Advertisements
Advertisements
Question
Long Answer Question
Explain the different terms for the issue of debentures with reference to their redemption.
Advertisements
Solution
The different terms for the issue of debentures with reference to their redemption can be the combinations of at par, at premium and at discount. Normally, the debentures are not redeemable at discount. The permutation and the combination of the various terms of issue and redemption of debentures give rise to following six situations:
- Issue at Par, Redeemable at Par.
- Issue at Premium, Redeemable at Par.
- Issue at Discount, Redeemable at Par.
- Issue at Par, Redeemable at Premium.
- Issue at Premium, Redeemable at Premium.
- Issue at Discount Redeemable at Premium.
Issue at Par and Redeemable at Par- When the debentures are issued and are redeemed at their face value, then the following Journal entry is passed.
|
Bank A/c |
Dr. (with the amount received) |
|
|
|
To Debenture Application A/c |
(with the face value) |
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
|
To Debenture A/c |
|
|
(Application money transferred to Debenture Account) |
||
2. Issue at Premium and Redeemable at Par- When the debentures are issued at premium and are redeemable at par, then the following Journal entry is passed. As premium is a gain for a company so it is credited in the Journal entry.
|
Bank A/c |
Dr. |
|
|
|
To Debenture Application A/c |
|
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
|
To Debenture A/c |
|
|
|
To Securities Premium A/c |
|
|
(Debentures issued at premium and redeemable at par) |
||
- Issue at Discount and Redeemable at Par- When the debentures are issued at discount and are redeemable at par, then the following Journal entry is passed. As discount is a loss for a company so it is debited in the Journal entry.
|
Bank A/c |
Dr. |
|
|
|
To Debenture Application A/c |
|
|
(Debenture Application money received) |
||
|
Debenture Application A/c |
Dr. |
|
|
Discount on Issue of Debenture A/c |
Dr. |
|
|
|
To Debenture A/c |
|
|
(Debentures issued at discount and redeemable at par) |
|
|
- Issue at Par and Redeemable at Premium- When debentures are issued at par and redeemable at premium, then the following Journal entry is passed. In such case, the company did not suffer any loss at the time of issue but there will be loss at the time of redemption.
|
Bank A/c |
Dr. |
|
|
|
To Debenture Application A/c |
|
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
Loss on Issue of Debenture A/c |
Dr. (with the amount of premium on redemption) |
|
|
|
To Debenture A/c |
(with the face value of the debentures) |
|
|
To Premium on Redemption of Debenture A/c |
(with the amount of premium on redemption) |
|
(Debentures issued at par and redeemable at premium) |
|
|
5. Issued at Premium and Redemption at Premium- When the debentures are issued and redeemable at premium, then the following Journal entry is passed.
|
Bank A/c |
Dr. |
|
|
|
To Debenture Application A/c |
|
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
Loss on Issue of Debenture A/c |
Dr. (with the amount of premium on redemption) |
|
|
|
To Debenture A/c |
(with the face value of the debentures) |
|
|
To Securities Premium A/c |
(with the amount of premium on issue) |
|
|
To Premium on Redemption of Debenture A/c |
(with the amount of premium on redemption) |
|
(Debentures issued at premium and redeemable at premium) |
||
- Issue of Discount and Redemption at Premium-When the debentures are issued at discount and redeemable at premium, then the following Journal entry is passed.
|
Bank A/c |
Dr. |
|
|
|
To Debenture Application A/c |
|
|
(Debenture Application money received) |
|
|
|
Debenture Application A/c |
Dr. |
|
|
Loss on Issue of Debenture A/c |
Dr. (with the amount of discount on issue plus amount of premium on redemption) |
|
|
|
To Debenture A/c |
(with the face value of the debentures) |
|
|
To Premium on Redemption of Debenture A/c |
(with the amount of premium on redemption) |
|
(Debentures issued at discount and redeemable at premium) |
|
|
APPEARS IN
RELATED QUESTIONS
A.Ltd. issued 50,00,000, 8% Debenture of Rs 100 at a discount of 6% on April 01, 2009 redeemable at premium of 4% by draw of lots as under:
20,00,000 Debentures on March, 2011
10,00,000 Debentures on March, 2013
20,00,000 Debentures on March, 2014
Compute the amount of discount to be written-off in each year till debentures are paid. Also prepare discount/loss on issue of debenture account.
