& & & & 3,600\\ & \text{(Transfer of profit on redemption of}& & & & \\ & \text{debentures to capital reserve account)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Profit and Loss A/c}& \text{Dr}& & 3,82,000& \\ & \text{To Debenture Interest A/c}& & & & 3,42,000\\ & \text{To Discount on Issue of Debentures A/c}& & & & 40,000\\ & \text{(Discount on issue of debenture written off}& & & & \\ & \text{and interest charged to profit and loss account)}& & & & \\ & & & & & \end{array}$