Question

Record necessary journal entries in the books of the Company in each of the following cases for redemption of 1,000 12% Debentures of Rs. 10 each issued at par:

1. Debentures redeemed at par by conversion into 12% Preference Shares of Rs. 100 each.
2. Debentures redeemed at a premium of 10% by conversion into Equity Shares issued at par.
3. Debentures redeemed at a premium of 10% by conversion into Equity Shares issued at a premium of 25%.

Answer 1

Case (a)

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	12% Debentures A/c   ...Dr.		10,000	-
	To Debentureholders A/c		-	10,000
	(Being the amount due to debentureholders on redemption at par)
2.	Debentureholders A/c   ...Dr.		10,000	-
	To 12% Preference Share Capital A/c		-	10,000
	(Being liability settled by issuing 100 preference shares of Rs. 100 each)

Case (b)

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	12% Debentures A/c   ...Dr.		10,000	-
	Premium on Redemption of Debentures A/c   ...Dr.		1,000	-
	To Debentureholders A/c		-	11,000
	(Being the amount due on redemption at a 10% premium)
2.	Debentureholders A/c   ...Dr.		11,000	-
	To Equity Share Capital A/c		-	11,000
	(Being liability settled by issuing 1,100 equity shares of Rs. 10 each at par)

Case (c)

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	12% Debentures A/c   ...Dr.		10,000	-
	Premium on Redemption of Debentures A/c   ...Dr.		1,000	-
	To Debentureholders A/c		-	11,000
	(Being the amount due on redemption at a 10% premium)
2.	Debentureholders A/c   ...Dr.		11,000	-
	To Equity Share Capital A/c		-	8,800
	To Securities Premium Reserve A/c		-	2,200
	(Being liability settled by issuing 880 equity shares of Rs. 10 each at a 25% premium)

Working Notes:

Total Nominal Value (Face Value) = 1,000 × 10

= 10,000

Premium on Redemption = `10,000 xx 10/100`

= 1,000

Total Amount Due to Debentureholders = 10,000 + 1,000

= 11,000