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Question
Health2Wealth Ltd. had share capital of ₹ 80,00,000 divided in shares of ₹ 100 each and 20,000, 8% Debentures of ₹ 100 each as part of capital employed. The company need additional funds of ₹ 55,00,000 for which they decided to issue debentures in such a way that they got required funds after issuing debentures of the same class as earlier, at 10% premium. These debentures were to be redeemed at 20% premium after 4 years. These debentures were issued on 01 October, 2021.
You are required to
- Pass entries for issue of Debentures.
- Prepare Loss on Issue of Debentures Account assuming there was existing balance of Securities Premium Account of ₹ 2,80,000.
- Pass entries for Interest on debentures on March 31, 2022 assuming interest is payable on 30 September and 31 March every year.
Solution
(a)
| Books of Health2Wealth Ltd. Journal Entries |
||||
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 1. | Bank A/c ...Dr. | 55,00,000 | ||
| To Debenture Application and Allotment A/c | 55,00,000 | |||
| (Application money received) | ||||
| 2. | Debenture Application and Allotment A/c ...Dr. | 55,00,000 | ||
| Loss on Issue of Debentures A/c ...Dr. | 10,00,000 | |||
| To 8% Debentures A/c | 50,00,000 | |||
| To Securities Premium A/c | 5,00,000 | |||
| To Premium on Redemption of Debentures A/c |
10,00,000 | |||
|
(Debenture issued at premium, to be |
||||
(b)
| Dr. | Loss on Issue of Debentures A/c | Cr. | |||
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
| 2021 | 2022 | ||||
| 1 Oct. | To Premium on Redemption of Debentures |
10,00,000 | 31 March | By Securities Premium A/c |
7,80,000 |
| By Statement of Profit and Loss A/c |
2,20,000 | ||||
| 10,00,000 | 10,00,000 | ||||
(c)
| Journal Entries | ||||
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 2022 31 March |
Debenture Interest A/c ...Dr. | 2,00,000 | ||
| To Debentureholders A/c | 2,00,000 | |||
| (Interest due on debentures) | ||||
| 2022 31 March |
Debenture holders A/c ...Dr. | 2,00,000 | ||
| To Bank A/c | 2,00,000 | |||
| (Interest paid to debenture holders) | ||||
| 2022 31 March |
Statement of Profit and Loss ...Dr. | 2,00,000 | ||
| To Debenture Interest A/c | 2,00,000 | |||
| (Interest on Debentures charged to Statement of Profit and Loss) |
||||
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