Ncert Solutions for Class 12 Accountancy part 2 Chapter 2 Issue and Redemption of Debentures

Class 12 accountancy part 2 Book chapter 2 exercise solutions: Accountancy Class 12 part 2 Book Chapter 2 questions and answers

Textbook	NCERT
Class	Class 12
Subject	Accountancy
Chapter	part 2 Chapter 2
Chapter Name	Issue and Redemption of Debentures ncert solutions
Category	Ncert Solutions
Medium	English

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Short Answer Questions

Question 1: What is meant by a Debenture?

Answer 1: A debenture is a type of long-term debt instrument issued by a company or government to borrow money from the public. It is a written promise to pay a specified amount of money, called the principal, at a particular date in the future, along with periodic interest payments.

Debentures are not typically backed by collateral; instead, they rely on the issuer’s creditworthiness and reputation. They are often issued with a fixed interest rate and are used to raise funds for business expansion, infrastructure projects, or other financial needs. As a key feature, debenture holders are considered creditors of the issuing entity but do not have ownership rights like shareholders.

Question 2: What does a Bearer Debenture mean?

Answer 2: A bearer debenture is a type of debenture that is not registered in the name of the holder and is transferable simply by delivery. The ownership of a bearer debenture is determined by physical possession, meaning whoever holds the certificate is considered the owner.

These debentures typically have coupons attached, which the holder can detach and present to the issuer or an authorized party to claim interest payments. Bearer debentures are considered highly negotiable and provide anonymity to the holder, as there is no record of ownership. However, this feature also makes them more susceptible to loss, theft, or misuse.

Question 3: State the meaning of ‘Debentures issued as a collateral security’.

Answer 3: Collateral security refers to an additional layer of security over and above the primary security. In case a company takes a loan from a financial institution, the company issues debentures which are additional security or collateral security.

The money lender will not be receiving any interest on these debentures. In case the company defaults in making payment and the primary security is not sufficient to cover the debt, then debentures can be used to recover the amount.

Question 4: What is meant by ‘Issue of debentures for consideration other than cash’?

Answer 4: When a company purchase some assets it is supposed to pay the purchase consideration in cash but sometimes due to lack of sufficient fund, company may issue debenture for the payment of such purchase consideration. This is known as issue of debenture for consideration other than cash.

The issue of debenture for consideration other than cash serves the purpose of both the vendor as well as of the purchaser (company). From the purchaser’s point of view, purchasing an asset against the issue of debentures requires no additional cost for raising loans or arranging funds immediately.

On the other hand, the vendor gets interest on the amount of debentures received. Such debentures can be issued at par, premium or discount to the vendor.

Question 5: What is meant by Issue of debenture at discount and redeemable at premium?

Answer 5: It may happen that due to challenging market conditions, a company has to raise funds from the market by issuing debenture below its par value and, to attract investors’ interest, has to offer redeemable value higher than its par value.

This is termed as the issue of debenture at discount and redeemable at premium. The difference that is generated due to such an arrangement is treated as a loss on the issue of a debenture.

Question 6: What is ‘Capital Reserve’?

Answer 6:  Capital Reserve is a reserve that is created out of capital profits. Capital profits are those profits arising out of those activity which are not part of the business operations e.g., premium on issue of share and debentures, profits of sale of fixed asset, profit on redemption on debenture and profit on reissue of forfeited share and so on.

A capital reserve can be utilized for meeting the future capital losses. Here it is to be remembered that capital reserve cannot be used for distributing dividend to the share holders but bonus shares can be issued out of the capital reserve.

Question 7: What is meant by a ‘Irredeemable Debenture’?

Answer 7: Irredeemable Debentures are those debentures that are not repayable or redeemable by a company during its life time. These are repayable only at the time of winding up of the company. These are also known as Perpetual Debentures that means debentures having indefinite life. In India, now days, no company can issue irredeemable debentures.

Question 8: What is a ‘Convertible Debenture’?

Answer 8: Convertible Debentures are those debentures that can be converted into equity shares after a specified period of time. These are of following two types:

i. Fully Convertible Debentures: When the whole amount of a debenture is convertible into equity shares worth of equivalent amount, then these debentures are called Fully Convertible Debentures. There is no need to maintain Debenture Redemption Reserves for such debentures.

ii. Partly Convertible Debentures: When only a part of the amount of a debenture is convertible into equity share, then these debentures are called Partly Convertible Debentures. In this regards, the Debenture Redemption Reserve is maintained only for the non-convertible part of the debenture.

Question 9: What is meant by ‘Mortgaged Debentures’?

Answer 9: Mortgaged debentures are a type of secured debentures that are backed by a mortgage on the company’s fixed assets, such as land, buildings, or machinery. In case the company fails to repay the principal or interest, the debenture holders have the right to sell the mortgaged assets to recover their dues.

These debentures provide an added layer of security for investors, making them less risky compared to unsecured debentures. Mortgaged debentures can be further classified as first mortgage debentures, which have the first claim on the mortgaged assets, and second mortgage debentures, which have a claim subordinate to the first.

Question 10: What is discount on issue of debentures?

Answer 10: Discount on the issue of debentures refers to the amount by which the face value of a debenture is reduced when it is issued below its nominal or par value. In other words, when a company issues debentures at a price lower than their face value, the difference between the issue price and the face value is considered the discount.

For example, if a debenture with a face value of $100 is issued at $90, the discount on issue would be $10. This discount represents a loss for the company, as it receives less money than the nominal value of the debenture. The discount is amortized over the life of the debenture and is typically recorded as an expense in the company’s financial statements.

Question 11: What is meant by ‘Premium on Redemption of Debentures’?

Answer 11: When the debentures are redeemed at a price more than its face value or the par value, then it is said that the debentures are redeemed at premium. The difference between the redeemed price and the par value is regarded as a capital loss and this loss is written off till the redemption of the debentures. The Premium on Redemption of Debenture is shown on the Liabilities side of the Balance Sheet under the head of “Current Liabilities and Provisions” debentures are redeemed. 

Question 12: How debentures are different from shares? Give two points.

Answer 12:

Basis of Comparisons	Debentures	Shares
1. Meaning	Debentures are a part of loan, therefore, the debenture holders are the creditors of a company.	Shares form a part of capital, hence, share holders are the owner of a company.
2. Voting Rights	These do not carry any voting rights for their holders.	These carry voting rights for their holders.

Question 13: What is meant by redemption of debentures?

Answer 13: It refers to the repayment of debentures by the company to the debenture holders. In this process, debenture holders get payment for the debentures they were issued, and the repayment is made as per terms and conditions determined at the time of debenture issue. It may be redeemable at par, discount or premium. Redemption takes place from profits or from a fresh batch of debentures. The following methods are used in redeeming debentures:

• 1. By conversion into equity shares and new debentures
• 2. By annual drawing in instalments
• 3. By purchasing debentures in an open market
• 4. Lump sum payment on the maturity date
• 5. Utilizing the call or put option

Question 14: Can the company purchase its own debentures?

Answer 14: Yes, a company, if authorised by its Articles of Association, can purchase its own debentures in the open market. The main purposes of such purchase may be as follows:

(i) A company may purchase its own debenture for immediate cancellation for reducing the debenture liability especially in case when the interest rate on its debenture is higher than the market rate of interest.

(ii) A company may also purchase its own debentures with the motive of investment and sell them at higher price in future and thereby earn profit.

Question 15: What is meant by redemption of debentures by conversion?

Answer 15: Debentures are usually redeemed in cash but sometimes privilege is given to the debenture holders to exchange their debentures either for shares or for new debentures of the company. The redemption of debentures by means of shares or new debentures is known as redemption by conversion and the debentures which carry such a right is called convertible debentures.

Question 16: How would you deal with ‘Premium on Redemption of Debentures?

Answer 16: When the debentures are redeemed at a price more than its face value or the par value, then it is said that the debentures are redeemed at premium. The difference between the redeemed price and the par value is regarded as a capital loss and this loss is written off till the redemption of the debentures.

The Premium on Redemption of Debenture is shown on the Liabilities side of the Balance Sheet under the head of Current Liabilities and Provisions until debentures are redeemed.

