Page 224 - ISCDEBK-12

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

Advanced Level Question

Illustration 14.
The Earth Ltd. invited applications for issuing 10,000, 12% Debentures of ` 100 each at a premium of 5%,
redeemable at a premium of 5%, after 5 years. The full amount was payable on application. Applications
were received for 14,000 debentures out of which applicants for 9,000 debentures were allotted fully,
applicants for 2,500 debentures were allotted 1,000 debentures and remaining applications were rejected.
On 1st October, 2016, company purchased building worth ` 10,00,000, Plant and Machinery worth
` 8,00,000 from M/s. Raman & Company and took over their Liabilities of ` 3,00,000 for a purchase price of
` 16,50,000. The company paid the purchase price by issuing 12% Debentures of ` 100 each at a premium
of 10%, redeemable at the end of 5 years at par.
During the accounting year 2016–17 on 1st October, 2016 company took a loan of ` 10,00,000 from ICICI
Bank payable on 31st March, 2018 and issued ` 15,00,000, 12% Debentures as collateral security.

Additional Information:
(a) Debenture interest is payable half-yearly on 30th September and 31st March.
(b) Tax to be deducted at source @ 10%.
(c) Ignore interest on bank loan.
(d) It was decided by the company to write-off Loss on Issue of Debentures as early as possible.
Pass necessary Journal entries in the books of Earth Ltd. for the year 2016–17.
Solution: In the Books of Earth Ltd.
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2016
April 1 Bank A/c ...Dr. 14,70,000
To Debentures Application and Allotment A/c 14,70,000
(Being the application money received for 14,000; 12% Debentures
@ ` 105 each)
April 1 Debentures Application and Allotment A/c ...Dr. 14,70,000
Loss on Issue of Debentures A/c ...Dr. 50,000
To 12% Debentures A/c 10,00,000
To Securities Premium Reserve A/c 50,000
To Premium on Redemption of Debentures A/c 50,000
To Bank A/c 4,20,000
(Being 10,000; 12% Debentures of ` 100 each issued at 5% premium
and redeemable at 5% premium and excess money returned)

Sept. 30 Debentures’ Interest A/c ...Dr. 60,000
To Debentureholders’ A/c 54,000
To TDS Payable A/c 6,000
(Being the interest due on 12% Debentures for half year ended
30th September, 2016, TDS being deducted @ 10%)
Sept. 30 Debentureholders’ A/c ...Dr. 54,000
To Bank A/c 54,000
(Being the interest paid to debentureholders)