Question

If debentures are issued to a vendor for assets purchased and the vendor's account is credited by Rs 1,10,000, what is the journal entry if the debentures are issued at a premium of 10 %?

• A. Vendor's A/c Dr. Rs 1,00,000; To Debentures A/c Rs 90,000; To Securities Premium Reserve A/c Rs 10,000
• B. Vendor's A/c Dr. Rs 1,10,000; To Debentures A/c Rs 1,00,000; To Securities Premium Reserve A/c Rs 10,000
• C. Vendor's A/c Dr. Rs 1,10,000; To Debentures A/c Rs 1,10,000
• D. Vendor's A/c Dr. Rs 1,20,000; To Debentures A/c Rs 1,10,000; To Securities Premium Reserve A/c Rs 10,000

Hint:

Debentures issued at premium credited to Debentures A/c at face value and Securities Premium Reserve A/c for premium amount.

Answer 1

The Correct Option is B

Step 1: Understand the transaction
Debentures issued at 10% premium means the face value is less than the credited amount.
Face value of debentures = ₹1,00,000
Premium = 10% of ₹1,00,000 = ₹10,000
Vendor's account is credited with the total amount (face value + premium) = ₹1,10,000

Step 2: Journal entry

  Vendor’s A/c Dr.                       ₹1,10,000
      To Debentures A/c                 ₹1,00,000
      To Securities Premium Reserve A/c ₹10,000
  

Step 3: Conclusion
Option (B) correctly reflects this entry.