ISC Board Questions/ Sample paper Questions

ISSUE OF DEBENTURES

SHORT ANSWER
1. ISC 2011
Explain the nature of interest on debenture.
2. ISC 2013
When does loss on issue of debenture arise?
3. ISC 2014
What is the accounting treatment when debentures are issued as a collateral security?
4. ISC 2016
Give the adjusting entry and closing entry for interest on debentures due to the debenture holders
of the company.
6. ISC 2018
State two reasons for a company to purchase its own debenture from the open market.
7. ISC 2019
Give the journal entries to be passed when: (a) Interest is due on debentures. (b) Interest is paid
to debenture holders.
8. ISC 2021
Can a company pay interest on its debentures before it pays any dividend to its shareholders?
Give a reason for your answer.
9. SP 2017
‘A company has to pay interest on debentures prior to paying dividend on shares’. Justify.
10. SP 2022 Sem 2
Orange Ltd. took over assets of ₹ 7,00,000 and liabilities of ₹ 60,000 of Purple Ltd. for a
purchase consideration of ₹ 6,30,000 payable by the issue of 10% Debentures of ₹100 each at a
premium of 10% and if need be, a part of the purchase consideration in cash. How will the
company meet the purchase consideration?
(a) By the issue of ₹ 5,72,727, 10% Debentures at a premium of ₹ 57,272 with no cash.
(b) By the issue of ₹ 5,72,000, 10% Debentures at a premium of ₹ 57,200 and cash of ₹ 800.
(c) By the issue of ₹ 5,72,720, 10% Debentures at a premium of ₹ 57,272 and cash of ₹ 8.
(d) By the issue of ₹ 5,72,700, 10% Debentures at a premium of ₹ 57,270 and cash of ₹ 30.
11. ISC 2023

12. ISC 2023

On 1st April 2021, Bhim Ltd issued 2,000, 5% Debentures of Rs.100 each as follows;
a) For cash at a discount of 5% Rs. 80,000 (Nominal)
b) To a vendor for Rs.60,000 in satisfaction of his claim Rs. 70,000 (Nominal)
c) To bankers for a loan of Rs. 40,000 as collateral security Rs. 50,000 (Nominal)
The interest on these debentures was to be paid annually on 31st March every year by the
company.
You are required to calculate total interest on the debentures payable by the company on 31 st
March, 2022.
13. ISC 2023 CE
Mention any two groups to whom a company can issue debentures, other than the general public.

14. SP 2024
A company issued 5,000, 10% Debentures of ₹ 100 each at a discount of 5%. To write off the
capital loss, it has to use its profits in a certain order.
Chose the correct order in which the profits are used by the company to write off the capital loss:
P Statement of Profit & Loss
Q Capital Reserve
R Securities Premium

(a) P, Q, R
(b) R, P, Q
(c) R, Q, P
(d) Q, P, R
 LONG ANSWER

1. 2011

2. ISC 2012 (Modified)

On 1st April, 2000, Star Ltd issued 1,000; 12% Debentures of Rs. 100 each at a discount of 5%,
repayable as follows;
On 31st March 2002 – 20,000 Debentures
On 31st March 2003 – 60,000 Debentures
On 31st March 2004 – 20,000 Debentures
The company pays interest on debentures annually.
You are required to:
a) Pass journal entries for the year 2000-2001 (Including interest on debenture)
b) Prepare the Discount on issue of debenture account, assuming that discount on issue of
debenture is written of at the end of year of issue.
3. ISC 2014
4. ISC 2015

6. ISC 2016
7. ISC 2017
Chrome Ltd. took over assets of ₹ 6,00,000 and liabilities of ₹ 40,000 of Polymer Ltd. at an
agreed value of ₹ 6,30,000. Chrome Ltd. issued 10% Debentures of ₹ 100 each at a discount of
10% to Polymer Ltd. in full satisfaction of the price. Chrome Ltd. writes off any capital losses
incurred during a year, at end of that financial year.
You are required to pass the necessary journal entries to record the above transactions in the
books of Chrome Ltd.

8. ISC 2018

9. ISC 2019
You are required to pass journal entries to record the following issues of debentures and to write
off any capital losses.
(a) Zoom Ltd. issues 6,000, 12% Debentures of ₹ 100 each at par redeemable after 5 years also
at par.
(b) Zola Ltd. issues 5,000, 13% Debentures of ₹ 100 each at a discount of 10% to be redeemed
at par after 7 years.
(c) Zubic Ltd issues 11% Debentures of the total face value of ₹ 12,00,000 at a premium of 5%
to be redeemed at par after 6 years.
(d) Ruby Ltd. issues ₹ 5,00,000, 12% Debentures at a premium of 5% to be redeemed at 10%
premium after 10 years.
(e) Emerald Ltd. issues 3,000, 9% Debentures of ₹ 100 each at a discount of 7%, to be redeemed
at a premium of 10% after 4 years.
Note: All the companies write off their capital losses in the year in which they occur.

