Question 20 Chapter 10 of +2-Part-1
20. (Debenture Account/Sinking Fund A/c/Sinking Fund Investment A/e) Shakti Chemical Ltd. issues 2,000, 9% debentures of Rs. 100 each on 1st January, 2015 repayable at the end of three years at a premium of 5 percent. It is decided to set up a sinking fund for the purpose of redemption. The investments are expected to earn 5 percent interest per annum.
The sinking fund table shows that in order to get Rs. 1 after three years at 5 percent per annum, an amount of Rs. 0.317208 should be invested every year. At the end of third year, the investments are sold for Rs. 1,37,000 and the debentures are paid off. (Calculate the amount to the nearest rupees).
Prepare Debenture Account, Sinking Fund Account and Sinking Fund Investments Accounts for the 3 years in the books of the company
The solution of Question 20 Chapter 10 of +2 Part-1:-
9% Debentures Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Dec. 31 | To Balance c/d | 2,00,000 | Jan. 1 | By Bank A/c | 2,00,000 |
| 2,00,000 | 2,00,000 | ||||
| 2016 | 2016 | ||||
| Dec. 31 | To Balance c/d | 2,00,000 | Jan. 1 | By Balance b/d | 2,00,000 |
| 2,00,000 | 2,00,000 | ||||
| 2017 | 2017 | ||||
| Dec. 31 | To Bank A/c | 2,00,000 | Jan. 1 | By Balance b/d | 2,00,000 |
| 2,00,000 | 2,00,000 |
Debentures Sinking Fund Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Dec. 31 | To Balance c/d | 66,614 | Dec. 31 | By Statement Profit & loss | 66,614 |
| 66,614 | 66,614 | ||||
| 2016 | 2016 | ||||
| Dec. 31 | To Balance c/d | 1,36,559 | Jan. 1 | By Balance b/d | 66,614 |
| Dec. 31 | By Interest on Investment A/c | 3.331 | |||
| By Statement Profit & loss | 66,614 | ||||
| 1,36,559 | 1,36,559 | ||||
| 2017 | 2017 | ||||
| Dec. 31 | To Loss on Issue of Deb. A/c | 10,000 | Jan. 1 | By Balance b/d | 1,36,559 |
| Dec. 31 | To General Reserve A/c (Bal. Fig.) | 2,00,442 | Dec. 31 | By Interest on Investment A/c | 6,828 |
| Dec. 31 | By Statement Profit & loss | 66,614 | |||
| Dec. 31 | By Sinking Fund Investment A/c | 441 | |||
| 2,10,442 | 2,10,442 |
Sinking Fund Investment Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Dec. 31 | To Bank A/c | 66,614 | Jan. 1 | By Balance c/d | 66,614 |
| 66,614 | 66,614 | ||||
| 2016 | 2016 | ||||
| Jan. 1 | To Balance b/d | 66,614 | Jan. 1 | By Balance c/d | 1,36,559 |
| Dec. 31 | To Bank A/c | 69,945 | |||
| 1,36,559 | 1,36,559 | ||||
| 2017 | 2017 | ||||
| Jan. 1 | To Balance b/d | 1,36,559 | Jan. 1 | By Bank A/c | 1,37,000 |
| Dec. 31 | Sinking Fund | 441 | |||
| 1,37,000 | 1,37,000 |
Premium on Redemption of Debentures Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Dec. 31 | To Balance c/d | 10,000 | Jan. 1 | By Loss on Issue of Debentures A/c | 10,000 |
| 10,000 | 10,000 | ||||
| 2016 | 2016 | ||||
| Dec. 31 | To Balance c/d | 10,000 | Jan. 1 | By Balance b/d | 10,000 |
| 10,000 | 10,000 | ||||
| 2017 | 2017 | ||||
| Dec. 31 | To Bank A/c | 10,000 | Jan. 1 | By Balance b/d | 10,000 |
| 10,000 | 10,000 |
Loss on Issue of Debentures Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Jan. 1 | To Premium on Red. of Deb. A/C | 10,000 | Dec. 31 | By Balance c/d | 10,000 |
| 10,000 | 10,000 | ||||
| 2016 | 2016 | ||||
| Jan. 1 | To Balance b/d | 10,000 | Dec. 31 | By Balance c/d | 10,000 |
| 10,000 | 10,000 | ||||
| 2017 | 2017 | ||||
| Jan. 1 | To Balance b/d | 10,000 | Dec. 31 | By Debentures Sinking Fund A/c | 10,000 |
| 10,000 | 10,000 |
Working Note :-
1. The annual installments is Rs. 66,614 I.e, 2,10,000 X 0.317208
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2. There is adjustment of rupee 1 in the last year
3. Calculation is done to nearest Rupee.
It all about Question 20 Chapter 10 of +2-Part-1, If you have any problem please comment below.
Redemption of Debentures – explained with an example
End of Solution
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Chapter No. 8 – Company Accounts (Share Capital)
Chapter No. 9 – Company Accounts (Issue of Debentures)
Chapter No. 10 – Company Accounts (Redemption of Debentures)
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Chapter No. 11 – Financial Statements of a Company
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Chapter No. 13 – Tools of Financial Statement Analysis- Comparative and Common Size
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- Chapter No. 1 – Company Accounts (Share Capital)
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- Chapter No. 4 – Financial Statements of a Company (Balance Sheet Only)
- Chapter No. 5 -Financial Statement Analysis
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