NCERT solutions for Accountancy Company Accounts and Analysis of Financial Statements [English] Class 12 chapter 2 - Issue and Redemption of Debentures [Latest edition]

Amrit Company Limited purchased assets of the value of Rs.  2,20,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000, 10% debentures of Rs. 100 each at a premium of 10%. Record necessary journal entries.

A company purchased assets of the value of Rs.1,90,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000, 10% debentures of Rs. 100 each at a discount of 5%. Record necessary journal entries.

Rose Bond Limited purchased a business for Rs. 22,00,000. The purchase price was paid by 6% debentures. Debentures of Rs. 20,00,000 were issued at a premium of 10% for the purpose. Record necessary journal entries.

Nikhil and Ashwin Limited bought the business of Agarwal Limited, consisting of sundry assets of Rs. 3,60,000 and sundry creditors of Rs. 1,00,000, for a consideration of Rs. 3,07,200. It issued 14% debentures of Rs. 100 each, fully paid at a discount of 4% in satisfaction of purchase consideration. Record necessary journal entries.

Raghuveer Limited issued Rs. 10,00,000, 8% debentures as follows to:

The issues (1) and (2) are redeemable at the end of 10 years at par. State how the debenture will be dealt with while preparing the balance sheet of a company.

Hassan Limited took a loan of Rs. 30,00,000 from a bank against primary security worth Rs. 40,00,000 and issued 4,000, 6% debentures of Rs. 100 each as collateral security. The company again, after one year, took a loan of Rs. 50,00,000 from the bank against the plant as primary security and deposited 6,000 6% debentures of Rs. 100 each as collateral security. Record necessary journal entries and prepare the balance sheet of the company.

Meghnath Limited took a loan of Rs. 1,20,000 from a bank and deposited 1,400, 8% debentures of Rs. 100 each as collateral security along with primary security worth Rs. 2 lakh. The company again took a loan of Rs. 80,000 after two months from a bank and deposited 1,000, 8% debentures of Rs. 100 each as collateral security. Record necessary journal entries and prepare the balance sheet of the company.

Nena Limited issued 50,000, 10% debentures of Rs. 100 each on the basis of the following conditions:

1. Debentures issued at par and redeemable at par.
2. Debentures issued at a discount @ 5% and redeemable at par.
3. Debentures issued at a premium @ 10% and redeemable at par.
4. Debentures issued at par and redeemable at a premium @ 10%.
5. Debentures issued at a discount of 5% and redeemable at a premium of10%.
6. Debentures issued at a premium of 6% and redeemable at a premium of 4%.

Record necessary journal entries in the above-mentioned cases at the time of issue and redemption of debentures.

Record necessary journal entries in the following case:

27,000, 7% debentures of Rs. 100 each issued at par, redeemable at par.

Record necessary journal entries in the following case:

25,000, 7% debentures of Rs. 100 each issued at par, redeemable at 4% premium.

Record necessary journal entries in the following case:

20,000, 7% debentures of Rs. 100 each issued at 5% discount and redeemable at par.

Record necessary journal entries in the following case:

30,000, 7% debentures of Rs. 100 each, issued at a 5% discount and redeemable at a 2½% premium.

Record necessary journal entries in the following case:

35,000, 7% debentures of Rs. 100 each issued at a 4% premium and redeemable at a premium of 5%.

Diwakar enterprises Ltd. Issued 10,00,000, 6% debentures on April 1, 2016. Interest is paid on September 30, 2016 and March 31, 2017.

Record necessary journal entries assuming that income tax is deducted @10% of the amount of interest.

Laser India Ltd. issued 7,00,000, 8% debentures of Rs. 100 each at par. Interest is to be paid on these debentures half-yearly on September 30 and March 31, every year. Record necessary journal entries assuming that income tax is deducted @ 10% of the amount of interest.

X Ltd. issued 2,000, 10% debentures of Rs. 100 each at a discount of 8% on April 01, 2019, which are redeemable. It has a balance in the Securities Premium Reserve of Rs. 30, 000. Calculate the amount to be written off from the securities Premium Reserve.

