WORKSHEET ON ISSUE OF DEBENTURE

BOARD EXAM QUESTIONS FROM 2016-2020

Name of Student
Name of School
Subject
Unit
Date & Time of Completion
SYNOPSIS
Meaning of Debentures
The word ‘debenture’ has been derived from a Latin word ‘debere’ which means
to borrow. Debenture is a written instrument acknowledging a debt under the common
seal of the company.
BOND: Bond is also an instrument of acknowledgement of debt. Traditionally, the
Government issued bonds.
Distinction between Shares and Debentures
Basis Shares Debentures
Ownership Ownership Capital Borrowed Capital
Return Dividend Interest
Repayment Not returned during the life of Returned only after the
the company completion of specific period.
Voting Rights Have voting rights Do not have voting right.
Security Not Secured Secured by assets of company
Convertibility Can not be converted into Can be converted into shares.
Debentures

Types of Debenture/Bond
 Mode of
Security Tenure Coupan Rate Registration
Redemption
Zero Coupan
Secured Redeemable Convertible Registered
Rate

Mortgage Irredeemable Nonconvertible Specific Rate Unregistered

ISSUE OF DEBENTURES
Issue of Debentures for Cash
On Application
1. On opening account in scheduled bank
Bank A/c Dr.
To Debenture Application A/c
(Amount received on application for — Debenture @ Rs. ______ per Debenture)
2. For Transfer of Application Money
Debenture Application A/c Dr.
To Debenture A/c
(Application money on _____ Debenture allotted/transferred to Debenture
Capital)
3. For Money refunded on rejected application
Debenture Application A/c Dr.
To Bank A/c
(Application money returned on rejected application for ___ Debenture)
On Allotment
4. For Amount Due on Allotment
Debenture Allotment A/c Dr.
To Debenture A/c
5. For Adjustment of Excess Application Money
Debenture Application A/c Dr.
To Debenture Allotment A/c
 (Application Money on __ Debenture @ Rs__per Debenture adjusted to the
amount due on allotment).
6. For Receipt of Allotment Money
Bank A/c Dr.
To Debenture Allotment A/c
(Allotment money received on ___ Debenture @ Rs. — per Debenture
Combined Account)
On Receipt of Call Money
7. For Call Amount Due
Debenture Call A/c Dr.
To Debenture A/c
(Call money due on ___ Debenture @ Rs. ____ per Debenture)
8. For Receipt of Call Amount
Bank A/c Dr.
To Debenture Call A/c
(Call money received)
Issue of Debentures at a Discount
Debenture is issued at a price below its nominal value.
It is a capital loss and can be written-off either by debiting it to profit and loss.
12% Debenture Allotment A/c Dr.
Discount on Issue of Debentures A/c Dr.
To 12% Debenture A/c
(Allotment money due on debentures)
Issue of Debentures at Premium
The price charged is more than its nominal value. Amount of premium is credited
to securities premium account and is shown on the liabilities side of the balance sheet
under the head reserves and surpluses.
10% Debenture Allotment A/c Dr.
 To 10% Debentures A/c
To Securities Premium A/c
(Allotment money due on debentures)
Over Subscription
The number of debentures applied for is more than the number of debentures offered to
the public.
Issue of Debentures for Consideration other than Cash
1. Asset A/c Dr.
To Vendor
(Asset purchased)
2. When debentures are issued at par
Vendors A/C Dr.
To debentures A/c
(debentures issued at par)
3. When debentures are issued at Discount
Vendors A/C Dr.
Discount on Issue of debentures A/c Dr.
To debentures A/c
(debentures issued at discount)
4. When debentures are issued at premium
Vendors A/C Dr.
To debentures A/c
To Securities Premium A/c
(debentures issued at premium)
Issue of Debentures as a Collateral Security
Any security in addition to primary security is called ‘collateral security’. The
amount of debentures will be transferred to debenture suspense account.
Debenture Suspense A/c Dr.
 To 19% Debentures A/c
For cancellation of 19% debentures as collateral security on repayment of bank loan.
19% Debentures A/c Dr.
To Debenture Suspense A/c
TERMS OF ISSUE OF DEBENTURES
1. Issue at par and redeemable at par
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)
(b) Debenture Application & Allotment A/c Dr.
To Debentures A/c
(Allotment of debentures)
2. Issue at a discount and redeemable at par
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)
(b) Debenture Application & Allotment A/c Dr.
Discount on Issue of Debentures A/c Dr.
To Debentures A/c
(Allotment of debentures at a discount)
3. Issue at premium and redemption at par
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)
(b) Debenture Application & Allotment A/c Dr.
To Debentures A/c
To Securities Premium A/c
(Allotment of debentures at a premium)
4. Issue at par and redeemable at premium
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)
(b) Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.(with premium on redemption)
To Debentures A/c (with nominal value of debenture)
To Premium on Redemption of Debenture A/c(with premium on redemption)
(Allotment of debentures at par and redeemable at a premium)
5. Issue at discount and redemption at premium
Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)
Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr. (with discount on issue plus
premium on redemption)
To Debentures A/c (with nominal value of debenture)
To Premium on Redemption of Debentures A/c (with premium on
redemption)
(Allotment of debentures at a discount and redeemable at premium)