Accounting Treatment for Premium on Redemption on Debentures:

At the Time of the Issue of Debenture

Date	Particulars		L.F.	Amt. (Dr.)	Amt. (Cr.)
	Debenture Allotment A/c	Dr.
	Loss on Issue of Debenture A/c	Dr.
	To Debenture A/c
	To Premium on Redemption of Debenture A/c
	(Being 10% debenture are issued at 5% discount and redemable at 5% premium)

For Loss Written off

Date	Particulars		L.F.	Amt. (Dr.)	Amt. (Cr.)
	Statement of Profit & Loss	Dr.
	To Loss on Issue of Debenture A/c
	(Being loss on issue of debenture written of)

At the time of Redemption of Debentures

Date	Particulars		L.F.	Amt. (Dr.)	Amt. (Cr.)
	Debenture A/c	Dr.
	Premium on Redemption A/c	Dr.
	To Debenture Holders A/c
	(Being amount of debenture due to debenture holders)

Question 17: What is meant by redemption of debentures by “Parchase in Open Market”?

Answer 17: Redemption of debentures by purchase in open market refers to the condition when a company is authorised by its Article of Association to be able to purchase its own debentures. The debentures are purchased to serve the following purpose:

1. As a source of investment which can be sold at a higher price on a later date to earn more profit

2. To cancel debenture liabilities if the debenture rate is higher than the rate of interest in the market.

Long Answer Questions

Question 1: Explain the different types of debentures?

Answer 1: Debentures come in various types, each offering different terms and conditions based on the needs of the issuer and the preferences of the investors. The main types of debentures are:

1. Bearer Debentures: These are not registered in the name of the holder, and ownership is determined by physical possession. They can be transferred by delivery, and interest is paid through attached coupons. Bearer debentures offer anonymity to holders but are also more susceptible to loss or theft.
2. Registered Debentures: Unlike bearer debentures, registered debentures are recorded in the name of the holder. Transfers of ownership require formal registration, and interest payments are made directly to the registered holder. They provide more security and transparency than bearer debentures.
3. Secured Debentures: These debentures are backed by the company’s assets, such as property or machinery, which serve as collateral. If the company defaults on payment, the debenture holders have the right to claim the assets to recover their dues. Secured debentures are less risky for investors compared to unsecured ones.
4. Unsecured Debentures: These debentures are not backed by any collateral, making them riskier for investors. The holders rely solely on the creditworthiness of the issuing company. In case of default, unsecured debenture holders have no specific claim to the company’s assets.
5. Convertible Debentures: These debentures can be converted into equity shares of the issuing company at a predetermined price and time. Convertible debentures offer the advantage of potential capital gains if the company’s stock price rises.
6. Non-Convertible Debentures (NCDs): These debentures cannot be converted into equity shares. Investors receive only the principal and interest payments over the life of the debenture, without the option to convert them into ownership.
7. Redeemable Debentures: These debentures are issued with a specific maturity date, after which the company must redeem or repay the principal amount to the debenture holders. The redemption could be at par value or at a premium/discount.
8. Irredeemable Debentures: Also known as perpetual debentures, these do not have a fixed maturity date. The principal amount is not repayable by the company unless specifically stated, and they continue to pay interest indefinitely, making them a long-term form of borrowing.
9. Mortgage Debentures: These debentures are secured against the company’s assets, like property or land. In case of a default, the debenture holders can claim the mortgaged assets to recover their dues.
10. Fixed-rate Debentures: These debentures offer a fixed interest rate over their life, providing predictable returns to investors.
11. Floating-rate Debentures: These debentures have an interest rate that fluctuates based on a benchmark, such as the market interest rate. They provide variable returns to investors.

Question 2: Distinguish between a debenture and a share. Why debenture is known as loan capital? Explain.

Answer 2:

Basis of Comparison	Shares	Debenture
Meaning	Shares are funds that are owned by a company	Debentures are funds that are borrowed from outside, i.e. it is debt for a company
Dividend	Shareholders earn dividends from the profit of the company	Debenture holders earn interest for the amount taken as debt
Deduction	Being an appropriation of profit, not liable to be deducted	Being an expense for business, deducted from profit
Conversion	Shares cannot be converted into debentures	Some debentures can be converted into shares after a period of time
Voting Right	Shareholders have voting right	No voting right
Risk	Shareholders have the highest risk	Debenture holders have the lowest risk
Compulsion to return	It is not mandatory to declare a dividend	It is mandatory to pay interest to creditors.
Status of Holders	Shareholders are owners	Debenture holders are creditors
Position in Financial Statement	Shown under Shareholder Funds on the equity and liabilities side of the Balance Sheet	Shown as non-current liabilities in the equity and liabilities side of the Balance Sheet.
Status at Liquidation	Payment made after clearing all liabilities	Payment made before shareholders.

Issue of debentures implies incurring long-term indebtedness. Generally, a company issues debentures for acquiring long-term borrowings to achieve its long-run targets and growth. Like the owner’s capital, interest is also payable on the principal amount of the debenture.

The interest paid is regarded as an expense for the company and is deductible under Income Tax Act. Therefore, debentures are also known as loan capital because they are redeemable after a long period of time.

Question 3: Describe the meaning of ‘Debenture Issued as Collateral Securities’. What accounting treatment is given to the issue of debentures in the books of accounts?

Answer 3: Collateral security refers to an additional layer of security over and above the primary security. It is seen in the case of a company taking a loan from a financial institution. In such cases, the company issues debentures which are additional security or collateral security. The money lender will not be receiving any interest on these debentures. In case the company defaults in making payment and the primary security is not sufficient to cover the debt, then debentures can be used to recover the amount.

Treatment of Debentures: Debentures, when issued for the first time by a company, are not active, and to make them active an accounting entry is required to be passed

For creating an accounting record, Debenture Suspense A/C is debited, and the debenture account is credited. Debentures are represented on the liabilities side, and Debenture suspense A/c is shown on the credit side. When the debt is paid off by the business debenture account is debited, and the debenture suspense account gets credited.

Question 4: Explain the different terms for the issue of debentures with reference to their redemption.

Answer 4: Debentures can be issued at par, at premium and at discount in the same way they can be redeem at par and at premium. Debentures can never be redeemed at discount. The following are the six situation under which debentures can be issued to their redemption.

(i) Issue at Par and Redeemable at Par: When the debentures are issued and are redeemed at their face value, then the following Journal entry is passed.

Date	Particulars		L.F.	Amt. (Dr)	Amt. (Cr)
	Bank A/c	Dr.
	To Debenture Application and Allotment A/c
	(Being debentures application money received)
	Debenture Application and allotment A/c	Dr.
	To Debenture A/c
	To Securities Premium Reserve A/c
	(Being debentures issues at premium and redeemable at par)

(iii) Issue at Discount and Redeemable at Par: When the debentures are issued at discount and redeemable at par, then the following Journal entry is passed.

Date	Particulars		L.F.	Amt. (Dr)	Amt. (Cr)
	Bank A/c	Dr.
	To Debenture Application and Allotment A/c
	(Being debentures application money received)
	Debenture Application and allotment A/c	Dr.
	Discount on issue of Debenture A/c
	To Debenture A/c
	(Being debentures issues at premium and redeemable at par)

(iv) Issue at Par and Redeemable at Premium: When debentures are issued at par and redeemable at premium, then the following Journal entry is passed. In such case, the company did not suffer any loss at the time of issue but there will be loss at the time of redemption.

Date	Particulars		L.F.	Amt. (Dr)	Amt. (Cr)
	Bank A/c	Dr.
	To Debenture Application and Allotment A/c
	(Being debentures application money received)
	Debenture Application and allotment A/c	Dr.
	Loss on Issue of Debenture A/c	Dr.
	To Debenture A/c
	To Premium on Redemption of Debenture A/c
	(Being debentures issues at par and redeemable at premium)

(v) Issue at Premium and Redemption at Premium: When the debentures are issued at premium and redeemable at premium, then the following Journal entry is passed.

