NCERT Solutions for Class 12 Commerce Accountancy Chapter 2 Issue And Redemption Of Debentures are provided here with simple step-by-step explanations. These solutions for Issue And Redemption Of Debentures are extremely popular among Class 12 Commerce students for Accountancy Issue And Redemption Of Debentures Solutions come handy for quickly completing your homework and preparing for exams. All questions and answers from the NCERT Book of Class 12 Commerce Accountancy Chapter 2 are provided here for you for free. You will also love the ad-free experience on Meritnation’s NCERT Solutions. All NCERT Solutions for class Class 12 Commerce Accountancy are prepared by experts and are 100% accurate.
Page No 138:
Question 1:
What is meant by a Debenture?
Answer:
The word Debenture is derived from a Latin word ‘debere’ which means to borrow. A debenture is issued in the form of a certificate under the seal of a company and containing a contract for the repayment of the principal sum after a fixed period of time and payment of interest at regular intervals, generally half yearly. Debentures are issued by a company for acquiring long-term borrowings.
Page No 138:
Question 2:
What does a Bearer Debenture mean?
Answer:
When a company does not maintain any record of the debenture holders and the debenture is transferable mere by delivery, then the type of the debenture held by the holders is termed as Bearer Debenture. Interests on such debentures are paid to the persons who produce the interest coupons that are attached with these debentures in a specified bank.
Page No 138:
Question 3:
State the meaning of ‘Debentures issued as a Collateral Security’.
Answer:
The term collateral security means additional or secondary security in addition to the primary security. Sometimes, when a company takes loan from a financial institution, then besides the primary security, the company may issue debenture for additional security (as collateral security). The lender who receives debenture as collateral security is not entitled for interest on these debentures. If any default is made by the company in paying back the principal amount (i.e. the loan amount) or interest on the loan, then the lender has the full right to recover his/her dues from the sale of primary security. But, if the primary security is not sufficient to recover the amount of the debt, then the debentures issued as collateral may be used for recovery of the remaining amount.
Page No 138:
Question 4:
What is meant by ‘Issue of debentures for Consideration other than Cash’?
Answer:
If a company purchases assets from its suppliers or vendors, then instead of paying them in cash the company issues debentures to them. This is known as issue of debenture for consideration other than cash. The issue of debenture for consideration other than cash serves the purpose of both the vendor as well as of the purchaser (company). From the purchaser’s point of view, purchasing an asset against the issue of debentures requires no additional cost for raising loans or arranging funds immediately. On the other hand, the vendor gets interest on the amount of debentures received. In this case, payment is deferred by issue of debentures and interest is paid for time lag payment. Debentures may be issued at par, premium or discount to the vendor.
Accounting treatment for Issue of Debentures for Consideration other than Cash
1. For purchase of Assets:
Assets A/c |
Dr. |
|
|
To Vendor A/c |
|
(Asset Purchased) |
|
|
2. For Issue of Debentures
a. If debentures are issued at Par:
Vendor A/c |
Dr. |
|
|
To Debentures A/c |
|
(Debenture issued to Vendor at par ) |
|
|
b. If debentures are issued at Premium
Vendor A/c |
Dr. |
|
|
To Debentures A/c To Securities Premium A/c |
|
(Debenture issued to Vendor at premium) |
|
|
c) If debentures are issued at Discount
Vendor A/c |
Dr. |
|
Discount on Issue of Debentures |
Dr. |
|
|
To Debentures A/c |
|
(Debenture issued to Vendor at discount ) |
|
|
Page No 138:
Question 5:
What is meant by ‘Issue of debenture at discount and redeemable at premium?
Answer:
When debentures are issued below its par value (or the face value) but are redeemed at price higher than its par value, then it is termed as issue of debenture at discount and redeemable at premium. The difference between the issue price and the redemption price is treated as loss on issue of debenture.
Example:
A 10% debenture of Rs 1,000 is issued at 5% discount and is redeemed at 10% premium.
Bank A/c |
Dr. |
950 |
|
|
Discount on Issue of Debenture A/c |
Dr. |
50 |
|
|
Loss on Issue of Debenture A/c |
Dr. |
100 |
|
|
|
To Debenture A/c |
|
|
1,000 |
|
To Debenture Redemption Premium A/c |
|
|
100 |
(Debenture issued) |
|
|
|
Total loss = Payment made at redemption – Amount received on issue of debenture
1,100 – 950 = Rs 150
Page No 138:
Question 6:
What is ‘Capital Reserve’?
Answer:
Capital Reserve is a reserve that is created out of capital profits i.e. gains or profits arising from other than the normal activities of business operations i.e. activities other than sale or purchase of goods and services. This reserve is utilised to meet future capital losses, if any, and to issue bonus shares. It cannot be distributed as dividend among the share holders. The Capital Reserve is generated out of the following activities:
i. Premium on issue of shares.
ii. Premium on issue of debentures.
iii. Profit on redemption of debentures.
iv. Profit on sale of fixed assets.
v. Profit on reissue of forfeited shares.
vi. Profit prior to incorporation, etc.
Page No 138:
Question 7:
What is meant by an ‘Irredeemable Debenture’?
Answer:
Irredeemable Debentures are those debentures that are not repayable or redeemable by a company during its life time. These are repayable only at the time of winding up of the company. These are also known as Perpetual Debentures that means debentures having indefinite life. In India, now days, no company can issue irredeemable debentures.
Page No 139:
Question 8:
What is a ‘Convertible Debenture’?
Answer:
Convertible Debentures are those debentures that can be converted into equity shares after a specified period of time. These are of following two types:
i. Fully Convertible Debentures: When the whole amount of a debenture is convertible into equity shares worth of equivalent amount, then these debentures are called Fully Convertible Debentures. There is no need to maintain Debenture Redemption Reserves for such debentures.
ii. Partly Convertible Debentures: When only a part of the amount of a debenture is convertible into equity share, then these debentures are called Partly Convertible Debentures. In this regards, the Debenture Redemption Reserve is maintained only for the non-convertible part of the debenture.
Page No 139:
Question 9:
What is meant by ‘Mortgaged Debentures’?
Answer:
Mortgaged Debentures are those debentures that are secured against asset/s of a company. These are also known as secured debentures. If the debentures are secured against a particular asset, then it is called fixed charge whereas, if the debentures are secured against all the assets of a company, then it is called floating charge. In case the company fails to pay back the principal amount of debenture or fails to meet its interest obligations on the due date, then the debenture holders have the right to sell the mortgage asset in order to realise their amount due to the company.
Page No 139:
Question 10:
What is discount on issue of debentures?
Answer:
When the debentures are issued at a price below its par value or face value, then it is said that the debentures are issued at discount. The difference between the issue price and the face value of the debenture is regarded as a capital loss.
As per the Revised Schedule VI of the Companies Act, Discount on Issue of Debentures is shown in the Notes to Accounts:
1. With the amount that is to be written off within 12 months from the date of Balance Sheet - Shown under Other Current Assets
2. With the amount that is to be written off after 12 months from the date of Balance Sheet - Shown under Other Non-Current Assets
Page No 139:
Question 11:
What is meant by ‘Premium on Redemption of Debentures’?
Answer:
When the debentures are redeemed at a price more than its face value or the par value, then it is said that the debentures are redeemed at premium. The difference between the redeemed price and the par value is regarded as a capital loss and this loss is written off till the redemption of the debentures. The Premium on Redemption of Debenture is shown in the Notes to Accounts under the sub-head of 'Other Long-term Liabilities'. The final balance is shown under the main head of 'Non-Current Liabilities' on the Equity and Liabilities side of the Company's Balance Sheet.
Accounting Treatment for Premium on Redemption on Debentures:
1. At the time of the Issue of Debenture:
Bank/Debenture Allotment A/c |
Dr. |
|
Loss on Issue of Debenture A/c |
Dr. |
|
|
To Debenture A/c |
|
|
To Premium on Redemption |
|
(Debenture issued with the term of redemption at premium) |
|
2. At the time of Redemption of Debentures:
Debenture A/c |
Dr. |
|
Premium on Redemption A/c |
Dr. |
|
|
To Debentureholder A/c |
|
(Amount of debentures due to debentureholders) |
|
|
Page No 139:
Question 12:
How are debentures different from shares? Give two points.
Answer:
Basis of Comparisons |
Debentures |
Shares |
1. Meaning |
Debentures are a part of loan, therefore, the debenture holders are the creditors of a company. |
Shares form a part of capital, hence, share holders are the owner of a company. |
2. Voting Rights |
These do not carry any voting rights for their holders. |
These carry voting rights for their holders. |
Page No 139:
Question 13:
What is meant by redemption of debentures?
Answer:
Redemption of debenture means repayment of debentures by the company to the debenture holders. In other words, it implies the discharge of liabilities by repaying the amount due to the debenture holders as per the terms and conditions determined at the time of issue of debentures. Debentures may be redeemable at par, premium or discount, but, nowa days, these are mostly redeemable at par or premium. The redemption can be done out of profits or from the fresh issue of debentures or shares. Redemption of debentures may be done by the following methods:
1. In lump sum at the time of maturity,
2. In instalments by draw of lots at the end of each year,
3. By purchase in open market whenever price is below its face value,
4. By converting debentures into shares or new debentures.
Page No 139:
Question 14:
Can the company purchase its own debentures?
Answer:
Yes, a company can purchase its own debentures provided it is authorised by its Article of Association. As per the Company Act, if a company is authorised by its Article of Association, only then it may purchase its own debentures from the open market. The main purposes of such purchase are as follows:
1. For immediate cancellation of debenture liability, if the interest rate on its debenture is higher than the market rate of interest.
2. A company may also purchase its own debentures with the motive of investment and sell them at higher price in future and thereby earn profit.
Page No 139:
Question 15:
What is meant by redemption of debentures by conversion?
Answer:
When a debenture holder can convert his/her debentures into shares or new debentures after the expiry of a specified period of time, then it is known as redemption of debentures by conversion. As the company do not need to pay any funds for the redemption, so there is no need to maintain the Debenture Redemption Reserve (DRR). The new shares or debentures may be issued at par, premium or at discount.
Page No 139:
Question 16:
How would you deal with ‘Premium on Redemption of Debentures’?
Answer:
When the debentures are redeemed at a price more than its face value or the par value, then it is said that the debentures are redeemed at premium. The difference between the redeemed price and the par value is regarded as a capital loss and this loss is written off till the redemption of the debentures. The Premium on Redemption of Debenture is shown in the Notes to Accounts under the sub-head of 'Other Long-term Liabilities'. The final balance is shown under the main head of 'Non-Current Liabilities' on the Equity and Liabilities side of the Company's Balance Sheet.
Accounting Treatment for Premium on Redemption on Debentures:
1. At the time of the Issue of Debenture:
Bank/Debenture Allotment A/c |
Dr. |
|
Loss on issue of Debenture A/c |
Dr. |
|
|
To Debenture A/c |
|
|
To Premium on Redemption |
|
(Debenture issued with the term of redemption at premium) |
|
2. At the time of Redemption of Debentures:
Debenture A/c |
Dr. |
|
Premium on Redemption A/c |
Dr. |
|
|
To Debenture Holder A/c |
|
(Amount of debentures due to debenture holders) |
|
|
Page No 139:
Question 17:
What is meant by redemption of debentures by ‘Purchase in the Open Market’?
Answer:
According to the Company Act, if a company is authorised by its Article of Association, only then it may purchase its own debentures from the open market. The main purpose of such purchase is as follows:
1. For immediate cancellation of debenture liability, if the interest rate on its debenture is higher than the market rate of interest.
2. A company may also purchase its own debentures with the motive of investment and sell them at higher price in future and thereby earn profit.
Page No 139:
Question 1:
Explain the different types of debentures?