Z Ltd. issued 15,00,000, 10% debentures of Rs. 50 each at a premium of 10% payable as Rs. 20 on application and the balance on allotment. Debentures are redeemable at par after 6 years. All the amount due on allotment was called and duly received. Record necessary entries when premium money is included:

1. in application money
2. in allotment money

Z Ltd. issued 5,000, 10% debentures of Rs. 100 each at a discount of 10% on 1.4.2019. The debentures are to be redeemed every year by draw of lots – 1,000 debentures to be redeemed every year starting on 31.03.2021. Record the necessary journal entries, including the payment of interest and writing off the discount on the issue of debentures. The interest is payable on September 30 and March 31. Z Ltd. closes its books of accounts on March 31 every year.

M Ltd. issued 10,000, 8% debentures of Rs. 100 each at a premium of 10% on 1.1.2019. It purchased sundry assets of the value of Rs. 2,50,000 and took over the liabilities of Rs. 60,000 and issued 8% debentures at a discount of 5% to the vendor. On the same date, it took a loan from the Bank for Rs. 1,00,000 and issued 8% debentures as Collateral Security. Record the necessary journal entries in the books of M Ltd. and prepare the extract of the balance sheet on 31.03.2020. Ignore interest.

On 1.4.2019, Fast Computers Ltd. issued 20,00,000, 6% debentures of Rs. 100 each at a discount of 4%, redeemable at a premium of 5% after three years. The amount was payable as follows:

On application Rs. 50 per debenture, Balance on allotment, Record the necessary journal entries for the issue of debentures.

D Ltd. purchased machinery worth Rs. 2,00,000 from E Ltd. on 1.4.2016. Rs. 50,000 were paid immediately, and the balance was paid by the issue of Rs. 1,60,000, 12% Debentures in D Ltd. Record the necessary journal entries for recording the transactions in the books of D Ltd.

State whether the following statement is True (T) or False (F):

Debenture is a part of owned capital.

State whether the following statement is True (T) or False (F):

The payment of interest on debentures is a charge on the profits of the company.

State whether the following statement is True (T) or False (F):

The debentures cannot be issued at a discount of more than 10% of the face value.

State whether the following statement is True (T) or False (F):

Redeemable debentures are those debentures which are payable on the expiry of a specific period.

State whether the following statement is True (T) or False (F):

Perpetual debentures are also known as irredeemable debentures.

State whether the following statement is True (T) or False (F):

Debentures cannot be converted into shares.

State whether the following statement is True (T) or False (F):

Debentures cannot be issued at a premium.

State whether the following statement is True (T) or False (F):

A collateral security is a subsidiary security.

State whether the following statement is True (T) or False (F):

Debentures cannot be issued at a premium and redeemable at par.

State whether the following statement is True (T) or False (F):

Loss on issue of debentures account is a revenue loss.

State whether the following statement is True (T) or False (F):

Premium on redemption of debentures account is shown under the ‘Securities Premium’ in the balance sheet.

Debentures which are transferable by mere delivery are ______.

The following journal entry appears in the books of X Co. Ltd.

Debentures have been issued at a discount of:

X Co. Ltd. purchased assets worth Rs. 28,80,000. It issued debentures of Rs. 100 each at a discount of 4 per cent in full satisfaction of the purchase consideration. The number of debentures issued to vendor is ______.

Convertible debentures cannot be issued at a discount if ______.

When debentures are issued at par and are redeemable at a premium, the loss on such an issues debited to ______.

Excess value of net assets over purchase consideration at the time of purchase of business is credited to ______.

Own debentures are those debentures of the company which ______.

Profit on cancellation of own debentures is transferred to ______.

Identify the account to be credited in case of the following transaction.

Issue of debentures to a vendor in consideration of a business purchase.

Identify the account to be credited in case of the following transaction.

Issue of debentures at a discount.

Identify the account to be credited in case of the following transaction.

Issue of debentures issued at a discount, redeemable at a premium.

Identify the account to be credited in case of the following transaction.

