Question

Show by means of journal entries how would you record the following issues. Also show how they would appear in the respective balance sheets.

1. A Ltd. issues ₹ 5,00,000, 13% debentures at a discount of 8% redeemable at par.
2. B Ltd. issues ₹ 6,00,000, 12% debentures at a discount of 6% redeemable at a premium of 7%.
3. C Ltd. purchased plant and machinery for ₹ 8,00,000, payable as to ₹ 2,30,000 in cash and the balance by an issue of 10% debentures of ₹ 100 each at a discount of 5%.
4. D Ltd. issued 500 11% debentures of ₹ 100 each as a collateral security to a bank who has advanced a loan of ₹ 45,000 to the company for a period of 7 years.
5. E Ltd. issued ₹ 2,20,000 debentures to a creditor for ₹ 2,00,000 capital expenditure in satisfaction of his claim.

Answer 1

In the Books of A Ltd.
Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
(i)	Bank A/c   ...Dr.		4,60,000	-
	Discount on Issue of Debentures A/c   ...Dr.		40,000	-
	To 13% Debentures A/c		-	5,00,000
	(Being 13% debentures issued at 8% discount redeemable at par.)

 

In the Books of B Ltd.
Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank A/c   ...Dr.		5,64,000	-
	Discount on Issue of Debentures A/c   ...Dr.		36,000	-
	Loss on Issue of Debentures A/c   ...Dr.		42,000	-
	To 12% Debentures A/c		-	6,00,000
	To Premium on Redemption of Debentures A/c		-	42,000
	(Being 12% debentures issued at 6% discount, redeemable at 7% premium.)

 

In the Books of C Ltd.
Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Plant and Machinery A/c   ...Dr.		8,00,000	-
	Discount on Issue of Debentures A/c   ...Dr.		30,000	-
	To Bank A/c		-	2,30,000
	To 10% Debentures A/c		-	6,00,000
	(Being machinery purchased partly for cash and partly by issue of debentures at 5% discount.)

 

In the Books of E Ltd.
Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Asset A/c   ...Dr.		2,00,000	-
	Loss on Issue of Debentures A/c   ...Dr.		20,000	-
	To Debentures A/c		-	2,20,000
	(Being debentures issued to creditor in full settlement of ₹2,00,000.)

Working Notes:

(i)  A Ltd. 

Balance Sheet (Extract) 

1. Liabilities:
   13% Debentures - ₹5,00,000
   Less: Discount on Issue - (₹40,000)
   Net Amount - ₹4,60,000
2. Assets:
   No specific asset recorded against this entry.

(ii) B Ltd. 

Balance Sheet (Extract)

1. Liabilities:
   12% Debentures - ₹6,00,000
   Add: Premium on Redemption - ₹42,000
   Less: Discount & Loss on Issue - ₹78,000
   Net Amount - ₹5,64,000
2. Assets:
   No specific asset recorded against this entry.

(iii) C Ltd. 

Balance Sheet (Extract)

1. Assets:
   Plant & Machinery - ₹8,00,000
2. Liabilities:
   10% Debentures - ₹6,00,000
   Less: Discount on Issue - ₹30,000
   Net Amount - ₹5,70,000

(iv) D Ltd. 

Balance Sheet (Extract)

1. Liabilities:
   Bank Loan - ₹45,000
   Note: 11% Debentures of ₹50,000 issued as collateral security are only shown as a footnote, not recorded in books.
2. Assets:
   Not specified.

(v) E Ltd. 

Balance Sheet (Extract)

1. Assets:
   Asset (as per creditor’s claim) - ₹2,00,000
   Loss on Issue of Debentures - ₹20,000 (Shown under Miscellaneous Expenditure)
2. Liabilities:
   Debentures - ₹2,20,000