Page 186 - MA-12

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

Master Questions and Advanced Level Question

Illustration 4.
Eey Kay Ltd. issued 10,000, 12% Debentures of ` 100 each at a discount of 10% and
redeemable at 5% premium after 5 years. Interest was payable half-yearly on 30th September

and 31st March each year. The amount was payable as follows:
` 50 on application; and
Balance on allotment.
Applications were received for 12,500 Debentures and allotment was made on pro rata basis
to all the applicants. Excess application money was adjusted against allotment money due.

The company had purchased Plant and Machinery of ` 11,00,000. It paid the consideration
by issue of 10% Debentures of ` 100 each at a premium of 10%.
You are required to:

(i) Pass Journal entries for issue of debentures; and
(ii) Prepare Balance Sheet showing the above transactions.
Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c ...Dr. 6,25,000
To Debentures Application A/c 6,25,000
(Being the applications received for 12,500, 12% Debentures along with
application money @ ` 50 per debenture)
Debentures Application A/c ...Dr. 6,25,000
To 12% Debentures A/c 5,00,000
To Debentures Allotment A/c 1,25,000
(Being 12% Debentures allotted on pro rata basis to all the applicants)
Debentures Allotment A/c ...Dr. 4,00,000
Loss on Issue of Debentures A/c ...Dr. 1,50,000
To 12% Debentures A/c 5,00,000
To Premium on Redemption of Debentures A/c 50,000
(Being the allotment money due)
Bank A/c ...Dr. 2,75,000
To Debentures Allotment A/c 2,75,000
(Being the balance debentures allotment money received)
Plant and Machinery A/c ...Dr. 11,00,000
To Vendor’s A/c 11,00,000
(Being the machinery purchased)
Vendor’s A/c ...Dr. 11,00,000
To 10% Debentures A/c 10,00,000
To Securities Premium Reserve A/c 1,00,000
(Being 10,000; 10% Debentures issued to Vendor at 10% premium)