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Commerce Exam  >  Commerce Notes  >  Accountancy Class 12  >  Worksheet Solutions: Issue and Redemption of Debentures

Worksheet Solutions: Issue and Redemption of Debentures

Very Short Answer Questions (1-2 marks each) 

Q1: A Ltd issued 2,000, 8% debentures of ₹100 each at par, payable in full on application. Pass the journal entry for issue.
Ans: 
ParticularsDebit (₹)Credit (₹)
Bank A/c2,00,000
To 8% Debentures A/c
2,00,000
(Being 2,000 debentures issued at par)

Working:
Amount received = 2,000 × ₹100 = ₹2,00,000

Q2: B Ltd issued 1,000, 10% debentures of ₹100 each at 10% premium, fully payable on application. Pass the journal entry for issue.
Ans: 
ParticularsDebit (₹)Credit (₹)
Bank A/c1,10,000
To 10% Debentures A/c
1,00,000
To Securities Premium Reserve A/c
10,000
(Being 1,000 debentures issued at 10% premium)

Working:
Amount received = 1,000 × ₹110 = ₹1,10,000
Debentures = 1,000 × ₹100 = ₹1,00,000
Premium = 1,000 × ₹10 = ₹10,000

Q3: C Ltd issued 3,000, 12% debentures of ₹100 each at 5% discount, payable in full on application. Pass the journal entry.
Ans: 
ParticularsDebit (₹)Credit (₹)
Bank A/c2,85,000
Discount on Issue of Debentures A/c15,000
To 12% Debentures A/c
3,00,000
(Being 3,000 debentures issued at 5% discount)

Working:
Debentures = 3,000 × ₹100 = ₹3,00,000
Amount received = 3,000 × ₹95 = ₹2,85,000
Discount = 3,000 × ₹5 = ₹15,000

Q4: Alpha Ltd issued 5,000, 8% debentures of ₹100 each as collateral security for a loan of ₹4,00,000. Pass the journal entry.
Ans: 
ParticularsDebit (₹)Credit (₹)
Bank A/c4,00,000
To Loan A/c
4,00,000
(Being loan received against debentures as collateral security)


Debenture Suspense A/c5,00,000
To 8% Debentures A/c
5,00,000
(Being debentures issued as collateral security)

Note: Debentures issued as collateral security are recorded separately and do not involve cash transaction. Face value = 5,000 × ₹100 = ₹5,00,000

Q5: Beta Ltd purchased machinery for ₹7,20,000, paid by issuing 6% debentures of ₹100 each at 20% premium to the vendor. Pass the journal entry.
Ans: 
ParticularsDebit (₹)Credit (₹)
Machinery A/c7,20,000
To 6% Debentures A/c
6,00,000
To Securities Premium Reserve A/c
1,20,000
(Being machinery purchased by issuing debentures at 20% premium)

Working:
Issue price per debenture = ₹100 + ₹20 = ₹120
Number of debentures = ₹7,20,000 ÷ ₹120 = 6,000 debentures
Face value = 6,000 × ₹100 = ₹6,00,000
Premium = 6,000 × ₹20 = ₹1,20,000

Q6: C Ltd purchased machinery of ₹7,60,000 and liabilities of ₹1,80,000 for ₹7,60,000 issuing 9% debentures of ₹100 each at 5% discount. Calculate the number of debentures issued.
Ans: Purchase Consideration = ₹7,60,000
Issue price per debenture = ₹100 - ₹5 = ₹95

Number of debentures = Purchase Consideration ÷ Issue Price
= ₹7,60,000 ÷ ₹95
= 8,000 debentures
Note: The net purchase consideration (Assets - Liabilities taken over) = ₹7,60,000 - ₹1,80,000 would have been ₹5,80,000, but the question states purchase price is ₹7,60,000, so we use that figure.

