1. G.Ltd. issued 75,00,000, 6% Debenture of Rs.50 each at par payable Rs.15 on application and Rs.35 on allotment, redeemable at par after 7 years from the date of issue of debenture. Record necessary entries in the books of Company.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 11,25,00,000
To 6% Debenture Application 11,25,00,000
(Application money on debenture received) )
6% Debenture Application a/c Dr. 11,25,00,000
To 6% Debentures a/c 11,25,00,000
(Application money transferred to debentures account on allotment)
6% Debenture allotment a/c Dr. 26,25,00,000
To 6% Debentures 26,25,00,000
(Amount due on 75,00,000 debentures on allotment @ Rs. 35 per debenture)
Bank a/c Dr. 26,25,00,000
To 6% Debenture allotment a/c 26,25,00,000
(Amount received on allotment)
2. Y.Ltd. issued 2,000, 6% Debentures of Rs.100 each payable as follows: Rs.25 on application; Rs.50 on allotment and Rs.25 on First and Final call.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 2,00,000
To 6% Debenture Application 2,00,000
(Application money on debenture received) )
6% Debenture Application a/c Dr. 2,00,000
To 6% Debentures a/c 2,00,000
(Application money transferred to debentures account on allotment)
6% Debenture allotment a/c Dr. 1,00,000
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To 6% Debentures 1,00,000
(Amount due on 2,000 debentures on allotment @ Rs. 50 per debenture)
Bank a/c Dr. 1,00,000
To 6% Debenture allotment a/c 1,00,000
(Amount received on allotment)
6% Debenture first call a/c Dr. 50,000
To Debentures 6% 50,000
(Amount due on first and final call on 6% debentures)
Bank a/c Dr. 50,000
To 6% Debenture first and final call 50,000
(Amount received on 6% debenture first and final call)
3. A.Ltd. issued 10,000, 10% Debentures of Rs.100 each at a premium of 5% payable as follows:
Rs.10 on Application;
Rs.20 along with premium on allotment and balance on First and Final call.
Record necessary Journal Entries.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 1,00,000
To 10% Debenture Application 1,00,000
(Application money on debenture received) )
10% Debenture Application a/c Dr. 1,00,000
To 10% Debentures a/c 1,00,000
(Application money transferred to debentures account on allotment)
10% Debenture allotment a/c Dr. 2,00,000
To 10% Debentures 1,50,000
To Securities Premium 50,000
(Amount due on 10,000 debentures on allotment @
MATHEMATIC CENTER D96 MUNIRKA VILLAGE NEW DELHI 110067 & VIKAS PURI NEW DELHI CONTACT FOR COACHING MATHEMATICS FOR 11TH 12TH NDA DIPLOMA SSC CAT SAT CPT CONTACT FOR ADMISSION GUIDANCE B.TECH BBA BCA, MCA MBA DIPLOMA AND OTHER COURSES 09810144315
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Rs. 20 per debenture)
Bank a/c Dr. 2,00,000
To 10% Debenture allotment a/c 2,00,000
(Amount received on allotment)
10% Debenture first call a/c Dr. 7,00,000
To 10% Debentures 7,00,000
(Amount due on first and final call on 10% debentures)
Bank a/c Dr. 7,00,000
To 10% Debenture first and final call 7,00,000
(Amount received on 10% debenture first and final call)
4. A. Ltd. issued 90,00,000, 9% Debenture of Rs.50 each at a discount of 8%, redeemable at par any time after 9 years. Record necessary entries in the books of A. Ltd.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 45,00,00,000
To 9% Debenture Application 45,00,00,000
(Application money on debenture received) )
9% Debenture Application a/c Dr. 41,40,00,000
Discount on issue of debenture a/c Dr. 3,60,00,000
To 9% Debentures a/c 45,00,00,000
(Application money transferred to debentures account on allotment)
5. A.Ltd. issued 4,000, 9% Debentures of Rs.100 each on the following terms:
Rs.20 on Application;
Rs.20 on Allotment;
Rs.30 on First call; and
Rs.30 on Final call.
