Question

On 1 st April, 2017, Prasad and Company Limited issued 1,000, 10% Debentures of ₹ 1,000 each at ₹ 980. Under the terms of issue, `1/5` of the debentures is annually redeemable by drawings, the first redemption occurring on 31st March, 2019.

On 31st March, 2018, the company had a balance of ₹ 4,000 in its Capital Reserve A/c. The company wrote off the discount on issue of debentures over the life-time of the debentures.

You are required to prepare the Discount on issue of Debentures Account for the first three years.

Answer 1

Dr.	Discount on Issue of Debentures Account						Cr.
Date	Particulars	L.F.	Amount	Date	Particulars	L.F.	Amount
2017				2018
Apr. 1	To 10% Debentures A/c		20,000	Mar. 31	By Statement of Profit & Loss		5,000
				Mar. 31	By Balance c/d		15,000
			20,000				20,000
2018				2019
Apr. 1	To Balance b/d		15,000	Mar. 31	By Statement of Profit & Loss		5,000
				Mar. 31	By Balance c/d		10,000
			15,000				15,000
2019				2020
Apr. 1	To Balance b/d		10,000	Mar. 31	By Statement of Profit & Loss		4,000
				Mar. 31	By Balance c/d		6,000
			10,000				10,000
2020 Apr. 1	To Balance b/d		6,000

Working Note:

Ratio for writing off the discount on issue of debentures = 1,000 : 1,000 : 800 : 600 : 400 : 200

= 5 : 5 : 4 : 3 : 2 : 1

Discount on Issue of Debentures = 1,000 × 200 = Rs. 20,000

Discount written off in the first year = `20,000 xx 5/20` = Rs. 5,000

Discount written off in the second year = `20,000 xx 5/20 = "Rs". 5,000`

Discount written off in the third year = `20,000 xx 4/20` = Rs. 4,000