On 1.4.2019, Fast Computers Ltd. issued 20,00,000, 6% debentures of Rs. 100 each at a discount of 4%, redeemable at a premium of 5% after three years. The amount was payable as follows: On application Rs. 50 per debenture, Balance on allotment, Record the necessary journal entries for issue of debentures.
Working Notes:
1. Calculation of Amounts:
- Face Value: 20,00,000 debentures × Rs. 100 = Rs. 20,00,00,000
- Issue Price: Rs. 100 - 4% = Rs. 96 per debenture
- Total Discount on Issue: 20,00,000 × Rs. 4 = Rs. 80,00,000
- Premium on Redemption: 20,00,000 × Rs. 5 = Rs. 1,00,00,000
- Loss on Issue of Debentures: Rs. 80,00,000 + Rs. 1,00,00,000 = Rs. 1,80,00,000
- Application Money: 20,00,000 × Rs. 50 = Rs. 10,00,00,000
- Allotment Money: Rs. 96 - Rs. 50 = Rs. 46 per debenture
- Total Allotment Money: 20,00,000 × Rs. 46 = Rs. 9,20,00,000
Journal Entries in the books of Fast Computers Ltd.:
| Date | Particulars | L.F. | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|---|
| 1.4.2019 | Bank A/c Dr. | 10,00,00,000 | ||
| To Debenture Application A/c | 10,00,00,000 | |||
| (Being application money received on 20,00,000 debentures @ Rs. 50 each) |
| 1.4.2019 | Debenture Application A/c Dr. | | 10,00,00,000 | | | | To 6% Debentures A/c | | | 10,00,00,000 | | | (Being application money transferred to debentures account) | | | |
| 1.4.2019 | Debenture Allotment A/c Dr. | | 9,20,00,000 | | | | Discount on Issue of Debentures A/c Dr. | | 80,00,000 | | | | Loss on Issue of Debentures A/c Dr. | | 1,00,00,000 | | | | To 6% Debentures A/c | | | 10,00,00,000 | | | To Premium on Redemption of Debentures A/c | | | 1,00,00,000 | | | (Being allotment money due along with discount and premium on redemption) | | | |
| 1.4.2019 | Bank A/c Dr. | | 9,20,00,000 | | | | To Debenture Allotment A/c | | | 9,20,00,000 | | | (Being allotment money received) | | | |
Explanation
This question tests the student's understanding of issuing debentures at a discount and redeemable at a premium. The key points are: (1) When debentures are issued at discount, the discount is debited to 'Discount on Issue of Debentures A/c'. (2) When debentures are redeemable at premium, the premium is debited to 'Loss on Issue of Debentures A/c' and credited to 'Premium on Redemption of Debentures A/c' at the time of issue itself. The total loss on issue includes both the discount and the premium on redemption. The application money is received first, then transferred to debentures account, and finally allotment money is called and received.
Solution Steps
Step 1: Calculate face value (20,00,000 × Rs. 100 = Rs. 20,00,00,000)
Step 2: Calculate discount on issue (4% of face value = Rs. 80,00,000)
Step 3: Calculate premium on redemption (5% of face value = Rs. 1,00,00,000)
Step 4: Calculate loss on issue (Discount + Premium on redemption = Rs. 1,80,00,000)
Step 5: Calculate application money (Rs. ,00,000 = Rs. 10,00,00,000)
Step 6: Calculate allotment money (Issue price Rs. 96 - Application Rs. 50 = Rs. 46 per debenture)
Step 7: Pass journal entries for application money received, application money transferred, allotment money due, and allotment money received