Question

A company issued 10% Debentures of the face value of Rs,1,20,000 at a discount of 6% on April 01, 2011. The debentures are payable by annual drawings of Rs 40,000 commencing from the end of third year.

How will you deal with discount on debentures?

Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on March 31 every year.

Answer 1

In the books of……………

Journal

Date

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

2011 Apr. 01

Bank A/c

Dr.

1,12,800

To Debenture Application and Allotment A/c

1,12,800

(Debentures Application Money received)

Apr. 01

Debentures Application and Allotment A/c

Dr.

1,12,800

Discount on issue of Debenture A/c

Dr.

7,200

To 10% Debenture A/c

1,20,000

(Debenture Application Money transferred to Debenture Account)

2012 Mar. 31

Profit and Loss A/c

Dr.

1,800

To Discount on Issue of Debentures A/c

1,800

(Discount on issue of debenture written off)

2013 Mar. 31

Profit and Loss A/c

Dr.

1,800

To Discount on Issue of Debenture A/c

1,800

(Discount on issue of debenture written off)

2014 Mar. 31

Profit and Loss A/c

Dr.

1,800

To Discount on Issue of Debenture A/c

1,800

(Discount on issue of debenture written off)

2015

Mar. 31

Profit and Loss A/c

Dr.

1,200

To Discount on Issue of Debentures A/c

1,200

(Discount on issue of debenture written off)

2016

Mar. 31

Profit and Loss A/c

Dr.

600

To Discount on Issue of Debentures A/c

600

(Discount on issue of debenture written off)

Discount on Issue of Debentures

Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2011 Apr. 01	10% Debentures		7,200	2012 Mar. 31	Profit and Loss		1,800
					Balance c/d		5,400
			7,200				7,200
2012 Apr. 01	Balance b/d		5,400	2013 Mar. 31	Profit and Loss		1,800
					Balance c/d		3,600
			5,400				5,400
2013 Apr. 01	Balance b/d		3,600	2014 Mar. 31	Profit and Loss		1,800
					Balance c/d		1,800
			3,600				3,600
2014 Apr. 01	Balance b/d		1,800	2015 Mar. 31	Profit and Loss		1,200
					Balance c/d		600
			1,800				1,800
2015 Apr. 01	Balance b/d		600	2016 Mar 31	Profit and Loss		600
			600				600

1. i) Working Note:

Amount of Discount on Issue of Debenture = `1,20,000 xx 6/100 = 7,200`

Year	Debenture Outstanding	Ratio	Amount written off every year
2011-12	1,20,000	3	`7,200 xx 3/12`	=	1,800
2012-13	1,20,000	3	`7,200 xx 3/12`	=	1,800
2013-14	1,20,000	3	`7,200 xx 3/12`	=	1,800
2014-15	80,000	2	`7,200 xx 2/12`	=	1,200
2015-16	40,000	1	`7,200 xx 1/12`	=	600
		12			Rs 7,200