Pass necessary journal entries in the books of Z Ltd. for the followingtransactions:(a) Z Ltd. invited applications for issuing 10,000; 9% Debentures of` 100 each at a premium of ` 10 per debenture. The full amountwas payable on application. Applications were received for 15,000debentures. Applications for 3,000 debentures were rejected and theapplication money was refunded. Debentures were allotted to theremaining applicants on a pro-rata basis.(b) The company has a balance of ` 1,60,000 in securities premiumreserve account. Loss on issue of debentures of ` 2,00,000 was writtenoff as per the provisions of the Companies Act 2013.
Question
Pass necessary journal entries in the books of Z Ltd. for the followingtransactions:(a) Z Ltd. invited applications for issuing 10,000; 9% Debentures of100 each at a premium of 10 per debenture. The full amountwas payable on application. Applications were received for 15,000debentures. Applications for 3,000 debentures were rejected and theapplication money was refunded. Debentures were allotted to theremaining applicants on a pro-rata basis.(b) The company has a balance of 1,60,000 in securities premiumreserve account. Loss on issue of debentures of 2,00,000 was writtenoff as per the provisions of the Companies Act 2013.
Solution
Here are the necessary journal entries for the transactions of Z Ltd:
(a) When applications are received for 15,000 debentures:
Bank A/C Dr. 16,50,000 (15,000 debentures * 110) To 9% Debenture Application & Allotment A/C 16,50,000
When applications for 3,000 debentures are rejected and the application money is refunded:
9% Debenture Application & Allotment A/C Dr. 3,30,000 (3,000 debentures * 110) To Bank A/C 3,30,000
When debentures are allotted to the remaining applicants on a pro-rata basis:
9% Debenture Application & Allotment A/C Dr. 13,20,000 (12,000 debentures * 110) To 9% Debentures A/C 12,00,000 (12,000 debentures * 100) To Securities Premium A/C 1,20,000 (12,000 debentures * 10)
(b) When the company has a balance of 1,60,000 in securities premium reserve account and loss on issue of debentures of 2,00,000 is written off as per the provisions of the Companies Act 2013:
Securities Premium Reserve A/C Dr. 1,60,000 Profit and Loss A/C Dr. 40,000 (2,00,000 - 1,60,000) To Loss on Issue of Debentures A/C 2,00,000
Please note that these entries are made assuming that the company follows the accrual basis of accounting and that the premium on debentures is recorded at the time of issue.
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