Class 12 Accounts Debenture Question Solution Guide
This guide offers expert help for Class 12 accounts debenture questions. We'll cover important concepts and how to solve problems step by step. We also provide examples to help students get better at debenture accounting.
Key Takeaways
- Understand the basic concepts and types of debentures in accounting
- Learn key terms and accounting treatment for premiums and discounts on debentures
- Explore the process of issuing debentures for business acquisition
- Discover step-by-step solutions to Class 12 accounts debenture questions
- Grasp the journal entries for recording debenture-related transactions
Understanding Debentures in Accounting: Basic Concepts
Debentures are a way for businesses to get long-term loans. Knowing about debentures is key for Class 12 Accounts. We'll examine the types and important terms, as well as how premiums and discounts affect them.
Types of Debentures and Their Features
There are many types of debentures, each with its own traits. Here are a few:
- Redeemable Debentures - These can be bought back by the company at a set time and price.
- Irredeemable Debentures - These never have to be paid back and don't have a set end date.
- Convertible Debentures - These can turn into shares of the company at the holder's choice.
Key Terms in Debenture Accounting
Understanding these terms is vital for debenture accounting:
- Face Value - The debenture's nominal or par value.
- Issue Price - The price debentures are sold to investors.
- Redemption Value - The amount paid to the holder when the debenture matures.
Premium and Discount on Debentures
Debentures can be sold at par, premium, or discount. The issue price and face value difference is premium or discount. This affects how debentures are accounted for.
"Understanding the basic concepts of debentures is crucial for effectively solving debenture-related problems in Class 12 Accounts."
Issue of Debentures for Business Acquisition
In the world of corporate finance, debentures are key for companies to buy other businesses. When Dev Ltd. buys Amrit Ltd., the accounting gets complex. Let's dive into the details and journal entries.
Here are the main points of the deal:
- Amrit Ltd. has assets worth ₹10,00,000 and liabilities of ₹2,50,000.
- Dev Ltd. issues 9% debentures of ₹100 each at a premium of 20% to buy Amrit Ltd.'s business.
- Dev Ltd. also issues 10,000 redeemable 8% debentures of ₹100 each, redeemable at a premium of 20% after 5 years.
To record this deal, Dev Ltd. will make these journal entries:
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Business Acquisition Account | 7,50,000 | |
| Liabilities Account | 2,50,000 | |
| To 9% Debentures Account | 9,00,000 | |
| To Premium on Debentures Account | 1,00,000 |
This entry shows the purchase of Amrit Ltd.'s business. The debit to the Business Acquisition Account is for the net assets acquired (₹10,00,000 - ₹2,50,000 = ₹7,50,000). The credits to the 9% Debentures Account and Premium on Debentures Account show the debentures issued at a premium.
Dev Ltd. also records the issue of the 10,000 redeemable 8% debentures:
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Bank Account | 10,00,000 | |
| To 8% Debentures Account | 10,00,000 |
This entry shows the cash from the 8% debentures. This money will fund the business acquisition or other activities.
Understanding debenture's journal entries helps companies report finances accurately. It keeps their capital structure and financing clear.
Class 12 Accounts Debenture Question Solution
We'll explore a Class 12 accounts debenture question in detail. We'll cover the main parts of the problem, explain how to solve it step by step, and show how to calculate the answer.
Breaking Down the Question Components
The question is about Dev Ltd. buying a business from Amrit Ltd. The important points are:
- Amrit Ltd. has assets worth ₹10,00,000 and liabilities of ₹2,50,000.
- Dev Ltd. issued 9% debentures of ₹100 each at a premium of 20% to acquire the business.
- Dev Ltd. also issued 10,000 units of 8% debentures of ₹100 each, redeemable at a premium of 20% after 5 years.
Step-by-Step Problem Analysis
To solve this problem, we'll follow these steps:
- Calculate the total purchase consideration for the acquisition of the running business.
- Determine the number of 9% debentures issued at a premium of 20%.
- Record the journal entries for the acquisition of the business and the issue of debentures.
- Calculate the amount of 8% debentures issued, including the redemption premium.
- Record the journal entries for the issue of 8% debentures.
Calculation Methodology
Now, let's look at how to solve this Class 12 accounts debenture question:
- Total purchase consideration = Net assets of Amrit Ltd. (₹10,00,000 - ₹2,50,000 = ₹7,50,000).
- Number of 9% debentures issued = ₹7,50,000 / (₹100 + 20% of ₹100) = 5,000 debentures.
- Journal entries for the acquisition of the business and the issue of 9% debentures:
- Debit Assets (₹10,00,000)
- Credit Liabilities (₹2,50,000)
- Credit 9% Debentures (₹5,00,000)
- Credit Securities Premium (₹1,00,000)
- Debit Bank (₹10,00,000)
- Credit 8% Debentures (₹10,00,000)
By following this step-by-step guide, you can solve the Class 12 accounts debenture question. You'll also understand debenture accounting better.
