Question

XYZ Ltd.issued 5,000 , 10% Debentures of ₹ 100 each on 1st April, 2015 at a discount of 10% redeemable at a premium of 10% after 4 years. Give journal entries for the year ended 31st March, 2016, assuming that the interest was payable half-yearly on 30th September and 31st March. Tax is to be deducted @ 10%.

Answer 1

Books of XYZ Ltd.
Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
2015
April 01	Bank A/c	Dr.		4,50,000
	To Debenture Application A/c				4,50,000
	(Debenture application money received)
April 01	Debenture Application A/c	Dr.		4,50,000
	Loss on Issue of Debentures A/c	Dr.		1,00,000
	To 10% Debentures A/c				5,00,000
	To Premium on Redemption A/c				50,000
	(5,000 Debentures of Rs 100 each issued at 10% discount with the term repayable at a premium of 10%)
2015
Sept. 30	Interest on Debentures A/c	Dr.		25,000
	To Debentureholders’ A/c				22,500
	To Income Tax Payable A/c				2,500
	(Interest due on 10% Debentures)
Sept. 30	Debentureholders’ A/c	Dr.		22,500
	To Bank A/c				22,500
	(Interest on debentures paid to debenture holders)
Sept. 30	Income Tax Payable A/c	Dr.		2,500
	To Bank A/c				2,500
	(Payment of tax on interest on debentures)
2016
March 31	Interest on Debentures A/c	Dr.		25,000
	To Debentureholders’ A/c				22,500
	To Income Tax Payable A/c				2,500
	(Interest due on 10% Debentures)
March 31	Debentureholders’ A/c	Dr.		22,500
	To Bank A/c				22,500
	(Debenture Interest paid to Debenture holders)
March 31	Income Tax Payable A/c	Dr.		2,500
	To Bank A/c				2,500
	(Payment of tax on interest on debentures)
March 31	Profit and Loss A/c	Dr.		50,000
	To Interest on Debentures A/c				50,000
	(Interest on debentures transferred to Profit and Loss Account)

Working Note:

Interest on Debentures (for half year) = $5,00,000\times \frac{10}{100}\times \frac{6}{12}=\mathrm{Rs}25,000$