Question

On 1st April, 2023, SM Ltd. issued 30,000, 12% debentures of ₹ 100 each at a premium of 10%, redeemable at par after four years. The company closes its books on 31st March every year. Interest on debentures is payable on 30\th September and 31st March every year on a half-yearly basis.
Pass necessary journal entries in the books of the company for issue of debentures and payment of interest for the year ended 31st March, 2024.

Hint:

Interest on debentures is a charge against profit and must be paid even if there is no profit. Use reducing balance for part-year issues if applicable.

Answer 1

Step 1: Issue of Debentures
Number of Debentures = 30,000
Face Value per Debenture = ₹ 100
Issue Price = ₹ 100 + 10% premium = ₹ 110
Total amount received = 30,000 × 110 = ₹ 33,00,000
\Rightarrow Total premium = 30,000 × 10 = ₹ 3,00,000
Journal Entry for Issue:
Date: 01-04-2023
Bank A/c \hfill Dr. ₹ 33,00,000
\hspace*{1cm} To 12% Debentures A/c \hfill ₹ 30,00,000
\hspace*{1cm} To Securities Premium A/c \hfill ₹ 3,00,000
\textit{(Being 30,000 12% debentures of ₹ 100 each issued at 10% premium)}
Step 2: Interest Calculation
12% on ₹ 30,00,000 = ₹ 3,60,000 (annual)
$\Rightarrow$ Half-yearly interest = ₹ 1,80,000
Journal Entry for Interest Accrued and Paid on 30\textsuperscript{th Sept, 2023:}
Date: 30-09-2023
Debenture Interest A/c \hfill Dr. ₹ 1,80,000
\hspace*{1cm} To Bank A/c \hfill ₹ 1,80,000
\textit{(Being half-yearly interest paid on 12% debentures)}
Journal Entry for Interest Accrued and Paid on 31\textsuperscript{st Mar, 2024:}
Date: 31-03-2024
Debenture Interest A/c \hfill Dr. ₹ 1,80,000
\hspace*{1cm} To Bank A/c \hfill ₹ 1,80,000
\textit{(Being half-yearly interest paid on 12% debentures)}
Step 3: Transfer of Interest to Profit \& Loss Account
Date: 31-03-2024
Profit \& Loss A/c \hfill Dr. ₹ 3,60,000
\hspace*{1cm} To Debenture Interest A/c \hfill ₹ 3,60,000
\textit{(Being total interest transferred to Profit \& Loss Account)}