T.S. Grewal Class 12 Vol 2 Chapter 2 Q.43 - Issue of Debentures

Question 43

Bright Ltd. issued 5,000; 10% Debentures of ₹100 each on 1st April, 2024. The issue was fully subscribed. According to the terms of issue, interest on the debentures is payable half-yearly on 30th September and 31st March, and tax is deducted at source at 10%. Pass the necessary Journal entries related to the debenture interest for the year ending 31st March, 2025, and the transfer of the year’s interest on debentures to the Statement of Profit and Loss.

Solution

JOURNAL (Books of Bright Ltd.)

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
Sept. 30, 2024	Debenture Interest A/c    Dr.		25,000
	To Debenture Holders’ A/c			22,500
	To Income Tax Payable A/c			2,500
	(Debenture interest due for the half year, less 10% tax deducted at source)
	Debenture Holders’ A/c    Dr.		22,500
	Income Tax Payable A/c    Dr.		2,500
	To Bank A/c			25,000
	(Interest on debentures paid, net of tax remitted)
Mar. 31, 2025	Debenture Interest A/c    Dr.		25,000
	To Debenture Holders’ A/c			22,500
	To Income Tax Payable A/c			2,500
	(Debenture interest due for the half year, less 10% tax deducted at source)
	Debenture Holders’ A/c    Dr.		22,500
	Income Tax Payable A/c    Dr.		2,500
	To Bank A/c			25,000
	(Interest on debentures paid, net of tax remitted)
Mar. 31, 2025	Statement of Profit and Loss A/c    Dr.		50,000
	To Debenture Interest A/c			50,000
	(Debenture interest for the year transferred to the Statement of Profit and Loss)

Working Note: Half-yearly interest = 5,000 × ₹100 × 10% × 6/12 = ₹25,000, less 10% TDS (₹2,500) = ₹22,500 payable to debenture holders. Annual interest = 2 × 25,000 = ₹50,000.