Page 168 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 7: Debentures: Conditions of Issue of Debentures from Redemption Point of View

(b) If debentures are issued at discount and redeemable at premium, loss on issue of debentures Notes
will be equal to the total of discount on issue of debentures and premium payable on
redemption of debentures.
The loss on issue of debentures in both the above cases will be treated as capital loss and will be
dealt with the same method as discount on issue of debentures discussed earlier.

To write off the loss on issue of debentures, the following entry will be passed:
Profit & Loss account Dr.
To Loss on Issue of Debentures Account.

Example 5: Writing off Loss on Issue of Debentures
On 1st January, 2001 Shubham Ltd. issued 2,000, 12% Debentures of 100 each at a discount of 5%,
redeemable at a premium of 10%. Show the loss on issue of Debentures Account, if (i) such
debentures are redeemable after 5 years and (ii) such debentures are redeemable by annual
drawings in 5 years. Shubham Ltd. follows the calendar year as its accounting year.
Solution:
(a) When these debentures are repayable after 5 years:
(i) Amount of discount on issue of debentures

2,00,000 5
= 10,000
100
(ii) Amount of premium payable on redemption:

2,00,000 10
= 20,000
100
(iii) Thus total loss = 10,000 + 20,000 = 30,000

30,000
= 6,000
5
Amount of loss to be written off every year:
Loss on Issue of Debentures Account
2001 To 12% Debentures Account 10,000 2001 By P. & L. Account 6,000
Jan. 1 To Premium on Redemption of 20,000 Dec. 31 By Balance c/d 24,000
Debentures Account
30,000 30,000
2002 2002
Jan. 1 To balance b/d 24,000 Dec. 31 By P. & L. Account 6,000
By Balance c/d 18,000
24,000 24,000
2003 2003
Jan. 1 To balance b/d 18,000 Dec. 31 By P. & L. Account 6,000
By Balance c/d 12,000
18,000 18,000
2004 2004 Contd...
Jan. 1 To balance b/d 12,000 Dec. 31 By P. & L. Account 6,000
By balance c/d 6,000
12,000 12,000
LOVELY PROFESSIONAL UNIVERSITY 161
2005 2005
Jan. 1 To balance b/d 6,000 Dec. 31 By P. & L. Account 6,000
6,000 6,000