Chapter issue-and-redemption-of-debentures: Issue and Redemption of Debentures Application Questions | accountancy Class 12 CBSE

Chapter issue-and-redemption-of-debentures: Issue and Redemption of Debentures Application Questions | accountancy Class 12 CBSE | ByteNotes.in

Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 1

Applied Concept

ABC Ltd. issued 10,000, 12% debentures of Rs. 100 each at par, payable Rs. 30 on application and balance on allotment. The public applied for 9,000 debentures which were fully allotted, and all allotment money was duly received. Prepare the journal entries and show the relevant balance sheet extract.

On application: Bank A/c Dr. Rs. 2,70,000 / To 12% Debenture Application A/c Rs. 2,70,000. Transfer: 12% Debenture Application A/c Dr. Rs. 2,70,000 / To 12% Debentures A/c Rs. 2,70,000 (Rs. 30 × 9,000).
Allotment due: 12% Debenture Allotment A/c Dr. Rs. 6,30,000 / To 12% Debentures A/c Rs. 6,30,000 (Rs. 70 × 9,000). Receipt: Bank A/c Dr. Rs. 6,30,000 / To 12% Debenture Allotment A/c Rs. 6,30,000.
Balance sheet: Non-current Liabilities — Long-term Borrowings: 9,000, 12% Debentures of Rs. 100 each = Rs. 9,00,000. Current Assets — Cash and Cash Equivalents: Rs. 9,00,000. Only 9,000 debentures were allotted (not all 10,000 offered), so the debenture account reflects Rs. 9,00,000.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 2

Applied Concept

TV Components Ltd. issued 10,000, 12% debentures of Rs. 100 each at a discount of 5%, payable Rs. 40 on application and Rs. 55 on allotment. All instalments were duly received. Show the journal entries and the relevant balance sheet extract.

On application: Bank A/c Dr. Rs. 4,00,000 / To 12% Debenture Application A/c Rs. 4,00,000. Transfer: 12% Debenture Application A/c Dr. Rs. 4,00,000 / To 12% Debentures A/c Rs. 4,00,000. Allotment due: 12% Debenture Allotment A/c Dr. Rs. 5,50,000 + Discount on Issue A/c Dr. Rs. 50,000 / To 12% Debentures A/c Rs. 6,00,000.
Receipt: Bank A/c Dr. Rs. 5,50,000 / To 12% Debenture Allotment A/c Rs. 5,50,000. Write-off: Securities Premium Reserve / Statement of P&L Dr. Rs. 50,000 / To Discount on Issue of Debentures A/c Rs. 50,000.
Balance sheet: Long-term Borrowings = 10,000, 12% Debentures = Rs. 10,00,000. Cash at Bank = Rs. 9,50,000. Reserves and Surplus shows debit balance (if written off from P&L) of Rs. 50,000.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 3

Applied Concept

XYZ Industries Ltd. issued 2,000, 10% debentures of Rs. 100 each at a premium of Rs. 10 per debenture, payable Rs. 50 on application and Rs. 60 on allotment. The debentures were fully subscribed and all money was duly received. Record journal entries and show the balance sheet extract.

Application: Bank A/c Dr. Rs. 1,00,000 / To 10% Debenture Application A/c Rs. 1,00,000. Transfer: 10% Debenture Application A/c Dr. Rs. 1,00,000 / To 10% Debentures A/c Rs. 1,00,000.
Allotment due: 10% Debenture Allotment A/c Dr. Rs. 1,20,000 / To 10% Debentures A/c Rs. 1,00,000 + To Securities Premium Reserve A/c Rs. 20,000. Receipt: Bank A/c Dr. Rs. 1,20,000 / To 10% Debenture Allotment A/c Rs. 1,20,000.
Balance sheet: Reserves and Surplus — Securities Premium Reserve Rs. 20,000. Long-term Borrowings — 2,000, 10% Debentures Rs. 2,00,000. Cash and Cash Equivalents Rs. 2,20,000 (Rs. 1,00,000 + Rs. 1,20,000).

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 4

Applied Concept

X Ltd. issued 10,000, 12% debentures of Rs. 100 each. Applications were received for 14,000 debentures. Applications for 9,000 were accepted in full; applications for 2,000 were allotted 1,000; the rest were rejected. Allotment money Rs. 60 per debenture. All money was duly received. Journalise.

Application received: Bank A/c Dr. Rs. 5,60,000 (14,000 × Rs. 40) / To 12% Debenture Application A/c Rs. 5,60,000. Transfer: 12% Debenture Application A/c Dr. Rs. 5,60,000 / To 12% Debentures A/c Rs. 4,00,000 (10,000 × Rs. 40) + To Debenture Allotment A/c Rs. 40,000 (excess from partial allottees) + To Bank A/c Rs. 1,20,000 (refund to rejected applicants).
Allotment due: 12% Debenture Allotment A/c Dr. Rs. 6,00,000 / To 12% Debentures A/c Rs. 6,00,000 (10,000 × Rs. 60). Net allotment received: Bank A/c Dr. Rs. 5,60,000 / To Debenture Allotment A/c Rs. 5,60,000 (Rs. 6,00,000 − Rs. 40,000 already held).
Total debentures allotted = 10,000 at Rs. 100 each = Rs. 10,00,000 (face value). Cash collected = Rs. 5,60,000 − Rs. 1,20,000 (refund) + Rs. 5,60,000 allotment = Rs. 10,00,000 net.

