Question

On 1st April 2022, Zubian Ltd. issued \rupee10,00,000, 7\% Debentures of \rupee100 each at a premium of 6\%, redeemable at a premium of 4\% after five years. The company had a balance of \rupee30,000 in Securities Premium Account. (a) Pass necessary journal entries for the issue of debentures and for writing off 'Loss on Issue of Debentures' utilising the Securities Premium Account at the end of the first year itself. (b) Prepare 'Loss on Issue of Debentures Account' for the year ended 31st March, 2023. \vspace{0.5cm}

Hint:

The "Loss on Issue of Debentures" account is written off over the life of the debentures or adjusted against the Securities Premium Account if sufficient balance is available.

Answer 1

Step 1: Calculation of Premiums and Loss on Issue 1. Issue Price per Debenture: \[ \text{Nominal Value} = \rupee100, \quad \text{Premium on Issue} = \rupee6. \] \[ \text{Total Issue Price per Debenture} = \rupee100 + \rupee6 = \rupee106. \] 2. Redemption Price per Debenture: \[ \text{Nominal Value} = \rupee100, \quad \text{Premium on Redemption} = \rupee4. \] \[ \text{Total Redemption Price per Debenture} = \rupee100 + \rupee4 = \rupee104. \] 3. Loss on Issue of Debentures: \[ \text{Loss on Redemption per Debenture} = \rupee104 - \rupee106 = \rupee2. \] \[ \text{Total Loss on Issue of Debentures} = \rupee2 \times 10,000 = \rupee20,000. \] \vspace{0.5cm} (a) Journal Entries: \[ \text{Journal Entries in the Books of Zubian Ltd.} \] \begin{center} \begin{tabular}{|l|p{8cm}|r|} \hline Date & Particulars & Amount (\rupee)
\hline 2022-04-01 & Bank A/c Dr. & 10,60,000
& To 7\% Debentures A/c & 10,00,000
& To Securities Premium A/c & 60,000
& \multicolumn{2}{|l|}{(Being issue of 10,000 debentures at \rupee6 premium)}
\hline 2022-04-01 & Loss on Issue of Debentures A/c Dr. & 20,000
& To Premium on Redemption of Debentures A/c & 20,000
& \multicolumn{2}{|l|}{(Being loss on issue due to redemption premium of \rupee4 per debenture)}
\hline 2023-03-31 & Securities Premium A/c Dr. & 20,000
& To Loss on Issue of Debentures A/c & 20,000
& \multicolumn{2}{|l|}{(Being loss on issue written off using securities premium)}
\hline \end{tabular} \end{center} \vspace{0.5cm} (b) Loss on Issue of Debentures Account: \[ \begin{array}{|l|l|r|} \hline Date & Particulars & Amount (\rupee)
\hline 2022-04-01 & To Premium on Redemption of Debentures A/c & 20,000
\hline 2023-03-31 & By Securities Premium A/c & 20,000
\hline Total & & 20,000
\hline \end{array} \] \vspace{0.5cm}