Comprehensively based on:

New Education Policy & National Curriculum Framework for School Education

Accountancy XII
VOLUME II
(Accounting for Companies)
Reference Textbook for Class XII Accountancy, CBSE

Subhash Dey
B.Com. (Hons.), M.Com. (Delhi School of Economics), M.A. (Economics),
PGDBA (Finance), B.Ed., PGD (Labour and Administrative Laws)

Shree Radhey Publications

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Preface
Dear Reader,
I humbly bow at your lotus feet and express my deep gratitude for the opportunity to serve in the field of
education. It is with great joy and humility that I present this book, which has been written under divine
guidance to support the students of CBSE Class XII studying Accountancy.
The content of this book aligns strictly with the latest CBSE syllabus and is crafted from the most recent
resources, including the NCERT textbooks.
Key Features of This Reference Book:
 Multiple Choice Questions (MCQs), including Assertion-Reasoning and Statement-Based MCQs
 Competency-Based Questions, in line with the new CBSE question paper format
 Illustrations with explanation, in line with the new CBSE question paper format
 Self-Assessment Tests at the end of each topic to evaluate progress
I firmly believe that a thorough study of this book will enable students to excel in their CBSE Accountancy Class
XII Board Examination, with the potential to score 100%. However, I remain open to feedback and suggestions
for further improvement, which will be gratefully acknowledged.
My heartfelt thanks go to my dedicated team—Sugan Sharma, Deepak Pandey, R.K.Roy, Shiv Prakash Sharma,
Shridhar, Saurabh, and Raghav—whose hard work has been instrumental in bringing this book to life.
Especially, I would like to extend my heartfelt gratitude to our Chief Editor, Vinod Sukheja and our core team
members Gaurav Handa, Rajeev Thakur, Amit Gehlot, Mukul Gupta, Moksh Kushwaha & Shubhangi Pawar for
their invaluable insights and suggestions that have significantly contributed to the innovative nature of this
book. Their dedication and expertise have not only enriched the content but have also inspired a creative
approach throughout the writing process.
I would also like to extend my heartfelt gratitude to Babita Sharma, Chitra Kumar and Surinder Agarwal for their
contributions to the proofreading process. I deeply appreciate their dedication, expertise, and commitment to
identifying and correcting errors, which has significantly enhanced the overall quality of the publication.
A special acknowledgment goes to my pillar of strength, my mother Smt. Neeta Dey, whose unwavering support
has been a constant source of motivation. I also owe my thanks to my wife Shonali Dey and my children Vrinda
and Neel Madhav for their patience and understanding as I spent long hours working on this project.
This book is dedicated to the loving memory of my father, Late Sh. Kanai Dey, whose life principles continue to
inspire me.
Finally, I dedicate this work to the divine blessings of Sri Sri Radha Shyamsundar, HDG A.C. Bhaktivedanta Swami
Prabhupad (Founder Acharya of ISKCON) and my spiritual guide HH Gopal Krishna Goswami (GBC and BBT
Trustee of ISKCON). Their mercy and guidance have made this endeavor possible, as without their blessings, I
would not have been able to undertake this task.
With respect and devotion,
Subhash Dey
CBSE
CBSE Syllabus:
Syllabus: Volume II
Volume II
Accounting for Share
Capital
Accounting for Share Capital
" Features and types of companies.
 Features and types of companies.
" Share and share capital: nature and
 Share and share capital: nature and types.
types.
 Accounting for share capital: issue and allotment
" Accounting for share capital: issue and
of ofequity
allotment andpreferences
equity and preferences shares. Public
shares.subscription of shares
Public subscription - over
of shares - subscription and
under subscription
over subscription and underof shares; issue at par and at
subscription
of shares; issue atcalls
premium, par in
and at premium,
advance and arrears (excluding
calls in advance and arrears (excluding
interest), issue of shares for consideration other
interest), issue of shares for
than cash.
consideration other than cash.
 Concept of Private Placement and Employee
" Concept of Private Placement and
EmployeeStock Option
Stock PlanPlan
Option (ESOP), Sweat Equity.
(ESOP),
 Accounting
Sweat Equity. treatment of forfeiture and re-issue
of shares.
" Accounting treatment of forfeiture and
re-issue of shares.
 Disclosure of share capital in the Balance Sheet
" Disclosure
of a company. of share
capital in the Balance
Accounting
Sheet for Debentures
of a company.
 Debentures: Meaning, types; Issue of debentures
at par, at a premium and at a discount.
Accounting for for consideration other than
 Issue of debentures
Debentures
cash
 Issue ofMeaning,
" Debentures: debentures with
types, terms
Issue of of redemption
 Debentures
debentures as acollateral
at par, at premiumsecurity-concept
and at
a discount. Issue of debentures for
 Interest on debentures (concept of TDS is
consideration other than cash; Issue of
excluded)
debentures with terms of redemption;
 Writing
debentures as off discount
collateral / loss on issue of debentures.
security-concept,
interest
Note:onDiscount
debentures (concept
or loss of TDS
on issue ofisdebentures to be
excluded). Writing off discount / loss on
written off in the year debentures are allotted from
issue of debentures.
Security Premium Reserve (if it exists) and then
Note: Discount or loss on issue of
from Statement of Profit and Loss as Financial Cost
debentures to be written off in the year
(AS 16) are allotted from Security
debentures
Premium Reserve (if it exists) and then
from Statement of Profit and Loss as
Financial Cost (AS 16)
Chapter 5
ACCOUNTING FOR
DEBENTURES
Accounting for Debentures
CBSE Syllabus
 Debentures: Meaning, types, Issue of debentures at par, at a premium and at a
discount
 Issue of debentures with terms of redemption
 Writing off discount / loss on issue of debentures
 Interest on debentures (concept of TDS is excluded)
 Issue of debentures for consideration other than cash
 Debentures as collateral security — concept
Note:
Discount or loss on issue of debentures to be written off in the year debentures are
allotted from Securities Premium (if it exists) and then from Statement of Profit and
Loss as Financial Cost (AS 16)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.3

Debentures: Meaning, Types, Issue of Debentures at Par, at a Premium and at a Discount 5.1
Debentures: Concept
Meaning of Debentures
A company raises its capital by means of issue of shares. But the funds raised by the issue of shares are seldom adequate to meet
the long term financial needs of a company. Hence, most companies turn to raising long-term funds also through debentures,
known as long-term debt.
Debenture is a written instrument acknowledging a debt under the common seal of the company.
It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for
payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates.
Must know!
Methods of Issue of Debentures
• Issue of debentures to the public
• Private place of debentures
• Issue of debentures for consideration other than cash
• Issue of debentures as collateral security

Meaning
According to Section 2(30) of The Companies Act, 2013, ‘Debenture’ includes Debenture Inventory, Bonds and any other securities
of a company whether constituting a charge on the assets of the company or not.

‘Bond’ is also an instrument of acknowledgment of debt. Traditionally, the Government issued bonds, but
these days, bonds are also being issued by semi-government and non-governmental organisations. The
terms ‘Debentures’ and ‘Bonds’ are now being used inter-changeably.
Interesting Fact

Distinction between Shares and Debentures

Basis Shares Debentures
Ownership • A ‘share’ represents ownership of the company. • A ‘debenture’ is an acknowledgment of debt.
• A share is a part of the owned capital. • A debenture is a part of the borrowed capital.
• Shareholders are the owners of a company. • Debentureholders are the creditors of a company.
Return • The return on shares is known as ‘dividend’. • The return on debentures is called ‘interest’.
• The rate of dividend may vary from year to year • The rate of interest on debentures is prefixed.
depending upon the profits of the company. • The payment of interest is a charge on profits and
• The payment of dividend is an appropriation is to be paid even if there is no profit.
of profits.
Repayment Normally, the amount of shares is not returned Generally, the debentures are issued for a specified
during the life of the company. period and repayable on the expiry of that period.
Voting Rights Shareholders enjoy voting rights. Debentureholders do not normally enjoy any voting
right.
Security Shares are not secured by any charge. Debentures are generally secured and carry a fixed or
floating charge over the assets of the company.
Convertibility Shares cannot be converted into debentures. Debentures can be converted into shares if the terms
of issue so provide, and in that case these are known
as convertible debentures.
Issue at As a general rule, a company cannot ordinarily The Companies Act, 2013 does not impose any
discount issue shares at a discount. restrictions upon the issue of debentures at a discount.
5.4 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Fixed charge vs. Floating charge

• A fixed charge is created on a specific asset. It is created against those assets which are held by a company for use
in operations, not meant for sale.
• A floating charge is on the general assets of the company. It involves all assets excluding those assigned to the
secured creditors.

Types of Debentures
From the Point of view of Security
Secured Debentures Secured debentures refer to those debentures where a charge is created on the assets of the company
for the purpose of payment in case of default. The charge may be fixed or floating.
Unsecured Debentures Unsecured debentures do not have a specific charge on the assets of the company. However, a
floating charge may be created on these debentures by default. Normally, these kinds of debentures
are not issued.
From the Point of view of Tenure
Redeemable Redeemable debentures are those which are payable on the expiry of the specific period either in
Debentures lump sum or in instalments during the life time of the company. Debentures can be redeemed
either at par or at premium.
Irredeemable Irredeemable debentures are also known as Perpetual Debentures because the company does not
Debentures give any undertaking for the repayment of money borrowed by issuing such debentures. These
debentures are repayable on the winding-up of a company or on the expiry of a long period.
From the Point of view of Convertibility
Convertible Debentures which are convertible into equity shares or in any other security either at the option
Debentures of the company or the debentureholders are called convertible debentures. These debentures are
either fully convertible or partly convertible.
Non-Convertible The debentures which cannot be converted into shares or in any other securities are called non-
Debentures convertible debentures. Most debentures issued by companies fall in this category.
From Coupon Rate Point of view
Specific Coupon Rate These debentures are issued with a specified rate of interest, which is called the coupon rate. The
Debentures specified rate may either be fixed or floating. The floating interest rate is usually tagged with the
bank rate.
Zero Coupon Rate These debentures do not carry a specific rate of interest. In order to compensate the investors, such
Debentures debentures are issued at substantial discount and the difference between the nominal value and the
issue price is treated as the amount of interest related to the duration of the debentures.
From the view Point of Registration
Registered Debentures Registered debentures are those debentures in respect of which all details including names,
addresses and particulars of holding of the debentureholders are entered in a register kept by the
company. Such debentures can be transferred only by executing a regular transfer deed.
Bearer Debentures Bearer debentures are the debentures which can be transferred by way of delivery and the company
does not keep any record of the debentureholders. Interest on debentures is paid to a person who
produces the interest coupon attached to such debentures.

ISSUE OF DEBENTURES TO THE PUBLIC FOR CASH

The procedure for the issue of debentures is the same as that for the issue of shares. The intending investors apply for debentures
on the basis of the prospectus issued by the company. The company may either ask for the entire amount to be paid on
application or by means of instalments on application, on allotment and on various calls. Debentures can be issued at par, at a
premium or at a discount.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.5

Issue of Debentures at Par

Debentures are said to be issued at par when their issue price is equal to the face value.
The journal entries recorded for such issue are as under:
(a) If whole amount is received in one instalment:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
On receipt of the application money
Bank A/c Dr.
To Debenture Application & Allotment A/c
On Allotment of debentures
Debenture Application & Allotment A/c Dr.
To x% Debentures A/c
(b) If debenture amount is received in two instalments:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
On receipt of application money
Bank A/c Dr.
To Debenture Application A/c
For adjustment of applications money on allotment
Debenture Application A/c Dr.
To x% Debentures A/c
For allotment money due
Debenture Allotment A/c Dr.
To x% Debentures A/c
On receipt of allotment money
Bank A/c Dr.
To Debenture Allotment A/c

Top Tip
Normally the whole amount of debenture is collected on application or in two instalments, i.e., on application and allotment.
However, if debenture money is received in more than two instalments, following additional entries will be recorded:
(i) On making the first call
Debenture First Call A/c Dr.
To x% Debentures A/c
(ii) On the receipt of the first call
Bank A/c Dr.
To Debenture First Call A/c
Note: Similar entries may be made for the second call and the final call.

ILLUSTRATION 1
ABC Lmited issued 10,000, 12% debentures of `100 each payable `30 on application and remaining amount on allotment.
The public applied for 9,000 debentures which were fully allotted, and all the relevant allotment money was duly received.
Give journal entries in the books of ABC Ltd.
Solution: Books of ABC Limited
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 2,70,000
To Debenture Application A/c 2,70,000
(Application money on 9,000 debentures received)
5.6 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Debenture Application A/c Dr. 2,70,000

To 12% Debentures A/c 2,70,000
(Application money transferred to debentures Account on allotment)
Debenture Allotment A/c Dr. 6,30,000
To 12% Debentures A/c 6,30,000
(Amount due on 9,000 debentures on allotment @ `70 per debenture)
Bank A/c Dr. 6,30,000
To Debenture Allotment A/c 6,30,000
(Amount received on allotment)
Issue of Debentures at a Discount
When a debenture is issued at a price below its nominal value, it is said to be issued at a discount. For example, the
issue of `100 debentures at `95, `5 being the amount of discount.
The Companies Act, 2013 does not impose any restrictions upon the issue of debentures at a discount.
Top Tip
If nothing is specified, discount on issue of debentures is adjusted with allotment money.

ILLUSTRATION 2
TV Components Ltd., issued 10,000, 12% debentures of `100 each at a discount of 5% payable as follows:
On application `40
On allotment `55
Show the journal entries including those for cash, assuming that all the instalments were duly collected.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 4,00,000
To Debenture Application A/c 4,00,000
(Receipt of application money @ `30 per debenture)
Debenture Application A/c Dr. 4,00,000
To 12% Debenture A/c 4,00,000
(Transfer of application money to debenture account)
Debenture Allotment A/c Dr. 5,50,000
Discount on Issue of Debentures A/c Dr. 50,000
To 12% Debenture A/c 6,00,000
(Allotment money due on debentures)
Bank A/c Dr. 5,50,000
To Debenture Allotment A/c 5,50,000
(Receipt of allotment money on debentures)
Issue of Debentures at a Premium
A debenture is said to be issued at a premium when the issue price is more than its nominal value. For example, the
issue of `100 debentures for `110, `10 being the premium.
The amount of premium is credited to Securities Premium account and is shown on the liabilities side of the balance
sheet under the head “Reserves and Surpluses”.

ILLUSTRATION 3
XYZ Industries Ltd., issued 2,000, 10% debentures of `100 each, at a premium of `10 per debenture payable as follows:
On application `50 and On allotment `60 (including premium)
The debentures were fully subscribed and all money was duly received.
Record the journal entries in the books of a company.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.7

Solution: Books of XYZ Industries Ltd.

Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 1,00,000
To Debenture Application A/c 1,00,000
(Application money `50 per debentures received)
Debenture Application A/c Dr. 1,00,000
To 10% Debentures A/c 1,00,000
(Transfer of application money to debenture account)
Debenture Allotment A/c Dr. 1,20,000
To 10% Debentures A/c 1,00,000
To Securities Premium A/c 20,000
(Allotment money due on debentures including the premium)
Bank A/c Dr. 1,20,000
To Debenture Allotment A/c 1,20,000
(Allotment money received)
Over Subscription
When the number of debentures applied for is more than the number of debentures offered to the public, the issue is said to
be over subscribed. A company, however, cannot allot more debentures than it has invited for subscription. The excess money
received on over subscription may, however, be retained for adjustment towards allotment and the respective calls to be made. But
the money received from applicants to whom no debentures have been allotted, will be refunded to them.

ILLUSTRATION 4
X Limited Issued 10,000, 12% debentures of `100 each payable `40 on application and `60 on allotment. The public applied
for 14,000 debentures. Applications for 9,000 debentures were accepted in full; applications for 2,000 debentures were allotted
1,000 debentures and the remaining applications were rejected. All money was duly received. Journalise the transactions.
Solution: Books of X Limited
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 5,60,000
To Debenture Application A/c 5,60,000
(Receipt of application money on 14,000 debentures)
Debenture Application A/c Dr. 5,60,000
To 12% Debentures A/c 4,00,000
To Debentures Allotment A/c 40,000
To Bank A/c 1,20,000
(Debenture Application money transferred to Debenture A/c Excess
application money credited to Debenture Allotment account and money
refunded on rejected application)
Debenture Allotment A/c Dr. 6,00,000
To 12% Debentures A/c 6,00,000
(Amount due on allotment on 10,000 debentures)
Bank A/c Dr. 5,60,000
To Debenture Allotment A/c 5,60,000
(Allotment money received)
5.8 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

ILLUSTRATION 5
Narain Laxmi Ltd. invited applications for issuing 7,500, 12% Debentures of `100 each at a premium of `35 per Debenture.
The full amount was payable on application.
Applications were received for 10,000 Debentures. Applications for 2,500 Debentures were rejected and the application
money was refunded. Debentures were allotted to the remaining applicants.
Pass necessary Journal Entries for the above transactions in the books of Narain Laxmi Ltd.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 13,50,000
To Debentures Application & Allotment A/c 13,50,000
(Being the receipt of application money on 10,000 debentures)
Debentures Application & Allotment A/c Dr. 13,50,000
To 12% Debentures A/c 7,50,000
To Securities Premium A/c 2,62,500
To Bank A/c 3,37,500
(Being the allotment of 7500, 12% debentures of `100 each at a premium
of `35 per debenture and excess application money on 2500 debentures
@ `135 each refunded)

Multiple Choice Questions (MCQs) 5.1

Q.1 Most debentures issued by companies are:
(a) Convertible debentures (b) Secured debentures
(c) Convertible and Unsecured debentures (d) Non-Convertible and Secured debentures
Q.2 Those debentures where a charge is created on the assets of the company for the purpose of payment in case of default are
called:
(a) Perpetual debentures (b) Bearer debentures (c) Mortgaged debentures (d) Zero coupon rate debentures
Q.3 Debentures which are transferable by mere delivery are:
(a) Registered debentures (b) Perpetual debentures (c) Bearer debentures (d) Convertible debentures
Q.4 Convertible debentures cannot be issued at a discount if:
(a) They are to be immediately converted (b) They are not to be immediately converted
(c) They are irredeemable debentures (d) None of the above
Q.5 Assertion (A): Perpetual debentures are also known as irredeemable debentures.
Reason (R): Because the company does not give any undertaking for the repayment of money borrowed by issuing
such debentures.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(b) Both (A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.6 Assertion (A): Irredeemable debentures are never repayable.
Reason (R): Irredeemable debentures are repayable on the winding up of a company or on the expiry of a long-
period.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.7 Maximum limit on premium on issue of debentures is:
(a) 10% (b) 20% (c) 15% (d) No limit
Q.8 Debentures are issued through:
(a) Private Placement (b) Offering the same to the public. (c) Both (a) and (b) (d) Right issue
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.9

Q.9 Assertion (A): Irredeemable debentures are also known as perpetual debentures.
Reason (R): Because these are not repayable during the life span of the company.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both (A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.10 Assertion (A): Debentures can be issued at par, at a premium or at a discount.
Reason (R): Debentures cannot be issued at a discount.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.11 Assertion (A): Generally, debentures are secured and carry a fixed or floating charge over the assets of the company.
Reason (R): Debentures are not secured by any charge.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.12 At the time of issue of debentures, debentures account is:
(a) Credited by the amount Received (b) Credited by the issue price of the debentures
(c) Credited by nominal value of the debenture (d) None of the above
Q.13 Assertion (A): Unsecured debentures do not have any charge on the assets of the company.
Reason (R): Unsecured debentures do not have a specific (fixed) charge on the assets of the company. However, a
floating charge may be created on these debentures.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.14 Assertion (A): Debentures is known as loan capital.
Reason (R): Debentures is an acknowledgment of debt. It contains a contract for repayment of principle either lump-
sum after a specific period or in installments and for payment of interest of a fixed rate either half yearly or annually.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both (A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.15 Sujata Ltd. issued 5,000, 7% Debentures of `100 each at a premium of 10%. According to the terms of issue, 40% of
the amount was payable on application and the balance on allotment. The issue was fully subscribed and all amounts
were duly received. The amounts received on application and allotment respectively were:
(a) `2,50,000 and `3,00,000 (b) `2,00,000 and `3,00,000 (c) `2,00,000 and `3,50,000(d) `2,00,000 and `2,50,000
Q.16 Identify the type of debentures which do not have a specific charge on the assets of the company. However, a floating
charge may be created on these debentures by default. Normally, these kinds of debentures are not issued.
(a) Perpetual Debentures (b) Redeemable Debentures (c) Unsecured Debentures (d) Secured Debentures
Q.17 Statement-I: Debenture is a part of borrowed capital.
Statement-II: The debentures cannot be issued at a discount of more than 10% of the face value.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.18 Assertion (A): Redeemable debentures are those debentures, which are payable on the expiry of the specific period.
Reason (R): Redeemable debentures are payable either in lump sum on maturity or in instalments during the life time of
the company.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.19 Assertion (A): Most companies raise long-term funds through debentures.
Reason (R): The funds raised by the issue of shares are not adequate to meet the long-term financial needs of a
company.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.20 Statement-I: The payment of divided on shares is a charge on profits.
Statement-II: The payment of interest on debentures is an appropriation of profits of the company.
5.10 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.21 Statement-I: Normally, debentures are issued with a specified rate of interest, which is called coupon rate.
Statement-II: The rate of interest may either be fixed or floating. The floating interest rate is usually tagged with the
bank rate.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.22 Statement-I: Those debentures which do not carry a specific rate of interest are called Zero coupon rate debentures.
Statement-II: A company does not keep any record of the bearer debenture-holders. Interest on debentures is paid to a
person who produces the interest coupon attached to such debentures.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.23 Misha Ltd. issued 6,000, 8% Debentures of `100 each at `96 per debenture. 8% Debentures Account will be credited by:
(a) `5,76,000 (b) `24,000 (c) `6,00,000 (d) `60,000
Q.24 The debentures which do not have a specific charge on the assets of the company are called:
(a) Redeemable Debentures (b) Unsecured Debentures
(c) Zero Coupon Rate Debentures (d) Non-Convertible Debentures
Q.25 The debentures which do not carry a specific rate of interest are called:
(a) Zero Coupon Rate Debentures (b) Specific Coupon Rate Debentures
(c) Unsecured Debentures (d) Secured Debentures
Q.26 Debentures are shown in the balance sheet of the company under the head of:
(a) Non-Current liabilities (b) Current liability (c) Share capital (d) None of these

