Q.(a) Sandhya Ltd. took over the assets of ₹ 50,00,000 and liabilities of ₹ 7,00,000 of Guman Ltd. for purchase consideration of ₹ 40,00,000. The payment of purchase consideration was made by issue of 9% debentures of ₹ 100 each at a premium of 25% to Guman Ltd. Pass necessary journal entries for the above transactions in the books of Sandhya Ltd.

Showing the 12 most recent of 47 on this concept.

1. CBSE 2026Set 67/3/11 markMCQ
   Q.Nigam Ltd. issued 40,000, 11% Debentures of ₹ 100 each at a certain rate of discount. The debentures were to be redeemed at 20% premium. Existing balance of Securities Premium before issue of these debentures was ₹ 13,00,000. After writing off 'Loss on issue of debentures', the balance in Securities Premium was ₹ 3,00,000. The above debentures were issued at a discount of : (A) 20% (B) 15% (C) 10% (D) 5%

   ›Reveal solutionSolution

   The debentures were issued at a discount of 5%.

   When debentures are issued at a discount and/or are redeemable at a premium, the company incurs a capital loss. This loss is termed 'Loss on Issue of Debentures'. This account is a fictitious asset (or deferred revenue expenditure) and represents the total cost associated with issuing debentures below par and/or redeeming them above par. It is typically written off over the tenure of the debentures, usually against the Securities Premium Reserve or, if that is insufficient, against the Statement of Profit & Loss.

   The 'Loss on Issue of Debentures' account comprises two main components:

   1. Discount on Issue of Debentures: This is the difference between the face value of the debentures and the issue price when debentures are issued below par.
   2. Premium on Redemption of Debentures: This is the additional amount payable over and above the face value when debentures are redeemed at a premium. This premium is a liability for the company and is recognised at the time of issue.

   According to Section 52 of the Companies Act, 2013, the Securities Premium Reserve can be used for specific purposes, one of which is to write off the discount allowed on the issue of shares or debentures, or the premium payable on the redemption of any redeemable preference shares or debentures.

   In this problem, we are given the opening and closing balances of the Securities Premium Reserve after writing off the 'Loss on Issue of Debentures'. This allows us to determine the total amount of 'Loss on Issue of Debentures' that was written off. Once we have this total loss and the premium on redemption, we can isolate the discount on issue and subsequently calculate the discount rate.

   Derivation of the Answer

   1. Calculate the total face value of debentures:

      Number of Debentures $\times$ Face Value per Debenture

      $40,000 \text{ debentures} \times ₹100/\text{debenture} = ₹40,00,000$

   2. Calculate the Premium on Redemption:

      The debentures are to be redeemed at a 20% premium. This premium is calculated on the face value.

      Premium on Redemption = $20\%$ of $₹40,00,000 = ₹8,00,000$

   3. Determine the 'Loss on Issue of Debentures' written off:

      The Securities Premium balance decreased from ₹13,00,000 to ₹3,00,000 after writing off the 'Loss on Issue of Debentures'. The difference represents the amount of loss written off.

      Loss on Issue of Debentures written off = Existing Securities Premium - Securities Premium after writing off loss

      Loss on Issue of Debentures written off = $₹13,00,000 - ₹3,00,000 = ₹10,00,000$

   4. Calculate the Discount on Issue of Debentures:

      As established, the 'Loss on Issue of Debentures' comprises both the discount on issue and the premium on redemption.

      Loss on Issue of Debentures = Discount on Issue + Premium on Redemption

      $₹10,00,000 = \text{Discount on Issue} + ₹8,00,000$ …

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2. CBSE 2026Set 67/3/11 markMCQ
   Q.Mogra Ltd. purchased assets of ₹ 14,40,000 from DK Ltd. It issued 9% Debentures of ₹ 100 each at a discount of 4% in full satisfaction of the purchase consideration. The number of debentures issued to DK Ltd. were : (A) 14,400 (B) 15,000 (C) 3,60,000 (D) 1,500

   ›Reveal solutionSolution

   Mogra Ltd. issued 15,000 debentures of ₹100 each at a4% discount to settle a purchase consideration of ₹14,40,000. The correct answer is option (B).

