Question

Pass necessary journal entries for the issue of debentures in the books of RN Ltd. for the following transactions:
(i) Issued 1,000, 10% Debentures of ₹100 each at 5% premium, redeemable at a premium of 10% after 5 years.
(ii) Issued 5,000, 10% Debentures of ₹100 each at a premium of 10%, redeemable at par after 5 years.

Hint:

Premium on redemption is a loss and debited to "Loss on Issue of Debentures A/c", while issue premium is credited to "Securities Premium A/c".

Answer 1

(i) Journal Entry for Issue at Premium and Redeemable at Premium:
Issue Price = ₹100 + 5% = ₹105
Redemption Value = ₹100 + 10% = ₹110

Bank A/c                          Dr.   1,05,000  
Loss on Issue of Debentures A/c   Dr.     5,000  
   To 10% Debentures A/c                 1,00,000  
   To Securities Premium A/c              10,000  
(Being issue of 1,000 debentures of ₹100 each at 5% premium, 
redeemable at 10% premium)

(ii) Journal Entry for Issue at Premium, Redeemable at Par:
Issue Price = ₹100 + 10% = ₹110
Redemption Value = ₹100 (at par)

Bank A/c                         Dr.   5,50,000  
   To 10% Debentures A/c               5,00,000  
   To Securities Premium A/c            50,000  
(Being issue of 5,000 debentures of ₹100 each at 10% premium, 
redeemable at par)