Some of the important questions from the chapter Accounting for Debentures covered in this question paper. The questions are prepared from the book back and PTA question.
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Questions:

Generic 3

6 x 3 = 18

On 01.04.2005 Rohini Ltd. had made an issue of 3,000, 6% Debentures of Rs. 100 each. The company during the year 2014-15 purchased for cancellation of 600 of these debentures. The company paid Rs.95 per debenture for 500 debentures and Rs. 98 per debenture for the rest. The expenses on purchase amounted to Rs. 400. Pass journal entries in the books of the company for the period 2014-15.

What is meant by irredeemable debentures?

Give journal entries in each of the following cases if the face value of a debenture is Rs.100.
(i) A debenture issued at Rs.110 repayable at Rs.100
(ii) A debenture issued at Rs.100 repayable at Rs.105
(iii) A debenture issued at Rs.105 repayable at Rs.105

Sharma Ltd. bought the business of Verma Ltd. on 01.04.2007 consisting of Sundry Assets of Rs.2,80,000 and creditors Rs.50,000. Rs.50,000 was paid in cash on 03.04.2007 and for the balance 6% Debentures were issued at a premium of 20% on 05.04.2007. Pass necessary journal entries in the books of Sharma Ltd. for the above mentioned transactions.

Vijay Laxmi Ltd. invited applications for issuing 10,000, 12% Debentures of Rs.100 each at a premium of Rs 70 per Debenture. The full amount was payable on application.
Applications were received for 13,500 Debentures. Applications for 3,500 Debentures were rejected and application money was refunded. Debentures were allotted to the remaining applications.
Pass necessary Journal Entries in the books of Vijay Laxmi Ltd. for the above transactions.

Pass necessary journal entries for the issue of debentures in the following cases:
(i) Rs.50,000, 8% debentures of Rs.100 each issued at par redeemable at 10% Premium.
(ii) Rs.60,000, 8% debentures of Rs.100 each issued at a Premium of 10%, redeemable at par.

1 Marks

1 x 1 = 1

Give the meaning of issue of debentures as a collateral security.

Generic 8

4 x 8 = 32

Rohtash Ltd redeemed 400, 9% debentures of Rs 1,000 each at a premium of 5% on 31st March, 2016. Debentureholders' were given equity shares of Rs 100 each at a premium of Rs 20 per share. Give journal entries in the books of company.

On 1st January, 2011, a Public Limited Company issued 15,000, 10% debentures of Rs.100 each at par which were repayable at a premium of 15% on 31st December, 2015. On the date of maturity, the company decided to redeem the above mentioned 10% debentures as per the terms of issue, out of profits. Surplus, i.e. balance in statement of profit and loss shows a credit balance of Rs 20,00,000 on this date. The offer was accepted by all the debenture holders and all the debentures were redeemed.
Pass necessary journal entries in the books of the company only for the redemption of debentures.

10.

Suresh Ltd on 1st April, 2012 acquired assets of the value of Rs.6,00,000 and liabilities worth Rs.70,000 from P and Co at an agreed value of Rs.5,50,000. Suresh Ltd issued 12% debentures of Rs.100 each at premium of 10% in full satisfaction of purchase consideration. The debentures were redeemable 3 years later at a premium of 5%. Pass entries to record the above including redemption of debentures.

11.

A company issued 8,000, 10% debentures of Rs 100 each, payable Rs 20 on application and the remaining amount on allotment. The debentures were applied for and allotted. All money was received. Give the journal entries and the balance sheet.

Generic 6

3 x 6 = 18

12.

PQR Ltd purchased for cancellation Rs 50,000 of its 15% debentures at Rs 98. The expenses of purchase amounted to Rs 50. Journalise.

13.

RST Ltd had 6,000, 10% debentures of Rs 100 each due for redemption on 31st March, 2015. Assuming that the debentures were redeemed out of profits, pass necessary journal entries for the redemption of debentures. There was a credit balance of Rs 6,00,000 in surplus, i.e. balance in statement of profit and loss.

14.

ABC Ltd purchased assets of the book value of Rs.8,00,000 and took over the liabilities of Rs.1,00,000 from XYZ Ltd. It was agreed that the purchase consideration, settled at Rs.7,60,000, be paid by issuing debentures of Rs.100 each.
What journal entries will be made in the following three cases if debentures are issued: (i) at par, (ii) at a discount of 10%and (iii) at a premium of 10%? It was agreed that any fraction of debentures be paid in cash.