Date	Particulars		L.F.	Amt. (Dr)	Amt. (Cr)
	Bank A/c	Dr.
	To Debenture Application and Allotment A/c
	(Being debentures application money received)
	Debenture Application and allotment A/c	Dr.
	Loss on Issue of Debenture A/c	Dr.
	To Debenture A/c
	To Securities Premium Reserve A/c
	To Premium on Redemption of Debentures A/c
	(Being debentures issued at premium and redemable at premium)

(vi) Issued at Discount and Redemption at Premium: When debentures are issued at discount and redeemed at premium, then the following journal entry is passed.

Date	Particulars		L.F.	Amt. (Dr)	Amt. (Cr)
	Bank A/c	Dr.
	To Debenture Application and Allotment A/c
	(Being debentures application money received)
	Debenture Application and allotment A/c	Dr.
	Discount on Issue of Debentures A/c	Dr.
	Loss on Issue of Debenture A/c	Dr.
	To Debenture A/c
	To Premium on redemption of debentures A/c
	(Being debentures issued at discount and redemable at premium)

Question 5: Differentiate between redemption of debentures out of capital and out of profits.

Answer 5: Redemption of Debentures Out of Capital

When debentures are redeemed out of capital and no profits are utilised for redemption, then such redemption is termed as redemption out of capital. In such a situation, no profits are transferred to the Debenture Redemption Reserve (DRR).

As per the guideline laid down by Securities and Exchange Board of India (SEBI) and the Section 117C of Company Act of 1956, the creation of DRR is mandatory (DRR). Therefore, it is not possible to redeem debentures purely out of capital, as it reduces the value of assets. The following companies are exempted from the creation of DRR.

1. Infrastructure companies (i.e. those companies that are engaged in the business of developing, maintaining and operating infrastructure facilities)

2. A Company that issues debentures with a maturity up to 18 months

Redemption of Debenture Out of Profits

When debentures are redeemed out of profit then no capital is utilised for redemption. Before redeeming the debentures profits are transferred to DRR from Profit and Loss Appropriation Account. The creation of DRR is mandatory as per the guidelines laid down by Securities and Exchange Board of India (SEBI). SEBI mandates transferring amount equal to 50% of debentures issued to DRR before redeeming debentures.

In this method, as profits are transferred to the DRR Account, thereby reducing the total amount of profits, therefore this method is termed as Redemption of Debentures Out of Profits. In this method, first of all, the required profits are transferred from Statement of Profit and Loss to the DRR Account. The working of which is shown in the Notes to Accounts of Reserves and Surplus (as prescribed in Revised Schedule VI).

The final balance (after considering DRR) is shown as the sub-head ‘Reserves and Surplus’ under the main head of Shareholders’ Funds on the Equity and Liabilities side of the Company’s Balance Sheet. Lastly, when all the debentures are redeemed, then DRR account is closed by transferring its amount to the General Reserve.

Question 6: Explain the guidelines of SEBI for creating Debenture Redemption Reserve.

Answer 6: Securities and Exchange Board of India (SEBI) have provided some guidelines for redemption of debentures. The focal points of these guidelines are
(i) Every company shall create Debenture Redemption Reserve in case of issue of debenture redeemable after a period of more than 18 months from the date of issue.
(ii) The creation of Debenture Redemption Reserve is obligatory only for non-convertible debentures and non-convertible portion of partly convertible debentures.
(iii) A company shall create Debenture Redemption Reserve equivalent to at least 50% of the amount of debenture issue before starting the redemption of debenture.
(iv) Withdrawal from Debenture Redemption Reserve is permissible only after 10% of the debenture liability has already been reduced by the company.

SEBI guidelines would not apply under the following situations:
(i) Infrastructure company (a company wholly engaged in the business of developing, maintaining and operating infrastructure facilities), and
(ii) A company issuing debentures with a maturity period of not more than 18 months.

Question 7: Describe the steps for creating Sinking Fund for redemption of debentures.

Answer 7: The following steps are involved:

• 1. Calculate the amount from the profit that needs to be set aside every year with information obtained from Sinking Fund Table.
• 2. This amount that is set aside every year in Step 1 is transferred to a Debenture Redemption Fund (Sinking Fund) by debiting P & L Appropriation Account.
• 3. The instalment hence determined is invested in obtaining the amount essential for redeeming the debenture by debiting the DRF (Debenture Redemption Fund).
• 4. The interest on the amount thus invested will be received on a bi-annual or annual basis.
• 5. The total investment, which includes investment and the interest, is re-invested in the following year.
• 6. Repeat the steps of transferring and investing till the last instalment, which will be debited from the P & L appropriation account.
• 7. The investment is sold off at the year of redemption
• 8. The profit/loss that is obtained from the sale of investment is transferred appropriately by debiting/crediting Debenture Redemption Fund (DRF) investment account to the DRF Account.
• 9. Payment is processed for the holders of the debenture
• 10. The balance remaining, if any, from the DRF Account is transferred to the General Reserve.

Question 8: Can a company purchase its own debentures in the open market? Explain.

Answer 8: Yes, a company, if authorised by its Articles of Association, can purchase its own debentures in the open market. The main purposes of such purchase may be as follows:

(i) A company may purchase its own debenture for immediate cancellation for reducing the debenture liability especially in case when the interest rate on its debenture is higher than the market rate of interest.

(ii) A company may also purchase its own debentures with the motive of investment and sell them at higher price in future and thereby earn profit.

When a company purchase its own debenture,in the open market it can happen in either of the two ways first debentures may be purchased at premium for cancellation and debenture may be purchase at discount for cancellation. The following will be the accounting treatment in both situation.

(i) If Debentures are Purchased at Discount for Cancellation: When the company purchase its own debentures at discount for cancellation, then the following Journal entries are recorded.

Date	Particulars		L.F.	Amt. (Dr)	Amt. (Cr)
	Own Debentures A/c	Dr.
	To Bank A/c
	(Being own debentures purchased in the open market)
	Debenture A/c	Dr.
	To Own Debentures A/c
	To Profit on Redemption of Debenture A/c
	(Being own debentures cancelled)
	Profit on Cancellation of Own Debentures A/c	Dr.
	To Capital Reserve A/c
	(Being profit on cancellation of own debentures transferred capital reserve account)

(ii) If Debentures are Puchased at Premium for Cancellation:

Date	Particulars		L.F.	Amt. (Dr)	Amt. (Cr)
	Own Debentures A/c	Dr.
	To Bank A/c
	(Being own debentures purchased in the open market)
	Debenture A/c	Dr.
	Loss on Redemption of Debenture A/c	Dr.
	To Own Debentures A/c
	(Being own debentures cancelled)
	Profit on Cancellation of Own Debentures A/c	Dr.
	To Capital Reserve A/c
	(Being profit on cancellation of own debentures transferred capital reserve account)

Question 9: What is meant by conversion of debentures? Describe the method of such a conversion.

Answer 9: The debentures can also be redeemed by converting them into shares or new debentures. If debenture holders find that the offer is beneficial to them they may convert his/her debentures into shares or new debentures after the expiry of a specified period of time, then this whole process is known as redemption of debentures by conversion.

It is worth mentioning here that in such a case no Debenture Redemption Reserve is required because no funds are required for redemption.

If a debenture holder exercises the conversion option, then the issue price of shares must be equal to or less than the amount actually received from debentures. The accounting treatment in that case will be as follows:

Date	Particulars		L.F.	Amt. (Dr)	Amt. (Cr)
	Debentures A/c	Dr.
	To Debenture Holder’s A/c
	(Being debentures are redeemed)
	Debenture Holders’	Dr.
	To Share / Debentures (New) A/c
	(Being amount due to debenture holders is discharged)

Numerical Type Questions

Question 1: 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 debentures. Record necessary entries in the books of Company.

Answer 1:

Book of G. Ltd. Journal
Date	Particulars				L.F.	DebitAmount₹	CreditAmount₹
	Bank A/c			Dr.		11,25,00,000
		To 6% Debenture Application A/c					11,25,00,000
	(Application money @ ₹ 15 each received for 75,00,000 debentures)
	6% Debenture Application A/c			Dr.		11,25,00,000
		To 6% Debenture A/c					11,25,00,000
	(Application money of 75,00,000 debentures transferred to 6% Debentures Account)
	6% Debenture Allotment A/c			Dr.		26,25,00,000
		To 6% Debenture A/c					26,25,00,000
	(Allotment money @ ₹ 35 each due for 75,00,000 debentures )
	Bank A/c			Dr.		26,25,00,000
		To 6% Debenture Allotment A/c					26,25,00,000
	(Allotment money received @ ₹ 35 each on 75,00,000 debentures)

Question 2: 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 first and final call. Record necessary entries in the books of the company.