Q7: Calculate the total discount on issue for:
• X Ltd: 2,500, 10% debentures of ₹100 each at 6% discount
• Y Ltd: 4,000, 9% debentures of ₹100 each at 8% discount
Ans: 
(i) X Ltd:
Total Discount = 2,500 × ₹100 × 6/100
= 2,500 × ₹6
= ₹15,000
(ii) Y Ltd:
Total Discount = 4,000 × ₹100 × 8/100
= 4,000 × ₹8
= ₹32,000

Q8: Calculate the total premium on issue for:
• X Ltd: 3,000, 12% debentures of ₹100 each at 15% premium
• Y Ltd: 2,500, 9% debentures of ₹100 each at 10% premium
Ans: 
(i) X Ltd:
Total Premium = 3,000 × ₹100 × 15/100
= 3,000 × ₹15
= ₹45,000
(ii) Y Ltd:
Total Premium = 2,500 × ₹100 × 10/100
= 2,500 × ₹10
= ₹25,000

Q9: A company issued 10,000 debentures of ₹100 each, redeemable at 5% premium. Calculate total premium on redemption.
Ans: Total Premium on Redemption = Number of debentures × Face Value × Premium %
= 10,000 × ₹100 × 5/100
= 10,000 × ₹5
= ₹50,000

Q10: A company issued 5,000, 8% debentures of ₹100 each. Minimum Debenture Redemption Reserve to be created is 25% of redemption value. Calculate minimum DRR.
Ans: Redemption Value = 5,000 × ₹100 = ₹5,00,000
Minimum DRR = 25% of Redemption Value
= ₹5,00,000 × 25/100
= ₹1,25,000

Q11: Calculate annual interest for one year on:
• 6,000, 12% debentures of ₹100 each
• 5,000, 10% debentures of ₹100 each
Ans: 
(i) Annual Interest:
= 6,000 × ₹100 × 12/100
= ₹72,000
(ii) Annual Interest:
= 5,000 × ₹100 × 10/100
= ₹50,000

Q12: Calculate half-yearly interest on:
• 8,000, 8% debentures of ₹100 each
• 5,000, 10% debentures of ₹100 each
Ans: 
(i) Half-yearly Interest:
Annual Interest = 8,000 × ₹100 × 8/100 = ₹64,000
Half-yearly Interest = ₹64,000 ÷ 2 = ₹32,000
(ii) Half-yearly Interest:
Annual Interest = 5,000 × ₹100 × 10/100 = ₹50,000
Half-yearly Interest = ₹50,000 ÷ 2 = ₹25,000

Q13: R Ltd issued 2,000, 11% debentures of ₹100 each at 10% premium. Calculate amount credited to Securities Premium Reserve.
Ans: Securities Premium Reserve = Number of debentures × Premium per debenture
= 2,000 × (₹100 × 10/100)
= 2,000 × ₹10
= ₹20,000

Q14: M Ltd issued 3,000, 9% debentures of ₹100 each at 6% discount. Calculate total discount on issue.
Ans: Total Discount = Number of debentures × Face Value × Discount %
= 3,000 × ₹100 × 6/100
= 3,000 × ₹6
= ₹18,000

Q15: A company redeems 1,000, 10% debentures of ₹100 each at 6% premium. Calculate total premium on redemption.
Ans: Total Premium on Redemption = Number of debentures × Face Value × Premium %
= 1,000 × ₹100 × 6/100
= 1,000 × ₹6
= ₹6,000

Short Answer Questions (3-4 marks each) 

Q16: X Ltd invited applications for 500, 12% debentures of ₹100 each at 5% discount. Applications for 600 received, prorata allotment made. Pass journal entries for issue (full amount payable on application).
Ans: 
Journal Entries in the Books of X Ltd:
ParticularsDebit (₹)Credit (₹)
Bank A/c57,000
To Debenture Application & Allotment A/c
57,000
(Being application money received for 600 debentures @ ₹95 each)


Debenture Application & Allotment A/c57,000
Discount on Issue of Debentures A/c2,500
To 12% Debentures A/c
50,000
To Bank A/c
9,500
(Being 500 debentures allotted pro-rata, 100 applications rejected and money refunded)

Working:
Applications received: 600 × ₹95 = ₹57,000
Allotted: 500 debentures (Face value = ₹50,000)
Rejected: 100 debentures
Money refunded: 100 × ₹95 = ₹9,500
Discount: 500 × ₹5 = ₹2,500

