Question

On 1stApril, 2023, YK Ltd. issued 20,000, 9% debentures of ₹ 100 each at a premium of 5%, redeemable after five years at par.
The company closes its books on 31st March every year. Interest on debentures is payable half yearly on 30th September and 31st March every year.
Pass necessary journal entries in the books of the company for issue of debentures and payment of interest for the year ending 31st March, 2024.

Hint:

Interest is calculated on face value—not on premium. Transfer total interest to P and L at year-end.

Answer 1

Working Notes:

• Face value per debenture = ₹100
• Number of debentures = 20,000
• Issue price = ₹100 + 5% premium = ₹105
• Total amount received = 20,000 × ₹105 = ₹21,00,000
• Face value = 20,000 × ₹100 = ₹20,00,000
• Premium on issue = ₹1,00,000
• Interest @ 9% p.a. on face value = ₹20,00,000 × 9% = ₹1,80,000 per annum
• Half-yearly interest = ₹90,000 (on 30th Sept and 31st March)

Journal Entries:

Date	Particulars	Dr. (₹)	Cr. (₹)
1st April, 2023	Bank A/c Dr.      To 9% Debentures A/c      To Securities Premium A/c  (Being 20,000 9% debentures issued at 5% premium)	₹21,00,000	₹20,00,000  ₹1,00,000
30th Sept, 2023	Interest on Debentures A/c Dr.      To Debentureholders A/c  (Being half-yearly interest due on 20,000 debentures @ 9%)	₹90,000	₹90,000
30th Sept, 2023	Debentureholders A/c Dr.      To Bank A/c  (Being payment of half-yearly interest)	₹90,000	₹90,000
31st March, 2024	Interest on Debentures A/c Dr.      To Debentureholders A/c  (Being interest due for second half-year)	₹90,000	₹90,000
31st March, 2024	Debentureholders A/c Dr.      To Bank A/c  (Being interest paid for second half-year)	₹90,000	₹90,000
31st March, 2024	Profit and Loss A/c Dr.      To Interest on Debentures A/c  (Being total interest expense transferred to P&L)	₹1,80,000	₹1,80,000

Note: Interest is paid half-yearly, hence twice ₹90,000 is due and paid.