A Company Issued 10% Debentures Of the Face Value of Rs,1,20,000 At a Discount of 6% On April 01, 2011-Accountancy

A company issued 10% Debentures of the face value of Rs,1,20,000 at a discount of 6% on April 01, 2011. The debentures are payable by annual drawings of Rs 40,000 commencing from the end of third year.

How will you deal with discount on debentures?

Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on March 31 every year.

 In the Books of A company

Journal

Date	Particulars		L.F.	Amount (Rs.)	Amount (Rs.)
2011
April,01	Bank A/c	Dr.		1,12,800
	To Debenture Application and Allotment A/c				1,12,800
	(Being Debenture Application money received)
April,01	Debenture Application and Allotment A/c			1,12,800
	Discount on issue of Debenture A/c			7,200
	To 10% Debenture A/c				1,20,000
	(Being debenture application money transferred to Debenture A/c)
2012
March 31	Profit and loss A/c			1,800
	To Discount on issue of debenture				1,800
	(Discount on issue of debenture written off)
2013
March 31	Profit and loss A/c			1,800
	To Discount on issue of debenture				1,800
	(Discount on issue of debenture written off)
2014
March 31	Profit and loss A/c			1,800
	To Discount on issue of debenture				1,800
	(Discount on issue of debenture written off)
2015
March 31	Profit and loss A/c			1,200
	To Discount on issue of debenture				1,200
	(Discount on issue of debenture written off)
2016
March 31	Profit and loss A/c			600
	To Discount on issue of debenture				600
	(Discount on issue of debenture written off)

Discount on Issue of Debentures

Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2011 Apr,01	10% Debentures		7,200	2012 Mar. 31	Profit and Loss		1,800
					Balance c/d		5,400
			7,200				7,200
2012 Apr. 01	Balance b/d		5,400	2013 Mar. 31	Profit and Loss		1,800
					Balance c/d		3,600
			5,400				5,400
2013 Apr. 01	Balance b/d		3,600	2014 Mar. 31	Profit and Loss		1,800
					Balance c/d		1,800
			3,600				3,600
2014 Apr. 01	Balance b/d		1,800	2015 Mar. 31	Profit and Loss		1,200
					Balance c/d		600
			1,800				1,800
2015 Apr. 01	Balance b/d		600	2016 Mar 31	Profit and Loss		600
			600				600

Working Note:

Amount of Discount on Issue of Debenture

 = 1,20,000 x 6/100 = 7,200

Year	Debenture Outstanding	Ratio	Amount written off every year		Sum
2011-12	1,20,000	3	7,200×312	=	1,800
2012-13	1,20,000	3	7,200×312	=	1,800
2013-14	1,20,000	3	7,200×312	=	1,800
2014-15	80,000	2	7,200×212	=	1,200
2015-16	40,000	1	7,200×112	=	600
		12			Rs 7,200

Chapter-2 Issue and Redemption of Debentures-II

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