   Concept First: Why This Entry Works

   When a company buys assets and pays by issuing debentures, the seller (DK Ltd.) is not paying cash — they are accepting debentures as full payment. The total value of what the seller gives up (the assets) must equal the total value of what they receive (the debentures). This is the purchase consideration.

   The tricky part here is the discount. Mogra Ltd. is issuing ₹100 face-value debentures but only receiving ₹96 per debenture in terms of settlement value (because of the 4% discount). So the company must issue more debentures than the face value would suggest, to make up the full ₹14,40,000.

   The journal entry follows the golden rule: Debit what comes in (assets), Credit what goes out (debentures and discount). The assets account is debited with the full value of assets acquired. The 9% Debentures account is credited with the face value of debentures issued. The difference — the discount — is debited to a Discount on Issue of Debentures account (a loss for the company).

   Watch out

   Common Mistake

   Many students calculate the number of debentures as ₹14,40,000 ÷ ₹100 = 14,400 debentures. This is wrong because it ignores the discount. The seller is not accepting debentures at face value — they are accepting them at the issue price of ₹96 each. Always divide the purchase consideration by the issue price, not the face value.

   Solution

   Step 1: Calculate the Issue Price per Debenture

   Face value of each debenture = ₹100

   Discount = 4% of ₹100 = ₹4

   Issue price = ₹100 − ₹4 = ₹96

   Step 2: Calculate the Number of Debentures Issued

   Number of debentures = Purchase Consideration ÷ Issue Price per Debenture

   = ₹14,40,000 ÷ ₹96

   = 15,000 debentures

   Tip

   Shortcut

   When the discount is given as a percentage, you can use: Number of debentures = Purchase Consideration ÷ (Face Value × (1 − Discount Rate)). Here: 14,40,000 ÷ (100 × 0.96) = 15,000. …

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3. CBSE 2026Set 67/4/11 markMCQ
   Q.Amik Ltd. issued 70,000, 9% Debentures of ₹ 100 each at a premium of 5%, redeemable at a premium of 10%. 'Loss on Issue of Debentures Account' will be debited in the books of Amik Ltd. by : (A) ₹ 10,50,000 (B) ₹ 7,00,000 (C) ₹ 3,50,000 (D) ₹ 6,30,000

   ›Reveal solutionSolution

   The 'Loss on Issue of Debentures Account' will be debited by ₹ 7,00,000, representing the premium payable on redemption of debentures.

   When a company issues debentures, it needs to account for all costs and potential losses associated with that issue at the time the debentures are issued. This practice aligns with the prudence principle (which dictates anticipating all future losses but not future profits) and the matching principle (which requires expenses to be recognized in the period they are incurred, even if the cash outflow happens later).

   The 'Loss on Issue of Debentures Account' is a nominal account (or a deferred revenue expenditure) created to record the total loss arising from the issue of debentures. This loss typically comprises two main components:

   1. Discount on Issue of Debentures: If debentures are issued at a price lower than their face value, the difference is a discount, which represents a loss to the company.
   2. Premium Payable on Redemption of Debentures: If debentures are to be redeemed at a price higher than their face value, the excess amount (premium) is a definite future liability and a loss that is certain to occur. This loss must be recognized upfront at the time of issue.

   In this question, Amik Ltd. issues debentures at a premium of 5%. This premium received on issue is a capital gain for the company and is credited to 'Securities Premium Reserve Account'. It is not a loss and therefore does not contribute to the 'Loss on Issue of Debentures Account'.

   The only component contributing to the 'Loss on Issue of Debentures Account' in this scenario is the premium payable on redemption. This premium represents a future obligation that reduces the net proceeds from the debenture issue over their lifetime. Therefore, it is treated as a loss at the time of issue.

