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Do It Yourself · Q2

Q.A company purchased assets of the value of ₹1,90,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000, 10% debentures of ₹100 each at a discount of 5%. Record necessary journal entries.

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✓ Free question

The vendor is paid with 2,000, 10% debentures issued at a 5% discount (issue price ₹95); the ₹10,000 discount is a capital loss debited to Discount on Issue of Debentures A/c.

Concept

When debentures are issued at a discount, the Debentures A/c is always credited at full face value. The difference between face value and the amount realised (here the value of the claim settled) is a capital loss carried to the Discount on Issue of Debentures A/c. The issue entry must balance.

Working Note

  • Issue price per debenture = ₹100 − 5% of ₹100 = ₹95.
  • Number of debentures = ₹1,90,000 ÷ ₹95 = 2,000 (matches the number stated).
  • Face value = 2,000 × ₹100 = ₹2,00,000; Discount = 2,000 × ₹5 = ₹10,000.
  • Balance check: Vendors ₹1,90,000 + Discount ₹10,000 = ₹2,00,000 = Debentures credited.

Solution

Journal

DateParticularsL.F.Debit (₹)Credit (₹)
Sundry Assets A/c Dr.1,90,000
To Vendors A/c1,90,000
(Assets purchased from the vendor)
Vendors A/c Dr.1,90,000
Discount on Issue of Debentures A/c Dr.10,000
To 10% Debentures A/c2,00,000
(Issue of 2,000, 10% debentures of ₹100 each at a discount of 5% in settlement)
Watch out

Do not credit the Debentures A/c with only ₹1,90,000. The debentures carry a face value of ₹2,00,000; the ₹10,000 shortfall is a discount to be shown as a capital loss, not a reduction of the liability.

✓Final answer

Assets ₹1,90,000 are settled by issuing 2,000, 10% debentures at a 5% discount — 10% Debentures A/c ₹2,00,000 credited, with ₹10,000 debited to Discount on Issue of Debentures A/c.

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