Question

Gladiators Ltd. issued 10,000; 8% Debentures of ₹ 100 each at a discount of 5%, redeemable at a premium of 5% payable along with application. It had balance of ₹ 70,000 in Securities Premium and ₹ 50,000 in Capital Reserve. The debentures were fully subscribed and amounts were duly received.

Pass the necessary Journal entries for issue of debentures and writing off Loss on Issue of Debentures.

Answer 1

Journal Entries in the Books of Gladiators Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
Date of Issue	Bank A/c   ...Dr.		9,50,000
	To Debenture Application A/c			9,50,000
	(Being application money received on 10,000 debentures @ ₹ 95 each)
Date of Issue	Debenture Application A/c   ...Dr.		9,50,000
	Loss on Issue of Debentures A/c   ...Dr.		1,00,000
	To 8% Debentures A/c			10,00,000
	To Premium on Redemption of Debentures A/c			50,000
	(Being 10,000, 8% Debentures of ₹ 100 each issued at 5% discount and redeemable at 5% premium)
Date of Issue	Securities Premium A/c   ...Dr.		70,000
	Statement of Profit & Loss A/c (Finance Cost)   ...Dr.		30,000
	To Loss on Issue of Debentures A/c			1,00,000
	(Being loss on issue of debentures written off, ₹ 70,000 against Securities Premium and balance ₹ 30,000 against Statement of Profit & Loss)

Working Note:

Discount on Issue:

₹ 10,00,000 × 5% = ₹ 50,000

Premium on Redemption:

₹ 10,00,000 × 5% = ₹ 50,000

Loss on Issue of Debentures:

₹ 50,000 + ₹ 50,000 = ₹ 1,00,000

Less: Securities Premium available = ₹ 70,000

Balance transferred to Statement of Profit & Loss = ₹ 30,000