   The journal entry to record this loss involves:

   • Debiting 'Loss on Issue of Debentures Account': To recognize the total loss (discount on issue + premium on redemption).
   • Crediting 'Premium on Redemption of Debentures Account': To record the liability for the premium that will be paid at the time of redemption.

   ---

   Working Notes

   1. Total Face Value of Debentures:

      Number of Debentures $\times$ Face Value per Debenture

      $70,000 \times ₹ 100 = ₹ 70,00,000$

   2. Premium on Issue of Debentures:

      $5\%$ of Face Value per Debenture $\times$ Number of Debentures

      $5\%$ of $₹ 100 = ₹ 5$ per debenture

      $₹ 5 \times 70,000 = ₹ 3,50,000$

      (This amount is credited to Securities Premium Reserve Account and does not contribute to 'Loss on Issue of Debentures Account'.)

   3. Premium on Redemption of Debentures:

      $10\%$ of Face Value per Debenture $\times$ Number of Debentures

      $10\%$ of $₹ 100 = ₹ 10$ per debenture

      $₹ 10 \times 70,000 = ₹ 7,00,000$

      (This amount represents a future loss and is debited to 'Loss on Issue of Debentures Account'.)

   4. Amount to be Debited to Loss on Issue of Debentures Account:

      This account is debited with the total loss incurred at the time of issue. Since there is no discount on issue (rather, a premium is received), the only loss component is the premium payable on redemption. …

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4. CBSE 2026Set 67/4/11 markMCQ
   Q.White Ltd. purchased Plant and Machinery worth ₹ 3,96,000 from Nath Ltd. The purchase consideration was paid by issue of 9% Debentures of ₹ 100 each at 10% discount. The number of debentures issued were : (A) 3,960 (B) 4,000 (C) 4,400 (D) 3,600

   ›Reveal solutionSolution

   White Ltd. issues 4,400 debentures of ₹100 each at 10% discount to discharge a purchase consideration of ₹3,96,000; the answer is (C) 4,400.

   ---

   Concept: Purchase Consideration and Issue of Debentures at Discount

   When a company acquires an asset and pays for it by issuing debentures (rather than cash), the purchase consideration — the agreed price of the asset — must equal the amount credited to the vendor. If debentures are issued at a discount, the company must issue more debentures than the face value would suggest, because each debenture is accepted by the vendor at less than its nominal (face) value.

   Here the debentures have a face value of ₹100 each but are issued at 10% discount, meaning each debenture is issued at ₹90. The vendor (Nath Ltd.) receives debentures whose issue price totals ₹3,96,000, even though the face value (the liability recorded in the books) will be higher.

   The accounting treatment is:

   Account	Debit	Credit	Rule
   Plant and Machinery A/c	₹3,96,000		Asset acquired (debit the receiver / what comes in)
   Discount on Issue of Debentures A/c	(to be found)		Loss/expense (debit; it is a capital loss, written off over the life of debentures or against Securities Premium)
   9% Debentures A/c		Face value	Liability created (credit)
   Nath Ltd. (Vendor) A/c		₹3,96,000	Liability to vendor discharged by issue of debentures

   The key relationship:

   $\text{Issue Price per Debenture} = \text{Face Value} - \text{Discount} = 100 - 10 = ₹90$

   $\text{Number of Debentures} = \frac{\text{Purchase Consideration}}{\text{Issue Price per Debenture}} = \frac{3{,}96{,}000}{90}$

   ---

   Solution

   Working Note 1: Calculation of Number of Debentures Issued

   Particulars	Amount (₹)
   Purchase Consideration (Plant and Machinery)	3,96,000
   Face Value per Debenture	100
   Discount per Debenture (10% of ₹100)	10
   Issue Price per Debenture	90
   Number of Debentures = ₹3,96,000 ÷ ₹90	4,400

   The vendor Nath Ltd. is paid by issuing 4,400 debentures, each accepted at ₹90 (the discounted price), which exactly equals the purchase consideration of ₹3,96,000.

