Question

Tetley Ltd. issued 10,000,9% Debentures of ₹ 100 each at a discount of 5% redeemable at the end of 5 years at a premium of 10%. Tetley Ltd. has a balance of ₹ 50,000 in Securities Premium Reserve . Loss on Issue of debentures is to be written off equally over the life of debentures.
Pass the journal entries for writing off the Loss on Issue of Debentures.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
Year 1	Security Premium Reserve A/c	Dr.		30,000
	To Loss on Issue of Debentures A/c				30,000
	(Loss on Issue of Debentures written off)
Year 2	Security Premium Reserve A/c	Dr.		20,000
	Statement of Profit & Loss A/c	Dr.		10,000
	To Loss on Issue of Debentures A/c				30,000
	(Loss on Issue of Debentures written off)
Year 3	Statement of Profit & Loss A/c	Dr.		30,000
	To Loss on Issue of Debentures A/c				30,000
	(Loss on Issue of Debentures written off)

Note: Last entry will be passed for next two remaining years.

$\begin{array}{l}\text{Loss on Issue of Debentures}=\mathrm{Discount}\mathrm{}\mathrm{on}\mathrm{}\mathrm{Issue}\mathrm{}\mathrm{of}\mathrm{}\mathrm{Debentures}\mathrm{}+\mathrm{}\mathrm{Premium}\mathrm{}\mathrm{on}\mathrm{}\mathrm{Redemption}\mathrm{}\mathrm{of}\mathrm{}\mathrm{Debentures}\\ =10,00,000\times 5\%+10,00,000\times 10\%=\text{Rs 1,50,000}\\ \text{Amount of Loss on Issue of Debentures to be written off every year}=\frac{1,50,000}{5}=\text{Rs 30,000 every year}\end{array}$