Debentures

The error in Excel occurs when a formula attempts to divide a number by zero or when the denominator is a blank cell. It can be addressed using the following methods:

1. Validate Input Data: Ensure that the cell used as the denominator contains a valid numeric value and is not blank.
2. Using IF Function: Add a condition to prevent division by zero:

This formula returns "Error" when the denominator is zero or blank.

3. Using IFERROR Function: Use the IFERROR function to handle errors gracefully:

This replaces the error with a custom message or alternative value.

4. Conditional Formatting: Highlight potential problem cells (e.g., cells containing zero in the denominator) using conditional formatting rules to quickly identify and correct them.

5. Data Validation: Use Excel's Data Validation feature to restrict inputs to valid values only, avoiding blank or zero entries in denominator cells.

6. Check Formula References: Ensure that all referenced cells in the formula are correctly linked and contain appropriate values.
By proactively managing inputs, using error-handling functions, and validating data, the occurrence of errors can be minimized.

The total debentures issued = 8,000 debentures of rupee 100 each.

The interest rate = 11%.

The loss on issue of debentures arises due to the premium on redemption, which is charged to the Loss on Issue of Debentures account.

Thus, the Loss on Issue of Debentures account will be debited by rupee1,00,000.

Working:

Purchase Consideration = ₹36,00,000

Debentures issued at 20% premium, so Issue Price = 100 + 20 = ₹120 per debenture

Number of Debentures = ₹36,00,000 ÷ ₹120 = 30,000 debentures

Journal Entries:

1. For purchase of assets and liabilities:

2. For discharge of consideration by issue of debentures:

Final Answer: 30,000 debentures issued at ₹120 to discharge purchase consideration.

Working:

Issue price per debenture = ₹100 − 10% = ₹90

Number of debentures = ₹46,00,000 ÷ ₹90 = 51,111.11 ≈ 51,112 debentures (rounded)

Journal Entries:

1. For purchase of assets and liabilities:

2. For discharge of purchase consideration by issue of debentures:

Final Answer: 51,112 debentures issued at 10% discount to settle ₹46,00,000.

Calculations:

• Number of Debentures: 2,000
• Face Value per Debenture: ₹500
• Premium: 10% of ₹500 = ₹50
• Application Money per Debenture: ₹200
• Allotment Money per Debenture (including premium): Face Value + Premium - Application Money = ₹500 + ₹50 - ₹200 = ₹350

Explanation:

• Entries 1 & 2: Record the receipt of application money and the transfer of that money to the debenture account.
• Entry 3: This entry is for making the allotment money due on the debentures. The debenture account is credited with the face value of the debentures being allotted (2,000 × ₹300 = ₹6,00,000). The Securities Premium Reserve is credited with the premium amount (2,000 × ₹50 = ₹1,00,000).
• Entry 4: Records the receipt of the allotment money in the bank account.

Total receipt will be application (2,000 × 200) + allotment (2,000 × 350) = 4,00,000 + 7,00,000 = 11,00,000

Here are the journal entries in the books of Ajanta Ltd:

Calculations:

• Amount paid via bank draft: ₹36,00,000 / 2 = ₹18,00,000
• Amount to be settled by debentures: ₹36,00,000 / 2 = ₹18,00,000
• Face value per debenture: ₹100
• Discount per debenture: ₹100 * 10% = ₹10
• Issue price per debenture: ₹100 - ₹10 = ₹90
• Number of Debentures to be issued: ₹18,00,000 / ₹90 = 20,000 Debentures
• Total Face Value of Debentures Issued: 20,000 * ₹100 = ₹20,00,000
• Discount on Issue of Debentures: 20,000 * ₹10 = ₹2,00,000

In the second journal entry, ₹16,20,000 the amount paid has been calculated as
20,000 * 81 = 16,20,000
The Discount will be = 20,000 * 9 = 180,000

Explanation:

• Entry 1: Records the purchase of machinery from Sujata Ltd., creating a liability.
• Entry 2: Records the settlement of the liability to Sujata Ltd. Half is paid through a bank draft (decreasing the bank balance), and the remaining half is settled by issuing 8% debentures at a discount. The discount on the issue of debentures is debited to reflect the reduction in the cash received from the debenture issue. I have calculated the discount and 8% amount again for correct balance of amount.

