You are required to pass the journal entries relating to the issue of the debentures in the books of X Ltd., under the following cases:
(a) 120, 8% debentures of ₹1,000 each are issued at 5% discount and repayable at par. Balance in Securities Premium Reserve is ₹10,000.
(b) 150,

Question

You are required to pass the journal entries relating to the issue of the debentures in the books of X Ltd., under the following cases:
(a) 120, 8% debentures of ₹1,000 each are issued at 5% discount and repayable at par. Balance in Securities Premium Reserve is ₹10,000.
(b) 150, 7% debentures of ₹1,000 each are issued at 5% discount and repayable at premium of 10%. Balance in Securities Premium Reserve is ₹20,000.
(c) 80, 9% debentures of ₹1,000 each are issued at 5% premium.
(d) Another 400, 8% debentures of ₹100 each are issued as collateral security against a loan of ₹40,000.

Accepted Answer

> [!TLDR]
> Each case first records the issue (crediting Debentures A/c with nominal value, and Discount/Loss on Issue or Securities Premium Reserve with the difference), and then, where a loss exists, writes it off — Securities Premium Reserve A/c first, up to its available balance, with any shortfall charged to the Statement of Profit and Loss. A collateral-security issue (case d) needs no write-off since there is no discount or premium involved.

### Concept
Discount on issue of debentures and premium payable on redemption are capital losses that must be written off in the year of issue itself. Section 52(2) of the Companies Act allows this loss to be set off first against the Securities Premium Reserve; only the amount the reserve cannot cover is debited to the Statement of Profit and Loss. When debentures are issued purely as collateral security, no cash changes hands and there is no discount or premium, so no write-off arises.

### Working Note
- **(a)** Nominal value = 120 × ₹1,000 = ₹1,20,000. Discount (5%) = ₹6,000. Cash received = ₹1,14,000. Securities Premium Reserve balance ₹10,000 is MORE than the ₹6,000 loss, so the entire loss is written off from the reserve.
- **(b)** Nominal value = 150 × ₹1,000 = ₹1,50,000. Discount (5%) = ₹7,500. Premium on redemption (10%) = ₹15,000. Total loss = ₹7,500 + ₹15,000 = ₹22,500. Cash received = ₹1,42,500. Securities Premium Reserve balance is only ₹20,000, so ₹20,000 is written off from the reserve and the remaining ₹2,500 from the Statement of Profit and Loss.
- **(c)** Nominal value = 80 × ₹1,000 = ₹80,000. Premium (5%) = ₹4,000. Cash received = ₹84,000. No loss — nothing to write off.
- **(d)** Nominal value = 400 × ₹100 = ₹40,000, issued as collateral security against a ₹40,000 loan — no cash is received; the debentures are only a contingent security.

### Solution

**(a) Issue at 5% discount, redeemable at par**

| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| | Bank A/c Dr. | | 1,1

Date	Particulars	Debit (₹)	Credit (₹)
	Share Allotment A/c Dr.	60,000
	To Share Capital A/c		60,000
(Being allotment money due on 10,000 shares @ ₹6 each)

Particulars	Note No.	Amount (₹)
1. Shareholders’ Funds
(a) Share Capital	1	1,00,000
(b) Reserves and Surplus	2	20,000
2. Non-Current Liabilities	...	...
3. Current Liabilities	...	...

Particulars	Amount (₹)
Authorised Capital
1,00,000 Equity Shares of ₹10 each	10,00,000
Issued Capital
80,000 Equity Shares of ₹10 each	8,00,000
Subscribed and Paid-up Capital
80,000 Equity Shares of ₹10 each fully paid	8,00,000

Q.You are required to pass the journal entries relating to the issue of the debentures in the books of X Ltd., under the following cases:

Concept understanding — Share Capital Accounting

Why does share capital matter in accounting?

The precise meaning (NCERT Class 12)

Accounting treatment — the journal entries

Step 1: Application money received

Step 2: Transfer application money to Share Capital

Step 3: Allotment money due

Step 4: Allotment money received

The Balance Sheet format (as per NCERT)

Concept

Working Note

Solution

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	40,000
	To Share Application A/c		40,000
(Being application money received on 10,000 shares @ ₹4 each)

Date	Particulars	Debit (₹)	Credit (₹)
	Share Application A/c Dr.	40,000
	To Share Capital A/c		40,000
(Being application money transferred to Share Capital)

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	60,000
	To Share Allotment A/c		60,000
(Being allotment money received)

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	1,14,000
To Debenture Application and Allotment A/c		1,14,000
(Debenture application money received)
Debenture Application and Allotment A/c Dr.	1,14,000
Loss on Issue of Debentures A/c Dr.	6,000
To 8% Debentures A/c		1,20,000
(Debenture application money transferred to Debentures account)
Securities Premium Reserve A/c Dr.	6,000
To Loss on Issue of Debentures A/c		6,000
(Loss on issue of debentures written off)

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	1,42,500
To Debenture Application and Allotment A/c		1,42,500
(Debenture application money received)
Debenture Application and Allotment A/c Dr.	1,42,500
Loss on Issue of Debentures A/c Dr.	22,500
To 7% Debentures A/c		1,50,000
To Premium on Redemption of Debentures A/c		15,000
(Debenture application money transferred to Debentures A/c)
Securities Premium Reserve A/c Dr.	20,000
Statement of Profit and Loss Dr.	2,500
To Loss on Issue of Debentures A/c		22,500

Q.You are required to pass the journal entries relating to the issue of the debentures in the books of X Ltd., under the following cases:

Concept

Working Note

Solution

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