Answer:
Debentures are issued by a company for acquiring long-term borrowings.
They can be classified on the following basis.
1. On the basis of Security
a. Secured Debentures- Mortgaged Debentures are those debentures that are secured against asset/s of a company. These are also known as secured debentures. In case the company fails to pay back the principal amount of debenture or fails to meet its interest obligations on the due date, then the debenture holders have the right to sell the mortgaged asset in order to realise their amount due to the company.
b. Unsecured Debentures- These debentures are treated as unsecured creditors. They do not have any security. These are uncommon now days.
2. On the basis of Tenure
a. Redeemable Debenture- These debentures are payable after the expiry of a specific period. These debentures can be redeemed at par or premium either in lump sum or in installment. Generally all debentures are redeemable.
b. Irredeemable Debenture- Irredeemable Debentures are those debentures that cannot be repayable or redeemable by a company during its life time. These are repayable only at the time of winding up of the company. These are also known as Perpetual Debentures that means debentures having indefinite life. In India, now days, no company can issue irredeemable debentures.
3. On the basis of Mode of Redemption
a. Convertible Debentures- Convertible Debentures are those debentures that can be converted into equity shares after a specified period of time. These are of following two types:
i. Fully Convertible Debentures: When the whole amount of a debenture is convertible into equity shares of equivalent amount, then these debentures are called Fully Convertible Debentures. There is no need to maintain Debenture Redemption Reserves for such debentures.
ii. Partly Convertible Debentures: When only a part of the amount of a debenture is convertible into equity shares, then these debentures are called Partly Convertible Debentures. In this regards, the Debenture Redemption Reserve is maintained only for the non-convertible part of the debenture.
b. Non-Convertible Debenture- These debentures cannot be converted into shares. Generally debentures are non convertible.
4. On the basis of Coupon Rate
a. Zero Coupon Rate- These debentures do not contain a specific rate of interest and can be issued at discount. The excess of the face value of the debenture over its issue price is considered as interest amount.
b. Specific Rate- These debentures carry a specific rate of interest which may be fixed or floating.
5. On the basis of Registration
a. Registered Debenture- While issuing such debentures, the company maintains a record regarding name, address and number of holding of debentures in the Register of Debenture Holders of the company.
b. Bearer Debentures- When a company does not maintain any record of the debenture holders and the debenture is transferable mere by delivery, then the type of the debenture held by the holders is termed as Bearer Debenture. Interests on such debentures are paid to the persons who produce the interest coupons that are attached with these debentures in a specified bank.
Page No 139:
Question 2:
Distinguish between a debenture and a share. Why is debenture known as loan capital? Explain.
Answer:
Basis of Difference |
Shares |
Debenture |
1. Owner or Creditor |
Share holders are the owners since shares forms a are part of owned capital |
Debenture holder are Creditors since debentures are a part of loan |
2. Voting Rights |
Share holders have the voting rights |
Debenture holders do not have any voting rights. |
3. Returns |
Share holders are entitled for returns in the form of dividend. |
Debenture holders are entitled for returns in the form of interest. |
4. Rate of Return |
The rate of dividend is not fixed and varies from year to year. |
The rate of interest is fixed and do not vary from year to year. |
5. Obligations of Return |
Dividend is appropriation of profit. Dividend will not be paid if losses are incurred by the company |
Interest is charged against profit, interest is payable even if there is no profit.
|
6. Repayment of Amount |
The amount of share is not returned during the life time of the company |
The amount of debenture is returned according to the term of issue. |
7. Issue |
The issue of shares at discount need adherence to the restrictions imposed by the Section 79 of the Company Act. |
There are no such restrictions for issuing debentures on discount. |
8. Conversion |
Shares cannot be converted into debentures. |
Debentures can be converted into shares. |
9. Risk |
Shares are more risky than debenture as these are unsecured. |
If debentures are secured against asset, the risk involved is the minimal. |
10. Repayment Priority |
Payment to the share holders is made after settlement of all external liabilities, i.e. after debenture holders. |
Payment to the debenture holders is made before the share holders. |
Issue of debentures implies incurring long-term indebtedness. Generally, a company issues debentures for acquiring long-term borrowings to achieve its long-run targets and growth. Like the owner’s capital, interest is also payable on the principal amount of the debenture. The interest paid is regarded as an expense for the company and is deductible under Income Tax Act. Therefore, debentures are also known as loan capital because they are redeemable after a long period of time.
Page No 139:
Question 3:
Describe the meaning of ‘Debenture Issued as Collateral Securities’. What accounting treatment is given to the issue of debentures in the books of accounts?
Answer:
The term collateral security means additional or secondary security in addition to the primary security. Sometimes, when a company takes loan from a financial institution, then besides the primary security, the company may issue debenture for additional security (as collateral security). The lender who receives debenture as collateral security is not entitled for interest on these debentures. If any default is made by the company in paying back the principal amount (i.e. the loan amount) or interest on the loan, then the lender has the full right to recover his/her dues from the sale of primary security. But, if the primary security is not sufficient to recover the amount of debt, then the debentures issued as collateral may be used for recovery of the remaining amount.
Accounting Treatment
There are two ways to record issue of debentures as collateral security:
1. No Entry
As no liability has been created so no Journal entry is recorded in the books of account. As per the Revised Schedule-VI of the Companies Act, the issue of debenture as collateral security is shown as a Long-Term Borrowings under the heading of Non-Current Liabilities on the Equity and Liabilities side of the Balance Sheet. In the Notes to Accounts of Long-Term Borrowings, the Loan so taken is shown. And in the Notes to Accounts of Cash and Cash Equivalents, the amount of loan so received (in cash) is shown. This can be better understood with the help of the below explained example.
Example- Suppose Best Bus Ltd. issued 4,000 9% Debentures of Rs 100 each as collateral security to NBP bank for a loan of Rs 3,00,000.
Best Bus Ltd. |
||
Balance Sheet |
||
Particulars |
Note No. |
Amount (Rs) |
I. Equity and Liabilities |
|
|
1. Shareholders’ Funds |
|
|
2. Non-Current Liabilities |
|
|
a. Long-Term Borrowings |
1 |
3,00,000 |
3. Current Liabilities |
|
|
Total |
|
3,00,000 |
|
|
|
II. Assets |
|
|
1. Non-Current Assets |
|
|
2. Current Assets |
|
|
a. Cash and Cash Equivalents |
2 |
3,00,000 |
Total |
|
3,00,000 |
|
|
|
NOTES TO ACCOUNTS
Note No. |
Particulars |
Amount (Rs) |
|
|
|
1 |
Long-Term Borrowings |
|
|
Loan (Secured by issue of 9% Debentures of Rs 4,00,000 as Collateral Security) |
3,00,000 |
|
|
|
2 |
Cash and Cash Equivalents |
|
|
Cash at Bank |
3,00,000 |
|
|
|
2. By Making Entry
In order to record the issue of debentures as collateral security, the following necessary Journal entries are made in the books of account.
At the time of Issue of Debentures as Collateral Security
Debenture Suspense A/c |
Dr. |
|
|
To Debenture A/c |
|
(Debentures issued as collateral security) |
|
|
In this case, as per the Revised Schedule VI of the Companies Act, Debentures so issued as collateral security will be shown as Long-Term Borrowings under the head of Non-Current Liabilities of the Equity and Liabilities side of the Company's Balance Sheet. Unlike Method-1, in this method, Debentures Suspense Account is deducted from the Debentures Account in the Notes to Accounts of Long-Term Borrowings.
Best Bus Ltd. |
||
Balance Sheet |
||
Particulars |
Note No. |
Amount (Rs) |
I. Equity and Liabilities |
|
|
1. Shareholders’ Funds |
|
|
2. Non-Current Liabilities |
|
|
a. Long-Term Borrowings |
1 |
3,00,000 |
3. Current Liabilities |
|
|
Total |
|
3,00,000 |
|
|
|
II. Assets |
|
|
1. Non-Current Assets |
|
|
2. Current Assets |
|
|
a. Cash and Cash Equivalents |
2 |
3,00,000 |
Total |
|
3,00,000 |
|
|
|
NOTES TO ACCOUNTS
Note No. |
Particulars |
Amount (Rs) |
|
|
|
|
|
1 |
Long-Term Borrowings |
|
|
|
Secured: |
|
|
|
Loan (Secured by issue of 9% Debentures of Rs 4,00,000 as Collateral Security) |
3,00,000 |
|
|
9% Debentures (Issued as Collateral Security to Bank against loan) |
4,00,000 |
|
|
Less: Debenture Suspense Account |
(4,00,000) |
- |
|
|
3,00,000 |
|
|
|
|
|
2 |
Cash and Cash Equivalents |
|
|
|
Cash at Bank |
3,00,000 |
|
|
|
|
Page No 139:
Question 4:
Explain the different terms for the issue of debentures with reference to their redemption.
Answer:
The different terms for the issue of debentures with reference to their redemption can be the combinations of at par, at premium and at discount. Normally, the debentures are not redeemable at discount. The permutation and the combination of the various terms of issue and redemption of debentures give rise to following six situations:
1. Issue at Par, Redeemable at Par.
2. Issue at Premium, Redeemable at Par.
3. Issue at Discount, Redeemable at Par.
4. Issue at Par, Redeemable at Premium.
5. Issue at Premium, Redeemable at Premium.
6. Issue at Discount Redeemable at Premium.
1. Issue at Par and Redeemable at Par- When the debentures are issued and are redeemed at their face value, then the following Journal entry is passed.
Bank A/c |
Dr. (with the amount received) |
|
|
To Debenture Application A/c |
(with the face value) |
(Debenture Application money received) |
|
|
Debenture Application A/c |
Dr. |
|
|
To Debenture A/c |
|
(Application money transferred to Debenture Account) |
|
|
2. Issue at Premium and Redeemable at Par- When the debentures are issued at premium and are redeemable at par, then the following Journal entry is passed. As premium is a gain for a company so it is credited in the Journal entry.
Bank A/c |
Dr. |
|
|
To Debenture Application A/c |
|
(Debenture Application money received) |
|
|
Debenture Application A/c |
Dr. |
|
|
To Debenture A/c |
|
|
To Securities Premium A/c |
|
(Debentures issued at premium and redeemable at par) |
|
3. Issue at Discount and Redeemable at Par- When the debentures are issued at discount and are redeemable at par, then the following Journal entry is passed. As discount is a loss for a company so it is debited in the Journal entry.
Bank A/c |
Dr. |
|
|
To Debenture Application A/c |
|
(Debenture Application money received) |
|
|
Debenture Application A/c |
Dr. |
|
Discount on Issue of Debenture A/c |
Dr. |
|
|
To Debenture A/c |
|
(Debentures issued at discount and redeemable at par) |
|
|
4. Issue at Par and Redeemable at Premium- When debentures are issued at par and redeemable at premium, then the following Journal entry is passed. In such case, the company did not suffer any loss at the time of issue but there will be loss at the time of redemption.
Bank A/c |
Dr. |
|
|
To Debenture Application A/c |
|
(Debenture Application money received) |
|
|
Debenture Application A/c |
Dr. |
|
Loss on Issue of Debenture A/c |
Dr. (with the amount of premium on redemption) |
|
|
To Debenture A/c |
(with the face value of the debentures) |
|
To Premium on Redemption of Debenture A/c |
(with the amount of premium on redemption) |
(Debentures issued at par and redeemable at premium) |
|
5. Issued at Premium and Redemption at Premium- When the debentures are issued and redeemable at premium, then the following Journal entry is passed.
