Q.A Ltd. has 5,000, 9% Debentures of ₹100 each outstanding throughout the year. Interest is payable half-yearly on 30th September and 31st March, and income tax is deductible at source at 10%. Pass journal entries for interest on debentures for the whole year, including the transfer to the Statement of Profit and Loss.

Since interest is paid twice a year, the annual amount must first be split into two identical half-yearly instalments, each net of tax deducted at source.

Annual interest = 5,000 × 100 × 9% = ₹45,000, so each half-year's interest is ₹22,500. TDS at 10% on each half-year's interest is ₹2,250, leaving ₹20,250 payable to debenture holders each time, with the ₹2,250 remitted separately to the government. At year-end, the full ₹45,000 is transferred to the Statement of Profit and Loss as a cha …

Step 1 — Annual and half-yearly interest.

Annual interest = 5,000 × 100 × 9% = ₹45,000.

Since interest is paid half-yearly, each instalment = 45,000 ÷ 2 = ₹22,500.

Step 2 — TDS on each half-yearly instalment.

TDS @ 10% = 22,500 × 10% = ₹2,250. Net amount payable to debenture holders each half-year = 22,500 − 2,250 = ₹20,250.

Step 3 — Journal entries (30th September; identical entries repeat on 31st March).

(The same three entries are repeated on 31st March, for the second half-year's interest of ₹22,500.)

Step 4 — Year-end transfer to Statement of Profit and Loss.

| Particulars | Dr. (₹) | Cr. (₹) |

|---|---|---| …

Students sometimes transfer debenture interest to the Statement of Profit and Loss as an APPROPRIATION (after arriving at net profit), the way a dividend is treated — this is wrong. Debenture interest is a CHARGE against profit, deducted in arriving …