   Working Note 2: Face Value and Discount (for completeness)

   Particulars	Amount (₹)
   Number of Debentures issued	4,400
   Face Value per Debenture	100
   Total Face Value of Debentures (Liability)	4,40,000
   Total Issue Price (Purchase Consideration)	3,96,000
   Discount on Issue of Debentures	44,000

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5. CBSE 2026Set 67/5/11 markMCQ
   Q.On 1st April, 2024, DD Ltd. issued 2,000, 9% Debentures of ₹ 50 each at a premium of 5%, redeemable at a premium of ₹ 10 per debenture after five years. Interest on the debentures was to be paid on half-yearly basis on 30th September and 31st March. Interest on the debentures for the year ended 31st March, 2025 will be : (A) ₹ 4,500 (B) ₹ 9,000 (C) ₹ 9,450 (D) ₹ 4,725

   ›Reveal solutionSolution

   The interest on debentures for the year ended 31st March, 2025 is ₹9,000, calculated on the face value of the debentures at the stated coupon rate, irrespective of the issue price or redemption premium.

   Concept First: Why Interest is Calculated on Face Value

   The key principle here is that interest on debentures is always calculated on the face value (nominal value) of the debentures, not on the issue price (which may include a premium) or the redemption value. The 9% coupon rate is applied to the ₹50 face value per debenture.

   The premium on issue (₹5 per debenture) and the premium on redemption (₹10 per debenture) are capital items. They affect the company's securities premium account and the loss on issue of debentures account, respectively — but they have no bearing on the interest calculation. Interest is a charge against profit, paid to debenture holders as compensation for the use of their funds, and that compensation is contractually fixed on the face value.

   Watch out

   Common Pitfall

   Students often mistakenly calculate interest on the issue price (₹55) or the redemption price (₹60). This is incorrect. The coupon rate is always applied to the face value (₹50) unless the question explicitly states otherwise. The premium on issue is a capital receipt, not income for the debenture holder in the context of interest.

   Solution: Calculating the Interest

   Step 1: Determine the total face value of debentures issued.

   Number of debentures = 2,000

   Face value per debenture = ₹50

   Total face value = 2,000 × ₹50 = ₹1,00,000

   Step 2: Apply the annual interest rate.

   Annual interest rate = 9%

   Annual interest = 9% of ₹1,00,000 = ₹9,000

   Step 3: Verify the half-yearly payment (for understanding, though the question asks for the annual amount).

   Half-yearly interest = ₹9,000 ÷ 2 = ₹4,500

   This would be paid on 30th September 2024 and 31st March 2025.

   Since the question asks for the interest for the year ended 31st March, 2025, it covers the full financial year from 1st April 2024 to 31st March 2025. Both half-yearly payments fall within this period. …

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6. CBSE 2026Set 67/5/11 markMCQ
   Q.Universal Ltd. took over machinery of ₹ 3,30,000, furniture of ₹ 1,60,000 and liabilities of ₹ 80,000 from Amol Ltd. for a purchase consideration of ₹ 4,50,000. The payment to Amol Ltd. was made by issue of 10% Debentures of ₹ 50 each at a discount of 10%. The number of debentures issued to Amol Ltd. was : (A) 1,000 (B) 4,500 (C) 45,000 (D) 10,000

   ›Reveal solutionSolution

   The number of 10% debentures issued is 10,000 (Option D). The purchase consideration of ₹4,50,000 is settled by issuing debentures of face value ₹50 each at a 10% discount, meaning each debenture is issued at ₹45.

   Concept First: Purchase Consideration and Settlement

   When one company (Universal Ltd.) takes over the business of another (Amol Ltd.), the buying company must pay a purchase consideration — the agreed price for the net assets acquired. This consideration can be paid in cash, or by issuing shares or debentures of the buying company.

