Question

Kati Ltd. issued 8,000, 9% Debentures of ₹ 100 each at a discount of 10%. The full amount was payable on application. Applications were received for 9,000 debentures and allotment was made on pro rata basis.

Pass the necessary Journal entries for the above transactions in the books of Kati Ltd.

Answer 1

Journal Entries In the Books of Kati Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Bank A/c   ...Dr.		8,10,000
	To Debentures Application and Allotment A/c			8,10,000
	(Application money received on 9,000 debentures @ ₹ 90 each)
2.	Debentures Application and Allotment A/c   ...Dr.		8,10,000
	Discount on Issue of Debentures A/c   ...Dr.		80,000
	To 9% Debentures A/c			8,00,000
	To Bank A/c			90,000
	(8,000 debentures allotted on pro rata basis at 10% discount and excess application money refunded)

Working note:

Issue price per debenture:

₹ 100 − 10% = ₹ 90

Application money received:

9,000 × ₹ 90 = ₹ 8,10,000

Amount required for 8,000 debentures:

8,000 × ₹ 90 = ₹ 7,20,000

Excess application money refunded:

₹ 8,10,000 − ₹ 7,20,000 = ₹ 90,000

Discount on Issue of Debentures:

8,000 × ₹ 10 = ₹ 80,000