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8.6                                      Double Entry Book Keeping (Section A)—ISC XII

                     Illustration 4.
                     On 1st April, 2016, Sunstar Ltd. issued 10,000, 12% Debentures of ` 100 each at a discount
                     of 5%, redeemable as follows:
                            On 31st March, 2017                                                        2,000 Debentures;
                            On 31st March, 2018                                                        5,000 Debentures;
                            On 31st March, 2019                                                        3,000 Debentures.
                     Interest is paid annually on 31st March. Discount on Issue of Debentures is to be written
                     off in the year in which Debentures are issued.
                     You are required to pass the Journal entries, including for interest for the three years and
                     prepare Discount on Issue of Debentures Account.
                     Solution:                     JOURNAL OF SUNSTAR LTD.

                     Date     Particulars                                           L.F.   Dr. (`)   Cr. (`)
                     2016
                     April   1   Bank A/c                                    ...Dr.      9,50,000
                                  To  Debentures Application and Allotment A/c                    9,50,000
                               (Being the debentures application money received)
                               Debentures Application and Allotment A/c      ...Dr.      9,50,000
                               Discount on Issue of Debentures A/c           ...Dr.       50,000
                                  To  12% Debentures A/c                                          10,00,000
                               (Being 10,000; 12% Debentures of ` 100 each allotted at 5% discount)
                     2017
                     March  31   Debentures’ Interest A/c                    ...Dr.      1,20,000
                                  To  Debentureholders’ A/c                                       1,20,000
                               (Being the interest due on debentures @ 12% p.a.)
                               Debentureholders’ A/c                         ...Dr.      1,20,000
                                  To  Bank A/c                                                    1,20,000
                               (Being the interest paid to debentureholders)
                               Statement of Profit and Loss (Finance cost)   ...Dr.      1,20,000
                                  To  Debentures’ Interest A/c                                    1,20,000
                               (Being the transfer of Debentures’ Interest to Statement of Profit and Loss)
                               Statement of Profit and Loss (Finance cost)   ...Dr.       50,000
                                  To  Discount on Issue of Debentures A/c                          50,000
                               (Being the discount on Issue of Debentures written off)
                     2018
                     March  31   Debentures’ Interest A/c                    ...Dr.       96,000
                                  To  Debentureholders’ A/c                                        96,000
                               (Being the interest due on debentures @12% p.a. on ` 8,00,000)
                               Debentureholders’ A/c                         ...Dr.       96,000
                                  To  Bank A/c                                                     96,000
                               (Being the interest paid to debentureholders)
                               Statement of Profit and Loss (Finance cost)   ...Dr.       96,000
                                  To  Debentures’ Interest A/c                                     96,000
                               (Being the transfer of Debentures’ Interest to Statement of Profit and Loss)
                     2019
                     March  31   Debentures’ Interest A/c                    ...Dr.       36,000
                                  To  Debentureholders’ A/c                                        36,000
                               (Being the interest due on debentures @12% p.a. on ` 30,000)
                               Debentureholders’ A/c                         ...Dr.       36,000
                                  To  Bank A/c                                                     36,000
                               (Being the interest paid to debentureholders)
                               Statement of Profit and Loss (Finance cost)   ...Dr.       36,000
                                  To  Debentures’ Interest A/c                                     36,000
                               (Being the transfer of Debentures’ Interest to Statement of Profit and Loss)
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