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Page 1
NCERT
SOLUTIONS
CLASS - 12th
aglase .co
SOLUTIONS
CLASS - 12th
aglase .co
Page 2
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Class : 12th
Subject : Accountancy
Chapter : 2
Chapter Name : Issue and Redemption of Debentures
Q1 What is meant by a Debenture?
Answer. The word Debenture is derived from a Latin word ‘debere’ which means to borrow. A
debenture is issued in the form of a certificate under the seal of a company and containing a
contract for the repayment of the principal sum after a fixed period of time and payment of
interest at regular intervals, generally half yearly. Debentures are issued by a company for
acquiring long-term borrowings.
Page : 134 , Block Name : Short Answer Questions
Q2 What does a Bearer Debenture mean?
Answer. When a company does not maintain any record of the debenture holders and the
debenture is transferable mere by delivery, then the type of the debenture held by the holders is
termed as Bearer Debenture. Interests on such debentures are paid to the persons who
produce the interest coupons that are attached with these debentures in a specified bank.
Page : 134 , Block Name : Short Answer Questions
Q3 State the meaning of ‘Debentures issued as a Collateral Security’.
Answer. The term collateral security means additional or secondary security in addition to the
primary security. Sometimes, when a company takes loan from a financial institution, then
besides the primary security, the company may issue debenture for additional security (as
collateral security). The lender who receives debenture as collateral security is not entitled for
interest on these debentures. If any default is made by the company in paying back the principal
amount (i.e. the loan amount) or interest on the loan, then the lender has the full right to recover
his/her dues from the sale of primary security. But, if the primary security is not sufficient to
recover the amount of the debt, then the debentures issued as collateral may be used for
recovery of the remaining amount.
Page 1 of 63 Aglasem Schools
Class : 12th
Subject : Accountancy
Chapter : 2
Chapter Name : Issue and Redemption of Debentures
Q1 What is meant by a Debenture?
Answer. The word Debenture is derived from a Latin word ‘debere’ which means to borrow. A
debenture is issued in the form of a certificate under the seal of a company and containing a
contract for the repayment of the principal sum after a fixed period of time and payment of
interest at regular intervals, generally half yearly. Debentures are issued by a company for
acquiring long-term borrowings.
Page : 134 , Block Name : Short Answer Questions
Q2 What does a Bearer Debenture mean?
Answer. When a company does not maintain any record of the debenture holders and the
debenture is transferable mere by delivery, then the type of the debenture held by the holders is
termed as Bearer Debenture. Interests on such debentures are paid to the persons who
produce the interest coupons that are attached with these debentures in a specified bank.
Page : 134 , Block Name : Short Answer Questions
Q3 State the meaning of ‘Debentures issued as a Collateral Security’.
Answer. The term collateral security means additional or secondary security in addition to the
primary security. Sometimes, when a company takes loan from a financial institution, then
besides the primary security, the company may issue debenture for additional security (as
collateral security). The lender who receives debenture as collateral security is not entitled for
interest on these debentures. If any default is made by the company in paying back the principal
amount (i.e. the loan amount) or interest on the loan, then the lender has the full right to recover
his/her dues from the sale of primary security. But, if the primary security is not sufficient to
recover the amount of the debt, then the debentures issued as collateral may be used for
recovery of the remaining amount.
Page 1 of 63 Aglasem Schools
Page 3
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Page : 134 , Block Name : Short Answer Questions
Q4 What is meant by ‘Issue of debentures for Consideration other than Cash’?
Answer. If a company purchases assets from its suppliers or vendors, then instead of paying
them in cash the company issues debentures to them. This is known as issue of debenture for
consideration other than cash. The issue of debenture for consideration other than cash serves
the purpose of both the vendor as well as of the purchaser (company). From the purchaser’s
point of view, purchasing an asset against the issue of debentures requires no additional cost
for raising loans or arranging funds immediately. On the other hand, the vendor gets interest on
the amount of debentures received. In this case, payment is deferred by issue of debentures
and interest is paid for time lag payment. Debentures may be issued at par, premium or
discount to the vendor.
Accounting treatment for Issue of Debentures for Consideration other than Cash
→ For purchase of Assets:
Assets A/c Dr.
To Vendor A/c
(Asset Purchased)
→ For Issue of Debentures
a. If debentures are issued at Par:
Vendor A/c Dr.
To Debentures A/c
(Debenture issued to Vendor at par )
b. If debentures are issued at Premium
Vendor A/c Dr.
To Debentures A/c
To Securities Premium A/c
(Debenture issued to Vendor at premium)
c) If debentures are issued at Discount
Page 2 of 63 Aglasem Schools
Page : 134 , Block Name : Short Answer Questions
Q4 What is meant by ‘Issue of debentures for Consideration other than Cash’?
Answer. If a company purchases assets from its suppliers or vendors, then instead of paying
them in cash the company issues debentures to them. This is known as issue of debenture for
consideration other than cash. The issue of debenture for consideration other than cash serves
the purpose of both the vendor as well as of the purchaser (company). From the purchaser’s
point of view, purchasing an asset against the issue of debentures requires no additional cost
for raising loans or arranging funds immediately. On the other hand, the vendor gets interest on
the amount of debentures received. In this case, payment is deferred by issue of debentures
and interest is paid for time lag payment. Debentures may be issued at par, premium or
discount to the vendor.
Accounting treatment for Issue of Debentures for Consideration other than Cash
→ For purchase of Assets:
Assets A/c Dr.
To Vendor A/c
(Asset Purchased)
→ For Issue of Debentures
a. If debentures are issued at Par:
Vendor A/c Dr.
To Debentures A/c
(Debenture issued to Vendor at par )
b. If debentures are issued at Premium
Vendor A/c Dr.
To Debentures A/c
To Securities Premium A/c
(Debenture issued to Vendor at premium)
c) If debentures are issued at Discount
Page 2 of 63 Aglasem Schools
Page 4
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Vendor A/c Dr.
Discount on Issue of Debentures Dr.
To Debentures A/c
(Debenture issued to Vendor at discount )
Page : 134 , Block Name : Short Answer Questions
Q5 What is meant by ‘Issue of debenture at discount and redeemable at premium?
Answer. When debentures are issued below its par value (or the face value) but are redeemed
at price higher than its par value, then it is termed as issue of debenture at discount and
redeemable at premium. The difference between the issue price and the redemption price is
treated as loss on issue of debenture.
Example:
A 10% debenture of Rs 1,000 is issued at 5% discount and is redeemed at 10% premium.
Bank A/c Dr. 950
Discount on Issue of Debenture A/c Dr. 50
Loss on Issue of Debenture A/c Dr. 100
To Debenture A/c 1,000
To Debenture Redemption Premium A/c 100
(Debenture issued)
Total loss = Payment made at redemption – Amount received on issue of debenture
1,100 – 950 = Rs 150
Page : 134 , Block Name : Short Answer Questions
Q6 What is ‘Capital Reserve’?
Answer. Capital Reserve is a reserve that is created out of capital profits i.e. gains or profits
arising from other than the normal activities of business operations i.e. activities other than sale
or purchase of goods and services. This reserve is utilised to meet future capital losses, if any,
and to issue bonus shares. It cannot be distributed as dividend among the share holders. The
Capital Reserve is generated out of the following activities:
Page 3 of 63 Aglasem Schools
Vendor A/c Dr.
Discount on Issue of Debentures Dr.
To Debentures A/c
(Debenture issued to Vendor at discount )
Page : 134 , Block Name : Short Answer Questions
Q5 What is meant by ‘Issue of debenture at discount and redeemable at premium?
Answer. When debentures are issued below its par value (or the face value) but are redeemed
at price higher than its par value, then it is termed as issue of debenture at discount and
redeemable at premium. The difference between the issue price and the redemption price is
treated as loss on issue of debenture.
Example:
A 10% debenture of Rs 1,000 is issued at 5% discount and is redeemed at 10% premium.
Bank A/c Dr. 950
Discount on Issue of Debenture A/c Dr. 50
Loss on Issue of Debenture A/c Dr. 100
To Debenture A/c 1,000
To Debenture Redemption Premium A/c 100
(Debenture issued)
Total loss = Payment made at redemption – Amount received on issue of debenture
1,100 – 950 = Rs 150
Page : 134 , Block Name : Short Answer Questions
Q6 What is ‘Capital Reserve’?
Answer. Capital Reserve is a reserve that is created out of capital profits i.e. gains or profits
arising from other than the normal activities of business operations i.e. activities other than sale
or purchase of goods and services. This reserve is utilised to meet future capital losses, if any,
and to issue bonus shares. It cannot be distributed as dividend among the share holders. The
Capital Reserve is generated out of the following activities:
Page 3 of 63 Aglasem Schools
Page 5
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
→ Premium on issue of shares.
→ Premium on issue of debentures.
→ Profit on redemption of debentures.
→ Profit on sale of fixed assets.
→ Profit on reissue of forfeited shares.
→ Profit prior to incorporation, etc.
Page : 134 , Block Name : Short Answer Questions
Q7 What is meant by an ‘Irredeemable Debenture’?
Answer. Irredeemable Debentures are those debentures that are not repayable or redeemable
by a company during its life time. These are repayable only at the time of winding up of the
company. These are also known as Perpetual Debentures that means debentures having
indefinite life. In India, now days, no company can issue irredeemable debentures.
Page : 134 , Block Name : Short Answer Questions
Q8 What is a ‘Convertible Debenture’?
Answer. Convertible Debentures are those debentures that can be converted into equity shares
after a specified period of time. These are of following two types:
→ Fully Convertible Debentures: When the whole amount of a debenture is convertible into
equity shares worth of equivalent amount, then these debentures are called Fully
Convertible Debentures. There is no need to maintain Debenture Redemption Reserves
for such debentures.
→ Partly Convertible Debentures: When only a part of the amount of a debenture is
convertible into equity share, then these debentures are called Partly Convertible
Debentures. In this regards, the Debenture Redemption Reserve is maintained only for
the non-convertible part of the debenture.
Page : 134 , Block Name : Short Answer Questions
Page 4 of 63 Aglasem Schools
→ Premium on issue of shares.
→ Premium on issue of debentures.
→ Profit on redemption of debentures.
→ Profit on sale of fixed assets.
→ Profit on reissue of forfeited shares.
→ Profit prior to incorporation, etc.
Page : 134 , Block Name : Short Answer Questions
Q7 What is meant by an ‘Irredeemable Debenture’?
Answer. Irredeemable Debentures are those debentures that are not repayable or redeemable
by a company during its life time. These are repayable only at the time of winding up of the
company. These are also known as Perpetual Debentures that means debentures having
indefinite life. In India, now days, no company can issue irredeemable debentures.
Page : 134 , Block Name : Short Answer Questions
Q8 What is a ‘Convertible Debenture’?
Answer. Convertible Debentures are those debentures that can be converted into equity shares
after a specified period of time. These are of following two types:
→ Fully Convertible Debentures: When the whole amount of a debenture is convertible into
equity shares worth of equivalent amount, then these debentures are called Fully
Convertible Debentures. There is no need to maintain Debenture Redemption Reserves
for such debentures.
→ Partly Convertible Debentures: When only a part of the amount of a debenture is
convertible into equity share, then these debentures are called Partly Convertible
Debentures. In this regards, the Debenture Redemption Reserve is maintained only for
the non-convertible part of the debenture.
Page : 134 , Block Name : Short Answer Questions
Page 4 of 63 Aglasem Schools
Page 6
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Q9 What is meant by ‘Mortgaged Debentures’?
Answer. Mortgaged Debentures are those debentures that are secured against asset/s of a
company. These are also known as secured debentures. If the debentures are secured against
a particular asset, then it is called fixed charge whereas, if the debentures are secured against
all the assets of a company, then it is called floating charge. In case the company fails to pay
back the principal amount of debenture or fails to meet its interest obligations on the due date,
then the debenture holders have the right to sell the mortgage asset in order to realise their
amount due to the company.
Page : 135 , Block Name : Short Answer Questions
Q10 What is discount on issue of debentures?
Answer. When the debentures are issued at a price below its par value or face value, then it is
said that the debentures are issued at discount. The difference between the issue price and the
face value of the debenture is regarded as a capital loss.
As per the Revised Schedule VI of the Companies Act, Discount on Issue of Debentures is
shown in the Notes to Accounts
→ With the amount that is to be written off within 12 months from the date of Balance Sheet
- Shown under Other Current Assets
→ With the amount that is to be written off after 12 months from the date of Balance Sheet -
Shown under Other Non-Current Assets
Page : 135 , Block Name : Short Answer Questions
Q11 What is meant by ‘Premium on Redemption of Debentures’?
Answer. When the debentures are redeemed at a price more than its face value or the par
value, then it is said that the debentures are redeemed at premium. The difference between the
redeemed price and the par value is regarded as a capital loss and this loss is written off till the
redemption of the debentures. The Premium on Redemption of Debenture is shown in the Notes
to Accounts under the sub-head of 'Other Long-term Liabilities'. The final balance is shown
under the main head of 'Non-Current Liabilities' on the Equity and Liabilities side of the
Company's Balance Sheet.
Accounting Treatment for Premium on Redemption on Debentures:
→ At the time of the Issue of Debenture:
Page 5 of 63 Aglasem Schools
Q9 What is meant by ‘Mortgaged Debentures’?
Answer. Mortgaged Debentures are those debentures that are secured against asset/s of a
company. These are also known as secured debentures. If the debentures are secured against
a particular asset, then it is called fixed charge whereas, if the debentures are secured against
all the assets of a company, then it is called floating charge. In case the company fails to pay
back the principal amount of debenture or fails to meet its interest obligations on the due date,
then the debenture holders have the right to sell the mortgage asset in order to realise their
amount due to the company.
Page : 135 , Block Name : Short Answer Questions
Q10 What is discount on issue of debentures?
Answer. When the debentures are issued at a price below its par value or face value, then it is
said that the debentures are issued at discount. The difference between the issue price and the
face value of the debenture is regarded as a capital loss.
As per the Revised Schedule VI of the Companies Act, Discount on Issue of Debentures is
shown in the Notes to Accounts
→ With the amount that is to be written off within 12 months from the date of Balance Sheet
- Shown under Other Current Assets
→ With the amount that is to be written off after 12 months from the date of Balance Sheet -
Shown under Other Non-Current Assets
Page : 135 , Block Name : Short Answer Questions
Q11 What is meant by ‘Premium on Redemption of Debentures’?
Answer. When the debentures are redeemed at a price more than its face value or the par
value, then it is said that the debentures are redeemed at premium. The difference between the
redeemed price and the par value is regarded as a capital loss and this loss is written off till the
redemption of the debentures. The Premium on Redemption of Debenture is shown in the Notes
to Accounts under the sub-head of 'Other Long-term Liabilities'. The final balance is shown
under the main head of 'Non-Current Liabilities' on the Equity and Liabilities side of the
Company's Balance Sheet.
Accounting Treatment for Premium on Redemption on Debentures:
→ At the time of the Issue of Debenture:
Page 5 of 63 Aglasem Schools
Page 7
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Bank/Debenture Allotment A/c Dr.
Loss on Issue of Debenture A/c Dr.
To Debenture A/c
To Premium on Redemption
(Debenture issued with the term of redemption at
premium)
→ At the time of Redemption of Debentures:
Debenture A/c Dr.
Premium on Redemption A/c Dr.
To Debentureholder A/c
(Amount of debentures due to debentureholders)
Page : 135 , Block Name : Short Answer Questions
Q12 How are debentures different from shares? Give two points.
Answer.
Basis of Debentures Shares
Comparisons
1. Meaning Debentures are a part of loan, Shares form a part of capital,
therefore, the debenture holders hence, share holders are the
are the creditors of a company. owner of a company.
2. Voting Rights These do not carry any voting rights These carry voting rights for their
for their holders. holders.
Page : 135 , Block Name : Short Answer Questions
Q13 Name the head under which ‘discount on issue of debentures’ appears in the Balance
Sheet of a company.
Answer. Discount on Issue of Debentures is regarded as a capital loss. As per the Revised
Schedule VI of the Companies Act, Discount on Issue of Debentures is shown in the Notes to
Accounts:
Page 6 of 63 Aglasem Schools
Bank/Debenture Allotment A/c Dr.
Loss on Issue of Debenture A/c Dr.
To Debenture A/c
To Premium on Redemption
(Debenture issued with the term of redemption at
premium)
→ At the time of Redemption of Debentures:
Debenture A/c Dr.
Premium on Redemption A/c Dr.
To Debentureholder A/c
(Amount of debentures due to debentureholders)
Page : 135 , Block Name : Short Answer Questions
Q12 How are debentures different from shares? Give two points.
Answer.
Basis of Debentures Shares
Comparisons
1. Meaning Debentures are a part of loan, Shares form a part of capital,
therefore, the debenture holders hence, share holders are the
are the creditors of a company. owner of a company.
2. Voting Rights These do not carry any voting rights These carry voting rights for their
for their holders. holders.
Page : 135 , Block Name : Short Answer Questions
Q13 Name the head under which ‘discount on issue of debentures’ appears in the Balance
Sheet of a company.
Answer. Discount on Issue of Debentures is regarded as a capital loss. As per the Revised
Schedule VI of the Companies Act, Discount on Issue of Debentures is shown in the Notes to
Accounts:
Page 6 of 63 Aglasem Schools
Page 8
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
→ With the amount that is to be written off within 12 months from the date of Balance Sheet
- Shown under Other Current Assets
→ With the amount that is to be written off after 12 months from the date of Balance Sheet -
Shown under Other Non-Current Assets
Page : 135 , Block Name : Short Answer Questions
Q14 What is meant by redemption of debentures?
Answer. Redemption of debenture means repayment of debentures by the company to the
debenture holders. In other words, it implies the discharge of liabilities by repaying the amount
due to the debenture holders as per the terms and conditions determined at the time of issue of
debentures. Debentures may be redeemable at par, premium or discount, but, nowa days, these
are mostly redeemable at par or premium. The redemption can be done out of profits or from
the fresh issue of debentures or shares. Redemption of debentures may be done by the
following methods:
→ In lump sum at the time of maturity,
→ In instalments by draw of lots at the end of each year,
→ By purchase in open market whenever price is below its face value,
→ By converting debentures into shares or new debentures.