Working:

Total Debentures = 4,000

Face Value per Debenture = ₹100

Premium = ₹10

Total Issue Price = ₹110

Application Money = ₹40, Allotment (including premium) = ₹70

Journal Entries:

1. For receipt of application money:

2. For transfer of application money to Debenture A/c:

3. For amount due on allotment (face value + premium):

4. For receipt of allotment money:

Final Answer: EF Ltd. passed four journal entries to record full subscription and premium received.

To solve the problem, we need to determine the amount written off as 'Discount on Issue of Debentures' from the Securities Premium Account and the Statement of Profit and Loss for Zeba Limited, which issued 15,000, 9% debentures of Rs 100 each at a 10% discount on 1st April 2023, with a balance of Rs 1,00,000 in the Securities Premium Account.

1. Calculating the Total Nominal Value of Debentures:
The nominal value of each debenture is Rs 100, and the company issued 15,000 debentures. Therefore, the total nominal value is:

2. Determining the Issue Price and Total Discount:
The debentures are issued at a 10% discount, so the issue price per debenture is:


The total amount received from issuing the debentures is:


The total discount on the issue of debentures is:

3. Using the Securities Premium Account:
The company has a balance of Rs 1,00,000 in the Securities Premium Account. According to accounting standards, the discount on the issue of debentures can be written off using the Securities Premium Account first. Therefore, Rs 1,00,000 of the discount is written off from the Securities Premium Account:

4. Writing Off the Remaining Discount:
The remaining discount to be written off is:


This remaining amount is written off from the Statement of Profit and Loss:

Final Answer:
The 'Discount on Issue of Debentures' of Rs 1,50,000 will be written off as Rs 1,00,000 from the Securities Premium Account and Rs 50,000 from the Statement of Profit and Loss. The correct option is A.

To solve the problem, we need to determine the discount on the issue of debentures for Latvion Ltd., given the journal entry showing a debit of Rs 75,000 to 'Loss on Issue of Debentures A/c', a credit of Rs 5,00,000 to '12% Debentures A/c', a credit of Rs 50,000 to 'Premium on Redemption of Debentures A/c', and a debit of Rs 4,75,000 to 'Bank A/c'.

1. Understanding the Journal Entry:
The journal entry indicates the issuance of debentures. The nominal value of the debentures is Rs 5,00,000 (credited to 12% Debentures A/c). The company received Rs 4,75,000 in cash (debited to Bank A/c), and Rs 75,000 is debited to Loss on Issue of Debentures A/c, which includes the discount on issue and any premium on redemption. Rs 50,000 is credited to Premium on Redemption of Debentures A/c, indicating the premium payable on redemption.

2. Calculating the Discount on Issue:
The Loss on Issue of Debentures A/c is calculated as the discount on issue plus the premium on redemption. Let the discount on issue be . Then:


Given:


Solving for :

3. Determining the Discount Percentage:
The nominal value of the debentures is Rs 5,00,000. The discount on issue is Rs 25,000. The percentage discount is calculated as:


Substitute the values:

Final Answer:
The discount on the issue of debentures is 5%. The correct option is B.

To solve the problem, we need to determine how the difference is treated when the amount of debentures issued by a company is more than the net assets taken over.

1. Understanding the Scenario:
When a company issues debentures to acquire assets (e.g., during a business purchase), the amount of debentures issued represents the purchase consideration. Net assets taken over are calculated as the total assets minus total liabilities acquired. If the amount of debentures issued exceeds the net assets taken over, this difference indicates an excess payment over the fair value of the net assets.

2. Identifying the Treatment of the Difference:
In accounting, when the purchase consideration (debentures issued) is greater than the net assets taken over, the difference is treated as 'Goodwill'. Goodwill represents the premium paid for factors like brand value, customer base, or other intangible benefits not reflected in the net assets' book value.

Here, since the amount of debentures issued is more than the net assets, the difference is:


This difference is recorded as Goodwill in the books of the company.

Final Answer:
The difference will be treated as Goodwill.

To solve the problem, we need to identify the type of debentures on which a company does not give any undertaking for the repayment of the borrowed money.

1. Understanding Debenture Types:
Debentures are debt instruments issued by a company to borrow money. Typically, companies provide an undertaking to repay the principal amount along with interest at a specified rate and time. However, there is a specific type of debenture where the company does not guarantee repayment of the principal.