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Answers Key:

Generic 3

6 x 3 = 18

(i) Dr. Own Debentures, Cr. Bank by Rs. 57,700 i.e., Rs. 47,500 + Rs. 9,800 + Rs. 400
(ii) Dr. 6% Debentures Rs. 60,000; Cr. Own Debentures Rs. 57,700 and Gain on Cancellation Rs. 2,300.
(iii) Dr. Gain on Cancellation, Cr. Captial Reserve Rs. 2,300.

(i) A share is a part of the capital of the company whereas a debentures is a part of loan of the company.
(ii) Shares cannot be converted into debentures whereas debentures can be converted into shares.

(i) Dr.Bank, Cr.Debenture Application and Allotment A/c by Rs.110; Dr.Debenture Application and Allotment A/c Rs.110, Cr.Debenture Rs.100 and Securties Premium reserve Rs.10.
(ii) Dr.Bank, Cr.Debenture Application and Allotment by Rs.100, Dr.Debenture Application and Allotment Rs.100 and Loss on Issue of Debenture Rs.5; Cr.Debenture Rs.100 and Premium on Redemption of Debenture Rs.5.
(iii) Dr.Bank, Cr.Debenture Application and Allotment A/c by Rs.105; Dr.Debenture Application and Allotment A/c Rs.105 and Loss on Issue of Debentures Rs.5, Cr.debenture Rs.100, Securities Premium Reserve Rs.5 and premium on Redemption of Debenture Rs.5.

(i) Dr.Sundry Assets Rs.2,80,000; Cr.Creditors Rs.50,000 and Verma Ltd. Rs.2,30,000.
(ii) Dr.Verma Ltd. Cr Cash by rs.50,000
(iii) Dr. Verma Ltd. Rs.1,80,000, Cr.6% Debentures Rs.1,50,000 and Securities Premium reserve Rs.30,000.

(a) Dr.Bank A/c, Cr. Debenture Application and Allotment A/c by Rs.22,95,000(i.e., 13,500(d) X Rs.170);
(b) Dr.Debenture Application and Allotment A/c Rs.22,95,000; Cr.12% Debentures A/c, Rs.10,00,000; Securities Premium Reserve A/c Rs.7,00,000 and Bank A/c Rs.5,95,000.

(i) (a) Dr.Bank A/c, Cr.Debenture Application and Allotment A/c by Rs.50,000
(b) Dr.Debenture Application and Allotment A/c Rs.50,000 and Loss on Issue of Debentures A/c Rs.5,000; Cr.8% Debentures A/c Rs.50,000 and Premium on Redemption of Debentures A/c Rs.5,000.
(ii) (a) Dr.Bank A/c, Cr.Debenture Application and Allotment A/c by Rs.66,000
(b) Dr.Debenture Application and Allotment A/c Rs.66,000, Cr.8% Debentures A/c Rs.60,000 and Securities premium Reserve, Rs.6,000.

1 Marks

1 x 1 = 1

()
When a company takes a loan, the company have to issue debentures as subsidiary secondary security in addition to the principal security, it is called as issue of debentures for collateral security.

Generic 8

4 x 8 = 32

JOURNAL

Date	Particulars		LF	Amt(Dr)	Amt(CR
(i)	9% Debentures A/c Premium on Redemption of Debenture A/c To Debentureholders' A/c (Being amount due to debentureholders' on conversion of 400 debentures at a premium of 5%)	Dr Dr		4,00,000 20,000	4,20,000
(ii)	Debentureholders' A/c To Equity Share Capital A/c To Securities Premium Reserve A/c (Being amount due to debentureholders' discharged by issue of 3,500 equity shares at Rs 20 premium reserve)	Dr		4,20,000	3,50,000 70,000

Journal

Date	Particular		Amt(Dr)	Amt(Cr)
2015 Mar31	Surplus, i.e. Balance in Statement of Profit and Loss To Debenture Redemption Reserve A/c (Begin the amount transferred to DRR out of profits)	Dr	15,00,000	15,00,000
Apr30	Debenture Redemption Investment A/c To Bank A/c (Being amount equal to 15% of the value of debentures to be redeemed invested)	Dr	2,25,000	2,25,000
Dec31	Bank A/c To Debenture Redemption Investment A/c (Being the investment encashed)	Dr	2,25,000	2,25,000
	10% Debentures A/c Premium on Redemption of Debentures A/c To debentureholders' A/c	Dr	15,00,000 2,25,000	17,25,000
	Debentureholders' A/c To Bank A/c (Being 15,000 debentures are redeemed and paid)	Dr	17,25,000	17,25,000
	Debenture Redemption Reserve A/c To General Reserve A/c (Being DRR transferred to general reserve)	Dr	15,00,000	15,00,000

10.

