Page 213 - ISCDEBK-12

Joint Stock Company—Issue of Debentures 8.7
Dr. DISCOUNT ON ISSUE OF DEBENTURES ACCOUNT Cr.
Date Particulars ` Date Particulars `
2016 2017
April 1 To 12% Debentures A/c 50,000 March 31 By Statement of Profit and Loss 50,000
50,000 50,000

Illustration 5.
Pilot Pens Ltd. issued 5,000, 6% Debentures of ` 100 each at a discount of 20%. It had
balance in Securities Premium Reserve of ` 60,000. It decided to write off the discount
in the first year itself.
Show the Notes to Accounts writing off the Discount on Issue of Debentures.

Solution:
Note to Accounts
Particulars ` `
1. Reserves and Surplus
Securities Premium Reserve
Opening Balance 60,000
Less: Discount on Issue of Debentures written off 60,000 ...
Surplus, i.e., Balance in Statement of Profit and Loss
Loss for the year (Discount on Issue of Debentures written off) (40,000)
Note: Balance amount of Discount on Issue of Debentures (` 40,000) is written off from Statement of
Profit and Loss. Hence, the balance in Surplus, i.e., Balance in Statement of Profit and Loss shows
negative balance of ` 40,000.
Illustration 6.
On 1st April, 2018, Moonlight Ltd. issued 1,000, 9% Debentures of ` 200 each at a discount of 5%
redeemable after 5 years at a premium of 10%. All the debentures were subscribed and allotment
made. The balance in Securities Premium Reserve is ` 10,000. Profit for the year was ` 50,000.
Pass the Journal entries for issue of debentures and writing off the loss in the year of issue
of debentures. Prepare the extract of the Balance Sheet as at 31st March, 2019 showing
Loss on Issue of Debentures.
Solution: JOURNAL OF MOONLIGHT LTD.
Date Particulars L.F. Dr. (`) Cr. (`)
2018
April 1 Bank A/c ...Dr. 1,90,000
To Debentures Application and Allotment A/c 1,90,000
(Being the application received for 1,000; 9% Debentures
@ ` 190 per debenture)
Debentures Application and Allotment A/c ...Dr. 1,90,000
Loss on Issue of Debentures A/c ...Dr. 30,000
To 9% Debentures A/c 2,00,000
To Premium on Redemption of Debentures A/c 20,000
(Being 1,000; 9% Debentures allotted)
2019
March 31 Securities Premium Reserve A/c ...Dr. 10,000
Statement of Profit and Loss (Finance cost) ...Dr. 20,000
To Loss on Issue of Debentures A/c 30,000
(Being the Loss on Issue of Debentures written off)