Answer 2:

Books of Y Ltd. Journal
Date	Particulars			L.F.	DebitAmount₹	CreditAmount₹
	Bank A/c		Dr.		50,000
		To 6% Debentures Application A/c				50,000
	(Application money  @ ₹ 25 each received for 2,0006% Debentures)
	6% Debenture Application A/c		Dr.		50,000
		To 6% Debenture A/c				50,000
	(Application money on 2,000 debentures  transferred to6% Debentures Account)
	6% Debenture Allotment A/c		Dr.		1,00,000
		To 6% Debenture A/c				1,00,000
	(Debenture Allotment money @ ₹ 50 each due on 2,0006% Debentures)
	Bank A/c		Dr.		1,00,000
		To 6% Debenture Allotment A/c				1,00,000
	(Allotment money for 2,000 6% Debentures received)
	6% Debenture First and Final Call A/c		Dr.		50,000
		To 6% Debenture A/c				50,000
	(Debenture First and Final Call @ 25 each due on 2,0006% Debentures)
	Bank A/c		Dr.		50,000
		To 6% Debenture First and Final Call A/c				50,000
	(First and Final Call for 2,000 6% Debentures received)

Question 3: 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 debentuers were fully subscribed and all money was duly received.
Record necessary Journal entries. Also show how the amount will appear in the balance sheet.

Answer 3:

Books of A. Ltd. Journal
Date	Particulars			L.F.	Debit Amount₹	Credit Amount₹
	Bank A/c		Dr.		1,00,000
		To 10% Debentures Application A/c				1,00,000
	(Application money received for 10,000, 10% Debenture Application @ ₹ 10 each)
	10% Debentures Application A/c		Dr.		1,00,000
		To 10% Debenture A/c				1,00,000
	(Application money @ ₹ 10 each transferred to10% Debenture Account)
	10% Debenture Allotment A/c		Dr.		2,50,000
		To 10% Debentures A/c				2,00,000
		To Securities Premium A/c				50,000
	(Allotment due @ ₹ 25 each including premium ₹ 5 on10,000, 10% Debentures)
	Bank A/c		Dr.		2,50,000
		To 10% Debenture Allotment A/c				2,50,000
	(Allotment money received on allotment @ ₹ 25 each for10,000 10% Debentures)
	10% Debenture First and Final Call A/c		Dr.		7,00,000
		To 10% Debenture A/c				7,00,000
	(First and Final Call @ ₹ 70 each on 10,00010% Debentures due)
	Bank A/c		Dr.		7,00,000
		To 10% Debenture First and Final Call A/c				7,00,000
	(Debenture First and Final Call received @ ₹ 70 each for10,000 10% Debentures)

Question 4: A. Ltd. issued 90,00,000, 9% debenture of Rs. 50 each at a of 8%, redeemable at par any time after 9 years Record necessary entries in the books of A. Ltd., for issue of debentures.

Answer 4:

Books of A. Ltd. Journal
Date	Particulars			L.F.	DebitAmount₹	CreditAmount₹
	Bank A/c		Dr.		41,40,00,000
	Discount on Issue of Debenture A/c		Dr.		3,60,00,000
	To 9% Debenture A/c					45,00,00,000
	(Money received for 90,00,000 9% Debentures@ ₹ 50 each at discount of 8%)

Alternative Method:
	Bank A/c		Dr.		41,40,00,000
	To 9% Debentures Application A/c					41,40,00,000
	(Debenture Application money received  @ ₹ 46 eachon 90,00,000  9% Debentures)
	9% Debentures Application A/c		Dr.		41,40,00,000
	Discount on issue of Debentures A/c		Dr.		3,60,00,000
	To 9% Debenture A/c					4,50,00,000
	(9% Debentures application money transferred to9% Debenture Account)

Question 5: 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.

Answer 5:

Books of A Ltd.
Date	Particulars				L.F.	DebitAmount₹	CreditAmount₹
	Bank A/c			Dr.		96,000
		To 9% Debenture Application A/c					96,000
	(9% Debenture Application money received on 4,800 Debentures@ 20 each)
	9% Debenture Application A/c			Dr.		96,000
		To 9% Debenture A/c					80,000
		To 9% Debenture Allotment A/c					8,000
		To Bank A/c					8,000
	(9% Debenture Application money of 4000 debentures transferred toDebentures Account, 400 debentures rejected returned andremaining amount adjusted on allotment)
	9% Debenture Allotment A/c			Dr.		80,000
		To 9% Debenture A/c					80,000
	(9% Debenture Allotment due on  4,000 Debentures @ ₹ 20 each)
	Bank A/c			Dr.		72,000
		To 9% Debenture Allotment A/c					72,000
	(9% Debenture Allotment money received)
	9% Debenture First Call A/c			Dr.		1,20,000
		To 9% Debenture A/c					1,20,000
	(9% Debenture First Call due on 4000 debentures @ ₹ 30 each)
	Bank A/c			Dr.		1,20,000
		To Debenture First Call A/c					1,20,000
	(9% Debenture first call received for 4000 debentures@ ₹ 30 each)
	9% Debenture Final Call A/c			Dr.		1,20,000
		To 9% Debenture A/c					1,20,000
	(9% Debenture Final Call due on 4000 debentures@ ₹ 30 each )
	Bank A/c			Dr.		1,20,000
		To 9% Debenture Final Call A/c					1,20,000
	(9% Debenture Final Call received on 4000 debentures@ ₹ 30 each)

Question 6: 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 was received. Record necessary entries regarding issue of debentures.

Answer 6:

Books of T. Ltd.Journal
Date	Particulars			L.F.	DebitAmount(₹)	CreditAmount(₹)
2014
Jun. 30	Bank A/c		Dr.		6,00,00,000
		To 8% Debenture Application A/c				6,00,00,000
	(8% Debenture application money received for 3,00,000debentures @ ₹200 each)
Jun.30	8% Debenture Application A/c		Dr.		6,00,00,000
		To 8% Debenture A/c				3,00,00,000
		To 8% Debenture Allotment A/c				2,00,00,000
		To Securities Premium A/c				1,00,00,000
	(8% Debenture Application money of 2,00,000 debentures @₹200 each including ₹50 premium transferred to Debenture Account and rest of the amount adjusted on allotment)
	8% Debenture Allotment A/c		Dr.		7,00,00,000
		To 8% Debenture A/c				7,00,00,000
	(8% Debenture allotment on 2,00,000 debentures @₹350 due)
	Bank A/c		Dr.		5,00,00,000
		To 8% Debenture Allotment A/c				5,00,00,000
	(8% Debenture Allotment money received)

Question 7: X. Ltd. invited 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 5000 debentures were alloted 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 issue of debentures.