Bank A/c |
Dr. |
|
|
To Debenture Application A/c |
|
(Debenture Application money received) |
|
|
Debenture Application A/c |
Dr. |
|
Loss on Issue of Debenture A/c |
Dr. (with the amount of premium on redemption) |
|
|
To Debenture A/c |
(with the face value of the debentures) |
|
To Securities Premium A/c |
(with the amount of premium on issue) |
|
To Premium on Redemption of Debenture A/c |
(with the amount of premium on redemption) |
(Debentures issued at premium and redeemable at premium) |
|
6. Issue of Discount and Redemption at Premium- When the debentures are issued at discount and redeemable at premium, then the following Journal entry is passed.
Bank A/c |
Dr. |
|
|
To Debenture Application A/c |
|
(Debenture Application money received) |
|
|
Debenture Application A/c |
Dr. |
|
Loss on Issue of Debenture A/c |
Dr. (with the amount of discount on issue plus amount of premium on redemption) |
|
|
To Debenture A/c |
(with the face value of the debentures) |
|
To Premium on Redemption of Debenture A/c |
(with the amount of premium on redemption) |
(Debentures issued at discount and redeemable at premium) |
|
Page No 139:
Question 5:
Differentiate between redemption of debentures out of capital and out of profits.
Answer:
Redemption of Debentures Out of Capital
When debentures are redeemed out of capital and no profits are utilised for redemption, then such redemption is termed as redemption out of capital. In such a situation, no profits are transferred to the Debenture Redemption Reserve (DRR).
As per the guideline laid down by Securities and Exchange Board of India (SEBI) and the Section 117C of Company Act of 1956, the creation of DRR is mandatory (DRR). Therefore, it is not possible to redeem debentures purely out of capital, as it reduces the value of assets. The following companies are exempted from the creation of DRR.
1. Infrastructure companies (i.e. those companies that are engaged in the business of developing, maintaining and operating infrastructure facilities)
2. A Company that issues debentures with a maturity up to 18 months
Redemption of Debenture Out of Profits
When debentures are redeemed out of profit then no capital is utilised for redemption. Before redeeming the debentures profits are transferred to DRR from Profit and Loss Appropriation Account. The creation of DRR is mandatory as per the guidelines laid down by Securities and Exchange Board of India (SEBI). SEBI mandates transferring amount equal to 50% of debentures issued to DRR before redeeming debentures. In this method, as profits are transferred to the DRR Account, thereby reducing the total amount of profits, therefore this method is termed as Redemption of Debentures Out of Profits. In this method, first of all, the required profits are transferred from Statement of Profit and Loss to the DRR Account. The working of which is shown in the Notes to Accounts of Reserves and Surplus (as prescribed in Revised Schedule VI). The final balance (after considering DRR) is shown as the sub-head 'Reserves and Surplus' under the main head of Shareholders' Funds on the Equity and Liabilities side of the Company's Balance Sheet. Lastly, when all the debentures are redeemed, then DRR account is closed by transferring its amount to the General Reserve.
Page No 139:
Question 6:
Explain the guidelines of SEBI for creating Debenture Redemption Reserve.
Answer:
The following are the main points of SEBI’s guidelines for creation of Debenture Redemption Reserve (DRR).
1. Every company that issues debentures with a maturity of more than 18 months shall create DRR.
2. An amount equal to 50% of debenture issued shall be transferred to DRR before starting redemption of debentures.
3. Creation of DRR is applicable only for Non-Convertible Debentures and for non-convertible part of Partly Convertible Debentures.
4. Any withdrawal from DRR is allowed only after 10% of debentures are redeemed.
Thus, as per the SEBI’s guidelines, 50% of the debentures issued should be redeemed out of the profits that are transferred to DRR and the remaining 50% of the debentures issued can be redeemed either out of profits or out of capital. Hence, no company can redeem all the debentures issued purely out of the capital.
As per the SEBI’s guidelines the following companies are exempted from the creation of DRR.
1. Infrastructure companies (i.e. those companies that are engaged in the business of developing, maintaining and operating infrastructure facilities)
2. A Company that issues debentures with a maturity up to 18 months
Page No 139:
Question 7:
Describe the steps for creating Sinking Fund for redemption of debentures.
Answer:
The various steps involved in the creation of Sinking Fund for redemption of debentures can be better understood by the help of the example explained below.
A Company issued 10% Debentures of Rs 5,00,000 for 3 years. The investment is expected to earn 6% p.a. The Sinking Fund table shows that 0.31411 invested annually at 6% amount to Rs 1 in 3 years.
Step 1: Calculate the amount of instalment to be required every year for investment with the help of the Sinking Fund table. Like in the example Rs 1,57,055 (i.e. 0.31411 × 5,00,000) is required every year.
Step 2: The amount of instalment calculated in the above step is transferred to the Debenture Redemption Fund (Sinking Fund) by debiting from Profit and Loss Appropriation Account.
Step 3: In the first year, the above instalment is invested to yield amount required for redemption of debenture by debiting Debenture Redemption Fund Investment Account.
Step 4: The interest on investment is received on half yearly or annual basis. In the example, the interest of Rs 9,423 is received on annual basis.
Step 5: The total amount of investment, i.e. interest plus instalment is invested in the subsequent year. In the example, Rs 1,66,478 (i.e. Rs 1,57,055 + Rs 9,423) is invested in the next year.
Step 6: Repeat the Step 2, 3, 4 for each subsequent years up to the end of the life of the debenture. In the year of redemption, the instalment (i.e. the last instalment) will be debited to the Profit and Loss Appropriation Account but will not be invested.
Step 7: In the year of redemption, the investment is sold off.
Step 8: The profit (loss) on the sale of the investment is transferred by debiting (crediting) Debenture Redemption Fund Investment Account to the Debenture Redemption Fund Account.
Step 9: The payment to the debenture holder is made.
Step 10: The balance of Debenture Redemption Fund Account if any, is transferred to the General Reserve.
Page No 139:
Question 8:
Can a company purchase its own debentures in the open market? Explain.
Answer:
Yes, a company can purchase its own debentures provided it is authorised by its Article of Association. As per the Company Act, if a company is authorised by its Article of Association, only then it may purchase its own debentures from the open market. The main purposes of such purchase are as follows:
1. For immediate cancellation of debenture liability, if the interest rate on its debenture is higher than the market rate of interest.
2. A company may also purchase its own debentures with the motive of investment and sell them at higher price in future and thereby earn profit.
A company may purchase its own debentures at discount or at premium for cancellation.
1. If Debentures are purchased at Discount for Cancellation
When the company purchases its own debentures at discount for cancellation, then the following Journal entries are recorded.
Own Debentures A/c |
Dr. |
|
|
To Bank A/c |
|
(Own debentures purchased) |
|
|
Debentures A/c |
Dr. (with the face value) |
|
|
To Own Debentures A/c |
(with the amount paid) |
|
To Profit on Cancellation of Own Debentures A/c |
(with the difference between the face value and amount paid) |
(Own debentures cancelled) |
|
Profit on Cancellation of Own Debentures A/c |
Dr. |
|
|
To Capital Reserve A/c |
|
(Profit on Cancellation of Own Debentures transferred to Capital Reserve) |
|
|
2. If Debentures are Purchased at Premium for Cancellation
Own Debentures A/c |
Dr. |
|
|
To Bank A/c |
|
(Own debentures purchased) |
|
|
Debentures A/c |
Dr. (with the face value) |
|
Loss on Redemption of Debentures A/c |
(with the difference between Amount paid and face value) |
|
|
To Own Debentures A/c |
|
(Own Debentures cancelled) |
|
|
Page No 139:
Question 9:
What is meant by conversion of debentures? Describe the method of such a conversion.
Answer:
When a debenture holder can convert his/her debentures into shares or new debentures after the expiry of a specified period of time, then it is known as redemption of debentures by conversion. As the company does not need to pay any funds for the redemption, so there is no need to maintain Debenture Redemption Reserve (DRR). The new shares or debentures may be issued at par, premium or at discount.
If a debenture holder exercises the conversion option, then the issue price of shares must be equal to or less than the amount actually received from debentures.
Accounting Treatment
1. For amount due to debenture holders
Debenture A/c |
Dr. |
|
|
To Debenture holders A/c |
|
(Debentures redeemed) |
|
|
2. For discharging liability to the debenture holders
Debenture holders A/c |
Dr. |
|
|
To Shares/Debentures (New) A/c |
|
(Debenture holder amount discharged) |
|
|
Page No 139:
Question 1:
G.Ltd. issued 75,00,000, 6% Debenture of Rs 50 each at par payable Rs 15 on application and Rs 35 on allotment, redeemable at par after 7 years from the date of issue of debenture. Record necessary entries in the books of Company.
Answer:
Book of G. Ltd.
Journal
|
|||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|||
|
Bank A/c |
Dr. |
|
11,25,00,000 |
|
||
|
|
To 6% Debenture Application A/c |
|
|
11,25,00,000 |
||
|
(Application money @ Rs 15 each received for 75,00,000 debentures) |
|
|
|
|||
|
|
|
|
|
|||
|
6% Debenture Application A/c |
Dr. |
|
11,25,00,000 |
|
||
|
|
To 6% Debenture A/c |
|
|
11,25,00,000 |
||
|
(Application money of 75,00,000 debentures transferred to 6% Debentures Account) |
|
|
|
|||
|
|
|
|
|
|||
|
6% Debenture Allotment A/c |
Dr. |
|
26,25,00,000 |
|
||
|
|
To 6% Debenture A/c |
|
|
26,25,00,000 |
||
|
(Allotment money @ Rs 35 each due for 75,00,000 debentures ) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Bank A/c |
Dr. |
|
26,25,00,000 |
|
||
|
|
To 6% Debenture Allotment A/c |
|
|
26,25,00,000 |
||
|
(Allotment money received @ Rs 35 each on 75,00,000 debentures) |
|
|
|
|||
|
|
|
|
|
|||
Page No 139:
Question 2:
Y.Ltd. issued 2,000, 6% Debentures of Rs 100 each payable as follows: Rs 25 on application; Rs 50 on allotment and Rs 25 on First and Final call.
Answer:
Books of Y Ltd.
Journal
|
||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
||
|
Bank A/c |
Dr. |
|
50,000 |
|
|
|
|
To 6% Debentures Application A/c |
|
|
50,000 |
|
|
(Application money @ Rs 25 each received for 2,000 6% Debentures) |
|
|
|
||
|
|
|
|
|
||
|
6% Debenture Application A/c |
Dr. |
|
50,000 |
|
|
|
|
To 6% Debenture A/c |
|
|
50,000 |
|
|
(Application money on 2,000 debentures transferred to 6% Debentures Account) |
|
|
|
||
|
|
|
|
|
||
|
6% Debenture Allotment A/c |
Dr. |
|
1,00,000 |
|
|
|
|
To 6% Debenture A/c |
|
|
1,00,000 |
|
|
(Debenture Allotment money @ Rs 50 each due on 2,000 6% Debentures) |
|
|
|
||
|
|
|
|
|
||
|
Bank A/c |
Dr. |
|
1,00,000 |
|
|
|
|
To 6% Debenture Allotment A/c |
|
|
1,00,000 |
|
|
(Allotment money for 2,000 6% Debentures received) |
|
|
|
||
|
|
|
|
|
||
|
6% Debenture First and Final Call A/c |
Dr. |
|
50,000 |
|
|
|
|
To 6% Debenture A/c |
|
|
50,000 |
|
|
(Debenture First and Final Call @ 25 each due on 2,000 6% Debentures) |
|
|
|
||
|
|
|
|
|
||
|
Bank A/c |
Dr. |
|
50,000 |
|
|
|
|
To 6% Debenture First and Final Call A/c |
|
|
50,000 |
|
|
(First and Final Call for 2,000 6% Debentures received) |
|
|
|
||
|
|
|
|
|
||
Page No 139:
Question 3:
A.Ltd. issued 10,000, 10% Debentures of Rs 100 each at a premium of 5% payable as follows:
Rs 10 on Application;
Rs 20 along with premium on allotment and balance on First and Final call. Record necessary Journal Entries.