Q17: X Ltd invited applications for 1,000, 9% debentures of ₹100 each at 6% discount. Applications for 1,200 received, prorata allotment made. Pass journal entries (full amount payable on application).
Ans:
ParticularsDebit (₹)Credit (₹)
Bank A/c1,12,800
Discount on Issue of Debentures A/c6,000
    To Debenture Application A/c
1,12,800
    To 9% Debentures A/c
1,00,000
    To Securities Premium Reserve A/c
18,800
(Being 1,000 debentures issued at discount and excess application money transferred to SPR)

Working:
Applications received = 1,200 debentures
Debentures to be issued = 1,000 debentures
Amount received per debenture = ₹94 (₹100 - 6% discount)
Total amount received = 1,200 × ₹94 = ₹1,12,800
Amount for 1,000 debentures = 1,000 × ₹94 = ₹94,000
Excess application money = ₹1,12,800 - ₹94,000 = ₹18,800 (transferred to SPR)
Discount on 1,000 debentures = 1,000 × ₹6 = ₹6,000
Debentures A/c = 1,000 × ₹100 = ₹1,00,000

Q18: Nisha Ltd purchased machinery from Meloni Ltd, paid ₹90,000 by issuing 6,900 6% debentures of ₹100 each at 20% discount and ₹90,000 by bank draft payable after 3 months. Pass journal entries.
Ans:
ParticularsDebit (₹)Credit (₹)
Machinery A/c6,42,200
Discount on Issue of Debentures A/c1,38,000
    To 6% Debentures A/c
6,90,000
    To Bills Payable A/c
90,000
    To Securities Premium Reserve A/c
200
(Being machinery purchased by issuing debentures at discount and bills payable)

Working:
Number of debentures issued = 6,900
Issue price per debenture = ₹80 (₹100 - 20% discount)
Value of debentures = 6,900 × ₹80 = ₹5,52,000
Payment by bank draft = ₹90,000
Total machinery cost = ₹5,52,000 + ₹90,000 = ₹6,42,000
Discount on debentures = 6,900 × ₹20 = ₹1,38,000
Debentures A/c = 6,900 × ₹100 = ₹6,90,000

Note: The question states ₹90,000 paid by debentures, but this seems inconsistent. Based on standard practice, we assume the machinery costs ₹5,52,000 (paid by debentures) + ₹90,000 (bills payable) = ₹6,42,000. The ₹200 excess is credited to SPR.
Q19: Alpha Ltd issued 10,000, 10% debentures of ₹100 each at 5% discount payable ₹10 application, ₹30 allotment (including discount), balance on first and final call. Fully subscribed, money received. Pass journal entries.
Ans:
ParticularsDebit (₹)Credit (₹)
1. On Application
Bank A/c1,00,000
    To Debenture Application A/c
1,00,000
(Being application money received)

2. On Allotment
Debenture Application A/c1,00,000
Debenture Allotment A/c3,00,000
Discount on Issue of Debentures A/c50,000
    To 10% Debentures A/c
10,00,000
    To Debenture First and Final Call A/c
5,50,000
(Being debentures allotted and discount adjusted)

Bank A/c3,00,000
    To Debenture Allotment A/c
3,00,000
(Being allotment money received)

3. On First and Final Call
Bank A/c5,50,000
    To Debenture First and Final Call A/c
5,50,000
(Being call money received)

Working:
Number of debentures = 10,000
Face value per debenture = ₹100
Issue price = ₹95 (₹100 - 5% discount)
Application money = 10,000 × ₹10 = ₹1,00,000
Allotment money = 10,000 × ₹30 = ₹3,00,000
First and Final Call = 10,000 × ₹55 = ₹5,50,000
Discount = 10,000 × ₹5 = ₹50,000
Total debentures value = 10,000 × ₹100 = ₹10,00,000

Q20: Tata Ltd issued 5,000, 10% debentures of ₹100 each on 1-Apr-2012, fully subscribed. Interest payable half-yearly, TDS 10%. Pass journal entries for half-year ending 31-Mar-2013 and transfer to Profit & Loss.
Ans:
ParticularsDebit (₹)Credit (₹)
1. On 30-Sep-2012 (First half-year interest)
Debenture Interest A/c25,000
    To TDS Payable A/c
2,500
    To Bank A/c
22,500
(Being interest paid for 6 months)

