Question

Roshni Ltd. purchased machinery worth 1,98,000 from Prakash Ltd. The purchase consideration was paid by issue of 8% debentures of 100 each at 10% discount. (i) Calculate the number of debentures issued.
(ii) Pass necessary journal entries for purchase of machinery and issue of debentures.

Hint:

When debentures are issued at a discount, the discount is debited to a separate account. The vendor is credited with the full purchase consideration, and debentures are credited at face value.

Answer 1

(i) Number of Debentures Issued

Issue price of each debenture = 100 – 10% = ₹90

Purchase consideration = ₹1,98,000

Number of debentures issued = ₹1,98,000 / ₹90 = 2,200 debentures

(ii) Journal Entries

1. For purchase of machinery:

Machinery A/c	Dr.	₹1,98,000
To Prakash Ltd.		₹1,98,000

2. For issue of 8% debentures at 10% discount:

Face value = 2,200 × ₹100 = ₹2,20,000

Discount = 2,200 × ₹10 = ₹22,000

Prakash Ltd. A/c	Dr.	₹1,98,000
Discount on Issue of Debentures A/c	Dr.	₹22,000
To 8% Debentures A/c		₹2,20,000