Answer:
Books of A. Ltd.
Journal
|
||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
||
|
Bank A/c |
Dr. |
|
1,00,000 |
|
|
|
|
To 10% Debentures Application A/c |
|
|
1,00,000 |
|
|
(Application money received for 10,000, 10% Debenture Application @ Rs 10 each) |
|
|
|
||
|
|
|
|
|
||
|
10% Debentures Application A/c |
Dr. |
|
1,00,000 |
|
|
|
|
To 10% Debenture A/c |
|
|
1,00,000 |
|
|
(Application money @ Rs 10 each transferred to 10% Debenture Account) |
|
|
|
||
|
|
|
|
|
||
|
10% Debenture Allotment A/c |
Dr. |
|
2,50,000 |
|
|
|
|
To 10% Debentures A/c |
|
|
2,00,000 |
|
|
|
To Securities Premium A/c |
|
|
50,000 |
|
|
(Allotment due @ Rs 25 each including premium Rs 5 on 10,000, 10% Debentures) |
|
|
|
||
|
|
|
|
|
||
|
Bank A/c |
Dr. |
|
2,50,000 |
|
|
|
|
To 10% Debenture Allotment A/c |
|
|
2,50,000 |
|
|
(Allotment money received on allotment @ Rs 25 each for 10,000 10% Debentures) |
|
|
|
||
|
|
|
|
|
||
|
10% Debenture First and Final Call A/c |
Dr. |
|
7,00,000 |
|
|
|
|
To 10% Debenture A/c |
|
|
7,00,000 |
|
|
(First and Final Call @ Rs 70 each on 10,000 10% Debentures due) |
|
|
|
||
|
|
|
|
|
||
|
Bank A/c |
Dr. |
|
7,00,000 |
|
|
|
|
To 10% Debenture First and Final Call A/c |
|
|
7,00,000 |
|
|
(Debenture First and Final Call received @ Rs 70 each for 10,000 10% Debentures) |
|
|
|
||
|
|
|
|
|
||
Page No 140:
Question 4:
A. Ltd. issued 90,00,000, 9% Debenture of Rs 50 each at a discount of 8%, redeemable at par any time after 9 years. Record necessary entries in the books of A. Ltd.
Answer:
Books of A. Ltd.
Journal
|
||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
||
|
Bank A/c |
Dr. |
|
41,40,00,000 |
|
|
|
Discount on Issue of Debenture A/c |
Dr. |
|
3,60,00,000 |
|
|
|
To 9% Debenture A/c |
|
|
|
45,00,00,000 |
|
|
(Money received for 90,00,000 9% Debentures @ Rs 50 each at discount of 8%) |
|
|
|
||
|
|
|
|
|
||
Alternative Method:
|
||||||
|
|
|
|
|
||
|
Bank A/c |
Dr. |
|
41,40,00,000 |
|
|
|
To 9% Debentures Application A/c |
|
|
41,40,00,000 |
||
|
(Debenture Application money received @ Rs 46 each on 90,00,000 9% Debentures) |
|
|
|
||
|
|
|
|
|
||
|
9% Debentures Application A/c |
Dr. |
|
41,40,00,000 |
|
|
|
Discount on issue of Debentures A/c |
Dr. |
|
3,60,00,000 |
|
|
|
To 9% Debenture A/c |
|
|
4,50,00,000 |
||
|
(9% Debentures application money transferred to 9% Debenture Account) |
|
|
|
||
|
|
|
|
|
||
Page No 140:
Question 5:
A. Ltd. issued 4,000, 9% Debentures of Rs 100 each on the following terms:
Rs 20 on Application;
Rs 20 on Allotment;
Rs 30 on First call; and
Rs 30 on Final call.
The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400 Debentures were rejected.
Answer:
Books of A Ltd.
|
||||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|
|||
|
Bank A/c |
Dr. |
|
96,000 |
|
|
||
|
|
To 9% Debenture Application A/c |
|
|
96,000 |
|
||
|
(9% Debenture Application money received on 4,800 Debentures @ 20 each) |
|
|
|
|
|||
|
|
|
|
|
|
|||
|
9% Debenture Application A/c |
Dr. |
|
96,000 |
|
|
||
|
|
To 9% Debenture A/c |
|
|
80,000 |
|
||
|
|
To 9% Debenture Allotment A/c |
|
|
8,000 |
|
||
|
|
To Bank A/c |
|
|
8,000 |
|
||
|
(9% Debenture Application money of 4000 debentures transferred to Debentures Account, 400 debentures rejected returned and remaining amount adjusted on allotment) |
|
|
|
|
|||
|
|
|
|
|
|
|||
|
9% Debenture Allotment A/c |
Dr. |
|
80,000 |
|
|
||
|
|
To 9% Debenture A/c |
|
|
80,000 |
|
||
|
(9% Debenture Allotment due on 4,000 Debentures @ Rs 20 each) |
|
|
|
|
|||
|
|
|
|
|
|
|||
|
Bank A/c |
Dr. |
|
72,000 |
|
|
||
|
|
To 9% Debenture Allotment A/c |
|
|
72,000 |
|
||
|
(9% Debenture Allotment money received) |
|
|
|
|
|||
|
|
|
|
|
|
|||
|
9% Debenture First Call A/c |
Dr. |
|
1,20,000 |
|
|
||
|
|
To 9% Debenture A/c |
|
|
1,20,000 |
|
||
|
(9% Debenture First Call due on 4000 debentures @ Rs 30 each) |
|
|
|
|
|||
|
|
|
|
|
|
|||
|
Bank A/c |
Dr. |
|
1,20,000 |
|
|
||
|
|
To Debenture First Call A/c |
|
|
1,20,000 |
|
||
|
(9% Debenture first call received for 4000 debentures @ Rs 30 each) |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
9% Debenture Final Call A/c |
Dr. |
|
1,20,000 |
|
|
||
|
|
To 9% Debenture A/c |
|
|
1,20,000 |
|
||
|
(9% Debenture Final Call due on 4000 debentures @ Rs 30 each ) |
|
|
|
|
|||
|
|
|
|
|
|
|||
|
Bank A/c |
Dr. |
|
1,20,000 |
|
|
||
|
|
To 9% Debenture Final Call A/c |
|
|
1,20,000 |
|
||
|
(9% Debenture Final Call received on 4000 debentures @ Rs 30 each) |
|
|
|
|
|||
|
|
|
|
|
|
|||
Page No 140:
Question 6:
T. Ltd. offered 2,00,000, 8% debenture of Rs 500 each on June 30, 2014 at a premium of 10% payable as Rs 200 on application (including premium) and balance on allotment, redeemable at par after 8 years. But application are received for 3,00,000 debentures and the allotment is made on pro-rata basis. All the money due on application and allotment is received. Record necessary entries regarding issue of debentures.
Answer:
Books of T. Ltd.
Journal
|
||||||
Date
|
Particulars
|
L.F.
|
Debit
Amount
(â‚ą)
|
Credit
Amount
(â‚ą)
|
||
2014 | ||||||
Jun. 30
|
Bank A/c
|
Dr.
|
|
6,00,00,000
|
|
|
|
|
To 8% Debenture Application A/c
|
|
|
6,00,00,000
|
|
|
(8% Debenture application money received for 3,00,000
debentures @ â‚ą200 each)
|
|
|
|
||
|
|
|
|
|
||
Jun.30
|
8% Debenture Application A/c
|
Dr.
|
|
6,00,00,000
|
|
|
|
|
To 8% Debenture A/c
|
|
|
3,00,00,000
|
|
|
|
To 8% Debenture Allotment A/c
|
|
|
2,00,00,000
|
|
|
|
To Securities Premium A/c
|
|
|
1,00,00,000
|
|
|
(8% Debenture Application money of 2,00,000 debentures @
â‚ą200 each including â‚ą50 premium transferred to Debenture Account and rest of the amount adjusted on allotment)
|
|
|
|
||
|
|
|
|
|
||
|
8% Debenture Allotment A/c
|
Dr.
|
|
7,00,00,000
|
|
|
|
|
To 8% Debenture A/c
|
|
|
7,00,00,000
|
|
|
(8% Debenture allotment on 2,00,000 debentures @
â‚ą350 due)
|
|
|
|
||
|
|
|
|
|
||
|
Bank A/c
|
Dr.
|
|
5,00,00,000
|
|
|
|
|
To 8% Debenture Allotment A/c
|
|
|
5,00,00,000
|
|
|
(8% Debenture Allotment money received)
|
|
|
|
||
|
|
|
|
|
Page No 140:
Question 7:
X.Ltd. invites application for the issue of 10,000, 14% debentures of Rs 100 each payable as to Rs 20 on application, Rs 60 on allotment and the balance on call. The company receives applications for 13,500 debentures, out of which applications for 8,000 debentures are allotted in full, 5,000 only 40% and the remaining rejected. The surplus money on partially allotted applications is utilised towards allotment. All the sums due are duly received.
Answer:
Books of X. Ltd.
Journal
|
|||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|||
|
Bank A/c |
Dr. |
|
2,70,000 |
|
||
|
|
To 14% Debenture Application A/c |
|
|
2,70,000 |
||
|
(14% Debenture application money for 13,500 debentures @ 20 each received) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
14% Debenture Application A/c |
Dr. |
|
2,70,000 |
|
||
|
|
To 14% Debenture A/c |
|
|
2,00,000 |
||
|
|
To 14% Debenture Allotment A/c |
|
|
60,000 |
||
|
|
To Bank |
|
|
10,000 |
||
|
(14% Debenture Application money of 10,000 @ Rs 20 each transferred to 14% Debentures Account and 500 debentures were rejected and returned and rest of the amount adjusted on allotment) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
14% Debenture Allotment A/c |
Dr. |
|
6,00,000 |
|
||
|
|
To 14% Debenture A/c |
|
|
6,00,000 |
||
|
(14% Debenture Allotment money due on 10,000 debentures @ Rs 60 each) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Bank A/c |
Dr. |
|
5,40,000 |
|
||
|
|
To 14% Debenture Allotment A/c |
|
|
5,40,000 |
||
|
(14% Debenture Allotment money received) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
14% Debenture First and Final Call A/c |
Dr. |
|
2,00,000 |
|
||
|
|
To 14% Debenture A/c |
|
|
2,00,000 |
||
|
(14% Debenture First and Final Call money due on 10,000 debentures @ 20 each) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Bank A/c |
Dr. |
|
2,00,000 |
|
||
|
|
To 14% Debenture First and Final Call A/c |
|
|
2,00,000 |
||
|
(14% Debenture First and Final Call money received on 10,000 debentures @ Rs 20 each) |
|
|
|
|||
|
|
|
|
|
Page No 140:
Question 8:
R.Ltd. offered 20,00,000, 10% Debenture of Rs 200 each at a discount of 7% redeemable at premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.
Answer:
Books of R.Ltd.
Journal
|
|||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|||
|
Bank A/c |
Dr. |
|
37,20,00,000 |
|
||
|
|
To 10% Debenture Application & Allotment A/c |
|
|
37,20,00,000 |
||
|
(Debenture Application and Allotment money received for 20,00,000 10% Debentures @ Rs 200 each) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
10% Debenture Application and Allotment A/c |
Dr. |
|
37,20,00,000 |
|
||
|
Loss on Issue of Debenture A/c |
Dr. |
|
3,20,00,000 |
|
||
|
Discount on Issue of Debentures A/c |
Dr. |
|
2,80,00,000 |
|
||
|
|
To 10% Debenture A/c |
|
|
40,00,00,000 |
||
|
|
To Premium on Redemption of Debentures A/c |
|
|
3,20,00,000 |
||
|
(Allotment of 20,00,000 debenture @ Rs 200 each at 7% discount with the term of 8% premium on redemption) |
|
|
|
|||
|
|
|
|
|
|||
Page No 140:
Question 9:
M.Ltd. took over assets of Rs 9,00,00,000 and liabilities of Rs 70,00,000 of S.Ltd. and issued 8%Debenture of Rs 100 each. Record necessary entries in the books of M. Ltd.
