Question

Sujata Ltd. invited applications for issuing 50,000, 9% Debentures of ₹ 100 each at a discount of 10% redeemable at par after 5 years. The debentures were fully subscribed and all money was duly received. The company had a balance of ₹ 3,00,000 in Securities Premium which it decided to use for writing off the discount/loss on issue of debentures. It also decided to write off the remaining discount/loss on issue of debentures in the first year.

Pass the Journal entries for issue of debentures and for writing off discount/loss on issue of debentures.

Answer 1

Journal Entries in the Books of Sujata Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c   ...Dr.		45,00,000
	Discount on Issue of Debentures A/c   ...Dr.		5,00,000
	To 9% Debentures A/c			50,00,000
	(Being 50,000, 9% Debentures of ₹ 100 each issued at 10% discount and redeemable at par)
2.	Securities Premium A/c   ...Dr.		3,00,000
	Statement of Profit & Loss A/c (Finance Cost)   ...Dr.		2,00,000
	To Discount on Issue of Debentures A/c			5,00,000
	(Being discount on issue of debentures written off, ₹ 3,00,000 against Securities Premium and balance ₹ 2,00,000 against Statement of Profit & Loss)

Working Note:

Face value of Debentures:

50,000 × ₹ 100 = ₹ 50,00,000

Discount on Issue:

₹ 50,00,000 × 10% = ₹ 5,00,000

Amount received:

₹ 50,00,000 − ₹ 5,00,000 = ₹ 45,00,000

Writing off Discount:

Discount on Issue = ₹ 5,00,000

Less: Securities Premium = ₹ 3,00,000

Balance written off to Statement of Profit & Loss = ₹ 2,00,000