Question 34 Chapter 10 of +2-Part-1
34. (Purchasing debentures in open market/Realisation of assets for redemption) A Company made an issue of 4,000, 12% debentures of Rs. 100 each at par. A sinking fund is being created to provide for repayment. Under the terms of issue, the Company retained the right of purchasing debentures in the open market for cancellation on 1st Jan., 2015, the Directors of the company purchased RS. 60,000 debentures at 95%. In order to provide funds for the redemption they realised Rs. 30,000 Port Trust Bonds at 90% and Rs. 23,000 stock of ABC Ltd. at par. On 1st Jan., 2015 just before the date of redemption, the following position was shown:
| 12% Debentures | 3,00,000 | ||
| Debenture Sinking Fund | 2,90,000 | ||
| Debenture Sinking Fund Investment | |||
| Port Trust Bonds | 1,00,000 | 60,000 | |
| Stock of ABC Ltd. | 2,20,000 | 2,10,000 | 2,70,000 |
You are required to made Journal entries for the redemption of debentures and show the ledger accounts
The solution of Question 34 Chapter 10 of +2 Part-1:-
| Journal |
|||||
| Date | Particulars |
L.F. | Debit ₹ | Credit ₹ | |
| 2015 | |||||
| Jan. 1 | Bank A/c | Dr. | 50,000 | ||
| To Debenture Sinking Fund A/c | 50,000 | ||||
| (Being realization of investment as under ( Port Trust Bonds 30,000 X 90/100= 27,000 ABC Ltd. Stock at Par = 23,0000) | |||||
| Debenture Sinking Fund Investment A/c (WN) | Dr. | 10,045 | |||
| To Debenture Sinking fund A/c | 10,045 | ||||
| (Being profit on sale of investment transferred to debentures S.F. A/c) | |||||
| 12% Debentures A/c | Dr. | 60,000 | |||
| To Bank A/c | 57,000 | ||||
| To Profit on purchase of Debentures A/c | 3,000 | ||||
| (Being purchase of own Rs. 60,000 debentures 95 %) | |||||
| Profit on purchase of Debentures A/c | Dr. | 3,000 | |||
| To Debenture Sinking fund A/c | 3,000 | ||||
| (Being Profit on purchase of debentures transferred to Sinking Fund) | |||||
| Debenture Sinking fund A/c | Dr. | 60,000 | |||
| To General Reserve A/c | 60,000 | ||||
| (Being amount transferred from sinking fund to general reserve ) | |||||
12% Debentures Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Jan. 1 | To Bank A/c | Jan. 1 | By Balance b/d | 3,00,000 | |
| To Profit on Purchase of Deb. A/c | |||||
| Dec. 31 | To Balance c/d | 2,40,000 | 75,000 | ||
| 3,00,000 | 3,00,000 |
Debentures Sinking Fund Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Dec. 31 | To General Reserve A/c | 60,000 | Jan. 1 | By Balance b/d | 2,90,000 |
| To Balance c/d | 2,43,045 | Dec. 31 | To Debentures Sinking Fund Investment A/c | 10,045 | |
| Dec. 31 | To Profit on Purchase of Debentures A/c | 3,000 | |||
| 3,03,045 | 3,03,045 |
Debentures Sinking Fund Investment Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Jan. 1 | To Balance b/d | 2,70,000 | Jan. 1 | By Bank A/c | 50,000 |
| To Debentures Sinking Fund A/c | 10,045 | Dec. 31 | By Balance c/d | 2,30,045 | |
| 2,80,045 | 2,80,045 |
Profit on Purchase of Debenture Account
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2015 | 2015 | ||||
| Jan. 1 | To Sinking Fund A/c | 3,000 | Jan. 1 | To 12% Debentures A/c | 3,000 |
| 3,000 | 3,000 |
Working Note :-
| Profit on sale of investment – | ₹ | |
| Sale Price of investment | 50,000 | |
| Less: Cost Price of investment | ||
| (i) Cost of Rs. 30,000 Port Trust Bonds | 60,000 X 30,000 | = 18,000 |
| 1,00,000 | ||
| (ii) Cost of Rs. 23,000 ABC Ltd. Stock | 2,10,000 X 23,000 | = 21,955 |
| 2,20,000 |
It all about Question 34 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
Chapter No. 13 – Tools of Financial Statement Analysis- Comparative and Common Size
Chapter No. 14 – Accounting Ratios
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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
- Chapter No. 6 – Tools/Methods of Financial Analysis
- Chapter No. 7 – Ratio Analysis
- Chapter No. 8 – Cash Flow Statement
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