Question

Pass necessary journal entries for the issue of debentures in the books of NK Ltd. for the following transactions:
(i) Issued 500, 9% Debentures of 100 each at 10% discount, redeemable at a premium of 10% after 5 years.
(ii) Issued 400, 9% Debentures of 100 each at 5% discount, redeemable at par after 5 years.

Hint:

The discount on issue and premium on redemption both increase the total loss on issue of debentures. Use a separate “Loss on Issue of Debentures” account to combine both types of loss for future write-off.

Answer 1

(i) Journal Entry:
 

Particulars		Dr. (₹)	Cr. (₹)
Bank A/c	Dr.	45,000
Discount on Issue of Debentures A/c	Dr.	5,000
Loss on Issue of Debentures A/c	Dr.	5,000
To 9% Debentures A/c			50,000
To Premium on Redemption of Debentures A/c			5,000
(Being 500 debentures issued at 10% discount and redeemable at 10% premium)

(ii) Journal Entry:
 

Particulars		Dr. (₹)	Cr. (₹)
Bank A/c	Dr.	38,000
Discount on Issue of Debentures A/c	Dr.	2,000
To 9% Debentures A/c			40,000
(Being 400 debentures issued at 5% discount, redeemable at par)