Page : 135 , Block Name : Short Answer Questions
Q15 Can the company purchase its own debentures?
Answer. Yes, a company can purchase its own debentures provided it is authorised by its Article
of Association. As per the Company Act, if a company is authorised by its Article of Association,
only then it may purchase its own debentures from the open market. The main purposes of such
purchase are as follows:
→ For immediate cancellation of debenture liability, if the interest rate on its debenture is
higher than the market rate of interest.
→ A company may also purchase its own debentures with the motive of investment and sell
them at higher price in future and thereby earn profit.
Page : 135 , Block Name : Short Answer Questions
Page 7 of 63 Aglasem Schools
→ With the amount that is to be written off within 12 months from the date of Balance Sheet
- Shown under Other Current Assets
→ With the amount that is to be written off after 12 months from the date of Balance Sheet -
Shown under Other Non-Current Assets
Page : 135 , Block Name : Short Answer Questions
Q14 What is meant by redemption of debentures?
Answer. Redemption of debenture means repayment of debentures by the company to the
debenture holders. In other words, it implies the discharge of liabilities by repaying the amount
due to the debenture holders as per the terms and conditions determined at the time of issue of
debentures. Debentures may be redeemable at par, premium or discount, but, nowa days, these
are mostly redeemable at par or premium. The redemption can be done out of profits or from
the fresh issue of debentures or shares. Redemption of debentures may be done by the
following methods:
→ In lump sum at the time of maturity,
→ In instalments by draw of lots at the end of each year,
→ By purchase in open market whenever price is below its face value,
→ By converting debentures into shares or new debentures.
Page : 135 , Block Name : Short Answer Questions
Q15 Can the company purchase its own debentures?
Answer. Yes, a company can purchase its own debentures provided it is authorised by its Article
of Association. As per the Company Act, if a company is authorised by its Article of Association,
only then it may purchase its own debentures from the open market. The main purposes of such
purchase are as follows:
→ For immediate cancellation of debenture liability, if the interest rate on its debenture is
higher than the market rate of interest.
→ A company may also purchase its own debentures with the motive of investment and sell
them at higher price in future and thereby earn profit.
Page : 135 , Block Name : Short Answer Questions
Page 7 of 63 Aglasem Schools
Page 9
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Q16 What is meant by redemption of debentures by conversion?
Answer. When a debenture holder can convert his/her debentures into shares or new
debentures after the expiry of a specified period of time, then it is known as redemption of
debentures by conversion. As the company do not need to pay any funds for the redemption, so
there is no need to maintain the Debenture Redemption Reserve (DRR). The new shares or
debentures may be issued at par, premium or at discount.
Page : 135 , Block Name : Short Answer Questions
Q17 How would you deal with ‘Premium on Redemption of Debentures’?
Answer. When the debentures are redeemed at a price more than its face value or the par
value, then it is said that the debentures are redeemed at premium. The difference between the
redeemed price and the par value is regarded as a capital loss and this loss is written off till the
redemption of the debentures. The Premium on Redemption of Debenture is shown in the Notes
to Accounts under the sub-head of 'Other Long-term Liabilities'. The final balance is shown
under the main head of 'Non-Current Liabilities' on the Equity and Liabilities side of the
Company's Balance Sheet.
Accounting Treatment for Premium on Redemption on Debentures:
→ At the time of the Issue of Debenture:
Bank/Debenture Allotment A/c Dr.
Loss on issue of Debenture A/c Dr.
To Debenture A/c
To Premium on Redemption
(Debenture issued with the term of redemption at
premium)
→ At the time of Redemption of Debentures:
Debenture A/c Dr.
Premium on Redemption A/c Dr.
To Debenture Holder A/c
(Amount of debentures due to debenture holders)
Page 8 of 63 Aglasem Schools
Q16 What is meant by redemption of debentures by conversion?
Answer. When a debenture holder can convert his/her debentures into shares or new
debentures after the expiry of a specified period of time, then it is known as redemption of
debentures by conversion. As the company do not need to pay any funds for the redemption, so
there is no need to maintain the Debenture Redemption Reserve (DRR). The new shares or
debentures may be issued at par, premium or at discount.
Page : 135 , Block Name : Short Answer Questions
Q17 How would you deal with ‘Premium on Redemption of Debentures’?
Answer. When the debentures are redeemed at a price more than its face value or the par
value, then it is said that the debentures are redeemed at premium. The difference between the
redeemed price and the par value is regarded as a capital loss and this loss is written off till the
redemption of the debentures. The Premium on Redemption of Debenture is shown in the Notes
to Accounts under the sub-head of 'Other Long-term Liabilities'. The final balance is shown
under the main head of 'Non-Current Liabilities' on the Equity and Liabilities side of the
Company's Balance Sheet.
Accounting Treatment for Premium on Redemption on Debentures:
→ At the time of the Issue of Debenture:
Bank/Debenture Allotment A/c Dr.
Loss on issue of Debenture A/c Dr.
To Debenture A/c
To Premium on Redemption
(Debenture issued with the term of redemption at
premium)
→ At the time of Redemption of Debentures:
Debenture A/c Dr.
Premium on Redemption A/c Dr.
To Debenture Holder A/c
(Amount of debentures due to debenture holders)
Page 8 of 63 Aglasem Schools
Page 10
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Page : 135 , Block Name : Short Answer Questions
Q18 What is meant by ‘Redemption out of Capital?
Answer. When debentures are redeemed out of capital and no profits are utilised for
redemption, then such redemption is termed as redemption out of capital. In such a situation, no
profits are transferred to the Debenture Redemption Reserve.
As per the guideline laid down by Securities and Exchange Board of India (SEBI) and the
Section 117C of Company Act of 1956, the creation of Debenture Redemption Reserve is
mandatory (DRR). Therefore, it is not possible to redeem debentures purely out of capital, as it
reduces the value of assets. The following companies are exempted from the creation of DRR.
→ Infrastructure companies (i.e. those companies that are engaged in the business of
developing, maintaining and operating infrastructure facilities)
→ A Company that issues debentures with a maturity up to 18 months
The following are the necessary Journal entries that need to be passed, in case the debentures
are redeemed out of capital.
→ If debentures are redeemed out of capital at Par
Debenture A/c Dr.
To Debenture holder A/c
(Amount of debentures due to debenture holders)
Debenture holder A/c Dr.
To Bank A/c
(Amount of debentures paid to debenture holders)
→ If debentures are redeemed out of capital at Premium
Debenture A/c Dr.
Premium on Redemption A/c Dr.
To Debenture holder A/c
(Amount of debentures due to debenture holders)
Debenture holder A/c Dr.
To Bank A/c
Page 9 of 63 Aglasem Schools
Page : 135 , Block Name : Short Answer Questions
Q18 What is meant by ‘Redemption out of Capital?
Answer. When debentures are redeemed out of capital and no profits are utilised for
redemption, then such redemption is termed as redemption out of capital. In such a situation, no
profits are transferred to the Debenture Redemption Reserve.
As per the guideline laid down by Securities and Exchange Board of India (SEBI) and the
Section 117C of Company Act of 1956, the creation of Debenture Redemption Reserve is
mandatory (DRR). Therefore, it is not possible to redeem debentures purely out of capital, as it
reduces the value of assets. The following companies are exempted from the creation of DRR.
→ Infrastructure companies (i.e. those companies that are engaged in the business of
developing, maintaining and operating infrastructure facilities)
→ A Company that issues debentures with a maturity up to 18 months
The following are the necessary Journal entries that need to be passed, in case the debentures
are redeemed out of capital.
→ If debentures are redeemed out of capital at Par
Debenture A/c Dr.
To Debenture holder A/c
(Amount of debentures due to debenture holders)
Debenture holder A/c Dr.
To Bank A/c
(Amount of debentures paid to debenture holders)
→ If debentures are redeemed out of capital at Premium
Debenture A/c Dr.
Premium on Redemption A/c Dr.
To Debenture holder A/c
(Amount of debentures due to debenture holders)
Debenture holder A/c Dr.
To Bank A/c
Page 9 of 63 Aglasem Schools
Page 11
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
(Amount of debentures paid to debenture holders)
Page : 135 , Block Name : Short Answer Questions
Q19 What is meant by redemption of debentures by ‘Purchase in the Open Market’?
Answer. According to the Company Act, if a company is authorised by its Article of Association,
only then it may purchase its own debentures from the open market. The main purpose of such
purchase is as follows:
→ For immediate cancellation of debenture liability, if the interest rate on its debenture is
higher than the market rate of interest.
→ A company may also purchase its own debentures with the motive of investment and sell
them at higher price in future and thereby earn profit.
Page : 135 , Block Name : Short Answer Questions
Q20 Under which head is the ‘Debenture Redemption Reserve’ shown in the Balance Sheet?
Answer. As per the Revised Schedule VI, Debenture Redemption Reserve (DRR) is shown in
the Notes to Accounts of Reserve and Surplus. The final balance after adding DRR, is shown as
the sub-head 'Reserves and Surplus' under the main head of Shareholders' Funds on the Equity
and Liabilities side of the Company's Balance Sheet.
Page : 135 , Block Name : Short Answer Questions
Q1 Explain the different types of debentures?
Answer. Debentures are issued by a company for acquiring long-term borrowings.
They can be classified on the following basis.
→ On the basis of Security
a. Secured Debentures- Mortgaged Debentures are those debentures that are secured against
asset/s of a company. These are also known as secured debentures. In case the company fails
to pay back the principal amount of debenture or fails to meet its interest obligations on the due
Page 10 of 63 Aglasem Schools
(Amount of debentures paid to debenture holders)
Page : 135 , Block Name : Short Answer Questions
Q19 What is meant by redemption of debentures by ‘Purchase in the Open Market’?
Answer. According to the Company Act, if a company is authorised by its Article of Association,
only then it may purchase its own debentures from the open market. The main purpose of such
purchase is as follows:
→ For immediate cancellation of debenture liability, if the interest rate on its debenture is
higher than the market rate of interest.
→ A company may also purchase its own debentures with the motive of investment and sell
them at higher price in future and thereby earn profit.
Page : 135 , Block Name : Short Answer Questions
Q20 Under which head is the ‘Debenture Redemption Reserve’ shown in the Balance Sheet?
Answer. As per the Revised Schedule VI, Debenture Redemption Reserve (DRR) is shown in
the Notes to Accounts of Reserve and Surplus. The final balance after adding DRR, is shown as
the sub-head 'Reserves and Surplus' under the main head of Shareholders' Funds on the Equity
and Liabilities side of the Company's Balance Sheet.
Page : 135 , Block Name : Short Answer Questions
Q1 Explain the different types of debentures?
Answer. Debentures are issued by a company for acquiring long-term borrowings.
They can be classified on the following basis.
→ On the basis of Security
a. Secured Debentures- Mortgaged Debentures are those debentures that are secured against
asset/s of a company. These are also known as secured debentures. In case the company fails
to pay back the principal amount of debenture or fails to meet its interest obligations on the due
Page 10 of 63 Aglasem Schools
Page 12
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
date, then the debenture holders have the right to sell the mortgaged asset in order to realise
their amount due to the company.
b. Unsecured Debentures- These debentures are treated as unsecured creditors. They do not
have any security. These are uncommon now days.
→ On the basis of Tenure
a. Redeemable Debenture- These debentures are payable after the expiry of a specific period.
These debentures can be redeemed at par or premium either in lump sum or in installment.
Generally all debentures are redeemable.
b. Irredeemable Debenture- Irredeemable Debentures are those debentures that cannot be
repayable or redeemable by a company during its life time. These are repayable only at the time
of winding up of the company. These are also known as Perpetual Debentures that means
debentures having indefinite life. In India, now days, no company can issue irredeemable
debentures.
→ On the basis of Mode of Redemption
a. Convertible Debentures- Convertible Debentures are those debentures that can be converted
into equity shares after a specified period of time. These are of following two types:
i. Fully Convertible Debentures: When the whole amount of a debenture is convertible into
equity shares of equivalent amount, then these debentures are called Fully Convertible
Debentures. There is no need to maintain Debenture Redemption Reserves for such
debentures.
ii. Partly Convertible Debentures: When only a part of the amount of a debenture is convertible
into equity shares, then these debentures are called Partly Convertible Debentures. In this
regards, the Debenture Redemption Reserve is maintained only for the non-convertible part of
the debenture.
b. Non-Convertible Debenture- These debentures cannot be converted into shares. Generally
debentures are non convertible.
→ On the basis of Coupon Rate
a. Zero Coupon Rate- These debentures do not contain a specific rate of interest and can be
issued at discount. The excess of the face value of the debenture over its issue price is
considered as interest amount.
b. Specific Rate- These debentures carry a specific rate of interest which may be fixed or
floating.
→ On the basis of Registration
a. Registered Debenture- While issuing such debentures, the company maintains a record
regarding name, address and number of holding of debentures in the Register of Debenture
Holders of the company.
b. Bearer Debentures- When a company does not maintain any record of the debenture holders
and the debenture is transferable mere by delivery, then the type of the debenture held by the
Page 11 of 63 Aglasem Schools
date, then the debenture holders have the right to sell the mortgaged asset in order to realise
their amount due to the company.
b. Unsecured Debentures- These debentures are treated as unsecured creditors. They do not
have any security. These are uncommon now days.
→ On the basis of Tenure
a. Redeemable Debenture- These debentures are payable after the expiry of a specific period.
These debentures can be redeemed at par or premium either in lump sum or in installment.
Generally all debentures are redeemable.
b. Irredeemable Debenture- Irredeemable Debentures are those debentures that cannot be
repayable or redeemable by a company during its life time. These are repayable only at the time
of winding up of the company. These are also known as Perpetual Debentures that means
debentures having indefinite life. In India, now days, no company can issue irredeemable
debentures.
→ On the basis of Mode of Redemption
a. Convertible Debentures- Convertible Debentures are those debentures that can be converted
into equity shares after a specified period of time. These are of following two types:
i. Fully Convertible Debentures: When the whole amount of a debenture is convertible into
equity shares of equivalent amount, then these debentures are called Fully Convertible
Debentures. There is no need to maintain Debenture Redemption Reserves for such
debentures.
ii. Partly Convertible Debentures: When only a part of the amount of a debenture is convertible
into equity shares, then these debentures are called Partly Convertible Debentures. In this
regards, the Debenture Redemption Reserve is maintained only for the non-convertible part of
the debenture.
b. Non-Convertible Debenture- These debentures cannot be converted into shares. Generally
debentures are non convertible.
→ On the basis of Coupon Rate
a. Zero Coupon Rate- These debentures do not contain a specific rate of interest and can be
issued at discount. The excess of the face value of the debenture over its issue price is
considered as interest amount.
b. Specific Rate- These debentures carry a specific rate of interest which may be fixed or
floating.
→ On the basis of Registration
a. Registered Debenture- While issuing such debentures, the company maintains a record
regarding name, address and number of holding of debentures in the Register of Debenture
Holders of the company.
b. Bearer Debentures- When a company does not maintain any record of the debenture holders
and the debenture is transferable mere by delivery, then the type of the debenture held by the
Page 11 of 63 Aglasem Schools
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Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
holders is termed as Bearer Debenture. Interests on such debentures are paid to the persons
who produce the interest coupons that are attached with these debentures in a specified bank.
Page : 135 , Block Name : Long Answer Questions
Q2 Distinguish between a debenture and a share. Why is debenture known as loan capital?
Explain.
Answer.
Basis of Difference Shares Debenture
1. Owner or Creditor Share holders are the owners since Debenture holder are Creditors
shares forms a are part of owned since debentures are a part of
capital loan
2. Voting Rights Share holders have the voting Debenture holders do not have
rights any voting rights.
3. Returns Share holders are entitled for Debenture holders are entitled
returns in the form of dividend. for returns in the form of interest.
4. Rate of Return The rate of dividend is not fixed and The rate of interest is fixed and
varies from year to year. do not vary from year to year.
5. Obligations of Dividend is appropriation of profit. Interest is charged against profit,
Return Dividend will not be paid if losses interest is payable even if there
are incurred by the company is no profit.
6. Repayment of The amount of share is not returned The amount of debenture is
Amount during the life time of the company returned according to the term of
issue.
7. Issue The issue of shares at discount There are no such restrictions for
need adherence to the restrictions issuing debentures on discount.
imposed by the Section 79 of the
Company Act.
8. Conversion Shares cannot be converted into Debentures can be converted
debentures. into shares.
9. Risk Shares are more risky than If debentures are secured
debenture as these are unsecured. against asset, the risk involved is
the minimal.
10. Repayment Payment to the share holders is Payment to the debenture
Page 12 of 63 Aglasem Schools
holders is termed as Bearer Debenture. Interests on such debentures are paid to the persons
who produce the interest coupons that are attached with these debentures in a specified bank.
Page : 135 , Block Name : Long Answer Questions
Q2 Distinguish between a debenture and a share. Why is debenture known as loan capital?
Explain.
Answer.
Basis of Difference Shares Debenture
1. Owner or Creditor Share holders are the owners since Debenture holder are Creditors
shares forms a are part of owned since debentures are a part of
capital loan
2. Voting Rights Share holders have the voting Debenture holders do not have
rights any voting rights.
3. Returns Share holders are entitled for Debenture holders are entitled
returns in the form of dividend. for returns in the form of interest.
4. Rate of Return The rate of dividend is not fixed and The rate of interest is fixed and
varies from year to year. do not vary from year to year.
5. Obligations of Dividend is appropriation of profit. Interest is charged against profit,
Return Dividend will not be paid if losses interest is payable even if there
are incurred by the company is no profit.
6. Repayment of The amount of share is not returned The amount of debenture is
Amount during the life time of the company returned according to the term of
issue.
7. Issue The issue of shares at discount There are no such restrictions for
need adherence to the restrictions issuing debentures on discount.
imposed by the Section 79 of the
Company Act.
8. Conversion Shares cannot be converted into Debentures can be converted
debentures. into shares.
9. Risk Shares are more risky than If debentures are secured
debenture as these are unsecured. against asset, the risk involved is
the minimal.
10. Repayment Payment to the share holders is Payment to the debenture
Page 12 of 63 Aglasem Schools
Page 14
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Priority made after settlement of all external holders is made before the share
liabilities, i.e. after debenture holders.
holders.