A NSWERS
1. (d) 2. (c) 3. (c) 4. (a) 5. (b) 6. (c) 7. (d) 8. (c) 9. (b) 10. (a)
11. (a) 12. (c) 13. (c) 14. (b) 15. (c) 16. (c) 17. (c) 18. (b) 19. (b) 20. (b)
21. (a) 22. (a) 23. (c) 24. (b) 25. (a) 26. (a)

Numerical Ques
Questions
tions (for Practice) 5.1
Q.1 A Ltd. issued 5,000, 10% debentures of `100 each, at a premium of `10 per debenture payable as follows: On
application `25, On allotment `45 (including premium) and On first and final call `40. The debentures were fully
subscribed and all money was duly received. Record the necessary entries in the books of the company.
Q.2 Nav Lakshmi Ltd. invited applications for issuing 3,000, 12% Debentures of `100 each at a premium of `50 per
Debenture. The full amount was payable on application. Applications were received for 4,000 debentures. Applications
for 1,000 debentures were rejected and application money was refunded. Debentures were allotted to the remaining
applicants. Pass necessary Journal entries for the above transactions in the books of Nav Lakshmi Ltd.
Q.3 BGP Ltd. invited applications for issuing 15,000, 11% debentures of `100 each at a premium of `50 per debenture.
The full amount was payable on application. Applications were received for 25,000 debentures. Applications for 5,000
debentures were rejected and the application money refunded. Debentures were alloted to the remaining applicants on
pro-rata basis. Pass the necessary journal entries for the above transactions in the books of BGP Ltd.
Q.4 XZ Ltd. invited applications for issuing 5000, 9% debentures of `100 each. The amount was payable as follows : On
application – `40 per debenture and On allotment – Balance. Applications for 10,000 debentures were received.
Applications for 2000 debentures were rejected and the application money of these applicants was refunded to them.
Pro-rata allotment was made to the remaining applicants. Excess application money received with those applications
against which pro-rata allotment was made was adjusted towards amount due on allotment. Pass the necessary journal
entries for the issue of debentures in the books of XZ Ltd.
Q.5 Dhatu Ltd. invited applications for issuing 4,000, 11% Debentures of `100 each at a premium of `50 per debenture.
Full amount was payable on application. Applications were received for 5,000 debentures. Applications for 1,000
debentures were rejected and application money was refunded. Debentures were allotted to the remaining applicants.
Pass necessary journal entries for the above transactions in the books of Dhatu Ltd.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.11

Issue of Debentures with Terms of Redemption 5.2

When a company issues debentures, it usually mentions the terms on which they will be redeemed on their maturity.
Redemption of debentures means discharge of liability on account of debentures by repayment made to the
debentureholders.
Top Tip
Debentures can be redeemed either at par or at a premium. Debentures are never redeemed at a discount.
Depending upon the terms and conditions of issue and redemption of debentures, the following six situations are commonly
found in practice:
(i) Issued at par and redeemable at par (ii) Issued at a discount and redeemable at par
(iii) Issued at a premium and redeemable at par (iv) Issued at par and redeemable at a premium
(v) Issued at a discount and redeemable at a premium (vi) Issued at a premium and redeemable at a premium
1. Issued at par and redeemable at par
The following journal entries will be passed for issue of debentures:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
For receipt of application money
Bank A/c Dr.
To Debenture Application & Allotment A/c
For allotment of debentures
Debenture Application & Allotment A/c Dr.
To x% Debentures A/c
A company issued 1,000, 9% debentures of `100 each at par and redeemable at par. The following journal
entries will be passed for issue of debentures:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 1,00,000
To Debenture Application & Allotment A/c 1,00,000
(Debentures Application money received)
Debenture Application & Allotment A/c Dr. 1,00,000
To 9% Debentures A/c 1,00,000
(Application money transferred to Debentures Account)
2. Issued at a discount and redeemable at par
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
For receipt of application money
Bank A/c Dr.
To Debenture Application & Allotment A/c
For allotment of debentures at a discount
Debenture Application & Allotment A/c Dr.
Discount on Issue of Debentures A/c Dr.
To x% Debentures A/c

A company issued `1,00,000, 9% debentures of `100 each at discount of 5% repayable at par. The following
journal entries will be passed for issue of debentures:
5.12 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 95,000
To Debenture Application & Allotment A/c 95,000
(Debentures application money received)
Debenture Application & Allotment A/c Dr. 95,000
Discount on Issue of Debentures A/c Dr. 5,000
To 9% Debentures A/c 1,00,000
(Debentures application money transferred to Debentures
account)
3. Issued at premium and redeemable at par
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
For receipt of application money
Bank A/c Dr.
To Debenture Application & Allotment A/c
For allotment of debentures at a premium
Debenture Application & Allotment A/c Dr.
To x% Debentures A/c (with nominal value of debenture)
To Securities Premium A/c (with premium on issue)
A company issued `1,00,000, 9% debentures of `100 each at premium of 5% but redeemable at par. The
following journal entries will be passed for issue of debentures:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 1,05,000
To Debenture Application & Allotment A/c 1,05,000
(Debentures application money received)
Debenture Application & Allotment A/c Dr. 1,05,000
To 9% Debentures A/c 1,00,000
To Securities Premium A/c 5,000
(Debentures application money transferred to Debentures
& Securities Premium account)
4. Issued at par and redeemable at a premium
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
For receipt of application money
Bank A/c Dr.
To Debenture Application & Allotment A/c
For allotment of debentures at par and redeemable at premium
Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c (with premium on redemption) Dr.
To x% Debentures A/c (with nominal value of debenture)
To Premium on Redemption of Debenture A/c

Top Tips
1. When debentures are redeemable at a premium, a provision has to be made right at the time of the issue by debiting the
amount to ‘Loss on Issue of Debentures A/c’ and crediting ‘Premium on Redemption of Debenture A/c’.
2. Premium on redemption of debentures is a liability of a company payable in future. It is shown under the head ‘Non-
current liabilities’ under sub-head ‘Other Long-term Liabilities’ until debentures are redeemed.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.13

A company issued 1,000, 9% debentures of `100 each at par but repayable at a premium of 5%. The
following journal entries will be passed for issue of debentures:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 1,00,000
To Debenture Application & Allotment A/c 1,00,000
(Debentures Application money received)
Debenture Application & Allotment A/c Dr. 1,00,000
Loss on Issue of Debentures A/c Dr. 5,000
To 9% Debentures A/c 1,00,000
To Premium on Redemption of Debentures A/c 5,000
(Debentures Application money transferred to Debentures account)

5. Issued at a discount and redeemable at a premium

Journal
Date Particulars L.F. Dr. (`) Cr. (`)
For receipt of application money
Bank A/c Dr.
To Debenture Application & Allotment A/c
For allotment of debentures at a discount and redeemable at premium
Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.
(with discount on issue and premium on redemption)
To x% Debentures A/c (with nominal value of debenture)
To Premium on Redemption of Debentures A/c

When debentures are issued at a discount and are redeemable at a premium, the amount of discount on
issue of debentures is also debited to ‘Loss on Issue of Debentures’. Thus, Loss on Issue of Debentures
includes discount on issue of debentures and premium on redemption of debentures.
Interesting Fact

A company issued `1,00,000, 9% debentures of `100 each at discount of 5% but redeemable at premium
of 5%. The following journal entries will be passed for issue of debentures:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 95,000
To Debenture Application & Allotment A/c 95,000
(Debentures Application money received)
Debenture Application & Allotment A/c Dr. 95,000
Loss on Issue of Debentures A/c Dr. 10,000
To 9% Debentures A/c 1,00,000
To Premium on Redemption of Debentures A/c 5,000
(Debentures application money transferred)

6. Issued at a premium and redeemable at a premium

The following journal entries will be passed for issue of debentures:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
For receipt of application money
Bank A/c Dr.
To Debenture Application & Allotment A/c
5.14 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

For allotment of debentures at premium and redeemable at premium

Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c(with premium on redemption) Dr.
To Debentures A/c (with nominal value of debenture)
To Securities Premium A/c (with premium on issue)
To Premium on Redemption of Debentures A/c
A company issued 1,000, 9% debentures of `100 each at premium of 5% and redeemable at premium of
5%. The following journal entries will be passed for issue of debentures:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 1,05,000
To Debenture Application & Allotment A/c 1,05,000
(Debentures Application money received)
Debenture Application & Allotment A/c Dr. 1,05,000
Loss on Issue of Debentures A/c Dr. 5,000
To 9% Debenture A/c 1,00,000
To Premium on Redemption of Debentures A/c 5,000
To Securities Premium A/c 5,000
(Debenture application money transferred to debentures
account)

ILLUSTRATIONS 5.2

ILLUSTRATION 6

Pass Journal entries relating to issue of debentures in the books of Novex Ltd. in each of following cases :
(i) Issued 30,000, 10% Debentures of `100 each at a premium of 10%, redeemable at par.
(ii) Issued 4,000, 10% Debentures of `100 each at a premium of 15%, redeemable at a premium of 10%.
(iii) Issued 5,000, 10% Debentures of `100 each at a discount of 5%, redeemable at a premium of 10%.
Solution: Books of Novex Ltd.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
(i) Bank A/c Dr. 33,00,000
To Debenture Application and Allotment A/c 33,00,000
(Debenture Application money received)
Debenture Application and Allotment A/c. Dr. 33,00,000
To 10% Debentures A/c 30,00,000
  To Securities Premium A/c 3,00,000
(Debenture Application money transferred to Debentures and Securities
Premium account)
(ii) Bank A/c Dr. 4,60,000
  To Debenture Application and Allotment A/c 4,60,000
(Debenture Application money received)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.15

Debenture Application and Allotment A/c Dr. 4,60,000

Loss on issue of Debentures A/c Dr. 40,000
  To 10% Debentures A/c 4,00,000
  To Securities Premium A/c 60,000
  To Premium on redemption of Debentures A/c 40,000
(Debenture Application money transferred to Debentures and Securities
Premium account and provision for premium on redemption of debentures
made)
(iii) Bank A/c Dr. 4,75,000
  To Debenture Application and Allotment A/c 4,75,000
(Debenture Application money received)
Debenture Application and Allotment A/c Dr. 4,75,000
Loss on issue of Debentures A/c Dr. 75,000
  To 10% Debentures A/c 5,00,000
  To Premium on redemption of Debentures A/c 50,000
(Debenture Application money transferred to Debentures and provision
for premium on redemption of debentures made)

ILLUSTRATION 7
Pass the necessary journal entries for ‘Issue of Debentures’ for the following:
(i) Arman Ltd. issued 750, 12% Debentures of `100 each at a discount of 10% redeemable at a premium of 5%.
(ii) Sohan Ltd. issued 800, 9% Debentures of `100 each at a premium of 20 per debenture redeemable at a premium
of `10 per Debenture
Solution: Journal
Date Particulars Dr. (`) Cr. (`)
(i) Bank A/c Dr. 67,500
To Debenture Application and Allotment A/c 67,500
(Being applications received)
Debenture Application and Allotment A/c Dr. 67,500
Loss on issue of Debentures A/c Dr. 11,250
To 12% Debentures A/c 75,000
To Premium on redemption of debentures A/c 3,750
(Debentures issued at discount redeemable at premium)
(ii) Bank A/c Dr. 96,000
To Debenture Application and allotment A/c 96,000
(Being applications received)
Debenture Application and allotment A/c 96,000
Loss on issue of Debentures A/c 8,000
To 12% Debentures A/c 80,000
To Securities Premium A/c 16,000
To Premium on Redemption A/c 8,000
(Being Debentures issued at redeemable at premium)
5.16 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Competency Based Illustrations 5.2

ILLUSTRATION 8
Pass necessary journal entries and prepare 9% Debentures Account for the issue of 7,500, 9% Debentures of `50 each at a
discount of 6%, redeemable at a premium of 10%.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
(a) Bank A/c Dr. 3,52,500
To Debenture Application & Allotment A/c 3,52,500
(Applications received for 7,500, 9% debentures issued at 6% discount)
(b) Debenture Application & Allotment A/c Dr. 3,52,500
Loss on issue of Debentures A/c Dr. 60,000
To 9% Debentures A/c 3,75,000
To Premium on Redemption of Debenture A/c 37,500
(Allotment of 7,500, 9% debentures issued at 6% discount redeemable at
10% premium)
9% Debentures A/c
Date Particulars Amount (`) Date Particulars Amount (`)
To Balance c/d 3,75,000 By Debenture Application & 3,52,500
Allotment A/c
By Loss on issue of Debentures 22,500
A/c
3,75,000 3,75,000

ILLUSTRATION 9
Fill in the blanks in the following case:
Books of GG Ltd.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
______________________ Dr. _________
To ____________ _________
(Applications received on 2,000, 12% debentures of `100 each issued at a
premium of 5% and redeemable at a premium of 10%)
______________________ Dr. _________
______________________ Dr. _________
To ____________ _________
To ____________ _________
_________
To ____________
(_____________________________________________)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.17
Solution: Books of GG Ltd.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 2,10,000
To Debenture Application and Allotment A/c 2,10,000
(Applications received on 2,000, 12% debentures of `100 each issued at
a premium of 5% and redeemable at a premium of 10%)
Debenture Application and Allotment A/c Dr. 2,10,000
Loss on Issue of Debentures A/c Dr. 20,000
To 12% Debentures A/c 2,00,000
To Securities Premium A/c 10,000
To Premium on Redemption of Debentures A/c 20,000
(Allotment of 2,000 12% debentures at 5% premium, redeemable at
10% premium)

ILLUSTRATION 10
Alok Ltd. issued 7,000, 10% debentures of `500 each at a premium of `50 per debenture redeemable at a premium of 10%
after 5 years. According to the terms of issue, `200 was payable on application and balance on allotment.
Record necessary journal entries at the time of issue of 10% debentures.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 14,00,000
To Debenture Application A/c 14,00,000
(For application money received on 7,000 10% Debentures @ R 200
each)
Debenture Application A/c Dr. 14,00,000
To 10% Debenture A/c 14,00,000
(For application money adjusted)
Debenture Allotment A/c Dr. 24,50,000
Loss on issue of debenture A/c Dr. 3,50,000
To 10% Debenture A/c 21,00,000
To Securities Premium A/c 3,50,000
To Premium on redemption of debenture A/c 3,50,000
(For allotment money due)
Bank A/c Dr. 24,50,000
To Debenture Allotment A/c 24,50,000
(For allotment money received)

Multiple Choice Questions (MCQs) 5.2

Q.1 When 1,000 debentures of `100 each were issued at 5% discount, redeemable at a premium of 8%, how much amount
will be credited to premium on redemption of debentures account?
(a) `7,600 (b) `13,000 (c) `8,000 (d) `5,400
Q.2 When debentures are issued at par and are redeemable at a premium, the loss on such an issue debited to :
(a) Statement of profit and loss (b) Debentures applications and allotment account
(c) Loss on issue of debentures account (d) Premium on redemption of debentures account
5.18 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Q.3 Statement-I: When debentures issued at a discount and are redeemable at par, discount on issue of debentures account
is credited.
Statement-II: Bond is an instrument of debt owed by a Company.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.4 Statement-I: Redemption of debentures means discharge of liability on account of debentures by repayment made to
the debentureholders.
Statement-II: When debentures are issued at a discount and are redeemable at a premium, only amount of premium
on redemption of debentures is debited to Loss on issue of debentures account.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.5 Assertion (A): Debentures cannot be redeemed at a discount.
Reason (R): Debentures can be redeemed either at par or the a premium.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Q.6 Statement-I: When debentures are redeemable at a premium, a provision has to be made right at the time the issue by
debiting the amount to Premium on Redemption of Debentures account and crediting Loss on issue of debentures
account.
Statement-II: When a company purchases the whole business of the another concern, the purchase consideration is
equal to the value of net assets taken over.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.7 Statement-I: A company issued 500 debentures of `100 each at 5% discount, redeemable at 7% premium. `3,500
will be credited to premium on redemption of debentures account.
Statement-II: A company issued 100 debentures of `100 each at par redeemable at 5% premium. `500 will be debited
to Loss on Issue of Debenture A/c.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.8 On 1st May, 2024, Amrit Ltd. issued 10,000, 10% debentures of `100 each at a premium of 10% redeemable at a
premium of 10%. Loss on issue of debentures will be:
(a) `2,00,000 (b) `1,30,000 (c) `1,00,000 (d) `80,000
Q.9 Aarav Ltd. issued 10,000, 9% debentures of ` 100 each at a premium of 5%, redeemable at a premium of 10%. Loss
on issue of debentures account will be debited by:
(a) `10,00,000 (b) `1,00,000 (c) `1,50,000 (d) `1,05,000
Q.10 Nagar Ltd. issued 6,000, 11% Debentures of `100 each at a discount of 10% redeemable at a premium. ‘Discount
on issue of debentures’ and ‘Premium on redemption of debentures’ were accounted for through ‘Loss on issue of
debentures account’. If the amount of ‘Loss on issue of debentures’ was `90,000, then the amount of premium on
redemption of debentures was:
(a) ` 60,000 (b) ` 90,000 (c) ` 1,20,000 (d) ` 30,000
Q.11 The following journal entry appears in the books of X Co. Ltd.
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 4,75,000
Loss on issue of debenture A/c Dr. 75,000
To 12% Debentures A/c 5,00,000
To Premium on Redemption of Debenture A/c 50,000
Debentures have been issued at a discount of:
(a) 15% (b) 5% (c) 10% (d) Nil
Q.12 When debentures are issued at a discount and are redeemable at a premium, which one of the following accounts is
debited at the time of issue?
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.19
(a) Debentures account (b) Premium on redemption of debentures account
(c) Loss on issue of debentures account (d) Discount on issue of debentures account
Q.13 When debentures are issued at a discount and are redeemable at a premium, loss on issue of debentures account
includes:
(a) Premium on redemption of debentures (b) Discount on issue of debentures
(c) Both (a) and (b) (d) Interest on debentures
Q.14 ABC limited issue 10,000, 9% debentures of `100 each at a premium of 5% redeemable at a premium of 10%.The
loss on issue of debentures account will be debited to by:
(a) `10,00,000 (b) `1,00,000 (c) `10,50,000 (d) `1,05,000
Q.15 A 10% debenture of `100 is issued at `105, repayable at `110. The amount of loss on issue of debentures is:
(a) `10 (b) `5 (c) `15 (d) `25
Q.16 Premium on redemption of debentures is ________ for the company.
(a) asset (b) liability (c) revenue (d) expense
Q.17 Debentures cannot be redeemed at:
(a) premium (b) discount (c) more than 10% premium (d) at par

A NSWERS
1. (c) 2. (c) 3. (d) 4. (c) 5. (a) 6. (d) 7. (a) 8. (c) 9. (b) 10. (d)
11. (b) 12. (c) 13. (c) 14. (b) 15. (a) 16. (b) 17. (b)

Numerical Ques
Questions
tions (for Practice) 5.2
Q.1 Zed Ltd. issued 2,00,000,8% debentures of `100 each at a discount of 6% redeemable at a premium of 10% after
5 years. The amount was payable as follows: On application- `50 per debenture and; On allotment- balance.
Record the necessary journal entries for the issue of debentures only in the books of Zed Ltd.
Q.2 You are required to pass the journal entries relating to the issue of the debentures in the books of X Ltd.
(a) 120, 8% debentures of `1,000 each are issued at 5% discount and repayable at par.
(b) 150, 7% debentures of `1,000 each are issued at 5% discount and repayable at premium of 10%.
(c) 80, 9% debentures of `1,000 each are issued at 5% premium.
Q.3 Pass the necessary journal entries for the issue of 9% debentures in the following cases:
(a) Issued `5,00,000, 9% debentures of ` 100 each at par, redeemable at par, after three years.
(b) Issued 4,000, 9% debentures of `100 each at a discount of 3%, redeemable at a premium of 10% after five years.
(c) Issued 10,000, 9% debentures of ` 100 each issued at a premium of 20%, redeemable at a premium of 10% after
five years.
Q.4 Pass the necessary journal entries in the books of Pankaj Limited for the issue of Debentures only in the following cases:
(a) Issued 7500, 10% Debentures of `100 each at a discount of `10,000 redeemable at a premium of 5%.
(b) Issued 5000, 10% Debentures of `100 each at a premium of 10%redeemable at a premium of 10%.
(c) Issued ` 2,00,000, 9% Debentures of `100 each at a discount of 10% redeemable at par.
(d) Issued 5000, 9% Debentures of `100 each at 20% premium redeemable at par.
Q.5 Pass necessary journal entries for issue of debentures for the following transactions:
(i) Kajal Ltd. issued 30,000, 11% Debentures of `100 each at a discount of 10%, redeemable at a premium of 5%.
(ii) Ninja Ltd. issued 32,000, 8% Debentures of `100 each at a premium `20 per debenture, redeemable at a premium
of `10 per debenture.
(iii) Him Ltd. issued 40,000, 13% Debentures of `100 each at par, redeemable at a premium of 10%.
Q.6 On 1st April, 2024, RJ Ltd. issued `10,00,000, 9% debentures of `100 each at a discount of 10%. These debentures
were redeemable at a premium of 5% after four years.
Pass necessary journal entries for the issue of debentures and prepare 9% Debentures Account.
5.20 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Writing-off Discount/Loss on Issue of Debentures (AS 16) 5.3

