A company issued 12% debentures of the face value of 10,00,000 at 10% discount on 1-1-2017. Debenture interest after deducting tax at source @10%…

CA Foundation · Accounting · MTP · June 2024
A company issued 12% debentures of the face value of 10,00,000 at 10% discount on 1-1-2017. Debenture interest after deducting tax at source @10% was payable on 30th June and 31st of December every year. All the debentures were to be redeemed after the expiry of five year period at 5% premium. Pass journal entries for the accounting year 2020. OR Mr. Aman is running a business of readymade garments. He does not maintain his books of accounts under double entry system. While assessing the income of Mr. Aman for the financial year 2018-19, Income Tax Officer feels that he has not disclosed the full income earned by him from his business. He provides you the following information: On 31st March, 2018 Sundry Assets - 16,65,000 Liabilities - 4,13,000 On 31st March, 2019 Sundry Assets - 28,40,000 Liabilities - 5,80,000 Mr. Aman’s drawings for the year 2018-1932,000 per month Income declared to the Income Tax Officer - 9,12,000 During the year 2018-19, one life insurance policy of Mr. Aman was matured and amount received - 50,000 was retained in the business. State whether the Income Tax Officer's contention is correct. Explain by giving your working.

Suggested Answer and Working Notes:

Journal Entries Date Particulars Dr. (₹) Cr. (₹) 1-1-2020 Bank A/c Dr. Discount/Loss on Issue of Debentures A/c Dr. To 12% Debentures A/c To Premium on Redemption of Debentures A/c (For issue of debentures at discount redeemable at premium) 9,00,000 1,50,000 10,00,000 50,000 30-6-2020 Debenture Interest A/c Dr. To Debenture holders A/c To Tax Deducted at Source A/c (For interest payable) 60,000 54,000 6,000 31-12-2020 Debenture holders A/c Dr. Tax Deducted at Source A/c Dr. To Bank A/c (For payment of interest and TDS) 54,000 6,000 60,000 Debenture Interest A/c Dr. To Debenture holders A/c To Tax Deducted at Source A/c (For interest payable) 60,000 54,000 6,000 Debenture holders A/c Dr. Tax Deducted at Source A/c Dr. To Bank A/c (For payment of interest and tax) 54,000 6,000 60,000 Profit and Loss A/c Dr. To Debenture Interest A/c (For transfer of debenture interest to profit and loss account at the end of the year) 1,20,000 1,20,000 Profit and Loss A/c Dr. To Discount/Loss on issue of debenture A/c (For proportionate debenture discount and premium on redemption written off, i.e.,1,50,000 x 1/5) 30,000 30,000 OR / Alternative Solution: Determination of Capital balances of Mr. Aman on 31.3.2018 and31.3.2019 Particulars 31.3.2018 Rs. 31.3.2019 Rs. Assets 16,65,000 28,40,000 Less: Liabilities (₹ 4,13,000) (₹ 5,80,000) Capital 12,52,000 22,60,000 Determination of Profit by applying the method of the capital comparison Particulars Rs. Capital Balance as on 31-3-2019 22,60,000 Less: Fresh capital introduced (matured life insurance policy Amount (₹) (50, 000) 22,10,000 Add: Drawings (₹ 32,000 ×₹ 12) 3,84,000 25,94,000 Less: Capital Balance as on 1.4.2018 (₹ 12,52,000) Profit 13,42,000 Income declared 9,12,000 Suppressed Income 4,30,000 The Income-tax officer’s contention that Mr. Aman has not declared his true income is correct. Mr. Aman’s true income is in excess of the disclosed income by - 4,30,000. Note: Closing capital is increased due to fresh capital introduction, so it is deducted.Closing capital was reduced due to withdrawal by proprietor; so it is added back.

Topics: Issue, Forfeiture and Re-issue of Shares, Preparation of Final Accounts of Sole Proprietors, Subsidiary Books

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