Question:
Pass necessary journal entries for issue of debentures for the following transactions:
(i) Kiero Ltd. issued 80,000, 9% debentures of ₹ 100 each at par, redeemable at a premium of 10%.
(ii) Naro Ltd. issued 50,000, 10% debentures of ₹ 100 each at a premium of 5%, redeemable at a premium of 10%.
Pass necessary journal entries for issue of debentures for the following transactions:
(i) Kiero Ltd. issued 80,000, 9% debentures of ₹ 100 each at par, redeemable at a premium of 10%.
(ii) Naro Ltd. issued 50,000, 10% debentures of ₹ 100 each at a premium of 5%, redeemable at a premium of 10%.
(i) Kiero Ltd. issued 80,000, 9% debentures of ₹ 100 each at par, redeemable at a premium of 10%.
(ii) Naro Ltd. issued 50,000, 10% debentures of ₹ 100 each at a premium of 5%, redeemable at a premium of 10%.
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Always separate the accounting treatment for premium on redemption (loss) and premium on issue (gain) in the journal entries. Premium on redemption is always debited as 'Loss on issue of debentures'.
Updated On: Jul 4, 2025
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Solution and Explanation
(i) Journal Entry for Kiero Ltd.:
\[ \text{Bank A/c} \text{Dr.} 80,00,000
\text{Loss on Issue of Debentures A/c} \text{Dr.} 8,00,000
\text{To 9% Debentures A/c} 80,00,000
\text{To Premium on Redemption of Debentures A/c} 8,00,000 \] Explanation: Debentures were issued at par and redeemable at 10% premium. Thus, premium on redemption = 10% of ₹ 100 = ₹ 10 per debenture. Total = ₹ 8,00,000. (ii) Journal Entry for Naro Ltd.:
\[ \text{Bank A/c} \text{Dr.} 52,50,000
\text{Loss on Issue of Debentures A/c} \text{Dr.} 5,00,000
\text{To 10% Debentures A/c} 50,00,000
\text{To Securities Premium A/c} 2,50,000
\text{To Premium on Redemption of Debentures A/c} 5,00,000 \] Explanation: - Issue price = ₹ 105 per debenture (5% premium), so Bank = ₹ 52,50,000. - Redeemable at 10% premium = ₹ 10 per debenture × 50,000 = ₹ 5,00,000 (loss).
\[ \text{Bank A/c} \text{Dr.} 80,00,000
\text{Loss on Issue of Debentures A/c} \text{Dr.} 8,00,000
\text{To 9% Debentures A/c} 80,00,000
\text{To Premium on Redemption of Debentures A/c} 8,00,000 \] Explanation: Debentures were issued at par and redeemable at 10% premium. Thus, premium on redemption = 10% of ₹ 100 = ₹ 10 per debenture. Total = ₹ 8,00,000. (ii) Journal Entry for Naro Ltd.:
\[ \text{Bank A/c} \text{Dr.} 52,50,000
\text{Loss on Issue of Debentures A/c} \text{Dr.} 5,00,000
\text{To 10% Debentures A/c} 50,00,000
\text{To Securities Premium A/c} 2,50,000
\text{To Premium on Redemption of Debentures A/c} 5,00,000 \] Explanation: - Issue price = ₹ 105 per debenture (5% premium), so Bank = ₹ 52,50,000. - Redeemable at 10% premium = ₹ 10 per debenture × 50,000 = ₹ 5,00,000 (loss).
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