Answer:
Books of M. Ltd.
Journal
|
|||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|||
|
Sundry Assets |
Dr. |
|
9,00,00,000 |
|
||
|
|
To Sundry Liabilities A/c |
|
|
70,00,000 |
||
|
|
To S.Ltd. |
|
|
8,30,00,000 |
||
|
(Assets and liabilities of S. Ltd. taken over) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
S. Ltd. |
Dr. |
|
8,30,00,000 |
|
||
|
|
To 8% Debenture A/c |
|
|
8,30,00,000 |
||
|
(8,30,000 8% debentures @ 100 each issued to S Ltd. in consideration of assets and liabilities) |
|
|
|
|||
|
|
|
|
|
|||
Page No 140:
Question 10:
B.Ltd. purchased assets of the book value of Rs 4,00,000 and took over the liability of Rs 50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs,3,80,000, be paid by issuing debentures of Rs 100 each.
What Journal entries will be made in the following three cases, if debentures are issued: (a) at par; (b) at discount; (c) at premium of 10%? It was agreed that any fraction of debentures be paid in cash.
Answer:
Case (a)
Book of B. Ltd.
Journal
|
|||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|||
|
Sundry Assets A/c |
Dr. |
|
4,00,000 |
|
||
|
Goodwill A/c |
Dr. |
|
30,000 |
|
||
|
|
To Sundry Liabilities A/c |
|
|
50,000 |
||
|
|
To Mohan Bros. |
|
|
3,80,000 |
||
|
(Assets and liabilities of Mohan Bros. taken over) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Mohan Bros. |
Dr. |
|
3,80,000 |
|
||
|
|
To Debenture A/c |
|
|
3,80,000 |
||
|
(3,800 debentures of 100 each issued to Mohan Bros. in consideration of assets and liabilities) |
|
|
|
|||
|
|
|
|
|
|||
Case (b)
|
|
|
|
|
|
||
|
Sundry Assets A/c |
Dr. |
|
4,00,000 |
|
||
|
Goodwill A/c |
Dr. |
|
30,000 |
|
||
|
|
To Sundry Liabilities A/c |
|
|
50,000 |
||
|
|
To Mohan Bros. |
|
|
3,80,000 |
||
|
(Assets and liabilities of Mohan Bros. taken over) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Mohan Bros. |
Dr. |
|
3,80,000 |
|
||
|
Discount on Issue of Debenture A/c |
Dr. |
|
42,222 |
|
||
|
|
To Debenture A/c |
|
|
4,22,200 |
||
|
|
To Bank A/c |
|
|
22 |
||
|
(Issued 4,222 debentures of Rs 100 each at 10% discount and balance paid in cash) |
|
|
|
|||
|
|
|
|
|
|||
Case (c)
|
|
|
|
|
|
||
|
Sundry Assets A/c |
Dr. |
|
4,00,000 |
|
||
|
Goodwill A/c |
Dr. |
|
30,000 |
|
||
|
|
To Sundry Liabilities A/c |
|
|
50,000 |
||
|
|
To Mohan Bros. |
|
|
3,80,000 |
||
|
(Assets and liabilities of Mohan Bros. taken over) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Mohan Bros |
Dr. |
|
3,80,000 |
|
||
|
|
To Debentures A/c |
|
|
3,45,400 |
||
|
|
To Securities Premium A/c |
|
|
34,540 |
||
|
|
To Bank A/c |
|
|
60 |
||
|
(Issued of 3,454 debentures at 10% premium and balance paid in cash) |
|
|
|
|||
|
|
|
|
|
|||
Page No 141:
Question 11:
X.Ltd. purchased a Machinery from Y for an agreed purchase consideration of Rs 4,40,000 to be satisfied by the issue of 12% debentures of Rs 100 each at a premium of Rs 10 per debenture. Journalise the transactions.
Answer:
Books of X. Ltd.
Journal
|
|||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|||
|
Machinery A/c |
Dr. |
|
4,40,000 |
|
||
|
To Y |
|
|
4,40,000 |
|||
|
(Machinery purchased from Y) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Y |
Dr. |
|
4,40,000 |
|
||
|
To 12% Debentures A/c |
|
|
4,00,000 |
|||
|
To Securities Premium A/c |
|
|
40,000 |
|||
|
(Allotted 4,000 debentures of Rs 100 each at a premium of Rs 10 per debenture in consideration of Machinery purchased) |
|
|
|
|||
|
|
|
|
|
|||
Page No 141:
Question 12:
X.Ltd. issued 15,000, 10% debentures of Rs 100 each. Give journal entries and the Balance Sheet in each of the following cases:
(i) The debentures are issued at a premium of 10%;
(ii) The debentures are issued at a discount of 5%;
(iii) The debentures are issued as a collateral security to bank against a loan of Rs 12,00,000; and
(iv) The debentures are issued to a supplier of machinery costing Rs 13,50,000.
Answer:
(i)
Books of X. Ltd. Journal |
|
||||||
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|||
|
Bank A/c |
Dr. |
|
16,50,000 |
|
||
|
|
To 10% Debentures A/c |
|
|
15,00,000 |
||
|
|
To Securities Premium A/c |
|
|
1,50,000 |
||
|
(Issued 15,000, 10% debentures of Rs 100 each at 10% premium) |
|
|
|
|||
|
|
|
|
|
|||
X Ltd. |
||
Balance Sheet |
||
Particulars |
Note No. |
Amount (Rs) |
I. Equity and Liabilities |
|
|
1. Shareholders’ Funds |
|
|
a. Reserves and Surplus |
1 |
1,50,000 |
2. Non-Current Liabilities |
|
|
a. Long-Term Borrowings |
2 |
15,00,000 |
3. Current Liabilities |
|
|
Total |
|
16,50,000 |
|
|
|
II. Assets |
|
|
1. Non-Current Assets |
|
|
2. Current Assets |
|
|
a. Cash and Cash Equivalents |
3 |
16,50,000 |
Total |
|
16,50,000 |
|
|
|
NOTES TO ACCOUNTS
Note No. |
Particulars |
Amount (Rs) |
|
|
|
1 |
Reserves and Surplus |
|
|
Securities Premium |
1,50,000 |
|
|
|
2 |
Long-Term Borrowings |
|
|
10% Debentures (Secured) |
15,00,000 |
|
|
|
3 |
Cash and Cash Equivalents |
|
|
Cash at Bank |
16,50,000 |
|
|
|
(ii)
|
|
|
|
|
|
||
|
Bank A/c |
Dr. |
|
14,25,000 |
|
||
|
Discount on Issue of Debentures A/c |
Dr. |
|
75,000 |
|
||
|
|
To 10% Debentures |
|
|
15,00,000 |
||
|
(Issued 15,000 10% Debenture of Rs 100 each at 5% discount) |
|
|
|
|||
|
|
|
|
|
|
||
X Ltd. |
||
Balance Sheet |
||
Particulars |
Note No. |
Amount (Rs) |
I. Equity and Liabilities |
|
|
1. Shareholder’s Funds |
|
|
2. Non-Current Liabilities |
|
|
a. Long-Term Borrowings |
1 |
15,00,000 |
3. Current Liabilities |
|
|
Total |
|
15,00,000 |
|
|
|
II. Assets |
|
|
1. Non-Current Assets |
|
|
a. Other Non-Current Assets |
2 |
75,000 |
2. Current Assets |
|
|
a. Cash and Cash Equivalents |
3 |
14,25,000 |
Total |
|
15,00,000 |
|
|
|
NOTES TO ACCOUNTS
Note No. |
Particulars |
Amount (Rs) |
|
|
|
1 |
Long-Term Borrowings |
|
|
10% Debentures (Secured) |
15,00,000 |
|
|
|
2 |
Other Non-Current Assets |
|
|
Discount on Issue of Debentures |
75,000 |
|
|
|
3 |
Cash and Cash Equivalents |
|
|
Cash at Bank |
14,25,000 |
|
|
|
(iii) No entry will be passed for issuing debentures as a collateral security
X Ltd. |
||
Balance Sheet |
||
Particulars |
Note No. |
Amount (Rs) |
I. Equity and Liabilities |
|
|
1. Shareholders’ Funds |
|
|
2. Non-Current Liabilities |
|
|
a. Long-Term Borrowings |
1 |
12,00,000 |
3. Current Liabilities |
|
|
Total |
|
12,00,000 |
|
|
|
II. Assets |
|
|
1. Non-Current Assets |
|
|
2. Current Assets |
|
|
a. Cash and Cash Equivalents |
2 |
12,00,000 |
Total |
|
12,00,000 |
|
|
|
NOTES TO ACCOUNTS
Note No. |
Particulars |
Amount (Rs) |
|
|
|
1 |
Long-Term Borrowings |
|
|
Bank Loan (Secured against issue Debentures of Rs 12,00,000) |
12,00,000 |
|
|
|
2 |
Cash and Cash Equivalents |
|
|
Cash at Bank |
12,00,000 |
|
|
|
Alternative Method
|
|
|
|
|
|
|||
|
Debenture Suspense A/c |
Dr. |
|
15,00,000 |
|
|||
|
|
To 10% Debentures A/c |
|
|
15,00,000 |
|||
|
(Issued 15,000 10% Debentures of Rs 100 each as collateral security to bank against a loan of Rs 12,00,000) |
|
|
|
||||
|
|
|
|
|
|
|
|
|
X Ltd. |
||
Balance Sheet |
||
Particulars |
Note No. |
Amount (Rs) |
I. Equity and Liabilities |
|
|
1. Shareholders’ Fund |
|
|
2. Non-Current Liabilities |
|
|
a. Long-Term Borrowings |
1 |
12,00,000 |
3. Current Liabilities |
|
|
Total |
|
12,00,000 |
|
|
|
II. Assets |
|
|
1. Non-Current Assets |
|
|
2. Current Assets |
|
|
a. Cash and Cash Equivalents |
2 |
12,00,000 |
Total |
|
12,00,000 |
|
|
|
NOTES TO ACCOUNTS
Note No. |
Particulars |
Amount (Rs) |
|
|
|
|
|
1 |
Long Term Borrowings |
|
|
|
Secured: |
|
|
|
Bank Loan |
12,00,000 |
|
|
10 % Debentures (Secured against issue of Debentures of Rs 12,00,000) |
15,00,000 |
|
|
Less: Debenture Suspense Account |
15,00,000 |
- |
|
|
12,00,000 |
|
2 |
Cash and Cash Equivalents |
|
|
|
Cash at Bank |
12,00,000 |
|
|
|
|
(iv)
|
|
|
|
|
|
||
|
Machinery A/c |
Dr. |
|
13,50,000 |
|
||
|
|
To Vendor A/c |
|
|
13,50,000 |
||
|
(Machinery purchased from vendor) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Vendor A/c |
Dr. |
|
13,50,000 |
|
||
|
Discount on Issue of Debentures A/c |
Dr. |
|
1,50,000 |
|
||
|
|
To 10% Debenture A/c |
|
|
15,00,000 |
||
|
(15,000 10% Debentures @ Rs 100 each issued at 10% discount to the vendor in consideration of Machinery of Rs 13,50,000) |
|
|
|
|||
|
|
|
|
|
|||
X Ltd. |
||
Balance Sheet |
||
Particulars |
Note No. |
Amount (Rs) |
I. Equity and Liabilities |
|
|
1. Shareholders’ Funds |
|
|
2. Non-Current Liabilities |
|
|
a. Long Term Borrowings |
1 |
15,00,000 |
3. Current Liabilities |
|
|
Total |
|
15,00,000 |
|
|
|
II. Assets |
|
|
1. Non-Current Assets |
|
|
a. Fixed Assets |
|
|
i. Tangible Assets |
2 |
13,50,000 |
b. Other Non-Current Assets |
3 |
1,50,000 |
2. Current Assets |
|
|
Total |
|
15,00,000 |
|
|
|
NOTES TO ACCOUNTS
Note No. |
Particulars |
Amount (Rs) |
|
|
|
1 |
Long Term Borrowings |
|
|
10% Debentures (Secured) |
15,00,000 |
|
|
|
2 |
Tangible Assets |
|
|
Plant and Machinery |
13,50,000 |
|
|
|
3 |
Other Non-Current Assets |
|
|
Discount on Issue of Debentures |
1,50,000 |
|
|
|
Page No 141:
Question 13:
Journalise the following:
(i) A debenture issued at Rs 95, repayable at Rs 100;
(ii) A debenture issued at Rs 95, repayable at Rs 105; and
(iii) A debenture issued at Rs 100, repayable at Rs 105;
The face value of debenture in each of the above cases is Rs 100.
