Question

You are required to pass Journal entries to record the following issue of debentures and to write off capital loss:

Nilkamal Ltd. issues ₹ 5,00,000, 10% Debentures at a premium of 5% to be redeemed at 10% premium after 10 years.

Answer 1

JOURNAL ENTRIES OF NILKAMAL LTD.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Bank A/c (₹ 5,00,000 + 5% of ₹ 5,00,000)   ...Dr.		5,25,000
	To Debenture Application and Allotment A/c			5,25,000
	(Debenture application money received)
2.	Debenture Application and Allotment A/c   ...Dr.		5,25,000
	Loss on Issue of Debentures A/c   ...Dr.		50,000
	To 10% Debentures A/c			5,00,000
	To Premium on Redemption of Debentures A/c			50,000
	To Securities Premium A/c			25,000
	(Issue of 10% Debentures of ₹ 5,00,000 at a premium of 5% and redeemable at a premium of 10%)
3.	Securities Premium A/c   ...Dr.		25,000
	Statement of Profit & Loss (Finance Cost)   ...Dr.		25,000
	To Loss on Issue of Debentures A/c			50,000
	(Loss on issue of Debentures written off)

Note: Discount/Loss on Issue of Debentures is written off at the end of the financial year. At the end of the financial year, balance in Securities Premium Account was ₹ 25,000 due to issue of debentures. It is used for writing off Loss on Issue of Debentures and balance is written off from Statement of Profit & Loss as Finance Cost.