Question:
Pass necessary journal entries for issue of debentures for the following transactions:
(i) KL Ltd. issued 80,000, 9% Debentures of Rs 100 each at a premium of 10%, redeemable at a premium of 5%.
(ii) UH Ltd. issued 40,000, 9% 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) KL Ltd. issued 80,000, 9% Debentures of Rs 100 each at a premium of 10%, redeemable at a premium of 5%.
(ii) UH Ltd. issued 40,000, 9% Debentures of Rs 100 each at par, redeemable at a premium of 10%.
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Debentures redeemable at a premium create a liability for the premium and an equal Loss on Issue. Add Securities Premium only where the issue price is above par.
Updated On: Oct 26, 2026
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Solution and Explanation
Step 1: Understand the two cases:
In both cases the debentures are redeemable at a premium. The company must pay more than the face value at redemption.
This extra payment is a liability from the day of issue. So Premium on Redemption of Debentures A/c is credited at the time of issue.
The same amount is a loss to the company. So Loss on Issue of Debentures A/c is debited, as a capital loss written off later.
In case (i) the debentures are also issued at a premium, so Securities Premium A/c is credited. In case (ii) the issue is at par, so there is none.
Step 2: Working Notes for case (i): KL Ltd.:
Face value = 80,000 x Rs. 100 = Rs. 80,00,000.
Premium on issue = 10% of Rs. 80,00,000 = Rs. 8,00,000.
Application money received = Rs. 80,00,000 + Rs. 8,00,000 = Rs. 88,00,000.
Premium on redemption = 5% of Rs. 80,00,000 = Rs. 4,00,000, which is also the loss on issue.
Step 3: Journal entries for case (i) in the books of KL Ltd.:
Step 4: Working Notes for case (ii): UH Ltd.:
Face value = 40,000 x Rs. 100 = Rs. 40,00,000.
Issue is at par, so application money = Rs. 40,00,000 and there is no securities premium.
Premium on redemption = 10% of Rs. 40,00,000 = Rs. 4,00,000, which is also the loss on issue.
Step 5: Journal entries for case (ii) in the books of UH Ltd.:
Step 6: Check the entries:
Case (i), second entry: debit Rs. 88,00,000 + Rs. 4,00,000 = Rs. 92,00,000. Credit Rs. 80,00,000 + Rs. 8,00,000 + Rs. 4,00,000 = Rs. 92,00,000. The two sides agree.
Case (ii), second entry: debit Rs. 40,00,000 + Rs. 4,00,000 = Rs. 44,00,000. Credit Rs. 40,00,000 + Rs. 4,00,000 = Rs. 44,00,000. The two sides agree.
Final Answer:
Case (i): Bank Rs. 88,00,000, Debentures Rs. 80,00,000, Securities Premium Rs. 8,00,000, Premium on Redemption and Loss on Issue Rs. 4,00,000 each. Case (ii): Bank Rs. 40,00,000, Debentures Rs. 40,00,000, Premium on Redemption and Loss on Issue Rs. 4,00,000 each.
In both cases the debentures are redeemable at a premium. The company must pay more than the face value at redemption.
This extra payment is a liability from the day of issue. So Premium on Redemption of Debentures A/c is credited at the time of issue.
The same amount is a loss to the company. So Loss on Issue of Debentures A/c is debited, as a capital loss written off later.
In case (i) the debentures are also issued at a premium, so Securities Premium A/c is credited. In case (ii) the issue is at par, so there is none.
Step 2: Working Notes for case (i): KL Ltd.:
Face value = 80,000 x Rs. 100 = Rs. 80,00,000.
Premium on issue = 10% of Rs. 80,00,000 = Rs. 8,00,000.
Application money received = Rs. 80,00,000 + Rs. 8,00,000 = Rs. 88,00,000.
Premium on redemption = 5% of Rs. 80,00,000 = Rs. 4,00,000, which is also the loss on issue.
Step 3: Journal entries for case (i) in the books of KL Ltd.:
| Date | Particulars | L.F. | Dr. (Rs) | Cr. (Rs) |
|---|---|---|---|---|
| Bank A/c Dr. | 88,00,000 | |||
| To Debenture Application and Allotment A/c | 88,00,000 | |||
| Application money received on 80,000 9% debentures of Rs. 100 each | ||||
| Debenture Application and Allotment A/c Dr. | 88,00,000 | |||
| Loss on Issue of Debentures A/c Dr. | 4,00,000 | |||
| To 9% Debentures A/c | 80,00,000 | |||
| To Securities Premium A/c | 8,00,000 | |||
| To Premium on Redemption of Debentures A/c | 4,00,000 | |||
| Application money transferred to debentures account and securities premium account, and premium on redemption created | ||||
Step 4: Working Notes for case (ii): UH Ltd.:
Face value = 40,000 x Rs. 100 = Rs. 40,00,000.
Issue is at par, so application money = Rs. 40,00,000 and there is no securities premium.
Premium on redemption = 10% of Rs. 40,00,000 = Rs. 4,00,000, which is also the loss on issue.
Step 5: Journal entries for case (ii) in the books of UH Ltd.:
| 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 9% debentures of Rs. 100 each | ||||
| Debenture Application and Allotment A/c Dr. | 40,00,000 | |||
| Loss on Issue of Debentures A/c Dr. | 4,00,000 | |||
| To 9% Debentures A/c | 40,00,000 | |||
| To Premium on Redemption of Debentures A/c | 4,00,000 | |||
| Application money transferred to debentures account, and premium on redemption created | ||||
Step 6: Check the entries:
Case (i), second entry: debit Rs. 88,00,000 + Rs. 4,00,000 = Rs. 92,00,000. Credit Rs. 80,00,000 + Rs. 8,00,000 + Rs. 4,00,000 = Rs. 92,00,000. The two sides agree.
Case (ii), second entry: debit Rs. 40,00,000 + Rs. 4,00,000 = Rs. 44,00,000. Credit Rs. 40,00,000 + Rs. 4,00,000 = Rs. 44,00,000. The two sides agree.
Final Answer:
Case (i): Bank Rs. 88,00,000, Debentures Rs. 80,00,000, Securities Premium Rs. 8,00,000, Premium on Redemption and Loss on Issue Rs. 4,00,000 each. Case (ii): Bank Rs. 40,00,000, Debentures Rs. 40,00,000, Premium on Redemption and Loss on Issue Rs. 4,00,000 each.
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