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The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400 Debentures were rejected. Record necessary entries.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 96,000
To 9% Debentures Application a/c 96,000
(Receipt of application money on 4,800 debentures)
9% Debentures Application a/c Dr. 80,000
To 9% Debentures a/c 80,000
(Transfer of application money on 4,000 debentures on allotment)
9% Debentures Application a/c Dr. 8,000
To bank 8,000
(Application money on rejected applications refunded)
9% Debentures Allotment a/c Dr. 80,000
To 9% Debentures a/c 80,000
(amount due on allotment on 4,000 debentures)
Bank a/c Dr. 80,000
Debenture application a/c Dr. 8,000
To 9% Debentures Allotment a/c 88,000
(Excess of application money received transferred to debenture allotment)
9% Debentures First call a/c Dr. 1,20,000
To 9% debentures a/c 1,20,000
(First call money due on 4,000 debentures)
Bank a/c Dr. 1,20,000
To 9% Debentures a/c 1,20,000
(First call money due on 9% debentures received)
9% Debentures Second and final call a/c Dr. 1,20,000
To 9% debentures a/c 1,20,000
(Second and final call money due on 4,000
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debentures)
Bank a/c Dr. 1,20,000
To 9% Debentures a/c 1,20,000
(Second and final call money due on 9% debentures received)
6. T. Ltd. offered 2,00,000, 8% Debenture of Rs.500 each on June 30, 2002 at a premium of 10% payable as Rs.200 on application (including premium) and balance on allotment, redeemable at par after 8 years. But application are received for 3,00,000 debenture and the allotment is made on pro-rata basis. All the money due on application and allotment is received. Record necessary entries regarding issue of debenture.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 6,00,00,000
To 8% Debentures Application a/c 6,00,00,000
(Receipt of application money on 3,00,000 debentures)
8% Debentures Application a/c Dr. 6,00,00,000
To 8% Debenture a/c 4,50,00,000
To Securities Premium a/c 1,50,00,000
(8% debentures issued at a premium transferred to debenture account)
8% Debenture allotment a/c Dr. 7,00,00,000
To 8% Debenture a/c 7,00,00,000
(Amount due on allotment on 2,00,000 debentures)
Bank a/c Dr. 7,00,00,000
To 8% Debenture allotment a/c 7,00,00,000
(Money due on allotment received)
7. X.Ltd. invites application for the issue of 10,000, 14% debentures of Rs.100 each payable as to Rs.20 on application, Rs.60 on allotment and the balance on call. The company receives applications for 13,500 debentures, out of which applications for 8,000 debentures are allotted in full, 5,000 only 40% and the remaining rejected. The surplus money on partially allotted applications is utilised towards allotment. All the sums due are duly received.
• Solution:
MATHEMATIC CENTER D96 MUNIRKA VILLAGE NEW DELHI 110067 & VIKAS PURI NEW DELHI CONTACT FOR COACHING MATHEMATICS FOR 11TH 12TH NDA DIPLOMA SSC CAT SAT CPT CONTACT FOR ADMISSION GUIDANCE B.TECH BBA BCA, MCA MBA DIPLOMA AND OTHER COURSES 09810144315
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Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 2,70,000
To 14% Debenture application a/c 2,70,000
(Application money received on 13,500 debentures @ Rs. 20 each)
14% Debenture application a/c Dr. 2,70,000
To 14% Debenture a/c 2,00,000
To 14% Debenture allotment a/c 70,000
(Excess of debenture application money transferred to debenture allotment a/c)
14% Debenture application a/c Dr. 60,000
To bank 60,000
(Application money rejected application refunded)
14% Debenture allotment a/c Dr. 6,00,000
To 14% Debentures a/c 6,00,000
(Amount due on allotment on 10,000 debentures)
Bank a/c Dr. 5,60,000
14% Debenture application a/c Dr. 40,000
To 14% Debenture allotment a/c 6,00,000
(Surplus application money on 2,000 debentures transferred to debenture allotment account and the balance due was received)
14% Debenture first and final call a/c Dr. 2,00,000
To 14% Debenture a/c 2,00,000
(First and final call money due on debentures)
Bank a/c Dr. 2,00,000
To 14% Debenture a/c 2,00,000
(First and final call money received)
8. R. Ltd. offered 20,00,000, 10% Debenture of Rs.200 each at a discount of 7% redeemable at premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
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Bank a/c Dr. 37,20,00,000
To 10% Debenture Application & Allotment a/c 37,20,00,000
(Receipt of application money)
10% Debenture application & allotment a/c Dr. 37,20,00,000
Loss on issue of debentures a/c Dr. 6,00,00,000
To 10% Debentures a/c 40,00,00,000
To premium on redemption of debentures a/c 3,20,00,000
(Debenture application money transferred to debentures and premium on debenture account)
9. M.Ltd. took over assets of Rs.9,00,00,000 and liabilities of Rs.70,00,000 of S.Ltd. and issued 8%Debenture of Rs.100 each. Record necessary entries in the books of M. Ltd.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Sundry assets a/c Dr. 9,00,00,000
To S. Limited 20,00,000
To Sundry Creditors a/c 70,00,000
(Assets and liabilities purchased)
Vendor a/c dr. 20,00,000
To 8% Debentures a/c 20,00,000
(The issue of 20,000, 8% debentures @ Rs. 100 each)
10. B.Ltd. purchased assets of the book value of Rs.4,00,000 and took over the liability of Rs.50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs,3,80,000, be paid by issuing debentures of Rs.100 each. What Journal entries will be made in the following three cases, if debentures are issued:
(a) at par;
(b) at discount;
(c) at premium of 10%?