2. Identifying the Debenture Type:
Debentures where the company does not give any undertaking for repayment are known as 'Irredeemable Debentures' or 'Perpetual Debentures'. These debentures do not have a maturity date, meaning the company is not obligated to repay the principal amount unless it chooses to do so (e.g., during liquidation). The company only pays interest periodically, and the principal remains outstanding indefinitely.

Final Answer:
Debentures on which a company does not give any undertaking for the repayment of money borrowed are called Perpetual Debentures.

1. Acquisition of Assets and Liabilities from Dhruv Ltd.

Calculation of Capital Reserve:

Total Value of Assets Taken = Building + Machinery + Furniture
= 15,50,000 + 11,40,000 + 1,10,000
= 28,00,000

Liabilities taken = 2,00,000
Net Assets Taken = 26,00,000

Purchase consideration = 25,00,000

Capital Reserve = Net Assets Taken – Purchase consideration
26,00,000 - 25,00,000 = 1,00,000

2. Issue of 12% Debentures to Dhruv Ltd.

Face Value per Debenture: ₹100
Premium: 25%
Issue Price per Debenture: ₹100 + (25% of ₹100) = ₹125

Number of Debentures to be issued = Purchase Consideration / Issue Price per Debenture
Number of Debentures to be issued = 25,00,000 / 125 = 20,000 Debentures

Explanation:

• Entry 1: Records the assets acquired and liabilities taken over. A capital reserve arises if the net assets acquired exceed the purchase consideration.
• Entry 2: Records the issue of debentures to settle the purchase consideration. The debentures are issued at a premium, so the "Securities Premium Reserve" account is credited with the premium amount.

The journal entry shows: Face Value of Debentures issued (credited to 12% Debentures A/c) = Rs 5,00,000. Cash received (debited to Bank A/c) = Rs 4,75,000. The discount on issue is the difference between the face value and the issue price (cash received), when the issue price is lower. Discount = Face Value - Issue Price The 'Loss on Issue of Debentures A/c' includes both the discount on issue and the premium payable on redemption. Loss on Issue = Discount on Issue + Premium on Redemption Loss on Issue shown = Rs 75,000 Premium on Redemption shown = Rs 50,000 Discount on Issue = Loss on Issue - Premium on Redemption = 75,000 - 50,000 = Rs 25,000. This matches our calculation. Now, calculate the discount percentage: Discount Percentage =

When a company issues debentures to acquire net assets from another entity, the transaction involves calculating the difference between the issued debentures and the net assets' value. Understanding this accounting treatment is essential:

Analysis:

1. The debentures issued represent a liability that the company needs to repay in the future.
2. The net assets taken over comprise the acquired assets minus liabilities.

Scenario: If the amount of debentures issued is more than the value of the net assets acquired:

• This excess is treated as an intangible asset called Goodwill.

Explanation:

• Goodwill reflects the extra value perceived from acquiring the business, such as future earnings potential or strategic advantages.
• It is accounted for as an intangible asset on the balance sheet.

Therefore, in this scenario, the difference is classified as Goodwill.

• Perpetual Debentures: These instruments do not have a maturity date, meaning the company does not promise to repay the principal amount at any specific time, instead providing interest payments indefinitely. As such, they fall under securities lacking a specific commitment for repayment of the principal.
• Bearer Debentures: Unlike perpetual debentures, these involve physical possession for claims but typically have a maturity for repayment.
• Secured Debentures: These are backed by the company's assets and involve scheduled repayments.
• Registered Debentures: Issued in the name of the holder, ensuring the repayment is recorded and guaranteed.

Working Notes:

• Face value per debenture = ₹100
• Number of debentures = 20,000
• Issue price = ₹100 + 5% premium = ₹105
• Total amount received = 20,000 × ₹105 = ₹21,00,000
• Face value = 20,000 × ₹100 = ₹20,00,000
• Premium on issue = ₹1,00,000
• Interest @ 9% p.a. on face value = ₹20,00,000 × 9% = ₹1,80,000 per annum
• Half-yearly interest = ₹90,000 (on 30th Sept and 31st March)

Journal Entries:

Note: Interest is paid half-yearly, hence twice ₹90,000 is due and paid.