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Accounting for Debentures

Part A

Question 1 Accounting for Debentures

Solution:

Given:

Date of disclosure document

1/8/2020

Date of receipt of application money

30/09/2020

Date of issuance of debentures

1/10/2020

   

Applications invitations

10000

Application received

11000

Applications refunded

1000

 

 

Issue price at par

 $80.00

payable on application

100%

   

annual interest charge

8%

Interest Payments

Semi annually

Dates

31-Dec

 

30-Jun

   

Redemption

 

Period

5 years

Rate

at nominal rates

 

 

Journal:

General Journal

Date

Particulars

Debit

Credit

30/09/2020

Bank A/c

 $  880,000.00

 

 

To 8%  Debenture Application and Allotment A/c

 

 $  880,000.00

 

Being receipt of application money on 11,000 debentures

 

 

       

1/10/2020

8%  Debenture Application and Allotment A/c

 $  880,000.00

 

 

To 8%  Debenture A/c

 

 $  800,000.00

 

To Bank A/c

 

 $    80,000.00

 

Being Debenture Application money transferred to Debenture A/c, and money refunded on rejected application

 

 

       

31/12/2020

Debenture Interest A/c

 $    16,000.00

 

 

To Debenture holders A/c

 

 $    16,000.00

 

Being interest due for 3 months from 1 Oct 2020 to 31 Dec 2020

 

 

       
       

31/12/2020

Debenture holders A/c

 $    16,000.00

 

 

To Bank A/c

 

 $    16,000.00

 

Being Interest Paid

 

 

       

30/06/2021

Debenture Interest A/c

 $    32,000.00

 

 

To Debenture holders A/c

 

 $    32,000.00

 

Being interest due for 6 months from 1 Jan 2021 to 30 June 2021

 

 

       

30/06/2021

Debenture holders A/c

 $    32,000.00

 

 

To Bank A/c

 

 $    32,000.00

 

Being Interest Paid

 

 

       

30/06/2021

Statement of Profit and Loss

 $    48,000.00

 

 

To Debenture Interest A/c

 

 $    48,000.00

 

Being expense on payments of debenture interest transferred to profit and loss account

 

 

 

 

Question 2 Accounting for Impairment

Assets

Carrying Amount

Proportion

Loss Allocated

Adjusted Carrying Amount

Inventory

15000

9.09%

4091

10909

Goodwill

30000

18.18%

8182

21818

Plant

80000

48.48%

21818

58182

Motor Vehicles

40000

24.24%

10909

29091

Total

165000

100.00%

45000

120000

 

 

 

General Journal

Date

Particulars

Debit

Credit

30/06/2020

Loss on Impairment

 $          45,000

 

 

To Inventory

 

 $               4,091

 

To Goodwill

 

 $               8,182

 

To Plant

 

 $             21,818

 

To Motor Vehicle

 

 $             10,909

 

Being Impairment loss recognized in the assets of CGU unit

 

 

 

Question 3 Asset Revaluation

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