Question

Pass necessary journal entries for the issue of debentures in the books of ZX Ltd. for the following transactions:
Issued 4,000, 8% Debentures of ₹ 100 each at a discount of 10%, redeemable at par after 5 years.
Issued 1,000, 8% Debentures of ₹ 100 each at a premium of 10%, redeemable at premium of 5% after 5 years.

Hint:

For debentures: - Discount at issue = Debit “Discount on Issue of Debentures”
- Premium at issue = Credit “Securities Premium A/c”
- Premium at redemption = Debit “Loss on Issue of Debentures”

Answer 1

Issue at 10% Discount and Redeemable at Par:
Nominal Value = 4,000 × ₹ 100 = ₹ 4,00,000
Issue Price = 90% of ₹ 100 = ₹ 90 per debenture
Total Cash Received = 4,000 × 90 = ₹ 3,60,000
Discount on Issue = 4,000 × ₹ 10 = ₹ 40,000
Journal Entry:

Bank A/c                      Dr.   3,60,000  
Discount on Issue of Deb. A/c Dr.     40,000  
   To 8% Debentures A/c               4,00,000  
(Issue of 4,000 8% Debentures @ 10% discount, repayable at par)

Issue at 10% Premium, Redeemable at 5% Premium:
Nominal Value = 1,000 × ₹ 100 = ₹ 1,00,000
Issue Price = ₹ 110 (10% premium)
Redemption Value = ₹ 105 (5% premium)
Total Cash Received = 1,000 × 110 = ₹ 1,10,000
Premium on Redemption = 1,000 × ₹ 5 = ₹ 5,000
Journal Entry:

Bank A/c                      Dr.   1,10,000  
   To 8% Debentures A/c               1,00,000  
   To Securities Premium A/c            10,000  
(Issue of 1,000 8% Debentures @ 10% premium)

Loss on Issue of Debentures A/c Dr.     5,000  
   To Premium on Redemption of Debentures A/c   5,000  
(Premium payable on redemption of debentures)