Answer 7:

Books of X. Ltd. Journal
Date	Particulars				L.F.	DebitAmount₹	CreditAmount₹
	Bank A/c			Dr.		2,70,000
		To 14% Debenture Application A/c					2,70,000
	(14% Debenture application money for 13,500 debentures@ 20 each received)
	14% Debenture Application A/c			Dr.		2,70,000
		To 14% Debenture A/c					2,00,000
		To 14% Debenture Allotment A/c					60,000
		To Bank					10,000
	(14% Debenture Application money of 10,000 @ ₹ 20 eachtransferred to 14% Debentures Account and 500 debentureswere rejected and returned and rest of the amount adjustedon allotment)
	14% Debenture Allotment A/c			Dr.		6,00,000
		To 14% Debenture A/c					6,00,000
	(14% Debenture Allotment money due on 10,000 debentures @₹ 60 each)
	Bank A/c			Dr.		5,40,000
		To 14% Debenture Allotment A/c					5,40,000
	(14% Debenture Allotment money received)
	14% Debenture First and Final Call A/c			Dr.		2,00,000
		To 14% Debenture A/c					2,00,000
	(14% Debenture First and Final Call money due on 10,000debentures @ 20 each)
	Bank A/c			Dr.		2,00,000
		To 14% Debenture First and Final Call A/c					2,00,000
	(14% Debenture First and Final Call money received on 10,000debentures @ ₹ 20 each)

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

Answer 8:

Books of R.Ltd. Journal
Date	Particulars				L.F.	DebitAmount₹	CreditAmount₹
	Bank A/c			Dr.		37,20,00,000
		To 10% Debenture Application & Allotment A/c					37,20,00,000
	(Debenture Application and Allotment money receivedfor 20,00,000 10% Debentures @ ₹ 200 each)
	10% Debenture Application and Allotment A/c			Dr.		37,20,00,000
	Loss on Issue of Debenture A/c			Dr.		3,20,00,000
	Discount on Issue of Debentures A/c			Dr.		2,80,00,000
		To 10% Debenture A/c					40,00,00,000
		To Premium on Redemption of Debentures A/c					3,20,00,000
	(Allotment of 20,00,000 debenture @ ₹ 200 each at 7%discount with the term of  8% premium on redemption)

Question 9: 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.

Answer 9:

Books of M. Ltd. Journal
Date	Particulars				L.F.	DebitAmount₹	CreditAmount₹
	Sundry Assets			Dr.		9,00,00,000
		To Sundry Liabilities A/c					70,00,000
		To S.Ltd.					8,30,00,000
	(Assets and liabilities of S. Ltd. taken over)
	S. Ltd.			Dr.		8,30,00,000
		To 8% Debenture A/c					8,30,00,000
	(8,30,000 8% debentures @ 100 each issued to S Ltd. inconsideration of assets and liabilities)

Question 10: 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 10% discount; (c) at premium of 10%? It was agreed that any fraction of debentures be paid in cash.
(Note: Goodwill Rs. 30,000)

Answer 10: Case (a)

Book of B. Ltd. Journal
Date	Particulars				L.F.	DebitAmount₹	CreditAmount₹
	Sundry Assets A/c			Dr.		4,00,000
	Goodwill A/c			Dr.		30,000
		To Sundry Liabilities A/c					50,000
		To Mohan Bros.					3,80,000
	(Assets and liabilities of Mohan Bros. taken over)
	Mohan Bros.			Dr.		3,80,000
		To Debenture A/c					3,80,000
	(3,800 debentures of 100 each issued to Mohan Bros. inconsideration of assets and liabilities)

Case (b)

	Sundry Assets A/c			Dr.		4,00,000
	Goodwill A/c			Dr.		30,000
		To Sundry Liabilities A/c					50,000
		To Mohan Bros.					3,80,000
	(Assets and liabilities of Mohan Bros. taken over)
	Mohan Bros.			Dr.		3,80,000
	Discount on Issue of Debenture A/c			Dr.		42,222
		To Debenture A/c					4,22,200
		To Bank A/c					22
	(Issued 4,222 debentures of ₹ 100 each at 10% discountand balance paid in cash)

Case (c)

	Sundry Assets A/c			Dr.		4,00,000
	Goodwill A/c			Dr.		30,000
		To Sundry Liabilities A/c					50,000
		To Mohan Bros.					3,80,000
	(Assets and liabilities of Mohan Bros. taken over)
	Mohan Bros			Dr.		3,80,000
		To Debentures A/c					3,45,400
		To Securities Premium A/c					34,540
		To Bank A/c					60
	(Issued of 3,454 debentures at 10% premium and balancepaid in cash)

Question 11: 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.

Answer 11:

Books of X. Ltd. Journal
Date	Particulars				L.F.	DebitAmount₹	CreditAmount₹
	Machinery A/c			Dr.		4,40,000
	To Y						4,40,000
	(Machinery purchased from Y)
	Y			Dr.		4,40,000
	To 12% Debentures A/c						4,00,000
	To Securities Premium A/c						40,000
	(Allotted 4,000 debentures of ₹ 100 each at a premiumof ₹ 10 per debenture in consideration of Machinerypurchased)

Question 12: X. Ltd. issued 15,000, 10% debentures of Rs. 100 each. Give journal entries and present it in 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 a collateral security to 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.

Answer 12: (i)

Books of X. Ltd.Journal
Date	Particulars					L.F.		DebitAmount₹	CreditAmount ₹
	Bank A/c				Dr.			16,50,000
		To 10% Debentures A/c							15,00,000
		To Securities Premium A/c							1,50,000
	(Issued 15,000, 10% debentures of ₹ 100 each at10% premium)
X Ltd.
Balance Sheet
Particulars			Note No.	Amount (₹)
I. Equity and Liabilities
1. Shareholders’ Funds
a. Reserves and Surplus			1	1,50,000
2. Non-Current Liabilities
a. Long-Term Borrowings			2	15,00,000
3. Current Liabilities
Total				16,50,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents			3	16,50,000
Total				16,50,000

ACCOUNT NOTES

Note No.	Particulars	Amount(₹)
1	Reserves and Surplus
	Securities Premium	1,50,000
2	Long-Term Borrowings
	10% Debentures (Secured)	15,00,000
3	Cash and Cash Equivalents
	Cash at Bank	16,50,000

(ii)

	Bank A/c					Dr.		14,25,000
	Discount on Issue of Debentures A/c					Dr.		75,000
		To 10% Debentures								15,00,000
	(Issued 15,000 10% Debenture of ₹ 100 each at5% discount)
X Ltd.
Balance Sheet
Particulars				Note No.		Amount (₹)
I. Equity and Liabilities
1. Shareholder’s Funds
2. Non-Current Liabilities
a. Long-Term Borrowings				1		15,00,000
3. Current Liabilities
Total						15,00,000
II. Assets
1. Non-Current Assets
a. Other Non-Current Assets				2		75,000
2. Current Assets
a. Cash and Cash Equivalents				3		14,25,000
Total						15,00,000

ACCOUNT NOTES

Note No.	Particulars	Amount(₹)
1	Long-Term Borrowings
	10% Debentures (Secured)	15,00,000
2	Other Non-Current Assets
	Discount on Issue of Debentures	75,000
3	Cash and Cash Equivalents
	Cash at Bank	14,25,000

(iii) No entry will be passed for issuing debentures as a collateral security

X Ltd.
Balance Sheet
Particulars	NoteNo.	Amount(₹)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings	1	12,00,000
3. Current Liabilities
Total		12,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents	2	12,00,000
Total		12,00,000

ACCOUNT NOTES

Note No.	Particulars	Amount(₹)
1	Long-Term Borrowings
	Bank Loan (Secured against issue Debentures of ₹ 12,00,000)	12,00,000
2	Cash and Cash Equivalents
	Cash at Bank	12,00,000

Alternative Method

	Debenture Suspense A/c							Dr.		15,00,000
		To 10% Debentures A/c									15,00,000
	(Issued 15,000 10% Debentures of ₹ 100 each as collateral security to bank against a loan of ₹ 12,00,000)
X Ltd.
Balance Sheet
Particulars					Note No.	Amount (₹)
I. Equity and Liabilities
1. Shareholders’ Fund
2. Non-Current Liabilities
a. Long-Term Borrowings					1	12,00,000
3. Current Liabilities
Total						12,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents					2	12,00,000
Total						12,00,000

ACCOUNT NOTES

Note No.	Particulars		Amount(₹)
1	Long Term Borrowings
	Secured:
	Bank Loan		12,00,000
	10 % Debentures (Secured against issue of Debentures of ₹ 12,00,000)	15,00,000
	Less: Debenture Suspense Account	15,00,000	–
2	Cash and Cash Equivalents
	Cash at Bank		12,00,000

(iv)

	Machinery A/c				Dr.		13,50,000
		To Vendor A/c						13,50,000
	(Machinery purchased from vendor)
	Vendor A/c				Dr.		13,50,000
	Discount on Issue of Debentures A/c				Dr.		1,50,000
		To 10% Debenture A/c						15,00,000
	(15,000 10% Debentures @ ₹ 100 each issued at10% discount to the vendor in consideration ofMachinery of ₹ 13,50,000)
X Ltd.
Balance Sheet
Particulars					Note No.		Amount (₹)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long Term Borrowings					1		15,00,000
3. Current Liabilities
Total							15,00,000
II. Assets
1. Non-Current Assets
a. Fixed Assets
i. Tangible Assets					2		13,50,000
b. Other Non-Current Assets					3		1,50,000
2. Current Assets
Total							15,00,000

ACCOUNT NOTES

Note No.	Particulars	Amount(₹)
1	Long Term Borrowings
	10% Debentures (Secured)	15,00,000
2	Tangible Assets
	Plant and Machinery	13,50,000
3	Other Non-Current Assets
	Discount on Issue of Debentures	1,50,000

Question 13: 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 debenture in each of the above cases is Rs. 100.

