ISSUE OF DEBENTURES AT DISCOUNT :

If the debentures are issued at a price lower than the nominal value of the debentures, the debentures are said to be issued at a discount. The difference between the nominal value and the issue price is regarded as the discount.

Such discount on issue of debentures may either be written off against revenue profit or capital profits of the company.

When debentures are issued at a discount the Debentures Account should be credited with the nominal value of the debentures and the discount allowed on issue of debentures, being a capital loss, should be debited to

“Discount on Issue of Debentures Account”. Thus, the accounting entry will be as follows:

Debenture Application A/c                                    Dr.                                           with the money due on application
Debenture Allotment A/c                                       Dr.                                           with the money due on allotment
Discount on Issue of Debentures A/c                  Dr.                                           with the amount of discount
To Debentures A/c                                                                    with the total

Illustration 3

W Ltd. issued 2,000, 14% Debentures of ` 100 each at discount of 5% the discount being adjustable on allotment.
The debentures were payable as follows:

On Application –                                                Rs.25

On Allotment –                                                  Rs. 20

On First and Final Call –                                  Rs.50

The debentures were fully subscribed and the moneys were duly received.

Show the cash book and journal entries and prepare the balance sheet of the company.

Solution:

Cash Book (Bank Column)

Particulars	Rs.	Particulars	Rs.
To 14% Debenture Application A/c   (Application money on 2,000 debentures @ ` 25 per debenture)	50,000	By Balance c/d	1,90,000
To 14% Debenture Allotment A/c   (Allotment money on 2,000 debentures @ ` 20 per debenture)	40,000
To 14% Debenture First and  Final Call A/c   (First and final call money on 2,000 debentures @ ` 50 per debenture)	1,00,000       ———————–		————————-
	1,90,000		1,90,000

 

                                                                                                     Journal Entries

Particulars	Dr.(Rs).	Cr.9Rs.)
14% Debenture Application A/c                                                                       Dr. 14% Debenture Allotment A/c                                                                          Dr. Discount on Issue of Debentures A/c                                                               Dr. To 14% Debentures A/c   (Allotment of 2,000 14% debentures of ` 100 each issued at a discount of 5% and allotment money due on 2,000 debentures @ ` 20 per debenture as per Board’s esolution dated…………………………………..)	50,000
	40,000
	10,000	1,00,000
14% Debenture First and Final Call A/c                                                           Dr. To 14% Debentures A/c   (First and final call money due on 2,000 debentures @ ` 50 per debentures as per Board’s resolution dated…………………)	1,00,000
		1,00,000
Profit and Loss A/c                                                                                            Dr. To Discount on Issue of Debentures A/c   (Discount of issue of debentures being written off against the profit and loss account)	10,000
		10,000

 

W Ltd
Balance Sheet as at…..

I. EQUITY AND LIABILITIES	Rs
Non-current liability   Long term borrowing                                                        1   TOTAL   II. ASSETS Other non-current assets                                                 2   Current Assets   Cash and cash equivalents   TOTAL	2,00,000
	2,00,000
	10,000       1,90,000
	2,00,000

 

Notes
1. Long term borrowings
14% Debentures                                                                                                                                                 2,00,000

2. Other non-current assets
Discount on issue of Debentures                                                                                                                     10,000