Discount or loss on issue of debentures is to be written off in the year debentures are allotted from Securities Premium (if it
exists) and then from Statement of Profit and Loss as Financial Cost (AS 16).
The following journal entry is passed:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Securities Premium A/c Dr.
Statement of Profit and Loss Dr.
To Discount or Loss on Issue of Debentures A/c
(Being discount or loss on issue of debentures written-off )

ILLUSTRATIONS 5.3
ILLUSTRATION 11
On 1 April 2024, A Ltd. has issued `1,00,000, 9% debentures of `100 each at a discount of 6%. These debentures are to be
redeemed equally, spread over 5 annual instalments, starting from 31 March 2025.
Pass necessary journal entries for issue of debentures and writing off discount on issue of debentures. Also, show Discount on
issue of debentures account.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2024 Bank A/c Dr. 94,000
1 April To Debenture Application and Allotment A/c 94,000
(Being money received on issue of 1,000 Debentures)
Debenture Application and Allotment A/c Dr. 94,000
Discount on Issue of Debentures A/c Dr. 6,000
To 9% Debentures A/c
(Being debentures alloted at 6% discount) 1,00,000
2025 Statement of Profit and Loss Dr. 6,000
31 Mar. To Discount on Issue of Debentures A/c 6,000
(Being discount/loss on issue of debentures written-off )
Dr. Discount on Issue of Debentures Account Cr.
Date Particulars (`) Date Particulars (`)
2024 To 9% Debentures A/c 6,000 2025 By Statement of Profit & Loss 6,000
1 April 31 Mar.
6,000 6,000

ILLUSTRATION 12
On 1st April 2024, P Ltd. issued 6,000 12% Debentures of `100 each at a discount of 5%, redeemable at a premium of 7%
at the end of third year. On 31 March, 2025 Securities Premium exists in the books at `50,000. Pass necessary journal entries
for issue of debentures and writing off loss on issue of debentures. Also, prepare Loss on Issue of Debentures Account.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.21
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2024 Bank A/c Dr. 5,70,000
1 April To Debenture Application and Allotment A/c 5,70,000
(Being money received on issue of debentures)
Debenture Application and Allotment A/c Dr. 5,70,000
Loss on Issue of Debentures A/c Dr. 72,000
To 9% Debentures A/c 6,00,000
To Premium on Redemption of Debentures A/c 42,000
(Being debentures alloted at 5% discount, redeemable at 7% premium)
2025 Securities Premium A/c Dr. 50,000
31 Mar. Statement of Profit and Loss Dr. 22,000
To Loss on Issue of Debentures A/c 72,000
(Being discount/loss on issue of debentures written-off )
Dr. Loss on Issue of Debentures Account Cr.
Date Particulars (`) Date Particulars (`)
2024 To 12% Debentures A/c 30,000 2025 By Securities Premium A/c 50,000
April 1 To Premium on Redemption of 42,000 Mar 31 By Statement of Profit and Loss 22,000
Debentures A/c
72,000 72,000

ILLUSTRATION 13
On 1.4.2024 Fast Computers Ltd. issued 20,000, 6% debentures of `100 each at a discount of 4%, redeemable at a premium
of 5% after three years. The amount was payable as follows:
On application `50 per debenture and balance on allotment (after two months)
On that date, balance of Securities Premium stood at `50,000.
Record the necessary journal entries for issue of debentures. Also, prepare loss on issue of debentures account.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2024 Bank A/c Dr. 10,00,000
1 April To Debenture Application A/c 10,00,000
(Money received on application on 20,000 6% debentures @ `50)
1 June Debenture Application A/c Dr. 10,00,000
To 6% Debenture A/c 10,00,000
(Application money tr. to Debenture A/c)
Debenture Allotment A/c Dr. 9,20,000
Loss on Issue of Debenture A/c Dr. 1,80,000
To 6% Debentures A/c 10,00,000
To Premium on Redemption of Debenture A/c 1,00,000
(20,000 6% debentures alloted at 4% discount redeemable at 5%
premium, F.V. being `100)
Bank A/c Dr. 9,20,000
To 6% Debentures Allotment A/c 9,20,000
(Money received on allotment)
Dr. Loss on Issue of Debentures Account Cr.
Date Particulars (`) Date Particulars (`)
2024 To 6% Debentures A/c 80,000 2025 By Securities Premium A/c 50,000
1 June To Premium on Redemption of 1,00,000 Mar 31 By Statement of Profit and Loss 1,30,000
Debentures A/c
1,80,000 1,80,000
5.22 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Competency Based Illustrations 5.3

ILLUSTRATION 14
Study the following journal of ABC Ltd. Explain why the given entries have been made.
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 1,42,500
To Debenture Application and Allotment A/c 1,42,500
Debenture Application and Allotment A/c Dr. 1,42,500
Loss on Issue of Debentures A/c Dr. 22,500
To 8% Debentures A/c 1,50,000
To Premium on Redemption of Debenture A/c 15,000
Securities Premium A/c Dr. 20,000
Statement of Profit and Loss Dr. 2,500
To Loss on Issue of Debentures A/c 22,500
Solution: From the given journal entries, we can see that 8% debentures of `1,50,000 are issued at a discount 5% and are
repayable at a premium of 10%.
• Premium on redemption of debentures is a liability of a company payable in the future. When debentures are redeemable at
a premium, the premium payable on redemption is debited to ‘Loss on Issue of Debentures A/c’.
• Furthermore, when debentures are issued at a discount and are redeemable at a premium, the amount of discount on issue
of debentures is also debited to ‘Loss on Issue of Debentures A/c’.
• Loss on issue of debentures `22,500 is a capital loss and is written-off in the same year when debentures are issued (as per
AS 16).
It can be written-off from Securities Premium (if it exists) (`20,000). In case, Securities Premium does not exist or is inadequate,
the amount or the balance (`2,500) should be written-off against revenue profits of the year, i.e. by debiting Statement of
Profit and Loss.

ILLUSTRATION 15
ABC Handicrafts Ltd. is a company whose objective is to promote the sales of Indian handloom and handicraft products.
Its sells fabrics, furnishings, readymades and household items which are made out of traditional Indian fabrics. Sanjana, the
director of the company, decides quantities, variety, colour and texture of all the above items and then allocates resources for
their purchase from different suppliers. She appoints a team of designers and crafts people in the company, who developed
some prints for bed covers in bright colours on silk. Since the funds raised by the issue of shares were inadequate to meet
their long-term financial needs, it decided to raise long-term funds through debentures.
On 1.4.2024 the company invited applications for issuing 10,000, 9% debentures of `100 each at a discount of 6%. The
entire amount was payable with application. Applications for 12,000,9% debentures were received. 9% debentures were
allotted on pro-rata basis to all the applicants. Excess money received with applications was refunded. On 31.3.2025 the
company decided to write off discount on issue of debentures according to the provisions of the Companies Act, 2013. On
that date the company had `10,000 in its securities premium account.
Pass necessary journal entries for the above transactions in the books of the company.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2024 Bank A/c Dr. 11,28,000
April 1 To Debenture Application and Allotment A/c 11,28,000
(Receipt of application money on 12,000 debentures)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.23

Debenture Application and Allotment A/c Dr. 11,28,000

Discount on issue of debenture A/c Dr. 60,000
To 9% Debentures A/c 10,00,000
To Bank A/c 1,88,000
(Debentures alloted)
2025 Securities Premium A/c Dr. 10,000
March 31 Statement of Profit and Loss Dr. 50,000
To Discount on issue of Debenture A/c 60,000
(Discount written off )

ILLUSTRATION 16
‘Amrit Ltd.’ is a company manufacturing cotton yarn. It has been consistently earning good profits for many years. This year
too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for
growth in future. To expand the business, it has two options:
Option I: Obtaining a loan of `40 lakhs from IDBI and bound by certain restrictions on the payment of dividend according
to the terms of loan agreement.
Option II: Issue of 8% debentures of `100 each
On May 01, 2024 Amrit Ltd. decided to issue 10,000, 8% debentures of `100 each of a discount of 10% redeemable
of a premium of 10%. The issue was subscribed and amount was duly received. The company had balance of `70,000 is
Securities Premium on that date. On January 01, 2025, it issued 1,00,000, 9% Preference shares of `10 each at a premium of
10%. Issue was also fully subscribed.
Pass necessary journal entries for issue of debentures and to write-off Discount/Loss on issue of debentures.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
May 01, Bank A/c Dr. 9,00,000
2024 To Debenture Application and Allotment A/c 9,00,000
(Debenture application money received)
Debenture Application and Allotment A/c. Dr. 9,00,000
Loss on Issue of Debenture A/c. Dr. 2,00,000
To 8% Debenture A/c 10,00,000
To Premium on Redemption of Debentures A/c 1,00,000
(Debenture allotment and Debentures application and Allotment
amount transferred)
Jan 01, Bank A/c. Dr. 11,00,000
2025 To Pref. Share App. and Allot. A/c 11,00,000
(Share application money received)
Pref. Share App. and Allot. A/c Dr. 11,00,000
To 9% Preference Share Capital A/c 10,00,000
To Securities Premium A/c 1,00,000
(allotment of shares)
March 31, Securities Premium A/c Dr. 1,70,000
2025 Statement of Profit and Loss Dr. 30,000
To Loss on Issue of Debentures A/c 2,00,000
(Loss on Issue of Debentures written off )
5.24 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

ILLUSTRATION 17
Fill in the blanks in the following case:
Journal of Radhika Ltd.
Date Particulars L.F. Dr. (`) Cr. (`)
______________________ Dr. _________
To ____________ _________
(Applications received on 2,000, 12% debentures of `100 each issued
at a premium of 5% and redeemable at a premium of 10%)
______________________ Dr. _________
______________________ Dr. _________
To ____________ _________
To ____________ _________
To ____________ _________
(_____________________________________________)
______________________ Dr. _________
______________________ Dr. _________
To ____________ _________
(_____________________________________________)
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 2,10,000
To Debenture Application and Allotment A/c 2,10,000
(Applications received on 2,000, 12% debentures of `100 each issued at
a premium of 5% and redeemable at a premium of 10%)
Debenture Application and Allotment A/c Dr. 2,10,000
Loss on Issue of Debentures A/c Dr. 20,000
To 12% Debentures A/c 2,00,000
To Securities Premium A/c 10,000
To Premium on Redemption of Debentures A/c 20,000
(Allotment of 2,000 12% debentures at 5% premium, redeemable at
10% premium)
Securities Premium A/c Dr. 10,000
Statement of Profit and Loss Dr. 10,000
To Loss on Issue of Debentures A/c 20,000
(Being loss on issue of debentures written-off )

Multiple Choice Questions (MCQs) 5.3

Q.1 The following journal entry appears in the books of X Co. Ltd. Debentures have been issued at a discount of:
Bank A/c Dr. 4,75,000
Loss on issue of debenture A/c Dr. 75,000
To 12% Debentures A/c 5,00,000
To Premium on Redemption of Debenture A/c 50,000
(a) 15% (b) 5% (c) 10% (d) Nil
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.25
Q.2 Assertion (A): Securities Premium account will be debited at the time of redemption of debentures at a premium.
Reason (R): Loss on issue of debentures account will be debited at the time of redemption of debentures at a premium.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.3 Statement-I: A Ltd. issued 500 debentures of `100 each at 5% discount, redeemable at 7% premium. `3,500 will be
credited to premium on redemption of debentures account.
Statement-II: B Ltd. issued 100 debentures of `100 each at par redeemable at 5% premium. `500 will be debited to
Loss on Issue of Debenture A/c.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.4 On 1.4.2024, a company issues `15,00,000, 9% debentures at a discount of 10% redeemable by annual drawings of
`3,00,000 at the end of each year. On 31.3.2025, Securities Premium exists at `60,000. Amount by which Statement
of P&L will be debited is _____.
(a) `60,000 (b) `1,50,000 (c) `30,000 (d) `90,000
Q.5 Bhavani Ltd. issued 10,000, 8% Debentures of `100 each at certain rate of discount and were to be redeemed at 10%
premium. Existing balance of Securities Premium before issuing of these debentures was `2,00,000 and after writing off
Loss on Issue of Debentures, the balance in Securities Premium was `40,000. At what rate of discount, these debentures
were issued?
(a) 16% (b) 6% (c) 4% (d) 20%
Q.6 Kanha Ltd. issued 1,00,000, 9% Debentures of ` 10 each at certain rate of premium and to be redeemed at 10%
premium. At the time of writing off Loss on Issue of Debentures, Statement of Profit and Loss was debited with
` 60,000. At what rate of premium these debentures were issued, assuming that there was no balance in Securities
Premium Account before issuing these debentures?
(a) 10% (b) 16% (c) 6% (d) 4%
Q.7 Moon ltd. issued 40,000, 10% debentures of `100 each at certain rate of discount and were to be redeemed at 20%
premium. Existing balance of Securities premium before issuing of these debentures was `12,00,000 and after writing
off loss on issue of debentures, the balance in Securities Premium was `2,00,000. At what rate of discount were these
debentures issued?
(a) 10% (b) 5% (c) 25% (d) 15%

A NSWERS
1. (b) 2. (c) 3. (a) 4. (d) 5. (b) 6. (d) 7. (b)

Numerical Ques
Questions
tions (for Practice) 5.3
Q.1 On 1st April, 2024, a limited company issued `4,00,000, 9% debentures of `100 each at 93%, repayable by draw of
lots in two equal installments starting from 31st March, 2025.
Pass necessary journal entries for issue of debentures and writing off discount on issue of debentures. Also, prepare
Discount on Issue of Debentures Account.
Q.2 TV Components Ltd., issued 10,000, 12% debentures of `100 each at a discount of 5% payable as follows: On application
`40 and On allotment `55. Show the journal entries including those for cash, assuming that all the installments were
duly collected and discount on issue of debentures were written off against revenue profits of the year.
Q.3 X Ltd. invited applications for issuing 1,000, 9% debentures of `100 each at a discount of 6%. Applications for 1,200
debentures were received. Pro-rata allotment was made to all the applicants. Balance in securities premium account was
`3,500. Pass Journal Entries assuming that the whole amount was payable with applications.
Q.4 On April 1, 2024 Z Ltd. issued, 10,000, 8% Debentures of `100 each at premium of 5%, to be redeemable at a premium
of 10%, after 5 years. The entire amount was payable on application. The issue was oversubscribed to the extent of 20,000
debentures and the allotment was made proportionately to all the applicants. The securities premium amount has not been
utilized for any other purpose during the year. Give journal entries for the issue of debentures and writing off loss on issue
of debentures.
5.26 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Q.5 On May 1, 2024 Sudha Ltd. issued 10,000, 8% debentures of `100 each of a discount of 10% redeemable of a
premium of 10%. The issue was subscribed and amount was duly received. The company had balance of `70,000 in
Securities Premium Account on that date. Pass the necessary journal entries.
Q.6 On 1 April 2024 Kati Ltd. issued 8,000, 9% debentures of `100 each at a discount of 10%. The full amount was
payable on application. Applications were received for 9,000 debentures and allotment was made on pro-rata basis.
Pass journal entries for the above transactions in the books of Kati Ltd for the year 2024-25 including writing off
discount on issue of debentures against the revenue profit of the year.
Q.7 On 1st April 2024, Sakshi Ltd. issued 1,000, 11% Debentures of `100 each at a discount of 6% redeemable at a
premium of 5% after three years.
Pass the necessary journal entries in the books of Sakshi Ltd for the year ending 31.3.2025 including entry for writing
off Loss on issue of debentures.
Q.8 On 1st April 2024, Bright Ltd. issued `4,00,000, 6% Debentures of `100 each at a discount of 5% redeemable after
three years. The amount per debentures was payable as follows: On Application – `80 per debenture; On Allotment –
`Balance. The amount per debentures were fully subscribed and all money was duly received.
Pass necessary journal entries for issue of debentures and writing off discount on issue of debentures.
Q.9 On 1 April 2024, M. Ltd. took over assets of `9,00,00,000 and liabilities `70,00,000 of S Ltd. and issued 8%
debentures of `100 each, redeemable at 10% premium after 5 years.
Journalise the above transactions during the year 2024-25 including writing off loss on issue of debentures account.
Q.10 X. Ltd. issued 6,000, 15% Debentures of `100 each on April 01,2024 at a discount of 10% redeemable at a premium
of 10% in equal annual drawings in 3 years out of capital, starting from 31 March, 2025.
Give journal entries both at the time of issue of debentures and writing off loss on issue of debentures.
Q.11 On April 1, 2024 Nikhil Jain and Co. Ltd. issued 1,00,000, 7% debenture of `100 each at a discount of 4% redeemable
after 5 years at a premium of 6%.
Record necessary journal entries for issue of debenture and writing off loss on issue debenture account.

Competency Based Questions (for Practice) 5.3

Q.1 LM Ltd. is a large credit worthy company operating in the Kashmir Valley. It is an export oriented unit, dealing
in exclusive embroidered shawls. The floods in the Valley have created many problems for the company. Many
craftsmen and workers have been dislocated and raw material has been destroyed. The firm is therefore, unable to get
an uninterrupted supply of raw material, and the duration of the production cycle has also increased. To add to the
problems of the organisation, the suppliers of raw material who were earlier selling on credit are asking the company,
for advance payment or cash payment on delivery. The company is facing a liquidity crisis. The CEO of the company
feels that issue of debentures to the public is the only option with the company to meet its funds requirements.
On 1st April, 2024, LM Ltd. issued `45,00,000, 12% Debentures of `50 each at a discount of 10%. On 31st March,
2025 it decided to write off discount on issue of debentures according to the provisions of the Companies Act, 2013. It
had a credit balance of `1,75,000 in its ‘Securities Premium Account’.
Pass necessary journal entries for the above transaction in the books of the company.
Q.2 Zee Ltd. is a pharmaceutical company. On April 1,2024 the company has paid-up share capital of `1,00,00,000
including Reserves and Surplus `10,00,000 (Surplus, i.e. balance in statement of profit and loss `8,00,000; Securities
premium account `2,00,000). The company appointed marketing expert, Mr. Neeraj as the CEO of the company, with
a target to penetrate their roots in the rural regions. Mr. Neeraj discussed the ways and means to achieve target of the
company with financial, production and marketing departmental heads and asked the finance manager to prepare the
budget. After reviewing the suggestions given by all the departmental heads, the finance manager proposed requirement
of an additional funds of `52,50,000.
Zee Ltd. is an unlevered company. To avail the benefits of trading on equity, the finance manager proposed to include
debt in the capital structure. After deliberations, on April 1,2024, the board of directors had decided to issue 5,000,
10% debentures of `1,000 each at a premium of 5%. These debentures are to be redeemed after 4 years at 10%
premium. The interest on debentures is payable on September 30 and March 31, every year.
Record the necessary journal entries in the books of Zee Ltd. for the year ending on March 31, 2025 including writing
off the loss on issue of debentures. (Ignore interest on debentures)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.27

Interest on Debentures 5.4

• When a company issues debentures, there is an obligation to pay interest at fixed percentage periodically (half-yearly or annually).
• Interest on debentures is calculated at the nominal value of debentures.
• Interest on debenture is a charge against the profit of the company and must be paid whether the company has earned any
profit or not.
Journal Entries related to debenture interest:
Date Particulars L.F. Dr. (`) Cr. (`)
1. For interest due on debenture:
Debenture Interest A/c Dr.
To Debentureholders A/c
2. For payment of interest to debentureholders:
Debentureholders A/c Dr.
To Bank A/c
3. For Transfer of Annual Interest on Debenture to Statement of Profit
and Loss:
Statement of Profit and Loss Dr.
To Debenture Interest A/c

ILLUSTRATIONS 5.4
ILLUSTRATION 18
A Ltd. issued 2,000, 10% debentures of `100 each on April 01, 2024 at a discount of 10% redeemable at a premium of
10%. Give journal entries relating to the issue of debentures, debenture interest and writing off loss on issue of debentures
for the year ending March 31, 2025 assuming that interest was paid half yearly on September 30 and March 31.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2024 Bank A/c Dr. 1,80,000
1 April To Debenture Application & Allotment A/c 1,80,000
(Application money received on 2,000, 10% debentures)
10% Debentures Application & Allotment A/c Dr. 1,80,000
Loss on Issue of Debenture A/c Dr. 40,000
To 10% Debentures A/c 2,00,000
To Premium on Redemption of Debentures A/c 20,000
(Allotment of debentures at a discount of 10% and redeemable at a
premium of 10%)
30 Sept. Debenture Interest A/c Dr. 10,000
To Debenture holders A/c 10,000
(Interest due for 6 months and tax deducted at source)
Debenture holders A/c Dr. 10,000
To Bank A/c 10,000
(Payment of interest)
5.28 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

2025 Debenture Interest A/c Dr. 10,000

31 Mar. To Debenture holders A/c 10,000
(Interest due for 6 months and tax deducted at source)
Debenture holders A/c Dr. 10,000
To Bank A/c 10,000
(Payment of interest)
Statement of Profit and Loss Dr. 20,000
To Debenture Interest A/c 20,000
(Debenture interest transferred to profit and loss account)
Statement of Profit and Loss Dr. 40,000
To Loss on Issue of Debentures A/c 40,000
(Being loss on issue of debentures transferred to profit and loss account)