6. Issued at a premium and redeemable at premium

Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)
Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.(with premium on redemption)
 To Debentures A/c (with nominal value of debenture)
To Securities Premium A/c (with premium on issue)
To Premium on Redemption of Debentures A/c (with premium on redemption)
INTEREST ON DEBENTURES
Interest at fixed percentage will be paid periodically until debentures are repaid.
According to Income Tax Act 1961, a company must deduct income tax at a prescribed
rate from the interest payable on debentures if it exceeds the prescribed limit.
1. When interest is due
Debenture Interest A/c Dr.
To Income Tax payable A/c
To Debentureholders A/c
(Amount of interest due on debenture and tax deducted at source )
2. For payment of interest to debentureholders
Debentureholders A/c Dr.
To Bank A/c
(Amount of interest paid to debentureholders)
3. On transfer debenture Interest Account to statement of Profit and Loss
Profit and Loss A/c Dr.
To Debenture Interest A/c
(Debenture interest transferred to profit and loss A/c)
4. On payment of tax deducted at source to Government
Income Tax Payable A/c Dr.
To Bank A/c
(Payment of tax deducted at source on interest on debentures)
Writing-Off Discount/Loss On Issue Of Debentures
The discount/loss on issue of debentures is a capital loss or a fictitious asset.
Securities Premium Reserve / Profit and Loss A/c Dr.
To Discount/Loss on Issue of Debentures A/c
 (Discount/loss on issue of debentures written-off)
Sl.No. Questions Mark
2016 Foreign
1 3

During that year 2 more questions asked from the deleted area.
a) One mark question from debenture redemption reserve
b) 6 mark question from redemption methods of debenture
2016 Delhi
2 KTR Ltd., issued 365, 9% Debentures of ₹ 1,000 each on 4-3-2016. 3
Pass necessary journal entries for the issue of debentures in the
following situations :
(a) When debentures were issued at par redeemable at a premium of
10%.
(b) When debentures were issued at 6% discount redeemable at 5%
premium.
2017 Foreign
3 X Ltd. invited applications for issuing 500, 12% debentures of 1
Rs.100 each at a discount of 5%. These debentures were redeemable
after three years at par. Applications for 600 debentures were
received. Pro-rata allotment was made to all the applicants.
Pass necessary journal entries for the issue of debentures assuming
that the whole amount was payable with application.
4 Disha Ltd. purchased machinery from Nisha Ltd. and paid to Nisha 3
Ltd. as follows :
(i) By issuing 10,000, equity shares of ₹ 10 each at a premium of
10%.
(ii) By issuing 200, 9% debentures of ₹ 100 each at a discount of
10%.
(iii) Balance by accepting a bill of exchange of ₹ 50,000 payable
after one month.
Pass necessary journal entries in the books of Disha Ltd. for the
purchase of machinery and making payment to Nisha Ltd.
5 On 1.4.2015, J.K. Ltd. issued 8,000, 9% debentures of ₹ 1,000 each 6
at a discount of 6%, redeemable at a premium of 5% after three
years. The company closes its books on 31st March every year.
Interest on 9% debentures is payable on 30th September and 31st
March every year. The rate of tax deducted at source is 10%.
Pass necessary journal entries for the issue of debentures and
debenture interest for the year ended 31.3.2016.
One 3 mark question was there from deleted portion related to redemption of
debenture
2017 Delhi
6 X Ltd. invited applications for issuing 1000, 9% debentures of ₹ 100 1
each at a discount of 6%. Applications for 1,200 debentures were
received. Pro-rata allotment was made to all the applicants.
Pass necessary Journal Entries for the issue of debentures assuming
that the whole amount was payable with applications.
7 On 1-4-2015 K.K. Ltd. issued 500, 9% Debentures of ₹ 500 each at 6
a discount of 4%, redeemable at a premium of 5% after three years.
 Pass necessary Journal Entries for the issue of debentures and
debenture interest for the year ended 31-3-2016 assuming that
interest is payable on 30th September and 31st March and the rate
of tax deducted at source is 10%. The company closes its 6books on
31st March every year.
One 3 mark question was there from deleted portion related to
redemption of debenture

2018 Delhi
8 Give the meaning of ‘Debentures issued as Collateral Security’. 1

Other 6 mark question is from deleted topic ie., redemption of debenture

2018 Compartment
9 Venus Ltd., is a real estate company. To discharge its corporate 4
Social Responsibility, it decided to construct a night shelter for the
homeless. The company took over assets of ₹ 10,00,000 and
liabilities of ₹ 1,80,000 of Cayns Ltd. for ₹ 7,60,000. Venus Ltd..
issued 9% Debentures of ₹ 100 each at a discount of 5% in full
satisfaction of the purchase consideration in favour of Cayns Ltd.
Pass necessary journal entries in the books of Venus Ltd. for the
above transactions.
10 Boots Ltd. issued ₹ 6,00,000, 8% Debentures at a discount of 6%. 6
The debentures were redeemable in four equal annual instalments.
Pass necessary journal entries for issue of debentures and prepare
‘Discount on issue of debentures Account’ for four years. Show
your workings clearly.
 2019 Delhi
11 3

12 3

One four mark question was there from the deleted area
Method of Redemption of Debenture
2020 All India
13 (i) Vayee Ltd. purchased the following assets of E.X. Ltd. : Land 6
and Building of ₹ 60,00,000 at ₹ 84,00,000; Plant and Machinery of
₹ 40,00,000 at ₹ 36,00,000.
The purchase consideration was ₹ 1,10,00,000. Payment was made
by accepting a Bill of Exchange in favour of E.X. Ltd. Of ₹
20,00,000 and remaining by issue of 8% debentures of ₹ 100 each
at a premium of 20%.
Record the necessary journal entries for the above transactions in
the books of Vayee Ltd.
(ii) Zed Ltd. issued 2,00,000, 8% debentures of ₹ 100 each at a
discount of 6% redeemable at a premium of 10% after 5 years. The
amount was payable as follows :
On application – ₹ 50 per debenture and
On allotment – balance
Record the necessary journal entries for the issue of debentures in
the books of Zed Ltd.
14 Excess of issue price of a debenture over its face value is called 1
________ .
The next choice question for 6 mark was from redemption methods