It was agreed that any fraction of debentures be paid in cash.
Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
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Sundry assets a/c Dr. 4,00,000
Goodwill a/c Dr. 30,000
To Sundry liabilities a/c 50,000
To Mohan Bros 3,80,000
(Purchase of assets and taking over of liabilities of Mohan Bros)
Debentures issued at par
Mohan Bros a/c Dr. 3,80,000
To Debentures a/c 3,80,000
(Debentures issued to Mohan Bros at par)
When debentures are issued at 10% discount
Mohan Bros a/c Dr. 3,80,000
Discount on issue of debentures a/c Dr.
To Debentures a/c
(Debentures issued to Mohan bros @ discount)
Debentures issued at premium
Mohan Bros a/c Dr. 3,80,000
To Debentures a/c Dr. 3,45,500
To premium on issue of debentures a/c 34,500
(Debentures issued to Mohan Bros @ 10% premium)
11. X.Ltd. purchased a Machinery from Y for an agreed purchase consideration of Rs.4,40,000 to be satisfied by the issue of 12% debentures of Rs.100 each at a premium of Rs.10 per debenture. Journalise the transactions.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Machinery a/c Dr. 4,40,000
To Y 4,40,000
(Assets purchased from Y)
Y a/c Dr. 4,40,000
To 12% Debentures a/c 4,00,000
To Securities premium a/c 40,000
(Allotment of 4,000 12% debentures of Rs. 100 each at a premium of Rs. 10 per debenture)
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• Working notes
• Face value Rs. 100
• Add: premium Rs. 10
• Value at which issued Rs. 110
• debentures
12. X.Ltd. issued 15,000, 10% debentures of Rs.100 each. Give journal entries and the Balance Sheet in each of the following cases:
(i) The debentures are issued at a premium of 10%;
(ii) The debentures are issued at a discount of 5%;
(iii) The debentures are issued as a collateral security to bank against a loan of Rs.12,00,000; and
(iv) The debentures are issued to a supplier of machinery costing Rs.13,50,000.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
When debentures are issued at premium
Bank a/c Dr. 16,50,000
To 10% Debentures a/c 15,00,000
To Securities premium a/c 1,50,000
(Issue of 15,000 10% debentures @ Rs. 100 each @ 10% premium)
• Balance Sheet of X Ltd.
Liabilities Amount (Rs.) Assets Amount (Rs.)
Reserves & Surplus
Securities Premium
1,50,000 Cash at Bank 16,50,000
Secured loans
10% Debentures
15,00,000
•
When debentures are issued at discount
Bank a/c Dr. 14,25,000
Discount on issue of debentures a/c Dr. 75,000
To 10% debentures a/c 15,00,000
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(10% debentures issued at 10% discount)
• Balance Sheet of X Ltd.
Liabilities Amount (Rs.) Assets Amount (Rs.)
Secured loans
10% Debentures
15,00,000 Cash at Bank
Miscellaneous expenditure
Discount on debentures
14,25,000
75,000
•
When debentures are issued as collateral security
Debenture suspense a/c Dr. 15,00,000
To 10% debentures a/c 15,00,000
(15,000 debentures of Rs. 100 each issued as collateral security for loan)
• Balance Sheet of X Ltd.