ILLUSTRATION 19
B Ltd. issued 1,000, 12% debentures of `100 each on 1 April, 2024 at a discount of 5% redeemable at a premium of 10%.
Give journal entries relating to the issue of debentures on 1 April, 2024 and debentures interest and writing off loss on issue
of debentures on March 31, 2025 assuming that interest is paid half-yearly on September 30 and March 31.
Solution: Books of B Ltd.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2024 For issue of debentures:
1 April Bank A/c Dr. 95,000
To Debenture Application and Allotment A/c 95,000
(Money received on issue at 1,000 debentures of `100 each at 5% discount)
Debenture Application and Allotment A/c Dr. 95,000
Loss on Issue of Debenture A/c Dr. 15,000
To 12% Debentures A/c 1,00,000
To Premium on Redemption of Debentures A/c 10,000
(1,000 debentures alloted at 5% discounts redeemable at 10% premium)
2025 For interest on debentures:
31 Mar. Debenture Interest A/c Dr. 6,000
To Debentureholders A/c 6,000
(Debenture interest due for 6 months)
Debentureholders A/c Dr. 6,000
To Bank A/c 6,000
(Interest paid to debentureholders)
Statement of Profit and Loss Dr. 12,000
To Debenture Interest A/c 12,000
(Debenture interest of the whole year charged to statement of Profit and
Loss)
2025 For writing off loss on issue of debentures:
31 Mar. Statement of Profit and Loss Dr. 15,000
To Loss on Issue of Debentures A/c 15,000
(Being loss on issue of debentures written off )
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.29

Competency Based Illustrations 5.4

ILLUSTRATION 20
On 01 August, 2024, Rockstar Ltd. issued ` 40,00,000, 9% Debentures of ` 100 each at 5% Premium, to be redeemed at
12% Premium on March 31, 2027. Balance in Securities Premium before issue was ` 1,50,000. You are required to
(i) Pass entries for issue of debentures.
(ii) Pass entry for writing off loss on Issue of debentures.
(iii) Pass entries for Interest on Debentures on March 31 2025, if it is to be paid on March 31 every year.
(iv) Prepare Loss on issue of debentures account.
Solution: Journal Entries:
Date Particulars L.F. Dr. (`) Cr. (`)
Aug 1, Bank A/c Dr. 42,00,000
2024 To Debenture Application & Allotment A/c 42,00,000
(Being Application money including premium received)
Aug 1, Debenture Application & Allotment A/c Dr. 42,00,000
2024 Loss on Issue of Debentures A/c Dr. 4,80,000
To 9% Debentures A/c 40,00,000
To Securities Premium A/c 2,00,000
To Premium on Redemption of Debentures A/c 4,80,000
(Being Debentures issued at premium redeemable at premium)
March Debentures Interest A/c Dr. 2,40,000
31, 2025 To Debenture Holders’ A/c 2,40,000
(Being interest due on Debentures)
March Debenture Holders’ A/c Dr. 2,40,000
31, 2025 To Bank A/c 2,40,000
(Being Interest on debentures paid)
March Securities Premium A/c Dr. 3,50,000
31, 2025 Statement of Profit and Loss A/c Dr. 1,30,000
To Loss on issue of Debentures 4,80,000
(Being Loss on issue of Debentures written off )
March Statement of Profit and Loss A/c Dr. 2,40,000
31, 2025 To Debenture Interest A/c 2,40,000
Loss on Issue of Debentures A/c
Date Particulars (`) Date Particulars (`)
2024 To Premium on Redemption of 4,80,000 2025 By Securities Premium A/c 3,50,000
Aug 1 Debentures A/c Mar 31 By Statement of Profit and Loss 1,30,000
4,80,000 4,80,000

ILLUSTRATION 21
Akon Ltd issued 12,000, 14% debentures of `100 each on 1st April, 2024 at 5% premium. The issue was oversubscribed
by to two times more and hence all debentures were allotted on pro-rata basis. According to the terms of issue, interest on
debentures is payable half-yearly on 30th September and 31st March. According to the terms of redemption, these debentures
were to be redeemed after 5 years at a premium of 7.5%. You are required to pass the necessary entries related to issue of
debentures, the debenture interest for the half-yearly ending on 31st March, 2025, transfer of interest on debentures to
statement of profit and loss, and writing off ‘Loss on Issue of Debentures’.
5.30 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2024 Bank A/c Dr. 37,80,000
April 1 To Debenture Application and Allotment A/c 37,80,000
(Application money received for 36,000 debentures)
” Debenture Application and Allotment A/c Dr. 37,80,000
Loss on Issue of Debentures A/c Dr. 90,000
To 14% Debentures A/c 12,00,000
To Securities Premium A/c 60,000
To Bank A/c 25,20,000
To Premium on Redemption of Debentures A/c 90,000
(12,000 debentures alloted)
2025 Interest on Debentures A/c Dr. 84,000
Mar 31 To Debentureholders A/c 84,000
(Half-yearly interest due on debentures)
” Debentureholders A/c Dr. 84,000
To Bank A/c 84,000
(Payment of interest)
” Statement of Profit and Loss Dr. 1,68,000
To Interest on Debentures A/c 1,68,000
(Interest transferred to Statement of Profit and Loss)
” Securities Premium A/c Dr. 60,000
Statement of Profit and Loss Dr. 30,000
To Loss on Issue of Debentures A/c 90,000
(Writing off loss on issue of debentures)

ILLUSTRATION 22
Health2Wealth Ltd. had share capital of ` 80,00,000 divided in shares of ` 100 each and 20,000, 8% Debentures of `100
each as part of capital employed. The company need additional funds of ` 55,00,000 for which they decided to issue
debentures in such a way that they got required funds after issuing debentures of the same class as earlier, at 10% premium.
These debentures were to be redeemed at 20% premium after 4 years. These debentures were issued on 01 October, 2024.
(a) Pass entries for issue of Debentures.
(b) Prepare Loss on Issue of Debentures Account assuming there was existing balance of Securities Premium Account of
`2,80,000.
(c) Pass entries for Interest on debentures on March 31, 2025 assuming interest is payable on 30 September and 31 March
every year.
Solution: (a) Journal Entries
Date Particulars L.F. Dr. (`) Cr. (`)
2024 Bank A/c Dr. 55,00,000
1 Oct. To Debenture Application and Allotment A/c 55,00,000
(Application money received)
Debenture Application and Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr. 55,00,000
To 8% Debentures A/c 10,00,000
To Securities Premium A/c 50,00,000
To Premium on Redemption of Debentures A/c 5,00,000
(Debenture issued at premium, to be redeemed at premium) 10,00,000
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.31
(b) Dr. Loss on Issue of Debentures A/c Cr.
Date Particulars (`) Date Particulars (`)
2024 To Premium on Redemption of 10,00,000 2025 By Securities Premium A/c 7,80,000
1 Oct. Debentures A/c 31 Mar. By Statement of Profit and Loss 2,20,000
10,00,000 10,00,000
(c) Journal Entries
Date Particulars L.F. Dr. (`) Cr. (`)
31 Debenture Interest A/c Dr. 2,00,000
Mar. 2025 To Debenture holders A/c 2,00,000
(Interest due on debentures)
Debenture holders A/c Dr. 2,00,000
To Bank A/c 2,00,000
(Interest paid to debenture holders)
Statement of Profit and Loss Dr. 2,00,000
To Debenture Interest A/c 2,00,000
(Interest on Debentures charged to Statement of Profit and Loss)

ILLUSTRATION 23
Shree Radhey Ltd. (pharmaceutical company) appointed marketing expert, Mr. Keshav as the CEO of the company, with a
target to penetrate their roots in the rural regions. Mr. Keshav discussed the ways and means to achieve target of the company
with financial, production and marketing departmental heads and asked the finance manager to prepare the budget. After
reviewing the suggestions given by all the departmental heads, the finance manager proposed requirement of an additional
fund of `52,50,000. Shree Radhey Ltd. is a zero-debt company. To avail the benefits of financial leverage, the finance
manager proposed to include debt in the capital structure. After deliberations, on April 1, 2024, the board of directors had
decided to issue 6% Debentures of `100 each to the public at a premium of 5%, redeemable after 5 years at `110 per share.
(i) Calculate the number of debentures to be issued to raise additional funds.
(ii) Pass Journal entry for the allotment of debentures.
(iii) Pass Journal entry to write off loss on issue of debentures.
(iv) Calculate the amount of annual fixed obligation associated with debentures and pass journal entries related to the same.
(v) Prepare Loss on Issue of Debentures Account.
Solution: (i) Number of Debentures to be issued = `52,50,000/`105 = 50,000
(ii) Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2024 Debenture Application & Allotment A/c Dr. 52,50,000
April 1 Loss on Issue of Debentures A/c Dr. 5,00,000
To 6% Debentures A/c 50,00,000
To Securities Premium A/c 2,50,000
To Premium on Redemption of Debentures A/c 5,00,000
(Allotment of debentures made)
(iii) Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Securities Premium A/c Dr. 2,50,000
March 31 Statement of Profit & Loss Dr. 2,50,000
To Loss on Issue of Debentures A/c 5,00,000
(Loss on Issue of Debentures A/c written off )
(iv) Interest on 6% debentures = `50,00,000 × 6 /100 = `3,00,000
5.32 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Debenture Interest A/c Dr. 3,00,000
31 Mar. To Debentureholders A/c 3,00,000
(Annual interest due)
Debentureholders A/c Dr. 3,00,000
To Bank A/c 3,00,000
(Interest paid to debentureholders)
Statement of Profit and Loss Dr. 3,00,000
To Debenture Interest A/c 3,00,000
(Debenture interest charged to statement of Profit and Loss)
(v) Dr. Loss on Issue of Debentures A/c Cr.
Date Particulars (`) Date Particulars (`)
1.4.2024 To Premium on Redemption of 5,00,000 31.3.2025 By Securities Premium A/c 2,50,000
Debentures A/c By Statement of Profit & Loss 2,50,000
5,00,000 5,00,000

ILLUSTRATION 24
Zee Ltd. is a pharmaceutical company. On April 1,2024 the company has paid-up share capital of `1,00,00,000 including
Reserves and Surplus `10,00,000 (Surplus, i.e. balance in statement of profit and loss `8,00,000; Securities Premium `2,00,000).
The company appointed marketing expert, Mr. Neeraj as the CEO of the company, with a target to penetrate their roots in
the rural regions. Mr. Neeraj discussed the ways and means to achieve target of the company with financial, production and
marketing departmental heads and asked the finance manager to prepare the budget. After reviewing the suggestions given by all
the departmental heads, the finance manager proposed requirement of an additional funds of `52,50,000.
Zee Ltd. is an unlevered company. To avail the benefits of trading on equity, the finance manager proposed to include debt in
the capital structure. After deliberations, on April 1,2024, the board of directors had decided to issue 5,000, 10% debentures
of `1,000 each at a premium of 5%. These debentures are to be redeemed after 4 years at 10% premium. The interest on
debentures is payable on September 30 and March 31, every year.
Record the necessary journal entries in the books of Zee Ltd. for the year ending on March 31, 2025 including the payment of
interest and writing off the loss on issue of debentures. (Ignore TDS)
Solution: Journal of Zee Ltd.
Date Particulars L.F. Dr. (`) Cr. (`)
1 April Bank A/c Dr. 52,50,000
2024 To Debenture Application and Allotment A/c 52,50,000
(Debenture application money received)
“ Debenture Application and Allotment A/c Dr. 52,50,000
Loss on Issue of Debenture A/c Dr. 5,00,000
To 10% Debentures A/c 50,00,000
To Securities Premium A/c 2,50,000
To Premium on Redemption of Debenture A/c 5,00,000
(Debenture application money transferred)
30 Sep. Debenture Interest A/c Dr. 2,50,000
2024 To Debentureholders A/c 2,50,000
(Interest due for 6 months)
Debentureholders A/c Dr. 2,50,000
To Bank A/c 2,50,000
(Payment of interest)
31 Debenture Interest A/c Dr. 2,50,000
March To Debentureholders A/c 2,50,000
2025 (Interest due for 6 months)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.33

Debentureholders A/c Dr. 2,50,000

To Bank A/c 2,50,000
(Payment of interest)
Statement of Profit & Loss Dr. 5,00,000
To Debenture Interest A/c 5,00,000
(Debenture interest transferred to statement of Profit & Loss)
Securities Premium A/c Dr. 4,50,000
Statement of Profit and Loss Dr. 50,000
To Loss on Issue of Debentures A/c 5,00,000
(Being loss on issue of debentures written-off )

Multiple Choice Questions (MCQs) 5.4

Q.1 Interest payable on debentures is calculated at the:
(a) Issue price of debentures (b) Nominal value of debentures
(c) Redemption value of debentures (d) Market price of debentures
Q.2 Debenture Interest:
(a) is payable only in case of profits (b) accumulates in case of losses or inadequate profits
(c) is payable irrespective of profit or loss (d) None of the above.
Q.3 On 1st April, 2024, Narmada Ltd. issued 5,000, 8% Debentures of `100 each at a premium of 10%. Interest on
debentures is paid semi-annually. The amount of interest on debentures for the year ending 31st March, 2025 charged
to revenue profits will be:
(a) `25,000 (b) `20,000 (c) `50,000 (d) `40,000
Q.4 On 1st April, 2024, Mega Ltd. issued 30,000, 10% Debentures of `100 each at a discount of 10%. The total amount
of interest due on debentures for the year ending on 31st March, 2025 will be:
(a) ` 2,70,000 (b) ` 3,00,000 (c) ` 27,000 (d) ` 30,000
Q.5 Dove Ltd. issued 8,000, 11% debentures of `100 each at a premium of 5%. The total amount of interest on Debentures
for one year will be:
(a) `80,000 (b) `92,400 (c) `88,000 (d) `880
Q.6 On 1st April, 2024 Surya Ltd. issued 10,000, 12% Debentures of ` 100 each at a premium of 5%. The total amount
of interest on debentures for the year ending on 31st March, 2025 will be:
(a) ` 1,20,000 (b) ` 50,000 (c) ` 1,00,000 (d) ` 1,26,000

A NSWERS
1. (b) 2. (c) 3. (d) 4. (b) 5. (c) 6. (a)

Numerical Ques
Questions
tions (for Practice) 5.4
Q.1 Rohit Ltd. has issued 50,000, 8% debentures of `100 each at a discount of 9% on July 1, 2024. The company has
balance of `5,00,000 in securities premium account on that date.
(i) Pass necessary journal entries for issue of debentures. The debentures are redeemable after 5 years at a premium of 7%.
(ii) Pass necessary journal entries for interest on debentures assuming that interest is to be paid on debentures half-
yearly on September 30 and March 31, every year. (Ignore TDS )
(iii) Pass necessary journal entry to write-off discount/loss on issue of debentures on March 31, 2025.
Q.2 D Ltd. issued 2,000, 12% debentures of `100 each on 1 April, 2024 at a discount of 5% redeemable at a premium of 10%.
Give journal entries relating to the issue of debentures on 1 April, 2024 and debentures interest and writing off loss
on issue of debentures on March 31, 2025 assuming that interest is paid half-yearly on September 30 and March 31.
Q.3 On 1 April 2024, Alok Ltd. issued 7,000, 10% debentures of `500 each at a premium of `50 per debenture redeemable at a
premium of 10% after 5 years. According to the terms of issue, `200 was payable on application and balance on allotment.
Record necessary journal entries in the books of Alok Ltd. including entries for debenture interest and writing off loss
on issue of debentures, assuming that interest on debenture is payable annually on 31 March, every year.
5.34 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Q.4 X Ltd. has 4,000 12% debentures of ` 100 each on 1st April, 2024. According to the terms of issue interest on
debentures is payable half yearly on 30th September and 31st March.
Pass necessary journal entries for interest on debentures as on 31st March 2025.
Q.5 Fiza Ltd. has issued `15,00,000, 9% debentures of `20 each at a discount of `6 per debenture on October 01, 2024.
The company has a balance of `1,00,000 in Securities Premium account on the same date.
Pass necessary journal entries for issue of debentures, debenture interest and writing off discount on issue of debentures
for the period ending March 31, 2025.
Q.6 On 1-4-2024 PVR Ltd. issued 750, 11% debentures of `1,000 each at a discount of 5%, redeemable at a premium of
10% after three years. Interest on debentures is payable on 30th September and 31st March. PVR Ltd. closes its books
on 31st March every year.
Pass necessary Journal Entries regarding interest on debenture as on 31st March, 2025.

Competency Based Questions (for Practice) 5.4

Q.1 On July 01, 2024, Panther Ltd. issued 20,000, 9% Debentures of ` 100 each at 8% premium and redeemable at a
premium of 15% in four equal instalments starting from the end of the third year. The balance in Securities Premium on
the date of issue of debentures was ` 80,000. Interest on debentures was to be paid on March 31 every year.
Pass Journal entries for the financial year 2024-25. Also prepare Loss on Issue of Debentures account.
Q.2 On 1.4.2024 Fast Computers Ltd. issued 20,000, 6% debentures of `100 each at a discount of 4%, redeemable at a
premium of 5% after three years. The amount was payable as follows: On application `50 per debenture and balance on
allotment (after two months). Interest is to be paid on debentures on September 30 and March 31, every year. On March
31, 2025 balance in Securities Premium account stood at `1,20,000.
(i) Record necessary journal entries related to issue and allotment of debentures for the year 2024-25.
(ii) Calculate the amount of half-yearly fixed obligation associated with debentures.
(iii) Pass Journal entry to write of Loss on Issue of Debentures account.
(iv) Prepare Loss on Issue of Debentures account.
Q.3 On April 01, 2024 Amrit Ltd. issued 10,000, 8% debentures of `100 each of a discount of 10% redeemable of a premium
of 10%. The issue was subscribed and amount was duly received. The company had balance of `80,000 in Securities
Premium on that date. On January 01, 2025, Amrit Ltd. issued 1,00,000, equity shares of `10 each at a premium of 10%.
Issue was also fully subscribed.
(i) Pass the necessary journal entries for Issue and allotment of Debentures on April 01, 2024.
(ii) Calculate the amount of annual fixed obligation associated with debentures.
(iii) Pass Journal entry to write off loss on issue of debentures on 31 March 2025.
Q.4 Pariksha Ltd. had share capital of ` 80,00,000 divided in shares of ` 100 each and 20,000, 8% Debentures of `100 each as
part of capital employed. The company need additional funds of ` 55,00,000 for which they decided to issue debentures
in such a way that they got required funds after issuing debentures of the same class as earlier, at 10% premium. These
debentures were to be redeemed at 20% premium after 4 years. These debentures were issued on 01 October, 2024.
You are required to (a) Pass entries for issue of Debentures. (b) Prepare Loss on Issue of Debentures Account assuming
there was existing balance of Securities Premium Account of `2,80,000. (c) Pass entries for Interest on debentures on
March 31, 2025 assuming interest is payable on 30 September and 31 March every year.
Q.5 On 1st April 2024, P Ltd. issued 6,000 9% Debentures of `100 each at a discount of 5%, redeemable at a premium of
7% at the end of third year. On 31 March, 2025 Securities Premium exists in the books at `50,000.
(i) Pass necessary journal entries for issue and allotment of debentures.
(ii) Pass necessary journal entries related to interest on debentures on 31 March, 2025, assuming that interest is payable
half-yearly on 30 September and 31 March, every year.
(iii) Pass Journal entry for writing off loss on issue of debentures on 31 March, 2025.
(iv) Prepare Loss on Issue of Debentures Account.
Q.6 Rohit Ltd. has issued 50,000, 8% debentures of `100 each at a discount of 9% on July 1, 2024. The company has
balance of `5,00,000 in Securities Premium on that date.
(i) Pass necessary journal entries for issue of debentures. The debentures are redeemable after 5 years at a premium of 7%.
(ii) Pass necessary journal entries for interest on debentures assuming that interest is to be paid on debentures half-yearly
on September 30 and March 31, every year.
(iii) Pass necessary journal entry to write-off discount/loss on issue of debentures on March 31, 2025.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.35

Issue of Debentures for Consideration other than Cash 5.5

Sometimes a company purchases assets from vendors and instead of making payment in cash issues debentures for consideration
thereof. Such issue of debentures is called debentures issued for consideration other than cash.
The debentures may be issued at par, at a premium or at a discount.
The following journal entires will be passed:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
On purchase of assets
Sundry Assets A/c Dr.
To Vendor’s A/c
On issue of debentures
(a) At par
Vendor’s A/c Dr.
To x% Debentures A/c
(b) At premium
Vendor’s A/c Dr.
To x% Debentures A/c
To Securities Premium A/c
(c) At a discount
Vendor’s A/c Dr.
Discount on Issue of Debenture A/c Dr.
To x% Debentures A/c

ILLUSTRATION 25
Suvidha Ltd. purchased machinery worth `1,98,000 from Lovely Suppliers Ltd. The payment was made by issue of 12%
debentures of `100 each.
Pass the necessary journal entries for the purchase of machinery and issue of debentures when: (i) Debentures are issued at
par; (ii) Debentures are issued at 10% discount; and (iii) Debentures are issued at 10% premium.
Solution: Books of Suvidha Ltd.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Machinery A/c Dr. 1,98,000
To Lovely Suppliers Ltd. 1,98,000
(Machinery purchased)
(i) When debentures are issued at par:
Lovely Suppliers Ltd. Dr. 1,98,000
To 12% Debentures A/c 1,98,000
(12% Debentures issued to Suppliers Ltd.)
(ii) When debentures are issued at 10% discount:
Lovely Suppliers Ltd. Dr. 1,98,000
Discount on Issue of Debentures A/c Dr. 22,000
To 12% Debentures A/c 2,20,000
(12% Debentures issued to Suppliers Ltd. at 10% discount)
(iii) When debentures are issued at 10% premium:
Lovely Suppliers Ltd. Dr. 1,98,000
To 12% Debentures A/c 1,80,000
To Securities Premium A/c 18,000
(12% Debentures issued to Suppliers Ltd. at 10% premium)
5.36 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Workings:
(i) Number of debentures issued = `1,98,000/100 = 1,980 debentures
(ii) Number of debentures issued in case of 10% discount = `1,98,000/ `90 = 2,200 debentures
(iii) Number of debentures issued in case of 10% premium = `1,98,000/ `110 = 1,800 debentures

