T.S. Grewal Class 12 Vol 2 Chapter 2 Q.37 - Issue of Debentures

Question 37

Care Cosmetics Ltd. issued 50,000; 9% Debentures of ₹10 each on 1st April, 2021, redeemable at a premium of 10% after 10 years. According to the terms of issue, ₹4 is payable on application and the balance on allotment of debentures. Record the necessary Journal entries regarding the issue of debentures.

Solution

JOURNAL (Books of Care Cosmetics Ltd.)

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1-4-2021	Bank A/c    Dr.		2,00,000
	To Debenture Application A/c			2,00,000
	(Application money received on 50,000 debentures at ₹4 each)
1-4-2021	Debenture Application A/c    Dr.		2,00,000
	To 9% Debentures A/c			2,00,000
	(Application money transferred to Debentures Account)
1-4-2021	Debenture Allotment A/c    Dr.		3,00,000
	Loss on Issue of Debentures A/c    Dr.		50,000
	To 9% Debentures A/c			3,00,000
	To Premium on Redemption of Debentures A/c			50,000
	(Allotment due on 50,000 debentures at ₹6 each; debentures redeemable at a 10% premium after 10 years)

Working Note: Premium on redemption = 10% of the total face value of debentures issued (50,000 × ₹10 = ₹5,00,000) = ₹50,000, i.e. ₹1 per debenture — not 10% of the allotment cash instalment.