Liabilities Amount (Rs.)
Assets Amount (Rs.)
Secured loans
Bank loan
15,000, 10% debentures @ Rs. 100
15,00,000
Less: Debenture suspense 15,00,000
15,00,000
-
•
Debentures issued for the purchase of machinery
Machinery a/c Dr. 13,50,000
To vendor a/c 13,50,000
(machinery purchased from vendor)
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Vendor a/c Dr. 13,50,000
Discount on issue of debentures a/c 1,50,000
To 10% debentures a/c 15,00,000
(Allotment of 15,000 debentures of Rs. 100 each at a discount of 10% as purchase consideration)
13. Journalise the following:
(i) A debenture issued at Rs.95, repayable at Rs.100;
(ii) A debenture issued at Rs.95, repayable at Rs.105; and
(iii) A debenture issued at Rs.100, repayable at Rs.105;
The face value of debenture in each of the above cases is Rs.100.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Debenture issued at par
Bank a/c Dr. 95
Loss on issue of debenture 5
To Debenture a/c 100
(Debenture issued at premium)
Debenture issued at discount and repayable at premium
Bank a/c Dr. 95
Loss on issue of debenture 15
To Debenture a/c 100
To premium on redemption of debenture a/c 5
(Debenture issued at discount and repayable at premium)
Debenture issued at par and repayable at premium
Debenture a/c Dr. 100
Loss on issue of debenture a/c Dr. 5
To Debenture a/c 100
To premium on redemption of debentures 5
(Debenture issued at par and repayable at premium)
MATHEMATIC CENTER D96 MUNIRKA VILLAGE NEW DELHI 110067 & VIKAS PURI NEW DELHI CONTACT FOR COACHING MATHEMATICS FOR 11TH 12TH NDA DIPLOMA SSC CAT SAT CPT CONTACT FOR ADMISSION GUIDANCE B.TECH BBA BCA, MCA MBA DIPLOMA AND OTHER COURSES 09810144315
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14. A.Ltd. issued 50,00,000, 8% Debenture of Rs.100 at a discount of 6% on April 01, 2000 redeemable at premium of 4% by draw of lots as under:
20,00,000 Debentures on March, 2002
10,00,000 Debentures on March, 2004
20,00,000 Debentures on March, 2005
Compute the amount of discount to be written-off in each year till debentures are paid. Also prepare discount/loss on issue of debenture account.
• Solution:
Discount on issue of debentures A/c
Dr. Cr.
Date Particulars Amount (Rs.) Date Particulars Amount (Rs.)
April 2000
Debentures A/c 1,20,000 March
2001
By P&L A/c 26,667
By Bal c/d 93,333
1,20,000 1,20,000
April 2001
Bal b/d 93,333 March 2002
By P& L A/c 26,667
By Bal c/d 66,666
93,333 93,333
April 2002
Bal b/d 66,666 March 2003
By P& L A/c 26,667
By Bal c/d 39,999
66,666 66,666
April 2003
By Bal b/d 39,999 March 2004
By P& L A/c 13,333
By Bal c/d 26,666
39,999 39,999
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April 2005
By Bal b/d 26,666 March 2005
By P&L A/c 26,666
26,666 26,666
15. A company issues the following debentures:
(i) 10,000, 12% debentures of Rs.100 each at par but redeemable at premium of 5% after 5 years;
(ii) 10,000, 12% debentures of Rs.100 each at a discount of 10% but redeemable at par after 5 years;
(iii) 5,000, 12% debentures of Rs.1000 each at a premium of 5% but redeemable at par after 5 years;
(iv) 1,000, 12% debentures of Rs.100 each issued to a supplier of machinery costing Rs.95,000. The debentures are repayable after 5 years; and
(v) 300, 12% debentures of Rs.100 each as a collateral security to a bank which has advanced a loan of Rs.25,000 to the company for a period of 5 years. Pass the journal entries to record the:
(a) issue of debentures; and
(b) repayment of debentures after the given period.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
(i) 12% Debentures a/c Dr. 10,00,000
Premium on redemption of debentures a/c Dr. 50,000
To Debenture holders 10,50,000
(Amount due on redemption)
Debenture holders a/c Dr. 10,50,000
To Bank a/c 10,50,000
(Payment made to debenture holders)
(ii) Bank a/c Dr. 9,50,000
Discount on issue of dentures a/c Dr. 50,000
