Company Accounts

Debentures

Medium

Debenture Application & Allotment A/c Dr. 95,000

Loss on Issue of Debentures A/c Dr. 10,000

To 9% Debenture A/c 1,00,000

To Premium on Redemption of Debentures A/c 5,000

On the basis of the above entry, determine the rate of discount at which Rs. 1,00,000, 9% debentures of Rs. 100 each were issued if they were to be redeemed at a premium of 5%.

10%

15%

20%

✅ Correct Option: 1

Looking at the journal entry, we need to find the discount rate on issue.

Understanding the entry:

The Debenture Application & Allotment A/c shows Rs. 95,000 (debited), which represents the actual amount received from debenture holders.

The 9% Debenture A/c shows Rs. 1,00,000 (credited), which represents the face value of debentures issued.

Calculating the discount:

Amount received from debenture holders = Rs. 95,000

Face value of debentures = Rs. 1,00,000

Discount on issue = Face value - Amount received

Discount on issue = Rs. 1,00,000 - Rs. 95,000 = Rs. 5,000

Calculating the rate of discount:

Rate of discount = $\frac{\text{Discount on issue}}{\text{Face value}} \times 100$

Rate of discount = $\frac{5,000}{1,00,000} \times 100$ = 5%

Verification through Loss on Issue:

Loss on Issue of Debentures A/c is debited with Rs. 10,000, which comprises:

Discount on issue: Rs. 5,000
Premium on redemption: Rs. 5,000 (separately credited)
Total loss: Rs. 10,000 ✓

The debentures were issued at 5% discount (i.e., at Rs. 95 per debenture of Rs. 100 face value).

2023: 28 May Shift 1

XYZ Ltd. issued another category of debenture which are perpetual in nature. What type of debentures they are called :

2022: 8 Aug Shift 2

Debenture holders are:

2026: 19 May Shift 1

Manik Ltd. issued 10,000, 8% debentures of Rs. 100 each at a discount of 10% redeemable at a premium of 10%. The issue was subscribed and the amount was duly received. The company had a balance of Rs. 70,000 in securities premium reserve on that date. On this date, it also issued 1,00,000, equity shares of Rs. 10 each, also at a premium of Rs. 1 per share. Issue was also fully subscribed. Find the amount to be debited in the Statement of Profit and Loss while writting off Loss on Issue of Debentures A/c.

2026: 19 May Shift 1

__________ debentures are the debentures which can be transferred by way of delivery and the company does not keep any record of the debentures, Interest on debentures is paid to a person who produces the interest coupon attached to such debentures

2023: 11 June Shift 3

Read the following facts about shares and debentures.

(A) Both shares and debentures can be issued by a company for raising long term funds.

(B) Both shares and debentures can be issued for consideration other than cash.

(D) Debentures can be converted into shares and shares can be converted into debentures

(E) Dividend is paid on shares and debentures both

Choose the correct answer from the options given below :

2023: 29 May Shift 2

Identify those debentures on which no interest will be paid/provided.

Solution

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