Question

Pass necessary journal entries in the books of Mitali Ltd. for the issue of debentures in the following cases:

1. Issued 7,000, 9% debentures of ₹ 100 each at a discount of 10%, redeemable at a premium of 5% after 5 years.
2. Issued 8,000, 11% debentures of ₹ 100 each at a premium of 10%, redeemable at a premium of 5% after 5 years.

Answer 1

Journal Entries in the books of Mitali Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
(i)
1.	Bank A/c   ...Dr.		6,30,000	-
	To Debenture Application & Allotment A/c		-	6,30,000
	(Being Application money received at 10% discount)
2.	Debenture Application & Allotment A/c   ...Dr.		6,30,000	-
	Loss on Issue of Debentures A/c ...Dr.		1,05,000	-
	To 9% Debentures A/c		-	7,00,000
	To Premium on Redemption of Debentures A/c		-	35,000
	(Being Debentures issued at a discount and redeemable at a premium)
(ii)
1.	Bank A/c   ...Dr.		8,80,000	-
	To Debenture Application & Allotment A/c		-	8,80,000
	(Being Application money received at 10% premium)
2.	Debenture Application & Allotment A/c   ...Dr.		8,80,000	-
	Loss on Issue of Debentures A/c   ...Dr.		40,000	-
	To 11% Debentures A/c		-	8,00,000
	To Securities Premium A/c		-	80,000
	To Premium on Redemption of Debentures A/c		-	40,000
	(Being Debentures issued and redeemable at a premium)

Working Note:

(i) Total Face Value: 7,000 × 100

= ₹ 7,00,000

Issue Price (10% Discount): 90 per debenture → 6,30,000 total

Premium on Redemption (5%) = `7,00,000 xx 5/100`

= 35,000

Total Loss on Issue = Discount + Premium on Redemption

= 70,000 + 35,000

= 1,05,000

(ii) Total Face Value = 8,000 × 100

= ₹ 8,00,000

Issue Price (10% Discount): 110 per debenture → 8,80,000 total

Premium on Redemption (5%) = `8,00,000 xx 5/100`

= 40,000