Issue of debentures implies incurring long-term indebtedness. Generally, a company issues
debentures for acquiring long-term borrowings to achieve its long-run targets and growth. Like
the owner’s capital, interest is also payable on the principal amount of the debenture. The
interest paid is regarded as an expense for the company and is deductible under Income Tax
Act. Therefore, debentures are also known as loan capital because they are redeemable after a
long period of time.
Page : 135 , Block Name : Long Answer Questions
Q3 Describe the meaning of ‘Debenture Issued as Collateral Securities’. What accounting
treatment is given to the issue of debentures in the books of accounts?
Answer. The term collateral security means additional or secondary security in addition to the
primary security. Sometimes, when a company takes loan from a financial institution, then
besides the primary security, the company may issue debenture for additional security (as
collateral security). The lender who receives debenture as collateral security is not entitled for
interest on these debentures. If any default is made by the company in paying back the principal
amount (i.e. the loan amount) or interest on the loan, then the lender has the full right to recover
his/her dues from the sale of primary security. But, if the primary security is not sufficient to
recover the amount of debt, then the debentures issued as collateral may be used for recovery
of the remaining amount.
Accounting Treatment
There are two ways to record issue of debentures as collateral security:
→ No Entry
As no liability has been created so no Journal entry is recorded in the books of account. As per
the Revised Schedule-VI of the Companies Act, the issue of debenture as collateral security is
shown as a Long-Term Borrowings under the heading of Non-Current Liabilities on the Equity
and Liabilities side of the Balance Sheet. In the Notes to Accounts of Long-Term Borrowings, the
Loan so taken is shown. And in the Notes to Accounts of Cash and Cash Equivalents, the
amount of loan so received (in cash) is shown. This can be better understood with the help of
the below explained example.
Example- Suppose Best Bus Ltd. issued 4,000 9% Debentures of Rs 100 each as collateral
security to NBP bank for a loan of Rs 3,00,000.
Best Bus Ltd.
Balance Sheet
Page 13 of 63 Aglasem Schools
Priority made after settlement of all external holders is made before the share
liabilities, i.e. after debenture holders.
holders.
Issue of debentures implies incurring long-term indebtedness. Generally, a company issues
debentures for acquiring long-term borrowings to achieve its long-run targets and growth. Like
the owner’s capital, interest is also payable on the principal amount of the debenture. The
interest paid is regarded as an expense for the company and is deductible under Income Tax
Act. Therefore, debentures are also known as loan capital because they are redeemable after a
long period of time.
Page : 135 , Block Name : Long Answer Questions
Q3 Describe the meaning of ‘Debenture Issued as Collateral Securities’. What accounting
treatment is given to the issue of debentures in the books of accounts?
Answer. The term collateral security means additional or secondary security in addition to the
primary security. Sometimes, when a company takes loan from a financial institution, then
besides the primary security, the company may issue debenture for additional security (as
collateral security). The lender who receives debenture as collateral security is not entitled for
interest on these debentures. If any default is made by the company in paying back the principal
amount (i.e. the loan amount) or interest on the loan, then the lender has the full right to recover
his/her dues from the sale of primary security. But, if the primary security is not sufficient to
recover the amount of debt, then the debentures issued as collateral may be used for recovery
of the remaining amount.
Accounting Treatment
There are two ways to record issue of debentures as collateral security:
→ No Entry
As no liability has been created so no Journal entry is recorded in the books of account. As per
the Revised Schedule-VI of the Companies Act, the issue of debenture as collateral security is
shown as a Long-Term Borrowings under the heading of Non-Current Liabilities on the Equity
and Liabilities side of the Balance Sheet. In the Notes to Accounts of Long-Term Borrowings, the
Loan so taken is shown. And in the Notes to Accounts of Cash and Cash Equivalents, the
amount of loan so received (in cash) is shown. This can be better understood with the help of
the below explained example.
Example- Suppose Best Bus Ltd. issued 4,000 9% Debentures of Rs 100 each as collateral
security to NBP bank for a loan of Rs 3,00,000.
Best Bus Ltd.
Balance Sheet
Page 13 of 63 Aglasem Schools
Page 15
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Amount
Particulars Note No.
(Rs)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings 1 3,00,000
3. Current Liabilities
Total 3,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents 2 3,00,000
Total 3,00,000
NOTES TO ACCOUNTS
Amount
Note No. Particulars
(Rs)
1 Long-Term Borrowings
Loan (Secured by issue of 9% Debentures of
Rs 4,00,000 as Collateral Security)
3,00,000
2 Cash and Cash Equivalents
Cash at Bank 3,00,000
→ By Making Entry
In order to record the issue of debentures as collateral security, the following necessary Journal
entries are made in the books of account.
At the time of Issue of Debentures as Collateral Security
Page 14 of 63 Aglasem Schools
Amount
Particulars Note No.
(Rs)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings 1 3,00,000
3. Current Liabilities
Total 3,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents 2 3,00,000
Total 3,00,000
NOTES TO ACCOUNTS
Amount
Note No. Particulars
(Rs)
1 Long-Term Borrowings
Loan (Secured by issue of 9% Debentures of
Rs 4,00,000 as Collateral Security)
3,00,000
2 Cash and Cash Equivalents
Cash at Bank 3,00,000
→ By Making Entry
In order to record the issue of debentures as collateral security, the following necessary Journal
entries are made in the books of account.
At the time of Issue of Debentures as Collateral Security
Page 14 of 63 Aglasem Schools
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Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Debenture Suspense A/c Dr.
To Debenture A/c
(Debentures issued as collateral security)
In this case, as per the Revised Schedule VI of the Companies Act, Debentures so issued as
collateral security will be shown as Long-Term Borrowings under the head of Non-Current
Liabilities of the Equity and Liabilities side of the Company's Balance Sheet. Unlike Method-1, in
this method, Debentures Suspense Account is deducted from the Debentures Account in the
Notes to Accounts of Long-Term Borrowings.
Best Bus Ltd.
Balance Sheet
Amount
Particulars Note No.
(Rs)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings 1 3,00,000
3. Current Liabilities
Total 3,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents 2 3,00,000
Total 3,00,000
NOTES TO ACCOUNTS
Amount
Note No. Particulars
(Rs)
1 Long-Term Borrowings
Secured:
Loan (Secured by issue of 9% Debentures of
Page 15 of 63 Aglasem Schools
Debenture Suspense A/c Dr.
To Debenture A/c
(Debentures issued as collateral security)
In this case, as per the Revised Schedule VI of the Companies Act, Debentures so issued as
collateral security will be shown as Long-Term Borrowings under the head of Non-Current
Liabilities of the Equity and Liabilities side of the Company's Balance Sheet. Unlike Method-1, in
this method, Debentures Suspense Account is deducted from the Debentures Account in the
Notes to Accounts of Long-Term Borrowings.
Best Bus Ltd.
Balance Sheet
Amount
Particulars Note No.
(Rs)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings 1 3,00,000
3. Current Liabilities
Total 3,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents 2 3,00,000
Total 3,00,000
NOTES TO ACCOUNTS
Amount
Note No. Particulars
(Rs)
1 Long-Term Borrowings
Secured:
Loan (Secured by issue of 9% Debentures of
Page 15 of 63 Aglasem Schools
Page 17
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Rs 4,00,000 as Collateral Security) 3,00,000
9% Debentures (Issued as Collateral
Security to Bank against loan)
4,00,000
Less: Debenture Suspense Account (4,00,000) -
3,00,000
2 Cash and Cash Equivalents
Cash at Bank 3,00,000
Page : 135 , Block Name : Long Answer Questions
Q4 How is ‘Discount on Issue of Debentures’ treated in the books of accounts? How will you
deal with the ‘discount in issue of debentures’ when the debentures are to be redeemed in
instalments?
Answer. When the debentures are issued at a price below its par value or face value, then it is
said that the debentures are issued at discount. The difference between the issue price and the
face value of the debenture is regarded as a capital loss. As per the Revised Schedule VI of the
Companies Act, Discount on Issue of Debentures is shown in the Notes to Accounts:
→ With the amount that is to be written off within 12 months from the date of Balance Sheet
- Shown under Other Current Assets
→ With the amount that is to be written off after 12 months from the date of Balance Sheet -
Shown under Other Non-Current Assets
Accounting Treatment
For example, if a company has issued 10% debentures of Rs 6,00,000 at 5% discount
redeemable annually by Rs 2,00,000 each year. The total amount of discount on Rs 6,00,000
debentures @ 5% is Rs 30,000, i.e. (6,00,000 × 5/100 = Rs 30,000). The accounting treatment
for discount on issue of debentures(if it is to be written-off in 5 years) is:
Year 1: Amount to be written-off each year = 30,000 × 15=6,00030,000 × 15=6,000 - Shown
in Statement of Profit and Loss
Amount to be written-off in the next year = 6,000 - Shown as Other Current Asset
under Current Assets
Remaining Amount to be written-off after next year =
30,000 − 6,000 − 6,000= 18,00030,000 - 6,000 - 6,000= 18,000 - Shown as Other
Page 16 of 63 Aglasem Schools
Rs 4,00,000 as Collateral Security) 3,00,000
9% Debentures (Issued as Collateral
Security to Bank against loan)
4,00,000
Less: Debenture Suspense Account (4,00,000) -
3,00,000
2 Cash and Cash Equivalents
Cash at Bank 3,00,000
Page : 135 , Block Name : Long Answer Questions
Q4 How is ‘Discount on Issue of Debentures’ treated in the books of accounts? How will you
deal with the ‘discount in issue of debentures’ when the debentures are to be redeemed in
instalments?
Answer. When the debentures are issued at a price below its par value or face value, then it is
said that the debentures are issued at discount. The difference between the issue price and the
face value of the debenture is regarded as a capital loss. As per the Revised Schedule VI of the
Companies Act, Discount on Issue of Debentures is shown in the Notes to Accounts:
→ With the amount that is to be written off within 12 months from the date of Balance Sheet
- Shown under Other Current Assets
→ With the amount that is to be written off after 12 months from the date of Balance Sheet -
Shown under Other Non-Current Assets
Accounting Treatment
For example, if a company has issued 10% debentures of Rs 6,00,000 at 5% discount
redeemable annually by Rs 2,00,000 each year. The total amount of discount on Rs 6,00,000
debentures @ 5% is Rs 30,000, i.e. (6,00,000 × 5/100 = Rs 30,000). The accounting treatment
for discount on issue of debentures(if it is to be written-off in 5 years) is:
Year 1: Amount to be written-off each year = 30,000 × 15=6,00030,000 × 15=6,000 - Shown
in Statement of Profit and Loss
Amount to be written-off in the next year = 6,000 - Shown as Other Current Asset
under Current Assets
Remaining Amount to be written-off after next year =
30,000 − 6,000 − 6,000= 18,00030,000 - 6,000 - 6,000= 18,000 - Shown as Other
Page 16 of 63 Aglasem Schools
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Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Non-Current Asset under Non-Current Assets
Statement of Profit and Loss
for year ended...
S. Note
Particulars Amount
No. No.
I Revenue from Operations
II Other Income
III Total Revenue (I + II)
IV Expenses:
Amortisation Expenses (Discount on issue of
6,000
debentures written-off)
Extract of Balance Sheet
as on March 31, 2013
Note Amount
Particulars
No. (Rs)
II. Assets
1. Non-Current Assets
(e) Other Non-Current Assets 1 18,000
2. Current Assets
(f) Other Current Assets 2 6,000
NOTES TO ACCOUNTS
Note Amount
Particulars
No. (Rs)
1 Other Non-Current Assets
Discount of Issue of Debentures 18,000
Page 17 of 63 Aglasem Schools
Non-Current Asset under Non-Current Assets
Statement of Profit and Loss
for year ended...
S. Note
Particulars Amount
No. No.
I Revenue from Operations
II Other Income
III Total Revenue (I + II)
IV Expenses:
Amortisation Expenses (Discount on issue of
6,000
debentures written-off)
Extract of Balance Sheet
as on March 31, 2013
Note Amount
Particulars
No. (Rs)
II. Assets
1. Non-Current Assets
(e) Other Non-Current Assets 1 18,000
2. Current Assets
(f) Other Current Assets 2 6,000
NOTES TO ACCOUNTS
Note Amount
Particulars
No. (Rs)
1 Other Non-Current Assets
Discount of Issue of Debentures 18,000
Page 17 of 63 Aglasem Schools
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Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
2 Other Current Assets
Discount of Issue of Debentures 6,000
Year 2
Amount to be written-off = 30,000 × 15=6,00030,000 × 15=6,000 - Shown in Statement of
Profit and Loss
Amount to be written-off in the next year = 6,000 - Shown as Other Current Asset
under Current Assets
Remaining Amount to be written-off after next year =
18,000 − 6,000 = 12,00018,000 - 6,000 = 12,000 - Shown as Other Non-Current
Asset under Non-Current Assets
At the end of Year 5, the amount of discount on issue of debentures will be completely written
off.
Page : 135 , Block Name : Long Answer Questions
Q5 Explain the different terms for the issue of debentures with reference to their redemption.
Answer. The different terms for the issue of debentures with reference to their redemption can
be the combinations of at par, at premium and at discount. Normally, the debentures are not
redeemable at discount. The permutation and the combination of the various terms of issue and
redemption of debentures give rise to following six situations:
1. Issue at Par, Redeemable at Par.
2. Issue at Premium, Redeemable at Par.
3. Issue at Discount, Redeemable at Par.
4. Issue at Par, Redeemable at Premium.
5. Issue at Premium, Redeemable at Premium.
6. Issue at Discount Redeemable at Premium.
1. Issue at Par and Redeemable at Par- When the debentures are issued and are redeemed at
their face value, then the following Journal entry is passed.
Bank A/c Dr. (with the amount received)
To Debenture Application A/c (with the face value)
(Debenture Application money received)
Page 18 of 63 Aglasem Schools
2 Other Current Assets
Discount of Issue of Debentures 6,000
Year 2
Amount to be written-off = 30,000 × 15=6,00030,000 × 15=6,000 - Shown in Statement of
Profit and Loss
Amount to be written-off in the next year = 6,000 - Shown as Other Current Asset
under Current Assets
Remaining Amount to be written-off after next year =
18,000 − 6,000 = 12,00018,000 - 6,000 = 12,000 - Shown as Other Non-Current
Asset under Non-Current Assets
At the end of Year 5, the amount of discount on issue of debentures will be completely written
off.
Page : 135 , Block Name : Long Answer Questions
Q5 Explain the different terms for the issue of debentures with reference to their redemption.
Answer. The different terms for the issue of debentures with reference to their redemption can
be the combinations of at par, at premium and at discount. Normally, the debentures are not
redeemable at discount. The permutation and the combination of the various terms of issue and
redemption of debentures give rise to following six situations:
1. Issue at Par, Redeemable at Par.
2. Issue at Premium, Redeemable at Par.
3. Issue at Discount, Redeemable at Par.
4. Issue at Par, Redeemable at Premium.
5. Issue at Premium, Redeemable at Premium.
6. Issue at Discount Redeemable at Premium.
1. Issue at Par and Redeemable at Par- When the debentures are issued and are redeemed at
their face value, then the following Journal entry is passed.
Bank A/c Dr. (with the amount received)
To Debenture Application A/c (with the face value)
(Debenture Application money received)
Page 18 of 63 Aglasem Schools
Page 20
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Debenture Application A/c Dr.
To Debenture A/c
(Application money transferred to Debenture Account)
2. Issue at Premium and Redeemable at Par- When the debentures are issued at premium and
are redeemable at par, then the following Journal entry is passed. As premium is a gain for a
company so it is credited in the Journal entry.
Bank A/c Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c Dr.
To Debenture A/c
To Securities Premium A/c
(Debentures issued at premium and redeemable at par)
3. Issue at Discount and Redeemable at Par- When the debentures are issued at discount and
are redeemable at par, then the following Journal entry is passed. As discount is a loss for a
company so it is debited in the Journal entry.
Bank A/c Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c Dr.
Discount on Issue of Debenture A/c Dr.
To Debenture A/c
(Debentures issued at discount and redeemable at par)
4. Issue at Par and Redeemable at Premium- When debentures are issued at par and
redeemable at premium, then the following Journal entry is passed. In such case, the company
did not suffer any loss at the time of issue but there will be loss at the time of redemption.
Bank A/c Dr.
Page 19 of 63 Aglasem Schools
Debenture Application A/c Dr.
To Debenture A/c
(Application money transferred to Debenture Account)
2. Issue at Premium and Redeemable at Par- When the debentures are issued at premium and
are redeemable at par, then the following Journal entry is passed. As premium is a gain for a
company so it is credited in the Journal entry.
Bank A/c Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c Dr.
To Debenture A/c
To Securities Premium A/c
(Debentures issued at premium and redeemable at par)
3. Issue at Discount and Redeemable at Par- When the debentures are issued at discount and
are redeemable at par, then the following Journal entry is passed. As discount is a loss for a
company so it is debited in the Journal entry.
Bank A/c Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c Dr.
Discount on Issue of Debenture A/c Dr.
To Debenture A/c
(Debentures issued at discount and redeemable at par)
4. Issue at Par and Redeemable at Premium- When debentures are issued at par and
redeemable at premium, then the following Journal entry is passed. In such case, the company
did not suffer any loss at the time of issue but there will be loss at the time of redemption.
Bank A/c Dr.
Page 19 of 63 Aglasem Schools
Page 21
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c Dr.
Loss on Issue of Debenture A/c Dr. (with the amount of premium on
redemption)
To Debenture A/c (with the face value of the debentures)
To Premium on Redemption of Debenture (with the amount of premium on
A/c redemption)
(Debentures issued at par and redeemable at
premium)
5. Issued at Premium and Redemption at Premium- When the debentures are issued and
redeemable at premium, then the following Journal entry is passed.
Bank A/c Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c Dr.
Loss on Issue of Debenture A/c Dr. (with the amount of premium on
redemption)
To Debenture A/c (with the face value of the debentures)
To Securities Premium A/c (with the amount of premium on issue)
To Premium on Redemption of (with the amount of premium on redemption)
Debenture A/c
(Debentures issued at premium and
redeemable at
premium)
6. Issue of Discount and Redemption at Premium- When the debentures are issued at discount
and redeemable at premium, then the following Journal entry is passed.
