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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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Transcript

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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Davneet Singh

Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.