Question

Laser India Ltd. issued 7,00,000, 8% debentures of Rs. 100 each at par. Interest is to be paid on these debentures half-yearly on September 30 and March 31, every year. Record necessary journal entries assuming that income tax is deducted @ 10% of the amount of interest.

Answer 1

Journal of Laser India Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
Sept 30	Debenture Interest A/c   ...Dr.		28,00,000	-
	To Debentureholders A/c		-	25,20,000
	To TDS Payable A/c		-	2,80,000
	(Being half-yearly interest due and TDS deducted @ 10%)
Sept 30	Debentureholders A/c   ...Dr.		25,20,000	-
	TDS Payable A/c   ...Dr.		2,80,000	-
	To Bank A/c		-	28,00,000
	(Being interest paid and TDS deposited into the government account)
Mar 31	Debenture Interest A/c   ...Dr.		28,00,000	-
	To Debentureholders A/c		-	25,20,000
	To TDS Payable A/c		-	2,80,000
	(Being the second half-yearly interest due and TDS deducted)
Mar 31	Debentureholders A/c   ...Dr.		25,20,000	-
	TDS Payable A/c   ...Dr.		2,80,000	-
	To Bank A/c		-	28,00,000
	(Being payment of interest and clearance of TDS liability)
Mar 31	Statement of Profit & Loss   ...Dr.		56,00,000	-
	To Debenture Interest A/c		-	56,00,000
	(Being total annual debenture interest transferred to P&L)

Working Note:

Total Principal Amount = 7,00,000 × 100

= 7,00,00,000

Annual Interest Rate = 8% per annum

Half-Yearly Interest = `7,00,00,000 xx 8/100 xx 6/12`

= 28,00,000

TDS = `28,00,000 xx 10/100`

= 2,80,000

Net Payable to Debentureholders = 28,00,000 − 2,80,000

= 25,20,000

Total Annual Interest = 28,00,000 + 28,00,000

= 56,00,000