Answer:
S.No. |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|||
(i) |
Bank A/c |
Dr. |
|
95 |
|
||
|
Discount on Issue of Debenture A/c |
Dr. |
|
5 |
|
||
|
|
To Debenture A/c |
|
|
100 |
||
|
(Debenture of Rs 100 issued at Rs 5 discount with the term repayable at Rs 100) |
|
|
|
|||
|
|
|
|
|
|
|
|
(ii) |
Bank A/c |
Dr. |
|
95 |
|
||
|
Loss on Issue of Debenture A/c |
Dr. |
|
10 |
|
||
|
|
To Debenture A/c |
|
|
100 |
||
|
|
To Premium on Redemption of Debentures |
|
|
5 |
||
|
(Debenture of Rs 100 issued at a discount of Rs 5 and with the term repayable at Rs 105) |
|
|
|
|||
|
|
|
|
|
|
|
|
(iii) |
Bank A/c |
Dr. |
|
100 |
|
||
|
Loss on Issue of Debenture A/c |
Dr. |
|
5 |
|
||
|
|
To Debenture A/c |
|
|
100 |
||
|
|
To Premium on Redemption of Debenture A/c |
|
|
5 |
||
|
(Debenture of Rs 100 issued with the term repayable at Rs 105) |
|
|
|
|||
|
|
|
|
|
Page No 141:
Question 14:
A. Ltd. issued 50,00,000, 8% debentures of Rs. 100 at a discount of 6% on April 01, 2018, redeemable at premium of 4% by draw of lots as under:
20,00,000 debentures on March, 2020
10,00,000 debentures on March, 2021
20,00,000 debentures on March, 2022
Record journal entries for issue of debentures. Prepare discount/loss on issue of debenture account.
Answer:
In the books of A Ltd.
|
|||||
Journal
|
|||||
Date
|
Particulars
|
L.F.
|
Debit
Amount (â‚ą)
|
Credit
Amount (â‚ą)
|
|
2018
|
|||||
Apr. 01
|
Bank A/c
|
Dr.
|
47,00,00,000
|
||
To Deb. App. and Allotment A/c
|
47,00,00,000
|
||||
(Being issued 50,00,000, 8%
debentures of Rs. 100 at a discount of 6%)
|
|||||
Apr. 01
|
Deb. App. and Allotment A/c
|
Dr.
|
47,00,00,000
|
||
Loss on Issue of Deb. A/c
|
Dr.
|
5,00,00,000
|
|||
To 8% Debentures A/c
|
50,00,00,000
|
||||
To Prem. on Redemption A/c
|
2,00,00,000
|
||||
(Being 8% debentures allotted
|
|||||
Redeemable at 4% premium)
|
|||||
2019
|
|||||
Mar. 31
|
Statement of P&L A/c
|
Dr.
|
5,00,00,000
|
||
To Loss on Issue of Deb. A/c
|
5,00,00,000
|
||||
(Being loss on issue of debentures
|
|||||
written off)
|
Discount/Loss on Issue of Debenture Account
|
||||||||
Dr.
|
|
|
|
|
|
Cr.
|
|
|
Date
|
Particulars
|
J.F.
|
Amount
(â‚ą)
|
Date
|
Particulars
|
J.F.
|
Amount
(â‚ą)
|
|
2018
|
2019
|
|||||||
Apr. 01
|
To 8% Debentures A/c
|
5,00,00,000
|
Mar. 31
|
By Statement of P & Loss
|
5,00,00,000
|
|||
|
|
|
5,00,00,000
|
|
|
|
5,00,00,000
|
Page No 141:
Question 15:
A company issues the following debentures:
(i) 10,000, 12% debentures of Rs 100 each at par but redeemable at premium of 5% after 5 years;
(ii) 10,000, 12% debentures of Rs 100 each at a discount of 10% but redeemable at par after 5 years;
(iii) 5,000, 12% debentures of Rs 1,000 each at a premium of 5% but redeemable at par after 5 years;
(iv) 1,000, 12% debentures of Rs 100 each issued to a supplier of machinery costing Rs 95,000. The debentures are repayable after 5 years; and
(v) 300, 12% debentures of Rs 100 each as a collateral security to a bank which has advanced a loan of Rs 25,000 to the company for a period of 5 years.
Pass the journal entries to record the: (a) issue of debentures; and (b) repayment of debentures after the given period.
Answer:
In the books of ………….. Journal |
a) Issue of Debentures
S. No. |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|||
(i) |
Bank A/c |
Dr. |
|
10,00,000 |
|
||
|
|
To 12% Debenture Application A/c |
|
|
10,00,000 |
||
|
(Debenture Application money of 10,000 12% debentures @ 100 each received) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
12% Debenture Application A/c |
Dr. |
|
10,00,000 |
|
||
|
Loss on Issue of Debenture A/c |
Dr. |
|
50,000 |
|
||
|
|
To 12% Debenture A/c |
|
|
10,00,000 |
||
|
|
To Premium on Redemption of Debenture A/c |
|
|
50,000 |
||
|
(Debenture Application money of 10,000 12% debentures @ Rs 100 each transferred to 12% Debentures Account and the Debentures are issued with term of repayable at 5% premium) |
|
|
|
|||
|
|
|
|
|
|
|
|
(ii) |
Bank A/c |
Dr. |
|
9,00,000 |
|
||
|
|
To Debenture Application and Allotment A/c |
|
|
9,00,000 |
||
|
(Debenture Application money received excluding discount on issue) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
12% Debenture Application & Allotment A/c |
Dr. |
|
9,00,000 |
|
||
|
Discount on Issue of Debenture A/c |
Dr. |
|
1,00,000 |
|
||
|
|
To Debentures A/c |
|
|
10,00,000 |
||
|
(Debenture Allotment made due) |
|
|
|
|||
|
|
|
|
|
|
|
|
(iii) |
Bank A/c |
Dr. |
|
52,50,000 |
|
||
|
|
To Debenture Application and Allotment A/c |
|
|
52,50,000 |
||
|
(Debenture Application money received) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Debenture Application and Allotment A/c |
Dr. |
|
52,50,000 |
|
||
|
|
To Debenture A/c |
|
|
50,00,000 |
||
|
|
To Security Premium A/c |
|
|
2,50,000 |
||
|
(Allotment of debenture at premium) |
|
|
|
|||
|
|
|
|
|
|
|
|
(iv) |
Machinery A/c |
Dr. |
|
95,000 |
|
||
|
|
To Vender A/c |
|
|
95,000 |
||
|
(Machinery purchased from supplier) |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
Vender A/c |
Dr. |
|
95,000 |
|
||
|
Discount on Issue of Debenture |
Dr. |
|
5,000 |
|
||
|
|
To 12% Debenture A/c |
|
|
1,00,000 |
||
|
(Debenture issue at discount to vender of machinery) |
|
|
|
|||
|
|
|
|
|
|
|
|
(v) |
12% Debenture Suspense A/c |
Dr. |
|
30,000 |
|
||
|
|
To Debenture A/c |
|
|
30,000 |
||
|
(300, 12% Debentures of Rs 100 each issued as collateral security to the bank against a loan of Rs 25,000) |
|
|
|
|||
|
|
|
|
|
b) Repayment of Debentures
S.No. |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
|||
(i) |
12% Debentures A/c |
Dr. |
|
10,00,000 |
|
||
|
Premium on Redemption of Debenture A/c |
Dr. |
|
50,000 |
|
||
|
|
To Debenture Holders A/c |
|
|
10,50,000 |
||
|
(Amount due on redemption of debentures) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Debenture Holders A/c |
Dr. |
|
10,50,000 |
|
||
|
|
To Bank A/c |
|
|
10,50,000 |
||
|
(Payment made to Debenture Holders) |
|
|
|
|||
|
|
|
|
|
|
|
|
(ii) |
12% Debenture A/c |
Dr. |
|
10,00,000 |
|
||
|
|
To Debenture Holders A/c |
|
|
10,00,000 |
||
|
(Amount due on redemption of debentures) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Debenture Holders A/c |
Dr. |
|
10,00,000 |
|
||
|
|
To Bank A/c |
|
|
10,00,000 |
||
|
(Payment made to Debenture Holders) |
|
|
|
|||
|
|
|
|
|
|
|
|
(iii) |
12% Debenture A/c |
Dr. |
|
50,00,000 |
|
||
|
|
To Debenture Holders A/c |
|
|
50,00,000 |
||
|
(Amount due on redemption of debentures) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Debenture Holders A/c |
Dr. |
|
50,00,000 |
|
||
|
|
To Bank A/c |
|
|
50,00,000 |
||
|
(Payment made to Debenture Holders) |
|
|
|
|||
|
|
|
|
|
|
|
|
(iv) |
12% Debenture A/c |
Dr. |
|
1,00,000 |
|
||
|
|
To Vender A/c |
|
|
1,00,000 |
||
|
(Amount due to vender) |
|
|
|
|||
|
|
|
|
|
|
|
|
|
Vender A/c |
Dr. |
|
1,00,000 |
|
||
|
|
To Bank |
|
|
1,00,000 |
||
|
(Payment made to vender) |
|
|
|
|||
|
|
|
|
|
|
|
|
(v) |
12% Debenture A/c |
Dr. |
|
30,000 |
|
||
|
|
To Debenture Suspense A/c |
|
|
30,000 |
||
|
(Debenture and debenture Suspense Account closed) |
|
|
|
|||
|
|
|
|
|
Page No 141:
Question 16:
A listed company issued debentures of the face value of Rs. 5,00,000 at a discount of 6% on April 01, 2014. These debentures are redeemable by annual drawings of Rs.1,00,000 made on March 31 each year starting from March 31, 2016.
Give journal entries for issue of debentures, writing-off discount and regarding redemption of debentures.