Bank A/c Dr.
To Debenture Application A/c
(Debenture Application money received)
Page 20 of 63 Aglasem Schools
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c Dr.
Loss on Issue of Debenture A/c Dr. (with the amount of premium on
redemption)
To Debenture A/c (with the face value of the debentures)
To Premium on Redemption of Debenture (with the amount of premium on
A/c redemption)
(Debentures issued at par and redeemable at
premium)
5. Issued at Premium and Redemption at Premium- When the debentures are issued and
redeemable at premium, then the following Journal entry is passed.
Bank A/c Dr.
To Debenture Application A/c
(Debenture Application money received)
Debenture Application A/c Dr.
Loss on Issue of Debenture A/c Dr. (with the amount of premium on
redemption)
To Debenture A/c (with the face value of the debentures)
To Securities Premium A/c (with the amount of premium on issue)
To Premium on Redemption of (with the amount of premium on redemption)
Debenture A/c
(Debentures issued at premium and
redeemable at
premium)
6. Issue of Discount and Redemption at Premium- When the debentures are issued at discount
and redeemable at premium, then the following Journal entry is passed.
Bank A/c Dr.
To Debenture Application A/c
(Debenture Application money received)
Page 20 of 63 Aglasem Schools
Page 22
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Debenture Application A/c Dr.
Loss on Issue of Debenture A/c Dr. (with the amount of discount on issue plus amount
of premium on redemption)
To Debenture A/c (with the face value of the debentures)
To Premium on Redemption of (with the amount of premium on redemption)
Debenture A/c
(Debentures issued at discount and
redeemable at premium)
Page : 135 , Block Name : Long Answer Questions
Q6 Differentiate between redemption of debentures out of capital and out of profits.
Answer. Redemption of Debentures Out of Capital
When debentures are redeemed out of capital and no profits are utilised for redemption, then
such redemption is termed as redemption out of capital. In such a situation, no profits are
transferred to the Debenture Redemption Reserve (DRR).
As per the guideline laid down by Securities and Exchange Board of India (SEBI) and the
Section 117C of Company Act of 1956, the creation of DRR is mandatory (DRR). Therefore, it is
not possible to redeem debentures purely out of capital, as it reduces the value of assets. The
following companies are exempted from the creation of DRR.
→ Infrastructure companies (i.e. those companies that are engaged in the business of
developing, maintaining and operating infrastructure facilities)
→ A Company that issues debentures with a maturity up to 18 months
Redemption of Debenture Out of Profits
When debentures are redeemed out of profit then no capital is utilised for redemption. Before
redeeming the debentures profits are transferred to DRR from Profit and Loss Appropriation
Account. The creation of DRR is mandatory as per the guidelines laid down by Securities and
Exchange Board of India (SEBI). SEBI mandates transferring amount equal to 50% of
debentures issued to DRR before redeeming debentures. In this method, as profits are
transferred to the DRR Account, thereby reducing the total amount of profits, therefore this
method is termed as Redemption of Debentures Out of Profits. In this method, first of all, the
required profits are transferred from Statement of Profit and Loss to the DRR Account. The
working of which is shown in the Notes to Accounts of Reserves and Surplus (as prescribed in
Revised Schedule VI). The final balance (after considering DRR) is shown as the sub-head
Page 21 of 63 Aglasem Schools
Debenture Application A/c Dr.
Loss on Issue of Debenture A/c Dr. (with the amount of discount on issue plus amount
of premium on redemption)
To Debenture A/c (with the face value of the debentures)
To Premium on Redemption of (with the amount of premium on redemption)
Debenture A/c
(Debentures issued at discount and
redeemable at premium)
Page : 135 , Block Name : Long Answer Questions
Q6 Differentiate between redemption of debentures out of capital and out of profits.
Answer. Redemption of Debentures Out of Capital
When debentures are redeemed out of capital and no profits are utilised for redemption, then
such redemption is termed as redemption out of capital. In such a situation, no profits are
transferred to the Debenture Redemption Reserve (DRR).
As per the guideline laid down by Securities and Exchange Board of India (SEBI) and the
Section 117C of Company Act of 1956, the creation of DRR is mandatory (DRR). Therefore, it is
not possible to redeem debentures purely out of capital, as it reduces the value of assets. The
following companies are exempted from the creation of DRR.
→ Infrastructure companies (i.e. those companies that are engaged in the business of
developing, maintaining and operating infrastructure facilities)
→ A Company that issues debentures with a maturity up to 18 months
Redemption of Debenture Out of Profits
When debentures are redeemed out of profit then no capital is utilised for redemption. Before
redeeming the debentures profits are transferred to DRR from Profit and Loss Appropriation
Account. The creation of DRR is mandatory as per the guidelines laid down by Securities and
Exchange Board of India (SEBI). SEBI mandates transferring amount equal to 50% of
debentures issued to DRR before redeeming debentures. In this method, as profits are
transferred to the DRR Account, thereby reducing the total amount of profits, therefore this
method is termed as Redemption of Debentures Out of Profits. In this method, first of all, the
required profits are transferred from Statement of Profit and Loss to the DRR Account. The
working of which is shown in the Notes to Accounts of Reserves and Surplus (as prescribed in
Revised Schedule VI). The final balance (after considering DRR) is shown as the sub-head
Page 21 of 63 Aglasem Schools
Page 23
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
'Reserves and Surplus' under the main head of Shareholders' Funds on the Equity and
Liabilities side of the Company's Balance Sheet. Lastly, when all the debentures are redeemed,
then DRR account is closed by transferring its amount to the General Reserve.
Page : 135 , Block Name : Long Answer Questions
Q7 Explain the guidelines of SEBI for creating Debenture Redemption Reserve.
Answer. The following are the main points of SEBI’s guidelines for creation of Debenture
Redemption Reserve (DRR).
→ Every company that issues debentures with a maturity of more than 18 months shall
create DRR.
→ An amount equal to 50% of debenture issued shall be transferred to DRR before starting
redemption of debentures.
→ Creation of DRR is applicable only for Non-Convertible Debentures and for non-
convertible part of Partly Convertible Debentures.
→ Any withdrawal from DRR is allowed only after 10% of debentures are redeemed.
Thus, as per the SEBI’s guidelines, 50% of the debentures issued should be redeemed out of
the profits that are transferred to DRR and the remaining 50% of the debentures issued can be
redeemed either out of profits or out of capital. Hence, no company can redeem all the
debentures issued purely out of the capital.
As per the SEBI’s guidelines the following companies are exempted from the creation of DRR.
→ Infrastructure companies (i.e. those companies that are engaged in the business of
developing, maintaining and operating infrastructure facilities)
→ A Company that issues debentures with a maturity up to 18 months
Page : 135 , Block Name : Long Answer Questions
Q8 Describe the steps for creating Sinking Fund for redemption of debentures.
Answer. The various steps involved in the creation of Sinking Fund for redemption of
debentures can be better understood by the help of the example explained below.
A Company issued 10% Debentures of Rs 5,00,000 for 3 years. The investment is expected to
earn 6% p.a. The Sinking Fund table shows that 0.31411 invested annually at 6% amount to Rs
1 in 3 years.
Step 1: Calculate the amount of instalment to be required every year for investment with the
help of the Sinking Fund table. Like in the example Rs 1,57,055 (i.e. 0.31411 × 5,00,000) is
required every year.
Page 22 of 63 Aglasem Schools
'Reserves and Surplus' under the main head of Shareholders' Funds on the Equity and
Liabilities side of the Company's Balance Sheet. Lastly, when all the debentures are redeemed,
then DRR account is closed by transferring its amount to the General Reserve.
Page : 135 , Block Name : Long Answer Questions
Q7 Explain the guidelines of SEBI for creating Debenture Redemption Reserve.
Answer. The following are the main points of SEBI’s guidelines for creation of Debenture
Redemption Reserve (DRR).
→ Every company that issues debentures with a maturity of more than 18 months shall
create DRR.
→ An amount equal to 50% of debenture issued shall be transferred to DRR before starting
redemption of debentures.
→ Creation of DRR is applicable only for Non-Convertible Debentures and for non-
convertible part of Partly Convertible Debentures.
→ Any withdrawal from DRR is allowed only after 10% of debentures are redeemed.
Thus, as per the SEBI’s guidelines, 50% of the debentures issued should be redeemed out of
the profits that are transferred to DRR and the remaining 50% of the debentures issued can be
redeemed either out of profits or out of capital. Hence, no company can redeem all the
debentures issued purely out of the capital.
As per the SEBI’s guidelines the following companies are exempted from the creation of DRR.
→ Infrastructure companies (i.e. those companies that are engaged in the business of
developing, maintaining and operating infrastructure facilities)
→ A Company that issues debentures with a maturity up to 18 months
Page : 135 , Block Name : Long Answer Questions
Q8 Describe the steps for creating Sinking Fund for redemption of debentures.
Answer. The various steps involved in the creation of Sinking Fund for redemption of
debentures can be better understood by the help of the example explained below.
A Company issued 10% Debentures of Rs 5,00,000 for 3 years. The investment is expected to
earn 6% p.a. The Sinking Fund table shows that 0.31411 invested annually at 6% amount to Rs
1 in 3 years.
Step 1: Calculate the amount of instalment to be required every year for investment with the
help of the Sinking Fund table. Like in the example Rs 1,57,055 (i.e. 0.31411 × 5,00,000) is
required every year.
Page 22 of 63 Aglasem Schools
Page 24
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Step 2: The amount of instalment calculated in the above step is transferred to the Debenture
Redemption Fund (Sinking Fund) by debiting from Profit and Loss Appropriation Account.
Step 3: In the first year, the above instalment is invested to yield amount required for redemption
of debenture by debiting Debenture Redemption Fund Investment Account.
Step 4: The interest on investment is received on half yearly or annual basis. In the example,
the interest of Rs 9,423 is received on annual basis.
Step 5: The total amount of investment, i.e. interest plus instalment is invested in the
subsequent year. In the example, Rs 1,66,478 (i.e. Rs 1,57,055 + Rs 9,423) is invested in the
next year.
Step 6: Repeat the Step 2, 3, 4 for each subsequent years up to the end of the life of the
debenture. In the year of redemption, the instalment (i.e. the last instalment) will be debited to
the Profit and Loss Appropriation Account but will not be invested.
Step 7: In the year of redemption, the investment is sold off.
Step 8: The profit (loss) on the sale of the investment is transferred by debiting (crediting)
Debenture Redemption Fund Investment Account to the Debenture Redemption Fund Account.
Step 9: The payment to the debenture holder is made.
Step 10: The balance of Debenture Redemption Fund Account if any, is transferred to the
General Reserve.
Page : 135 , Block Name : Long Answer Questions
Q9 Can a company purchase its own debentures in the open market? Explain.
Answer. Yes, a company can purchase its own debentures provided it is authorised by its Article
of Association. As per the Company Act, if a company is authorised by its Article of Association,
only then it may purchase its own debentures from the open market. The main purposes of such
purchase are as follows:
→ For immediate cancellation of debenture liability, if the interest rate on its debenture is
higher than the market rate of interest.
→ A company may also purchase its own debentures with the motive of investment and sell
them at higher price in future and thereby earn profit.
A company may purchase its own debentures at discount or at premium for cancellation.
→ If Debentures are purchased at Discount for Cancellation
Page 23 of 63 Aglasem Schools
Step 2: The amount of instalment calculated in the above step is transferred to the Debenture
Redemption Fund (Sinking Fund) by debiting from Profit and Loss Appropriation Account.
Step 3: In the first year, the above instalment is invested to yield amount required for redemption
of debenture by debiting Debenture Redemption Fund Investment Account.
Step 4: The interest on investment is received on half yearly or annual basis. In the example,
the interest of Rs 9,423 is received on annual basis.
Step 5: The total amount of investment, i.e. interest plus instalment is invested in the
subsequent year. In the example, Rs 1,66,478 (i.e. Rs 1,57,055 + Rs 9,423) is invested in the
next year.
Step 6: Repeat the Step 2, 3, 4 for each subsequent years up to the end of the life of the
debenture. In the year of redemption, the instalment (i.e. the last instalment) will be debited to
the Profit and Loss Appropriation Account but will not be invested.
Step 7: In the year of redemption, the investment is sold off.
Step 8: The profit (loss) on the sale of the investment is transferred by debiting (crediting)
Debenture Redemption Fund Investment Account to the Debenture Redemption Fund Account.
Step 9: The payment to the debenture holder is made.
Step 10: The balance of Debenture Redemption Fund Account if any, is transferred to the
General Reserve.
Page : 135 , Block Name : Long Answer Questions
Q9 Can a company purchase its own debentures in the open market? Explain.
Answer. Yes, a company can purchase its own debentures provided it is authorised by its Article
of Association. As per the Company Act, if a company is authorised by its Article of Association,
only then it may purchase its own debentures from the open market. The main purposes of such
purchase are as follows:
→ For immediate cancellation of debenture liability, if the interest rate on its debenture is
higher than the market rate of interest.
→ A company may also purchase its own debentures with the motive of investment and sell
them at higher price in future and thereby earn profit.
A company may purchase its own debentures at discount or at premium for cancellation.
→ If Debentures are purchased at Discount for Cancellation
Page 23 of 63 Aglasem Schools
Page 25
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
When the company purchases its own debentures at discount for cancellation, then the
following Journal entries are recorded.
Own Debentures A/c Dr.
To Bank A/c
(Own debentures purchased)
Debentures A/c Dr. (with the face value)
To Own Debentures A/c (with the amount paid)
To Profit on Cancellation of Own (with the difference between the face value
Debentures A/c and amount paid)
(Own debentures cancelled)
Profit on Cancellation of Own Debentures A/c Dr.
To Capital Reserve A/c
(Profit on Cancellation of Own Debentures transferred to
Capital Reserve)
→ If Debentures are Purchased at Premium for Cancellation
Own Debentures A/c Dr.
To Bank A/c
(Own debentures purchased)
Debentures A/c Dr. (with the face value)
Loss on Redemption of Debentures A/c (with the difference between Amount paid
and face value)
To Own Debentures A/c
(Own Debentures cancelled)
Page : 135 , Block Name : Long Answer Questions
Q10 What is meant by conversion of debentures? Describe the method of such a conversion.
Page 24 of 63 Aglasem Schools
When the company purchases its own debentures at discount for cancellation, then the
following Journal entries are recorded.
Own Debentures A/c Dr.
To Bank A/c
(Own debentures purchased)
Debentures A/c Dr. (with the face value)
To Own Debentures A/c (with the amount paid)
To Profit on Cancellation of Own (with the difference between the face value
Debentures A/c and amount paid)
(Own debentures cancelled)
Profit on Cancellation of Own Debentures A/c Dr.
To Capital Reserve A/c
(Profit on Cancellation of Own Debentures transferred to
Capital Reserve)
→ If Debentures are Purchased at Premium for Cancellation
Own Debentures A/c Dr.
To Bank A/c
(Own debentures purchased)
Debentures A/c Dr. (with the face value)
Loss on Redemption of Debentures A/c (with the difference between Amount paid
and face value)
To Own Debentures A/c
(Own Debentures cancelled)
Page : 135 , Block Name : Long Answer Questions
Q10 What is meant by conversion of debentures? Describe the method of such a conversion.
Page 24 of 63 Aglasem Schools
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Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Answer. When a debenture holder can convert his/her debentures into shares or new
debentures after the expiry of a specified period of time, then it is known as redemption of
debentures by conversion. As the company does not need to pay any funds for the redemption,
so there is no need to maintain Debenture Redemption Reserve (DRR). The new shares or
debentures may be issued at par, premium or at discount.
If a debenture holder exercises the conversion option, then the issue price of shares must be
equal to or less than the amount actually received from debentures.
Accounting Treatment
→ For amount due to debenture holders
Debenture A/c Dr.
To Debenture holders A/c
(Debentures redeemed)
→ For discharging liability to the debenture holders
Debenture holders A/c Dr.
To Shares/Debentures (New) A/c
(Debenture holder amount discharged)
Page : 135 , Block Name : Long Answer Questions
Q1 G.Ltd. issued 75,00,000, 6% Debenture of Rs 50 each at par payable Rs 15 on application
and Rs 35 on allotment, redeemable at par after 7 years from the date of issue of debenture.
Record necessary entries in the books of Company.
Answer.
In the books of G. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 11,25,00,000
To 6% Debenture Application A/c 11,25,00,000
(Application money @ Rs 15 each received for
75,00,000 debentures)
Page 25 of 63 Aglasem Schools
Answer. When a debenture holder can convert his/her debentures into shares or new
debentures after the expiry of a specified period of time, then it is known as redemption of
debentures by conversion. As the company does not need to pay any funds for the redemption,
so there is no need to maintain Debenture Redemption Reserve (DRR). The new shares or
debentures may be issued at par, premium or at discount.
If a debenture holder exercises the conversion option, then the issue price of shares must be
equal to or less than the amount actually received from debentures.
Accounting Treatment
→ For amount due to debenture holders
Debenture A/c Dr.
To Debenture holders A/c
(Debentures redeemed)
→ For discharging liability to the debenture holders
Debenture holders A/c Dr.
To Shares/Debentures (New) A/c
(Debenture holder amount discharged)
Page : 135 , Block Name : Long Answer Questions
Q1 G.Ltd. issued 75,00,000, 6% Debenture of Rs 50 each at par payable Rs 15 on application
and Rs 35 on allotment, redeemable at par after 7 years from the date of issue of debenture.
Record necessary entries in the books of Company.
Answer.
In the books of G. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 11,25,00,000
To 6% Debenture Application A/c 11,25,00,000
(Application money @ Rs 15 each received for
75,00,000 debentures)
Page 25 of 63 Aglasem Schools
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Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
6% Debenture Application A/c Dr. 11,25,00,000
To 6% Debenture A/c 11,25,00,000
(Application money of 75,00,000 debentures
transferred to 6% Debentures Account)
6% Debenture Allotment A/c Dr. 26,25,00,000
To 6% Debenture A/c 26,25,00,000
(Allotment money @ Rs 35 each due for
75,00,000 debentures )
Bank A/c Dr. 26,25,00,000
To 6% Debenture Allotment A/c 26,25,00,000
(Allotment money received @ Rs 35 each on
75,00,000 debentures)
Page : 135 , Block Name : Numerical Questions
Q2 Y.Ltd. issued 2,000, 6% Debentures of Rs 100 each payable as follows: Rs 25 on
application; Rs 50 on allotment and Rs 25 on First and Final call.