2. On 31-Mar-2013 (Second half-year interest)
Debenture Interest A/c25,000
    To TDS Payable A/c
2,500
    To Bank A/c
22,500
(Being interest paid for 6 months)

3. Transfer to Profit & Loss Account
Profit & Loss A/c50,000
    To Debenture Interest A/c
50,000
(Being interest transferred to P&L)

Working:
Debentures = 5,000 × ₹100 = ₹5,00,000
Annual interest = ₹5,00,000 × 10% = ₹50,000
Half-yearly interest = ₹50,000 ÷ 2 = ₹25,000
TDS @ 10% = ₹25,000 × 10% = ₹2,500
Net payment = ₹25,000 - ₹2,500 = ₹22,500

Q21: Company issued ₹10,00,000, 9% debentures of ₹10 each on 1-Apr-2020, redeemable at par after 5 years. Creates sinking fund earning 4% p.a. Calculate annual contribution and prepare sinking fund schedule.
Ans:
Calculation of Annual Contribution:
Amount to be accumulated = ₹10,00,000
Period = 5 years
Rate of interest = 4% p.a.

Using Sinking Fund Table: Sinking Fund Factor for 5 years @ 4% = 0.18463
Annual Contribution = ₹10,00,000 × 0.18463 = ₹1,84,630

Debenture Redemption Sinking Fund Schedule
Year ending 31-MarAnnual Contribution (₹)Interest @ 4% (₹)Total (₹)Balance (₹)
20211,84,63001,84,6301,84,630
20221,84,6307,3851,92,0153,76,645
20231,84,63015,0661,99,6965,76,341
20241,84,63023,0542,07,6847,84,025
20251,84,63031,3612,15,99110,00,016
Note: Minor difference of ₹16 due to rounding off.

Q22: Sargam Ltd issued ₹1,00,000, 6% debentures of ₹10 each at ₹2 premium on 1-Apr-2021, fully subscribed. Interest paid annually. Pass journal entries for 2021-22.
Ans:
ParticularsDebit (₹)Credit (₹)
1. On Issue (1-Apr-2021)
Bank A/c1,20,000
    To 6% Debentures A/c
1,00,000
    To Securities Premium Reserve A/c
20,000
(Being 10,000 debentures issued at premium)

2. On 31-Mar-2022 (Interest Payment)
Debenture Interest A/c6,000
    To Bank A/c
6,000
(Being interest paid for one year)

3. Transfer to Profit & Loss
Profit & Loss A/c6,000
    To Debenture Interest A/c
6,000
(Being interest transferred to P&L)

Working:
Number of debentures = ₹1,00,000 ÷ ₹10 = 10,000
Issue price per debenture = ₹10 + ₹2 = ₹12
Total amount received = 10,000 × ₹12 = ₹1,20,000
Premium = 10,000 × ₹2 = ₹20,000
Annual interest = ₹1,00,000 × 6% = ₹6,000

The document Worksheet Solutions: Issue and Redemption of Debentures is a part of the Commerce Course Accountancy Class 12.
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FAQs on Worksheet Solutions: Issue and Redemption of Debentures

1. What are debentures?
Ans. Debentures are long-term financial instruments used by companies to borrow money, which are backed by the issuing company's creditworthiness rather than physical assets. They usually carry a fixed rate of interest and have a specified maturity date.
2. What is the process of issuing debentures?
Ans. The process of issuing debentures involves several steps, including obtaining approval from the board of directors, preparing a prospectus, determining the terms of the debenture such as interest rate and maturity period, and finally, offering them to the public or private investors.
3. What is meant by the redemption of debentures?
Ans. Redemption of debentures refers to the process of repaying the principal amount of the debentures to the debenture holders upon maturity or before maturity as per the terms set at the time of issuance. This can occur through payment of the face value or through conversion into equity shares in some cases.
4. What are the different methods of redeeming debentures?
Ans. The different methods of redeeming debentures include payment at maturity, early redemption, and redemption through conversion into shares. Companies may also redeem debentures by purchasing them back from the market.
5. What are the advantages of issuing debentures for companies?
Ans. The advantages of issuing debentures include access to long-term funding without diluting ownership, the ability to secure lower interest rates compared to other forms of borrowing, and tax benefits since interest payments on debentures are tax-deductible expenses.
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