On 1st April 2010,X Ltd issued 5000,8% debenture of Rs100 each at a discount of 4% and redeemable at par - Accountancy - Issue and Redemption of Debentures

Question

On 1st April 2010,X Ltd issued 5000,8% debenture of Rs100 each
at a discount of 4% and redeemable at par after 5 years but the
company offered an option to convert into equity shares of Rs10
each after 31st March 2012 on 1st April 2012,20% holder exercise
their options Give the necessary journal entries at the time of
issue and conversion under the following cases:
1 If equity shares are issued at par
2 If equiy shares issued at premium 25%

Neha A. · Accepted Answer

Journal

Date

Particulars

L F

Debit

Amount

(Rs)

Credit

Amount

(Rs)

2010

Apr 01

Bank A/c

Dr

4,80,000

To Debenture Application A/c

4,80,000

(being the receipt of debentures application)

Debenture Application A/c

Dr

4,80,000

Discount on Issue of Debentures A/c

Dr

20,000

To 8% Debentures A/c

5,00,000

(being the issue of 8% debentures of Rs 100 each at a discount of
4%)

8% Debentures A/c

Dr

1,00,000

To Discount on Issue of Debentures A/c

2,400

To Statement of Profit and Loss A/c

1,600

To Debentureholdersâ€™ A/c

96,000

(being the amount due to debentureholdersâ€™ on
coversion of 1000, 8% debentures)

Case 1

Debentureholdersâ€™ A/c

Dr

96,000

To Equity Share Capital A/c

96,000

(being the issue of 9600 equity shares of Rs 10 each at par on the
conversion of 1000,8% debentures)

Case 2

Debentureholdersâ€™ A/c

Dr

96,000

To Equity Share Capital A/c

76,800

To Security Premium A/c

19,200

(being the issue of 7,680 shares of Rs 10 each at a premium of 25%
per share on conversion of 1000, 8% debentures)

Working notes:
5000 debentures issued at discount of 4% = 5000*96 = Rs 4,80,000
(amount received on application)
Discount of 4% on 5,00,000 (5000 debentures of Rs 100 each) = Rs
20,000
Discount to be written off each year = 20,000/5 = Rs 4,000
During 2 years (2010-11 & 2011-12), the total amount of
discount written off on 5000 debentures will be Rs 8,000 (Rs 4,000
+ Rs 4,000) So the amount of discount that should be written off on
1,000 debentures (converted) will be Rs 1,600
(8,000/5,000*1,000)
And the amount of discount not written off on 5000 debentures is
Rs 12,000 (Rs 20,000- Rs 8,000) So, the amount of discount not
written off in respect of 1000 debentures is Rs 2,400
(12,000/5,000*1,000)
Number of shares to be issued = 96,000/12 50 = 7680 shares (at a
premium of 25%)

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
2010
Apr 01	Bank A/c	Dr		4,80,000
	To Debenture Application A/c				4,80,000
	(being the receipt of debentures application)

	Debenture Application A/c	Dr		4,80,000
	Discount on Issue of Debentures A/c	Dr		20,000
	To 8% Debentures A/c				5,00,000
	(being the issue of 8% debentures of Rs 100 each at a discount of 4%)

	8% Debentures A/c	Dr		1,00,000
	To Discount on Issue of Debentures A/c				2,400
	To Statement of Profit and Loss A/c				1,600
	To Debentureholders’ A/c				96,000
	(being the amount due to debentureholders’ on coversion of 1000, 8% debentures)

Case 1	Debentureholders’ A/c	Dr		96,000
	To Equity Share Capital A/c				96,000
	(being the issue of 9600 equity shares of Rs 10 each at par on the conversion of 1000,8% debentures)

Case 2	Debentureholders’ A/c	Dr		96,000
	To Equity Share Capital A/c				76,800
	To Security Premium A/c				19,200
	(being the issue of 7,680 shares of Rs 10 each at a premium of 25% per share on conversion of 1000, 8% debentures)