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%.

Hint:

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'.

Answer 1

(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 a 10% premium. The premium on redemption amounts to ₹ 10 per debenture, totaling ₹ 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: - The issue price was ₹ 105 per debenture (a 5% premium), resulting in ₹ 52,50,000 received by the bank.- Redemption at a 10% premium incurs a loss of ₹ 10 per debenture, totaling ₹ 5,00,000 (calculated on 50,000 debentures).