   The key accounting principle here is that the purchase consideration is the total amount payable to the selling company, regardless of the form of payment. It is not the same as the net assets taken over (assets minus liabilities). The purchase consideration is a negotiated figure — in this case, ₹4,50,000 — while the net assets acquired are ₹3,30,000 (machinery) + ₹1,60,000 (furniture) - ₹80,000 (liabilities) = ₹4,10,000. The difference of ₹40,000 is capital reserve or goodwill, depending on the agreement.

   Now, the question focuses on how Universal Ltd. settles this ₹4,50,000 consideration. They issue 10% Debentures of ₹50 each at a discount of 10%. This means:

   • Face value of each debenture = ₹50
   • Discount = 10% of ₹50 = ₹5
   • Issue price per debenture = ₹50 - ₹5 = ₹45

   The selling company (Amol Ltd.) receives debentures worth the purchase consideration amount. So, the number of debentures issued is simply:

   Number of debentures = Purchase Consideration / Issue Price per Debenture

   Watch out

   Common Pitfall

   Students often mistakenly divide the purchase consideration by the face value (₹50) instead of the issue price (₹45). Remember: when debentures are issued at a discount, the company receives less than the face value per debenture. The selling company gets debentures whose total issue price equals the purchase consideration, not whose total face value equals it.

   Solution

   Calculation of Number of Debentures

   Particulars	Amount (₹)
   Purchase Consideration	4,50,000
   Face Value of each Debenture	50
   Discount @ 10%	5
   Issue Price per Debenture (₹50 - ₹5)	45
   Number of Debentures Issued (₹4,50,000 / ₹45)	10,000

   Tip

   Shortcut

   If the issue price is ₹45 per debenture, then for every ₹45 of consideration, 1 debenture is issued. For ₹4,50,000, the number is simply 4,50,000 ÷ 45 = 10,000.

   Journal Entry in the Books of Universal Ltd.

   Date	Particulars	L.F.	Debit (₹)	Credit (₹)
   	Machinery A/c Dr.		3,30,000
   	Furniture A/c Dr.		1,60,000
   	To Liabilities A/c			80,000

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7. CBSE 2026Set MARCH1 mark
   Q.What do you mean by Redemption of debentures?

   ›Reveal solutionSolution

   Redemption of debentures is the repayment/discharge of debentures to the holders as per the terms of issue.

   A debenture is a loan raised by a company that carries a fixed rate of interest and a promise to repay. Redemption is the process by which the company returns the debenture money to the debenture holders.

   …

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8. CBSE 2026Set ANNUAL1 markMCQ
   Q.Read the following and give answers (Q. No. xi to xiv): "Vishakha Limited had purchased a plant of ₹ 2,97,000 from Snehlata Limited. It was agreed that purchase consideration is to be paid by issuing 8% debentures of ₹ 1,000 each at discount of 10%." How many numbers of 8% debentures will be issued in above question? A) 330 B) 297 C) 270 D) 275

   ›Reveal solutionSolution

   330 debentures must be issued to settle the ₹2,97,000 purchase consideration - option (A).

   Issue price per debenture = Face value - Discount = ₹1,000 - 10% of ₹1,000 = ₹1,000 - ₹100 = ₹900.

   …

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9. CBSE 2026Set ANNUAL1 markMCQ
   Q.(Based on the passage: "Vishakha Limited had purchased a plant of ₹ 2,97,000 from Snehlata Limited. It was agreed that purchase consideration is to be paid by issuing 8% debentures of ₹ 1,000 each at discount of 10%.") Which account will be credited on purchase of the plant? A) Snehlata Ltd.'s A/c B) Vishakha Ltd.'s A/c C) Plant A/c D) 8% Debenture A/c

   ›Reveal solutionSolution

   The vendor Snehlata Ltd.'s Account is credited on purchase of the plant - option (A).