Purchase of own debentures by a company.

Identify the account to be credited in case of the following transaction.

Writing off discount on issue of debentures.

Identify the account to be credited in case of the following transactions.

Debentures are issued at a discount and are redeemable at par.

Identify the account to be credited in case of the following transactions.

Issue of debentures at a premium.

Identify the account to be credited in case of the following transactions.

Issue of debentures at a discount, redeemable at a premium.

Identify the account to be credited in case of the following transactions.

Issue of debentures at a premium, redeemable at a premium.

Identify the account to be credited in case of the following transaction.

Writing off discount on issue of debentures.

G. Ltd. has Rs. 800 lakh, 10% debentures of Rs. 100 each due for redemption on March 31, 2017. Give journal entries for the issue and redemption of debentures.

R. Ltd., issued 88,00,000, 8% debentures of Rs. 50 each at a premium of 5 % on July 1, 2014 redeemable at par by conversion of debentures into shares of Rs. 20 each at a premium of Rs. 2 per share on June 30, 2017. Record necessary entries for redemption of debentures.

C. Ltd. has outstanding 11,00,000, 10% debentures of Rs. 200 each, on April 1, 2017. The Board of Directors have decided to purchase 20% of own debentures for cancellation at Rs. 200 each. Record necessary entries for the same.

Record necessary journal entries in the books of the Company in each of the following cases for redemption of 1,000 12% Debentures of Rs. 10 each issued at par:

1. Debentures redeemed at par by conversion into 12% Preference Shares of Rs. 100 each.
2. Debentures redeemed at a premium of 10% by conversion into Equity Shares issued at par.
3. Debentures redeemed at a premium of 10% by conversion into Equity Shares issued at a premium of 25%.

On 31 March, 2017, Janta Ltd. converted its Rs. 88,00,000, 6% debentures into equity shares of Rs. 20 each at a premium of Rs. 2 per share. Record necessary journal entries in the books of the company for redemption of debentures.

Anirudh Ltd. has 4,000, 8% debentures of Rs. 100 each due for redemption on March 31, 2017. The company has a debenture redemption reserve of Rs. 50,000 on that date. Assuming that no interest is due, record the necessary journal entries at the time of redemption of debentures.

X Ltd. were to redeem 8,000 10% debentures of Rs. 100 each on April 1, 2017, at a premium of 5%. The company has a surplus of Rs. 9,00,000 in the statement of profit and loss. The company closes its books on December 31 every year. What journal entries the company will be recording to redeem the above debentures?

G Ltd. issued 5,00,000, 12% debentures of Rs. 100 each on April 1, 2013, redeemable at par on July 1, 2017. The company received applications for 6,00,000 debentures, and the allotment was made to all the applicants on a pro-rata basis. The debentures were redeemed on the due date. How much of the Debenture Redemption Reserve is to be created before the redemption is carried out? Also, record necessary journal entries regarding the issue and redemption of debentures. Ignore tax deducted at source.

What is meant by a Debenture?

What does a Bearer Debenture mean?

State the meaning of ‘Debentures issued as Collateral Security’.

What is meant by ‘Issue of debentures for Consideration other than Cash’?

What is meant by ‘Issue of debenture at discount and redeemable at premium’?

What is ‘Capital Reserve’?

What is meant by an ‘Irredeemable Debenture’?

What is a ‘Convertible Debenture’?

What is meant by ‘Mortgage Debentures’?

What is the discount on the issue of debentures?

What is meant by ‘Premium on Redemption of Debentures’?

How are debentures different from shares? Give two points.

What is meant by redemption of debentures?

Can the company purchase its own debentures?

What is meant by the redemption of debentures by conversion?

How would you deal with ‘Premium on Redemption of Debentures’?

What is meant by the redemption of debentures by “Purchase in the Open Market”?

Explain the different types of debentures?

Distinguish between a debenture and a share.

Why debenture is known as loan capital? Explain

Describe the meaning of ‘Debenture Issued as Collateral Securities’.

What accounting treatment is given to the issue of debentures in the books of accounts?