Answer:
Journal
|
||||||||
Date
|
Particulars
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount
Rs
|
||||
2014
|
|
|
|
|
|
|||
Apr 1
|
Bank A/c
|
Dr.
|
|
4,70,000
|
|
|||
|
|
To Debenture Application and Allotment A/c
|
|
|
4,70,000
|
|||
|
(Debenture Application money received)
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
Apr 1
|
Debenture Application and Allotment A/c
|
Dr.
|
|
4,70,000
|
|
|||
|
Discount on Issue of Debenture A/c
|
Dr.
|
|
30,000
|
|
|||
|
|
To Debentures A/c
|
|
|
5,00,000
|
|||
|
(Debenture Application money transferred to Debenture Account)
|
|
|
|
||||
|
|
|
|
|
||||
Year
|
Debenture outstanding
|
Ratio
|
Amount written off
|
|||
2015
|
5,00,000
|
5
|
|
=
|
10,000
|
|
2016
|
4,00,000
|
4
|
|
=
|
8,000
|
|
2017
|
3,00,000
|
3
|
|
=
|
6,000
|
|
2018
|
2,00,000
|
2
|
|
=
|
4,000
|
|
2019
|
1,00,000
|
1
|
|
=
|
2,000
|
|
|
|
15
|
|
|
30,000
|
|
|
|
|
|
|
|
|
Date
|
Particulars
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount
Rs
|
||||
2015
Mar 31
|
Profit and Loss A/c
|
Dr.
|
|
10,000
|
|
|||
|
|
To Discount on Issue of Debentures A/c
|
|
|
10,000
|
|||
|
(Discount on issue of debentures written off)
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|||
Mar 31
|
Profit and Loss A/c
|
Dr.
|
|
8,000
|
|
|||
|
|
To Discount on Issue of Debentures A/c
|
|
|
8,000
|
|||
|
(Discount on issue of debentures written off)
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|||
Mar 31
|
Profit and Loss A/c
|
Dr.
|
|
6,000
|
|
|||
|
|
To Discount on Issue of Debenture A/c
|
|
|
6,000
|
|||
|
(Discount on issue of debentures written off)
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|||
Mar 31
|
Profit and Loss A/c
|
Dr.
|
|
4,000
|
|
|||
|
|
To Discount on issue of Debentures A/c
|
|
|
4,000
|
|||
|
(Discount on issue of debenture written off)
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|||
Mar 31
|
Profit and Loss A/c
|
Dr.
|
|
2,000
|
|
|||
|
|
To Discount on Issue of Debenture A/c
|
|
|
2,000
|
|||
|
(Discount on issue of debenture written off)
|
|
|
|
||||
|
|
|
|
|
||||
Page No 142:
Question 17:
B. Ltd. a listed company issued debentures at 94% for Rs. 4,00,000 on April 01, 2011 repayable by five equal drawings of Rs. 80,000 each. The company prepares its final accounts on March 31 every year. Give Journal entries for issues and redemption of debentures.
Answer:
In the books of B Ltd.
Journal
|
|||||||
Date
|
Particulars
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount
Rs
|
|||
2011
Apr. 01
|
Bank A/c
|
Dr.
|
|
3,76,000
|
|
||
|
|
To Debenture Application and Allotment A/c
|
|
|
3,76,000
|
||
|
(Debentures Application Money received)
|
|
|
|
|||
|
|
|
|
|
|
|
|
Apr. 01
|
Debentures Application and Allotment A/c
|
Dr.
|
|
3,76,000
|
|
||
|
Discount on issue of Debenture A/c
|
Dr.
|
|
24,000
|
|
||
|
|
To Debenture A/c
|
|
|
4,00,000
|
||
|
(Debenture Application Money transferred to Debenture Account)
|
|
|
|
|||
|
|
|
|
|
|
|
|
2012
Mar. 31
|
Profit and Loss A/c
|
Dr.
|
|
8,000
|
|
||
|
|
To Discount on Issue of Debentures A/c
|
|
|
8,000
|
||
|
(Discount on issue of debenture written off)
|
|
|
|
|||
|
|
|
|
|
|
|
|
2013
Mar. 31
|
Profit and Loss A/c
|
Dr.
|
|
6,400
|
|
||
|
|
To Discount on Issue of Debenture A/c
|
|
|
6,400
|
||
|
(Discount on issue of debenture written off)
|
|
|
|
|||
|
|
|
|
|
|
|
|
2014
Mar. 31
|
Profit and Loss A/c
|
Dr.
|
|
4,800
|
|
||
|
|
To Discount on Issue of Debenture A/c
|
|
|
4,800
|
||
|
(Discount on issue of debenture written off)
|
|
|
|
|||
2015
|
|
|
|
|
|
||
Mar. 31
|
Profit and Loss A/c
|
Dr.
|
|
3,200
|
|
||
|
|
To Discount on Issue of Debentures A/c
|
|
|
3,200
|
||
|
(Discount on issue of debenture written off)
|
|
|
|
|||
|
|
|
|
|
|||
2016
|
|
|
|
|
|
||
Mar. 31
|
Profit and Loss A/c
|
Dr.
|
|
1,600
|
|
||
|
|
To Discount on Issue of Debentures A/c
|
|
|
1,600
|
||
|
(Discount on issue of debenture written off)
|
|
|
|
|||
|
|
|
|
|
Working Notes:
Year
|
Debentures Outstanding
|
Ratio
|
Months
|
New Ratio (Ratio × Months)
|
Amounts written off
|
2012
|
|
|
|
|
|
Apr-Mar
|
3,20,000
|
5
|
12
|
60
|
|
2013
|
|
|
|
|
|
Apr-Mar
|
2,40,000
|
4
|
12
|
48
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
Apr-Mar
|
1,60,000
|
3
|
12
|
36
|
|
2015
|
|
|
|
|
|
Apr-Mar
|
80,000
|
2
|
12
|
24
|
|
2016
|
|
|
|
|
|
Apr-Mar
|
80,000
|
1
|
12
|
12
|
|
|
|
|
|
180
|
|
Page No 142:
Question 18:
B. Ltd. issued 1,000, 12% debentures of Rs 100 each on April 01, 2014 at a discount of 5% redeemable at a premium of 10%.
Give journal entries relating to the issue of debentures and debentures interest for the period ending March 31, 2015 assuming that interest is paid half yearly on September 30 and March 31 and tax deducted at source is 10%.
Answer:
Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
||||
2014 |
|
|
|
|
|
|||
Apr. 01 |
Bank A/c |
Dr. |
|
95,000 |
|
|||
|
Loss on Issue on Debentures A/c |
Dr. |
|
15,000 |
|
|||
|
|
To 12% Debenture A/c |
|
|
1,00,000 |
|||
|
|
To Premium on Redemption of Debentures A/c |
|
|
10,000 |
|||
|
(Debenture issued at discount and redeemable at Premium) |
|
|
|
||||
|
|
|
|
|
|
|
|
|
Sept. 30 |
Debenture Interest A/c |
Dr. |
|
6,000 |
|
|||
|
|
To Income Tax Payable A/c |
|
|
600 |
|||
|
|
To Debenture Holders A/c |
|
|
5,400 |
|||
|
(Amount of interest on 12% debentures Rs 1,00,000 due for 6 months and 10% tax deducted at source) |
|
|
|
||||
|
|
|
|
|
||||
Sept. 30 |
Debenture Holders A/c |
Dr. |
|
5,400 |
|
|||
|
|
To Bank A/c |
|
|
5,400 |
|||
|
(Interest paid to Debenture Holders) |
|
|
|
||||
|
|
|
|
|
||||
2015 |
Debenture Interest A/c |
Dr. |
|
6,000 |
|
|||
|
|
To Income Tax Payable A/c |
|
|
600 |
|||
|
|
To Debenture Holders A/c |
|
|
5,400 |
|||
|
(Amount of interest on 12% Debentures Rs 1,00,000 due for 6 months and 10% tax deducted at source) |
|
|
|
||||
|
|
|
|
|
||||
Mar. 31 |
Debenture Holders A/c |
Dr. |
|
|
5,400 |
|||
|
|
To Bank A/c |
|
|
5,400 |
|||
|
(Interest paid to Debenture Holders) |
|
|
|
||||
|
|
|
|
|
||||
Mar. 31 |
Profit and Loss A/c |
Dr. |
|
12,000 |
|
|||
|
|
To Debenture Interest A/c |
|
|
12,000 |
|||
|
(Interest on debentures transferred to Profit and Loss Account) |
|
|
|
||||
|
|
|
|
|
||||
Page No 142:
Question 19:
Jay Kay Ltd. an ‘other listed company’ issued 60,000 12% debentures of Rs. 100 each at par redeemable at the end of 5 years at a premium of 20%. On this date, there existed a balance of Rs. 5,00,000 in securities premium reserve account. The company created the required amount of debenture redemption reserve in 3 equal instalments on March 31, 2017, 2018 and 2019. It invested in specified securities (DRI) the required amount on April, 01 of the financial year Debentures were duly redeemed on the record necessary journal entries for :
(i) Issue of debentures
(ii) Writing off loss on issue of debentures.
(iii) Interest and debentures for 2015-16 assuring if is paid annually & tax deducted at service is 10%.
(iv) Regarding redemption of debentures.
Answer:
Date
|
Particulars
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount
Rs
|
||
2015
|
Bank A/c
|
Dr.
|
|
60,00,000
|
|
|
Apr 1
|
|
To 12% Debenture Application and Allotment A/c
|
|
|
60,00,000
|
|
|
(Debenture Application money of 60,000 12% debentures @ 100 each received)
|
|
|
|
||
|
|
|
|
|
|
|
|
12% Debenture Application A/c
|
Dr.
|
|
60,00,000
|
|
|
|
Loss on Issue of Debenture A/c
|
Dr.
|
|
12,00,000
|
|
|
|
|
To 12% Debenture A/c
|
|
|
60,00,000
|
|
|
|
To Premium on Redemption of Debenture A/c
|
|
|
12,00,000
|
|
|
(Debenture Application money of 60,000 12% debentures @ Rs 100 each transferred to 12% Debentures Account and the Debentures are issued with term of repayable at 20% premium)
|
|
|
|
||
|
|
|
|
|
||
2016
|
Interest on Debenture A/c
|
Dr.
|
|
7,20,000
|
|
|
Mar 31
|
|
To Debentureholder A/c
To TDS Payable A/c
|
|
|
6,48,000
72,000
|
|
|
(Debenture Interest due)
|
|
|
|
||
|
|
|
|
|
||
|
Debentureholder A/c
|
Dr.
|
|
6,48,000
|
|
|
|
TDS Payable A/c
|
Dr.
|
|
72,000
|
|
|
|
|
To Bank A/c
|
|
|
7,20,000
|
|
|
(Interest paid)
|
|
|
|
||
|
|
|
|
|
||
|
Statement of Profit and Loss A/c
|
Dr.
|
|
7,20,000
|
|
|
|
|
To Interest on Debenture A/c
|
|
|
7,20,000
|
|
|
(Interest transferred to P/L A/c)
|
|
|
|
||
|
|
|
|
|
||
|
Statement of Profit and Loss A/c
|
Dr.
|
|
5,00,000
|
|
|
|
Security Premium Reserve A/c
|
Dr.
|
|
7,00,000
|
|
|
|
|
To Loss on issue of Debentures A/c
|
|
|
12,00,000
|
|
|
(loss on issue of debentures written off)
|
|
|
|
||
|
|
|
|
|
||
2017
|
Surplus as per Profit and Loss A/c
|
Dr.
|
|
2,00,000
|
|
|
Mar 31
|
|
To Debenture Redemption Reserve A/c
|
|
|
2,00,000
|
|
|
(DRR created 1/3rd of 10% of 60,000 12% debentures of Rs. 100 each)
|
|
|
|
||
|
|
|
|
|
||
2018
|
Surplus as per Profit and Loss A/c
|
Dr.
|
|
2,00,000
|
|
|
Mar 31
|
To Debenture Redemption Reserve A/c
|
|
|
2,00,000
|
||
|
(DRR created 1/3rd of 10% of 60,000 12% debentures of Rs. 100 each)
|
|
|
|
||
2019
|
Surplus as per Profit and Loss A/c
|
Dr.
|
|
2,00,000
|
|
|
Mar 31
|
To Debenture Redemption Reserve A/c
|
|
|
2,00,000
|
||
|
(DRR created 1/3rd of 10% of 60,000 12% debentures of Rs. 100 each)
|
|
|
|
||
|
|
|
|
|
||
2020
|
Debenture Investment A/c
|
Dr.
|
|
9,00,000
|
|
|
Mar 31
|
To Bank A/c
|
|
|
9,00,000
|
||
|
(15% of 60,000 12% debentures of Rs. 100 each created)
|
|
|
|
||
|
|
|
|
|
||
Mar 31
|
12% Debentures A/c
|
Dr.
|
|
60,00,000
|
|
|
|
Premium on Redemption A/c
|
Dr.
|
|
12,00,000
|
|
|
|
To Debentureholders’ A/c
|
|
|
72,00,000
|
||
|
(amount due on redemption)
|
|
|
|
||
|
|
|
|
|
||
Mar 31
|
Debentureholders’ A/c
|
Dr.
|
|
72,00,000
|
|
|
|
To Bank A/c
|
|
|
72,00,000
|
||
|
(payment of amount due to debentureholders)
|
|
|
|
||
|
|
|
|
|
||
|
Debenture Redemption Reserve A/c
|
Dr.
|
|
6,00,000
|
|
|
|
To General Reserve A/c
|
|
|
|
6,00,000
|
|
|
(DRR transferred to general reserve)
|
|
|
|
||
|
|
|
|
|
||
Page No 142:
Question 20:
Madhur Ltd., has outstanding 9% debentures of Rs. 50,00,000 redeemable at par on January 01, 2020. Debenture Redemption Reserve of Rs. 2,00,000 on March 31, 2018 and balance of required amount of DRR was created on March 31, 2019. The company invested in specified securities (DRI) the required amount on April 01, 2019. Debentures were redeemed on the due date. Record necessary journal entries in the books of the company and also prepare the ledger accounts (ignore interest).
