Question

Pass necessary journal entries relating to issue of debentures and to write off discount/loss on issue of debentures in the books of Dhatu Ltd. in the following case:

500, 10% Debentures of ₹ 1,000 each are issued at 10% discount and redeemable at a premium of 10%. Balance in Securities Premium Account is ₹ 75,000.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c   ...Dr.		4,50,000
	To Debentures Application and Allotment A/c			4,50,000
	(Being application and allotment money received)
2.	Debentures Application and Allotment A/c   ...Dr.		4,50,000
	Loss on Issue of Debentures A/c   ...Dr.		1,00,000
	To 10% Debentures A/c			5,00,000
	To Premium on Redemption of Debentures A/c			50,000
	(Being 500, 10% Debentures of ₹ 1,000 each issued at 10% discount and redeemable at 10% premium)
3.	Securities Premium A/c   ...Dr.		75,000
	Statement of Profit & Loss A/c (Finance Cost)   ...Dr.		25,000
	To Loss on Issue of Debentures A/c			1,00,000
	(Being loss on issue of debentures written off, ₹ 75,000 against Securities Premium and balance ₹ 25,000 against Statement of Profit & Loss)

Working Note:

Face value = 500 × ₹ 1,000 = ₹ 5,00,000

Discount on issue = ₹ 5,00,000 × 10% = ₹ 50,000

Premium on redemption = ₹ 5,00,000 × 10% = ₹ 50,000

Loss on Issue of Debentures

= ₹ 50,000 + ₹ 50,000

= ₹ 1,00,000

Less: Securities Premium = ₹ 75,000

Balance charged to Statement of Profit & Loss = ₹ 25,000