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Application Question

Easy difficulty • Concept in a practical situation

Easy

Question 5

Applied Concept

Aashirwad Company Ltd. purchased assets worth Rs. 2,00,000 from another company and agreed to pay by issuing 2,000, 10% debentures of Rs. 100 each at par. Record the necessary journal entries.

Purchase of assets: Sundry Assets A/c Dr. Rs. 2,00,000 / To Vendors A/c Rs. 2,00,000 (assets recorded at book value as agreed purchase consideration).
Issue of debentures: Vendors A/c Dr. Rs. 2,00,000 / To 10% Debentures A/c Rs. 2,00,000 (allotment of 2,000 debentures of Rs. 100 each at par as purchase consideration).
No cash flows in this transaction — the entire settlement is through debentures. The debentures will appear as Long-term Borrowings and the assets as the respective fixed asset on the balance sheet; no Cash and Cash Equivalents is affected.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 6

Applied Concept

National Packaging Company purchased assets worth Rs. 1,90,000 from another company and paid by issuing 2,000, 10% debentures of Rs. 100 each at a discount of 5%. Record necessary journal entries.

Purchase of assets: Sundry Assets A/c Dr. Rs. 1,90,000 / To Vendors A/c Rs. 1,90,000 (assets at agreed value; this is the purchase consideration).
Issue of debentures at discount: Vendors A/c Dr. Rs. 1,90,000 + Discount on Issue of Debentures A/c Dr. Rs. 10,000 / To 10% Debentures A/c Rs. 2,00,000 (2,000 × Rs. 100 face value; issue price = Rs. 95, so 2,000 debentures satisfy Rs. 1,90,000 consideration).
The Discount on Issue of Debentures A/c Rs. 10,000 is a capital loss and must be written off in the year of issue: Securities Premium Reserve / Statement of P&L Dr. Rs. 10,000 / To Discount on Issue of Debentures A/c Rs. 10,000.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 7

Applied Concept

Romi Ltd. acquired assets of Rs. 20 lakh and took over creditors of Rs. 2 lakh from Kapil Enterprises. Romi Ltd. issued 8% debentures of Rs. 100 each at par as purchase consideration. Record necessary journal entries in the books of Romi Ltd.

Business purchase: Sundry Assets A/c Dr. Rs. 20,00,000 / To Kapil Enterprises A/c Rs. 18,00,000 + To Sundry Creditors A/c Rs. 2,00,000. (Purchase consideration = Net Assets = Rs. 20L − Rs. 2L = Rs. 18L; no goodwill or capital reserve arises.)
Issue of debentures: Kapil Enterprises A/c Dr. Rs. 18,00,000 / To 8% Debentures A/c Rs. 18,00,000 (Issue of 18,000, 8% debentures of Rs. 100 each at par as full settlement).
No cash flows; net assets equal purchase consideration so no goodwill or capital reserve. The creditors taken over are reflected in Sundry Creditors A/c and will be settled by Romi Ltd. as per their terms.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 8

Applied Concept

Blue Prints Ltd. purchased building Rs. 1,50,000, machinery Rs. 1,40,000, and furniture Rs. 10,000 from XYZ Co. and took over liabilities of Rs. 20,000. Purchase consideration was Rs. 3,15,000. Payment was by issuing 12% debentures of Rs. 100 each at a premium of 5%. Record the journal entries.

Purchase of business: Building A/c Dr. Rs. 1,50,000 + Plant & Machinery A/c Dr. Rs. 1,40,000 + Furniture A/c Dr. Rs. 10,000 + Goodwill A/c Dr. Rs. 35,000 / To Liabilities (Sundry) A/c Rs. 20,000 + To XYZ Co. A/c Rs. 3,15,000. (Net assets = Rs. 3,00,000 − Rs. 20,000 = Rs. 2,80,000; PC = Rs. 3,15,000; Goodwill = Rs. 35,000.)
Issue of debentures: XYZ Co. A/c Dr. Rs. 3,15,000 / To 12% Debentures A/c Rs. 3,00,000 + To Securities Premium Reserve A/c Rs. 15,000. (Number of debentures = Rs. 3,15,000 ÷ Rs. 105 = 3,000 debentures.)
Goodwill arises because purchase consideration (Rs. 3,15,000) exceeds net assets (Rs. 2,80,000); the difference of Rs. 35,000 is the premium paid for the business and is treated as Goodwill — an intangible asset on the balance sheet.