JOURNAL

Date	Particulars		Amt(Dr)	Amt(Cr)
2012 Apr 1	Sundry Assets A/c Goodwill A/c (Balancing figure) To liabilities A/c To P and Co (Being business purchased)	Dr	6,00,000 20,000	70,000 5,50,000
	P and Co Loss on issue of Debentures A/c To 12% Cebentures A/c(5,000X100) To securities Premium Reserve A/c(5,000X10) To Premium Redemption of Debentures A/c(5,000X5) (Being debentures issued P and Co)	Dr	5,50,000 25,000	5,00,000 50,000 25,000
2015 Mar31	Surplus, i.e Balanced in Statement of Profit and Loss To Debenture redemption Reserve A/c (Being debentures redemption reserve created out of profits)	Dr	1,25,000	1,25,000
	Debenture Redemption Investment A/c To Bank A/c (Being the investment made of amount equal to 15% of value of debentures to be redeemed)	Dr	82,500	82,500
	Bank A/c To debenture redemption Investment A/c (Being the investment encashed)	Dr	82,500	82,000
	12% Debenture A/c (5,000X100) Premium on Redumption of Debentures A/c(5,000) To Depentureholders'A/c (Being debentures due for redemption)	Dr	5,00,000 25,000	5,25,000
Apr1	Debentureholders' A/c To Bank A/c (Being amount paid debentureholdres)	Dr	5,25,000	5,25,000
	Debntures Redemption Reserve A/c To General Reserve A/c (Being debenture redemption reserve transferred to general reserve account)	Dr	1,25,000	1,25,000

11.

JOURNAL
Particulars		Amt(Dr)	Amt(Cr)
BankA/c (8,000 x 20)	Dr.	1,60,000
To Debenture Application A/c			1,60,000
(Being 8,00e applications received for debentures of Rs. 100 each
accompanied by the application money of Rs. 20 per debenture)
Debenture Application A/c	Dr.	1,60,000
To 10% Debentures A/c			1,60,000
(Being the allotment of 8,000 debentures, application money transferred to debentures account)
Debenture Allotment A/c (8,000 x 80)	Dr.	6,40,000
To 10% Debentures A//c			6,40,000
(Being the amount due on 8,000 debenture allotment @ Rs.80 per debenture)
Bank A/c	Dr	6,40,000
To Debenture Allotment A/c			6,40,000
(Being the amount received against allotment)

Balance Sheet
as at...

Particulars	Note No.	Amt (Rs)
I. Equity And Liabilities		8,00,000
1. Non-current Liabilities
Long-term Borrowings^*	1
Total		8,00,000
II. ASSETS		8,00,000
1. Current Assets
Cash and Cash Equivalents	2
Total		8,00,000

Notes to Accounts

Particulars	Amt (Rs)
1. Long-term Borrowings	8,00,000
8,000, 10% Debentures of Rs 100 each	8,00,000
2. Cash and Cash Equivalents
Cash at Bank	8,00,000

*Debentures are classified or shown as long-term borrowings as they are redeemable after 12 months from the date of issue of debentures.
The above entries are passed when the amount received on debentures is on the basis of instalments.
If debentures are issued at par for cash which is receivable in a single instalment i.e. in lumpsum, following entries are passed:

Particulars		Amt( Dr)	Amt (Cr)
Bank A/c	Dr	8,00,000	8,00,000 8,00,000
To Debenture Application and Allotment A/c
(Being the application money received)
Debenture Application and Allotment A/c	Dr	8,00,000
To 10% Debentures A/c
(Being the debenture application money transferred to debentures account)

Generic 6

3 x 6 = 18

12.

Gain on cancellation of debentures = Rs 900

13.

Amount transferred to DRR = Rs 6,00,000;
Investment in specified securities to be made = Rs 90,000.

14.

Good will = Rs.60,000;
(i) 7,600 debentures of Rs.100 each
(ii) 8,444 debentures of Rs.100 each and paid cash Rs.40
(iii) 6,908 debentures of Rs.100 each and paid cash Rs.120