Question 9 of 85advanced🔧 ApplyNumerical8 marks

Record necessary journal entries in each of the following cases: a. 27,000, 7% debentures of Rs. 100 each issued at par, redeemable at par. b. 25,000, 7% debentures of Rs. 100 each issued at par redeemable at 4% premium. c. 20,000, 7% debentures of Rs. 100 each issued at 5% discount and redeemable at par. d. 30,000, 7% debentures of Rs. 100 each issued at 5% discount and redeemable at 2½ % premium. e. 35,000, 7% debentures of Rs. 100 each issued at 4% premium and redeemable at premium of 5%.

(a)
Answer

Journal Entry Bank A/c Dr. 27,00,000 To 7% Debentures A/c 27,00,000 (Being 27,000 debentures issued at par and redeemable at par)

(b)
Answer

Journal Entry Bank A/c Dr. 25,00,000 Loss on Issue of Debentures A/c Dr. 1,00,000 To 7% Debentures A/c 25,00,000 To Premium on Redemption of Debentures A/c 1,00,000 (Being 25,000 debentures issued at par and redeemable at 4% premium)

(c)
Answer

Journal Entry Bank A/c Dr. 19,00,000 Discount on Issue of Debentures A/c Dr. 1,00,000 To 7% Debentures A/c 20,00,000 (Being 20,000 debentures issued at 5% discount and redeemable at par)

(d)
Answer

Journal Entry Bank A/c Dr. 28,50,000 Loss on Issue of Debentures A/c Dr. 2,25,000 To 7% Debentures A/c 30,00,000 To Premium on Redemption of Debentures A/c 75,000 (Being 30,000 debentures issued at 5% discount and redeemable at 2.5% premium)

(e)
Answer

Journal Entry Bank A/c Dr. 36,40,000 Loss on Issue of Debentures A/c Dr. 1,75,000 To 7% Debentures A/c 35,00,000 To Securities Premium Reserve A/c 1,40,000 To Premium on Redemption of Debentures A/c 1,75,000 (Being 35,000 debentures issued at 4% premium and redeemable at 5% premium)

Explanation

The solution follows the standard accounting treatment for issue of debentures as per NCERT guidelines.

  1. Issue at Par, Redeemable at Par (Case a): The face value is received, so Debentures Account is credited with the face value.
  2. Issue at Par, Redeemable at Premium (Case b): The premium on redemption is a future liability. It is accounted for at the time of issue by crediting 'Premium on Redemption of Debentures A/c' and debiting 'Loss on Issue of Debentures A/c'.
  3. Issue at Discount, Redeemable at Par (Case c): The discount is a loss (capital expenditure) for the company. It is debited to 'Discount on Issue of Debentures A/c'.
  4. Issue at Discount, Redeemable at Premium (Case d): Both the discount on issue and the premium on redemption are losses. They are combined and debited to 'Loss on Issue of Debentures A/c'.
  5. Issue at Premium, Redeemable at Premium (Case e): The premium on issue is a gain, credited to 'Securities Premium Reserve A/c'. The premium on redemption is a loss, debited to 'Loss on Issue of Debentures A/c'.
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