Answer:
Date
|
Particulars
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount
Rs
|
|
|
|
|
|
|
|
2019
|
Surplus as per Profit and Loss A/c
|
Dr.
|
|
3,00,000
|
|
Mar 31 | To Debenture Redemption Reserve A/c | 3,00,000 | |||
|
(DRR created 10% of Rs. 50,00,000 9% Debentures, out of which Rs. 2,00,000 already existing)
|
|
|
|
|
|
|
|
|
|
|
2019
|
Debenture Investment A/c
|
Dr. |
|
7,50,000
|
|
|
To Bank A/c
|
|
|
7,50,000
|
|
|
(15% of Rs. 50,00,000 9% Debentures created)
|
|
|
|
|
|
|
|
|
|
|
2020
|
9% Debentures A/c
|
Dr.
|
|
50,00,000
|
|
Jan 1
|
To Debentureholders’ A/c
|
|
|
50,00,000
|
|
|
(amount due on redemption)
|
|
|
|
|
|
|
|
|
|
|
|
Debentureholders’ A/c
|
Dr.
|
|
50,00,000
|
|
|
To Bank A/c
|
|
|
50,00,000
|
|
|
(payment of amount due to debentureholders)
|
|
|
|
|
|
|
|
|
|
|
|
Debenture Redemption Reserve A/c
|
Dr.
|
|
5,00,000
|
|
|
To General Reserve A/c
|
|
|
5,00,000
|
|
|
(DRR transferred to general reserve)
|
|
|
|
|
|
|
|
|
|
Page No 142:
Question 21:
MK Ltd. has outstanding Rs. 30,000 11% debentures of Rs. 100 each redeemable at 10% premium as follows :
March 31, 2018 - 10,000 debentures
March 31, 2019 - 12,000 debentures
March 31, 2020 - Remaining debentures
Pass necessary journal entries in the books of the company.
Answer:
Date
|
Particulars
|
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount Rs
|
|
|
|
|
|
|
2018
|
11% Debentures A/c
|
Dr.
|
|
10,00,000
|
|
Mar 31
|
Premium on Redemption of Debentures A/c
|
Dr.
|
|
1,00,000
|
|
|
To Debentureholder A/c
|
|
|
|
11,00,000
|
|
(Amount due on redemption of 10,000 11%Debentures)
|
|
|
|
|
|
|
|
|
|
|
|
Debenture Holders A/c
|
Dr.
|
|
11,00,000
|
|
|
To Bank A/c
|
|
|
|
11,00,000
|
|
(Payment made to Debenture Holders on 10,000 11%Debentures)
|
|
|
|
|
|
|
|
|
|
|
2019
|
11% Debenture A/c
|
Dr.
|
|
12,00,000
|
|
Mar 31
|
Premium on Redemption of Debentures A/c
|
Dr.
|
|
1,20,000
|
|
|
To Debenture Holders A/c
|
|
|
|
13,20,000
|
|
(Amount due on redemption of 12,000 11%Debentures)
|
|
|
|
|
|
|
|
|
|
|
|
Debenture Holders A/c
|
Dr.
|
|
13,20,000
|
|
|
To Bank A/c
|
|
|
|
13,20,000
|
|
(Interest paid to Debenture Holders)
|
|
|
|
|
|
|
|
|
|
|
2020
|
11% Debentures A/c
|
Dr.
|
|
8,00,000
|
|
Mar 31
|
Premium on Redemption of 11%Debentures A/c
|
Dr.
|
|
80,000
|
|
|
To Debenture Holder A/c
|
|
|
|
|
|
(Amount due on redemption of 8,000 11%Debentures)
|
|
|
|
|
|
|
|
|
|
|
|
Debenture Holders A/c
|
Dr.
|
|
8,80,000
|
|
|
To Bank A/c
|
|
|
|
8,80,000
|
|
(Payment made to Debenture Holders on 8,000 11%Debentures)
|
|
|
|
|
|
|
|
|
|
|
Page No 142:
Question 22:
X Ltd. had outstanding 20,000 12% debentures of Rs. 100 each redeemable on June 30, 2019. Record necessary journal entries at the time of redemption.
Answer:
Date
|
Particulars
|
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount Rs
|
|
|
|
|
|
|
2019
|
12% Debentures A/c.
|
Dr.
|
|
20,00,000
|
|
June 30
|
To Debenture Holder A/c
|
|
|
|
20,00,000
|
|
(Amount due on redemption of 20,000 12%Debentures)
|
|
|
|
|
|
|
|
|
|
|
|
Debenture Holders A/c
|
Dr.
|
|
20,00,000
|
|
|
To Bank A/c
|
|
|
|
20,00,000
|
|
(Payment made to Debenture Holders on 20,000 12%Debentures)
|
|
|
|
|
|
|
|
|
|
|
Outstanding Debentures = 20,000
Redemption price = Rs. 100
Page No 142:
Question 23:
XYZ Ltd. Issued 6,000, 12% Debentures of Rs. 50 each on April 1, 2014. Interest on these debenture is payable annually 31 March each year. The debentures are redeemable in four equal installments at end of third, fourth, fifth and sixth year. You are required to draw journal entries at the time of issue of debentures in the books of the company under following cases:
(i) Debentures are issued at par and redeemable at par.
(ii) Debentures are issued at a premium of 10% and redeemable at par.
(iii) Debentures are issued at a discount of 10% and redeemable at par.
(iv) Debenture are issued at par but redeemable at a premium of 10%.
(v) Debentures are issued at a premium of 10% and redeemable at premium of 10%.
(vi) Debenture are issued at a discount of 10% and redeemable at a premium of 10%.
Answer:
(i)
Date
|
Particulars
|
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount Rs
|
|
|
|
|
|
|
2014
|
Bank A/c
|
Dr.
|
|
30,000
|
|
Apr 1
|
To Debenture Application A/c
|
|
|
|
30,000
|
|
(Application money received on 6,000 12%Debentures of Rs. 50 each)
|
|
|
|
|
|
|
|
|
|
|
2015
|
To Debenture Application A/c A/c
|
Dr.
|
|
30,000
|
|
Mar 31
|
To 12% Debentures A/c
|
|
|
|
30,000
|
|
(Money transferred to 12%Debentures A/c)
|
|
|
|
|
Date
|
Particulars
|
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount Rs
|
|
|
|
|
|
|
2014
|
Bank A/c
|
Dr.
|
|
33,000
|
|
Apr 1
|
To Debenture Application A/c
|
|
|
|
33,000
|
|
(Application money received on 6,000 12%Debentures of Rs. 50 each, 10% premium)
|
|
|
|
|
|
|
|
|
|
|
2015
|
Debenture Application A/c A/c
|
Dr.
|
|
30,000
|
|
Mar 31
|
To 12% Debentures A/c
|
|
|
|
30,000
|
|
To Security Premium Reserve
|
|
|
|
3,000
|
|
(Money transferred to 12%Debentures A/c)
|
|
|
|
|
Date
|
Particulars
|
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount Rs
|
|
|
|
|
|
|
2014
|
Bank A/c
|
Dr.
|
|
27,000
|
|
Apr 1
|
To Debenture Application A/c
|
|
|
|
27,000
|
|
(Application money received on 6,000 12%Debentures of Rs. 50 each, discount 10%)
|
|
|
|
|
|
|
|
|
|
|
2015
|
Debenture Application A/c
|
Dr.
|
|
27,000
|
|
Mar 31
|
Discount on issue of Debentures A/c
|
Dr.
|
|
3,000
|
|
|
To 12% Debentures A/c
|
|
|
|
30,000
|
|
(Money transferred to 12%Debentures A/c)
|
|
|
|
|
Date
|
Particulars
|
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount Rs
|
|
|
|
|
|
|
2014
|
Bank A/c
|
Dr.
|
|
30,000
|
|
Apr 1
|
To Debenture Application A/c
|
|
|
|
30,000
|
|
(Application money received on 6,000 12%Debentures of Rs. 50 each, redeemable at premium)
|
|
|
|
|
|
|
|
|
|
|
2015
|
Debenture Application A/c
|
|
|
30,000
|
|
Mar 31
|
Loss on issue of redemption A/c
|
Dr.
|
|
3,000
|
|
|
To 12% Debentures A/c
|
|
|
|
30,000
|
|
To Premium on redemption A/c
|
|
|
|
3,000
|
|
(Money transferred to 12%Debentures A/c and loss transferred)
|
|
|
|
|
Date
|
Particulars
|
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount Rs
|
2014
|
Bank A/c
|
Dr.
|
|
33,000
|
|
Apr 1
|
To Debenture Application A/c
|
|
|
|
33,000
|
|
(Application money received on 6,000 12%Debentures of Rs. 50 each, 10% premium and redeemable at premium)
|
|
|
|
|
|
|
|
|
|
|
2015
|
Debenture Application A/c
|
Dr.
|
|
33,000
|
|
Mar 31
|
Loss on issue of redemption A/c
|
Dr.
|
|
3,000
|
|
|
To 12% Debentures A/c
|
|
|
|
30,000
|
|
To Premium on redemption A/c
|
|
|
|
3,000
|
|
To Security Premium Reserve A/c
|
|
|
|
3,000
|
|
(Money transferred to 12%Debentures A/c and loss transferred)
|
|
|
|
|
Date
|
Particulars
|
|
L.F.
|
Debit
Amount
Rs
|
Credit
Amount Rs
|
|
|
|
|
|
|
2014
|
Bank A/c
|
Dr.
|
|
27,000
|
|
Apr 1
|
To Debenture Application A/c
|
|
|
|
27,000
|
|
(Application money received on 6,000 12%Debentures of Rs. 50 each,10% discount and redeemable at premium)
|
|
|
|
|
|
|
|
|
|
|
2015
|
To Debenture Application A/c
|
Dr.
|
|
27,000
|
|
Mar 31
|
Loss on issue of redemption A/c
|
Dr.
|
|
6,000
|
|
|
To 12% Debentures A/c
|
|
|
|
30,000
|
|
To Premium on redemption A/c
|
|
|
|
3,000
|
|
(Money transferred to 12%Debentures A/c and loss transferred)
|
|
|
|
|
View NCERT Solutions for all chapters of Class 15