T.S. Grewal Class 12 Vol 2 Chapter 2 Q.59 - Issue of Debentures

Question 59

Fit India Ltd. has a paid-up share capital of ₹1,00,00,000 (divided into 5,00,000 Equity Shares of ₹20 each) and 10,000, 7% Debentures of ₹200 each. On 1st July, 2024, it further issued 7% Debentures at a premium of 10%, redeemable at a 25% premium, to meet a long-term funds requirement of ₹1,65,00,000. The issue price was payable along with application. The balance in the Securities Premium Account after the issue of debentures is ₹25,00,000. The loss for the year ended 31st March, 2025 is ₹10,00,000. You are required to: (i) pass Journal entries for the issue of debentures; (ii) prepare the Loss on Issue of Debentures Account; (iii) pass Journal entries for interest on debentures, if interest is payable on 30th September and 31st March each year.

Solution

(i) Journal entries for issue of debentures

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.7.2024	Bank A/c    Dr.		1,65,00,000
	To Debenture Application and Allotment A/c			1,65,00,000
	(Application money received)
1.7.2024	Debenture Application and Allotment A/c    Dr.		1,65,00,000
	Loss on Issue of Debentures A/c    Dr.		37,50,000
	To 7% Debentures A/c (75,000 × ₹200)			1,50,00,000
	To Securities Premium Reserve A/c (75,000 × ₹20)			15,00,000
	To Premium on Redemption of Debentures A/c			37,50,000
	(75,000; 7% Debentures of ₹200 each issued at a 10% premium, redeemable at a 25% premium)
31.3.2025	Securities Premium A/c    Dr.		25,00,000
	Statement of Profit and Loss A/c    Dr.		12,50,000
	To Loss on Issue of Debentures A/c			37,50,000
	(Loss on issue of debentures written off)

Working Note: Number of debentures issued = 1,65,00,000 ÷ 220 (issue price) = 75,000. Face value = 75,000 × ₹200 = ₹1,50,00,000. Premium on issue (10%) = 75,000 × ₹20 = ₹15,00,000. Premium on redemption (25%) = 75,000 × ₹50 = ₹37,50,000, matched by an equal Loss on Issue of Debentures.

(ii) Loss on Issue of Debentures Account

LOSS ON ISSUE OF DEBENTURES ACCOUNT

Particulars	₹	Particulars	₹
1.7.2024 — To Premium on Redemption of Debentures A/c	37,50,000	31.3.2025 — By Securities Premium A/c	25,00,000
		31.3.2025 — By Statement of Profit and Loss	12,50,000
Total	37,50,000	Total	37,50,000

(iii) Journal entries for interest on debentures

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
30.09.2024	Interest on Debentures A/c    Dr.		3,32,500
	To Debenture Holders’ A/c			3,32,500
	(Interest due for the half year)
30.09.2024	Debenture Holders’ A/c    Dr.		3,32,500
	To Bank A/c			3,32,500
	(Interest paid)
31.03.2025	Interest on Debentures A/c    Dr.		5,95,000
	To Debenture Holders’ A/c			5,95,000
	(Interest due for the half year)
31.03.2025	Debenture Holders’ A/c    Dr.		5,95,000
	To Bank A/c			5,95,000
	(Interest paid)
31.03.2025	Statement of Profit and Loss A/c    Dr.		9,27,500
	To Interest on Debentures A/c			9,27,500
	(Interest on debentures transferred to the Statement of Profit and Loss)

Working Note: The pre-existing 10,000; 7% Debentures of ₹200 each (face value ₹20,00,000) were outstanding the whole year, while the new 75,000 debentures (face value ₹1,50,00,000) were outstanding only from 1 July 2024. Interest to 30 Sept 2024 = old debentures for 6 months (20,00,000 × 7% × 6/12 = 70,000) + new debentures for 3 months (1,50,00,000 × 7% × 3/12 = 2,62,500) = ₹3,32,500. Interest to 31 March 2025 = both fully outstanding for 6 months = 1,70,00,000 × 7% × 6/12 = ₹5,95,000.