Journal Entries for Business Acquisition Using Debentures
In this section, we'll explore how debentures are handled in business acquisitions. We'll go through the journal entries needed for the transaction. This will help you understand the process fully.
Let's look at a specific example:
Dev Ltd. bought Amrit Ltd.'s business. Amrit Ltd. had assets worth ₹ 10,00,000 and liabilities of ₹ 2,50,000. Dev Ltd. used debentures to make the purchase. They issued 9% debentures at a 20% premium and 10,000 units of 8% debentures at a 20% premium, redeemable in 5 years.
Journal Entries for the Acquisition
- To record the acquisition of Amrit Ltd.'s business:
- Debit: Business Acquisition Account - ₹ 7,50,000 (₹ 10,00,000 - ₹ 2,50,000)
- Credit: Equity Share Capital - ₹ 7,50,000
- To record the issue of 9% debentures at a premium:
- Debit: Bank Account - ₹ 12,00,000 (10,000 debentures × ₹ 120)
- Credit: Debentures Account - ₹ 10,00,000 (10,000 debentures × ₹ 100)
- Credit: Securities Premium Account - ₹ 2,00,000 (10,000 debentures × ₹ 20)
- To record the issue of 8% debentures redeemable at a premium:
- Debit: Bank Account - ₹ 10,00,000 (10,000 debentures × ₹ 100)
- Credit: Debentures Account - ₹ 10,00,000 (10,000 debentures × ₹ 100)
These journal entries document the debentures' role in the acquisition. They ensure accurate financial reporting and follow accounting standards.
"The key to effective debenture accounting is understanding the nuances of premium, discount, and redemption features."
It's important to record debentures journal entries and understand the accounting treatment of debentures. This keeps financial records accurate and follows accounting rules.
Recording Premium on Redeemable Debentures
Understanding debenture accounting is key. This includes how to handle the premium on redeemable debentures. We'll look at recording premium from start to finish.
Treatment of Premium on Issue
When debentures are issued at a premium, the extra amount is kept separate. It's recorded in a special account. This way, the premium is not mixed with the debenture liability.
Accounting for Future Premium on Redemption
Redeemable debentures often require a premium when they're paid back. This premium is spread out over the debentures' life. It's part of the calculating interest on debentures process.
Premium Impact on Balance Sheet
The premium on redeemable debentures affects the balance sheet. The debenture accounting process shows the debenture liability at its current value. The premium is listed as a separate liability. This gives a clear picture of the company's finances.
"Proper accounting for premium on redeemable debentures is essential for maintaining financial transparency and ensuring the accuracy of a company's balance sheet."
By following these steps, companies can manage the premium on redeemable debentures well. This makes the debentures accounting process clear and complete.
Conclusion
In this article, we've looked at debenture accounting for Class 12 students. We covered important concepts, types of debentures, and key terms. We also talked about how to use debentures to buy a business.
As you get ready for your Class 12 accounts exams, it's important to know debenture accounting well. This guide can help you do well on debenture questions. Don't forget to practice more to really understand it.
If you need help or have questions, email us at nitingaming62@gmail.com. We're here to help you succeed in your Class 12 accounts exams. Good luck with your studies!
FAQ
What are the basic types of debentures and their key features?
There are several types of debentures. Secured debentures are backed by assets. Unsecured debentures have no collateral. Redeemable debentures can be repaid at a set date. Irredeemable debentures have no fixed date for repayment.
What are the key terms used in debenture accounting?
Important terms include face value, issue price, premium, discount, and interest rate. Also, interest payment dates and redemption value are key. Knowing these terms helps in recording debenture transactions.
How is the premium or discount on debentures accounted for?
A premium occurs when debentures are issued above face value. A discount happens when they are issued below face value. The premium or discount is spread out over the debentures' life. This affects interest expense and the debentures' value on the balance sheet.
How are debentures accounted for when used for business acquisition?
Debentures used for business acquisition are recorded by debiting assets and crediting debentures. The debentures are valued at fair market value. Premiums or discounts are accounted for, impacting the balance sheet and future expenses.
How are journal entries recorded for the issue of debentures and the related premium or discount?
Issuing debentures involves debiting cash and crediting debentures for face value. Premiums or discounts are recorded separately. The premium or discount is then spread out over the debentures' life. This affects interest expense and balance sheet value.
How is the premium on redeemable debentures accounted for?
Premiums on redeemable debentures are recorded and amortized over their life. This reduces interest expense. The unamortized premium is shown as a deduction from debentures on the balance sheet. This ensures debentures are carried at redemption value.
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