A company issues the following debentures.

(i) 10,000, 12% debentures of Rs.100 each at par but redeemable at premium of 5% after 5 years;

(ii) 10,000, 12% debentures of Rs.100 each at a discount of 10% but redeemable at par after 5 years;

(iii) 5,000, 12% debentures of Rs.1,000 each at a premium of 5% but redeemable at par after 5 years;

(iv) 1,000, 12% debentures of Rs.100 each issued to a supplier of machinery costing Rs.95,000. The debentures are repayable after 5 years; and

(v) 300, 12% debentures of Rs.100 each as a collateral security to a bank which has advanced a loan of Rs. 25000 to the company for a period of 5 years.

pass the journal entries to record the

(i) issue of debewntures; and

(ii) repayment of debentures after the given period.

(a)

$\text{Journal Entries}$
$\text{Issue of Debentures}$
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ \text{(i)}& \text{Bank A/c}& \text{Dr}& & 10,00,000& \\ & \text{To 12\% Debenture Application A/c}& & & & 10,00,000\\ & \text{(Debentures application money of 10,000}& & & & \\ & \text{12\% debentures at 100 each received)}& & & & \\ & \underset{–}{}& & & & \\ & \text{12\% Debenture Application A/c}& \text{Dr}& & 10,00,000& \\ & \text{Loss on Issue of Debenture A/c}& \text{Dr}& & 50,000& \\ & \text{To 12 \% Debenture A/c}& & & & 10,00,000\\ & \text{To Premium on Redemption of Debenture A/c}& & & & 50,000\\ & \text{(Debentures application money of 10,000 12\%}& & & & \\ & \text{debentures at Rs.100 each transferred to 12\%}& & & & \\ & \text{debentures account and the debentures are issued}& & & & \\ & \text{with term of repayable at 5\% premium)}& & & & \\ & \underset{–}{}& & & & \\ \text{(ii)}& \text{Bank A/c}& \text{Dr}& & 9,00,000& \\ & \text{To Debenture Application and Allotment A/c}& & & & 9,00,000\\ & \text{(Debenture application money received}& & & & \\ & \text{excluding discount on issue)}& & & & \\ & \underset{–}{}& & & & \\ & \text{12\% Debenture Application and Allotment A/c}& \text{Dr}& & 9,00,000& \\ & \text{Discount on Issue of Debenture A/c}& \text{Dr}& & 1,00,000& \\ & \text{To 12\% Debentures A/c}& & & & 10,00,000\\ & \text{(Debenture allotment made due)}& & & & \\ & \underset{–}{}& & & & \\ \text{(iii)}& \text{Bank A/c}& \text{Dr}& & 52,50,000& \\ & \text{To Debenture Application and Allotment A/c}& & & & 52,50,000\\ & \text{(Debenture application money received)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debenture Application and Allotment A/c}& \text{Dr}& & 52,50,000& \\ & \text{To 12\% Debentures A/c}& & & & 50,00,000\\ & \text{To Security Premium A/c (5,000 x 50)}& & & & 2,50,000\\ & \text{(Allotment of debenture premium)}& & & & \\ & \underset{–}{}& & & & \\ \text{(iv)}& \text{Machinery A/c}& \text{Dr}& & 95,000& \\ & \text{To Vendor A/c}& & & & 95,000\\ & \text{(Machinery purchased from supplier)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Vendor A/c}& \text{Dr}& & 95,000& \\ & \text{Discount on Issue of Debenture}& \text{Dr}& & 5,000& \\ & \text{To 12\% Debenture A/c}& & & & 1,00,000\\ & \text{(Debenture issue at discount to vendor of}& & & & \\ & \text{machinery)}& & & & \\ & \underset{–}{}& & & & \\ \text{(v)}& \text{12\% Debenture Suspense A/c}& \text{Dr}& & 30,000& \\ & \text{To Debenture A/c}& & & & 30,000\\ & \text{(300, 12\% Debentures of Rs.100 each}& & & & \\ & \text{issued as collateral security to the bank against a}& & & & \\ & \text{loan of Rs.25,000)}& & & & \end{array}$

Note : (i) Redemption is at 5% premium so loss on issue will also be 5%.

(ii ) & (iii) Redemption is at par hence loss or profit on redemption.

(iv) Debentures are issued for 1,00,000 (1000 x 100) whereas payment against machinery due was 2,95,000 , hence difference Rs. 5,000 will be considered as discount on issue.

(v) The entry passed for debenture issued is collateral security does not show any , thing related to loan amount. It is passed for full amount of debentures issued.

(b)

$\text{Journal Entries}$
$\text{Repayment of Debentures}$
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ \text{(i)}& \text{12\% Debenture A/c}& \text{Dr}& & 10,00,000& \\ & \text{Premium on Redemption of Debenture A/c}& \text{Dr}& & 50,000& \\ & \text{To Debenture Holders A/c}& & & & 10,50,000\\ & \text{(Amount due on redemption of}& & & & \\ & \text{debentures)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debenture Holders A/c}& \text{Dr}& & 10,50,000& \\ & \text{To Bank A/c}& & & & 10,50,000\\ & \text{(Payment made to debenture holders)}& & & & \\ & \underset{–}{}& & & & \\ \text{(ii)}& \text{12\% Debentures A/c}& \text{Dr}& & 10,00,000& \\ & \text{To Debenture Holders A/c}& & & & 10,00,000\\ & \text{(Amount due on redemption of debentures)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debenture Holders A/c}& \text{Dr}& & 10,00,000& \\ & \text{To Bank A/c}& & & & 10,00,000\\ & \text{(Payment made to debenture holders)}& & & & \\ & \underset{–}{}& & & & \\ \text{(iii)}& \text{12\% Debentures A/c}& \text{Dr}& & 50,00,000& \\ & \text{To Debenture Holders A/c}& & & & 50,00,000\\ & \text{(Amount due on redemption of debentures)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debenture Holders A/c}& \text{Dr}& & 50,00,000& \\ & \text{To Bank A/c}& & & & 50,00,000\\ & \text{(Payment made to debenture holders)}& & & & \\ & \underset{–}{}& & & & \\ \text{(iv)}& \text{12\% Debenture A/c}& \text{Dr}& & 1,00,000& \\ & \text{To Vendor A/c}& & & & 1,00,000\\ & \text{(Payment due to vendor)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Vendor A/c}& \text{Dr}& & 1,00,000& \\ & \text{To Bank A/c}& & & & 1,00,000\\ & \text{(Payment made to vendor)}& & & & \\ & \underset{–}{}& & & & \\ \text{(v)}& \text{12\% Debenture A/c}& \text{Dr}& & 30,000& \\ & \text{To Debenture Suspense A/c}& & & & 30,000\\ & \text{(Debentures and debenture suspense)}& & & & \\ & \text{account closed)}& & & & \end{array}$

Note : (i) Premium on redemption is debited at the time of redemption as it is extra money paid to debenture holder and hence it is a loss. On the other side discount on redemption has the reverse treatment i.e., credited at redemption as it is profit to the company.

(ii) The debentures are always redeemed on due date by crediting Debenture Holders' and paid later on according to the convinience of company. At the time of payment the Debenture holders are debited.