Journal Entries in the Books of XYZ Ltd. for Issuing Debentures:

1. To record the receipt of application money:

Bank Account Dr. 20,250
To Debenture Application Account 20,250

2. To record the allotment of debentures:

Debenture Application Account Dr. 20,250
To Debenture Allotment Account 20,250

3. To record the receipt of allotment money:

Bank Account Dr. 6,750
To Debenture Allotment Account 6,750

4. To record the issue of debentures:

Debenture Allotment Account Dr. 20,250
To Debenture Account 20,250

5. To record the payment of debenture interest:

Debenture Interest Account Dr. 2,700
To Bank Account 2,700

Explanation:

- The first entry records the receipt of application money. When a company issues debentures, it invites applications from the public. The application money is the amount paid by the public for applying for debentures. In this case, the public applied for Rs. 20,250 debentures, and the company received the same amount as application money. Therefore, the bank account is debited, and the debenture application account is credited.
- The second entry records the allotment of debentures. After considering the applications received, the company allots debentures to the applicants. In this case, the company allotted Rs. 20,250 debentures to the public. Therefore, the debenture application account is debited, and the debenture allotment account is credited.
- The third entry records the receipt of allotment money. The company receives the allotment money from the public after allotting the debentures. In this case, the allotment money is Rs. 6,750, and the bank account is debited, while the debenture allotment account is credited.
- The fourth entry records the issue of debentures. After receiving the allotment money, the company issues debentures to the public. In this case, the company issued Rs. 20,250 debentures, and the debenture allotment account is debited, while the debenture account is credited.
- The fifth entry records the payment of debenture interest. The company pays interest on debentures to the debenture holders. In this case, the company pays Rs. 2,700 as debenture interest, and the debenture interest account is debited, while the bank account is credited.