Long Answer Question

Explain the different terms for the issue of debentures with reference to their redemption.

Differentiate between redemption of debentures out of capital and out of profits.

Explain the guidelines of SEBI for creating the Debenture Redemption Reserve.

Describe the steps for creating a sinking fund for the redemption of debentures.

Can a company purchase its own debentures in the open market? Explain.

What is meant by the conversion of debentures? Describe the method of such a conversion.

G. Ltd., a listed company, issued 75,00,000, 6% Debentures of Rs 50 each at par, payable Rs 15 on application and Rs 35 on allotment, redeemable at par after 7 years from the date of issue of the debenture. Record necessary entries in the books of the Company.

Y. Ltd. issued 2,000, 6% Debentures of Rs 100 each payable as follows: Rs 25 on application; Rs 50 on allotment and Rs 25 on the First and Final call. Record necessary entries in the books of the company.

A. Ltd. issued 10,000, 10% Debentures of Rs 100 each at a premium of 5% payable as follows:

Rs 10 on Application;

Rs 20 along with premium on allotment and balance on First and Final call. The debentures were fully subscribed, and all money was duly received. Record necessary Journal entries. Also, show how the amount will appear in the balance sheet.

A. Ltd. issued 90,00,000, 9% Debenture of Rs 50 each at a discount of 8%, redeemable at par any time after 9 years. Record necessary entries in the books of A. Ltd. for the issue of debentures.

A. Ltd. issued 4,000, 9% Debentures of Rs 100 each on the following terms:

Rs. 20 on Application;

Rs. 20 on Allotment;

Rs. 30 on First call; and

Rs. 30 on Final call.

The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in full. Applications for 800 Debentures were allotted 400 Debentures, and applications for 400 Debentures were rejected. All money called and duly received. Record necessary journal entries.

T. Ltd. offered 2,00,000, 8% debenture of Rs 500 each on June 30, 2014 at a premium of 10% payable as Rs 200 on application (including premium) and balance on allotment, redeemable at par after 8 years. But application are received for 3,00,000 debentures and the allotment is made on pro-rata basis. All the money due on application and allotment is received. Record necessary entries regarding issue of debentures.

X. Ltd. invites applications for the issue of 10,000, 14% debentures of Rs. 100 each payable as to Rs. 20 on application, Rs. 60 on allotment and the balance on call. The company receives applications for 13,500 debentures, out of which applications for 8,000 debentures are allotted in full, applications for 5,000 debentures were alloted only 40% of received application, and the remaining applications were rejected. The surplus money on partially allotted applications is utilised towards allotment. All the sums due are duly received. Record necessary journal entries regarding the issue of debentures.

R. Ltd. offered 20,00,000, 10% Debentures of Rs. 200 each at a discount of 7% redeemable at a premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.

M. Ltd. took over assets of Rs. 9,00,00,000 and liabilities of Rs. 70,00,000 of S. Ltd. and issued 8% Debentures of Rs. 100 each. Record necessary entries in the books of M. Ltd.

B. Ltd. purchased assets of the book value of Rs. 4,00,000 and took over the liability of Rs. 50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs. 3,80,000, be paid by issuing debentures of Rs 100 each.

What Journal entries will be made in the following three cases, if debentures are issued: (a) at par; (b) at discount; (c) at a premium of 10%? It was agreed that any fraction of debentures be paid in cash.

(Note: Goodwill Rs. 30,000)

X.Ltd. purchased a Machinery from Y. Ltd. at an agreed purchase consideration of Rs. 4,40,000 to be satisfied by the issue of 12% debentures of Rs. 100 each at a premium of Rs 10 per debenture. Journalise the transactions.

X. Ltd. issued 15,000, 10% debentures of Rs. 100 each. Give journal entries and the Balance Sheet in each of the following cases:

(i) The debentures are issued at a premium of 10%;

(ii) The debentures are issued at a discount of 5%;

(iii) The debentures are issued as collateral security to the bank against a loan of Rs. 12,00,000; and

(iv) The debentures are issued to a supplier of machinery costing Rs. 13,50,000.