ILLUSTRATION 26
Rai Company purchased assets of the book value of `2,20,000 from another company and agreed to make the payment of
purchase consideration by issuing 2,000, 10% debentures of `100 each at a premium of 10%.
Record the necessary journal entry for issue of debentures.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Vendor’s A/c Dr. 2,20,000
To 10% Debentures A/c 2,00,000
To Securities Premium A/c 20,000
(Allotment of 2,000 debentures of `100 each at a premium of 10% as
purchase consideration)

ILLUSTRATION 27
National Packaging Company purchased assets of the value of `1,90,000 from another company and agreed to make the
payment of purchase consideration by issuing 2,000, 10% debentures of `100 each at a discount of 5%. Record the necessary
journal entry for issue of debentures.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Vendor’s A/c Dr. 1,90,000
Discount on Issue of Debenture A/c Dr. 10,000
To 10% Debentures A/c 2,00,000
(Allotment of 2,000 debentures of `100 each at a discount of 5% as
purchase consideration)

ILLUSTRATION 28
Deepak Ltd. purchased furniture of `2,20,000 from M/s Furniture Mart. 50% of the amount was paid to Furniture Mart by
accepting a bank draft and for the balance the company issued 9% debentures of `100 each at a premium of 10% in favour
of Furniture Mart.
Pass necessary journal entries in the books of Deepak Ltd. for the above transactions.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Furniture A/c Dr. 2,20,000
To M/s Furniture Mart A/c 2,20,000
(Being furniture purchased )
M/s Furniture Mart A/c Dr. 1,10,000
To Bank A/c 1,10,000
(Being Bank Draft Accepted)
M/s Furniture Mart A/c Dr. 1,10,000
To 9% Debentures A/c 1,00,000
To Securities Premium A/c 10,000
(Being Debentures issued at 10% premium )
Workings: Number of debentures issued = `1,10,000/`110 = 1,000
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.37

ILLUSTRATION 29
Z Ltd. purchased machinery from K Ltd. Z Ltd. paid K Ltd as follows:
(a) By issuing 1,000, 8% Debentures of `100 each at a discount of 10%.
(b) Balance by giving a cheque of `48,000.
Pass necessary journal entries for the purchase of machinery and payment to K Ltd. in the books of Z Ltd.
Solution: Books of Z Ltd.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Machinery A/c Dr. 1,38,000
To K Ltd. 1,38,000
(Being machinery purchased from K Ltd.)
K Ltd. Dr. 90,000
Discount on Issue of Debentures A/c Dr. 10,000
To 8% Debentures A/c 1,00,000
(Being 1,000 8% debentures of `100 each issued at 10% discount)
K Ltd. Dr. 48,000
To Bank A/c 48,000
(Being balance payment made by giving a cheque)
Working Notes: Purchase Consideration = 1,000 × `90 + `4,800 = `90,000 + 48,000 = `1,38,000

Sometimes a company may purchase the assets as well as takeover the liabilities of another
business enterprise.
It happens usually in case of purchase of the whole business of the other enterprise.
Purchase consideration = Value of Net Assets (Assets – Liabilities) taken over.
The following journal entry will be passed:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Sundry Assets A/c Dr.
To Sundry Liabilities A/c
To Vendor’s A/c
(For purchase of the vendor’s business)

ILLUSTRATION 30
Romi Ltd. acquired assets of `20 lakh and took over creditors of `2 lakh from Kapil Enterprises. Romi Ltd. issued 8%
debentures of `100 each at par as purchase consideration. Record necessary journal entries in the books of Romi Ltd.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Sundry Assets A/c Dr. 20,00,000
To Sundry Creditors A/c 2,00,000
To Kapil Enterprises A/c 18,00,000
(Purchase of business from Kapil Enterprises)
Kapil Enterprises A/c Dr. 18,00,000
To 8% Debentures A/c 18,00,000
(Issue of 18,000, 8% debentures of `100 each)
5.38 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Must know!
In case of the whole business being taken over:
• If Purchase consideration agreed > Net assets taken over:
The difference (excess) will be debited to ‘Goodwill’ A/c.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Sundry Assets A/c Dr.
Goodwill A/c Dr.
To Sundry Liabilities A/c
To Vendor’s A/c
If Purchase consideration agreed < Net assets taken over:
The difference will be credited to ‘Capital Reserve’ A/c.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Sundry Assets A/c Dr.
To Sundry Liabilities A/c
To Vendor’s A/c
To Capital Reserve A/c

ILLUSTRATION 31
Blue Prints Ltd., purchased building worth `1,50,000, machinery worth `1,40,000 and furniture worth `10,000 from XYZ
Co., and took over its liabilities of `20,000 for a purchase consideration of `3,15,000. Blue Prints Ltd. paid the purchase
consideration by issuing 12% debentures of `100 each at a premium of 5%. Record necessary journal entries. Show your
workings clearly.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Building A/c Dr. 1,50,000
Plant & Machinery A/c Dr. 1,40,000
Furniture A/c Dr. 10,000
Goodwill A/c Dr. 35,000
To Liabilities (Sundry) A/c 20,000
To XYZ Co. 3,15,000
(Purchase of assets and taking over of liabilities of XYZ Co.)
XYZ Co. Dr. 3,15,000
To 12% Debentures A/c 3,00,000
To Securities Premium A/c 15,000
(Issue of 3,000 debentures at a premium of 5%)
Working Notes: No. of debentures issued = Purchase Consideration /Issue Price of a Debenture
= `3,15,000/ `105 = 3,000

ILLUSTRATION 32
A Ltd. took over the assets of `3,00,000 and liabilities of `10,000 from B Ltd., for an agreed purchase consideration of
`2,70,000 to be satisfied by issue of 15% debentures of `100 at 20% premium.
Show the journal entries in the journal of A Ltd. Show your workings clearly.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.39
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Sundry Assets Dr. 3,00,000
To Liabilities (Sundry) A/c 10,000
To B Ltd. 2,70,000
To Capital Reserve A/c 20,000
(Purchase of assets and taking over of liabilities of B Ltd.)
B Ltd. Dr. 2,70,000
To 15% Debentures A/c 2,25,000
To Securities Premium A/c 45,000
(Issue of 2,250 debentures of `100 each issued at a premium of 20%)
Working Notes: No. of debentures issued = `2,70,000/ `120 = 2,250

ILLUSTRATION 33
Raghav Limited purchased a running business from Krishna Traders for a sum of `15,00,000, payable `3,00,000 by cheque
and for the balance issued 9% Debentures of `100 each at par.
The assets and liabilities consisted of the following: Plant and Machinery `4,00,000; Buildings `6,00,000; Stock `5,00,000;
Sundry Debtors `3,00,000; Sundry Creditors `2,00,000
Record necessary journal entries in the books of Raghav Limited.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Plant and Machinery A/c Dr. 4,00,000
Buildings A/c Dr. 6,00,000
Stock A/c Dr. 5,00,000
Sundry Debtors A/c Dr. 3,00,000
To Sundry Creditors A/c 2,00,000
To Krishna Traders A/c 15,00,000
To Capital Reserve A/c 1,00,000
(Being the purchase of assets and liabilities of Krishna Limited)
Krishna Traders A/c Dr. 3,00,000
To Bank A/c 3,00,000
(Being `3,00,000 paid to Krishna Ltd. by cheque)
Krishna Traders A/c Dr. 12,00,000
To 9% Debentures A/c 12,00,000
(Being the balance `12,00,000 discharged by issue of 9% Debentures at
par)

ILLUSTRATION 34
On 1 January 2025, Nikhil and Ashwin Limited bought business of Agarwal Limited consisting sundry assets of `3,60,000
and sundry creditors `1,00,000 for a consideration of `3,07,200. It issued 14% debentures of `100 each fully paid at a
discount of 4% in satisfaction of purchase consideration. These debentures are redeemable at par after 4 years and interest is
payable half-yearly on 30 September and 31 March, every year.
Record necessary journal entries in the books of Nikhil and Ashwin Limited related to purchase of business of Agarwal
Limited, interest on debentures and writing off discount on issue of debentures for the year ending 31 March 2025.
5.40 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Sundry Assets A/c Dr. 3,60,000
1 Jan. Goodwill A/c Dr. 47,200
To Sundry Creditors A/c 1,00,000
To Agarwal Ltd. A/c 3,07,200
(Purchased as sets and took are liabilities of Agarwal Ltd.)
Agarwal Ltd. A/c Dr. 3,07,200
Discount on Issue of Debentures A/c Dr. 12,800
To 14% Debenture A/c 3,20,000
(`3,07,200/`96 = 3,200 debentures of `100 each are issued at 4%
discount as purchase consideration)
31 March Debenture Interest A/c Dr. 11,200
2025 To Debentureholders A/c 11,200
(Interest due for 3 months = `3,20,000 × 14/100 × 3/12 = `11,200)
Debentureholders A/c Dr. 11,200
To Bank A/c 11,200
(Payment of interest)
Statement of Profit & Loss Dr. 11,200
To Debenture Interest A/c 11,200
(Debenture interest transferred to statement of Profit & Loss)
Statement of Profit and Loss Dr. 12,800
To Discount on Issue of Debentures A/c 12,800
(Being discount on issue of debentures written-off )

Competency Based Illustrations 5.5

ILLUSTRATION 35
King Ltd took over assets of `25,00,000 and liabilities of `6,00,000 of Queen Ltd. King Ltd paid the purchase consideration by
issuing 10,000 8% debentures of `100 each at a premium of 10% and accepting a draft of `11,00,000 payable after 3 months.
Calculate Purchase consideration and pass necessary Journal entries in the books of King Ltd.
Solution: Calculation of Purchase Consideration:
Nominal Value of debentures issued ( 10000 × `100) `10,00,000
Securities Premium `1,00,000
Draft (payable after 3 months) `11,00,000
Purchase consideration `22,00,000
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Sundry Assets A/c Dr. 25,00,000
Goodwill A/c Dr. 3,00,000
To Sundry Liabilities A/c 6,00,000
To Queen Ltd. 22,00,000
(Being the purchase of assets and liabilities of Queen Ltd.)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.41

Queen Ltd. Dr. 22,00,000

To 8% Debentures A/c 10,00,000
To Securities Premium A/c 1,00,000
To Bills Payable A/c 11,00,000
(Being 10,000 8% debentures of `100 each issued at a premium of 10%
and `11,00,000 draft payable after 3 months)

ILLUSTRATION 36
On 1 April 2024, A Limited took over the assets of `3,00,000 and liabilities of `10,000 from B & Co. Ltd., for an agreed
purchase consideration of `2,70,000 to be satisfied by issue of 15% debentures of `100 at 10% discount, redeemable at 5%
premium after 4 years. Show the journal entries in the journal of A Limited including entries related to debenture interest
and writing off Loss on Issue of Debenture Account for the year ending 31 March 2025. Assume that interest on debentures
is payable annually on 31 March, every year and balance in securities premium account was `20,000 on 31 March 2025.
Solution: Number of debentures issued = `2,70,000/`90 = 3,000
Journal of A Limited
Date Particulars L.F. Dr. (`) Cr. (`)
1 Sundry Assets A/c Dr. 3,00,000
April To Sundry Liabilities A/c 10,000
2024 To B & Co. Ltd. 2,70,000
To Capital Reserve A/c 20,000
(Purchased assets and took over liabilities from B Ltd.)
B & Co. Ltd. Dr. 2,70,000
Loss on Issue of Debenture A/c Dr. 45,000
To 15% Debenture A/c
To Premium on Redemption of Debentures A/c 3,00,000
(Debentures issued as purchase consideration) 15,000
31 March Debenture Interest A/c Dr. 45,000
2025 To Debentureholders A/c 45,000
(Interest due)
Debentureholders A/c Dr. 45,000
To Bank A/c 45,000
(Payment of interest)
Statement of Profit & Loss Dr. 45,000
To Debenture Interest A/c 45,000
(Debenture interest transferred)
Securities Premium A/c Dr. 20,000
Statement of Profit and Loss Dr. 25,000
To Discount on Issue of Debentures A/c 45,000
(Discount on issue of debentures written-off )

ILLUSTRATION 37
Complete the following Journal Entries:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Sundry Assets A/c Dr. 25,00,000
1 April ___________________ Dr. ________
To Sundry Liabilities A/c 7,80,000
To Shiv Shankar Ltd. 18,20,000
(Being Shiv Shankar Ltd. was taken over by Parvati Ltd. for a purchase
consideration of `18,20,000)
5.42 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Shiv Shankar Ltd. Dr. 18,20,000

___________________ ________
To _______________ 20,000
To 8% Debentures A/c ________
(For paying Shiv Shankar Ltd. by issuing a cheque of `20,000 and
the balance was paid by issue of 8% Debentures of `100 each at a
discount of 10%)
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Sundry Assets A/c Dr. 25,00,000
April 1 Goodwill A/c Dr. 1,00,000
To Sundry Liabilities A/c 7,80,000
To Shiv Shankar Ltd. 18,20,000
(Being Shiv Shankar Ltd. was taken over by Parvati Ltd. for a purchase
consideration of `18,20,000)
Shiv Shankar Ltd. Dr. 18,20,000
Discount on issue of Debenture A/c Dr. 2,00,000
To Bank A/c 20,000
To 8% Debentures A/c 20,00,000
(For paying Shiv Shankar Ltd. by issuing a cheque of `20,000 and the balance
was paid by issue of 8% Debentures of `100 each at a discount of 10%)

ILLUSTRATION 38
B. Ltd. purchased assets of the book value of `4,00,000 and took over the liability of `50,000 from Mohan Bros. It was
agreed that the purchase consideration, settled at `3,80,000, be paid by issuing 8% debentures.
What Journal entries will be made in the following three cases, if debentures are issued:
(a) at par? (b) at discount of 10%? (c) at premium of 10%?
It was agreed that any fraction of debentures be paid in cash. Show your workings clearly.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Sundry Assets A/c Dr. 4,00,000
Goodwill A/c Dr. 30,000
To Sundry Liabilities A/c 50,000
To Mohan Bros. A/c 3,80,000
(For purchase of business of Mohan Bros.)
(a) Issue of debentures at par:
Mohan Bros. A/c Dr. 3,80,000
To 8% Debentures A/c 3,80,000
(Being debentures issued at par as purchase consideration)
(b) Issue of debentures at 10% discount:
Mohan Bros. A/c Dr. 3,80,000
Discount on issue of Debentures A/c Dr. 42,220
To 8% Debentures A/c 4,22,200
To Cash/Bank A/c 20
(Being debentures issued at discount as purchase consideration and cash
paid for the balance)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.43

(c) Issue of debentures at 10% premium:

Mohan Bros. A/c Dr. 3,80,000
To 8% Debentures A/c 3,45,400
To Securities Premium A/c 34,540
To Bank A/c 60
(Being debentures issued at premium as purchase consideration and cash
paid for the balance)
Working Notes: Suppose the face value of a debenture is `100.
(b) Number of debentures issued = `3,80,000/ `90 = 4,222.22
4,222 debentures will be issued and for the balance cash will be paid.
(c) Number of debentures issued = `3,80,000/ `110 = 3,454.54
3,454 debentures will be issued and for the balance cash will be paid.

ILLUSTRATION 39
Kuber Ltd. decided to set-up its steel manufacturing factory in the backward area of Odisha where very less job opportunities
were available. People of that area welcomed this effort of Kuber Ltd. To attract people to work in its factory it also decided
to provide many other facilities like school, hospital, market etc. in the factory premises.
On 1 July 2024 Kuber Ltd. purchased Net Assets worth `9,00,000 of Amrit Ltd. for a purchase consideration of `8,00,000,
Assets purchased being 10 times of the liabilities taken over. Kuber Ltd. paid `2,60,000 through a cheque and the balance
was settled by issuing 12% debentures of `100 each at a discount of 10%.
Pass necessary journal entries in the books of Kuber Ltd. for the above transactions including writing off discount on issue
of debentures from revenue profits.
Solution: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
1 July Assets A/c Dr. 10,00,000
2024 To Liabilities A/c 1,00,000
To Amrit Ltd. 8,00,000
To Capital Reserve A/c 1,00,000
(business of Amrit Ltd. taken over at `8,00,000)
Amrit Ltd Dr. 8,00,000
Discount on Issue of Debentures A/c Dr. 60,000
To Bank A/c 2,60,000
To 12% Debentures A/c 6,00,000
(paid Amrit Ltd `2,60,000 by cheque and 6,000, 12% debentures of
`100 each issued at a discount of 10%)
31 Statement of Profit and Loss Dr. 60,000
March To Discount on Issue of Debentures A/c 60,000
2025 (writing off discount on issue of debentures from revenue profits)
Working Notes: Suppose Liabilities taken over = `x.
Therefore, Assets purchased = `10x.
Assets purchased – Liabilities taken over = Net assets purchased
10x – x = 9,00,000 ⇒ 9x = 9,00,000 ⇒ x = 1,00,000.
Liabilities taken over = `1,00,000 and Assets purchased = `10,00,000.
5.44 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

ILLUSTRATION 40
Rose Bond Limited purchased a business for `22,00,000. `4,00,000 were paid immediately through RTGS and the balance
purchase consideration was paid by issue of 6% debentures of `100 each at 10% discount. Balance in Securities Premium
account is `1,20,000.
(i) Calculate the number of debentures to be issued to the vendor.
(ii) Calculate the amount of annual fixed obligation associated with debentures.
(iii) Calculate the amount of discount on issue of debentures to be written off against revenue profits of the year.
(iv) Pass necessary Journal entries in the books of Rose Bond Limited to record the above transactions. (Ignore entries
related to debenture interest)
Solution:
(i) Number of debentures to be issued to the vendor = `18,00,000/ `90 = 20,000
(ii) Annual interest on debentures = `20,00,000 × 6/100 = `1,20,000
(iii) Amount of discount on issue of debentures to be written off against revenue profits of the year by debiting Statement of
Profit and Loss = `2,00,000 – `1,20,000 = `80,000
(iv) Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Assets A/c Dr. 22,00,000
To Vendor’s A/c 22,00,000
(Machinery purchased)
Vendor’s A/c Dr. 22,00,000
Discount on Issue of Debentures A/c Dr. 2,00,000
To Bank A/c 4,00,000
To 6% Debentures A/c 20,00,000
(`4,00,000 were paid immediately through RTGS and the balance by issue
of 20,000 6% debentures of `100 each at 10% discount.)
Securities Premium A/c Dr. 1,20,000
Statement of Profit and Loss Dr. 80,000
To Discount on Issue of Debentures A/c 2,00,000
(Being discount on issue of debentures written-off )

Multiple Choice Questions (MCQs) 5.5

Q.1 Statement-I: Excess of issue price of a debenture over its face value is called Premium.
Statement-II: Interest paid on debentures is a charge against the profits of the company.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.2 Alexa Ltd. purchased building from Siri Ltd for `8,00,000. The consideration was paid by issue of 6%debentures of
`100 each at a discount of 20%. The 6% Debentures account is credited with:
(a) `10,40,000 (b) `10,00,000 (c) `9,60,000 (d) `6,40,000
Q.3 X Ltd. purchased assets worth `28,80,000. It issued debentures of `100 each at a discount of 4 per cent in full
satisfaction of the purchase consideration. The number of debentures issued to vendor is:
(a) 30,000 (b) 28,800 (c) 32,000 (d) 3,000
Q.4 Rose Bond Limited purchased a business. The purchase price was paid by 20,000, 6% debentures of `100 each issued
at a premium of 10%. The purchase consideration was ___________ .
(a) `20,00,000 (b) `22,00,000 (c) `18,00,000 (d) `21,20,000
Q.5 Statement-I: When a company purchases the whole business of the another concern and the whole amount of
consideration is paid by issue of debentures, in such a situation, if the amount of debentures issued is more than the
amount of the net assets taken over, the difference (excess) will be debited to Capital Reserve account.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.45
Statement-II: When a company purchases the whole business of the another concern and the whole amount of
consideration is paid by issue of debentures, in such a situation, if the value of debentures is less than the value of the
net assets taken over, the difference will be credited to Statement of Profit and Loss.
(a) Both the statements are true. (b) Both the statements are false.
(c) Only Statement-I is true. (d) Only Statement-II is true.
Q.6 Nikhil and Ashwin Ltd. bought business of Agarwal Limited consisting sundry assets of `3,60,000 and sundry creditors
`1,00,000 for a consideration of `3,07,200. It issued 14% debentures of `100 each fully paid at a discount of 4%
in satisfaction of purchase consideration. The amount by which Goodwill A/c will be debited is ________ and the
number of debentures issued to Agarwal Ltd. will be ________.
(a) `47,200; 3,200 (b) `52,800; 2,600 (c) `47,200; 2,600 (d) `52,800; 3,200
Q.7 Excess value of net assets over purchase consideration at the time of purchase of business is credited to :
(a) General reserve account (b) Capital reserve account (c) Vendors’ account (d) Goodwill account
Q.8 Maharaja Ltd. took over assets of `15,00,000 and liabilities of `2,00,000 of Dolphin Ltd. for an agreed purchase
consideration of `12,60,000. It was agreed that the purchase consideration will be paid by issuing 11% Debentures of
`100 each at 10% discount. The number of debentures issued will be:
(a) 13,000 (b) 12,600 (c) 10,000 (d) 14,000
Q.9 Arnav Ltd. purchased assets worth `24,00,000. It issued 9% debentures of `100 each at a discount of 4% for payment
of the purchase consideration. The number of debentures issued to vendor were:
(a) 24,000 (b) 25,000 (c) 30,000 (d) 28,000

A NSWERS
1. (a) 2. (b) 3. (a) 4. (b) 5. (b) 6. (a) 7. (b)
8. (d) 9. (b)