Answer 13:

S.No.	Particulars				L.F.	DebitAmount₹	CreditAmount ₹
(i)	Bank A/c			Dr.		95
	Discount on Issue of Debenture A/c			Dr.		5
		To Debenture A/c					100
	(Debenture of ₹ 100 issued at ₹ 5 discountwith the term repayable at ₹ 100)
(ii)	Bank A/c			Dr.		95
	Loss on Issue of Debenture A/c			Dr.		10
		To Debenture A/c					100
		To Premium on Redemption of Debentures					5
	(Debenture of ₹ 100 issued at a discount of₹ 5 and with the term repayable at ₹ 105)
(iii)	Bank A/c			Dr.		100
	Loss on Issue of Debenture A/c			Dr.		5
		To Debenture A/c					100
		To Premium on Redemption of Debenture A/c					5
	(Debenture of ₹ 100 issued with the termrepayable at ₹ 105)

Question 14: A. Ltd. issued 50,00,000, 8% debentures of Rs. 100 at a discount of 6% on April 01, 2018, redeemable at 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 issue of debuntures. Prepare discount/loss on issue of debenture account.

Answer 14: Loss on issue of debenture = 6% (discount on issue) + 4% (premium on redemption) = 10%

At the end of	Debenture Outstanding	Ratio	Loss to be written off every year
March 2019	50,00,00,000	5		=	1,38,88,889
March 2020	50,00,00,000	5		=	1,38,88,889
March 2021	30,00,00,000	3		=	83,33,333
March 2022	30,00,00,000	3		=	83,33,333
March 2023	20,00,00,000	2		=	55,55,556
		18			Rs 5,00,00,000

Loss on Issue of Debenture Account
Dr.							Cr.
Date	Particulars	J.F.	Amount₹	Date	Particulars	J.F.	Amount₹
2018April 01	Debenture		5,00,00,000	2019March 31	Profit and Loss		1,38,88,889
					Balance c/d		3,61,11,111
			5,00,00,000				5,00,00,000
2019April 01	Balance b/d		3,61,11,111	2020March 31	Profit and Loss		1,38,88,889
					Balance c/d		2,22,22,222
			3,61,11,111				3,61,11,111
2020April 01	Balance b/d		2,22,22,222	2021March 31	Profit and Loss		83,33,333
					Balance c/d		1,38,88,889
			2,22,22,222				2,22,22,222
2021April 01	Balance b/d		1,38,88,889	2022March 31	Profit and Loss		83,33,333
					Balance c/d		55,55,556
			1,38,88,889				1,38,88,889
2022April 01	Balance b/d		55,55,556	2023March 31	Profit and Loss		55,55,556
			55,55,556				55,55,556

Question 15: A listed company issues the following debentures:
(i) 10,000, 12% debentures of Rs. 100 each at par but redeemable at premium of 5% after 5 years;
(ii) 10,000, 12% debentures of Rs. 100 each at a discount of 10% but redeemable at par after 5 years;
(iii) 5,000, 12% debentures of Rs. 1000 each at a premium of 5% but redeemable at par after 5 years;
(iv) 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
(v) 300, 12% debentures of Rs. 100 each as a collateral security to a bank which 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.

Answer 15: In the books of ………….. Journal

a) Issue of Debentures

S. No.	Particulars				L.F.	DebitAmount₹	CreditAmount₹
(i)	Bank A/c			Dr.		10,00,000
		To 12% Debenture Application A/c					10,00,000
	(Debenture Application money of 10,000 12% debentures@ 100 each received)
	12% Debenture Application A/c			Dr.		10,00,000
	Loss on Issue of Debenture A/c			Dr.		50,000
		To 12% Debenture A/c					10,00,000
		To Premium on Redemption of Debenture A/c					50,000
	(Debenture Application money of 10,000 12% debentures @ ₹ 100 each transferred to 12% Debentures Account and the Debentures are issued with term of repayable at 5% premium)
(ii)	Bank A/c			Dr.		9,00,000
		To Debenture Application and Allotment A/c					9,00,000
	(Debenture Application money received excluding discount on issue)
	12% Debenture Application & Allotment A/c			Dr.		9,00,000
	Discount on Issue of Debenture A/c			Dr.		1,00,000
		To Debentures A/c					10,00,000
	(Debenture Allotment made due)
(iii)	Bank A/c			Dr.		52,50,000
		To Debenture Application and Allotment A/c					52,50,000
	(Debenture Application money received)
	Debenture Application and Allotment A/c			Dr.		52,50,000
		To Debenture A/c					50,00,000
		To Security Premium A/c					2,50,000
	(Allotment of debenture at premium)
(iv)	Machinery A/c			Dr.		95,000
		To Vender A/c					95,000
	(Machinery purchased from supplier)
	Vender A/c			Dr.		95,000
	Discount on Issue of Debenture			Dr.		5,000
		To 12% Debenture A/c					1,00,000
	(Debenture issue at discount to vender of machinery)
(v)	12% Debenture Suspense A/c			Dr.		30,000
		To Debenture A/c					30,000
	(300, 12% Debentures of ₹ 100 each issued as collateralsecurity to the bank against a loan of ₹ 25,000)

b) Repayment of Debentures

S.No.	Particulars				L.F.	DebitAmount₹	CreditAmount₹
(i)	12% Debentures A/c			Dr.		10,00,000
	Premium on Redemption of Debenture A/c			Dr.		50,000
		To Debenture Holders A/c					10,50,000
	(Amount due on redemption of debentures)
	Debenture Holders A/c			Dr.		10,50,000
		To Bank A/c					10,50,000
	(Payment made to Debenture Holders)
(ii)	12% Debenture A/c			Dr.		10,00,000
		To Debenture Holders A/c					10,00,000
	(Amount due on redemption of debentures)
	Debenture Holders A/c			Dr.		10,00,000
		To Bank A/c					10,00,000
	(Payment made to Debenture Holders)
(iii)	12% Debenture A/c			Dr.		50,00,000
		To Debenture Holders A/c					50,00,000
	(Amount due on redemption of debentures)
	Debenture Holders A/c			Dr.		50,00,000
		To Bank A/c					50,00,000
	(Payment made to Debenture Holders)
(iv)	12% Debenture A/c			Dr.		1,00,000
		To Vender A/c					1,00,000
	(Amount due to vender)
	Vender A/c			Dr.		1,00,000
		To Bank					1,00,000
	(Payment made to vender)
(v)	12% Debenture A/c			Dr.		30,000
		To Debenture Suspense A/c					30,000
	(Debenture and debenture Suspense Account closed)

Question 16: 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.

