Question

Z Ltd. issued 5,000, 10% debentures of Rs. 100 each at a discount of 10% on 1.4.2019. The debentures are to be redeemed every year by draw of lots – 1,000 debentures to be redeemed every year starting on 31.03.2021. Record the necessary journal entries, including the payment of interest and writing off the discount on the issue of debentures. The interest is payable on September 30 and March 31. Z Ltd. closes its books of accounts on March 31 every year.

Answer 1

Journal of Z Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2019
Apr 01	Bank A/c   ...Dr.		4,50,000	-
	To Debenture Application & Allotment		-	4,50,000
	(Being application money received for 5,000 debentures @ Rs. 90 each)
Apr 01	Debenture Application & Allotment A/c   ...Dr.		4,50,000	-
	Discount on Issue of Debentures A/c   ...Dr.		50,000	-
	To 10% Debentures A/c		-	5,00,000
	(Being allotment of 10% debentures at a 10% discount)
Sept 30	Debenture Interest A/c   ...Dr.		25,000	-
	To Debenture holders A/c		-	25,000
	(Being half-yearly interest due on Rs. 5,00,000 @ 10% p.a.)
Sept 30	Debenture holders A/c   ...Dr.		25,000	-
	To Bank A/c		-	25,000
	(Being half-yearly interest paid)
2020
Mar 31	Debenture Interest A/c   ...Dr.		25,000	-
	To Debenture holders A/c		-	25,000
	(Being the second half-yearly interest due)
Mar 31	Debenture holders A/c   ...Dr.		25,000	-
	To Bank A/c		-	25,000
	(Being interest paid)
Mar 31	Statement of Profit & Loss   ...Dr.		66,667	-
	To Debenture Interest A/c		-	50,000
	To Discount on Issue of Debentures A/c		-	16,667
	(Being the total annual interest and the first year’s discount written off)
Sept 30	Debenture Interest A/c   ...Dr.		20,000	-
	To Debentureholders A/c		-	20,000
	(Being 6 months of interest due on Rs. 4,00,000)
Sept 30	Debentureholders A/c   ...Dr.		20,000	-
	To Bank A/c		-	20,000
	(Being the first half-yearly interest paid)
2021
Mar 31	Debenture Interest A/c   ...Dr.		20,000	-
	To Debentureholders A/c		-	20,000
	(Being the next 6 months of interest due)
Mar 31	Debentureholders A/c   ...Dr.		20,000	-
	To Bank A/c		-	20,000
	(Being the second half-yearly interest paid)
Mar 31	Statement of Profit & Loss   ...Dr.		53,333	-
	To Debenture Interest A/c		-	40,000
	To Discount on Issue of Debentures A/c		-	13,333
	(Being total interest (40,000) and year’s discount (13,333) transferred to P&L)

Working Note:

Total Face Value issued = 5,000 × 100

= 5,00,000

Discount on Debentures = `5,00,000 xx 10/100`

= 50,000

Discount to be written off each year
Year Ended	Outstanding Debentures Amount (₹)	Ratio	Amount to be Written Off (₹)
2019-20	5,00,000	5	`50,000 xx 5/15` = 16,667
2020-21	4,00,000	4	`50,000 xx 4/15` = 13,333
2021-22	3,00,000	3	`50,000 xx 3/15` = 10,000
2022-23	2,00,000	2	`50,000 xx 2/15` = 6,667
2023-24	1,00,000	1	`50,000 xx 1/15` = 3,333
Total		15	50,000