Company Accounts

Debentures

Medium

The following journal entry appears in the books of X Co. Ltd.

Bank A/c Dr. 4,75,000

Loss on issue of debenture A/c Dr. 75,000

To 12% Debentures A/c 5,00,000

To Premium on Redemption of Debenture A/c 50,000

In this case the debentures have been issued at a discount of 5% . What is the rate of premium on redemption of debentures?

15%

20%

10%

✅ Correct Option: 4

Looking at the journal entry, we need to identify the components and calculate the rate of premium on redemption.

Given information:

Face Value of Debentures = ₹5,00,000 (credit to 12% Debentures A/c)
Amount received in Bank = ₹4,75,000
Discount on issue = 5%
Premium on Redemption = ₹50,000 (credit balance)

Verification of discount on issue:

Discount on issue = 5% of ₹5,00,000 = ₹25,000

This explains why Bank received = ₹5,00,000 - ₹25,000 = ₹4,75,000

Understanding Loss on Issue of Debenture:

The Loss on Issue of Debenture (₹75,000) represents the total burden on the company, which includes both:

Discount on issue
Premium on redemption

Loss on Issue = Discount on Issue + Premium on Redemption

₹75,000 = ₹25,000 + ₹50,000 ✓

Calculating rate of premium on redemption:

Rate of Premium on Redemption = $\frac{\text{Premium on Redemption}}{\text{Face Value}}$ × 100

Rate = $\frac{50,000}{5,00,000}$ × 100 = 10%

The company will have to pay ₹5,00,000 + ₹50,000 = ₹5,50,000 at the time of redemption, even though it received only ₹4,75,000 at the time of issue.

Correct Option: 4 (10%)

2026: 20 May Shift 1

A Limited issued 5000, 10% debentures of Rs. 100 each, at a premium of Rs. 10 per debenture payable as follows:

On application Rs. 25, On allotment Rs. 45 (including premium), On first and final call Rs. 40.

The debentures were fully subscribed and all money was duly received.

Select the correct journal entries related to the above case from the following.

(A)

Particulars	Dr. Amount	Cr. Amount
10% Debenture Allotment A/c Dr.	2,25,000
To 10% Debentures A/c		1,75,000
To Securities Premium Reserve A/c		50,000

(B)

Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Bank A/c Dr.		1,25,000
	To 10% Debenture Application A/c			1,25,000

(C)

Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Bank A/c Dr.		2,00,000
	To 10% Debenture First & Final Call A/c			2,00,000

(D)

Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Bank A/c Dr.		2,20,000
	To 10% Debenture Allotment A/c			2,20,000

Choose the correct answer from the options given below:

2025: 27 May Shift 1

Select the pair which is true about debentures-

(A) Debenture is a part of owned capital.

(B) The payment of interest on debentures is a charge on the profits of the company.

(D) Redeemable debentures are those debentures, which are payable on the expiry of the specific period.

Choose the correct answer from the options given below:

(B) and (D) only
(A) and (D) only
(C) and (D) only
(A) and (B) only

2025: 30 May Shift 1

Perpetual Debentures are also known as :-

2025: 15 May Shift 2

To write off Discount on issue of debentures following entry is made

2023: 28 May Shift 1

AB&Co. purchased assets worth Rs. 28,80,000 from vendor. It issued debentures of Rs. 100 each at a discount of 4% in full satisfaction of the purchase consideration. The number of debentures issued to vendor is :

2023: 28 May Shift 1

XYZ Ltd. issues 10% debentures of Rs. 12,00,000 of Rs. 100 each at a discount of 10% which will be repayable after 6 years. What type of debenture it is ?

Solution

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