Question

On 1^st April, 2024, Bhumika Ltd. issued 500 9% debentures of ₹ 500 each at a discount of 10%, redeemable at a premium of 6% after five years. On 31^st March, 2025, the company had a balance of ₹ 30,000 in its securities premium account.

Pass necessary journal entries for the issue of 9% debentures and writing off the loss on the issue of debentures. Also prepare ‘loss on issue of debentures account’.

Answer 1

Journal Entries in the Books of Bhumika Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
April 1	Bank A/c ... Dr.		2,25,000	-
	To Debenture Application & Allotment A/c		-	2,25,000
	(Being application money received for 500 debentures at 10% discount)
April 1	Debenture Application & Allotment A/c  ... Dr.		2,25,000	-
	Loss on Issue of Debentures A/c ... Dr.		40,000	-
	To 9% Debentures A/c		-	2,50,000
	To Premium on Redemption A/c		-	15,000
	(Being debentures issued at 10% discount and redeemable at 6% premium)
2025
March 31	Securities Premium A/c ... Dr.		30,000	-
	Statement of Profit & Loss ... Dr.		10,000	-
	To Loss on Issue of Debentures A/c		-	40,000
	(Being loss on issue of debentures written off)

 

Dr.	Loss on Issue of Debentures Account				Cr.
Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2024			2025
April 1	To 9% Debentures A/c (Discount)	25,000	March 31	By Securities Premium A/c	30,000
April 1	To Premium on Redemption A/c	15,000	March 31	By Statement of P&L	10,000
		40,000			40,000

Working Note:

1. Face value of debentures = 500 × 500

= 2,50,000

2. Discount on issue (10%) = `2,50,000 xx 10/100`

= 25,000

3. Premium on redemption (6%) = `2,50,000 xx 6/100`

= 15,000

4. Total loss on issue of debentures = Discount + Premium on redemption

= 25,000 + 15,000

= 40,000

5. Writing off the loss: Total loss is ₹ 40,000. We first use the balance in securities premium (₹ 30,000), and the remaining ₹ 10,000 will be taken from the statement of profit & loss.