Numerical Ques
Questions
tions (for Practice) 5.5
Q.1 Maneesh Ltd. took over assets of `9,40,000 and liabilities of `1,40,000 of Ram Ltd. at an agreed value of `7,80,000.
Maneesh Ltd. paid to Ram Ltd. by issue of 9% debentures of `100 each at a premium of 20%.
Pass necessary journal entries to record the above transactions in the books of Maneesh Ltd.
Q.2 Glen Ltd. took over the running business of Hayward Ltd. having assets of `22,00,000 and liabilities of `6,00,000 by
issuing 20,000, 11% Debentures of `100 each at 5% discount. You are required to pass the journal entries in the books
of Glen Ltd. if debentures were to be redeemed at 10% premium.
Q.3 Pioneer Fitness Ltd. took over the running business of Healthy World Ltd. having assets of `10,00,000 and liabilities
of `1,70,000 by issuing 8,000 8% Debentures of `100 each at 5% premium redeemable after 6 years @ `110; and
Cheque for `50,000. Pass the Journal entries in the books of Pioneer Fitness Ltd.
Q.4 Anthony Ltd. issued 20,000, 9% Debentures of ` 100 each at 10% discount to Mithoo Ltd. from whom Assets of
`23,50,000 and Liabilities of ` 6,00,000 were taken over. Pass entries in the books of Anthony Ltd. if these debentures
were to be redeemed at 5% premium.
Q.5 A company Bain Ltd. is setting up a new plant in India for manufacturing auto components. On 01.04.2025, Bain Ltd.
purchased from Cayres Ltd., Machinery (of book value `20,00,000) at `17,00,000 and Land and Building (of book
value `30,00,000) at `40,00,000. It also took over its liabilities amounting to `7,00,000. The purchase consideration
of `60,00,000 was paid as follows: `5,00,000 through a cheque and the balance by issue of 9% debentures of `100
each at a premium of 10%.
Pass necessary journal entries for the above transactions in the books of Bain Ltd.
Q.6 Vedesh Ltd. purchased a running business of Vibhu Enterprises for a sum of ` 12,00,000. Vedesh Ltd. paid ` 60,000
by drawing a promissory note in favour of Vibhu Enterprises., `1,90,000 through bank draft and balance by issue of
8% debentures of ` 100 each at a discount of 5%. The assets and liabilities of Vibhu Enterprises consisted of Fixed
Assets valued at ` 17,30,000 and Trade Payables at ` 3,20,000.
You are required to pass necessary journal entries in the books of Vedesh Ltd.
5.46 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Q.7 National Packaging Company purchased business of another company at a purchase consideration of `1,90,000 whereas
it took over the assets of the value of `1,92,000 from the another company. National Packaging Company agreed to
make the payment of purchase consideration by issuing 2,000, 10% debentures of `100 each at a discount of 5%.
Record the necessary journal entries including entry for writing off discount on issue of debentures.
Q.8 Rama Ltd. took over the following assets and liabilities of Krishna Ltd. on 1st April, 2025: Land and Building
`50,00,000; Furniture `10,00,000; Stock `5,00,000; Creditors `7,00,000. The purchase consideration of `60,00,000
was paid by issuing 12% debentures of `100 each at a premium of 20%. Pass the necessary journal entries for the above
in the books of Rama Ltd.
Q.9 LT Ltd. purchased land from JSS Ltd. The payment was made by issuing a cheque for `10,00,000 and by accepting a
bill of exchange for 6 months for `5,00,000. The balance amount was paid by issuing 5,000, 10% Debentures of `100
each at par redeemable at 10% premium after 3 years. Pass the necessary journal entries in the books of LT Ltd. for the
above transactions.
Q.10 Vayee Ltd. purchased the following assets of E.X. Ltd.: Land and Building of `60,00,000 at `84,00,000; Plant and
Machinery of `40,00,000 at `36,00,000. The purchase consideration was `1,10,00,000. Payment was made by
accepting a Bill of Exchange in favour of E.X. Ltd. of `20,00,000 and remaining by issue of 8% debenture of `100
each at a premium of 20%. Record the necessary journal entries.
Q.11 Disha Ltd. took over assets of ` 8,00,000 and liabilities of ` 3,00,000 from Kriti Ltd. for a purchase consideration of
`6,00,000. The payment was made by issue of 9% Debentures of ` 100 each at 20% premium. Journalise.
Q.12 Madhur Ltd. took over the assets of `3,90,000 and Liabilities of `40,000 of Rasova Ltd. for a consideration of
`4,00,000. 20% was paid by a cheque and the balance by issue of fully paid equity shares of `100 each at a premium of
60%. Show necessary journal entries for these transactions in the books of Madhur Ltd.
Q.13 BX Ltd. took over a building worth `3,00,000, machinery worth `2,00,000, furniture worth ` 30,000 and its liabilities
of `40,000 from PQ & Company for a purchase consideration of `6,00,000. BX Ltd. paid the purchase consideration
by issuing 11% debentures of `100 each at a premium of 20%. Pass necessary journal entries for the above transactions
in the books of BX Ltd.
Q.14 (a) Khandelwal Ltd. took over assets of Sharma Ltd. of `25,00,000 and liabilities amounting to `7,80,000 for a
purchase consideration of `27,00,000. The payment to Sharma Ltd. was made by issuing 10% Debentures of `100
each at a discount of 10%. Pass the necessary journal entries for the above transactions in the books of Khandelwal Ltd.
Q.15 Pass the necessary journal entries for the issue of debentures for the following transactions and for writing off discount/
loss on issue of debentures, if any:
(i) Anand Ltd. issued 800, 9% Debentures of `500 each at a premium of 20%, to the vendors for machinery purchased
from them costing `4,80,000.
(ii) Dawar Ltd. issued 5,000 7% Debentures of `200 each at a premium of 5%, redeemable at a premium of 10%.
(iii) Novelty Ltd. issued 1,000, 8% Debentures of `100 each at a discount of 5% redeemable at a premium of 10%.
Q.16 Sunrise Ltd. acquired assets of ` 3,60,000 and took over creditors of ` 1,00,000 from Moonlight Ltd. for an agreed
purchase consideration of `4,80,000. Sunrise Ltd. issued 9% Debentures of ` 100 each at a discount of 4% in
satisfaction of the purchase consideration.
Pass necessary journal entries in the books of Sunrise Ltd. Show your workings clearly.
Q.17 Grapple Ltd. took over assets of ` 25,00,000 and liabilities of ` 5,00,000 from Allore Ltd. for an agreed purchase
consideration of ` 18,00,000. Grapple Ltd. issued 11% Debentures of ` 100 each at 20% premium in satisfaction of
the purchase consideration.
Pass necessary journal entries in the books of Grapple Ltd. Show your workings clearly.
Q.18 Priti Ltd. purchased assets worth `5,40,000 and took over liabilities of `1,20,000 of Payal Ltd. for a purchase
consideration of `5,28,000. Priti Ltd. paid half the amount by cheque and the balance was settled by issuing 10%
Debentures of `100 each at a premium of 10%.
Pass necessary journal entries for the above transactions in the books of Priti Ltd.
Q.19 Sumi Ltd. acquired assets of `8,00,000 and took over sundry creditors of `2,00,000 from Pandora Ltd. for a purchase
consideration of `9,00,000. The payment was made by issuing a cheque of `4,60,000 and remaining by issue of 9%
Debentures of `100 each at a premium of 10%. Pass necessary journal entries for the above transactions in the books of
Sumi Ltd.
Q.20 Gundola Ltd. took over assets of `9,00,000 and liabilities of `3,00,000 from AK Ltd. for an agreed purchase
consideration of `14,00,000. The payment was made through a bank draft of `5,00,000 and the remaining by issue of
8% Debentures at a discount of 10%.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.47
Record necessary journal entries in the books of Gundola Ltd. for the above transactions.
Q.21 Mahesh Ltd. purchased Plant and Machinery from Ish Ltd. for `4,50,000. `50,000 was paid by cheque to Ish Ltd.
and the balance by issuing 6% debentures of `100 each at a discount of 20%. Pass the necessary Journal Entries for the
above transactions in the books of Mahesh Ltd.
Q.22 Sheetal Ltd. purchased building worth ` 2,50,000, plant and machinery worth ` 2,00,000, furniture worth ` 40,000
and took over liabilities of ` 30,000 from Poonam Ltd. for a purchase consideration of ` 4,40,000. The purchase
consideration was paid by issuing 12% Debentures of ` 100 each at a premium of 10%.
Pass the necessary journal entries in books of Sheetal Ltd. to record the above transactions.
Q.23 On 1st April, 2025, Simple Ltd. took over assets of ` 5,00,000 and liabilities of ` 1,00,000 from Temur Ltd. at an
agreed value of ` 16,00,000.
Simple Ltd. paid the amount to Temur Ltd. as follows:
(i) Issued a bank draft of ` 1,00,000.
(ii) Issued 8% Debentures of ` 100 each at a premium of 50% in satisfaction of the balance amount of purchase
consideration.
Pass the necessary journal entries in the books of Simple Ltd. to record the above transactions.
Q.24 D Ltd. purchased machinery worth `2,00,000 from E Ltd. on 1.4.2025. `50,000 were paid immediately and the
balance was paid by issue of `1,60,000, 12% Debentures in D Ltd. Record the necessary journal entries for recording
Q.25 Mohit Ltd., took over assets of `8,40,000 and liabilities of `80,000 of Ram Ltd. at an agreed value of `7,20,000.
Mohit Ltd. paid to Ram Ltd., by issue of 9% debentures of `100 each at a premium of 20%. Pass necessary journal
entries to record the above transactions in the books of Mohit Ltd.
Q.26 Alfa Polyester Ltd. took over assets of `1,00,00,000 and creditors of `10,00,000 from Marine Solution Ltd. and issued
5% Debenture of `100 each (i) at par (ii) at a discount of 10%, (ii) at a premium of 25%.
Record necessary journal entries in the books of Alfa Polyester Ltd.

Competency Based Questions (for Practice) 5.5

Q.1 D Ltd. purchased machinery worth `2,00,000 from E Ltd. on 1.4.2024. `50,000 were paid immediately and the
balance was paid by issue of `1,60,000, 12% Debentures of 100 each, redeemable after 4 years at 5% premium. Interest
is to be paid on debentures half-yearly on September 30 and March 31, every year. Record the necessary journal entries
for recording the above transactions in the books of D Ltd. for the year ending on March 31, 2025, assuming that the
company has balance of `5,000 in securities premium account.
Q.2 B Ltd. purchased assets of `8,00,000 and took over liabilities of `1,00,000 from Mohan Bros. for a purchase
consideration at `7,60,000, to be paid by issuing 8% debentures at `100 each, issued at 10% premium.
Pass necessary journal entries to record the above transactions. Show your workings clearly.
Q.3 V K Limited purchased machinery from Modern Equipment Manufacturers Limited. The company paid the vendors by
issue of debentures and the balance through an acceptance in their favour payable after three months. The accountant
of the company, while Journalising the above mentioned transactions, left some items blank. You are required to fill in
the blanks.
Books of V K Limited
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Machinery A/c Dr. _______
To _____________________ _______
(Purchased machinery for `7,00,000 from Modern Equipment
Manufacturers Limited )
Modern Equipment Manufacturers Ltd. A/c Dr. _______
Loss on Issue of 9 % Debentures A/c Dr. _______
To _____________________ _______
To Premium on Redemption of Debentures A/c _______
(Issued `6,00,000 9% debentures of `100 each at a discount of
10% redeemable at a premium of 10%)
5.48 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

_________________________________ Dr. _______

To _____________________ _______
(___________________________________________)
Q.4 Sita Travels Ltd. purchased plant and machinery of `10,00,000 at `8,00,000 and land and buildings of `50,00,000 at
`72,00,000 from Batra Travels Ltd. It paid `20,00,000 in cash and for the balance issued 10% debentures of `10 each
at a premium of 20%, redeemable at a premium of 10% after 4 years.
Complete the journal entries in the books of Sita Travels Ltd.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Plant and Machinery A/c Dr. ________
Land and Building A/c Dr. ________
To Batra Travels Ltd. ________
(For purchase of business)
___________________ Dr. ________
___________________ Dr. ________
To Bank A/c ________
To 10% Debentures A/c ________
To ______________ ________
To ______________
(For payment of purchase consideration)
Q.5 Vimal Ltd. was engaged in the business of food processing and selling its products under a popular brand. Lately the
business was expanding due to good quality and reasonable prices. Also with more people working the market for
processed food was increasing.
On 1 April 2025 Vimal Ltd. purchased assets worth `5,00,000 and took over liabilities of `1,00,000 of Kapil Ltd. for
a purchase consideration of `4,50,000. Vimal Ltd. paid one-third of the amount by accepting a bill of exchange and
balance was settled by issuing 11% debentures of `100 each at a premium of 10%. Pass necessary journal entries in the
books of Vimal Ltd. for the above transactions.
Q.6 Buddha Limited took over assets of ` 40,00,000 and liabilities of ` 6,50,000 of Ginny Limited. Buddha Limited
issued 30,000, 8% Debentures of ` 100 each at 10% discount, to be redeemed at 5% premium along with cheque of
` 5,00,000. Pass necessary journal entries in the books of Buddha Ltd.
Q.7 Fill in the blanks in the following case:
Books of X Ltd.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Sundry Assets A/c Dr. 18,00,000
To Sundry Creditors A/c 2,00,000
To ___________ _________
To ___________ _________
(Business of Rohan and Co. purchased for a consideration of
`15,00,000)
___________________ Dr. _________
___________________ Dr. _________
To 9% Debentures A/c _________
(Paid to Rohan and Co. by issue of_______9% debentures of
`150 each at a discount of `50 per debenture)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.49

Debentures as Collateral Security — Concept 5.6

A collateral security may be defined as a subsidiary or secondary or additional security besides the primary security when a
company obtains a loan or overdraft from a bank or any other financial institution. It may pledge or mortgage some assets as a
secured loan against the said loan. But the lending institutions may insist on additional assets as collateral security so that the
amount of loan can be realised in full with the help of collateral security in case the amount from the sale of principal security
falls short of the loan money. In such a situation, the company may issue its own debentures to the lenders in addition to some
other assets already pledged. Such an issue of debentures is known as ‘Debentures issued as Collateral Security’.
KEY TERMS
Debentures issued as When the company issues debentures to the lenders as an additional/ secondary security, in
Collateral Security addition to other assets already pledged/some primary security. Such issue of debentures is called
debentures issued as a collateral security.

Top Tip
Interest is NOT paid on Debentures issued as Collateral Security.

X Company has issued 9%, 10,000 debentures of `100 each for a loan of `10,00,000 taken from a bank.
First Method: No entry is made in the books of accounts since no liability is created by such issue of debentures.
Balance Sheet of X Company as at _____ (an extract)
Particulars Note No. Amt. (`)
I. EQUITY AND LIABILITIES
1. Non-current Liabilities 1. 10,00,000
Long-term borrowings
Notes to Accounts
Particulars Amt. (`)
1. Long-term borrowings
Bank Loan 10,00,000
(Secured by issue of 10,000, 9% debentures of `100 each as Collateral Security)
Second Method: The issue of debentures as a collateral security may be recorded by means of journal entry as follows:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Debenture Suspense A/c Dr. 10,00,000
To 9% Debentures A/c 10,00,000
(For issue of 10,000, 9% debentures of `100 each as collateral security for
bank loan of `10,00,000)
Balance Sheet of X Company as at ______ (an extract)
Particulars Note No. Amt. (`)
I. EQUITY AND LIABILITIES
1. Non-current Liabilities
Long-term borrowings 1. 10,00,000
Notes to Accounts
Particulars Details Amt. (`)
1. Long term borrowings
Bank loan 10,00,000
10,000, 9% debentures of `100 each 10,00,000
Less: Debenture Suspense A/c (10,00,000) –
10,00,000
5.50 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Must know!
In both the methods, the journal entry for obtaining loan from bank will be as follows:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 10,00,000
To Bank Loan A/c 10,00,000
(For obtaining bank loan)
When the loan is repaid, the issue entry will be cancelled by a reverse entry, as given below:
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
9% Debentures A/c Dr. 10,00,000
To Debenture Suspense A/c 10,00,000
(For cancellation of 9% debentures on repayment of bank loan)

If the company fails to repay the loan along with interest:

In such a case, the lender is free to receive his money from the sale of primary security and if the realisable
value of the primary security falls short to cover the entire amount, the lender has the right to invoke the
benefit of collateral security whereby debentures may either be presented for redemption or sold in the
Interesting Fact open market.

ILLUSTRATIONS 5.6
ILLUSTRATION 41
A company took a loan of `10,00,000 from Punjab National Bank and issued 10% debentures of `12,00,000
of `100 each as a collateral security along with primary security of plant and machinery worth `20,00,000.
Explain how you will deal with the issue of debentures in the books of the company.
Solution: First Method: No entry in the books of accounts.
Balance Sheet as at __________ (an Extract)
Particulars Note No. Amount (`)
I. EQUITY AND LIABILITIES
1. Non-current Liabilities
Long-term borrowings 1. 10,00,000
Notes to Accounts:
Particulars Amount (`)
1. Long term borrowings
Loan from PNB 10,00,000
(Secured by issue of 12,000, 10% debentures of `100 each as Collateral Security)
10,00,000
Second Method: Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Debenture Suspense A/c Dr. 12,00,000
To 10% Debentures A/c 12,00,000
(Being 12,000 debenture of `100 each issued as collateral security to PNB)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.51
Balance Sheet as at __________ (an Extract)
Particulars Note No. Amount (`)
I. EQUITY AND LIABILITIES
1. Non-current Liabilities
Long-term borrowings 1. 10,00,000
Notes to Accounts:
Particulars Details Amount (`)
1. Long term borrowings
Loan from PNB 10,00,000
12,000, 10% debentures of `100 each 12,00,000
Less: Debenture Suspense A/c (12,00,000) –
10,00,000

ILLUSTRATION 42
Singh Limited obtained a loan of `5,00,000 from State Bank of India @ 10% interest. The company issued `7,50,000, 10%
debentures of `100 each, in favour of State Bank of India as collateral security. Pass necessary journal entries for the above
transactions:
(i) When company decided to record the issue of 10 % Debentures as collateral security.
(ii) When company decided not to record the issue of 10 % Debentures as collateral security.
Solution: (i) Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank Account Dr. 5,00,000
To Bank Loan Account 5,00,000
(Being loan obtained from State Bank of India @ 10 % p.a. interest,
against collateral security of 7,500 10 % debentures of `100 each)
Debenture Suspense Account Dr. 7,50,000
To 10% Debentures Account 7,50,000
(Being 10% Debentures issued as collateral security in favour of SBI)
(ii) Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank Account Dr. 5,00,000
To Bank Loan Account 5,00,000
(Being loan obtained from State Bank of India @ 10 % p.a. interest,
against collateral security of 7,500 10 % debentures of `100 each)

ILLUSTRATION 43
Youth Ltd. took a loan of `15,00,000 from State Bank of India against the security of tangible assets. In addition to principal
security, it issued 10,000 11% debentures of `100 each as collateral security.
Pass necessary journal entries for the above transactions, if the company decided to record the issue of 11% debentures as
collateral security and show the presentation in the Balance Sheet of Youth Ltd.
2. Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 15,00,000
To Bank Loan A/c 15,00,000
(Loan taken from SBI)
Debenture Suspense A/c Dr. 10,00,000
To 11% Debentures A/c 10,00,000
(11% debentures deposited as collateral security)
5.52 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Balance Sheet as at __________ (an Extract)

Particulars Note No. Amt. (`)
I. EQUITY AND LIABILITIES
1. Non-current Liabilities: Long-term borrowings 1. 15,00,000
Notes to Accounts: Details Amt. (`)
1. Long term borrowings: Secured Loan from State Bank of India 15,00,000
10,000, 11% debentures of `100 each 10,00,000
Less: Debenture Suspense A/c (10,00,000) Nil
15,00,000

Competency Based Illustration 5.6

ILLUSTRATION 44
On 1 April 2024, Hassan Limited took a loan of `30,00,000 from ICICI bank against primary security worth `40,00,000
and issued 4,000, 6% debentures of `100 each as a collateral security. On the same date, the company issued to the public
5,000, 9% debentures of `1,000 each at 20% premium, redeemable after 4 years at 5% premium.
(i) Record necessary journal entries related to issue of debentures only for the year 2024-25, if the company decided to
record the issue of 6% debentures as a collateral security.
(ii) Calculate the amount of annual fixed obligation of Hassan Limited associated with debentures.
(iii) Show the presentation of the issue of debentures under the sub-head ‘Long-term borrowings’ in the Balance Sheet of
Hassan Limited.
(iv) Pass Journal entry to write off Loss on Issue of Debentures account.
Solution: (i) Journal of Hassan Limited
Date Particulars L.F. Dr. (`) Cr. (`)
1 April Debenture Suspense A/c Dr. 4,00,000
2024 To 6% Debentures A/c 4,00,000
(debentures issued as collateral security)
Bank A/c Dr. 60,00,000
To Debenture Application and Allotment A/c 60,00,000
(Debenture application money received)
” Debenture Application and Allotment A/c Dr. 60,00,000
Loss on Issue of Debenture A/c Dr. 2,50,000
To 9% Debentures A/c 50,00,000
To Securities Premium A/c 10,00,000
To Premium on Redemption of Debenture A/c 2,50,000
(Debenture application money transferred)
(ii) Annual interest on debentures = `50,00,000 × 9/100 = `4,50,000
(iii)  Balance Sheet of Hassan Limited as on 31 March 2025 (an Extract)
Particulars Note No. Amount (`)
I. EQUITY AND LIABILITIES
1. Non-current Liabilities: Long-term borrowings 1. 80,00,000
Notes to Accounts:
Particulars Details Amount (`)
1. Long term borrowings: Secured Loan from ICICI Bank 30,00,000
4,000, 6% debentures of `100 each 4,00,000
Less: Debenture Suspense A/c (4,00,000) Nil
9% Debentures (5,000 debentures of `1,000 each issued to public) 50,00,000
80,00,000
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.53
(iv) Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2025 Securities Premium A/c Dr. 2,50,000
31 Mar. To Loss on Issue of Debentures A/c 2,50,000
(Loss on Issue of Debentures written off)

