NCERT MOST IMPORTANT QUESTIONS CLASS – 12 | ACCOUNTANCY PART 1 IMPORTANT QUESTIONS | CHAPTER – 2 | ISSUE AND REDEMPTION DEBENTURES | EDUGROWN |

In This Post we are  providing Chapter- 2 ISSUE AND REDEMPTION DEBENTURES NCERT MOST IMPORTANT QUESTIONS for Class 12 ACCOUNTANCY which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON ISSUE AND REDEMPTION DEBENTURES

1. What is the nature of Interest on Debentures?
Ans. Interest on debentures is a charge against the profits. It means that whether there is profit or loss it will be paid to the debenture holders.
2. What is meant by Redemption of Debentures?
Ans. Repayment of the amount borrowed by a company is called redemption of debentures. Debentures can be redeemed at Par or Premium. Students must remember that debentures are redeemed on the due date by paying the lump sum amount to the debenture holders or by paying in installments.
3. Give two sources of finance for Redemption of Debentures.
Ans.

1. Out of profits
2. issue of fresh Share Capital and Debentures.

4. Define Secured and Unsecured Debentures.
Ans. Secured or Mortgaged Debentures: Debentures are secured by a charge on the fixed assets of the company. If the company fails on payment of the principal amount or interest amount, assets under charge are sold to repay the amount due to the debenture holders.
Unsecured Debentures: Debentures are called unsecured in the sense that if the company defaults on payment of the principal amount or interest, debenture holder has to be along with other unsecured creditors of the company. In simple words, these debentures are not secured by the charge of fixed assets.

When Purchases consideration is more than net value of assets
Illustration 5 : A Company issued debentures of Rs.100 each at par for the purchases of the following assets and liabilities from Gupta Bros. at purchase consideration of Rs.5,00,000

Plant –	Rs.3,50,000	Stock	Rs.4,50,000
Land and Building	Rs.6,00,000	Sundry Creditors	Rs.1,00,000

Illustration 6 : Larson and Turbo Ltd. Issued 50,000 8% debentures of Rs.100 each payable on. Application at par and redeemable at par any time after 7 years from the date of the issue. Record necessary entries for the issue of debentures in the book of Company.
Solution:
In the books of Larson & Toubro Ltd.
Journal

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
	Bank A/c      Dr.		50,00,000
	To % Debentures Application and Allotment A/c			50,00,000
	(Being the application money received)
	Debentures Application and Allotment A/c Dr.		50,00,000
	To 8% Debentures A/c			50,00,000
	(Being the transfer of application money to debenture account)

Illustration 7 : Claris Life Sciences Ltd. issued 5,000 14% Debentures of Rs. 100 each at a discount of 10%. Pass the necessary journal entries in the books of the company for the issue of debentures when debentures were to be:
(i) Redeemed at par.
(ii) Redeemed at a premium of 5%.
Journal

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
	Bank A/c       Dr.		4,50,000
	To Debenture Application and Allotment			4,50,000
	(Application money received on 5,000 debentures @ Rs. 90 each)
(i)	Debentures Application and Allotment   Dr.		4,50,000
	Discount on issue of Debentures     Dr.		50,000
	To 14% Debentures			5,00,000
	(5,000 14% Debentures of Rs. 100 each issues at a discount of 10%)
(ii)	Debentures Application and Allotment  Dr.		4,50,000
	Loss on issue of Debentures A/c   Dr.		75,000
	To 14% Debentures			5,00,000
	To Premium on redemption of Debentures			25,000
	(5,000, 14% Debentures of Rs. 100 each issues at a discount of 10% but redeemable at a Premium of 5%)

Illustration 8 : ABC Company Ltd., had 6% debentures of Rs.1,00,000 on 1st January 2009 on which interest is paid on 3th June and 31st December. Pass necessary journal entries for the payment of interest for the year 2009, 10% tax is deducted at source from interest and remitted immediately. Books are closed on 31st December.
Solution:
ABC Ltd.
Journal

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2009 June 30	Interest on Debenture A/c    Dr.		3,000
To Debentures holder A/c			27,00
To Income Tax Payable A/c			300
(Half yearly debentures interest due and tax deducted at source)
June 30	Debentures holder A/c   Dr.		2,700
Income Tax Payable A/c   Dr.		300
To Bank			3,000
(Interest & Tax paid)
Dec 31	Interest on Debentures A/c     Dr.		3,000
To debentures holder A/c			2,700
To Income Tax Payable			300
(Half yearly debentures interest due and tax deducted at source)
Dec 31	Debentures Holders A/c     Dr.		2,700
Income Tax Payable Dr.		300	2,700
To Bank A/c			3,000
(Being Interest & Tax Paid)
Dec 31	Statement of Profit and Loss   Dr.		6,000
	To Interest on Debentures A/c			6,000
	(Debentures Interest (3000+3000)
	Transferred to Statement of Profit and loss)

Illustration 9 : B.G. Ltd. issued 2,000, 12% debentures of L100 each on 1st April 2012. The issue was fully subscribed. According to the terms of issue, interest on debentures is payable half yearly on 30th September and 31st March and tax deducted at source is 10%.
Pass necessary journal entries related to the debenture interest for the half-yearly ending 31st March, 2013 and transfer of interest on debentures of the year to the Statement of Profit & Loss.
Solution :
Books of B.G. Ltd.
Journal

Date	Particulars	L.F	Debit (Rs.)	Credit (Rs.)
2013 March 31	Interest on Debentures A/c    Dr.		12,000
To Debenture holder’s A/c			10,800
To income Tax Payable A/c /TDS from Debentures interest A/c			1,200
(Half yearly interest due on debentures and tax deducted at sources)
March 31	Debenture’s A/c     Dr.		10,800
To Bank A/c			10,800
(Payment of Interest)
March 31	Income Tax Payable / TDS from
Debentures Interest A/c     Dr.		1,200
To bank A/c			1,200
(TDS Deposited with income tax authorities)
March 31	Statement of Profit & Loss		24,000
To interest on Debentures A/c			24,000
(Interest transferred to Statement of P/L)

Question 10: Fill in the missing figures in the following entries: –
Journal

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
	Case 1
	Bank A/c		….
	To Debentures Application & Allotment A/c			….
	(Being application money received)
	Debentures Application & allotment A/c Dr.		40,000
	Loss on issue of Debentures A/c Dr.		….
	To 10% Debentures A/c			….
	To Premium on Redemption A/c			….
	(Being issue of 400, 10% Debentures of Rs. 100 each at par and redeemable at premium of 10%)
	Case 2
	Bank A/c		….
	To Debentures Application & Allotment A/c			….
	(Being Application money Received)
	Debentures application & Allotment A/c   Dr.		….
	Loss an issue of Debentures A/c   dr.		….
	To 12% Debentures A/c			….
	To Premium on Redemption of Debentures A/c			….
	(Being 200, 12% Debentures issued at Rs. 90 repayable at Rs. 110)
	Case 3
	Bank A/c    Dr.		….
	To Debentures Application & Allotment A/c			….
	(Being Application money Received)
	Debentures Application & Allotment A/c Dr.		….
	Loss on issue of Debentures A/c		….
	To 10% Debentures A/c			….
	To Securities Premium Resources A/c			….
	To Premium of Redemption of Debentures A/c			….
	(Being 100, 10% Debentures issued at Rs. 105 repayable Rs. 110)