To 12% debentures) 10,00,000
(issue of debentures at discount and redeemable at par)
(iii) 12% debentures a/c Dr. 50,00,000
Premium on redemption of debentures a/c Dr. 25,000
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To Debenture holders a/c 50,25,000
(Amount due on redemption)
Debenture holders a/c Dr. 50,25,000
To bank 50,25,000
(Payment made to debenture holders)
(iv) Machinery a/c Dr. 95,000
To vendor a/c 95,000
(machinery supplied)
(v) Debenture suspense a/c Dr. 30,000
To 12% Debentures 30,000
(Debentures issued as a collateral security for a loan purchased from a Bank)
16. A company issued debentures of the face value of Rs,5,00,000 at a discount of 6% on January 01, 2001. These debentures are redeemable by annual drawings of Rs,1,00,000 made on December 31 each year. The directors decided to write off discount based on the debentures outstanding each year. Calculate the amount of discount to be written-off each year. Give journal entries also.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 2,00,000
To Debenture application & Allotment a/c 2,00,000
(Debenture application money received)
Debenture application & Allotment a/c Dr. 1,70,000
Loss on issue of debentures a/c Dr. 30,000
To Debentures a/c 2,00,000
(Debenture application money transferred to debentures a/c)
First year
Profit & Loss a/c Dr. 6,000
To loss on issue of debentures a/c 6,000
Second year
Profit & Loss a/c Dr. 6,000
To loss on issue of debentures a/c 6,000
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Third year
Profit & Loss a/c Dr. 6,000
To loss on issue of debentures a/c 6,000
Fourth year
Profit & Loss a/c Dr. 6,000
To loss on issue of debentures a/c 6,000
Fifth year
Profit & Loss a/c Dr. 6,000
To loss on issue of debentures a/c 6,000
• Loss on Issue of Debenture Account
Dr. Cr.
Date Particulars Amount (Rs) Date Particulars Amount (Rs)
Jan 01 (year 1)
Debentures 30,000 Dec 31st, Year 1
Profit & Loss 6,000
Balance c/d 24,000
30,000 30,000
Jan 01 (year 2)
Balance b/d 24,000 Dec 31st, Year 2
Profit & Loss 6,000
Balance c/d 18,000
24,000 24,000
Jan 01 year 3
Balance b/d 18,000 Dec 31st, Year 1
Profit & Loss 6,000
Balance c/d 12,000
18,000 18,000
Jan 01 (year 4)
Balance b/d 12,000 Dec 31st, Year 4
Profit & Loss 6,000
Balance c/d 6,000
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12,000 12,000
Jan 01 Year 5
Balance b/d 6,000 Dec 31 year 5
Profit & Loss 6,000
6,000 6,000
17. A company issued 10% Debentures of the face value of Rs,1,20,000 at a discount of 6% on January 01, 2001. The debentures are payable by annual drawings of Rs.40,000 commencing from the end of third year. How will you deal with discount on debentures? Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on December 31.
• Solution:
Year ended on
Face value of debentures used (Rs)
Period of use Product Ratio Amount of discount (Rs)
End of third year
1,20,000 12 months 14,40,000 3 3,600
End of fourth year
80,000 12 months 10,80,000 2 2,400
End of fifth year
40,000 12 months 4,80,000 1 1,200
5
• Discount on Issue of Debentures Account
Dr. Cr.
Date Particulars Amount (Rs) Date Particulars Amount (Rs)
Jan 01 (year 3)
10% Debentures 7,200 Dec 31st, Year 3
Profit & Loss 3,600
Balance c/d 3,600
7,200 7,200
Jan 01 (year 4)
10% Debentures 3,600 Dec 31st, Year 4
Profit & Loss 2,400
Balance c/d 1,200
3,600 3,600
Jan 01 10% Debentures 1,200 Dec 31st, Profit & Loss 1,200
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(year 5)
Year 5
7,200 7,200
18. B.Ltd. issued debentures at 94% for Rs.4,00,000 on April 01, 2000 repayable by five equal drawings of Rs.80,000 each. The company prepares its final accounts on December 31 every year. Indicate the amount of discount to be written-off every accounting year assuming that the company decides to write off the debentures discount during the life of debentures.