Answer.
Books of Y Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 50,000
To 6% Debentures Application A/c 50,000
(Application money @ Rs 25 each received for 2,000
6% Debentures)
Page 26 of 63 Aglasem Schools
6% Debenture Application A/c Dr. 11,25,00,000
To 6% Debenture A/c 11,25,00,000
(Application money of 75,00,000 debentures
transferred to 6% Debentures Account)
6% Debenture Allotment A/c Dr. 26,25,00,000
To 6% Debenture A/c 26,25,00,000
(Allotment money @ Rs 35 each due for
75,00,000 debentures )
Bank A/c Dr. 26,25,00,000
To 6% Debenture Allotment A/c 26,25,00,000
(Allotment money received @ Rs 35 each on
75,00,000 debentures)
Page : 135 , Block Name : Numerical Questions
Q2 Y.Ltd. issued 2,000, 6% Debentures of Rs 100 each payable as follows: Rs 25 on
application; Rs 50 on allotment and Rs 25 on First and Final call.
Answer.
Books of Y Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 50,000
To 6% Debentures Application A/c 50,000
(Application money @ Rs 25 each received for 2,000
6% Debentures)
Page 26 of 63 Aglasem Schools
Page 28
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
6% Debenture Application A/c Dr. 50,000
To 6% Debenture A/c 50,000
(Application money on 2,000 debentures transferred to
6% Debentures Account)
6% Debenture Allotment A/c Dr. 1,00,000
To 6% Debenture A/c 1,00,000
(Debenture Allotment money @ Rs 50 each due on 2,000
6% Debentures)
Bank A/c Dr. 1,00,000
To 6% Debenture Allotment A/c 1,00,000
(Allotment money for 2,000 6% Debentures received)
6% Debenture First and Final Call A/c Dr. 50,000
To 6% Debenture A/c 50,000
(Debenture First and Final Call @ 25 each due on 2,000
6% Debentures)
Bank A/c Dr. 50,000
To 6% Debenture First and Final Call A/c 50,000
(First and Final Call for 2,000 6% Debentures received)
Page : 135 , Block Name : Numerical Questions
Q3 A.Ltd. issued 10,000, 10% Debentures of Rs 100 each at a premium of 5% payable as
follows:
Rs 10 on Application;
Page 27 of 63 Aglasem Schools
6% Debenture Application A/c Dr. 50,000
To 6% Debenture A/c 50,000
(Application money on 2,000 debentures transferred to
6% Debentures Account)
6% Debenture Allotment A/c Dr. 1,00,000
To 6% Debenture A/c 1,00,000
(Debenture Allotment money @ Rs 50 each due on 2,000
6% Debentures)
Bank A/c Dr. 1,00,000
To 6% Debenture Allotment A/c 1,00,000
(Allotment money for 2,000 6% Debentures received)
6% Debenture First and Final Call A/c Dr. 50,000
To 6% Debenture A/c 50,000
(Debenture First and Final Call @ 25 each due on 2,000
6% Debentures)
Bank A/c Dr. 50,000
To 6% Debenture First and Final Call A/c 50,000
(First and Final Call for 2,000 6% Debentures received)
Page : 135 , Block Name : Numerical Questions
Q3 A.Ltd. issued 10,000, 10% Debentures of Rs 100 each at a premium of 5% payable as
follows:
Rs 10 on Application;
Page 27 of 63 Aglasem Schools
Page 29
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Rs 20 along with premium on allotment and balance on First and Final call. Record necessary
Journal Entries.
Answer.
Books of A. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 1,00,000
To 10% Debentures Application A/c 1,00,000
(Application money received for 10,000, 10% Debenture
Application @ Rs 10 each)
10% Debentures Application A/c Dr. 1,00,000
To 10% Debenture A/c 1,00,000
(Application money @ Rs 10 each transferred to
10% Debenture Account)
10% Debenture Allotment A/c Dr. 2,50,000
To 10% Debentures A/c 2,00,000
To Securities Premium A/c 50,000
(Allotment due @ Rs 25 each including premium Rs 5 on
10,000, 10% Debentures)
Bank A/c Dr. 2,50,000
To 10% Debenture Allotment A/c 2,50,000
(Allotment money received on allotment @ Rs 25 each for
10,000 10% Debentures)
10% Debenture First and Final Call A/c Dr. 7,00,000
To 10% Debenture A/c 7,00,000
Page 28 of 63 Aglasem Schools
Rs 20 along with premium on allotment and balance on First and Final call. Record necessary
Journal Entries.
Answer.
Books of A. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 1,00,000
To 10% Debentures Application A/c 1,00,000
(Application money received for 10,000, 10% Debenture
Application @ Rs 10 each)
10% Debentures Application A/c Dr. 1,00,000
To 10% Debenture A/c 1,00,000
(Application money @ Rs 10 each transferred to
10% Debenture Account)
10% Debenture Allotment A/c Dr. 2,50,000
To 10% Debentures A/c 2,00,000
To Securities Premium A/c 50,000
(Allotment due @ Rs 25 each including premium Rs 5 on
10,000, 10% Debentures)
Bank A/c Dr. 2,50,000
To 10% Debenture Allotment A/c 2,50,000
(Allotment money received on allotment @ Rs 25 each for
10,000 10% Debentures)
10% Debenture First and Final Call A/c Dr. 7,00,000
To 10% Debenture A/c 7,00,000
Page 28 of 63 Aglasem Schools
Page 30
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
(First and Final Call @ Rs 70 each on 10,000
10% Debentures due)
Bank A/c Dr. 7,00,000
To 10% Debenture First and Final Call A/c 7,00,000
(Debenture First and Final Call received @ Rs 70 each for
10,000 10% Debentures)
Page : 136 , Block Name : Numerical Questions
Q4 A. Ltd. issued 90,00,000, 9% Debenture of Rs 50 each at a discount of 8%, redeemable at
par any time after 9 years. Record necessary entries in the books of A. Ltd.
Answer.
Books of A. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 41,40,00,000
Discount on Issue of Debenture A/c Dr. 3,60,00,000
To 9% Debenture A/c 45,00,00,000
(Money received for 90,00,000 9% Debentures
@ Rs 50 each at discount of 8%)
Alternative Method:
Bank A/c Dr. 41,40,00,000
To 9% Debentures Application A/c 41,40,00,000
(Debenture Application money received @ Rs 46
Page 29 of 63 Aglasem Schools
(First and Final Call @ Rs 70 each on 10,000
10% Debentures due)
Bank A/c Dr. 7,00,000
To 10% Debenture First and Final Call A/c 7,00,000
(Debenture First and Final Call received @ Rs 70 each for
10,000 10% Debentures)
Page : 136 , Block Name : Numerical Questions
Q4 A. Ltd. issued 90,00,000, 9% Debenture of Rs 50 each at a discount of 8%, redeemable at
par any time after 9 years. Record necessary entries in the books of A. Ltd.
Answer.
Books of A. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 41,40,00,000
Discount on Issue of Debenture A/c Dr. 3,60,00,000
To 9% Debenture A/c 45,00,00,000
(Money received for 90,00,000 9% Debentures
@ Rs 50 each at discount of 8%)
Alternative Method:
Bank A/c Dr. 41,40,00,000
To 9% Debentures Application A/c 41,40,00,000
(Debenture Application money received @ Rs 46
Page 29 of 63 Aglasem Schools
Page 31
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
each
on 90,00,000 9% Debentures)
9% Debentures Application A/c Dr. 41,40,00,000
Discount on issue of Debentures A/c Dr. 3,60,00,000
To 9% Debenture A/c 4,50,00,000
(9% Debentures application money transferred to
9% Debenture Account)
Page : 136 , Block Name : Numerical Questions
Q5 A. Ltd. issued 4,000, 9% Debentures of Rs 100 each on the following terms:
Rs 20 on Application;
Rs 20 on Allotment;
Rs 30 on First call; and
Rs 30 on Final call.
The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in
full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400
Debentures were rejected.
Answer.
In the books of A Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 96,000
To 9% Debenture Application A/c 96,000
(9% Debenture Application money received on 4,800
Debentures
@ 20 each)
Page 30 of 63 Aglasem Schools
each
on 90,00,000 9% Debentures)
9% Debentures Application A/c Dr. 41,40,00,000
Discount on issue of Debentures A/c Dr. 3,60,00,000
To 9% Debenture A/c 4,50,00,000
(9% Debentures application money transferred to
9% Debenture Account)
Page : 136 , Block Name : Numerical Questions
Q5 A. Ltd. issued 4,000, 9% Debentures of Rs 100 each on the following terms:
Rs 20 on Application;
Rs 20 on Allotment;
Rs 30 on First call; and
Rs 30 on Final call.
The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in
full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400
Debentures were rejected.
Answer.
In the books of A Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 96,000
To 9% Debenture Application A/c 96,000
(9% Debenture Application money received on 4,800
Debentures
@ 20 each)
Page 30 of 63 Aglasem Schools
Page 32
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
9% Debenture Application A/c Dr. 96,000
To 9% Debenture A/c 80,000
To 9% Debenture Allotment A/c 8,000
To Bank A/c 8,000
(9% Debenture Application money of 4000 debentures
transferred to
Debentures Account, 400 debentures rejected returned
and
remaining amount adjusted on allotment)
9% Debenture Allotment A/c Dr. 80,000
To 9% Debenture A/c 80,000
(9% Debenture Allotment due on 4,000 Debentures @
Rs 20 each)
Bank A/c Dr. 72,000
To 9% Debenture Allotment A/c 72,000
(9% Debenture Allotment money received)
9% Debenture First Call A/c Dr. 1,20,000
To 9% Debenture A/c 1,20,000
(9% Debenture First Call due on 4000 debentures @ Rs
30 each)
Bank A/c Dr. 1,20,000
To Debenture First Call A/c 1,20,000
(9% Debenture first call received for 4000 debentures
@ Rs 30 each)
9% Debenture Final Call A/c Dr. 1,20,000
To 9% Debenture A/c 1,20,000
Page 31 of 63 Aglasem Schools
9% Debenture Application A/c Dr. 96,000
To 9% Debenture A/c 80,000
To 9% Debenture Allotment A/c 8,000
To Bank A/c 8,000
(9% Debenture Application money of 4000 debentures
transferred to
Debentures Account, 400 debentures rejected returned
and
remaining amount adjusted on allotment)
9% Debenture Allotment A/c Dr. 80,000
To 9% Debenture A/c 80,000
(9% Debenture Allotment due on 4,000 Debentures @
Rs 20 each)
Bank A/c Dr. 72,000
To 9% Debenture Allotment A/c 72,000
(9% Debenture Allotment money received)
9% Debenture First Call A/c Dr. 1,20,000
To 9% Debenture A/c 1,20,000
(9% Debenture First Call due on 4000 debentures @ Rs
30 each)
Bank A/c Dr. 1,20,000
To Debenture First Call A/c 1,20,000
(9% Debenture first call received for 4000 debentures
@ Rs 30 each)
9% Debenture Final Call A/c Dr. 1,20,000
To 9% Debenture A/c 1,20,000
Page 31 of 63 Aglasem Schools
Page 33
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
(9% Debenture Final Call due on 4000 debentures
@ Rs 30 each )
Bank A/c Dr. 1,20,000
To 9% Debenture Final Call A/c 1,20,000
(9% Debenture Final Call received on 4000 debentures
@ Rs 30 each)
Page : 136 , Block Name : Numerical Questions
Q6 T. Ltd. offered 2,00,000, 8% Debenture of Rs 500 each on June 30, 2002 at a premium of
10% payable as Rs 200 on application (including premium) and balance on allotment,
redeemable at par after 8 years. But application are received for 3,00,000 debenture and the
allotment is made on pro-rata basis. All the money due on application and allotment is received.
Record necessary entries regarding issue of debenture.
Answer.
In the books of T. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 6,00,00,000
To 8% Debenture Application A/c 6,00,00,000
(8% Debenture application money received for
3,00,000
debentures @ Rs 200 each)
8% Debenture Application A/c Dr. 6,00,00,000
To 8% Debenture A/c 3,00,00,000
To 8% Debenture Allotment A/c 2,00,00,000
To Securities Premium A/c 1,00,00,000
Page 32 of 63 Aglasem Schools
(9% Debenture Final Call due on 4000 debentures
@ Rs 30 each )
Bank A/c Dr. 1,20,000
To 9% Debenture Final Call A/c 1,20,000
(9% Debenture Final Call received on 4000 debentures
@ Rs 30 each)
Page : 136 , Block Name : Numerical Questions
Q6 T. Ltd. offered 2,00,000, 8% Debenture of Rs 500 each on June 30, 2002 at a premium of
10% payable as Rs 200 on application (including premium) and balance on allotment,
redeemable at par after 8 years. But application are received for 3,00,000 debenture and the
allotment is made on pro-rata basis. All the money due on application and allotment is received.
Record necessary entries regarding issue of debenture.
Answer.
In the books of T. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 6,00,00,000
To 8% Debenture Application A/c 6,00,00,000
(8% Debenture application money received for
3,00,000
debentures @ Rs 200 each)
8% Debenture Application A/c Dr. 6,00,00,000
To 8% Debenture A/c 3,00,00,000
To 8% Debenture Allotment A/c 2,00,00,000
To Securities Premium A/c 1,00,00,000
Page 32 of 63 Aglasem Schools
Page 34
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
(8% Debenture Application money of 2,00,000
debentures @
Rs 200 each including Rs 50 premium transferred to
Debenture Account and rest of the amount adjusted
on allotment)
8% Debenture Allotment A/c Dr. 7,00,00,000
To 8% Debenture A/c 7,00,00,000
(8% Debenture allotment on 2,00,000 debentures @
Rs 350 due)
Bank A/c Dr. 5,00,00,000
To 8% Debenture Allotment A/c 5,00,00,000
(8% Debenture Allotment money received)
Page : 136 , Block Name : Numerical Questions
Q7 X.Ltd. invites application for the issue of 10,000, 14% debentures of Rs 100 each payable as
to Rs 20 on application, Rs 60 on allotment and the balance on call. The company receives
applications for 13,500 debentures, out of which applications for 8,000 debentures are allotted
in full, 5,000 only 40% and the remaining rejected. The surplus money on partially allotted
applications is utilised towards allotment. All the sums due are duly received.
Answer.
In the books of X. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 2,70,000
To 14% Debenture Application A/c 2,70,000
(14% Debenture application money for 13,500
debentures
Page 33 of 63 Aglasem Schools
(8% Debenture Application money of 2,00,000
debentures @
Rs 200 each including Rs 50 premium transferred to
Debenture Account and rest of the amount adjusted
on allotment)
8% Debenture Allotment A/c Dr. 7,00,00,000
To 8% Debenture A/c 7,00,00,000
(8% Debenture allotment on 2,00,000 debentures @
Rs 350 due)
Bank A/c Dr. 5,00,00,000
To 8% Debenture Allotment A/c 5,00,00,000
(8% Debenture Allotment money received)
Page : 136 , Block Name : Numerical Questions
Q7 X.Ltd. invites application for the issue of 10,000, 14% debentures of Rs 100 each payable as
to Rs 20 on application, Rs 60 on allotment and the balance on call. The company receives
applications for 13,500 debentures, out of which applications for 8,000 debentures are allotted
in full, 5,000 only 40% and the remaining rejected. The surplus money on partially allotted
applications is utilised towards allotment. All the sums due are duly received.
Answer.
In the books of X. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 2,70,000
To 14% Debenture Application A/c 2,70,000
(14% Debenture application money for 13,500
debentures
Page 33 of 63 Aglasem Schools
Page 35
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
@ 20 each received)
14% Debenture Application A/c Dr. 2,70,000
To 14% Debenture A/c 2,00,000
To 14% Debenture Allotment A/c 60,000
To Bank 10,000
(14% Debenture Application money of 10,000 @ Rs 20
each
transferred to 14% Debentures Account and 500
debentures
were rejected and returned and rest of the amount
adjusted
on allotment)
14% Debenture Allotment A/c Dr. 6,00,000
To 14% Debenture A/c 6,00,000
(14% Debenture Allotment money due on 10,000
debentures @
Rs 60 each)
Bank A/c Dr. 5,40,000
To 14% Debenture Allotment A/c 5,40,000
(14% Debenture Allotment money received)
14% Debenture First and Final Call A/c Dr. 2,00,000
To 14% Debenture A/c 2,00,000
(14% Debenture First and Final Call money due on
10,000
debentures @ 20 each)
Bank A/c Dr. 2,00,000
To 14% Debenture First and Final Call A/c 2,00,000
Page 34 of 63 Aglasem Schools
@ 20 each received)
14% Debenture Application A/c Dr. 2,70,000
To 14% Debenture A/c 2,00,000
To 14% Debenture Allotment A/c 60,000
To Bank 10,000
(14% Debenture Application money of 10,000 @ Rs 20
each
transferred to 14% Debentures Account and 500
debentures
were rejected and returned and rest of the amount
adjusted
on allotment)
14% Debenture Allotment A/c Dr. 6,00,000
To 14% Debenture A/c 6,00,000
(14% Debenture Allotment money due on 10,000
debentures @
Rs 60 each)
Bank A/c Dr. 5,40,000
To 14% Debenture Allotment A/c 5,40,000
(14% Debenture Allotment money received)
14% Debenture First and Final Call A/c Dr. 2,00,000
To 14% Debenture A/c 2,00,000
(14% Debenture First and Final Call money due on
10,000
debentures @ 20 each)
Bank A/c Dr. 2,00,000
To 14% Debenture First and Final Call A/c 2,00,000
Page 34 of 63 Aglasem Schools
Page 36
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
(14% Debenture First and Final Call money received on
10,000
debentures @ Rs 20 each)
Page : 136 , Block Name : Numerical Questions
Q8 R.Ltd. offered 20,00,000, 10% Debenture of Rs 200 each at a discount of 7% redeemable at
premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.
