Globe Ltd. issues 20,000, 9% debentures of Rs 100 each at a discount of 5% redeemable at the end of 5 years at a premium of 6%. For what amount ‘Loss on Issue of Debentures Account’ will be debited?
Explanation:
AT THE TIME OF ISSUE OF DEBENTURES:
bank a/c dr. Rs 19,00,000
to debenture appllication and allotment a/c Rs 19,00,000
(being the debentures application money received)
Debenture appllication and allotment a/c dr. Rs 19,00,000 (20,000*95)
discount on issue of debentures dr. Rs. 1,00,000 (20,000*5)
to 9% debentures a/c Rs. 20,00,000 (20,000*100)
(being Issued 20,000, 9% debentures of Rs 100 each at a discount of 5% )
ON REDEMPTION OF DEBENTURES:
12% debentures a/c dr. Rs.20,00,000
premium on redemption of debentures a/c dr. Rs.1,20,000 (20,00,000*6%)
to debenture holders a/c Rs.21,20,000
When issued at discount redeemable at premium:. It is recorded on the liability side of the balance sheet until it is paid off. Since company promises to pay more at the time of redemption, therefore, there is loss of equal amount which is debited to “loss on issue of debentures a/c”.
Loss on Issue will be debited by Rs 2,20,000
(discount on issue of debentures dr.Rs. 1,00,000 + premium on redemption of debentures a/c dr. Rs.1,20,000 )