10. ISC 2020

Zee Ltd. purchased a running business from Rainbow Ltd. for a sum of ₹6,60,000. Zee Ltd. paid
5% of the purchase consideration by drawing a Promissory Note in favour of Rainbow Ltd. and
the balance by the issue of fully paid 7% Debentures of ₹100 each at a premium of 10%. The
assets and liabilities of Rainbow Ltd. consisted of:
Fixed Assets 6,50,000
Sundry Creditors 80,000
You are required to pass the necessary journal entries in the books of Zee Ltd.
11. ISC 2021

12. SP 2015
On 1st April, 2013, Relaxo Ltd. purchased assets of `5,00,000 and took over liabilities of `90,000
of Greg Ltd. at an agreed value of `3,80,000. It issued to the vendor, 10% Debentures of `100
each at 5% discount, redeemable at par after 5 years, in full satisfaction of the purchase price.
On the same date, the company issued 500, 11% Debentures of `100 each as a collateral security
to a bank who had advanced a loan of `45,000 to it for a period of 3 years and also issued 5,000,
12% Debentures of `100 each at par, redeemable after 3 years at 5% premium.
Additional information:
The interest on debentures is paid half yearly on 30th September and 31st March each year. Tax
deducted at source @ 20%. The Company had `1,20,000 in its Security Premium Reserve
Account at the end of the year. (Ignore interest on bank loan)
You are required to pass journal entries in the books of Relaxo Ltd for the year ending 31st
March 2014.
13. SP 2017
On 1st April, 2015 Max Ltd. took over assets of ₹4,50,000 and liabilities of ₹ 60,000 of
Prudence Ltd. for the purchase consideration of ₹4,40,000. It paid the purchase consideration by
issuing 8% Debentures of ₹100 each at 10% premium. On the same date it issued another 3,000
8% Debentures of ₹100 each at a discount of 10%, redeemable at a premium of 5% after 5 years.
According to the terms of the issue ₹30 is payable on application and the balance on the
allotment of debentures.
You are required to pass journal entries in the books of Max Ltd. to record the above
transactions.
14. SP 2018
Moon craft Ltd. purchased machinery for ` 2, 70,000. As per the agreement, the payment is to be
made by issuing sufficient number of 5% Debentures of ` 100 each. You are required calculate
number of debentures to be issued & pass the necessary journal entries in the books of the
Company if the said Debentures are issued:
(i) at a discount of 10%.
(ii) at a premium of 20%.
15. SP 2022 Sem 2
Suhas Ltd. issued 1,000, 7% Debentures of ₹ 100 each to be redeemed after three years at a
premium of 5%. The face value of the debentures was payable as:
₹ 20 on Application ₹ 30 on Allotment (on 1st May, 2020)
₹ 30 on First call (on 1st October, 2020)
₹ 20 on Final call (on 1st January, 2021)
All the debentures were applied and allotted. Ali, to whom 20 debentures were allotted, paid the
allotment money and the two calls on 31st March, 2021. The Articles of Association of the
company provided for interest on calls-in-arrear to be charged @ 10% per annum, which Ali
paid on 31st March, 2021.
You are required to pass journal entries in the books of Suhas Ltd. to record:
• The adjustment and receipt of interest on calls in arrears
• The entry to close the interest on calls in arrears account
16. SP 2022 Sem 2 (Modified)
On 1 st April, 2017, Prasad and Company Limited issued 1,000, 10% Debentures of ₹ 1,000
each at ₹ 980. Under the terms of issue, 1 5 ⁄ of the debentures is annually redeemable by
drawings, the first redemption occurring on 31st March, 2019. On 31st March, 2018, the
company had a balance of ₹ 4,000 in its Capital Reserve A/c. The company wrote off the
discount on issue of debentures at the end of the year of issue.
You are required to prepare the Discount on issue of Debentures Account.
17. SP 2023
On 1st February, 2022, Swadesh Ltd. issued to the public 12,000, 10% Debentures of ₹ 100 each
at a discount of 3% payable: ₹ 20 on application. The balance on allotment being made on 1st
May, 2022. The public applied for 20,000 debentures. Pro-rata allotment was made on 15,000
debentures. The debentures were to be redeemed at par after four years.
You are required to pass journal entries for the year 2021-2022.
18. ISC 2023

19. ISC 2023 CE

On 1st April, 2021, Right Ltd. had a balance of ₹ 2,40,000 in its Securities Premium Reserve. On this
date, it issued 40,000, 6% Debentures of ₹ 100 each at a discount of 9% to be redeemed after five
years at a premium of 5%.
You are required to pass necessary journal entries in the books of Right Ltd. for the year 2021-22.
(Ignore entries for interest on debentures).