(Amount to be written-off: 2000 Rs.6,000; 2001 Rs.6,800; 2002 Rs.5,200;2003 Rs.3,600; 2004 Rs.2,000; 2005 Rs.400).
• Solution:
Year ended on
Face value of debentures used (Rs)
Period of use Product Ratio Amount of discount (Rs)
End of first year
4,00,000 12 months 48,00,000 5 8,000
End of second year
3,20,000 12 months 38,40,000 4 6,400
End of third year
2,40,000 12 months 28,80,000 3 4,800
End of fourth year
1,60,000 12 months 19,20,000 2 3,200
End of fifth year
80,000 12 months 9,60,000 1 1,600
19. B. Ltd. issued 1,000, 12% debentures of Rs.100 each on January 01, 2005 at a discount of 5% redeemable at a premium of 10%. Give journal entries relating to the issue of debentures and debentures interest for the period ending December 31, 2005 assuming that interest is paid half yearly on June 30 and December 31 and tax deducted at source is 10%. B.Ltd. follows calendar year as its accounting year.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 95,000
To 12% debenture application & allotment a/c 95,000
(Application money received on 1,000 12% debentures)
12% debenture application & allotment a/c Dr. 95,000
Loss on issue of debentures a/c Dr. 15,000
To 12% debenture a/c 1,00,000
To premium on redemption of debentures a/c 10,000
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(Allotment of debentures at a discount of 5% and redeemable at a premium of 10%)
12% debenture interest a/c Dr. 6,000
To Debenture holders a/c 4,800
To Income tax payable a/c 1,200
(Interest due for 6 months and tax deducted at source)
12% debenture holders a/c Dr. 4,800
To bank a/c 4,800
(Payment of interest)
12% Debenture interest a/c Dr. 6,000
To Debenture holders a/c 4,800
To Income tax payable a/c 1,200
(Interest due for 6 months and tax deducted at source)
12% debenture holders a/c Dr. 4,800
To bank a/c 4,800
(Payment of interest
Income tax payable a/c Dr. 1,200
To bank a/c 1,200
(Paid tax deducted at source to the Government)
Profit & Loss a/c Dr. 12,000
To Debenture interest a/c Dr. 12,000
(Debenture interest transferred to profit and loss account)
20. What journal entries will be made in the following cases when company redeems debentures at the expiry of period by serving the notice:
(a) when debentures were issued at par with a condition to redeem them at premium;
(b) when debentures were issued at premium with a condition to redeem that at par; and
(c) when debentures were issued at discount with a condition to redeem them at premium?
Solution:
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Date Particulars J.F Debit (Rs) Credit (Rs)
(a) When debentures are issued at par and redeemed at premium
Debentures issued at par
Bank a/c Dr.
Loss on redemption a/c Dr.
To Debentures a/c
To Premium on Redemption of debentures a/c
Entry for Redemption
Debentures a/c Dr.
Premium on redemption a/c Dr.
To Bank
(b) when debentures were issued at premium with a condition to redeem that at par
For debentures issued at premium
Bank a/c Dr.
To Debentures a/c
To Securities premium a/c
For redemption at par
Debentures a/c Dr.
To Bank a/c
(c) when debentures were issued at discount with a condition to redeem them at premium
Debentures issued at discount
Bank a/c Dr.
Loss on issue of Debentures a/c Dr.
To Debentures a/c
To premium on Redemption of Debentures a/c
Debentures redeemed at premium
Debentures a/c Dr.
Premium on Redemption of Debentures a/c Dr.
