On 1st January, 2011, A Ltd. issued 30,000 12% debentures of Rs. 100 each at a discount of 10% repayable by three annual instalments beginning from the end of 4th year. Show the debentures account and discount on issue of debentures account for the last three years. [Ans. Amount of discount to be w/off-first year Rs. 60,000 ; second year Rs.60,000 ; third year Rs.60,000 ; fourth year Rs. 60,000 ; fifth year Rs.40,000 ; sixth year Rs.20,000]?

Question

Answer

Debenture Issuance and Repayment

Debentures are a type of long-term debt instrument used by companies to raise funds from the public. They are usually issued at a discount or premium to their face value and carry a fixed rate of interest. In this case, A Ltd. issued 30,000 12% debentures of Rs. 100 each at a discount of 10%.

Debentures Account

The debentures account is used to record the issue and redemption of debentures. In this case, the following entries would be made in the debentures account:

1. At the time of issuance:
Debentures A/c Dr. 27,00,000
Discount on Issue of Debentures A/c Dr. 3,00,000
To Bank A/c (being the issue of 30,000 debentures at a discount of 10%)

2. At the end of the first year:
Interest on Debentures A/c Dr. 3,24,000
To Debentures A/c (being the payment of interest on 30,000 debentures)

3. At the end of the second year:
Interest on Debentures A/c Dr. 3,24,000
To Debentures A/c (being the payment of interest on 30,000 debentures)

4. At the end of the third year:
Interest on Debentures A/c Dr. 3,24,000
To Debentures A/c (being the payment of interest on 30,000 debentures)

5. At the end of the fourth year:
Debentures A/c Dr. 9,00,000
To Bank A/c (being the repayment of 30% of the debentures)

6. At the end of the fifth year:
Debentures A/c Dr. 9,00,000
To Bank A/c (being the repayment of 30% of the debentures)

7. At the end of the sixth year:
Debentures A/c Dr. 6,00,000
Discount on Issue of Debentures A/c Dr. 20,000
To Bank A/c (being the repayment of the remaining 40% of the debentures along with the unamortized discount)

Discount on Issue of Debentures Account

Discount on issue of debentures account is used to record the discount given on the issuance of debentures. In this case, the following entries would be made in the discount on issue of debentures account:

1. At the time of issuance:
Profit and Loss A/c Dr. 3,00,000
To Discount on Issue of Debentures A/c (being the discount given on the issuance of 30,000 debentures)

2. At the end of the fourth year:
Discount on Issue of Debentures A/c Dr. 60,000
To Profit and Loss A/c (being the amount of discount written off in the fourth year)

3. At the end of the fifth year:
Discount on Issue of Debentures A/c Dr. 40,000
To Profit and Loss A/c (being the amount of discount written off in the fifth year)

4. At the end of the sixth year:
Discount on Issue of Debentures A/c Dr.

Answer

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