Question:
Pass necessary journal entries for the issue of debentures for the following transactions:
(i) XS Ltd. issued 40,000, 9% Debentures of Rs 100 each at a premium of 10%, redeemable at a premium of 5%.
(ii) YG Ltd. issued 50,000, 9% Debentures of Rs 100 each at par, redeemable at a premium of 10%.
Pass necessary journal entries for the issue of debentures for the following transactions:
(i) XS Ltd. issued 40,000, 9% Debentures of Rs 100 each at a premium of 10%, redeemable at a premium of 5%.
(ii) YG Ltd. issued 50,000, 9% Debentures of Rs 100 each at par, redeemable at a premium of 10%.
Show Hint
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
Show Solution
Verified By Collegedunia
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): XS Ltd.:
Face value = 40,000 x Rs. 100 = Rs. 40,00,000.
Premium on issue = 10% of Rs. 40,00,000 = Rs. 4,00,000.
Application money received = Rs. 40,00,000 + Rs. 4,00,000 = Rs. 44,00,000.
Premium on redemption = 5% of Rs. 40,00,000 = Rs. 2,00,000, which is also the loss on issue.
Step 3: Journal entries for case (i) in the books of XS Ltd.:
Step 4: Working Notes for case (ii): YG Ltd.:
Face value = 50,000 x Rs. 100 = Rs. 50,00,000.
Issue is at par, so application money = Rs. 50,00,000 and there is no securities premium.
Premium on redemption = 10% of Rs. 50,00,000 = Rs. 5,00,000, which is also the loss on issue.
Step 5: Journal entries for case (ii) in the books of YG Ltd.:
Step 6: Check the entries:
Case (i), second entry: debit Rs. 44,00,000 + Rs. 2,00,000 = Rs. 46,00,000. Credit Rs. 40,00,000 + Rs. 4,00,000 + Rs. 2,00,000 = Rs. 46,00,000. The two sides agree.
Case (ii), second entry: debit Rs. 50,00,000 + Rs. 5,00,000 = Rs. 55,00,000. Credit Rs. 50,00,000 + Rs. 5,00,000 = Rs. 55,00,000. The two sides agree.
Final Answer:
Case (i): Bank Rs. 44,00,000, Debentures Rs. 40,00,000, Securities Premium Rs. 4,00,000, Premium on Redemption and Loss on Issue Rs. 2,00,000 each. Case (ii): Bank Rs. 50,00,000, Debentures Rs. 50,00,000, Premium on Redemption and Loss on Issue Rs. 5,00,000 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): XS Ltd.:
Face value = 40,000 x Rs. 100 = Rs. 40,00,000.
Premium on issue = 10% of Rs. 40,00,000 = Rs. 4,00,000.
Application money received = Rs. 40,00,000 + Rs. 4,00,000 = Rs. 44,00,000.
Premium on redemption = 5% of Rs. 40,00,000 = Rs. 2,00,000, which is also the loss on issue.
Step 3: Journal entries for case (i) in the books of XS Ltd.:
| Date | Particulars | L.F. | Dr. (Rs) | Cr. (Rs) |
|---|---|---|---|---|
| Bank A/c Dr. | 44,00,000 | |||
| To Debenture Application and Allotment A/c | 44,00,000 | |||
| Application money received on 40,000 9% debentures of Rs. 100 each | ||||
| Debenture Application and Allotment A/c Dr. | 44,00,000 | |||
| Loss on Issue of Debentures A/c Dr. | 2,00,000 | |||
| To 9% Debentures A/c | 40,00,000 | |||
| To Securities Premium A/c | 4,00,000 | |||
| To Premium on Redemption of Debentures A/c | 2,00,000 | |||
| Application money transferred to debentures account and securities premium account, and premium on redemption created | ||||
Step 4: Working Notes for case (ii): YG Ltd.:
Face value = 50,000 x Rs. 100 = Rs. 50,00,000.
Issue is at par, so application money = Rs. 50,00,000 and there is no securities premium.
Premium on redemption = 10% of Rs. 50,00,000 = Rs. 5,00,000, which is also the loss on issue.