   When assets are bought from a vendor, the entry is:

   Plant A/c ... Dr (asset acquired)

   To Vendor's (Snehlata Ltd.'s) A/c (amount payable)

   …

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10. CBSE 2026Set ANNUAL1 markMCQ
    Q.Loss on issue of Debentures is written off _______.

    (a) during the lifetime of the Debentures

    (b) in the year of the issue of debentures

    (c) within two years of the issue of debentures

    (d) when debentures are redeemed

    (a) during the lifetime of the Debentures

    (b) in the year of the issue of debentures

    (c) within two years of the issue of debentures

    (d) when debentures are redeemed

    ›Reveal solutionSolution

    Loss on issue of Debentures is written off during the lifetime of the Debentures (Option A).

    'Loss on Issue of Debentures' typically arises when debentures are issued at a discount and/or are redeemable at a premium. This loss is in the nature of a capital loss, and the benefit of raising funds through the debentures is enjoyed by the company over the entire period the debentures are outstanding (i.e., till redemption). Following the matching principle, this loss is therefore written off gradually, usually in proportion to the balance of debentures outstanding, over the life of the debentur …

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11. CBSE 2026Set ANNUAL1 markMCQ
    Q.Sweekar Ltd. purchased assets worth ₹ 16,20,000 from Rajashree Ltd. By issuing 8% Debentures of ₹ 150 per debenture at a premium of 20%. What is the total number of debentures issued by the company to settle this purchase consideration ?

    (a) 16,200 Debentures

    (b) 13,500 Debentures

    (c) 10,800 Debentures

    (d) 9,000 Debentures

    ›Reveal solutionSolution

    Number of debentures issued = Purchase Consideration ÷ Issue price per debenture = 16,20,000 ÷ 180 = 9,000 debentures.

    Step 1 — Find the issue price per debenture:

    Face value per debenture = ₹150

    Premium on issue = 20% of ₹150 = ₹30

    Issue price per debenture = ₹150 + ₹30 = ₹180

    Step 2 — Find the number of debentures to be issued:

    When a company purchases assets from a vendor and settles the purchase consideration by issuing debentures (instead of cash), the number of debentures issued is calculated as:

    Number of Debentures = Purchase Consideration ÷ Issue Price per Debenture

    = ₹16,20,000 ÷ ₹180

    = 9,000 Debentures

    Check: 9,000 debentures × ₹180 = ₹16,20,000, which exactly equals the purchase consideration — confirming the figure is correct.

    The journal entries for this transaction (in Sweekar Ltd.'s books) would be:

    Sundry Assets A/c Dr. 16,20,000 …

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12. CBSE 2025Set 67/5/11 markMCQ
    Q.On 1st April, 2023, Viya Ltd. issued 20,000, 10% debentures of ₹ 100 each at a premium of 10%. The total amount of interest on debentures for the year ended 31st March, 2024 will be : (A) ₹ 2,000 (B) ₹ 2,20,000 (C) ₹ 2,00,000 (D) ₹ 20,000

    (OR)

    Radhya Ltd. issued 5,000, 9% debentures of ₹ 100 each at ₹ 97 per debenture. The 9% debentures account will be credited by : (A) ₹ 4,85,000 (B) ₹ 5,00,000 (C) ₹ 4,50,000 (D) ₹ 50,000

    ›Reveal solutionSolution

    Part (a): Interest = 20,000 × ₹100 × 10% = ₹2,00,000 — option (C).

    Part (b): 9% Debentures A/c credited at face value 5,000 × ₹100 = ₹5,00,000 — option (B).

    Part (a)

    Interest on debentures is a fixed return on the nominal (face) value, independent of whether they were issued at par, premium or discount. For Viya Ltd.: 20,000 × ₹100 × 10% = ₹2,00,000 for the year. Calculating on the ₹110 issue price (giving ₹2,20,000) is the classic trap. …

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