Question

Mercury Ltd. issued ₹ 10,00,000; 9% Debentures of ₹ 100 each at a discount of 6% on 1st April,2026. These debentures are to be redeemed equally, spread over 5 annual instalments. It had balance in Capital Reserve of ₹ 75,000.

Pass the Journal entries for issue of debentures and writing off the discount.

Answer 1

Journal Entries in the Books of Mercury Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2026 April 1	Bank A/c   ...Dr.		9,40,000
	Discount on Issue of Debentures A/c   ...Dr.		60,000
	To 9% Debentures A/c			10,00,000
	(Being ₹ 10,00,000, 9% Debentures issued at 6% discount)
2027 March 31	Statement of Profit & Loss A/c   ...Dr.		20,000
	To Discount on Issue of Debentures A/c			20,000
	(Being proportionate discount on issue of debentures written off)

Working Note:

Total Discount on Issue of Debentures:

₹ 10,00,000 × 6% = ₹ 60,000

Since the debentures are redeemed in 5 equal annual instalments, the discount is written off in the ratio of debentures outstanding:

5 : 4 : 3 : 2 : 1

Total ratio = 5 + 4 + 3 + 2 + 1 = 15

Year	Ratio	Discount Written Off (₹)
1st Year	5	20,000
2nd Year	4	16,000
3rd Year	3	12,000
4th Year	2	8,000
5th Year	1	4,000
Total	15	60,000

Note: The balance of ₹ 75,000 in Capital Reserve cannot be used for writing off the discount on issue of debentures.