Step 5: Journal entries for case (ii) in the books of YG Ltd.:
| Date | Particulars | L.F. | Dr. (Rs) | Cr. (Rs) |
|---|---|---|---|---|
| Bank A/c Dr. | 50,00,000 | |||
| To Debenture Application and Allotment A/c | 50,00,000 | |||
| Application money received on 50,000 9% debentures of Rs. 100 each | ||||
| Debenture Application and Allotment A/c Dr. | 50,00,000 | |||
| Loss on Issue of Debentures A/c Dr. | 5,00,000 | |||
| To 9% Debentures A/c | 50,00,000 | |||
| To Premium on Redemption of Debentures A/c | 5,00,000 | |||
| Application money transferred to debentures account, and premium on redemption created | ||||
Step 6: Check the entries:
Case (i), second entry: debit Rs. 44,00,000 + Rs. 2,00,000 = Rs. 46,00,000. Credit Rs. 40,00,000 + Rs. 4,00,000 + Rs. 2,00,000 = Rs. 46,00,000. The two sides agree.
Case (ii), second entry: debit Rs. 50,00,000 + Rs. 5,00,000 = Rs. 55,00,000. Credit Rs. 50,00,000 + Rs. 5,00,000 = Rs. 55,00,000. The two sides agree.
Final Answer:
Case (i): Bank Rs. 44,00,000, Debentures Rs. 40,00,000, Securities Premium Rs. 4,00,000, Premium on Redemption and Loss on Issue Rs. 2,00,000 each. Case (ii): Bank Rs. 50,00,000, Debentures Rs. 50,00,000, Premium on Redemption and Loss on Issue Rs. 5,00,000 each.
Was this answer helpful?
0
0
Top CBSE CLASS XII Accountancy Questions
From the following Balance Sheet of Hira Ltd. as at 31st March, 2023, prepare Comparative Balance Sheet:
- On 1st May, 2023, Amrit Ltd. issued 10,000, 10% debentures of ₹100 each at a premium of 10%, redeemable at a premium of 10%. Loss on issue of debentures will be:
- Gupta and Sharma are partners in a firm sharing profit in the ratio of 4:1. They admitted Preeti as a new partner for \( \frac{1}{4} \) share in the profits, which she acquired wholly from Gupta. The new profit sharing ratio of Gupta, Sharma, and Preeti will be:
- On the dissolution of a partnership firm, there were debtors of ₹34,000. Debtors of ₹1,000 became bad, and 60% was realized from the remaining debtors. Which account will be debited and by how much amount on the realization from debtors?
- If vendors are issued fully paid shares of ₹1,25,000 in purchase consideration of net assets of ₹1,50,000, the balance of ₹25,000 will be credited to:
View More Questions
Top CBSE CLASS XII Company Accounts Questions
- Universal Ltd. took over machinery of ₹ 3,30,000, furniture of ₹ 1,60,000 and liabilities of ₹ 80,000 from Amol Ltd. for a purchase consideration of ₹ 4,50,000. The payment to Amol Ltd. was made by issue of 10% Debentures of ₹ 50 each at a discount of 10%. The number of debentures issued to Amol Ltd. was:
- Reserve capital is that portion of the ______________ capital that can be called only in the event of winding up of the company.
- The debentures which do not carry a specific rate of interest are known as:
- On 1st April, 2024, EE Ltd. issued 3,000, 9% Debentures of ₹ 50 each at a premium of 5%, redeemable at a premium of ₹ 10 per debenture after five years. Interest on the debentures was to be paid on half-yearly basis on 30th September and 31st March. Interest on debentures for the year ended 31st March, 2025 will be:
- Nori Ltd. issued 20,000, 11% debentures of ₹ 100 each at a premium of 10%, redeemable at a premium of 5%. Loss on issue of debentures account will be debited by :
View More Questions
Top CBSE CLASS XII Questions
- 2, b, c are in A.P. and the range of determinant $\begin{vmatrix}1&1&1\\ 2&b&c\\ 4&b^{2}&c^{2}\end{vmatrix}$ is [2, 16]. Then find range of c is
- A boy of mass 50 kg is standing at one end of a, boat of length 9 m and mass 400 kg. He runs to the other, end. The distance through which the centre of mass of the boat boy system moves is
- A capillary tube of radius r is dipped inside a large vessel of water. The mass of water raised above water level is M. If the radius of capillary is doubled, the mass of water inside capillary will be
- A circular disc is rotating about its own axis. An external opposing torque 0.02 Nm is applied on the disc by which it comes rest in 5 seconds. The initial angular momentum of disc is
- A circular disc is rotating about its own axis at uniform angular velocity \(\omega.\) The disc is subjected to uniform angular retardation by which its angular velocity is decreased to \(\frac {\omega}{2}\) during 120 rotations. The number of rotations further made by it before coming to rest is
View More Questions