Question 25 Chapter 10 of +2-Part-1
25. (Debenture redemption fund/Journal/Ledger) A company has Rs. 60,000, 5% debentures outstanding on 1st January, 2015. On that date, the Debenture Redemption Fund stood at Rs. 50,000 represented by Rs. 59,000, 3% loan of the Government of India. The annual installment added to the Debenture Redemption Fund is Rs. 8,230. On 31st December, 2015, the balance. in bank (after interest on investments had been received) was RS. 15,640. On that date, investments were sold at 83% net and the debentures were paid off.
Pass necessary Journal entries and prepare Ledger Accounts for the year 2013.
The solution of Question 25 Chapter 10 of +2 Part-1:-
| Journal |
|||||
| Date | Particulars |
L.F. | Debit ₹ | Credit ₹ | |
| 2015 | |||||
| Dec. 31 | Bank A/c | Dr. | 1,770 | ||
| To Interest on Investment A/c | 1,770 | ||||
| (being interest on investment @ 3% of Rs. 59,000) | |||||
| Dec. 31 | Interest on Investment A/c | Dr. | 1,770 | ||
| To Debentures Redemption Fund A/c | 1,770 | ||||
| (Being interest transferred to debentures Redemption A/c ) | |||||
| Dec. 31 | Statement of profit & Loss | Dr. | 8,230 | ||
| To Debentures Redemption Fund A/c | 8,230 | ||||
| (Being annual installment to debentures Redemption A/c ) | |||||
| Dec. 31 | Bank A/c | Dr. | 48,970 | ||
| To Debentures Redemption Fund A/c | 48,970 | ||||
| (Being amount realised on sale of investment 83% of 59,000) | |||||
| Dec. 31 | Debentures Redemption Fund A/c | Dr. | 1,030 | ||
| To Debentures Redemption Fund investment A/c | 1,030 | ||||
| (Being loss on sale of investment transferred to debentures redemption fund 50000-48970= Rs.1030) | |||||
| Dec. 31 | 5 % Debenture A/c | Dr. | 60,000 | ||
| To Bank A/c | 60,000 | ||||
| (Being debentures redeemed) | |||||
| Dec. 31 | Debentures Redemption Fund A/c | Dr. | 58,970 | ||
| To General Reserve A/c | 58,970 | ||||
| (Being balance of debentures R.F. transferred to General Reserve A/c) | |||||
5% Debentures Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Dec. 31 | To Bank A/c | 60,000 | Jan. 1 | By Balance b/d | 60,000 |
| 60,000 | 60,000 |
Debentures Redemption Fund Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2018 | ||||
| Dec. 31 | To Deb. Red. Fund Invest. A/c | 1,030 | Jan. 1 | By Balance b/d | 50,000 |
| Dec. 31 | To General Reserve | 58,970 | Dec. 31 | By Interest on Investment A/c | 1,770 |
| 60,000 | 60,000 |
Debentures Redemption Fund Investment Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2018 | ||||
| Jan. 1 | To Balance b/d | 50,000 | Jan. 1 | By Bank A/c | 48,970 |
| Dec. 31 | By Deb. Red. Fund A/c | 1,030 | |||
| 50,000 | 50,000 |
Interest on Debentures Redemption Fund Investment Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Jan. 1 | To Bank A/c | 1,770 | Dec. 31 | By Bank A/c | 1,770 |
| 1,770 | 1,770 |
Bank Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2018 | ||||
| Jan. 1 | To Balance b/d | 15,640 | Dec. 31 | By 5% Debentures A/c | 60,000 |
| Dec. 31 | To Deb. Red. Fund Investment A/c | 48,970 | Dec. 31 | By Balance c/d | 4,610 |
| 64,610 | 64,610 |
Working Note :-
Note: (i) the amount of DRF investment will be same as of DR fund . In no case can investment amount be more than the fund amount
(ii) Interest is always charged on the face value . Here it is calculated for Rs. 59,000 @ 3%.
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It all about Question 25 Chapter 10 of +2-Part-1, If you have any problem please comment below.
Redemption of Debentures – explained with an example
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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)
Chapter No. 11 – Financial Statements of a Company
Chapter No. 12 – Financial Statement Analysis
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Chapter No. 14 – Accounting Ratios
Chapter No. 15 – Cash Flow Statement
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- Chapter No. 1 – Company Accounts (Share Capital)
- Chapter No. 2 – Issue of Debentures
- Chapter No. 3 – Redemption of Debentures
- Chapter No. 4 – Financial Statements of a Company (Balance Sheet Only)
- Chapter No. 5 -Financial Statement Analysis
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