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Question
On 1st April, 2017, Solar Power Ltd. issued 10,000, 8% Debentures of ₹ 100 each at a discount of 5% redeemable at a premium of 15% at the end of five years. All the debentures were subscribed and allotment was made. The company had balance in Securities Premium Reserve of ₹ 80,000.
Prepare the Balance Sheet (extract) as at 31st March, 2018.
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Solution
| In the books of Solar Power Ltd. An Extract of Balance Sheet As at 31st March, 2018 |
||
| Particulars | Note No. |
Amount (₹) |
| I. Equity and liabilities | ||
| 1. Shareholders’ Funds |
||
| Reserves and Surplus | 3 | (1,20,000) |
| 2. Non-Current Liabilities | ||
| a. Long-term Borrowings | 1 | 10,00,000 |
| b. Other long-term | 2 | 1,50,000 |
| II. Assets | ||
| Current Assets | ||
| Cash and Cash Equivalents | 4 | 9,50,000 |
Notes to Accounts:
| Note No. |
Particulars | Amount (₹) | Amount (₹) |
| 1. | Long-term Borrowings | ||
| 10,000, 8% Debentures of ₹100 each issued | 10,00,000 | ||
| 2. | Other long-term Liabilities | ||
| Premium on Redemption of Debentures | 1,50,000 | ||
| 3. | Reserves and Surplusc | ||
| Securities Premium Reserve | 80,000 | ||
| Less: Discount on Issue of Debentures | (50,000) | ||
| Less: Loss on Issue of Debentures written off | (30,000) | ||
| Statement of Profit and Loss | – | ||
| Less: Loss on Issue of Debentures written off | (1,20,000) | (1,20,000) | |
| 4. | Cash and Cash Equivalents | ||
| On 8% debentures @ ₹ 95 each (10,000 × 95) | 9,50,000 |
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Long Answer Question
Describe the meaning of ‘Debenture Issued as Collateral Securities’. What accounting treatment is given to the issue of debentures in the books of accounts?
A company issues the following debentures:
- 10,000 12% debentures of Rs.100 each at par but redeemable at premium of 5% after 5 years;
- 10,000 12% debentures of Rs.100 each at a discount of 10% but redeemable at par after 5 years;
- 5,000 12% debentures of Rs.1,000 each at a premium of 5% but redeemable at par after 5 years;
- 1,000 12% debentures of Rs.100 each issued to a supplier of machinery costing Rs.95,000. The debentures are repayable after 5 years and
- 300 12% debentures of Rs.100 each as a collateral security to a bank that has advanced a loan of Rs.25,000 to the company for a period of 5 years.
Pass the journal entries to record the issue of debentures.
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.
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Statement 2 - "Shares can be converted into debentures whereas debentures cannot be converted into shares"
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Reason (R): Debenture holders have voting rights.
Which of the following statement is true?
Which of the following is false with respect to debentures ?
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Interest on debentures is calculated on ______.
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Reason (R): Interest on debenture is a charge against profits and therefore, its payment is not subject to the earning of profit.
XYZ Ltd. Issued 6,000, 12% Debentures of ? 50 each on April 1, 2014. Interest on these debenture is payable annually 3151 March each year. The debentures are redeemable in four equal installments at end of third, fourth, fifth and sixth year. You are required to pan journal entries at the time of issue and redemption of debentures in the books of the company under following cases:
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- Debenture are issued at par but redeemable at a premium of 10%.
- Debentures are issued at a premium of 10% and redeemable at premium of 10%.
- Debenture are issued at a discount of 10% and redeemable at a premium of 10%.
