Question

On 1st April, 2024, Deendayal Ltd. issued 80,000, 10% Debentures of Rs 100 each at a premium of 9%, redeemable at par after 6 years. The company closes its books on 31st March every year.

Pass necessary journal entries in the books of Deendayal Ltd. for issue of debentures, payment of interest on debentures and writing off interest for the year ended 31st March, 2025.

Hint:

Find the face value (80,000 x Rs. 100) and the premium (9%). Interest is 10% on face value only. Pass entries for receipt, allotment, interest due, payment and write off.

Answer 1

Step 1: Understand what is asked:
Deendayal Ltd. issued 80,000 debentures of Rs. 100 each at a premium of 9%. They are redeemable at par.
So the company receives more than the face value, and the extra amount is a securities premium.
Redemption is at par, so there is no premium on redemption and no loss on issue of debentures.
We need three sets of entries: the issue, the payment of interest and the write off of interest for 2024-25.

Step 2: Working Notes:
Face value of debentures = 80,000 x Rs. 100 = Rs. 80,00,000.
Premium = 9% of Rs. 80,00,000 = Rs. 7,20,000.
Amount received = Rs. 80,00,000 + Rs. 7,20,000 = Rs. 87,20,000.
Interest for the full year (1st April 2024 to 31st March 2025) = 10% of Rs. 80,00,000 = Rs. 8,00,000.
Interest is charged on the face value, never on the premium.

Step 3: Journal entries in the books of Deendayal Ltd.:

Date	Particulars	L.F.	Dr. (Rs)	Cr. (Rs)
2024, Apr 1	Bank A/c Dr.		87,20,000
	To Debenture Application and Allotment A/c			87,20,000
	Application money received on 80,000 10% debentures of Rs. 100 each at a premium of 9%
2024, Apr 1	Debenture Application and Allotment A/c Dr.		87,20,000
	To 10% Debentures A/c			80,00,000
	To Securities Premium A/c			7,20,000
	Application money transferred to debentures account and securities premium account
2025, Mar 31	Debenture Interest A/c Dr.		8,00,000
	To Debentureholders A/c			8,00,000
	Interest due on debentures for the year
2025, Mar 31	Debentureholders A/c Dr.		8,00,000
	To Bank A/c			8,00,000
	Interest paid to debentureholders
2025, Mar 31	Statement of Profit and Loss Dr.		8,00,000
	To Debenture Interest A/c			8,00,000
	Debenture interest written off to the Statement of Profit and Loss

Step 4: Why each entry is passed this way:
Entry 1: the money comes in, so Bank is debited. The credit goes first to a temporary account, Debenture Application and Allotment, because the debentures are not yet allotted.
Entry 2: after allotment the temporary account is closed. Rs. 80,00,000 is the debt, so 10% Debentures is credited. Rs. 7,20,000 is the premium, so Securities Premium is credited.
Entry 3: interest for the year falls due on 31st March 2025. It is an expense, so Debenture Interest A/c is debited and the debentureholders are credited as creditors.
Entry 4: the amount is paid through the bank. The liability to the debentureholders ends.
Entry 5: the interest expense is closed by transfer to the Statement of Profit and Loss, so profit of the year falls by Rs. 8,00,000.

Step 5: Check the totals:
Entry 1 and entry 2 each balance at Rs. 87,20,000. On the credit side of entry 2, Rs. 80,00,000 + Rs. 7,20,000 gives Rs. 87,20,000.
Entries 3, 4 and 5 each balance at Rs. 8,00,000.

Final Answer:
The five journal entries above are the required answer. The key figures are debenture capital Rs. 80,00,000, securities premium Rs. 7,20,000, and interest Rs. 8,00,000.