Page 218 - ISCDEBK-12

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

Illustration 10.

On 1st October, 2015, Nimrat Ltd. issued 20,000, 10% Debentures of ` 100 at ` 71 each
redeemable at par as follows:

On 31st March, 2017 3,000 Debentures;

On 31st March, 2018 5,000 Debentures;
On 31st March, 2019 6,000 Debentures;
On 31st March, 2020 6,000 Debentures.

How much discount will be written off each year by the company?

Solution:
Amount of Discount on Issue of Debentures = ` 5,80,000 (i.e., 20,000 Debentures × ` 29).

Calculation of Amount of Discount on Issue of Debentures to be Written off
Year ended 31st March, Debentures Outstanding (`) Ratio Discount to be Written off (`)

2016 20,00,000 (for 6 Months) 10 5,80,000 × 10/65 = 89,231
2017 20,00,000 (for 12 Months) 20 5,80,000 × 20/65 = 1,78,462
2018 17,00,000 (for 12 Months) 17 5,80,000 × 17/65 = 1,51,692

2019 12,00,000 (for 12 Months) 12 5,80,000 × 12/65 = 1,07,077
2020 6,00,000 (for 12 Months) 6 5,80,000 × 6/65 = 53,538
65 5,80,000

Explanation: Debentures are issued on 1st October, 2015. It means in the year ended 31st March, 2016,
the amount is used for 6 months. Hence, the ratio is accordingly for 6 months.

Illustration 11 (Debentures Discount, when First Redemption Due in Next Accounting Period).

X Ltd. issued 10,000, 10% Debentures of ` 100 each at a discount of 6% on 1st July, 2015
repayable by five equal annual instalments of ` 2,00,000 each.

The company closes its accounts on 31st March, every year. Determine the amount of
discount to be written off in every accounting year if the debentures are to be redeemed
equally every year beginning from 30th June, 2016. Also prepare Discount on Issue of
Debentures Account.
Solution: Total amount of Discount on Issue of Debentures = ` 10,00,000 × 6/100 = ` 60,000.