Question

A company issues the following debentures:

1. 10,000 12% debentures of Rs. 100 each at par but redeemable at a premium of 5% after 5 years;
2. 10,000 12% debentures of Rs. 100 each at a discount of 10% but redeemable at par after 5 years;
3. 5,000 12% debentures of Rs. 1,000 each at a premium of 5% but redeemable at par after 5 years;
4. 1,000 12% debentures of Rs. 100 each issued to a supplier of machinery costing Rs. 95,000. The debentures are repayable after 5 years and
5. 300 12% debentures of Rs. 100 each as collateral security to a bank that has advanced a loan of Rs. 25,000 to the company for a period of 5 years.

Pass the journal entries to record the: (a) issue of debentures, and (b) repayment of debentures after the given period.

Answer 1

At the time of the issue of debentures:

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
(i)
1.	Bank A/c   ......Dr.		10,00,000	-
	To 12% Debenture Application A/c		-	10,00,000
	(Being application money received for 10,000 debentures @ ₹100.)
2.	12% Debenture Application A/c   ......Dr.		10,00,000	-
	Loss on Issue of Debenture A/c   ......Dr.		50,000	-
	To 12% Debenture A/c		-	10,00,000
	To Premium on Redemption of Debenture A/c		-	50,000
	(Being application transferred and debentures issued at 5% premium on redemption.)
(ii)
1.	Bank A/c   ......Dr.		9,00,000	-
	To Debenture Application and Allotment A/c		-	9,00,000
	(Being application money received, excluding discount.)
2.	Debenture Application and Allotment A/c   ......Dr.		9,00,000	-
	Discount on Issue of Debenture A/c   ......Dr.		1,00,000	-
	To 12% Debenture A/c		-	10,00,000
	(Being allotment made due.)
(iii)
1.	Bank A/c   ......Dr.		52,50,000	-
	To Debenture Application and Allotment A/c		-	52,50,000
	(Being application and allotment money received.)
2.	Debenture Application and Allotment A/c   ......Dr.		52,50,000	-
	To 12% Debenture A/c		-	50,00,000
	To Securities Premium A/c		-	2,50,000
	(Being allotment of 5,000 debentures @ ₹50 premium.)
(iv)
1.	Machinery A/c   ......Dr.		95,000	-
	To Vendor A/c		-	95,000
	(Being machinery purchased from vendor.)
2.	Vendor A/c   ......Dr.		95,000	-
	Discount on Issue of Debenture A/c   ......Dr.		5,000	-
	To 12% Debenture A/c		-	1,00,000
	(Being debentures are issued at a discount to the vendor.)
(v)
1.	12% Debenture Suspense A/c   ......Dr.		30,000	-
	To 12% Debenture A/c		-	30,000
	(Being 300 debentures issued as collateral security.)

At the time of repayment of debentures:

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
(i)
1.	12% Debentures A/c   ......Dr.		10,00,000	-
	Premium on redemption of deb. A/c  ....Dr.		50,000	-
	To Debenture holders’  A/c		-	10,50,000
	(Being the amount due on redemption of debentures)
2.	Debenture holders’ A/c   ......Dr.		10,50,000	-
	To Bank  A/c		-	10,50,000
	(Being Payment made to debenture holders)
(ii)
1.	12% Debentures A/c		10,00,000	-
	To Debenture holders’ A/c		-	10,00,000
	(Being the amount due on redemption of debentures)
2.	Debenture holders’A/c   ......Dr.		10,00,000	-
	To Bank A/c		-	10,00,000
	(Being Payment made to debenture holders)
(iii)
1.	12% Debentures A/c		50,00,000	-
	To Debenture holders’ A/c		-	50,00,000
	(Being the amount due on redemption of debentures)
2.	Debenture holders’A/c   ......Dr.		50,00,000	-
	To Bank A/c		-	50,00,000
	(Being Payment made to debenture holders)
(iv)
1.	12% debentures A/c   ......Dr.		1,00,000	-
	To Vendor Company A/c		-	1,00,000
	(Being machinery purchased from the vendor.)
2.	Vendor Company A/c   ......Dr.		1,00,000	-
	To Bank A/c		-	1,00,000
	(Being Payment made to vendor)
(v)
1.	12% Debenture A/c   ......Dr.		30,000	-
	To 12% Debenture Suspense A/c		-	30,000
	(Being Debenture and debenture suspense account closed)