Journalise the following:

(i) A debenture issued at Rs. 95, repayable at Rs. 100;

(ii) A debenture issued at Rs. 95, repayable at Rs. 105; and

(iii) A debenture issued at Rs. 100, repayable at Rs. 105;

The face value of the debenture in each of the above cases is Rs. 100.

A. Ltd. issued 50,00,000, 8% debentures of Rs. 100 at a discount of 6% on April 01, 2018, redeemable at a premium of 4% by draw of lots as under:

20,00,000 debentures on March, 2020

10,00,000 debentures on March, 2021

20,00,000 debentures on March, 2022

Record journal entries for the issue of debentures. Prepare discount/loss on issue of debenture account.

A company issues the following debentures:

1. 10,000 12% debentures of Rs. 100 each at par but redeemable at a premium of 5% after 5 years;
2. 10,000 12% debentures of Rs. 100 each at a discount of 10% but redeemable at par after 5 years;
3. 5,000 12% debentures of Rs. 1,000 each at a premium of 5% but redeemable at par after 5 years;
4. 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
5. 300 12% debentures of Rs. 100 each as 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: (a) issue of debentures, and (b) repayment of debentures after the given period.

A listed company issued debentures of the face value of Rs. 5,00,000 at a discount of 6% on April 01, 2014. These debentures are redeemable by annual drawings of Rs.1,00,000 made on March 31 each year starting from March 31, 2016.

Give journal entries for issue of debuntures, writing-off discount and regarding redemption of debentures.

B. Ltd., a listed company, issued debentures at 94% for Rs. 4,00,000 on April 01, 2011, repayable by five equal drawings of Rs. 80,000 each. The company prepares its final accounts on March 31 every year. Give Journal entries for issues and redemption of debentures.

B. Ltd. issued 1,000, 12% debentures of Rs 100 each on April 01, 2014, at a discount of 5% redeemable at a premium of 10%.

Give journal entries relating to the issue of debentures and debenture interest for the period ending March 31, 2015, assuming that interest is paid half-yearly on September 30 and March 31, and tax deducted at source is 10%.

Jay Kay Ltd. an ‘other listed company’ issued 60,000 12% debentures of Rs. 100 each at par redeemable at the end of 5 years at a premium of 20%. On this date, a balance of Rs. 5,00,000 in the securities premium reserve account. The company created the required amount of debenture redemption reserve in 3 equal instalments on March 31, 2017, 2018 and 2019. It invested in specified securities (DRI) the required amount on April, 01 of the financial year Debentures were duly redeemed on the record necessary journal entries for:

1. Issue of debentures
2. Writing off loss on issue of debentures.
3. Interest and debentures for 2015-16 assuring if are paid annually & tax deducted at service is 10%.
4. Regarding redemption of debentures.

Madhur Ltd. has outstanding 9% debentures of Rs. 50,00,000 redeemable at par on January 01, 2020. Debenture Redemption Reserve of Rs. 2,00,000 on March 31, 2018 and balance of the required amount of DRR was created on March 31, 2019. The company invested in specified securities (DRI) the required amount on April 01, 2019. Debentures were redeemed on the due date. Record necessary journal entries in the books of the company and also prepare the ledger accounts (ignore interest).

MK Ltd. has outstanding Rs. 30,000 11% debentures of Rs. 100 each redeemable at 10% premium as follows:

Pass necessary journal entries in the books of the company.

X Ltd. had outstanding 20,000 12% debentures of Rs. 100 each redeemable on June 30, 2019. Record necessary journal entries at the time of redemption.

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:

1. Debentures are issued at par and redeemable at par.
2. Debentures are issued at a premium of 10% and redeemable at par.
3. Debentures are issued at a discount of 10% and redeemable at par.
4. Debenture are issued at par but redeemable at a premium of 10%.
5. Debentures are issued at a premium of 10% and redeemable at premium of 10%.
6. Debenture are issued at a discount of 10% and redeemable at a premium of 10%.