Question:
On 1st April 2024, Yash Ltd. invited applications for issuing 20,000, 9% debentures of Rs 100 each at a discount of 6%. These debentures were repayable at a premium of 10% after five years. The issue was fully subscribed and the debentures were allotted in full to all the applicants. On 31st March, 2025 the company had a balance of Rs 1,80,000 in its Securities Premium Account.
Pass necessary journal entries for the issue of 9% Debentures and writing off Loss on issue of Debentures. Also prepare 'Loss on Issue of Debentures Account'.
On 1st April 2024, Yash Ltd. invited applications for issuing 20,000, 9% debentures of Rs 100 each at a discount of 6%. These debentures were repayable at a premium of 10% after five years. The issue was fully subscribed and the debentures were allotted in full to all the applicants. On 31st March, 2025 the company had a balance of Rs 1,80,000 in its Securities Premium Account.
Pass necessary journal entries for the issue of 9% Debentures and writing off Loss on issue of Debentures. Also prepare 'Loss on Issue of Debentures Account'.
Show Hint
Loss on issue = discount Rs. 1,20,000 + premium on redemption Rs. 2,00,000 = Rs. 3,20,000. Use Securities Premium Rs. 1,80,000 first and charge the balance Rs. 1,40,000 to the Statement of Profit and Loss.
Updated On: Oct 26, 2026
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Solution and Explanation
Step 1: Read the facts:
Yash Ltd. issues 20,000 debentures of Rs. 100 each at a discount of 6%. They are repayable at a premium of 10% after five years.
The issue is fully subscribed and all debentures are allotted on 1 April 2024.
The Securities Premium Account shows Rs. 1,80,000 on 31 March 2025.
Step 2: Concept: loss on issue of debentures:
Debentures issued at a discount and redeemed at a premium cost the company twice. First it gives up the discount. Later it pays the premium.
Both amounts are added and shown as Loss on Issue of Debentures. This is a capital loss.
The company writes it off against Securities Premium first. Any balance goes to the Statement of Profit and Loss.
Step 3: Working Notes:
Step 4: Journal entries:
The debentures are credited at face value of Rs. 20,00,000. The premium on redemption of Rs. 2,00,000 is a liability, so it is credited.
Step 5: Loss on Issue of Debentures Account:
Debit side: discount Rs. 1,20,000 and redemption premium Rs. 2,00,000. Credit side: Securities Premium Rs. 1,80,000 and Statement of Profit and Loss Rs. 1,40,000. Both sides total Rs. 3,20,000.
Step 6: Check the entries:
Entry 2 debit: Rs. 18,80,000 + Rs. 3,20,000 = Rs. 22,00,000. Entry 2 credit: Rs. 20,00,000 + Rs. 2,00,000 = Rs. 22,00,000.
Entry 3 debit: Rs. 1,80,000 + Rs. 1,40,000 = Rs. 3,20,000, which equals the credit to Loss on Issue of Debentures A/c.
Final Answer:
Loss on issue of debentures is Rs. 3,20,000. Rs. 1,80,000 is written off against Securities Premium and Rs. 1,40,000 against the Statement of Profit and Loss.
Yash Ltd. issues 20,000 debentures of Rs. 100 each at a discount of 6%. They are repayable at a premium of 10% after five years.
The issue is fully subscribed and all debentures are allotted on 1 April 2024.
The Securities Premium Account shows Rs. 1,80,000 on 31 March 2025.
Step 2: Concept: loss on issue of debentures:
Debentures issued at a discount and redeemed at a premium cost the company twice. First it gives up the discount. Later it pays the premium.
Both amounts are added and shown as Loss on Issue of Debentures. This is a capital loss.
The company writes it off against Securities Premium first. Any balance goes to the Statement of Profit and Loss.
Step 3: Working Notes:
| Working note | Calculation | Amount (Rs.) |
|---|---|---|
| Face value of debentures | 20,000 x Rs. 100 | 20,00,000 |
| Discount on issue (6%) | 6% of 20,00,000 | 1,20,000 |
| Application money received (issue price) | 20,00,000 - 1,20,000 | 18,80,000 |
| Premium on redemption (10%) | 10% of 20,00,000 | 2,00,000 |
| Loss on issue of debentures | 1,20,000 + 2,00,000 | 3,20,000 |
| Written off from Securities Premium A/c | Balance available | 1,80,000 |
| Written off from Statement of Profit and Loss | 3,20,000 - 1,80,000 | 1,40,000 |
Step 4: Journal entries:
| Date | Particulars | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|
| 1 Apr 2024 | Bank A/c ...Dr. | 18,80,000 | |
| To Debenture Application and Allotment A/c | 18,80,000 | ||
| (Debenture application money received) | |||
| 1 Apr 2024 | Debenture Application and Allotment A/c ...Dr. | 18,80,000 | |
| Loss on Issue of Debentures A/c ...Dr. | 3,20,000 | ||
| To 9% Debentures A/c | 20,00,000 | ||
| To Premium on Redemption of Debentures A/c | 2,00,000 | ||
| (Debenture application money transferred to debentures and premium on redemption of debentures account) | |||
| 31 Mar 2025 | Securities Premium A/c ...Dr. | 1,80,000 | |
| Statement of Profit and Loss ...Dr. | 1,40,000 | ||
| To Loss on Issue of Debentures A/c | 3,20,000 | ||
| (Loss on issue of debentures written off) | |||
The debentures are credited at face value of Rs. 20,00,000. The premium on redemption of Rs. 2,00,000 is a liability, so it is credited.
Step 5: Loss on Issue of Debentures Account:
| Date | Particulars (Dr.) | Amount (Rs.) | Date | Particulars (Cr.) | Amount (Rs.) |
|---|---|---|---|---|---|
| 2024 Apr. 1 | To 9% Debentures A/c | 1,20,000 | 2025 Mar. 31 | By Securities Premium A/c | 1,80,000 |
| 2024 Apr. 1 | To Premium on Redemption of Debentures A/c | 2,00,000 | 2025 Mar. 31 | By Statement of Profit and Loss | 1,40,000 |
| Total | 3,20,000 | Total | 3,20,000 |
Debit side: discount Rs. 1,20,000 and redemption premium Rs. 2,00,000. Credit side: Securities Premium Rs. 1,80,000 and Statement of Profit and Loss Rs. 1,40,000. Both sides total Rs. 3,20,000.
Step 6: Check the entries:
Entry 2 debit: Rs. 18,80,000 + Rs. 3,20,000 = Rs. 22,00,000. Entry 2 credit: Rs. 20,00,000 + Rs. 2,00,000 = Rs. 22,00,000.
Entry 3 debit: Rs. 1,80,000 + Rs. 1,40,000 = Rs. 3,20,000, which equals the credit to Loss on Issue of Debentures A/c.
Final Answer:
Loss on issue of debentures is Rs. 3,20,000. Rs. 1,80,000 is written off against Securities Premium and Rs. 1,40,000 against the Statement of Profit and Loss.
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