Multiple Choice Questions (MCQs) 5.6

Q.1 For recording the issue of debentures as a collateral security by a journal entry, ______ account is debited.
(a) Debentures A/c (b) Bank Loan A/c (c) Debenture Suspense A/c (d) Profit and Loss A/c
Q.2 From the journal entries given below, identify the entry that can be passed for issue of debentures as collateral security:
(a) Securities Premium A/c Dr. (b) Bank loan A/c Dr.
To Debentures A/c To Debentures A/c
(c) Debentures A/c Dr. (d) Debentures Suspense A/c Dr.
To Debentures Suspense A/c To Debentures A/c
Q.3 On 1.4.2020, Z Ltd. obtained a loan of `1,00,000 from SBI and issued `1,00,000 8% debentures of `100 each as a
collateral security. On 31 March 2025, Z Ltd. repaid the loan along with interest, the account debited for cancellation
of 8% debentures as collateral security will be _________ and the account credited will be _________ .
(a) 8% Debentures A/c; Debenture Suspense A/c (b) Debenture Suspense A/c ; 8% Debentures A/c
(c) Bank Loan A/c; Debenture Suspense A/c (d) Debenture Suspense A/c; Bank Loan A/c
Q.4 Statement-I: Debentures cannot be issued at a premium.
Statement-II: A collateral security is a subsidiary security.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.5 Statement-I: When 10,000 debentures of `100 each are issued as collateral security against a Bank loan of ` 8,00,000,
the account debited is Debenture Suspense A/c by an amount of ` 10,00,000.
Statement-II: A debenture is said to be issued at a discount when the nominal value is less than its issue price.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.6 Reliable Ltd. issued 30,000 12% Debentures of `100 each as Collateral security for a loan of `20,00,000 taken from
Syndicate Bank. What will be the journal entry for issue of these debentures as a collateral security?
(a) Debit Bank Loan A/c by `20,00,000 and Credit 12% Debentures A/c by `20,00,000
(b) Debit Bank Loan A/c by `30,00,000 and Credit 12% Debentures A/c by `30,00,000
(c) Debit Debenture Suspense A/c by `20,00,000 and Credit 12% Debentures A/c by `20,00,000
(d) Debit Debenture Suspense A/c by `30,00,000 and Credit 12% Debentures A/c by `30,00,000
Q.7 X Ltd. obtained a loan of `10,00,000 from ICICI Bank and issued `12,00,000, 9% debentures as collateral security
along with the Plant and Machinery worth `10,00,000 as the principal security. X Ltd. failed to repay the loan along
with interest ICICI Bank sold the Plant and Machinery but could realise only `6,00,000 from it. What option does
ICICI Bank have for realising the remaining amount?
(a) Present the debentures before the company for redemption.(b) Sell the debentures in the open market.
(c) Both (a) and (b) (d) None of the above
Q.8 When debentures are issued as a collateral security, in case the company fails to repay the loan along with interest, the
lender may:
(a) sell the primary security (b) present the debentures before the company for redemption.
(c) sell the debentures in the open market. (d) All of the above
Q.9 Statement-I: A collateral security is a subsidiary or secondary or additional security besides the primary security
when a company obtains a loan or overdraft from a bank or any other financial institution.
Statement-II: When debentures issued as collateral security are recorded in the books of accounts, Debenture Suspense
Account account is debited.
5.54 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Q.10 On 1st April 2020 a company took out a loan of `80,00,000 on security of land and building. This loan was further
secured by issue of 40,000, 12% Debentures of `100 each as collateral security. On 31st March 2025 the company
defaulted on repayment of the principal amount of this loan. Consequently on 1st April 2025 the land and building
were taken over and sold by the bank for `70,00,000. For the balance amount debentures were sold in the market on
1st May 2025. From which date would the interest on debentures become payable by the company?
(a) 1st April 2020 (b) 31st March 2025 (c) 1st April 2025 (d) 1st May 2025

A NSWERS
1. (c) 2. (d) 3. (a) 4. (d) 5. (c) 6. (d) 7. (c) 8. (d) 9. (a) 10. (d)

Numerical Ques
Questions
tions (for Practice) 5.6
Q.1 A company took a loan of `10,00,000 from Punjab National Bank and issued 10% debentures of `12,00,000 of `100
each as a collateral security along with primary security of plant and machinery worth `20,00,000. Pass necessary
journal entry in the books of the company when it decided not to record the issue of 10% Debentures as collateral
security. Also, present the issue of debentures in the balance sheet of the company.
Q.2 A company took a loan of `10,00,000 from Punjab National Bank and issued 10% debentures of `12,00,000 of `100
each as a collateral security along with primary security of plant and machinery worth `20,00,000. Explain how you
will deal with the issue of debentures in the books of the company, assuming that the company records the issue of
debentures as a collateral security in the books.
Q.3 A company took a loan of `10,00,000 from Punjab National Bank and issued 10% debentures of `12,00,000 of
`100 each as a collateral security along with primary security of plant and machinery worth `20,00,000. Explain
how you will deal with the issue of debentures in the books of the company.
Q.4 Akash Limited obtained a loan of `5,00,000 from ICICI Bank @10% interest. The company issued `7,50,000, 10% debentures
of `100 each, in favour of ICICI Bank as collateral security. Pass necessary journal entries for the above transactions:
(i) When company decided to record the issue of 10% Debentures as collateral security.
(ii) When company decided not to record the issue of 10% Debentures as collateral security.
Q.5 X Ltd. issued 400, 8% debentures of `100 each as collateral security against a loan of `40,000. Pass necessary
journal entry for issue of debentures and show the relevant items in the balance sheet of the company.

Competency Based Questions (for Practice) 5.6

Q.1 (i) M Ltd. issued 10,000, 8% debentures of `100 each at a premium of 10% to the public on 1.4.2025.
(ii) It purchased sundry assets of the value of `2,50,000 and took over the liabilities of `60,000 and issued 8%
debentures at a discount of 5% to the vendor redeemable at 10% premium after 5 years.
(iii) On the same date, it took loan from the Bank for `1,00,000 and issued 8% debentures as Collateral Security.
Record the relevant journal entries in the books of M Ltd.
Q.2 Pass journal entries in the book of X Ltd. in the following cases including entry for writing off Loss on issue of Debentures,
if any: (i) The Company took a loan of ` 1,60,000 from SBI and issued 2,000, 12% debentures of `100 each as
collateral security. (ii) Issued 1,000, 12% debentures of `100 each at 10% premium, redeemable at a premium of 5%.
(iii) Purchased machinery `4,60,000, from Beta Ltd. Payment was made by issue of 9 % debentures of `100 each at a
premium of 15% redeemable at par.
Q.3 Journalise the following transactions:
(a) Mehar Ltd. issued `1,00,000, 12% Debentures of `100 each at a premium of 5% redeemable at a premium of 2%.
(b) 12% Debentures were issued at a discount of 10% to a vendor of machinery for payment of `9,00,000.
(c) Issue of 10,000 11% debentures of `100 each as collateral in favour of State Bank of India. Company opted to pass
necessary entry for issue of debentures.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.55

Accounting for Debentures

Issue of Debentures to the Public with Terms of 4. Issued at par and redeemable at a premium
6.3 Journal
Redemption
The procedure for the issue of debentures is the same as that for the issue Date Particulars L.F. Dr. (`) Cr. (`)
of shares. The intending investors apply for debentures on the basis of the For receipt of application money
prospectus issued by the company. Bank A/c Dr.
Normally the whole amount of debenture is collected on application or in two To Debenture Application & Allotment A/c
installments, i.e., on application and allotment.
Debentures can be issued at par, at a premium or at a discount. For allotment of debentures Debenture
Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.
Top Tip To x% Debentures A/c
When the whole amount of debenture is collected in two To Premium on Redemption of Debenture A/c
installments, i.e., on application and allotment and Debentures are 5. Issued at a discount and redeemable at a premium
issued at a discount, if nothing is specified, discount is adjusted Journal
with allotment money. Date Particulars L.F. Dr. (`) Cr. (`)

When a company issues debentures, it usually mentions the terms on which For receipt of application money
they will be redeemed on their maturity. Bank A/c Dr.
Redemption of debentures refers to discharge of liability on To Debenture Application & Allotment A/c
account of debentures by repayment made to the debenture- For allotment of debentures Debenture
holders. Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.
To x% Debentures A/c
Top Tip
To Premium on Redemption of Debentures A/c
Debentures can be redeemed either at par or at a premium.
Debentures are never redeemed at a discount.
Top Tip
Depending upon the terms and conditions of issue and redemption When debentures are issued at a discount and are redeemable at a
of debentures, there may be six situations:
premium, ‘Loss on Issue of Debentures’ includes discount on issue
1. Issued at par and redeemable at par of debentures and premium on redemption of debentures.
Journal
6. Issued at a premium and redeemable at a premium
Date Particulars L.F. Dr. (`) Cr. (`) Journal
For receipt of application money Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr.
To Debenture Application & Allotment A/c For receipt of application money
Bank A/c Dr.
For allotment of debentures To Debenture Application & Allotment A/c
Debenture Application & Allotment A/c Dr. For allotment of debentures Debenture
To x% Debentures A/c Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.
2. Issued at a discount and redeemable at par To x% Debentures A/c
Journal To Securities Premium A/c
To Premium on Redemption of Debentures A/c
Date Particulars L.F. Dr. (`) Cr. (`)
For receipt of application money 6.4 Writing-off Discount or Loss on Issue of Debentures (AS 16)
Bank A/c Dr. • Discount or Loss on issue of debentures is a capital loss and is written-off
To Debenture Application & Allotment A/c in the same year when debentures are issued.
For allotment of debentures • Discount or loss on issue of debentures can be written-off from Securities
Debenture Application & Allotment A/c Dr. Premium (if it exists). In case, Securities Premium does not exist or is
Discount on Issue of Debentures A/c Dr. inadequate, the amount or the balance should be written-off against
To x% Debentures A/c revenue profits of the year, i.e. by debiting Statement of Profit and Loss.
Journal Entry for writing off Discount/Loss on Issue of Debentures:
3. Issued at premium and redeemable at par
Date Particulars L.F. Dr. (`) Cr. (`)
Journal
Securities Premium A/c Dr.
Date Particulars L.F. Dr. (`) Cr. (`) Statement of Profit and Loss Dr.
For receipt of application money To Discount/Loss on Issue of Debentures A/c
Bank A/c Dr.
To Debenture Application & Allotment A/c 6.5 Interest on Debentures

For allotment of debentures Debenture • When a company issues debentures, there is an obligation to pay interest
Application & Allotment A/c Dr. at fixed percentage periodically (half-yearly or annually).
To x% Debentures A/c • Interest on debentures is calculated at the nominal value of debentures.
To Securities Premium A/c • Interest on debenture is a charge against the profit of the company and
must be paid whether the company has earned any profit or not.
5.56 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

Journal Entries related to debenture interest: be realised in full with the help of collateral security in case the amount from the
Date Particulars L.F. Dr. (`) Cr. (`) sale of principal security falls short of the loan money. In such a situation, the
1. For interest due on debenture: company may issue its own debentures to the lenders in addition to some other
Debenture Interest A/c Dr. assets already pledged. Such an issue of debentures is known as ‘Debentures
To Debentureholders A/c issued as Collateral Security’.
2. For payment of interest to
debentureholders: Top Tip
Debentureholders A/c Dr. Interest is NOT paid on Debentures issued as Collateral Security.
To Bank A/c For example, X Company has issued 9%, 10,000 debentures of `100 each for
3. For Transfer of Annual Interest on a loan of `10,00,000 taken from a bank.
Debenture to Statement of P&L: First Method: No entry is made in the books of accounts since no liability is
Statement of Profit and Loss Dr. created by such issue of debentures.
To Debenture Interest A/c Balance Sheet of X Company as at _____ (an extract)
6.6 Issue of Debentures for Consideration other than Cash Particulars Note No. Amount (`)
Sometimes a company purchases assets from vendors and instead of making I. EQUITY AND LIABILITIES
payment in cash issues debentures for consideration thereof. Such issue of 1. Non-current Liabilities 1. 10,00,000
debentures is called debentures issued for consideration other than cash. Such Long-term borrowings
debentures may be issued at par, at a premium or at a discount.
Notes to Accounts
Journal Entries related purchase of business and issue of debentures:
Particulars Amount (`)
Date Particulars L.F. Dr. (`) Cr. (`)
On purchase of assets: 1. Long-term borrowings
Sundry Assets A/c Dr. Bank Loan 10,00,000
To Vendor’s A/c (Secured by issue of 10,000, 9% debentures of `100
On issue of debentures: each as Collateral Security)
(a) At par:
Second Method: The issue of debentures as a collateral security may be
Vendor’s A/c Dr.
recorded by means of journal entry as follows:
To x% Debentures A/c
Journal
(b) At premium:
Vendor’s A/c Dr. Date Particulars L.F. Dr. (`) Cr. (`)
To x% Debentures A/c Debenture Suspense A/c Dr. 10,00,000
To Securities Premium A/c To 9% Debentures A/c 10,00,000
(c) At discount: (For issue of 10,000, 9% debentures
Vendor’s A/c Dr. of `100 each as collateral security for
Discount on Issue of Debenture A/c Dr. bank loan of `10,00,000)
To x% Debentures A/c
Balance Sheet of X Company as at ______ (an extract)
Sometimes a company may purchase the assets as well as takeover the
liabilities of another business enterprise. It happens usually in case of purchase Particulars Note No. Amt. (`)
of the whole business of the other enterprise. I. EQUITY AND LIABILITIES
1. Non-current Liabilities
Purchase consideration = Net Assets Long-term borrowings 1. 10,00,000
= Assets purchased – Liabilities taken over
Journal Notes to Accounts

Date Particulars L.F. Dr. (`) Cr. (`) Particulars Details Amt. (`)
1. Long term borrowings
Sundry Assets A/c Dr. Bank loan 10,00,000
To Sundry Liabilities A/c 10,000, 9% debentures of `100 each 10,00,000
To Vendor’s A/c Less: Debenture Suspense A/c (10,00,000) –
If Purchase consideration agreed > Net assets taken over: the
10,00,000
difference (excess) will be debited to ‘Goodwill’ A/c.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Top Tip
Sundry Assets A/c Dr.
In both the methods, the journal entry for obtaining loan from
Goodwill A/c Dr. bank will be as follows:
To Sundry Liabilities A/c Bank A/c Dr. 10,00,000
To Vendor’s A/c To Bank Loan A/c 10,00,000
(For obtaining bank loan)
If Purchase consideration agreed < Net assets taken over: the
difference will be credited to ‘Capital Reserve’ A/c. When the loan is repaid, the issue entry will be cancelled by a reverse
Journal entry, as given below:
Date Particulars L.F. Dr. (`) Cr. (`) Journal

Sundry Assets A/c Dr. Date Particulars L.F. Dr. (`) Cr. (`)
To Sundry Liabilities A/c 9% Debentures A/c Dr. 10,00,000
To Vendor’s A/c To Debenture Suspense A/c 10,00,000
To Capital Reserve A/c (For cancellation of 9% debentures
on repayment of bank loan)
6.7 Issue of Debentures as a Collateral Security
A collateral security may be defined as a subsidiary or secondary or additional If the company fails to repay the loan along with interest, the lender
security besides the primary security when a company obtains a loan or overdraft is free to receive his money from the sale of primary security and if the
from a bank or any other financial institution. It may pledge or mortgage some realisable value of the primary security falls short to cover the entire
assets as a secured loan against the said loan. But the lending institutions may amount, the lender has the right to invoke the benefit of collateral security whereby
insist on additional assets as collateral security so that the amount of loan can debentures may either be presented for redemption or sold in the open market.
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.57

CASE STUDY Based Multiple Choice Questions (MCQs)

CASE STUDY 1:
On April 1, 2024 Z Ltd. issued, 10,000, 8% Debentures of `100 each at premium of 5%, to be redeemable at a premium
of 10%, after 5 years. The entire amount was payable on application. The issue was oversubscribed to the extent of 10,000
debentures and the allotment was made proportionately to all the applicants. The securities premium amount has not been
utilized for any other purpose during the year.
Answer the question numbers 1 to 3 on the basis of the above case:
Q.1 How much amount was received as application money?
(a) `10,50,000 (b) `11,00,000 (c) `10,00,000 (d) `21,00,000
Q.2 Which of the following is incorrect in respect of the Journal entry passed on allotment of above debentures?
(a) Loss on Issue of Debentures A/c will be credited by `1,00,000.
(b) 8% Debentures A/c will be credited by `10,00,000.
(c) Securities Premium A/c will be credited by `50,000.
(d) Bank A/c will be credited by `10,50,000.
Q.3 What will be the Journal entry for writing off Capital Loss on Issue of Debentures?
(a) 2024 Statement of Profit and Loss A/c Dr. 1,00,000
Mar 31 To Discount on Issue of Debentures A/c 1,00,000
(b) 2025 Securities Premium A/c Dr. 50,000
Mar 31 Statement of Profit and Loss A/c Dr. 50,000
To Loss on Issue of Debentures A/c 1,00,000
(c) 2025 Statement of Profit and Loss A/c Dr. 1,00,000
Mar 31 To Loss on Issue of Debentures A/c 1,00,000
(d) 2025 Securities Premium A/c Dr. 1,00,000
Mar 31 To Loss on Issue of Debentures A/c 1,00,000
ANSWERS
1. (d) 2. (a) 3. (b)
CASE STUDY 2: Answer the question numbers 4 & 5 on the basis of the given case:
Neeraj Ltd. took over business of Ajay enterprises on 1-04-2025. The details of the agreement regarding the assets and
liabilities to be taken over are:
Particulars Book Value (`) Agreed Value (`)
Building 20,00,000 35,00,000
Plant and Machinery 12,00,000 8,00,000
Stock 4,00,000 4,00,000
Trade receivables 5,00,000 4,00,000
Creditors 2,00,000 3,00,000
Outstanding Expenses 50,000 1,00,000
It was decided to pay for purchase consideration as `7,00,000 through Cheque and balance by issue of 2,00,000, 9%
Debentures of `20 each at a premium of 25%.
Q.4 What is the amount of purchase consideration?
(a) `47,00,000 (b) `55,00,000 (c) `57,00,000 (d) `38,50,000
Q.5 Which of the following is incorrect in respect of the journal entries for the purchase of business by Neeraj Ltd. and issue of
debentures?
(a) Ajay Enterprises A/c will be credited by `57,00,000. (b) Capital Reserve A/c will be credited by `10,00,000.
(c) 9% Debentures A/c will be credited by `40,00,000. (d) Securities Premium A/c will be credited by `10,00,000.
ANSWERS
4. (c) 5. (b)
5.58 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

1 Accounting for Debentures Self Assessment Test

Time allowed : 45 min. Maximum Marks : 20
Q.1 A company issued 1,000, 7% debentures of `100 each at a discount of 5%, redeemable at 10% premium. What will be
the amount of loss on issue of debentures? (1)
(a) `10,000 (b) `20,000 (c) `15,000 (d) `30,000
Q.2 Cadilla Ltd. allotted 2,000 8% Debentures of `100 each to their underwriters to pay their commission. Which of the
following journal entry is correct, if 8% Debentures are allotted to underwriters? (1)
(a) 8% Debentures A/c Dr. (b) 8% Debentures A/c Dr.
  To Underwriting Commission A/c   To Underwriter’s A/c
(c) Underwriter’s A/c Dr. (d) Underwriter’s A/c Dr.
  To Underwriting Commission A/c   To 8% Debentures A/c
Q.3 XYZ Ltd., issued 10,000, 12% debentures of `100 each, payable as follows: on application `40 and on allotment `50.
Which entry is correct in such a situation?
(a) Debentureholders A/c Dr. (b) Debenture Allotment A/c Dr.
To Bank A/c To 10% Debentures A/c
To Securities Premium A/c
(c) Debenture Interest A/c Dr. (d) Securities Premium A/c/Statement of Profit and Loss Dr.
To Debentureholders A/c To Discount on Issue of Debentures A/c
To Income Tax Payable A/c
Q.4 K.C. Ltd. took over office furniture of `90,000, office equipment of `1,80,000 from J.C. Ltd. and its liabilities of
`20,000 for a purchase consideration of `3,60,000. The payment to J.C. Ltd. was made by issue of 9% debentures of
`50 each at a discount of 10%. The amount to be debited to ‘Discount on Issue of Debentures Account will be: (1)
(a) `36,000 (b) `40,000 (c) `27,000 (d) `90,000
Q.5 G.S. Rai company purchased assets of the book value of `99,000 from another firm. It was agreed that purchase
consideration be paid by issuing 11% debentures of `100 each if debentures are issued (i) at par; (ii) at a discount of
10%; and (iii) at a premium of 10%. Record necessary journal entries. (1)
Q.6 X Ltd. issued 2,000, 10% debentures of `100 each at a discount of 8% on April 01, 2024 which are redeemable after 4
years at par. It has balance in Securities Premium account of `10,000. (3)
(i) Pass the necessary journal entries for Issue and allotment of Debentures on April 01, 2024.
(ii) Calculate the amount of annual fixed obligation associated with debentures.
(iii) Calculate the amount of discount on issue of debentures is to be written-off against revenue profits of the year. (3)
Q.7 X. Ltd. invites application for the issue of 10,000, 14% debentures of `100 each payable as to `20 on application,
`60 on allotment and the balance on call. The company receives applications for 13,500 debentures, out of which
applications for 8,000 debentures are allotted in full, applications for 5,000 debentures were alloted 40% of received
application, and the remaining applications were rejected. The surplus money on partially allotted applications is
utilised towards allotment. All the sums due are duly received.
Pass necessary journal entries for issue of debentures. (4)
Q.8 On 1st April, 2024, Zubian Ltd. issued ` 10,00,000, 7% Debentures of ` 100 each at a premium of 6%, redeemable at
a premium of 4% after five years. The company had a balance of ` 30,000 in Securities Premium Account.
(a) Pass necessary journal entries for issue of debentures and for writing off ‘Loss on Issue of Debentures’ utilising
Securities Premium Account at the end of the first year itself.
(b) Prepare ‘Loss on Issue of Debentures Account’ for the year ending on 31st March, 2025. (6)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.59

