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
Journalise the following:
(i) A debenture issued at Rs. 95, repayable at Rs. 100;
(ii) A debenture issued at Rs. 95, repayable at Rs. 105; and
(iii) A debenture issued at Rs. 100, repayable at Rs. 105;
The face value of the debenture in each of the above cases is Rs. 100.
A Ltd . issued 2,000; 9% Debentures of ₹ 100 each on the following terms:
₹20 on applications ;₹ 20 on allotment ; ₹ 30 on first call ; ₹ 30 on final call.
The public applied for 2,400 debentures. Applications for 1,800 debentures were accepted in full. Applications for 400 debentures were allotted 200 debentures and applications for 200 debentures were rejected . Pass necessary Journal entries .
ABC Ltd. issued 40,000; 10% Debentures of ₹ 100 each at par for cash payable in full along with the application. Applications were received for 60,000 debentures . Debentures were allotted and excess application money was refunded. Pass Journal entries in the books of the company.
The Amrit Ltd was promoted by Amrit and Bhaskar with an authorised capital of ₹ 10,00,000 divide into 1,00,000 shares of ₹ 10 each.
The company decided to issue 1,000 6% Debentures of ₹ 100 each to Amrit and Bhaskar, each for their services in incorporating the company.
Pass journal entry.
Bright Ltd. took over the assets of ₹ 6,60,000 and liabilities of ₹ 80,000 of Star Ltd. for an agreed purchase consideration of ₹ 6,00,000 payable 10% in cash and the balance by the issue of 12% Debentures of ₹ 100 each. Give necessary Journal entries in the books of Bright Ltd., assuming that:
Case (a): The debentures are issued at par.
Case (b): The debentures are issued at 20% premium.
Case (c): The debentures are issued at 10% discount.
Romi Ltd. acquired assets of ₹ 20 lakhs and took over creditors of ₹ 2 lakhs from Kapil Enterprises.
Romi Ltd. issued 8% Debentures of ₹ 100 each at a premium of 25% as purchase consideration.
Record necessary journal entries in the books of Romi Ltd.
Grown Ltd. issued 500, 10% Debentures of ₹ 1,000 each credited as fully paid-up to the promoters for their services to incorporate the company. It also issued 100, 10% Debentures of ₹ 1,000 each credited as fully paid-up to the underwriters towards their commission. Pass the Journal entries.
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%.
A limited company issued ₹ 1,00,000, 9% Debentures at a discount of 6% on 1st April, 2017. These debentures are to be redeemed equally, spread over 5 annual instalments.
Pass the Journal entries for issue of debentures and writing off the discount.
When debentures are issued at a discount and are redeemable at a premium, which of the following accounts is debited at the time of issue?
The word 'debenture' has been derived from which Latin word (which means to borrow)?
Which of the following. column indicated in·the statement given below is to be credited?
"Writing off the loss on issue of debentures"
Assertion (A): Issue of debenture does not result in dilution of interest of equity shareholders.
Reason (R): Debenture holders have voting rights.
Loss on issue of debentures is treated as ______.
Which of the following is false with respect to debentures ?
Which of the following is not a characteristic of Bearer Debentures?
Assertion (A): Sarita Pvt. Ltd. issued 15% 10,000 debentures at par @ ₹ 100 per debenture. The company suffered a loss but still the directors of the company paid interest on debentures.
Reason (R): Interest on debenture is a charge against profits and therefore, its payment is not subject to the earning of profit.
Maximum limit on premium on issue of debentures is ______.
Debenture is ______.
