Question

Pass necessary journal entries in the books of RR Ltd. for issue of debentures in the following cases:
(i) Issued 9,000, 9% debentures of ₹100 each at a discount of 10%, redeemable at a premium of 5% after 5 years.
(ii) Issued 5,000, 11% debentures of ₹100 each at a premium of 10%, redeemable at a premium of 5% after 5 years.

Hint:

When debentures are redeemable at premium, record the loss on issue separately to amortize over years if needed.

Answer 1

(i) Issued 9,000 debentures at 10% discount, redeemable at 5% premium
Issue price = ₹100 – 10% = ₹90
Redemption value = ₹100 + 5% = ₹105
Loss on issue = Discount + Premium on Redemption = ₹10 + ₹5 = ₹15 per debenture
Total loss = 9,000 × ₹15 = ₹1,35,000
Journal Entry:
\begin{verbatim} Bank A/c Dr. 8,10,000 Loss on Issue of Debentures A/c Dr. 1,35,000 To 9% Debentures A/c 9,00,000 To Premium on Redemption A/c 45,000 (Being 9,000 debentures of ₹100 issued at 10% discount and redeemable at 5% premium) \end{verbatim} \vspace{0.3cm} (ii) Issued 5,000 debentures at 10% premium, redeemable at 5% premium
Issue price = ₹100 + 10% = ₹110
Redemption value = ₹100 + 5% = ₹105
Premium received = ₹10 per debenture
Premium payable = ₹5 per debenture
Journal Entry:
\begin{verbatim} Bank A/c Dr. 5,50,000 To 11% Debentures A/c 5,00,000 To Securities Premium A/c 50,000 (Being issue of 5,000 debentures at 10% premium) Loss on Issue of Debentures A/c Dr. 25,000 To Premium on Redemption A/c 25,000 (Being premium on redemption payable recorded as loss) \end{verbatim}