Yogadatra Ltd. (pharmaceutical company) appointed marketing expert, Mr. Kartikay as the CEO of the company, with a target to penetrate their roots in the rural regions. Mr. kartikay discussed the ways and means to achieve target of the company with financial, production and marketing departmental heads and asked the finance manager to prepare the budget. After reviewing the suggestions given by all the departmental heads, the finance manager proposed requirement of an additional fund of ₹52,50,000.
Yogadatra Ltd. is a zero-debt company. To avail the benefits of financial leverage, the finance manager proposed to include debt in the capital structure. After deliberations, on April1,2020, the board of directors had decided to issue 6% Debentures of ₹100 each to the public at a premium of 5%, redeemable after 5 years at ₹110 per share.
You are required to answer the following questions:
(i) Calculate the number of debentures to be issued to raise additional funds.
Answer
No of Debentures to be issued = 5250000/105
= 50000
(ii) Pass Journal entry for the allotment of debentures.
Answer
In the Books of Yogadatra Ltd. | ||||
Date | Particulars | L.F | Dr (Amount) | Cr (Amount) |
2020 | ||||
01-Apr-20 | Bank Dr | 5250000 | ||
To Debentures Application & Allotment A/c | 5250000 | |||
(Debenture application money received) | ||||
Debenture Application & Allotment A/c Dr | 5250000 | |||
Loss on issue of debentures Dr | 500000 | |||
To 6% Debentures A/c | 5000000 | |||
To Security Premium Reserve | 250000 | |||
To Premium on redemption of Debentures A/c | 500000 |
(iii)Pass Journal entry to write off loss on issue of debentures.
Answer
Date | Particulars | L.F | Dr (Amount) | Cr (Amount) |
2021 | ||||
03-Mar-21 | Security Premium Reserve A/c Dr | 250000 | ||
Profit & Loss A/c Dr | 250000 | |||
To Loss on Issue of Debentures A/c | 500000 | |||
(Loss on issue of debentures written off) |
(iv) Calculate the amount of annual fixed obligation associated with debentures.
Answer
Calculation of Interest on debentues = 500000 x 6% = 300000
(v) Prepare Loss on Issue of Debentures Account.
Answer
LOSS ON ISSUE OF 6% DEBENTURES ACCOUNT | |||||
Date | Particulars | Amount | Date | Particulars | Amount |
2020 | 2021 | ||||
01-Apr-20 | To premium on Redemption of Debentures | 500000 | 31-Mar-21 | By Security Premium Reserve | 250000 |
By Statement of Profit and Loss | 250000 | ||||
500000 | 500000 |
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