Question

Moon Craft Ltd. purchased machinery for ₹ 2,70,000. As per the agreement, the payment is to be made by issuing sufficient number of 5% Debentures of ₹ 100 each. 

You are required to calculate number of debentures to be issued & pass the necessary journal entries in the books of the Company if the said Debentures are issued:

1. At a discount of 10%.
2. At a premium of 20%.

Discount on issue is to be written off in the very first year.

Answer 1

i. At a discount of 10%.

In the books of Moon Craft Ltd.
Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Machinery A/c   ...Dr.		2,70,000	-
	To Vendor’s A/c		-	2,70,000
	(Being machinery purchased.)
2.	Vendor’s A/c   ...Dr.		2,70,000	-
	Discount on Issue of Debentures A/c  ......Dr.		30,000	-
	To 5% Debentures A/c		-	3,00,000
	(Being 3,000 Debentures issued at 10% discount.)
3.	Statement of Profit & Loss A/c   ...Dr.		30,000	-
	To Discount on Issue of Debentures A/c		-	30,000
	(Being discount written off.)

Working Note:

1. Issue Price = ₹ 90
2. Number of Debentures = `"₹ 2,70,000"/"₹ 90"` = 3,000 Debentures

ii. At a premium of 20%.

In the books of Moon Craft Ltd.
Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Machinery A/c   ...Dr.		2,70,000	-
	To Vendor’s A/c		-	2,70,000
	(Being machinery purchased.)
2.	Vendor’s A/c   ...Dr.		2,70,000	-
	To 5% Debentures A/c		-	2,25,000
	To Securities Premium A/c		-	45,000
	(Being 2,250 Debentures issued at 20% premium.)

Working Note:

1. Issue Price = ₹ 120
2. Number of Debentures = `"₹ 2,70,000"/"₹ 120"` = 2,250 Debentures