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12th Standard CBSE Accountancy - Accounting for Debentures Book Back Questions

Published on: 05/09/2019

Accounting for Debentures

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Std: 12th Standard CBSE - Accountancy

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Questions:

Generic 3

4 x 3 = 12

Is interest payable on debentures issued as collateral security?

State any two methods of redemption of debentures

Sargam Ltd issued ₹1,00,000, 6% debentures of 10 each at a premium of 2 per debenture on 1st April, 2012. The issue was fully subscribed. Interest will be paid at the end of each financial year. Pass necessary journal entries for the year 2012-13.

Pass necessary jounal entries for the issue of debentures in the following cases:
(i) Rs.30,000, 12% debentures of Rs.100 each issued at discount of 5%, redeemable at par.
(ii) Rs.40,000, 15% debentures of Rs.100 each issued at par, redeemable at par.

1 Marks

1 x 1 = 1

Why would an investor prefer to invest in shares and party in the debentures of a company?

Generic 8

2 x 8 = 16

S Ltd bought the business of R Ltd on 1st April, 2015 consisting of sundry assets of Rs 11,20,000 and creditors of Rs 2,00,000. Rs 2,00,000 was paid in cash on 3rd April, 2015 and for the balance, 6% debentures were issued at a premium of 20% on 5th April, 2015. Pass necessary journal entries in the books of S Ltd for the above mentioned transactions.

Arihant Ltd issued 40,000, 9% debentures of Rs 100 each at a discount of 4% on 1st April, 2014, payable Rs 30 on application and the balance on allotment. The debentures are redeemable after 5 years. Give necessary journal entries and the balance sheet as at 31st March, 2015. Ignore interest.

Generic 6

3 x 6 = 18

Pharma Ltd redeemed 500, 10% debentures of Rs 1,000 each by converting them into equity shares of Rs 10 each at a premium of Rs 40 per share. Give necessary journal entries.

LMN Ltd purchased its own debentures of the face value of Rs 2,00,000 from the open market for immediate cancellation at Rs 92. Pass journal entries.

10.

ABC Ltd issued Rs.1,00,000, 6%debentures of Rs.10 each at a premium of Rs.2 per debenture on 1st April, 2014. The issue was fully subscribed and interest will be paid at the end of each financial year. Pass necessary journal entries for the year 2014-15.

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Answers Key:

Generic 3

4 x 3 = 12

No, interest is not payable on debentures issued as collateral security.

(i) Redemption by draw of lots
(ii) Redemption by purchase in open market

Journal
Date	Particulars		LF	Amt(Dr)	Amt(Cr)
2012	Bank A/c (10,000 x 12)	Dr		1,20,000
Apr -1	To Debenture Application and AIlotment A/c				1,20,000
	(Being lumpsum of Rs.12 received at the time of issue of debenture)
Apr -1	Debenture Application and Allotment A/c	Dr		1,20,000
	To 6% Debentures A/c (10,000 x 10)	Dr			1,00,000
	To Securities Premium Reserve A/c (10,000 x 2)				20,000
	(Being application and allotment money transferred to debentures and securities premium account)
2013
Mar 31	Debenture Interest A/c (1.00,000 x 6%)		Dr	6,000
	To Debentureholders A/c				6,000
	(Being annual interest made due @ 6%)
Mar 31	Debentureholders' A/c		Dr	6,000
	To Bank A/c				6,000
	(Being interest paid to debentureholders)
Mar 31	Statement of Profit and Loss		Dr	6,000
	To Debenture Interest A/c				6,000
	(Being debenture interest charged to statement of profit and loss)

(i) (a) Dr.Bank A/c, Cr. Debenture Application and Allotment A/c by Rs.28,500
(b) Dr.Debenture Application and Allotment A/c Rs.28,500 and Discount on Issue of Debentures A/c Rs.1,500; Cr.12% Debentures A/c Rs.30,000.
(ii) (a) Dr.Bank A/c, Cr. Debenture Application and Allotment A/c by Rs.40,000
(b) Dr.Debenture Application and Allotment A/c, Cr.15% Debentures A/c Rs.40,000.

1 Marks

1 x 1 = 1

()
An investor would prefer to invest partly in shares and partly in the debentures because he will get liquidity, safety, capital appreciation and higher rate of return.

Generic 8

2 x 8 = 16

JOURNAL

Date	Particulars		Amt(Dr)	Amt(Cr)
2015	Sundry Assets A/c	Dr	11,20,000
Apr 1	To Creditors A/c			2,00,000
	To R Ltd
	(Being assets purchased)
Apr 3	R Ltd	Dr	2,00,000
	To Cash A/c			2,00,000
	(Being cash paid)
Apr 5	R Ltd	Dr	7,20,000
	To 6% Debentures A/c (6,000X100)			6,00,000
	To Securities Premium Reserve A/c (6,000X20)			1,20,000
	(Being debentures issued to R Ltd)

JOURNAL

Date	Particulars		Amt(Dr)	Amt(Cr)
2014 Apr 1	Bank A/c (40,000X30)	Dr	12,00,000
	To Debentures Application A/c			12,00,000
	(Being the application money on 40,000 debentures @ Rs 30 received)
	Debentures Application A/c	Dr
	To 9% Debentures A/c		12,00,000
	(Being the debenture application money transferred to debentures account)			12,00,000
	Debenture Allotment A/c (40,000X66)
	Discount on Issue of Debentures A/c (40,000X4)	Dr	26,40,000
	To 9% Debentures A/c (40,000X70)	Dr	1,60,000
	(Being the allotment money due on 40,000 debentures)			28,00,000
	Bank A/c
	To Debenture Allotment A/c	Dr	26,40,000
	(Being the amount received on allotment)			26,40,000

Balance Sheet
as at 31st March, 2015

Particulars	Note No.	Amt (Rs)
I. Equity and liabilities
1. Non-current Liabilities
Long-term Borrowings	1	40,00,000
Total		40,00,000
II. ASSETS
1. Non-current Assets
Other Non-current Assets	2	1,28,000
2. Current Assets
(a) Cash and Cash Equivalents	3	38,40,000
(b) Other Current Assets	4	32,000
Total		40,00,000

Notes to Accounts

Particulars	Amt (Rs)
1. Long-term Borrowings
40,000, 9% Debentures of Rs 100 each	40,00,000
2. Other Non-current Assets
Discount on Issue of Debentures (Unamortised)	1,28,000
3. Cash and Cash Equivalents
Cash at Bank	38,40,000
4. Other Current Assets
Discount on Issue of Debentures (Unamortised)	32,000
(To be written-off within 12 months from the date of balance sheet)

The above entries are passed when the amount received on debentures is on the basis of instalments. If debentures are issued at a discount for cash which is receivable in a single instalment i.e. on lumpsum, following entries are passed:

Date	Particulars		Amt (Dr)	Amt (Cr)
2014 Apr 1	Bank A/c	Dr
	To Debenture Application and Allotment A/c		38,40,000
	(Being the application money received)			38,40,000
	Debenture Application and Allotment A/c	Dr
	Discount on issue of Debentures A/c	Dr	38,40,000
	To 9% Debentures A/c		1,60,000
	(Being the debenture application money transferred to debentures account)			40,00,000