Answer.
In the books of R.Ltd
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 37,20,00,000
To 10% Debenture Application & Allotment A/c 37,20,00,000
(Debenture Application and Allotment money
received
for 20,00,000 10% Debentures @ Rs 200 each)
10% Debenture Application and Allotment A/c Dr. 37,20,00,000
Loss on Issue of Debenture A/c Dr. 3,20,00,000
Discount on Issue of Debentures A/c Dr. 2,80,00,000
To 10% Debenture A/c 40,00,00,000
To Premium on Redemption of Debentures A/c 3,20,00,000
(Allotment of 20,00,000 debenture @ Rs 200 each
at 7%
discount with the term of 8% premium on
redemption)
Page 35 of 63 Aglasem Schools
(14% Debenture First and Final Call money received on
10,000
debentures @ Rs 20 each)
Page : 136 , Block Name : Numerical Questions
Q8 R.Ltd. offered 20,00,000, 10% Debenture of Rs 200 each at a discount of 7% redeemable at
premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.
Answer.
In the books of R.Ltd
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c Dr. 37,20,00,000
To 10% Debenture Application & Allotment A/c 37,20,00,000
(Debenture Application and Allotment money
received
for 20,00,000 10% Debentures @ Rs 200 each)
10% Debenture Application and Allotment A/c Dr. 37,20,00,000
Loss on Issue of Debenture A/c Dr. 3,20,00,000
Discount on Issue of Debentures A/c Dr. 2,80,00,000
To 10% Debenture A/c 40,00,00,000
To Premium on Redemption of Debentures A/c 3,20,00,000
(Allotment of 20,00,000 debenture @ Rs 200 each
at 7%
discount with the term of 8% premium on
redemption)
Page 35 of 63 Aglasem Schools
Page 37
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Page : 136 , Block Name : Numerical Questions
Q9 M.Ltd. took over assets of Rs 9,00,00,000 and liabilities of Rs 70,00,000 of S.Ltd. and
issued 8%Debenture of Rs 100 each. Record necessary entries in the books of M. Ltd.
Answer.
In the books of M. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Sundry Assets Dr. 9,00,00,000
To Sundry Liabilities A/c 70,00,000
To S.Ltd. 8,30,00,000
(Assets and liabilities of S. Ltd. taken over)
S. Ltd. Dr. 8,30,00,000
To 8% Debenture A/c 8,30,00,000
(8,30,000 8% debentures @ 100 each issued to S
Ltd. in
consideration of assets and liabilities)
Page : 136 , Block Name : Numerical Questions
Q10 B.Ltd. purchased assets of the book value of Rs 4,00,000 and took over the liability of Rs
50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs,3,80,000,
be paid by issuing debentures of Rs 100 each.
What Journal entries will be made in the following three cases, if debentures are issued: (a) at
par; (b) at discount; (c) at premium of 10%? It was agreed that any fraction of debentures be
paid in cash.
Answer.
Case (a)
Page 36 of 63 Aglasem Schools
Page : 136 , Block Name : Numerical Questions
Q9 M.Ltd. took over assets of Rs 9,00,00,000 and liabilities of Rs 70,00,000 of S.Ltd. and
issued 8%Debenture of Rs 100 each. Record necessary entries in the books of M. Ltd.
Answer.
In the books of M. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Sundry Assets Dr. 9,00,00,000
To Sundry Liabilities A/c 70,00,000
To S.Ltd. 8,30,00,000
(Assets and liabilities of S. Ltd. taken over)
S. Ltd. Dr. 8,30,00,000
To 8% Debenture A/c 8,30,00,000
(8,30,000 8% debentures @ 100 each issued to S
Ltd. in
consideration of assets and liabilities)
Page : 136 , Block Name : Numerical Questions
Q10 B.Ltd. purchased assets of the book value of Rs 4,00,000 and took over the liability of Rs
50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs,3,80,000,
be paid by issuing debentures of Rs 100 each.
What Journal entries will be made in the following three cases, if debentures are issued: (a) at
par; (b) at discount; (c) at premium of 10%? It was agreed that any fraction of debentures be
paid in cash.
Answer.
Case (a)
Page 36 of 63 Aglasem Schools
Page 38
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
In the books of B. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Sundry Assets A/c Dr. 4,00,000
Goodwill A/c Dr. 30,000
To Sundry Liabilities A/c 50,000
To Mohan Bros. 3,80,000
(Assets and liabilities of Mohan Bros. taken over)
Mohan Bros. Dr. 3,80,000
To Debenture A/c 3,80,000
(3,800 debentures of 100 each issued to Mohan Bros. in
consideration of assets and liabilities)
Case (b)
Sundry Assets A/c Dr. 4,00,000
Goodwill A/c Dr. 30,000
To Sundry Liabilities A/c 50,000
To Mohan Bros. 3,80,000
(Assets and liabilities of Mohan Bros. taken over)
Mohan Bros. Dr. 3,80,000
Discount on Issue of Debenture A/c Dr. 42,222
To Debenture A/c 4,22,200
To Bank A/c 22
(Issued 4,222 debentures of Rs 100 each at 10% discount
Page 37 of 63 Aglasem Schools
In the books of B. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Sundry Assets A/c Dr. 4,00,000
Goodwill A/c Dr. 30,000
To Sundry Liabilities A/c 50,000
To Mohan Bros. 3,80,000
(Assets and liabilities of Mohan Bros. taken over)
Mohan Bros. Dr. 3,80,000
To Debenture A/c 3,80,000
(3,800 debentures of 100 each issued to Mohan Bros. in
consideration of assets and liabilities)
Case (b)
Sundry Assets A/c Dr. 4,00,000
Goodwill A/c Dr. 30,000
To Sundry Liabilities A/c 50,000
To Mohan Bros. 3,80,000
(Assets and liabilities of Mohan Bros. taken over)
Mohan Bros. Dr. 3,80,000
Discount on Issue of Debenture A/c Dr. 42,222
To Debenture A/c 4,22,200
To Bank A/c 22
(Issued 4,222 debentures of Rs 100 each at 10% discount
Page 37 of 63 Aglasem Schools
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Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
and balance paid in cash)
Case (c)
Sundry Assets A/c Dr. 4,00,000
Goodwill A/c Dr. 30,000
To Sundry Liabilities A/c 50,000
To Mohan Bros. 3,80,000
(Assets and liabilities of Mohan Bros. taken over)
Mohan Bros Dr. 3,80,000
To Debentures A/c 3,45,400
To Securities Premium A/c 34,540
To Bank A/c 60
(Issued of 3,454 debentures at 10% premium and balance
paid in cash)
Page : 136 , Block Name : Numerical Questions
Q11 X.Ltd. purchased a Machinery from Y for an agreed purchase consideration of Rs 4,40,000
to be satisfied by the issue of 12% debentures of Rs 100 each at a premium of Rs 10 per
debenture. Journalise the transactions.
Answer.
Books of X. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Machinery A/c Dr. 4,40,000
Page 38 of 63 Aglasem Schools
and balance paid in cash)
Case (c)
Sundry Assets A/c Dr. 4,00,000
Goodwill A/c Dr. 30,000
To Sundry Liabilities A/c 50,000
To Mohan Bros. 3,80,000
(Assets and liabilities of Mohan Bros. taken over)
Mohan Bros Dr. 3,80,000
To Debentures A/c 3,45,400
To Securities Premium A/c 34,540
To Bank A/c 60
(Issued of 3,454 debentures at 10% premium and balance
paid in cash)
Page : 136 , Block Name : Numerical Questions
Q11 X.Ltd. purchased a Machinery from Y for an agreed purchase consideration of Rs 4,40,000
to be satisfied by the issue of 12% debentures of Rs 100 each at a premium of Rs 10 per
debenture. Journalise the transactions.
Answer.
Books of X. Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Machinery A/c Dr. 4,40,000
Page 38 of 63 Aglasem Schools
Page 40
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
To Y 4,40,000
(Machinery purchased from Y)
Y Dr. 4,40,000
To 12% Debentures A/c 4,00,000
To Securities Premium A/c 40,000
(Allotted 4,000 debentures of Rs 100 each at a premium
of Rs 10 per debenture in consideration of Machinery
purchased)
Page : 137 , Block Name : Numerical Questions
Q12 X.Ltd. issued 15,000, 10% debentures of Rs 100 each. Give journal entries and the
Balance Sheet in each of the following cases:
(i) The debentures are issued at a premium of 10%;
(ii) The debentures are issued at a discount of 5%;
(iii) The debentures are issued as a collateral security to bank against a loan of Rs 12,00,000;
and
(iv) The debentures are issued to a supplier of machinery costing Rs 13,50,000.
Answer.
(i)
In the books of X. Ltd.
Journal
Debit
Credit
Date Particulars L.F. Amount
Amount Rs
Rs
Bank A/c Dr. 16,50,000
To 10% Debentures A/c 15,00,000
To Securities Premium A/c 1,50,000
(Issued 15,000, 10% debentures of Rs 100 each at
Page 39 of 63 Aglasem Schools
To Y 4,40,000
(Machinery purchased from Y)
Y Dr. 4,40,000
To 12% Debentures A/c 4,00,000
To Securities Premium A/c 40,000
(Allotted 4,000 debentures of Rs 100 each at a premium
of Rs 10 per debenture in consideration of Machinery
purchased)
Page : 137 , Block Name : Numerical Questions
Q12 X.Ltd. issued 15,000, 10% debentures of Rs 100 each. Give journal entries and the
Balance Sheet in each of the following cases:
(i) The debentures are issued at a premium of 10%;
(ii) The debentures are issued at a discount of 5%;
(iii) The debentures are issued as a collateral security to bank against a loan of Rs 12,00,000;
and
(iv) The debentures are issued to a supplier of machinery costing Rs 13,50,000.
Answer.
(i)
In the books of X. Ltd.
Journal
Debit
Credit
Date Particulars L.F. Amount
Amount Rs
Rs
Bank A/c Dr. 16,50,000
To 10% Debentures A/c 15,00,000
To Securities Premium A/c 1,50,000
(Issued 15,000, 10% debentures of Rs 100 each at
Page 39 of 63 Aglasem Schools
Page 41
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
10% premium)
X Ltd.
Balance Sheet
Amount
Particulars Note No.
(Rs)
I. Equity and Liabilities
1. Shareholders’ Funds
a. Reserves and Surplus 1 1,50,000
2. Non-Current Liabilities
a. Long-Term Borrowings 2 15,00,000
3. Current Liabilities
Total 16,50,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents 3 16,50,000
Total 16,50,000
NOTES TO ACCOUNTS
Amount
Note No. Particulars
(Rs)
1 Reserves and Surplus
Securities Premium 1,50,000
2 Long-Term Borrowings
10% Debentures (Secured) 15,00,000
Page 40 of 63 Aglasem Schools
10% premium)
X Ltd.
Balance Sheet
Amount
Particulars Note No.
(Rs)
I. Equity and Liabilities
1. Shareholders’ Funds
a. Reserves and Surplus 1 1,50,000
2. Non-Current Liabilities
a. Long-Term Borrowings 2 15,00,000
3. Current Liabilities
Total 16,50,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents 3 16,50,000
Total 16,50,000
NOTES TO ACCOUNTS
Amount
Note No. Particulars
(Rs)
1 Reserves and Surplus
Securities Premium 1,50,000
2 Long-Term Borrowings
10% Debentures (Secured) 15,00,000
Page 40 of 63 Aglasem Schools
Page 42
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
3 Cash and Cash Equivalents
Cash at Bank 16,50,000
(ii)
Bank A/c Dr. 14,25,000
Discount on Issue of Debentures A/c Dr. 75,000
To 10% Debentures 15,00,000
(Issued 15,000 10% Debenture of Rs 100 each at
5% discount)
X Ltd.
Balance Sheet
Amount
Particulars Note No.
(Rs)
I. Equity and Liabilities
1. Shareholder’s Funds
2. Non-Current Liabilities
a. Long-Term Borrowings 1 15,00,000
3. Current Liabilities
Total 15,00,000
II. Assets
1. Non-Current Assets
a. Other Non-Current Assets 2 75,000
2. Current Assets
a. Cash and Cash Equivalents 3 14,25,000
Total 15,00,000
Page 41 of 63 Aglasem Schools
3 Cash and Cash Equivalents
Cash at Bank 16,50,000
(ii)
Bank A/c Dr. 14,25,000
Discount on Issue of Debentures A/c Dr. 75,000
To 10% Debentures 15,00,000
(Issued 15,000 10% Debenture of Rs 100 each at
5% discount)
X Ltd.
Balance Sheet
Amount
Particulars Note No.
(Rs)
I. Equity and Liabilities
1. Shareholder’s Funds
2. Non-Current Liabilities
a. Long-Term Borrowings 1 15,00,000
3. Current Liabilities
Total 15,00,000
II. Assets
1. Non-Current Assets
a. Other Non-Current Assets 2 75,000
2. Current Assets
a. Cash and Cash Equivalents 3 14,25,000
Total 15,00,000
Page 41 of 63 Aglasem Schools
Page 43
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
NOTES TO ACCOUNTS
Note Amount
Particulars
No. (Rs)
1 Long-Term Borrowings
10% Debentures (Secured) 15,00,000
2 Other Non-Current Assets
Discount on Issue of Debentures 75,000
3 Cash and Cash Equivalents
Cash at Bank 14,25,000
(iii) No entry will be passed for issuing debentures as a collateral security
X Ltd.
Balance Sheet
Note Amount
Particulars
No. (Rs)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings 1 12,00,000
3. Current Liabilities
Total 12,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents 2 12,00,000
Total 12,00,000
Page 42 of 63 Aglasem Schools
NOTES TO ACCOUNTS
Note Amount
Particulars
No. (Rs)
1 Long-Term Borrowings
10% Debentures (Secured) 15,00,000
2 Other Non-Current Assets
Discount on Issue of Debentures 75,000
3 Cash and Cash Equivalents
Cash at Bank 14,25,000
(iii) No entry will be passed for issuing debentures as a collateral security
X Ltd.
Balance Sheet
Note Amount
Particulars
No. (Rs)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long-Term Borrowings 1 12,00,000
3. Current Liabilities
Total 12,00,000
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents 2 12,00,000
Total 12,00,000
Page 42 of 63 Aglasem Schools
Page 44
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
NOTES TO ACCOUNTS
Note Amount
Particulars
No. (Rs)
1 Long-Term Borrowings
Bank Loan (Secured against issue Debentures of Rs
12,00,000)
12,00,000
2 Cash and Cash Equivalents
Cash at Bank 12,00,000
Alternative Method
Debenture Suspense A/c Dr. 15,00,000
To 10% Debentures A/c 15,00,000
(Issued 15,000 10% Debentures of Rs 100 each as
collateral security to bank against a loan of Rs 12,00,000)
X Ltd.
Balance Sheet
Note Amount
Particulars
No. (Rs)
I. Equity and Liabilities
1. Shareholders’ Fund
2. Non-Current Liabilities
a. Long-Term Borrowings 1 12,00,000
3. Current Liabilities
Total 12,00,000
Page 43 of 63 Aglasem Schools
NOTES TO ACCOUNTS
Note Amount
Particulars
No. (Rs)
1 Long-Term Borrowings
Bank Loan (Secured against issue Debentures of Rs
12,00,000)
12,00,000
2 Cash and Cash Equivalents
Cash at Bank 12,00,000
Alternative Method
Debenture Suspense A/c Dr. 15,00,000
To 10% Debentures A/c 15,00,000
(Issued 15,000 10% Debentures of Rs 100 each as
collateral security to bank against a loan of Rs 12,00,000)
X Ltd.
Balance Sheet
Note Amount
Particulars
No. (Rs)
I. Equity and Liabilities
1. Shareholders’ Fund
2. Non-Current Liabilities
a. Long-Term Borrowings 1 12,00,000
3. Current Liabilities
Total 12,00,000
Page 43 of 63 Aglasem Schools
Page 45
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents 2 12,00,000
Total 12,00,000
NOTES TO ACCOUNTS
Note Amount
Particulars
No. (Rs)
1 Long Term Borrowings
Secured:
Bank Loan 12,00,000
10 % Debentures (Secured against 15,00,000
issue of Debentures of Rs 12,00,000)
Less: Debenture Suspense Account 15,00,000 -
12,00,000
2 Cash and Cash Equivalents
Cash at Bank 12,00,000
(iv)
Machinery A/c Dr. 13,50,000
To Vendor A/c 13,50,000
(Machinery purchased from vendor)
Vendor A/c Dr. 13,50,000
Discount on Issue of Debentures A/c Dr. 1,50,000
Page 44 of 63 Aglasem Schools
II. Assets
1. Non-Current Assets
2. Current Assets
a. Cash and Cash Equivalents 2 12,00,000
Total 12,00,000
NOTES TO ACCOUNTS
Note Amount
Particulars
No. (Rs)
1 Long Term Borrowings
Secured:
Bank Loan 12,00,000
10 % Debentures (Secured against 15,00,000
issue of Debentures of Rs 12,00,000)
Less: Debenture Suspense Account 15,00,000 -
12,00,000
2 Cash and Cash Equivalents
Cash at Bank 12,00,000
(iv)
Machinery A/c Dr. 13,50,000
To Vendor A/c 13,50,000
(Machinery purchased from vendor)
Vendor A/c Dr. 13,50,000
Discount on Issue of Debentures A/c Dr. 1,50,000
Page 44 of 63 Aglasem Schools
Page 46
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
To 10% Debenture A/c 15,00,000
(15,000 10% Debentures @ Rs 100 each issued at
10% discount to the vendor in consideration of
Machinery of Rs 13,50,000)
X Ltd.
Balance Sheet
Amount
Particulars Note No.
(Rs)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long Term Borrowings 1 15,00,000
3. Current Liabilities
Total 15,00,000
II. Assets
1. Non-Current Assets
a. Fixed Assets
i. Tangible Assets 2 13,50,000
b. Other Non-Current Assets 3 1,50,000
2. Current Assets
Total 15,00,000
NOTES TO ACCOUNTS
Amount
Note No. Particulars
(Rs)
1 Long Term Borrowings
Page 45 of 63 Aglasem Schools
To 10% Debenture A/c 15,00,000
(15,000 10% Debentures @ Rs 100 each issued at
10% discount to the vendor in consideration of
Machinery of Rs 13,50,000)
X Ltd.
