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Question

On May 01 Ltd issued 12%,10,000 convertible debentures of Rs100 each at a premium of 20%. Interest is payable on September 30 and March 31 every year. Assuming that the interest runs from the date of issue, the amount of interest expenditure debited to profit and loss account for the year ended March 31 is ________.

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Solution

The correct option is **A** Rs1,10,000

Amount of Interest expenditure debited to profit & loss account for the year ended

= interest expense payable on 30 september + interest expense payable on 31 march

= 50000 (W.N.2a) + 60000(W.N.2b)

= 110000

Working notes(W.N.) :

- Interest is calculated at coupon rate on nominal value periodically and as per given question: a. coupon rate= 12% b. nominal value of debenture= 10000 debenture * 100 = 1000000 c. period is half- yearly i.e. on every 30 september and 31 march
- Interest expense will be calculated as below: a. on 30 september

- period for calculating interest= 01 may to 30 september = 5 months ( as given in the question interest will be calculated from the date of issue )
- Interest= 1000000*12/100*5/12= 50000
- Entry for interest due is as below: Debenture Interest A/c dr. 50000 To debenture holders A/c 50000 b. on 31st march
- period for calculating interest = 01 october to 31st march = 6 months

- Interest = 1000000*12/100*6/12 = 60000
- Entry for Interest due is as below- Debenture Interest A/c dr. 60000 To debenture holders A/c 60000 3. Entry of interest expenditure debited to profit & loss account for the year ended march 31 is as below: Profit & loss account dr. 110000 To debenture interest A/c 110000 (50000+60000)

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