Question

On 1st April, 2022, Centafit Ltd. issued 2,000, 7\% Debentures of ₹ 500 each at a premium of 10\%, redeemable at a premium of 10\% after five years. The company had a balance of ₹ 1,75,000 in 'Securities Premium Account' before the issue.
(a) Pass journal entries for issue of debentures and for writing off 'Loss on Issue of Debentures' utilizing Securities Premium Account at the end of the first year itself.

Hint:

When debentures are issued at a premium, the premium is credited to the 'Securities Premium Account', and any loss on issue of debentures is written off utilizing this premium.

Answer 1

(a): Journal Entries: \begin{center} \renewcommand{\arraystretch}{1.5} \begin{tabular}{|p{10cm}|r|r|} \hline Particulars & Dr Amount (₹) & Cr Amount (₹)
\hline Bank A/c (2,000 × ₹ 550) & 11,00,000 & --
To 7\% Debentures A/c (2,000 × ₹ 500) & -- & 10,00,000
To Securities Premium A/c (2,000 × ₹ 50) & -- & 1,00,000
(Being issue of 2,000, 7\% Debentures at a premium of 10\%) & &
\hline Loss on Issue of Debentures A/c & 2,00,000 & --
To Premium on Redemption of Debentures A/c (2,000 × ₹ 50) & -- & 1,00,000
To Securities Premium A/c (Utilised) & -- & 1,00,000
(Being the loss on issue of debentures recorded and partly written off using Securities Premium Account) & &
\hline \end{tabular} \end{center}