To Debentureholders Ac 2 For making payment of interest and deduction of tax at

To debentureholders ac 2 for making payment of

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To Debentureholders’ A/c 2. For making payment of interest and deduction of tax at source (TDS) Debentureholders A/c Dr. To TDS Payable A/c To Bank A/c 3. For making payment of tax deducted at source TDS payable A/c Dr. To Bank A/c 4. For transferring interest to profit and loss account Profit and Loss A/c Dr. To Interest A/c © The Institute of Chartered Accountants of India
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ISSUE OF DEBENTURES 9.118 COMMON PROFICIENCY TEST Illustration 16 A company issued 12% debentures of the face value of ` 2,00,000 at 10% discount on 1-1-2011. Debenture interest after deducting tax at source @ 10% was payable on 30th June and 31st of December every year. All the debentures were to be redeemed after the expiry of five year period at 5% premium. Pass journal entries for the accounting year 2011. Solution Journal Entries Dr. ( ` ) Cr. ( ` ) 1-1-2011 Bank A/c Dr. 1,80,000 Debenture Discount A/c * Dr. 20,000 Loss on Issue of Debentures A/c * Dr. 10,000 To 12% Debentures A/c 2,00,000 To Premium on Redemption of Debentures A/c 10,000 (For issue of debentures at discount redeemable at premium) 30-6-2011 Debenture Interest A/c Dr. 12,000 To Debentureholders A/c 10,800 To Tax Deducted at Source A/c 1,200 (For interest payable) Debentureholders A/c Dr. 10,800 Tax Deducted at Source A/c Dr. 1,200 To Bank A/c 12,000 (For payment of interest and TDS) 31-12-2011 Debenture Interest A/c Dr. 12,000 To Debentureholders A/c 10,800 To Tax Deducted at Source A/c 1,200 (For interest payable) Debentureholders A/c Dr. 10,800 Tax Deducted at Source A/c Dr. 1,200 To Bank A/c 12,000 (For payment of interest and tax) Profit and Loss A/c Dr. 24,000 To Debenture Interest A/c 24,000 (For transfer of debenture interest to profit and loss account at the end of the year) Profit and Loss A/c Dr. 4,000 To Debenture Discount A/c 4,000 (For proportionate debenture discount written off, i.e., 20,000 x 1/5) Profit and Loss A/c Dr. 2,000 To Loss on Issue of Debenture A/c 2,000 (For proportionate loss on issue written off, i.e., 1/5 x 10,000) It may be noted that loss on issue of debenture is also written off in the ratio of debentures outstanding during different accounting years. © The Institute of Chartered Accountants of India
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FUNDAMENTALS OF ACCOUNTING 9.119 SELF EXAMINATION QUESTIONS 1. Which of the following statements is true ? (a) A debenture holder is an owner of the company (b) A debenture holder can get his money back only on the liquidation of the company (c) A debenture issued at a discount can be redeemed at a premium (d) A debenture holder receives interest only in the event of profits 2. Premium on redemption of debentures account appearing in the balance sheet is _______. (a) A real account (b) A nominal account - income (c) A personal account (d) A nominal account - expenditure 3. Which of the following statements is false ? (a) At maturity, debenture holders get back their money as per the terms and conditions of redemption (b) Debentures can be forfeited for non payment of call money (c) In company’s balance sheet, debentures are shown under secured loans (d) Interest on debentures is charged against profits 4. Which of the following statements is false ?
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