Question

Moon Ltd. issued 4,000, 10% debentures of ₹ 100 each at a premium of 10% redeemable at par after 5 years.
Pass journal entries in the books of the company for issue of debentures.

Hint:

When debentures are issued at a premium and redeemable at par, the excess received is credited to the Securities Premium Reserve. Always credit the face value to the Debentures A/c and record any premium or discount separately.

Answer 1

Data Provided:

• Number of debentures: 4,000
• Face value per debenture: ₹ 100
• Issue price per debenture: ₹ 110 (₹ 100 + 10% premium)
• Total amount received: ₹ 4,40,000 (4,000 × ₹ 110)
• Redemption value per debenture: ₹ 100 (at par)

Journal Entry: \[ \begin{aligned} \text{Bank A/c Dr.} & \hspace{5pt} ₹ 4,40,000 \\ \text{To 10% Debentures A/c} & \hspace{5pt} ₹ 4,00,000 \\ \text{To Securities Premium A/c} & \hspace{5pt} ₹ 40,000 \\ \end{aligned} \] Narration: 4,000 10% debentures of ₹ 100 each issued at a ₹ 10 premium per debenture, redeemable at par after 5 years.
Explanation:

• The Debentures A/c is credited with the total face value of the issued debentures (₹ 4,00,000).
• The Securities Premium A/c is credited with the total premium received on issuance (₹ 40,000).
• The Bank A/c is debited with the total cash inflow from the debenture issue (₹ 4,40,000).

Since the debentures are issued at a premium and redeemed at par, there is no discount or loss on issuance.