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Application Question

Medium difficulty • Concept in a practical situation

Medium

Question 9

Applied Concept

A company took a loan of Rs. 10,00,000 from Punjab National Bank and issued 10% debentures of Rs. 12,00,000 (Rs. 100 each) as collateral security. Show the balance sheet treatment under both methods.

First Method — No journal entry: Balance sheet shows Long-term Borrowings: Bank Loan Rs. 10,00,000 with a note: 'Secured by issue of 12,000, 10% debentures of Rs. 100 each as Collateral Security.' No debenture is recorded as a liability.
Second Method — Journal entry: Debenture Suspense A/c Dr. Rs. 12,00,000 / To 10% Debentures A/c Rs. 12,00,000. Balance sheet note: 12,000, 10% Debentures Rs. 12,00,000 Less: Debenture Suspense Rs. 12,00,000 = Nil; Secured Loan from PNB = Rs. 10,00,000.
In both methods, the net liability on the balance sheet remains Rs. 10,00,000 (the bank loan). The collateral debentures are not an additional liability — they are security; actual liability only arises if the company defaults and the debentures are invoked.

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Application Question

Hard difficulty • Concept in a practical situation

Hard

Question 10

Applied Concept

Give journal entries for the issue of Rs. 1,00,000, 9% debentures of Rs. 100 each under two scenarios: (a) issued at par, redeemable at premium of 5%; (b) issued at discount of 5%, redeemable at premium of 5%.

Scenario (a) — issued at par, redeemable at 5% premium: Bank A/c Dr. Rs. 1,00,000 / To 9% Debenture Application & Allotment A/c Rs. 1,00,000. Then: Debenture Application & Allotment A/c Dr. Rs. 1,00,000 + Loss on Issue of Debentures A/c Dr. Rs. 5,000 / To 9% Debentures A/c Rs. 1,00,000 + To Premium on Redemption of Debentures A/c Rs. 5,000.
Scenario (b) — issued at 5% discount, redeemable at 5% premium: Bank A/c Dr. Rs. 95,000 / To 9% Debenture Application & Allotment A/c Rs. 95,000. Then: Debenture Application & Allotment A/c Dr. Rs. 95,000 + Loss on Issue of Debentures A/c Dr. Rs. 10,000 (Rs. 5,000 discount + Rs. 5,000 premium) / To 9% Debentures A/c Rs. 1,00,000 + To Premium on Redemption of Debentures A/c Rs. 5,000.
In scenario (b), Loss on Issue = discount on issue + premium on redemption = Rs. 5,000 + Rs. 5,000 = Rs. 10,000, because both represent a financial burden on the company — one at issuance and one at redemption.

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Chapter issue-and-redemption-of-debentures: Issue and Redemption of Debentures | Application Questions

TV Components Ltd. issued 10,000, 12% debentures of Rs. 100 each at a discount of 5%, payable Rs. 40 on application and Rs. 55 on allotment. All instalments were duly received. Show the journal entries and the relevant balance sheet extract.

XYZ Industries Ltd. issued 2,000, 10% debentures of Rs. 100 each at a premium of Rs. 10 per debenture, payable Rs. 50 on application and Rs. 60 on allotment. The debentures were fully subscribed and all money was duly received. Record journal entries and show the balance sheet extract.

X Ltd. issued 10,000, 12% debentures of Rs. 100 each. Applications were received for 14,000 debentures. Applications for 9,000 were accepted in full; applications for 2,000 were allotted 1,000; the rest were rejected. Allotment money Rs. 60 per debenture. All money was duly received. Journalise.

Aashirwad Company Ltd. purchased assets worth Rs. 2,00,000 from another company and agreed to pay by issuing 2,000, 10% debentures of Rs. 100 each at par. Record the necessary journal entries.

National Packaging Company purchased assets worth Rs. 1,90,000 from another company and paid by issuing 2,000, 10% debentures of Rs. 100 each at a discount of 5%. Record necessary journal entries.

Romi Ltd. acquired assets of Rs. 20 lakh and took over creditors of Rs. 2 lakh from Kapil Enterprises. Romi Ltd. issued 8% debentures of Rs. 100 each at par as purchase consideration. Record necessary journal entries in the books of Romi Ltd.

Blue Prints Ltd. purchased building Rs. 1,50,000, machinery Rs. 1,40,000, and furniture Rs. 10,000 from XYZ Co. and took over liabilities of Rs. 20,000. Purchase consideration was Rs. 3,15,000. Payment was by issuing 12% debentures of Rs. 100 each at a premium of 5%. Record the journal entries.

A company took a loan of Rs. 10,00,000 from Punjab National Bank and issued 10% debentures of Rs. 12,00,000 (Rs. 100 each) as collateral security. Show the balance sheet treatment under both methods.

Give journal entries for the issue of Rs. 1,00,000, 9% debentures of Rs. 100 each under two scenarios: (a) issued at par, redeemable at premium of 5%; (b) issued at discount of 5%, redeemable at premium of 5%.

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