Answer 16: Journal EntriesRepayment of Debentures

Date	Particulars		L.F.	Amt. (Dr)	Amt. (Cr)
2014	Bank A/c	Dr.		4,70,000
1 April	To Debenture application and allotment A/c	Dr.			4,70,000
	(Debenture money received)
1 April	Debenture application and allotment A/c	Dr.		4,70,000
	Discount on issue of debentures A/c	Dr.		30,000
	To Debentures A/c				5,00,000
	(Debenture money transferred to debenture A/c)
2015	Statement of profit and loss	Dr.		30,000
31 March	To Discount on issue of debentures A/c				30,000
	(Discount on debentures written off
3 March	Surplus in statement of profit and loss		50,000
	To Debenture Redemption Reserve A/c				50,000
	(5,00,000 × 10%, ₹50,000; transferred to DRR)
30 April	Debenture Redemption Investment A/c	Dr.		15,000
	To Bank A/c				15,000
	(Investment equal to 1,00,000 × 15% = 15,000 made)
2016	Debentures A/c	Dr.		1,00,000
31 March	To debenture holders A/c				1,00,000
	(Amount transferred to debenture holders)
31 March	Debenture holders to A/c	Dr.		1,00,000
	To Bank A/c				1,00,000
	(Payment made to debenture holder)
31 March	Debentures Redemption Reserve	Dr.		10,000
	To General Reserve A/c				10,000
	(DRR money transferred to General Reserve)
2017	Debentures A/c	Dr.		1,00,000
	31 March	To debenture holder A/c			1,00,000
	(Amount transferred to debenture holders for redemption)
31 March	Debenture Redemption Research A/c	Dr.		10,000
	To General Reserve A/c				10,000
	Proportionate amount transformed from DRR to General reserve)
2018	Debentures A/c	Dr.		1,00,000
2018	To Debenture holders A/c				1,00,000
	(Money transferred to debenture holder for redemption)
	Debenture holders A/c	Dr.		1,00,000
	To bank A/c				1,00,000
	(Payment made to debenture holders)
	Debenture Redemption Reserve A/c	Dr.		10,000
	To General Reserve A/c				10,000
	(Proportionate amount transferred from DRR) to General Reserve
2019	Debentures A/c	Dr.		1,00,000
	To Debenture holders A/c				1,00,000
	(Money transferred to debenture holders for redemption
	Debenture holders A/c	Dr.		1,00,000
	To Bank A/c				1,00,000
	(Payment made to debenture holders)
	Debenture Redemption Reserve A/c	Dr.		10,000
	To General Reserve A/c				10,000
	(Proportionate amount transferred from DRR to General reserve)
2020	Bank A/c	Dr.		15,000
	To Debenture Redemption Investment A/c				15,000
	(Investments enchased)
	Debenture A/c	Dr.		1,00,000
	To Debenture holders A/c				1,00,000
	(Money transferred to debenture holders for redemption)
	Debentures A/c	Dr.		1,00,000
	To Bank A/c				1,00,000
	(Payment made to debenture holders)
	Debenture Redemption Reserve A/c	Dr.		10,000
	To General Reserve A/c				10,000
	(Proportional amount transferenced to General reserve)

Question 17: 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.

Answer 17: Debenture issued = 4,00,000 @ 94%

Discount on issue = 6%

Amount on discount on issue of debenture = 4,00,000 × \(\frac{6}{100}\) = 24,000

Amount of discount to written off every year
In 2012 = ₹8,000
In 2013 = ₹6,400
In 2014 = ₹4,800
In 2015 = ₹3,200
In 2016 = ₹1,600

Working Notes:

Year	Debentures Outstanding	Ratio	Months	New Ratio (Ratio × Months)	Amounts written off
2012
Apr-Mar	3,20,000	5	12	60	24,000×60180=₹8,00024,000×60180=₹8,000
2013
Apr-Mar	2,40,000	4	12	48	24,000×48180=₹6,40024,000×48180=₹6,400
2014
Apr-Mar	1,60,000	3	12	36	24,000×36180=₹4,80024,000×36180=₹4,800
2015
Apr-Mar	80,000	2	12	24	24,000×24180=₹3,20024,000×24180=₹3,200
2016
Apr-Mar	80,000	1	12	12	24,000×12180=₹1,60024,000×12180=₹1,600
				180

Important Note: As per NCERT textbook, ₹2,000 discount has been written off in the year 2015 which is incorrect because then the total discount amounts to ₹22,800. Therefore, it should be ₹3,200. 

Question 18: 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 debentures 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%.

Answer 18:

Date	Particulars					L.F.	DebitAmount₹	CreditAmount ₹
2014
Apr. 01	Bank A/c				Dr.		95,000
	Loss on Issue on Debentures A/c				Dr.		15,000
		To 12% Debenture A/c						1,00,000
		To Premium on Redemption of Debentures A/c						10,000
	(Debenture issued at discount and redeemable at Premium)
Sept. 30	Debenture Interest A/c				Dr.		6,000
		To Income Tax Payable A/c						600
		To Debenture Holders A/c						5,400
	(Amount of interest on 12% debentures ₹ 1,00,000 due for6 months and 10% tax deducted at source)
Sept. 30	Debenture Holders A/c				Dr.		5,400
		To Bank A/c						5,400
	(Interest paid to Debenture Holders)
2015Mar. 31	Debenture Interest A/c				Dr.		6,000
		To Income Tax Payable A/c						600
		To Debenture Holders A/c						5,400
	(Amount of interest on 12% Debentures ₹ 1,00,000 due for6 months and 10% tax deducted at source)
Mar. 31	Debenture Holders A/c				Dr.			5,400
		To Bank A/c						5,400
	(Interest paid to Debenture Holders)
Mar. 31	Profit and Loss A/c			Dr.			12,000
		To Debenture Interest A/c						12,000
	(Interest on debentures transferred to Profit and Loss Account)

Question 19: 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, there existed a balance of Rs. 5,00,000 in 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 :
(i) Issue of debentures
(ii) Writing off loss on issue of debentures.
(iii) Interest and debentures for 2015-16 assuring if is paid annually & tax deducted at service is 10%.
(iv) Regarding redemption of debentures.

Answer 19:

In the books of Jay kay Limited

Date	Particulars		L.F.	Amt. (Dr)	Amt. (Cr)
1.	Bank A/c	Dr.		60,00,000
	To 12% Debenture application and allotment A/c				60,00,000
	(Being debenture money received)
2.	12% Debenture application and allotment A/c	Dr.		60,00,000
	Loss on issue on debenture A/c			12,00,000
	To 12% Debenture A/c				60,00,000
	To Premium on redemption of debentures A/c				12,00,000
	(Being amount transfer to Debenture A/c)
3.	Securities Premium Reserve A/c	Dr.		5,00,000
	Statement of Profit and Loss	Dr.		7,00,000
	To Loss on issue of debenture A/c				12,00,000
	(Being loss charged to securities premium reserve A/c and statement of profit and loss)
4.	Debenture Interest A/c	Dr.		7,20,000
	To Debenture holder A/c				6,48,000
	To Tax deducted at Source				72,000
	(Being Debenture interest due)
5.	Tax deducted at Source A/c	Dr.		72,000
	To Bank A/c			72,000
	(Being T.D.S. deposited)
6.	Debenture holder A/c	Dr.		6,48,000
	To Bank A/c				6,48,000
	(Being net interest paid to holder)
7.	Statement of profit and loss	Dr.		6,00,000
	To Debenture Redemption Reserve A/c				6,00,000
	(DRR made @ 10% of value to debenture to be redeemed)
8.	Debenture Redemption Investment A/c	Dr.		9,00,000
	To Bank A/c			9,00,000
	(Investments made for redemption)
9.	Bank A/c	Dr.		9,00,000
	To Debendure Redemption Investment A/c				9,00,000
	(Investments encashed)
10.	12% Debenture A/c	Dr.		60,00,000
	Premium on redemption A/c	Dr.		12,00,000
	To Debenture holder A/c				72,00,000
	(Being amount paid to debenture holder)
11.	Debenture A/c	Dr.		72,00,000
	To Bank A/c				72,00,000
	(Being amount paid to debenture holder)
	Debenture Redemption Reserve A/c	Dr.		6,00,000	6,00,000
	To General Reserve A/c

Question 20: 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 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).

Answer 20:

In the books of Madhur limited
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	9% Debenture A/c    …Dr.		5,00,000
	To Debenture holder A/c			5,00,000
	(Being amount transfer to Debenture holder)
2.	Debenture holder A/c    …Dr.		5,00,000
	To Bank A/c			5,00,000
	(Being amount paid to debenture holder)

9% Debenture A/c
Date	Particulars	Amount (Rs.)	Date	Particulars	Amount (Rs.)
	Debenture holder	5,00,000		By Balance b/d	5,00,000
		5,00,000			5,00,000

Debenture holder A/c
Date	Particulars	Amount (Rs.)	Date	Particulars	Amount (Rs.)
Date of red.	To Bank	5,00,000	Date of red.	By 9% Debenture	5,00,000
		5,00,000			5,00,000

Question 21: MK Ltd. has outstanding Rs. 30,000 11% debentures of Rs. 100 each redeemable at 10% premium as follows :
March 31, 2018 – 10,000 debentures
March 31, 2019 – 12,000 debentures
March 31, 2020 – Remaining debentures
Pass necessary journal entries in the books of the company.