2 Accounting for Debentures Self Assessment Test

Time allowed : 45 min. Maximum Marks : 20
Q.1 While issuing ___________, company doesn’t give any undertaking for the repayment of money borrowed by issuing
such debentures. (1)
(a) Zero Coupon Rate Debentures (b) Non-Convertible Debentures
(c) Secured Debentures (d) Non-Redeemable Debentures
Q.2 In case of debenture of `10,000 issued at par but redeemable at a premium of 10%, ___________ will be debited.
(a) Debenture suspense A/c (b) Premium on redemption of debenture A/c (1)
(c) Loss on issue of debenture A/c (d) Both (a) and (b)
Q.3 On 1st April 2024, Galaxy Ltd. had a balance of `8,00,000 in Securities Premium account. During the year company
issued 20,000 Equity shares of `10 each as bonus shares and used the balance amount to write off Loss on issue of
Debenture on account of issue of 2,00,000, 9% Debentures of `100 each at a discount of 10% redeemable @ 5%
Premium. The amount to be charged to Statement of P&L for the year for Loss on issue of Debentures would be: (1)
(a) `30,00,000. (b) `22,00,000. (c) `24,00,000. (d) `20,00,000.
Q.4 Maira Ltd. took over assets of `12,00,000 and liabilities of `4,00,000 of Subav Ltd. for an agreed purchase consideration
of `9,00,000. The amount was payable by issue of 11% debentures of `100 each at 10% discount. The number of
debentures issued will be: (1)
(a) 9,000 (b) 10,000 (c) 8,000 (d) 11,000
Q.5 X Ltd. purchased machinery for `5,50,000 from Y Ltd. `55,000 were paid by X Ltd. in cash and the balance was paid
by issue of 9% debentures of `1,000 each at 10% premium redeemable after three years.
Pass necessary journal entries in the books of the company. (3)
Q.6 X Ltd. invited applications for issuing 500, 12% debentures of `100 each at a discount of 5%. These debentures were
redeemable after three years at par. Applications for 600 debentures were received. Pro-rata allotment was made to all
the applicants. Pass necessary journal entries for the issue of debentures assuming that the whole amount was payable
with application. (3)
Q.7 On 1-4-2024 K.K. Ltd. issued 500, 9% Debentures of `500 each at a discount of 4%, redeemable at a premium of
5% after three years. Pass necessary Journal Entries for the issue of debentures, debenture interest and loss on issue
of debentures for the year ended 31-3-2025 assuming that interest is payable on 30th September and 31st March.
The company closes its books on 31st March every year. (4)
Q.8 On 1st April, 2024, Helloix Ltd. issued 10,000, 7% Debentures of ` 500 each at a premium of 10%, redeemable at a
premium of 5% after five years. The company had a balance of ` 1,50,000 in the Securities Premium Account before
the issue.
(a) Pass necessary journal entries for issue of debentures and for writing off ‘Loss on Issue of Debentures’ utilising
Securities Premium Account at the end of the first year itself.
(b) Prepare ‘Loss on Issue of Debentures Account for the year ending on 31st March, 2025. (6)
5.60 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

3 Accounting for Debentures Self Assessment Test

Time allowed : 45 min. Maximum Marks : 20
Q.1 Assertion (A): Interest on bearer debentures is paid to a person who produces the interest coupon attached to such
debentures. (1)
Reason (R): Bearer debentures are debentures which can be transferred by way of delivery and the company does not
keep any record of the debenture holders.
(a) Assertion (A) is correct, but Reason (R) is wrong.
(b) Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(c) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
(d) Both Assertion (A) and Reason (R) are wrong.
Q.2 Assertion (A): Debentures cannot be issued at a premium and redeemable at par. (1)
Reason (R): Debentures can be issued at a premium and redeemable at par, premium amount being credited to
Securities Premium Account.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Q.3 Savitri Ltd. issued 50,000, 8% Debentures of ` 100 each at certain rate of premium and to be redeemed at 10%
premium. At the time of writing off Loss on Issue of Debentures, Statement of Profit and Loss was debited with
`2,00,000. At what rate of premium, these debentures were issued? (1)
(a) 10% (b) 16% (c) 6% (d) 4%
Q.4 Which of the following statements is correct about debentures? (1)
(a) Interest on debentures is an appropriation of profits.
(b) Debentureholders are the creditors of a company.
(c) Debentures cannot be issued to vendors at discount.
(d) Interest is paid on Debentures issued as Collateral Security.
Q.5 Disha Ltd. purchased machinery from Nisha Ltd. and paid to Nisha Ltd. as follows :
(a) By issuing 200, 9% debentures of `100 each at a discount of 10%.
(b) Balance by accepting a bill of exchange of `50,000 payable after one month.
Pass necessary journal entries in the books of Disha Ltd. for the purchase of machinery and making payment to Nisha
Ltd. (3)
Q.6 Alka Ltd. issued 5,000, 10% debentures of `1,000 each at a discount of 10% redeemable at a premium of 5% after
5 years. According to the terms of issue `500 was payable on application and the balance amount on allotment of
debentures.
Record necessary entries regarding issue of 10% debentures. (3)
Q.7 On 1st April, 2024, a limited company issued `4,00,000, 9% debentures of `100 each at 93%, repayable by draw of
lots in two equal installments starting from 31st March, 2025.
Pass necessary journal entries related to issue of debentures, interest on debenture and writing off discount on issue on
debentures during the year 2024-25, assuming that interest is paid annually on 31st March every year. (4)
Q.8 Pass necessary journal entries relating to issue of debentures and to write off discount/loss on issue of debentures in the
books of Ajanta Ltd. in the following cases:
(i) 200, 9% debentures of `1,000 each are issued at 10% discount and redeemable at par. Balance in Securities
Premium account is `15,000.
(ii) 300, 11% debentures of `1,000 each are issued at 5% discount and redeemable at a premium of 10%. Balance in
Securities Premium account is `35,000. (6)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.61

4 Accounting for Debentures Self Assessment Test

Time allowed : 45 min. Maximum Marks : 20
Q.1 Which of the following statements is incorrect? (1)
(a) Interest on debentures is a charge and not an appropriation.
(b) Debentures can be issued at discount.
(c) Debenture holders do not have voting rights.
(d) Debentures cannot be converted into shares.
Q.2 Statement-I: Loss on issue of debentures is a revenue loss.
Statement-II: Premium on redemption of debentures account is shown under the ‘Securities Premium’ in the balance
sheet. (1)
(a) Both the statements are true. (b) Both the statements are false.
(c) Only Statement-I is true. (d) Only Statement-II is true.
Q.3 Durga Ltd. issued 80,000, 10% Debentures of `100 each at certain rate of discount and were to be redeemed at 20%
premium. Existing balance of Securities Premium before issuing of these debentures was `25,00,000 and after writing off
Loss on Issue of Debentures, the balance in Securities Premium was `5,00,000. At what rate of discount, these debentures
were issued? (1)
(a) 10% (b) 5% (c) 25% (d) 15%
Q.4 Which of the following statements is incorrect about debentures? (1)
(a) Interest on debentures is an appropriation of profits.
(b) Debenture holders are the creditors of a company.
(c) Debentures can be issued to vendors at discount.
(d) Interest is not paid on Debentures issued as Collateral Security.
Q.5 On 1st October, 2024 Ninza Ltd. issued 4,000, 8% Debentures of `100 each at a discount of 10%. The company
had a balance of `50,000 in Securities Premium Account on the same date. Pass necessary Journal entries for issue of
debentures and to write off discount on issue of debentures. (3)
Q.6 Nikhil and Ashwin Limited bought business of Agarwal Limited consisting sundry assets of `3,60,000 and sundry
creditors `1,00,000 for a consideration of `3,07,200. It issued 14% debentures of `100 each fully paid at a discount
of 4% in satisfaction of purchase consideration. Record necessary journal entries. (3)
Q.7 On 1.4.2024 X Ltd. issued 1,000 9% Debentures of `100 each at a discount of 6%. These debentures were redeemable at
a premium of 10% after three years. Interest on debentures is paid annually on 31 March, every year.
Prepare 9% Debentures Account, loss on issue of debentures account and debenture interest accounts for the year
2024-25. (4)
Q.8 On 1 October 2024, Raghuveer Limited issued `10,00,000, 8% debentures as follows:
(i) Sundry Subscribers for Cash at 90% `5,50,000
(ii) Vendor of Machinery for `2,00,000 in satisfaction of his claim. `2,00,000
(iii) Bankers as Collateral Security for a bank loan worth `20,00,000 for which principal security is `2,50,000
Business Premises worth `22,50,000.
The issue (i) and (ii) are redeemable after 5 years at 10% premium. On March 31, 2025 the balance in Securities Premium was
`1,00,000.
Pass necessary journal entries to record the above transactions in the books of Raghuveer Limited for the year ended on
March 31, 2025. (6)
5.62 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

5 Accounting for Debentures Self Assessment Test

Time allowed : 45 min. Maximum Marks : 20
Q.1 Statement-I: Debentures issued at a discount can be redeemed at a premium.
Statement-II: A company can issue debentures with voting rights.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false. (1)
Q.2 When debentures are issued at discount and are redeemable at premium, the amount of discount and premium on
redemption is debited to _________ account. (1)
(a) Discount on issue of debentures (b) Loss on issue of debentures
(c) Premium on redemption of debentures (d) Securities premium
Q.3 Elite Ltd. issued 20,000, 9% Debentures of `100 each at a discount of 10%, redeemable at a premium. On issue of
these debentures, ‘Loss on issue of debentures account’ was debited with `4,00,000. The premium on redemption of
debentures is: (1)
(a) `4,00,000 (b) `2,00,000 (c) `6,00,000 (d) `10,00,000
Q.4 Tulip Ltd. took up a loan from Punjab National Bank and issued its Debentures as Collateral Security. The bank to
whom these debentures are issued: (1)
(a) will be entitled to interest on such debentures.
(b) will not be entitled to interest on such debentures.
(c) will be entitled to interest on primary security.
(d) will not be entitled to interest on loan taken up from the bank.
Q.5 Nandini Ltd. issued 60,000, 8% debentures of `100 each at a discount of 10% redeemable at a premium of 5%
after 7 years. According to the terms of issue `50 was payable on application and balance on allotment of debentures.
Record necessary entries regarding issue of 8% debentures. (3)
Q.6 Venus Ltd. is a real estate company. To discharge its corporate Social Responsibility, it decided to construct a night
shelter for the homeless. The company took over assets of `10,00,000 and liabilities of `1,80,000 of Cayns Ltd. for
`7,60,000. Venus Ltd.. issued 9% Debentures of `100 each at a discount of 5% in full satisfaction of the purchase
consideration in favour of Cayns Ltd.
Pass necessary journal entries in the books of Venus Ltd. for the above transactions. (3)
Q.7 On 1st April, 2024, Ardhaan Ltd. issued 10,000, 9% Debentures of ` 100 each at a discount of 5%, redeemable at a
premium of 10% after five years. The company had a balance of ` 80,000 in Securities Premium Account.
(a) Pass necessary journal entries for issue of debentures and for writing off ‘Loss on Issue of Debentures’ utilising
Securities Premium Account at the end of first year itself.
(b) Prepare ‘Loss on Issue of Debentures Account’ for the year ending on 31st March, 2025. (4)
Q.8 You are required to pass the journal entries in the books of X Ltd.
(a) 120, 8% debentures of `1,000 each are issued at 5% discount and repayable at par. Balance in Securities Premium
is `10,000.
(b) 150, 7% debentures of `1,000 each are issued at 5% discount and repayable at premium of 10%. Balance in
Securities Premium is `20,000.
(c) Another 400, 8% debentures of `100 each are issued as collateral security against a loan of `40,000. (6)
Chapter 5: Accounting for Debentures SUBHASH DEY (Shree Radhey Publications) 5.63

5
CHAPTER
SOLUTIONS — Exercises and Self Assessment Tests
Accounting for Debentures

(for Practice)
NUMERICAL QUESTIONS (for Practice) 5.1 4. Journal
1. Journal Date Particulars L.F. Dr. (`) Cr. (`)
Date Particulars L.F. Dr. (`) Cr. (`) Bank A/c Dr. 4,00,000
Bank A/c Dr. 1,25,000 To Debenture Application A/c 4,00,000
To 10% Debenture Application A/c 1,25,000 (Receipt of Application money for 10,000
(Application money on 10% debentures Debentures)
received) Debenture Application A/c Dr. 4,00,000
10% Debenture Application A/c Dr. 1,25,000 To 9% Debentures A/c 2,00,000
To 10% Debentures A/c 1,25,000 To Debenture Allotment A/c 1,20,000
(Transfer of application money on allotment) To Bank A/c 80,000
10% Debenture Allotment A/c Dr. 2,25,000 (Debenture Application money transfer to
To 10% Debentures A/c 1,75,000 Debenture A/c, excess credited to Debenture
To Securities Premium A/c 50,000 Allotment and money refunded on rejected
(Allotment money of due on debentures application)
including the premium) Debenture Allotment A/c Dr. 3,00,000
Bank A/c Dr. 2,25,000 To 9% Debentures A/c 3,00,000
To 10% Debenture Allotment A/c 2,25,000 (Amount due on allotment on 5,000
(Allotment money received) Debentures)
10% Debenture First & Final Call A/c Dr. 2,00,000 Bank A/c Dr. 1,80,000
To 10% Debentures A/c 2,00,000 To Debenture Allotment A/c 1,80,000
(First and final call money due on (Debenture allotment money received)
debentures)
5. Journal
Bank A/c Dr. 2,00,000
To 10% Debenture First & Final Call A/c 2,00,000 Date Particulars L.F. Dr. (`) Cr. (`)
(First and final call money received) Bank A/c Dr. 7,50,000
2. Journal  To Debenture Application and Allotment 7,50,000
(Receipt of application money)
Date Particulars L.F. Dr. (`) Cr. (`)
Debenture Application and Allotment A/c Dr. 7,50,000 4,00,000
Bank A/c Dr. 6,00,000 To 11% Debentures A/c 2,00,000
To Debentures Application & 6,00,000 To Securities Premium A/c 1,50,000
Allotment A/c To Bank A/c
(Being the receipt of application Money on (Transfer of Debenture application money)
4000 debentures)
12% Debentures Appl. & Allot. A/c Dr. 6,00,000
(for Practice)
NUMERICAL QUESTIONS (for Practice) 5.2
To 12% Debentures A/c 3,00,000 1. Journal of Zed Ltd
To Securities Premium A/c 1,50,000 Date Particulars L.F. Dr. (`) Cr. (`)
To Bank A/c 1,50,000 Bank A/c Dr. 1,00,00,000
(Being 3000, 12% debenture issued at To Debenture Application A/c 1,00,00,000
a premium of `50 each and application (Application amount received on 2,00,000, 8%
money for 1000 debentures refunded) Debentures)
3. Journal of BGP Ltd. Debenture Application A/c Dr. 1,00,00,000
To 8% Debentures A/c 1,00,00,000
Date Particulars L.F. Dr. (`) Cr. (`)
(Amount received on application transferred to
Bank A/c Dr. 37,50,000 Debentures A/c)
To Debenture Application and Allotment A/c 37,50,000 Debenture Allotment A/c Dr. 88,00,000
(Application money received on 25,000 Loss on issue of debentures A/c Dr. 32,00,000
debentures) To 8% Debentures A/c 1,00,00,000
Debenture Application and Allotment A/c Dr. 37,50,000 To Premium on redemption of debentures A/c 20,00,000
To 11% Debentures A/c 15,00,000 (Allotment of 8% debentures at discount,
To Securities Premium A/c 7,50,000 redeemable at premium)
To Bank A/c 15,00,000 Bank A/c Dr. 88,00,000
(Debentures issued at a premium, excess refunded) To Debenture Allotment A/c 88,00,000
(Amount due on allotment received)
5.64 SUBHASH DEY (Shree Radhey Publications) Accountancy XII Volume II: Accounting for Companies

2. (a) Books of X Ltd. (ii) Debentures Application and Allotment A/c Dr. 7,40,000
Journal Loss an issue of Debenture A/c Dr. 47,500
Date Particulars L.F. Dr. (`) Cr. (`)   To 10% Debentures A/c 7,50,000
Bank A/c Dr. 1,14,000   To Premium on Redemption of Debentures A/c 37,500
To Debenture Application and Allotment A/c 1,14,000 (Application money transferred to 10%
(Debenture application money received) Debentures A/c)
Debenture Application and Allotment A/c Dr. 1,14,000 (b) (i) Bank A/c Dr. 5,50,000
Discount on Issue of Debentures A/c Dr. 6,000 To Debenture Application and Allotment A/c 5,50,000
To 8% Debentures A/c 1,20,000 (Application Money received on 5,000 10%
(Debentures application money transferred to Debentures)
Debentures A/c) (ii) Debenture Application and Allotment A/c Dr. 5,50,000
(b) Journal Loss on issue of Debenture A/c Dr. 50,000
To 10% Debenture A/c 5,00,000
Date Particulars L.F. Dr. (`) Cr. (`) To Premium on Redemption of Debentures A/c 50,000
Bank A/c Dr. 1,42,500 To Securities Premium A/c 50,000
To Debenture Application and Allotment A/c 1,42,500 (Application money transferred)
(Debenture application money received) (c) (i) Bank A/c Dr. 1,80,000
Debenture Application and Allotment A/c Dr. 1,42,500 To Debentures Application and Allotment A/c 1,80,000
Loss on Issue of Debentures A/c Dr. 22,500 (Received Application money for 2,000
To 7% Debentures A/c 1,50,000 Debentures)
To Premium on Redemption of Debenture A/c 15,000 (ii) Debentures Application and Allotment A/c Dr. 1,80,000
(Debentures application money transferred to Loss/Discount on issue of Debentures A/c Dr. 20,000
Debentures A/c)   To 9% Debentures A/c 2,00,000
(c) Journal (Application money transferred to 9% Debentures
A/c)
Date Particulars L.F. Dr. (`) Cr. (`)
Bank A/c Dr. 84,000 (d) (i) Bank A/c Dr. 6,00,000
To Debentures Application and Allotment A/c 6,00,000
To Debenture Application and Allotment A/c 84,000
(Received Application money for 5,000
(Debenture application money received)
Debentures)
Debenture Application and Allotment A/c Dr. 84,000
(ii) Debentures Application and Allotment A/c Dr. 6,00,000
To 9% Debentures A/c 80,000
To 9% Debentures A/c 5,00,000
To Securities Premium A/c 4,000 To Securities Premium A/c 1,00,000
(Debentures application money transferred to (Application money transferred)
Debentures A/c and Securities Premium A/c)
5. (i) Journal
3. Journal
Date Particulars L.F. Dr. (`) Cr. (`) Date Particulars L.F. Dr. (`) Cr. (`)
(a) Bank A/c Dr. 5,00,000 Bank A/c Dr. 27,00,000
To Debenture Application and Allotment A/c 5,00,000  To Debenture Application and Allotment A/c 27,00,000
(Debenture application money received) (Receipt of application money)
Debenture Application and Allotment A/c Dr. 5,00,000 Debenture Application and Allotment A/c Dr. 27,00,000
To 9% Debentures A/c 5,00,000 Loss on issue of Debentures A/c Dr. 4,50,000
(Debenture application money transferred to To 11% Debentures A/c 30,00,000
debentures account)  To Premium on redemption of Debentures 1,50,000
(b) Bank A/c Dr. 3,88,000 (Transfer of Debenture application money)
To Debenture Application and Allotment A/c 3,88,000
(Debenture application money received) (ii) Journal
Debenture Application and Allotment Dr. 3,88,000 Date Particulars L.F. Dr. (`) Cr. (`)
Loss on Issue of Debentures A/c Dr. 52,000
Bank A/c Dr. 38,40,000
To 10% Debentures A/c 4,00,000
To Debenture Application and Allotment A/c 38,40,000
To Premium on Redemption of Debentures A/c 40,000
(Receipt of application money on 32,000, 8%
(Debenture application money transferred to
Debentures of `100 each at a premium of `20 per
debentures account)
Debenture)
(c) Bank A/c Dr. 12,00,000
To Debenture Application and Allotment A/c 12,00,000 Debenture Application and allotment A/c Dr. 38,40,000
(Debenture application money received) Loss on issue of Debentures A/c Dr. 3,20,000
To 8% Debentures A/c 32,00,000
Debenture Application and Allotment A/c Dr. 12,00,000
To Securities Premium A/c
Loss on issue of Debentures A/c Dr. 1,00,000 6,40,000
 To Premium on redemption of Debentures A/c
To 12% Debentures A/c 10,00,000 3,20,000
(Transfer of Debenture application money
To Securities Premium A/c 2,00,000
and provision for premium on redemption of
To Premium on Redemption of Debentures A/c 1,00,000
Debentures made)
(Debenture application money transferred to
debentures account) (iii) Journal
4. Journal Date Particulars L.F. Dr. (`) Cr. (`)
Date Particulars L.F. Dr. (`) Cr. (`) Bank A/c Dr. 40,00,000
(a) (i) Bank A/c Dr. 7,40,000  To Debenture Application and Allotment A/c 40,00,000
To Debentures Application and Allotment A/c 7,40,000 (Receipt of application money on 40,000, 13%
(Application Money received on 7,500 10% Debentures of `100 each)
Debentures)