Page 171 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes
Example 6: Payment of Interest on Debentures

Apex Limited has 20,000, 8% Debentures of 100 each on which interest is payable on 30th June
and 31st December. Pass the necessary journal entries relating to debentures interest for the year
2005, assuming that income tax is deducted @ 20% on the amount of interest.
Solution:
Journal Entries

Date Particulars L.F. ( ) ( )
2005
June 30 Debentures Interest Account Dr. 80,000
To Debenture-holders’ Account 64,000
To Income tax Payable Account 16,000
(Being interest due for 6 months and income tax deducted @ 20%)
June 30 Debenture-holders’ Account Dr. 64,000
To Bank Account 64,000
(Being payment made to debenture-holders)
June 30 Income Tax Payable Account Dr. 16,000
To Bank Account 16,000
(Being payment of income tax deducted from interest)
Dec. 31 Debentures Interest Account Dr. 80,000
To Debenture-holder Account 64,000
To Income tax Payable Account. 16,000
(Being interest due for 6 month and income tax deducted @ 20%)
Dec. 31 Debenture-holders Account Dr. 64,000
To Bank Account 64,000
(Being payment made to Debenture-holders)
Dec. 31 Income Tax Payable Account Dr. 16,000
To Bank Account 16,000
(Being payment of Income tax to government)
Dec. 31 Profit & Loss Account Dr. 1,60,000
To Debentures Interest Account 1,60,000
(Being transfer of debenture interest to profit and loss account)

Self Assessment

Fill in the blanks:
10. Under the Sinking Fund method of redemption the interest on S.F. Investment is ………… .

11. Nature of Premium a Issue of Debentures is ………….… .
12. ‘Discount on Issue of Debentures’ is written off through …………… .

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