Answer 21:

In the books of MK limited
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2017
Apr. 30	Debenture Redemption Investment A/c    …Dr.		1,50,000
	To Bank A/c			1,50,000
	(Being amount invested)
2018
Mar. 31	11% Debenture A/c   …Dr.		10,00,000
	Premium on redemption A/c    …Dr.		1,00,000
	To Debenture holder			11,00,000
	(Being amount transferred to debenture holder)
Mar. 31	Debenture holder A/c    …Dr.		11,00,000
	To Bank A/c			11,00,000
	(Being amount paid to debenture holder)
Apr. 30	Debenture Redemption Investment A/c   …Dr.		30,000
	To Bank A/c			30,000
	(Being received amount invested)
2019
Mar. 31	11% Debenture A/c   …Dr.		12,00,000
	Premium on redemption A/c   …Dr.		1,20,000
	To Debenture holder A/c			13,20,000
	(Being amount transfer to debenture holder)
Mar. 31	Debenture holder A/c    …Dr.		13,20,000
	To Bank A/c			13,20,000
	(Being amount paid to debenture holder)
Apr. 30	Bank A/c   …Dr.		60,000
	To Debenture Redemption Investment			60,000
	(Being investment sold)
2020
Mar. 31	Bank A/c   …Dr.		1,20,000
	To Debenture Redemption Investment			1,20,000
	(Being investment sold)
Mar. 31	11% Debenture A/c   …Dr.		8,00,000
	Premium on redemption		80,000
	To Debenture holder A/c			8,80,000
	(Being amount transfer to debenture holder)
Mar. 31	Debenture holder A/c   …Dr.		8,80,000
	To Bank A/c			8,80,000
	(Being amount paid to debenture holder)

Question 22: 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.

Answer 22:

Journey Entries
Date	Particulars	LF	Dr. (Rs.)	Cr. (Rs.)
2019
June 30	12% Debenture A/c    …Dr.		20,00,000
	To Debenture holders A/c			20,00,000
	(Being the amount due on redemption of 20,000, 12% debentures of Rs. 100 each)
June 30	Debenture holders A/c    …Dr.		20,00,000
	To Bank A/c			20,00,000
	(Being the payment made to debenture holders for 20,000, 12% debentures of Rs. 100 each)

Calculate the amount due on redemption

Outstanding debentures = 20,000

Redemption price = Rs. 100 per debenture

​​Total Amount due on redemption = Outstanding Debentures × Redemption price

= 20,000 × Rs. 100

= Rs. 20,00,000​

Question 23: 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:
(i) Debentures are issued at par and redeemable at par.
(ii) Debentures are issued at a premium of 10% and redeemable at par.
(iii) Debentures are issued at a discount of 10% and redeemable at par.
(iv) Debenture are issued at par but redeemable at a premium of 10%.
(v) Debentures are issued at a premium of 10% and redeemable at premium of 10%.
(vi) Debenture are issued at a discount of 10% and redeemable at a premium of 10%.

Answer 23: (i) Debentures are issued at par and redeemable at par.

In the books of XYZ Ltd. Journal Entries
Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
1.	Bank A/c    …Dr.		3,00,000
	To Debenture application and allotment A/c			3,00,000
	(Being debenture amount received)
2.	Debenture application and allotment A/c    …Dr.		3,00,000
	To 12% Debenture A/c			3,00,000
	(Being amount transfer to debenture)
3.	12% Debenture A/c   …Dr.		75,000
	To Debenture holder A/c			75,000
	(Being amount transfer to debenture holder)
4.	Debenture holder A/c  …Dr.		75,000
	To Bank A/c			75,000
	(Being amount paid to debenture holder)

(ii) Debentures are issued at a premium of 10% and redeemable at par.

In the books of XYZ Ltd. Journal Entries
Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
1.	Bank A/c    …Dr.		3,30,000
	To Debenture application and allotment A/c			3,30,000
	(Being debenture amount received)
2.	Debenture application and allotment A/c    …Dr.		3,30,000
	To 12% Debenture A/c			3,00,000
	To Securities Premium A/c			30,000
	(Being amount transfer to debenture)
3.	12% Debenture A/c   …Dr.		75,000
	To Debenture holder A/c			75,000
	(Being amount transfer to debenture holder)
4.	Debenture holder A/c  …Dr.		75,000
	To Bank A/c			75,000
	(Being amount paid to debenture holder)

(iii) Debentures are issued at a discount of 10% and redeemable at par.

In the books of XYZ Ltd. Journal Entries
Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
1.	Bank A/c    …Dr.		2,70,000
	To Debenture application and allotment A/c			2,70,000
	(Being debenture amount received)
2.	Debenture application and allotment A/c    …Dr.		2,70,000
	Loss on issue of Debenture A/c  …Dr.		60,000
	To 12% Debenture A/c			3,00,000
	To Premium on Redemption A/c			30,000
	(Being amount transfer to debenture)
3.	12% Debenture A/c   …Dr.		75,000
	Premium on Redemption A/c  …Dr.		7,500
	To Debenture holder A/c			82,500
	(Being amount transfer to debenture holder)
4.	Debenture holder A/c  …Dr.		82,500
	To Bank A/c			82,500
	(Being amount paid to debenture holder)

(iv) Debenture are issued at par but redeemable at a premium of 10%.

In the books of XYZ Ltd. Journal Entries
Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
1.	Bank A/c    …Dr.		3,00,000
	To Debenture application and allotment A/c			3,00,000
	(Being debenture amount received)
2.	Debenture application and allotment A/c    …Dr.		3,00,000
	Loss on issue of Debenture A/c  …Dr.		30,000
	To 12% Debenture A/c			3,00,000
	To Premium on Redemption A/c			30,000
	(Being amount transfer to debenture)
3.	12% Debenture A/c   …Dr.		75,000
	Premium on Redemption A/c  …Dr.		7,500
	To Debenture holder A/c			82,500
	(Being amount transfer to debenture holder)
4.	Debenture holder A/c  …Dr.		82,500
	To Bank A/c			82,500
	(Being amount paid to debenture holder)

(v) Debentures are issued at a premium of 10% and redeemable at premium of 10%.

In the books of XYZ Ltd. Journal Entries
Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
1.	Bank A/c    …Dr.		3,30,000
	To Debenture application and allotment A/c			3,30,000
	(Being debenture amount received)
2.	Debenture application and allotment A/c    …Dr.		3,30,000
	Loss on issue of Debenture A/c  …Dr.		30,000
	To 12% Debenture A/c			3,00,000
	To Securities Premium A/c			30,000
	To Premium on Redemption A/c			30,000
	(Being amount transfer to debenture)
3.	12% Debenture A/c   …Dr.		75,000
	Premium on Redemption A/c  …Dr.		7,500
	To Debenture holder A/c			82,500
	(Being amount transfer to debenture holder)
4.	Debenture holder A/c  …Dr.		82,500
	To Bank A/c			82,500
	(Being amount paid to debenture holder)

(vi) Debenture are issued at a discount of 10% and redeemable at a premium of 10%.

In the books of XYZ Ltd. Journal Entries
Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
1.	Bank A/c    …Dr.		2,70,000
	To Debenture application and allotment A/c			2,70,000
	(Being debenture amount received)
2.	Debenture application and allotment A/c    …Dr.		2,70,000
	Discount on issue of Debenture A/c  …Dr.		30,000
	To 12% Debenture A/c			3,00,000
	(Being amount transfer to debenture)
3.	12% Debenture A/c   …Dr.		75,000
	To Debenture holder A/c			75,000
	(Being amount transfer to debenture holder)
4.	Debenture holder A/c  …Dr.		75,000
	To Bank A/c			75,000
	(Being amount paid to debenture holder)