# Loss on Issue of Debentures Part 5

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Company may issue debentures with the stipulation that the repayment of the debentures on maturity will be made at premium. The amount of the premium payable is debited to Loss on Issue of Debentures A/c at the time of issue of debentures. Then the amount of loss will be written off in the following manner –

## When All Debentures Are Redeemed After Fixed Period

Journal Entry for Amount of Loss on issue of debentures written off each year

Profit and Loss A/c Dr.

To Loss on Issue of Debentures A/c

### When Debentures Are Redeemed in Installments

Over a fixed period of time debentures loss amount can be written off in installments and the written off amount will be in proportion to the amount of debentures redeemed

Example: A company issues 1000 10% Debentures of Rs 1000 each on 1st Jan, 2006 payable at a premium of 10% after 5 years. Make journal entries and open Loss on Issue of Debentures A/c for the year ending 31st December 2006.

Solution:

Amount of Loss on issue of Debentures = = 1,00,000

Calculation of amount to be written off every year:

 Year End Amount outstanding Ratio Amount to be written off every year 1st 2nd 3rd 4th 5th 100000 66667 40000 20000 6667 5 4 3 2 1 100000×5/15 = 33333 100000×4/15 = 26667 100000×3/15 = 20000 100000×2/15 = 13333 100000×1/15 = 6667

Journal Entry:

2006 Profit and Loss A/c Dr. 33333

Dec 31 To Loss on Issue of Debentures A/c 33333

(Amount of Loss on Issue of Debentures written of for year 2006)

Note: Journal entries will be passed same as above for all 5 years.

## Interest on Debentures:

Generally advertisement of Debentures comes with percentage of interest ex. Issue of 9% Debentures. 9% denotes the rate of interest per annum given by the company either annually or semi-annual basis.

Journal Entries:

 Payment of interest on debentures: Debenture Interest A/c Dr. To Bank A/c (Interest on …% Debentures paid semi-annually @...% per annum) Transfer of Debenture interest to P&L A/c: Profit and Loss A/c Dr. To Debenture Interest A/c (Debenture Interest transferred to Profit and Loss A/c)

Example: X Ltd has issued 5000 9% Debentures of Rs 1000 each, on 1st April, 2006 Interest is payable after every six months. Make journal entries for the interest paid for the first six months after the date of issue.

Solution:

Calculation of Interest payable at six monthly intervals:

Amount of Debentures = 5000 × Rs 1000 = Rs 5000000

Interest payable at six monthly intervals =

= = 2,25,000

Journal Entry:

 S. No Particulars L.F Amount (Rs.) Dr. Cr. 2006 30th Sept. Debentures Interest A/c Dr. To Bank A/c (Interest on 5000 9% Debentures @ Rs 1000 per debenture paid for 6 months ending 30th Sept 2006) 225000 225000 2007 31st Mar. Profit and Loss A/c Dr To Debentures Interest A/c (Debenture Interest transferred to profit and Loss A/c) 225000 225000

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