Balance Sheet
Amount
Particulars Note No.
(Rs)
I. Equity and Liabilities
1. Shareholders’ Funds
2. Non-Current Liabilities
a. Long Term Borrowings 1 15,00,000
3. Current Liabilities
Total 15,00,000
II. Assets
1. Non-Current Assets
a. Fixed Assets
i. Tangible Assets 2 13,50,000
b. Other Non-Current Assets 3 1,50,000
2. Current Assets
Total 15,00,000
NOTES TO ACCOUNTS
Amount
Note No. Particulars
(Rs)
1 Long Term Borrowings
Page 45 of 63 Aglasem Schools
Page 47
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
10% Debentures (Secured) 15,00,000
2 Tangible Assets
Plant and Machinery 13,50,000
3 Other Non-Current Assets
Discount on Issue of Debentures 1,50,000
Page : 137 , Block Name : Numerical Questions
Q13 Journalise the following:
(i) A debenture issued at Rs 95, repayable at Rs 100;
(ii) A debenture issued at Rs 95, repayable at Rs 105; and
(iii) A debenture issued at Rs 100, repayable at Rs 105;
The face value of debenture in each of the above cases is Rs 100.
Answer.
Debit Credit
S.No. Particulars L.F. Amount Amount
Rs Rs
(i) Bank A/c Dr. 95
Discount on Issue of Debenture A/c Dr. 5
To Debenture A/c 100
(Debenture of Rs 100 issued at Rs 5 discount
with the term repayable at Rs 100)
(ii) Bank A/c Dr. 95
Loss on Issue of Debenture A/c Dr. 10
To Debenture A/c 100
To Premium on Redemption of Debentures 5
Page 46 of 63 Aglasem Schools
10% Debentures (Secured) 15,00,000
2 Tangible Assets
Plant and Machinery 13,50,000
3 Other Non-Current Assets
Discount on Issue of Debentures 1,50,000
Page : 137 , Block Name : Numerical Questions
Q13 Journalise the following:
(i) A debenture issued at Rs 95, repayable at Rs 100;
(ii) A debenture issued at Rs 95, repayable at Rs 105; and
(iii) A debenture issued at Rs 100, repayable at Rs 105;
The face value of debenture in each of the above cases is Rs 100.
Answer.
Debit Credit
S.No. Particulars L.F. Amount Amount
Rs Rs
(i) Bank A/c Dr. 95
Discount on Issue of Debenture A/c Dr. 5
To Debenture A/c 100
(Debenture of Rs 100 issued at Rs 5 discount
with the term repayable at Rs 100)
(ii) Bank A/c Dr. 95
Loss on Issue of Debenture A/c Dr. 10
To Debenture A/c 100
To Premium on Redemption of Debentures 5
Page 46 of 63 Aglasem Schools
Page 48
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
(Debenture of Rs 100 issued at a discount of
Rs 5 and with the term repayable at Rs 105)
(iii) Bank A/c Dr. 100
Loss on Issue of Debenture A/c Dr. 5
To Debenture A/c 100
To Premium on Redemption of Debenture A/c 5
(Debenture of Rs 100 issued with the term
repayable at Rs 105)
Page : 137 , Block Name : Numerical Questions
Q14 A.Ltd. issued 50,00,000, 8% Debenture of Rs 100 at a discount of 6% on April 01, 2009
redeemable at premium of 4% by draw of lots as under:
20,00,000 Debentures on March, 2011
10,00,000 Debentures on March, 2013
20,00,000 Debentures on March, 2014
Compute the amount of discount to be written-off in each year till debentures are paid. Also
prepare discount/loss on issue of debenture account.
Answer.
Loss on issue of debenture = 6% (discount on issue) + 4% (premium on redemption) = 10%
= 50,00,000 × 100 × 10/100 = 5,00,00,000
At the end of Debenture Outstanding Ratio Loss to be written off every year
March 2010 50,00,00,000 5 = 1,38,88,889
March 2011 50,00,00,000 5 = 1,38,88,889
March 2012 30,00,00,000 3 = 83,33,333
Page 47 of 63 Aglasem Schools
(Debenture of Rs 100 issued at a discount of
Rs 5 and with the term repayable at Rs 105)
(iii) Bank A/c Dr. 100
Loss on Issue of Debenture A/c Dr. 5
To Debenture A/c 100
To Premium on Redemption of Debenture A/c 5
(Debenture of Rs 100 issued with the term
repayable at Rs 105)
Page : 137 , Block Name : Numerical Questions
Q14 A.Ltd. issued 50,00,000, 8% Debenture of Rs 100 at a discount of 6% on April 01, 2009
redeemable at premium of 4% by draw of lots as under:
20,00,000 Debentures on March, 2011
10,00,000 Debentures on March, 2013
20,00,000 Debentures on March, 2014
Compute the amount of discount to be written-off in each year till debentures are paid. Also
prepare discount/loss on issue of debenture account.
Answer.
Loss on issue of debenture = 6% (discount on issue) + 4% (premium on redemption) = 10%
= 50,00,000 × 100 × 10/100 = 5,00,00,000
At the end of Debenture Outstanding Ratio Loss to be written off every year
March 2010 50,00,00,000 5 = 1,38,88,889
March 2011 50,00,00,000 5 = 1,38,88,889
March 2012 30,00,00,000 3 = 83,33,333
Page 47 of 63 Aglasem Schools
Page 49
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
March 2013 30,00,00,000 3 = 83,33,333
March 2014 20,00,00,000 2 = 55,55,556
18 Rs 5,00,00,000
Loss on Issue of Debenture Account
Dr. Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
Rs Rs
2009 Debenture 5,00,00,000 2010 Profit and Loss 1,38,88,889
April March
01 31
Balance c/d 3,61,11,111
5,00,00,000 5,00,00,000
2010 Balance b/d 3,61,11,111 2011 Profit and Loss 1,38,88,889
April March
01 31
Balance c/d 2,22,22,222
3,61,11,111 3,61,11,111
2011 Balance b/d 2,22,22,222 2012 Profit and Loss 83,33,333
April March
01 31
Balance c/d 1,38,88,889
2,22,22,222 2,22,22,222
2012 Balance b/d 1,38,88,889 2013 Profit and Loss 83,33,333
April March
01 31
Page 48 of 63 Aglasem Schools
March 2013 30,00,00,000 3 = 83,33,333
March 2014 20,00,00,000 2 = 55,55,556
18 Rs 5,00,00,000
Loss on Issue of Debenture Account
Dr. Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
Rs Rs
2009 Debenture 5,00,00,000 2010 Profit and Loss 1,38,88,889
April March
01 31
Balance c/d 3,61,11,111
5,00,00,000 5,00,00,000
2010 Balance b/d 3,61,11,111 2011 Profit and Loss 1,38,88,889
April March
01 31
Balance c/d 2,22,22,222
3,61,11,111 3,61,11,111
2011 Balance b/d 2,22,22,222 2012 Profit and Loss 83,33,333
April March
01 31
Balance c/d 1,38,88,889
2,22,22,222 2,22,22,222
2012 Balance b/d 1,38,88,889 2013 Profit and Loss 83,33,333
April March
01 31
Page 48 of 63 Aglasem Schools
Page 50
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Balance c/d 55,55,556
1,38,88,889 1,38,88,889
2013 Balance b/d 55,55,556 2014 Profit and Loss 55,55,556
April March
01 31
55,55,556 55,55,556
Page : 137 , Block Name : Numerical Questions
Q15 A company issues the following debentures:
(i) 10,000, 12% debentures of Rs 100 each at par but redeemable at premium of 5% after 5
years;
(ii) 10,000, 12% debentures of Rs 100 each at a discount of 10% but redeemable at par after 5
years;
(iii) 5,000, 12% debentures of Rs 1,000 each at a premium of 5% but redeemable at par after 5
years;
(iv) 1,000, 12% debentures of Rs 100 each issued to a supplier of machinery costing Rs 95,000.
The debentures are repayable after 5 years; and
(v) 300, 12% debentures of Rs 100 each as a collateral security to a bank which has advanced
a loan of Rs 25,000 to the company for a period of 5 years.
Pass the journal entries to record the: (a) issue of debentures; and (b) repayment of debentures
after the given period.
Answer.
In the books of …………..
Journal
a)
Issue of Debentures
Debit Credit
S. Particulars L.F. Amount Amount
No. Rs Rs
Page 49 of 63 Aglasem Schools
Balance c/d 55,55,556
1,38,88,889 1,38,88,889
2013 Balance b/d 55,55,556 2014 Profit and Loss 55,55,556
April March
01 31
55,55,556 55,55,556
Page : 137 , Block Name : Numerical Questions
Q15 A company issues the following debentures:
(i) 10,000, 12% debentures of Rs 100 each at par but redeemable at premium of 5% after 5
years;
(ii) 10,000, 12% debentures of Rs 100 each at a discount of 10% but redeemable at par after 5
years;
(iii) 5,000, 12% debentures of Rs 1,000 each at a premium of 5% but redeemable at par after 5
years;
(iv) 1,000, 12% debentures of Rs 100 each issued to a supplier of machinery costing Rs 95,000.
The debentures are repayable after 5 years; and
(v) 300, 12% debentures of Rs 100 each as a collateral security to a bank which has advanced
a loan of Rs 25,000 to the company for a period of 5 years.
Pass the journal entries to record the: (a) issue of debentures; and (b) repayment of debentures
after the given period.
Answer.
In the books of …………..
Journal
a)
Issue of Debentures
Debit Credit
S. Particulars L.F. Amount Amount
No. Rs Rs
Page 49 of 63 Aglasem Schools
Page 51
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
(i) Bank A/c Dr. 10,00,000
To 12% Debenture Application A/c 10,00,000
(Debenture Application money of 10,000 12%
debentures
@ 100 each received)
12% Debenture Application A/c Dr. 10,00,000
Loss on Issue of Debenture A/c Dr. 50,000
To 12% Debenture A/c 10,00,000
To Premium on Redemption of Debenture A/c 50,000
(Debenture Application money of 10,000 12%
debentures @ Rs 100 each transferred to 12%
Debentures Account and the Debentures are issued with
term of repayable at 5% premium)
(ii) Bank A/c Dr. 9,00,000
To Debenture Application and Allotment A/c 9,00,000
(Debenture Application money received excluding
discount on issue)
12% Debenture Application & Allotment A/c Dr. 9,00,000
Discount on Issue of Debenture A/c Dr. 1,00,000
To Debentures A/c 10,00,000
(Debenture Allotment made due)
(iii) Bank A/c Dr. 52,50,000
To Debenture Application and Allotment A/c 52,50,000
(Debenture Application money received)
Debenture Application and Allotment A/c Dr. 52,50,000
To Debenture A/c 50,00,000
To Security Premium A/c 2,50,000
(Allotment of debenture at premium)
Page 50 of 63 Aglasem Schools
(i) Bank A/c Dr. 10,00,000
To 12% Debenture Application A/c 10,00,000
(Debenture Application money of 10,000 12%
debentures
@ 100 each received)
12% Debenture Application A/c Dr. 10,00,000
Loss on Issue of Debenture A/c Dr. 50,000
To 12% Debenture A/c 10,00,000
To Premium on Redemption of Debenture A/c 50,000
(Debenture Application money of 10,000 12%
debentures @ Rs 100 each transferred to 12%
Debentures Account and the Debentures are issued with
term of repayable at 5% premium)
(ii) Bank A/c Dr. 9,00,000
To Debenture Application and Allotment A/c 9,00,000
(Debenture Application money received excluding
discount on issue)
12% Debenture Application & Allotment A/c Dr. 9,00,000
Discount on Issue of Debenture A/c Dr. 1,00,000
To Debentures A/c 10,00,000
(Debenture Allotment made due)
(iii) Bank A/c Dr. 52,50,000
To Debenture Application and Allotment A/c 52,50,000
(Debenture Application money received)
Debenture Application and Allotment A/c Dr. 52,50,000
To Debenture A/c 50,00,000
To Security Premium A/c 2,50,000
(Allotment of debenture at premium)
Page 50 of 63 Aglasem Schools
Page 52
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
(iv) Machinery A/c Dr. 95,000
To Vender A/c 95,000
(Machinery purchased from supplier)
Vender A/c Dr. 95,000
Discount on Issue of Debenture Dr. 5,000
To 12% Debenture A/c 1,00,000
(Debenture issue at discount to vender of machinery)
(v) 12% Debenture Suspense A/c Dr. 30,000
To Debenture A/c 30,000
(300, 12% Debentures of Rs 100 each issued as
collateral
security to the bank against a loan of Rs 25,000)
b)
Repayment of Debentures
Debit Credit
Particulars L.F. Amount Amount
S.No.
Rs Rs
(i) 12% Debentures A/c Dr. 10,00,000
Premium on Redemption of Debenture A/c Dr. 50,000
To Debenture Holders A/c 10,50,000
(Amount due on redemption of debentures)
Debenture Holders A/c Dr. 10,50,000
To Bank A/c 10,50,000
(Payment made to Debenture Holders)
Page 51 of 63 Aglasem Schools
(iv) Machinery A/c Dr. 95,000
To Vender A/c 95,000
(Machinery purchased from supplier)
Vender A/c Dr. 95,000
Discount on Issue of Debenture Dr. 5,000
To 12% Debenture A/c 1,00,000
(Debenture issue at discount to vender of machinery)
(v) 12% Debenture Suspense A/c Dr. 30,000
To Debenture A/c 30,000
(300, 12% Debentures of Rs 100 each issued as
collateral
security to the bank against a loan of Rs 25,000)
b)
Repayment of Debentures
Debit Credit
Particulars L.F. Amount Amount
S.No.
Rs Rs
(i) 12% Debentures A/c Dr. 10,00,000
Premium on Redemption of Debenture A/c Dr. 50,000
To Debenture Holders A/c 10,50,000
(Amount due on redemption of debentures)
Debenture Holders A/c Dr. 10,50,000
To Bank A/c 10,50,000
(Payment made to Debenture Holders)
Page 51 of 63 Aglasem Schools
Page 53
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
(ii) 12% Debenture A/c Dr. 10,00,000
To Debenture Holders A/c 10,00,000
(Amount due on redemption of debentures)
Debenture Holders A/c Dr. 10,00,000
To Bank A/c 10,00,000
(Payment made to Debenture Holders)
(iii) 12% Debenture A/c Dr. 50,00,000
To Debenture Holders A/c 50,00,000
(Amount due on redemption of debentures)
Debenture Holders A/c Dr. 50,00,000
To Bank A/c 50,00,000
(Payment made to Debenture Holders)
(iv) 12% Debenture A/c Dr. 1,00,000
To Vender A/c 1,00,000
(Amount due to vender)
Vender A/c Dr. 1,00,000
To Bank 1,00,000
(Payment made to vender)
(v) 12% Debenture A/c Dr. 30,000
To Debenture Suspense A/c 30,000
(Debenture and debenture Suspense Account closed)
Page : 137 , Block Name : Numerical Questions
Page 52 of 63 Aglasem Schools
(ii) 12% Debenture A/c Dr. 10,00,000
To Debenture Holders A/c 10,00,000
(Amount due on redemption of debentures)
Debenture Holders A/c Dr. 10,00,000
To Bank A/c 10,00,000
(Payment made to Debenture Holders)
(iii) 12% Debenture A/c Dr. 50,00,000
To Debenture Holders A/c 50,00,000
(Amount due on redemption of debentures)
Debenture Holders A/c Dr. 50,00,000
To Bank A/c 50,00,000
(Payment made to Debenture Holders)
(iv) 12% Debenture A/c Dr. 1,00,000
To Vender A/c 1,00,000
(Amount due to vender)
Vender A/c Dr. 1,00,000
To Bank 1,00,000
(Payment made to vender)
(v) 12% Debenture A/c Dr. 30,000
To Debenture Suspense A/c 30,000
(Debenture and debenture Suspense Account closed)
Page : 137 , Block Name : Numerical Questions
Page 52 of 63 Aglasem Schools
Page 54
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Q16 A company issued debentures of the face value of Rs 5,00,000 at a discount of 6% on April
01, 2012. These debentures are redeemable by annual drawings of Rs,1,00,000 made on
March 31 each year. The directors decided to write off discount based on the debentures
outstanding each year.
Calculate the amount of discount to be written-off each year. Give journal entries also.
Answer.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
2012
Apr 1 Bank A/c Dr. 4,70,000
To Debenture Application and Allotment A/c 4,70,000
(Debenture Application money received)
Apr 1 Debenture Application and Allotment A/c Dr. 4,70,000
Discount on Issue of Debenture A/c Dr. 30,000
To Debentures A/c 5,00,000
(Debenture Application money transferred to
Debenture Account)
Amount of discount on the issue of debentures = 5,00,000 × 6/100 = 30000
Assuming that the amount of discount on issue of debentures is to be written off in 5 years.
Year Debenture outstanding Ratio Amount written off
2012 5,00,000 5 = 10,000
2013 4,00,000 4 = 8,000
2014 3,00,000 3 = 6,000
Page 53 of 63 Aglasem Schools
Q16 A company issued debentures of the face value of Rs 5,00,000 at a discount of 6% on April
01, 2012. These debentures are redeemable by annual drawings of Rs,1,00,000 made on
March 31 each year. The directors decided to write off discount based on the debentures
outstanding each year.
Calculate the amount of discount to be written-off each year. Give journal entries also.
Answer.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
2012
Apr 1 Bank A/c Dr. 4,70,000
To Debenture Application and Allotment A/c 4,70,000
(Debenture Application money received)
Apr 1 Debenture Application and Allotment A/c Dr. 4,70,000
Discount on Issue of Debenture A/c Dr. 30,000
To Debentures A/c 5,00,000
(Debenture Application money transferred to
Debenture Account)
Amount of discount on the issue of debentures = 5,00,000 × 6/100 = 30000
Assuming that the amount of discount on issue of debentures is to be written off in 5 years.
