Question

A listed company issued debentures of the face value of Rs. 5,00,000 at a discount of 6% on April 01, 2014. These debentures are redeemable by annual drawings of Rs.1,00,000 made on March 31 each year starting from March 31, 2016.

Give journal entries for issue of debuntures, writing-off discount and regarding redemption of debentures.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2014
Apr 01	Bank A/c   ...Dr.		4,70,000	-
	To Debenture Application & Allotment A/c		-	4,70,000
	(Being application money received for debentures at a 6% discount)
Apr 01	Debenture Application & Allotment A/c   ...Dr.		4,70,000	-
	Discount on Issue of Debentures A/c   ...Dr.		30,000	-
	To Debentures A/c		-	5,00,000
	(Being application money transferred to Debentures Account)
2015 Mar 31	Statement of Profit & Loss A/c   ...Dr.		7,500	-
	To Discount on Issue of Debentures A/c		-	7,500
	(Being 1st year discount written off)
2016
Mar 31	Statement of Profit & Loss    ...Dr.		7,500	-
	To Discount on Issue of Debentures A/c		-	7,500
	(Being a 2nd year discount written off)
Mar 31	Debentures A/c   ...Dr.		1,00,000	-
	To Debentureholders A/c		-	1,00,000
	(Being the 1st instalment of redemption due)
Mar 31	Debentureholders A/c   ...Dr.		1,00,000	-
	To Bank A/c		-	1,00,000
	(Being payment made to debentureholders)
2017
Mar 31	Statement of Profit & Loss A/c   ...Dr.		6,000	-
	To Discount on Issue of Debentures A/c		-	6,000
	(Being a 3rd year discount written off)
Mar 31	Debentures A/c   ...Dr.		1,00,000	-
	To Debentureholders A/c		-	1,00,000
	(Being the 2nd installment of redemption due)
Mar 31	Debentureholders A/c   ...Dr.		1,00,000	-
	To Bank A/c		-	1,00,000
	(Being payment made to debentureholders)
2018
Mar 31	Statement of Profit & Loss A/c   ...Dr.		4,500	-
	To Discount on Issue of Debentures A/c		-	4,500
	(Being a 4th-year discount written off)
Mar 31	Debentures A/c   ...Dr.		1,00,000	-
	To Debentureholders A/c		-	1,00,000
	(Being the 3rd installment of redemption due)
Mar 31	Debentureholders A/c   ...Dr.		1,00,000	-
	To Bank A/c		-	1,00,000
	(Being payment made to debentureholders)
2019
Mar 31	Statement of Profit & Loss A/c    ...Dr.		3,000	-
	To Discount on Issue of Debentures A/c		-	3,000
	(Being a 5th-year discount written off)
Mar 31	Debentures A/c   ...Dr.		1,00,000	-
	To Debentureholders A/c		-	1,00,000
	(Being the 4th installment of redemption due)
Mar 31	Debentureholders A/c   ...Dr.		1,00,000	-
	To Bank A/c		-	1,00,000
	(Being payment made to debentureholders)
2020
Mar 31	Statement of Profit & Loss A/c    ...Dr.		1,500	-
	To Discount on Issue of Debentures A/c		-	1,500
	(Being a 6th-year discount written off)
Mar 31	Debentures A/c   ...Dr.		1,00,000	-
	To Debentureholders A/c		-	1,00,000
	(Being the final installment of redemption due)
Mar 31	Debentureholders A/c   ...Dr.		1,00,000	-
	To Bank A/c		-	1,00,000
	(Being final payment made to debentureholders)

Discount Amortisation Schedule:

Year	Period	Outstanding Face Value (₹)	Ratio	Amount Written (₹)
1	2014 – 15	5,00,000	5	`30,000 xx 5/20` = 7,500
2	2015 – 16	5,00,000	5	`30,000 xx 5/20` = 7,500
3	2016 – 17	4,00,000	4	`30,000 xx 4/20` = 6,000
4	2017 – 18	3,00,000	3	`30,000 xx 3/20` = 4,500
5	2018 – 19	2,00,000	2	`30,000 xx 2/20` = 3,000
6	2019 – 20	1,00,000	1	`30,000 xx 1/20` = 1,500
	Total		20	30,000