On April 1, 2017, Jumbo Ltd., issued 10,000; 12% debentures of Rs. 100 each a discount of 20%, redeemable after 5 years. The company decided to write-off discount on issue of such debentures on March 31, 2018. Show the items in the balance sheet of the company immediately after the issue of these debentures.
Extract of Balance Sheet of Jumbo Ltd. as at April 1, 2017
| Particulars | Note No. | Amount (Rs.) |
|---|---|---|
| I. EQUITY AND LIABILITIES | ||
| Non-current Liabilities | ||
| Long-term borrowings | 1 | 10,00,000 |
| II. ASSETS | ||
| Current Assets | ||
| Other current assets | 2 | 2,00,000 |
Notes to Accounts:
Note 1: Long-term borrowings
| Particulars | Amount (Rs.) |
|---|---|
| 12% Debentures | 10,00,000 |
Note 2: Other current assets
| Particulars | Amount (Rs.) |
|---|---|
| Discount on issue of 12% Debentures | 2,00,000 |
Explanation
The question requires showing balance sheet items immediately after the issue of debentures. The total face value is Rs. 10,00,000 (10,000 × Rs. 100). Since debentures are issued at 20% discount, the total discount amounts to Rs. 2,00,000 (10,000 × Rs. 20). As per Schedule III of Companies Act, 2013, debentures redeemable after 5 years are shown under 'Long-term borrowings' at face value. The discount on issue of debentures is shown under 'Other current assets' as it will be written-off in the same year when debentures are issued.
Solution Steps
Step 1: Calculate Face Value of Debentures = 10,000 × Rs. 100 = Rs. 10,00,000
Step 2: Calculate Discount on Issue = 20% of Rs. 100 = Rs. 20 per debenture; Total Discount = 10,000 × Rs. 20 = Rs. 2,00,000
Step 3: Show 12% Debentures under 'Long-term borrowings' (Non-current Liabilities) at face value = Rs. 10,00,000
Step 4: Show Discount on issue of debentures under 'Other current assets' = Rs. 2,00,000