Year Debenture outstanding Ratio Amount written off
2012 5,00,000 5 = 10,000
2013 4,00,000 4 = 8,000
2014 3,00,000 3 = 6,000
Page 53 of 63 Aglasem Schools
Page 55
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
2015 2,00,000 2 = 4,000
2016 1,00,000 1 = 2,000
15 30,000
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
2013
Mar 31 Profit and Loss A/c Dr. 10,000
To Discount on Issue of Debentures A/c 10,000
(Discount on issue of debentures written off)
2014
Mar 31 Profit and Loss A/c Dr. 8,000
To Discount on Issue of Debentures A/c 8,000
(Discount on issue of debentures written off)
2015
Mar 31 Profit and Loss A/c Dr. 6,000
To Discount on Issue of Debenture A/c 6,000
(Discount on issue of debentures written off)
2016
Mar 31 Profit and Loss A/c Dr. 4,000
To Discount on issue of Debentures A/c 4,000
(Discount on issue of debenture written off)
2017
Page 54 of 63 Aglasem Schools
2015 2,00,000 2 = 4,000
2016 1,00,000 1 = 2,000
15 30,000
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
2013
Mar 31 Profit and Loss A/c Dr. 10,000
To Discount on Issue of Debentures A/c 10,000
(Discount on issue of debentures written off)
2014
Mar 31 Profit and Loss A/c Dr. 8,000
To Discount on Issue of Debentures A/c 8,000
(Discount on issue of debentures written off)
2015
Mar 31 Profit and Loss A/c Dr. 6,000
To Discount on Issue of Debenture A/c 6,000
(Discount on issue of debentures written off)
2016
Mar 31 Profit and Loss A/c Dr. 4,000
To Discount on issue of Debentures A/c 4,000
(Discount on issue of debenture written off)
2017
Page 54 of 63 Aglasem Schools
Page 56
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Mar 31 Profit and Loss A/c Dr. 2,000
To Discount on Issue of Debenture A/c 2,000
(Discount on issue of debenture written off)
Page : 137 , Block Name : Numerical Questions
Q17 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.
In the books of……………
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
2011 Bank A/c Dr. 1,12,800
Apr. 01
To Debenture Application and Allotment A/c 1,12,800
(Debentures Application Money received)
Apr. 01 Debentures Application and Allotment Dr. 1,12,800
A/c
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 Profit and Loss A/c Dr. 1,800
Page 55 of 63 Aglasem Schools
Mar 31 Profit and Loss A/c Dr. 2,000
To Discount on Issue of Debenture A/c 2,000
(Discount on issue of debenture written off)
Page : 137 , Block Name : Numerical Questions
Q17 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.
In the books of……………
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
2011 Bank A/c Dr. 1,12,800
Apr. 01
To Debenture Application and Allotment A/c 1,12,800
(Debentures Application Money received)
Apr. 01 Debentures Application and Allotment Dr. 1,12,800
A/c
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 Profit and Loss A/c Dr. 1,800
Page 55 of 63 Aglasem Schools
Page 57
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Mar.
31
To Discount on Issue of Debentures A/c 1,800
(Discount on issue of debenture written off)
2013 Profit and Loss A/c Dr. 1,800
Mar.
31
To Discount on Issue of Debenture A/c 1,800
(Discount on issue of debenture written off)
2014 Profit and Loss A/c Dr. 1,800
Mar.
31
To Discount on Issue of Debenture A/c 1,800
(Discount on issue of debenture written off)
2015
Mar. Profit and Loss A/c Dr. 1,200
31
To Discount on Issue of Debentures A/c 1,200
(Discount on issue of debenture written off)
2016
Mar. Profit and Loss A/c Dr. 600
31
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 Date Particulars J.F. Amount
Page 56 of 63 Aglasem Schools
Mar.
31
To Discount on Issue of Debentures A/c 1,800
(Discount on issue of debenture written off)
2013 Profit and Loss A/c Dr. 1,800
Mar.
31
To Discount on Issue of Debenture A/c 1,800
(Discount on issue of debenture written off)
2014 Profit and Loss A/c Dr. 1,800
Mar.
31
To Discount on Issue of Debenture A/c 1,800
(Discount on issue of debenture written off)
2015
Mar. Profit and Loss A/c Dr. 1,200
31
To Discount on Issue of Debentures A/c 1,200
(Discount on issue of debenture written off)
2016
Mar. Profit and Loss A/c Dr. 600
31
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 Date Particulars J.F. Amount
Page 56 of 63 Aglasem Schools
Page 58
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Rs Rs
2011 10% Debentures 7,200 2012 Profit and Loss 1,800
Apr. 01 Mar.
31
Balance c/d 5,400
7,200 7,200
2012 Balance b/d 5,400 2013 Profit and Loss 1,800
Apr. 01 Mar.
31
Balance c/d 3,600
5,400 5,400
2013 Balance b/d 3,600 2014 Profit and Loss 1,800
Apr. 01 Mar.
31
Balance c/d 1,800
3,600 3,600
2014 Balance b/d 1,800 2015 Profit and Loss 1,200
Apr. 01 Mar.
31
Balance c/d 600
1,800 1,800
2015 Balance b/d 600 2016 Profit and Loss 600
Apr. 01 Mar 31
600 600
i) Working Note:
Amount of Discount on Issue of Debenture=1,20,000*6/100=7200
Page 57 of 63 Aglasem Schools
Rs Rs
2011 10% Debentures 7,200 2012 Profit and Loss 1,800
Apr. 01 Mar.
31
Balance c/d 5,400
7,200 7,200
2012 Balance b/d 5,400 2013 Profit and Loss 1,800
Apr. 01 Mar.
31
Balance c/d 3,600
5,400 5,400
2013 Balance b/d 3,600 2014 Profit and Loss 1,800
Apr. 01 Mar.
31
Balance c/d 1,800
3,600 3,600
2014 Balance b/d 1,800 2015 Profit and Loss 1,200
Apr. 01 Mar.
31
Balance c/d 600
1,800 1,800
2015 Balance b/d 600 2016 Profit and Loss 600
Apr. 01 Mar 31
600 600
i) Working Note:
Amount of Discount on Issue of Debenture=1,20,000*6/100=7200
Page 57 of 63 Aglasem Schools
Page 59
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Year Debenture Ratio Amount written off every year
Outstanding
2011-
1,20,000 3 = 1,800
12
2012-
1,20,000 3 = 1,800
13
2013-
1,20,000 3 = 1,800
14
2014-
80,000 2 = 1,200
15
2015-
40,000 1 = 600
16
12 Rs 7,200
Page : 138 , Block Name : Numerical Questions
Q18 B.Ltd. issued debentures at 94% for Rs 4,00,000 on April 01, 2011 repayable by five equal
drawings of Rs 80,000 each. The company prepares its final accounts on March 31* every year.
Indicate the amount of discount to be written-off every accounting year assuming that the
company decides to write off the debentures discount during the life of debentures. (Amount to
be written-off: 2011 Rs 6,000; 2012 Rs 6,800; 2013 Rs 5,200; 2014 Rs 3,600; 2015 Rs 2,000;
2016 Rs 400).
*It should be December 31
Answer.
Debentures issued = 400000 @ 94%
Discount on debentures = 6%
Amount of discount on issue of debentures = 400000 × 6/100 = 24000
Amount of discount to written off every year
In 2011 = Rs 6,000
In 2012 = 2,000 + 4,800 = Rs 6,800
In 2013 = 1,600 + 3,600 = Rs 5,200
In 2014 = 1,200 + 2,400 = Rs 3,600
Page 58 of 63 Aglasem Schools
Year Debenture Ratio Amount written off every year
Outstanding
2011-
1,20,000 3 = 1,800
12
2012-
1,20,000 3 = 1,800
13
2013-
1,20,000 3 = 1,800
14
2014-
80,000 2 = 1,200
15
2015-
40,000 1 = 600
16
12 Rs 7,200
Page : 138 , Block Name : Numerical Questions
Q18 B.Ltd. issued debentures at 94% for Rs 4,00,000 on April 01, 2011 repayable by five equal
drawings of Rs 80,000 each. The company prepares its final accounts on March 31* every year.
Indicate the amount of discount to be written-off every accounting year assuming that the
company decides to write off the debentures discount during the life of debentures. (Amount to
be written-off: 2011 Rs 6,000; 2012 Rs 6,800; 2013 Rs 5,200; 2014 Rs 3,600; 2015 Rs 2,000;
2016 Rs 400).
*It should be December 31
Answer.
Debentures issued = 400000 @ 94%
Discount on debentures = 6%
Amount of discount on issue of debentures = 400000 × 6/100 = 24000
Amount of discount to written off every year
In 2011 = Rs 6,000
In 2012 = 2,000 + 4,800 = Rs 6,800
In 2013 = 1,600 + 3,600 = Rs 5,200
In 2014 = 1,200 + 2,400 = Rs 3,600
Page 58 of 63 Aglasem Schools
Page 60
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
In 2015 = 800 + 1,200 = Rs 2,000
In 2016 = Rs 400
Working Notes
i) Amount of discount to be written off every year
Year Debenture Ratio Months New Ratio Amount written off
Outstanding
(Ratio × Months)
2011
Apr-Dec 4,00,000 5 9 45 = 6,000
2012
Jan-Mar 4,00,000 5 3 15 = 2,000
Apr-Dec 3,20,000 4 9 36 = 4,800
2013
Jan-Mar 3,20,000 4 3 12 = 1,600
Apr-Dec 2,40,000 3 9 27 3,600
2014
Jan-Mar 2,40,000 3 3 9 = 1,200
Apr-Dec 1,60,000 2 9 18 2,400
2015
Jan-Mar 1,60,000 2 3 6 = 800
Apr-Dec 80,000 1 9 9 = 1,200
2016
Jan-Dec 80,000 1 3 3 = 400
Page 59 of 63 Aglasem Schools
In 2015 = 800 + 1,200 = Rs 2,000
In 2016 = Rs 400
Working Notes
i) Amount of discount to be written off every year
Year Debenture Ratio Months New Ratio Amount written off
Outstanding
(Ratio × Months)
2011
Apr-Dec 4,00,000 5 9 45 = 6,000
2012
Jan-Mar 4,00,000 5 3 15 = 2,000
Apr-Dec 3,20,000 4 9 36 = 4,800
2013
Jan-Mar 3,20,000 4 3 12 = 1,600
Apr-Dec 2,40,000 3 9 27 3,600
2014
Jan-Mar 2,40,000 3 3 9 = 1,200
Apr-Dec 1,60,000 2 9 18 2,400
2015
Jan-Mar 1,60,000 2 3 6 = 800
Apr-Dec 80,000 1 9 9 = 1,200
2016
Jan-Dec 80,000 1 3 3 = 400
Page 59 of 63 Aglasem Schools
Page 61
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
180 24,000
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Dec 31 Debenture Holders A/c Dr. 5,400
To Bank A/c 5,400
(Interest paid)
Debenture Interest A/c Dr. 6,000
To Income Tax Payable A/c 600
To Debenture Holders A/c 5,400
(Amount of interest due for 6 months and tax deducted at
source)
Debenture Holders A/c Dr. 5,400
To Bank A/c 5,400
(Interest paid)
Income Tax Payable A/c Dr. 1,200
To Bank A/c 1,200
(Tax deducted at source on interest paid)
Profit and Loss A/c Dr. 1,200
To Debenture Interest A/c 1,200
(Debenture interest transferred to Profit and Loss
Account)
Page : 138 , Block Name : Numerical Questions
Page 60 of 63 Aglasem Schools
180 24,000
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Dec 31 Debenture Holders A/c Dr. 5,400
To Bank A/c 5,400
(Interest paid)
Debenture Interest A/c Dr. 6,000
To Income Tax Payable A/c 600
To Debenture Holders A/c 5,400
(Amount of interest due for 6 months and tax deducted at
source)
Debenture Holders A/c Dr. 5,400
To Bank A/c 5,400
(Interest paid)
Income Tax Payable A/c Dr. 1,200
To Bank A/c 1,200
(Tax deducted at source on interest paid)
Profit and Loss A/c Dr. 1,200
To Debenture Interest A/c 1,200
(Debenture interest transferred to Profit and Loss
Account)
Page : 138 , Block Name : Numerical Questions
Page 60 of 63 Aglasem Schools
Page 62
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
Q19 B. Ltd. issued 1,000, 12% debentures of Rs 100 each on April 01, 2014 at a discount of 5%
redeemable at a premium of 10%.
Give journal entries relating to the issue of debentures and debentures interest for the period
ending March 31, 2015 assuming that interest is paid half yearly on September 30 and March
31 and tax deducted at source is 10%.
Answer.
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
2014
Apr. 01 Bank A/c Dr. 95,000
Loss on Issue on Debentures A/c Dr. 15,000
To 12% Debenture A/c 1,00,000
To Premium on Redemption of Debentures A/c 10,000
(Debenture issued at discount and redeemable at
Premium)
Sept. 30 Debenture Interest A/c Dr. 6,000
To Income Tax Payable A/c 600
To Debenture Holders A/c 5,400
(Amount of interest on 12% debentures Rs 1,00,000
due for
6 months and 10% tax deducted at source)
Sept. 30 Debenture Holders A/c Dr. 5,400
To Bank A/c 5,400
(Interest paid to Debenture Holders)
2015 Debenture Interest A/c Dr. 6,000
Mar. 31
To Income Tax Payable A/c 600
To Debenture Holders A/c 5,400
(Amount of interest on 12% Debentures Rs 1,00,000
Page 61 of 63 Aglasem Schools
Q19 B. Ltd. issued 1,000, 12% debentures of Rs 100 each on April 01, 2014 at a discount of 5%
redeemable at a premium of 10%.
Give journal entries relating to the issue of debentures and debentures interest for the period
ending March 31, 2015 assuming that interest is paid half yearly on September 30 and March
31 and tax deducted at source is 10%.
Answer.
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
2014
Apr. 01 Bank A/c Dr. 95,000
Loss on Issue on Debentures A/c Dr. 15,000
To 12% Debenture A/c 1,00,000
To Premium on Redemption of Debentures A/c 10,000
(Debenture issued at discount and redeemable at
Premium)
Sept. 30 Debenture Interest A/c Dr. 6,000
To Income Tax Payable A/c 600
To Debenture Holders A/c 5,400
(Amount of interest on 12% debentures Rs 1,00,000
due for
6 months and 10% tax deducted at source)
Sept. 30 Debenture Holders A/c Dr. 5,400
To Bank A/c 5,400
(Interest paid to Debenture Holders)
2015 Debenture Interest A/c Dr. 6,000
Mar. 31
To Income Tax Payable A/c 600
To Debenture Holders A/c 5,400
(Amount of interest on 12% Debentures Rs 1,00,000
Page 61 of 63 Aglasem Schools
Page 63
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
due for
6 months and 10% tax deducted at source)
Mar. 31 Debenture Holders A/c Dr. 5,400
To Bank A/c 5,400
(Interest paid to Debenture Holders)
Mar. 31 Profit and Loss A/c Dr. 12,000
To Debenture Interest A/c 12,000
(Interest on debentures transferred to Profit and Loss
Account)
Page : 138 , Block Name : Numerical Questions
Q20 What journal entries will be made in the following cases when company redeems
debentures at the expiry of period by serving the notice: (a) when debentures were issued at par
with a condition to redeem them at premium; (b) when debentures were issued at premium with
a condition to redeem that at par; and (c) when debentures were issued at discount with a
condition to redeem them at premium?
Answer.
Debit Credit
S.No. Particulars L.F. Amount Amount
Rs Rs
(a) Debenture A/c Dr.
Premium on Redemption of Dr.
Debenture A/c
To Debenture Holders A/c
(Amount due for redemption of Debentures)
Debenture Holders A/c Dr.
To Bank A/c
(Payment made to Debenture Holders)
Page 62 of 63 Aglasem Schools
due for
6 months and 10% tax deducted at source)
Mar. 31 Debenture Holders A/c Dr. 5,400
To Bank A/c 5,400
(Interest paid to Debenture Holders)
Mar. 31 Profit and Loss A/c Dr. 12,000
To Debenture Interest A/c 12,000
(Interest on debentures transferred to Profit and Loss
Account)
Page : 138 , Block Name : Numerical Questions
Q20 What journal entries will be made in the following cases when company redeems
debentures at the expiry of period by serving the notice: (a) when debentures were issued at par
with a condition to redeem them at premium; (b) when debentures were issued at premium with
a condition to redeem that at par; and (c) when debentures were issued at discount with a
condition to redeem them at premium?
Answer.
Debit Credit
S.No. Particulars L.F. Amount Amount
Rs Rs
(a) Debenture A/c Dr.
Premium on Redemption of Dr.
Debenture A/c
To Debenture Holders A/c
(Amount due for redemption of Debentures)
Debenture Holders A/c Dr.
To Bank A/c
(Payment made to Debenture Holders)
Page 62 of 63 Aglasem Schools
Page 64
Book Name : Accountancy-II Ncert Solutions | Chapter-2 Accountancy
(b) Debenture A/c Dr.
To Debenture Holders A/c
(Amount due for redemption of debentures that were
issued at
premium with term of redeemable at par)
Debenture Holders A/c Dr.
To Bank A/c
(Payment made to Debenture Holders)
(c) Debenture A/c Dr.
Premium on Redemption of Dr.
Debenture A/c
To Debentures Holders A/c
(Amount due for redemption on debentures that were
issued at
discount with the term of redeemable at premium)
Debenture Holders A/c Dr.
To Bank A/c
(Payment made to Debenture Holders)
Page : 138 , Block Name : Numerical Questions
Page 63 of 63 Aglasem Schools
(b) Debenture A/c Dr.
To Debenture Holders A/c
(Amount due for redemption of debentures that were
issued at
premium with term of redeemable at par)
Debenture Holders A/c Dr.
To Bank A/c
(Payment made to Debenture Holders)
(c) Debenture A/c Dr.
Premium on Redemption of Dr.
Debenture A/c
To Debentures Holders A/c
(Amount due for redemption on debentures that were
issued at
discount with the term of redeemable at premium)
Debenture Holders A/c Dr.
To Bank A/c
(Payment made to Debenture Holders)
Page : 138 , Block Name : Numerical Questions
Page 63 of 63 Aglasem Schools
Document Details
| Board / Org | NCERT |
| Exam | Class 12 |
| Type | Solution |
| Pages | 64 |
| Updated | 30 Apr 2026 |