Question

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

700,8% Debentures of ₹ 1,000 each are issued at 10% discount and redeemable at a premium of 10%. Balance in Securities Premium Account is ₹ 1,00,000.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c   ...Dr.		6,30,000
	To Debentures Application and Allotment A/c			6,30,000
	(Being application and allotment money received)
2.	Debentures Application and Allotment A/c   ...Dr.		6,30,000
	Loss on Issue of Debentures A/c   ...Dr.		1,40,000
	To 8% Debentures A/c			7,00,000
	To Premium on Redemption of Debentures A/c			70,000
	(Being 700, 8% Debentures of ₹ 1,000 each issued at 10% discount and redeemable at 10% premium)
3.	Securities Premium A/c   ...Dr.		1,00,000
	Statement of Profit & Loss A/c (Finance Cost)   ...Dr.		40,000
	To Loss on Issue of Debentures A/c			1,40,000
	(Being loss on issue of debentures written off, ₹ 1,00,000 against Securities Premium and balance ₹ 40,000 against Statement of Profit & Loss)

Working Note:

Face value = 700 × ₹ 1,000 = ₹ 7,00,000

Discount on issue = ₹ 7,00,000 × 10% = ₹ 70,000

Premium on redemption = ₹ 7,00,000 × 10% = ₹ 70,000

Loss on Issue of Debentures

= ₹ 70,000 + ₹ 70,000

= ₹ 1,40,000

Less: Securities Premium = ₹ 1,00,000

Balance charged to Statement of Profit & Loss = ₹ 40,000