Question

Atridatta Company Limited issued 10,000, 10% debentures of ₹ 100 each on 01.04.2024 at a discount of 10% and redeemable at a premium of 10%.
Pass journal entries relating to the issue of debentures and debenture interest for the period ending 31.03.2025 assuming that interest is paid half yearly on \(30^{\text{th}}\) September and \(31^{\text{st}}\) March, tax deducted at source is 10%.

Hint:

Interest on debentures is always calculated on the \textbf{Face Value} of the debentures, regardless of whether they were issued at a discount or a premium.

Answer 1

Step 1: Understanding the Concept:
When debentures are issued at a discount and redeemable at a premium, both the discount on issue and the premium on redemption are considered losses for the company and are clubbed under "Loss on Issue of Debentures A/c". Interest is always calculated on the face value.

Step 2: Detailed Explanation:
Calculations:
- Face Value of Debentures = \(10,000 \times 100 = \text{₹ } 10,00,000\).
- Discount on Issue = 10% of 10,00,000 = ₹ 1,00,000. Amount received = ₹ 9,00,000.
- Premium on Redemption = 10% of 10,00,000 = ₹ 1,00,000.
- Total Loss on Issue = Discount (1,00,000) + Premium on Redemption (1,00,000) = ₹ 2,00,000.
- Half-yearly Interest (Gross) = \(10,00,000 \times 10% \times \frac{6}{12} = \text{₹ } 50,000\).
- TDS @ 10% on Interest = ₹ 5,000.
- Net Interest payable to holders = 50,000 - 5,000 = ₹ 45,000.

Step 3: Final Answer:
Journal Entries in the books of Atridatta Company Limited