Question:
Pass necessary journal entries for issue of debentures for the following transactions:
(i) AB Ltd. issued 30,000, 10% Debentures of Rs 100 each at a premium of 5%, redeemable at a premium of 10%.
(ii) CD Ltd. issued 40,000, 8% Debentures of Rs 100 each at par, redeemable at a premium of 10%.
Pass necessary journal entries for issue of debentures for the following transactions:
(i) AB Ltd. issued 30,000, 10% Debentures of Rs 100 each at a premium of 5%, redeemable at a premium of 10%.
(ii) CD Ltd. issued 40,000, 8% Debentures of Rs 100 each at par, redeemable at a premium of 10%.
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Redemption premium is a liability, so credit Premium on Redemption and debit Loss on Issue. AB Ltd. gets Rs. 31,50,000 with Rs. 1,50,000 as Securities Premium. CD Ltd. gets Rs. 40,00,000 at par.
Updated On: Oct 26, 2026
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Solution and Explanation
Step 1: Understand the rule:
When debentures are redeemable at a premium, the company will pay more than face value later.
That extra payment is a liability now, so we credit Premium on Redemption of Debentures A/c.
The matching debit is Loss on Issue of Debentures A/c. Premium received on issue goes to Securities Premium A/c.
Step 2: Working Note 1: AB Ltd.:
Issue price = Rs. 100 + 5 percent premium = Rs. 105 per debenture.
Money received = 30,000 x Rs. 105 = Rs. 31,50,000.
Debentures at face value = 30,000 x Rs. 100 = Rs. 30,00,000.
Securities Premium = 30,000 x Rs. 5 = Rs. 1,50,000.
Premium on redemption = 30,000 x Rs. 10 = Rs. 3,00,000, which is also the Loss on Issue.
Step 3: Working Note 2: CD Ltd.:
Issue price = Rs. 100 (at par), so there is no Securities Premium.
Money received = 40,000 x Rs. 100 = Rs. 40,00,000.
Premium on redemption = 40,000 x Rs. 10 = Rs. 4,00,000, which is also the Loss on Issue.
Step 4: Entries in the books of AB Ltd. (i):
Step 5: Entries in the books of CD Ltd. (ii):
Step 6: Check the entries:
AB Ltd.: Dr. Rs. 31,50,000 + Rs. 3,00,000 = Rs. 34,50,000 = Cr. Rs. 30,00,000 + Rs. 1,50,000 + Rs. 3,00,000.
CD Ltd.: Dr. Rs. 40,00,000 + Rs. 4,00,000 = Rs. 44,00,000 = Cr. Rs. 40,00,000 + Rs. 4,00,000.
Final Answer:
AB Ltd. records Securities Premium Rs. 1,50,000 and premium on redemption Rs. 3,00,000. CD Ltd. records premium on redemption Rs. 4,00,000 and no Securities Premium.
When debentures are redeemable at a premium, the company will pay more than face value later.
That extra payment is a liability now, so we credit Premium on Redemption of Debentures A/c.
The matching debit is Loss on Issue of Debentures A/c. Premium received on issue goes to Securities Premium A/c.
Step 2: Working Note 1: AB Ltd.:
Issue price = Rs. 100 + 5 percent premium = Rs. 105 per debenture.
Money received = 30,000 x Rs. 105 = Rs. 31,50,000.
Debentures at face value = 30,000 x Rs. 100 = Rs. 30,00,000.
Securities Premium = 30,000 x Rs. 5 = Rs. 1,50,000.
Premium on redemption = 30,000 x Rs. 10 = Rs. 3,00,000, which is also the Loss on Issue.
Step 3: Working Note 2: CD Ltd.:
Issue price = Rs. 100 (at par), so there is no Securities Premium.
Money received = 40,000 x Rs. 100 = Rs. 40,00,000.
Premium on redemption = 40,000 x Rs. 10 = Rs. 4,00,000, which is also the Loss on Issue.
Step 4: Entries in the books of AB Ltd. (i):
| Date | Particulars | L.F. | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|---|
| Bank A/c ... Dr. | 31,50,000 | |||
| To Debenture Application and Allotment A/c | 31,50,000 | |||
| (Application money received on 30,000 debentures at Rs. 105 each) |
| Date | Particulars | L.F. | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|---|
| Debenture Application and Allotment A/c ... Dr. | 31,50,000 | |||
| Loss on Issue of Debentures A/c ... Dr. | 3,00,000 | |||
| To 10% Debentures A/c | 30,00,000 | |||
| To Securities Premium A/c | 1,50,000 | |||
| To Premium on Redemption of Debentures A/c | 3,00,000 | |||
| (Application money transferred to debentures, securities premium and provision for premium on redemption) |
Step 5: Entries in the books of CD Ltd. (ii):
| Date | Particulars | L.F. | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|---|
| Bank A/c ... Dr. | 40,00,000 | |||
| To Debenture Application and Allotment A/c | 40,00,000 | |||
| (Application money received on 40,000 debentures at Rs. 100 each) |
| Date | Particulars | L.F. | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|---|
| Debenture Application and Allotment A/c ... Dr. | 40,00,000 | |||
| Loss on Issue of Debentures A/c ... Dr. | 4,00,000 | |||
| To 8% Debentures A/c | 40,00,000 | |||
| To Premium on Redemption of Debentures A/c | 4,00,000 | |||
| (Application money transferred to debentures and provision for premium on redemption) |
Step 6: Check the entries:
AB Ltd.: Dr. Rs. 31,50,000 + Rs. 3,00,000 = Rs. 34,50,000 = Cr. Rs. 30,00,000 + Rs. 1,50,000 + Rs. 3,00,000.
CD Ltd.: Dr. Rs. 40,00,000 + Rs. 4,00,000 = Rs. 44,00,000 = Cr. Rs. 40,00,000 + Rs. 4,00,000.
Final Answer:
AB Ltd. records Securities Premium Rs. 1,50,000 and premium on redemption Rs. 3,00,000. CD Ltd. records premium on redemption Rs. 4,00,000 and no Securities Premium.
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