B. Ltd. issued 1,000, 12% debentures of Rs 100 each on April 01, 2014 at a discount of 5% redeemable at a premium of 10%.
Give journal entries relating to the issue of debentures and debentures interest for the period ending March 31, 2015 assuming that interest is paid half yearly on September 30 and March 31 and tax deducted at source is 10%.
Narain Laxmi Ltd. invited applications for issuing 7,500; 12% Debentures of ₹ 100 each at a premium of ₹ 35 per debenture . The full amount was payable on application. Applications were received for 10,000 Debentures. Allotment was made to all the applications on pro rata.
Pass necessary Journal entries for the above transactions in the books of Narain Laxmi Ltd.
Vijay Laxmi Ltd. invited applications for 10,000; 12% Debentures of ₹ 100 each at a premium of ₹ 70 per debenture .The full amount was payable on application.
Applications were received for 13,500 debentures. Applications for 3,500 debentures were rejected and application money was refunded . Debentures were allotted to the remaining applications .
X Ltd . issued 12,000; 8% Debentures of ₹ 100 each at a discount of 5% payable as 25% on application;20% on allotment and balance after three months.
Pass Journal entries.
Wye Ltd . purchased an established business for ₹ 2,00,000 payable as ₹ 65,000 by cheque and the balance by issuing 9% Debentures of ₹ 100 each at a discount of 10%.
Give journal entries in the books of Wye Ltd.
Deepak Ltd purchased furniture of ₹ 2,20,000 from M/s. Furniture Mart. 50% of the amount was paid to M/s. Furniture Mart by accepting a bill of exchange and for the balance, the company issued 9% debentures of ₹ 100 each at a premium of 10% in favor of M/s. Furniture Mart.
Pass Journal entries in the books of Deepak Ltd.
Pass necessary Journal entries relating to the issue of debentures for the following:
(a) Issued ₹ 4,00,000; 9% Debentures of ₹ 100 each at a premium of 8% redeemable at 10% premium.
(b) Issued ₹ 6,00,000; 9% Debentures of ₹ 100 each at par, repayable at a premium of 10%.
(c) Issued ₹ 10,00,000; 9% Debentures of ₹ 100 each at a premium of 5%, redeemable at par.
Pass necessary Journal entries relating to the issue of debentures for the following:
(a) Issued ₹ 28,000; 10% Debentures of ₹ 100 each at a premium of 15% redeemable at par.
(b) Issued ₹ 30,000; 10% Debentures of ₹ 100 each at a premium of 10% and redeemable at a premium of 15%.
(c) Issued ₹ 80,000; 10% Debentures of ₹ 100 each at par repayable at a premium of 10%.
Fill in the blank.
For recording the issue of debentures as collateral security by a journal entry _______ account is debited.
Excess value of net assets over purchase consideration at the time of purchase of business is credited to ______.
When the debenture of face value of ₹ 100 is issued at ₹ 100 is called, issue off debenture at ______.
Debenture holders are ______.
Debenture premium cannot be used to ______.
Pick the odd one out.
Loss on issue of debentures is treated as ______.
A Ltd. took over the assets of ₹ 6,60,000 and liabilities of ₹ 80,000 of B Ltd. for an agreed purchase consideration of ₹ 6,00,000 payable 10% in cash and the balance by the issue of 15% debentures of ₹ 100 each at 10% discount. The number of debentures to be issued is:
10% Debenture issued at ₹ 105 is repayable at ₹ 110, the face value of the debenture being ₹ 100. Calculate the amount of loss on redemption of debentures.
Which of the following is not a source of cash?
MK Ltd. has outstanding Rs. 30,000 11% debentures of Rs. 100 each redeemable at 10% premium as follows:
| March 31, 2018 - | 10,000 debentures |
| March 31, 2019 - | 12,000 debentures |
| March 31, 2020 - | Remaining debentures |
Pass necessary journal entries in the books of the company.
