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Accounting: Issue of Debentures: Loss on Issue of Debentures and Debentures Are Redeemed in Installments (Important for UGC NET, UPSC CSE, SSC)- FlexiPrep
Accounting: Issue of Debentures: Loss on Issue of Debentures and Debentures are redeemed in installments
Company may issue debentures with the stipulation that the repayment of the debentures on maturity will be made at premium. The amount of the premium payable is debited to Loss on Issue of Debentures A/c at the time of issue of debentures. Then the amount of loss will be written off in the following manner –
When All Debentures Are Redeemed After Fixed Period
Journal Entry for Amount of Loss on issue of debentures written off each year
Profit and Loss A/c Dr.
To Loss on Issue of Debentures A/c
When Debentures Are Redeemed in Installments
Over a fixed period of time debentures loss amount can be written off in installments and the written off amount will be in proportion to the amount of debentures redeemed
Example: A company issues 1000 10% Debentures of Rs 1000 each on 1st Jan, 2006 payable at a premium of 10% after 5 years. Make journal entries and open Loss on Issue of Debentures A/c for the year ending 31st December 2006.
Amount of Loss on issue of Debentures = = 1,00,000
Calculation of amount to be written off every year:
Table 1 Supporting: When debentures are redeemed in installments
Tablutation of: Year End, Amount outstanding, Ratio, Amount to be written off every year
Amount to be written off every year
100000×5/15 = 33333
100000×4/15 = 26667
100000×3/15 = 20000
100000×2/15 = 13333
100000×1/15 = 6667
2006 Profit and Loss A/c Dr. 33333
Dec 31 to Loss on Issue of Debentures A/c 33333
(Amount of Loss on Issue of Debentures written of for year 2006)
Note: Journal entries will be passed same as above for all 5 years.
Generally advertisement of Debentures comes with percentage of interest ex. Issue of 9% Debentures. 9% denotes the rate of interest per annum given by the company either annually or semi-annual basis.
Table 2 Supporting: Interest on Debentures
Tablutation of: Payment of interest on debentures: Debenture Interest A/c Dr. To Bank A/c (Interest on …% Debentures paid semi-annually @...% per annum), Transfer of Debenture interest to P&L A/c: Profit and Loss A/c Dr. To Debenture Interest A/c (Debenture Interest transferred to Profit and Loss A/c)
Payment of interest on debentures:
Debenture Interest A/c Dr.
To Bank A/c
(Interest on …% Debentures paid semi-annually @...% per annum)
Transfer of Debenture interest to P&L A/c:
To Debenture Interest A/c
(Debenture Interest transferred to Profit and Loss A/c)
Example: X Ltd has issued 5000 9% Debentures of Rs 1000 each, on 1st April, 2006 Interest is payable after every six months. Make journal entries for the interest paid for the first six months after the date of issue.
Calculation of Interest payable at six monthly intervals:
Amount of Debentures = 5000 × Rs 1000 = Rs 5000000
Interest payable at six monthly intervals =
= = 2,25,000
Table 3 Supporting: Interest on Debentures
Tablutation of: S. No, Particulars, L.F, Amount (Rs.)
30th Sept.
Debentures Interest A/c Dr.
(Interest on 5000 9% Debentures @ Rs 1000 per debenture paid for 6 months ending 30th Sept 2006)
31st Mar.
Profit and Loss A/c Dr
To Debentures Interest A/c
NIOS Accountancy Chapter 22 Company an Introduction: Part 1 to 3
NIOS Accountancy Chapter 23 Issue of Shares: Part 1 to 3
NIOS Accountancy Chapter 24 Forfeiture of Shares: Part 1 to 2
NIOS Accountancy Chapter 25 Reissue of Forfeited Shares: Part 1 to 3
NIOS Accountancy Chapter 26 Issue of Debentures: Part 1 to 5
NIOS Accountancy Chapter 27 Financial Statements Analysis: Part 1 to 4
NIOS Accountancy Chapter 28 Accounting Ratios I: Part 1 to 3
NIOS Accountancy Chapter 29 Accounting Ratios II: Part 1 to 2
NIOS Accountancy Chapter 30 Cash Flow Statement: Part 1 to 3
NIOS Senior-Secondary Accountancy Notes »