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Question
On 1st April, 2008 a company made an issue of Rs 2,00,000, 6% Debentures of Rs 100 each, repayable at a premium of 10%. The terms of issue provided for the redemption of 400 debentures every year starting from the end of 31-3-2010 either by purchase from the open market or by draw of lots at the company’s option.
On 31-3-2010, the company purchased for cancellation 300 debentures at 95% and 100 debentures at 90%.
Pass the necessary Journal entries for the issue and redemption of debentures assuming that the company had already created the
Debentures Redemption Reserve A/c by the require amount.
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Solution
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Journal |
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Date |
Particulars |
L.F. |
Debit Amount RS |
Credit Amount Rs |
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2008 |
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April 1 |
Bank A/c |
Dr. |
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2,00,000 |
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To 6% Debentures Application A/c |
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2,00,000 |
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(Amount received on 2,000 6% debentures of Rs 100 each) |
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6% Debentures Application A/c |
Dr. |
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2,00,000 |
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Loss on Issue of Debentures A/c |
Dr. |
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20,000 |
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To 6% Debentures A/c |
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2,00,000 |
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To Premium on Redemption of Debentures A/c |
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20,000 |
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(Issue of 2,000 6% debentures of Rs 100 each, repayable at a premium of 10%) |
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2010 |
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March 31 |
Own Debentures A/c [(300 × Rs 95) + (100 × Rs 90)] |
Dr. |
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37,500 |
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To Bank A/c |
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37,500 |
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(Own debentures purchased) |
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6% Debentures A/c |
Dr. |
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40,000 |
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To Own Debentures A/c |
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37,500 |
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To Profit on Cancellation of Debentures A/c |
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2,500 |
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(Cancellation of debentures by purchase of own debentures) |
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Profit on Cancellation of Debentures A/c |
Dr. |
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2,500 |
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To Capital Reserve A/c |
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2,500 |
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(Profit on cancellation of debentures transferred to Capital Reserve) |
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