To Bank a/c
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21. On January 01, 1998, X. Ltd. issues 5,000, 8% Debentures of Rs.100 each repayable at par at the end of three years. It has been decided to set up a cumulative sinking fund for the purpose of their redemption. The investments are expected to realize 4% net. The Sinking Fund Table shows that Rs.0.320348 amounts to one rupee @4% per annum in three years. On December 31, 2000 the balance at bank was Rs.2,42,360 and the investments realised Rs.3,25,000. The debentures were paid off. Give journal entries and show ledger account.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Jan 1998
Bank a/c Dr. 5,00,000
To Debentures a/c 5,00,000
(Issue of debentures of Rs. 50,000)
Dec 1998
Profit & Loss appropriation a/c Dr. 1,60,174
To Debenture Redemption Fund a/c 1,60,174
(Annual instalment for redemption debited to P&L account)
Debenture Redemption Fund a/c Dr. 1,60,200
To Bank a/c 1,60,200
(Investment purchased)
Bank a/c Dr. 6,408
To Interest DRFI a/c 6,408
(Interest received @ 4% on investment)
Interest on DRFI a/c Dr. 6,408
To Debenture Redemption Fund a/c 6,408
(Interest on DRFI transferred to Debenture Redemption Fund)
Profit & Loss appropriation a/c Dr. 1,60,174
To Debenture Redemption Fund a/c 1,60,174
(Annual instalment for redemption debited to P&L account)
Debenture Redemption Fund Invt. a/c Dr. 1,66,600
To bank a/c 1,66,600
(Investment purchased for annual instalment plus interest)
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Bank a/c Dr. 13,072
To Interest on DRFI a/c 13,072
(interest received @ 4% on investment)
Interest on DRFI a/c Dr. 13,072
To Debenture Redemption Fund A/c 13,072
(Interest on DRFI transferred to Debenture Redemption Fund)
Profit & Loss Appropriation a/c Dr. 1,60,174
To Debenture Redemption Fund a/c 1,60,174
(Annual instalment debited to P&L appropriation Account)
Bank a/c Dr. 3,25,000
To Debenture Redmption Fund Invt. a/c 3,25,000
(Sale proceeds of DRFI)
Debenture Redemption Fund a/c Dr. 4,626
To Debenture Redemption Fund Invt. a/c 4,626
(transfer of profit on sale of investment to Debenture Redemption Fund)
Debentures a/c Dr. 5,00,000
To Debenture holders a/c 5,00,000
(Debentures amount transferred to debenture holders)
Debenture holders a/c Dr. 5,00,000
To Bank a/c 5,00,000
(Debenture holders paid the money)
Debenture Redemption Fund a/c Dr. 5,04,626
To General Reserve a/c 5,04,626
(Transfer of credit balance of debenture Redemption Fund General Reserve)
• Debenture Account
Dr. Cr.
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Date Particulars L.F. Amount (Rs.) Date Particulars L.F. Amount
(Rs.)
Dec 1998
Balance c/d 5,00,000 Jan 1998 Bank 5,00,000
5,00,000 5,00,000
Dec 1999
Balance c/d 5,00,000 Jan 1999 Bank 5,00,000
5,00,000 5,00,000
Dec 2000
Balance c/d 5,00,000 Jan 2000 Bank 5,00,000
5,00,000 5,00,000
• Debenture Redemption Fund Account
Dr. Cr.
Date Particulars L.F. Amount (Rs.) Date Particulars L.F. Amount (Rs.)
Dec 1998
Balance c/d 1,60,174 Jan 1998 P&L Appropriation a/c
1,60,174
1,60,174 1,60,174
Dec 1999
Balance c/d 3,26,756 Jan 1999 Bal b/d 1,60,174
Interest on DRFI 6,408
P&L Appropriation a/c
1,60,174
3,26,756 3,26,756
Dec 2000
Loss on sale of invt. 4,626 Jan 2000 Bal b/d 3,26,756
General Reserve 4,95,374 Interest on DRFI 13,070
P&L Appropriation a/c
1,60,174
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5,00,000 5,00,000
• Debenture Redemption Fund Investment Account
Dr. Cr.
Date Particulars L.F. Amount (Rs.) Date Particulars L.F. Amount (Rs.)
Dec 1998
Bank 1,60,174 Jan 1998 Bal c/d 1,60,174
1,60,174 1,60,174
Dec 1999
Bal b/d 1,60,174 Jan 1999 Bal c/d 3,26,774
Bank 1,66,600
3,26,774 3,26,774
Dec 2000
Bal b/d 3,26,774 Jan 2000 Bank (Sale proceeds)
3,25,000
DRF Capital reserve 1,774
3,26,774 3,26,774
22. On January 01, 2003 a company issued 15% debentures of Rs.10,00,000 at par. The debentures were redeemable at par after three years on December 31, 2003. A sinking fund was set up to raise funds for redemption of debentures. The amount for the purpose was invested in 6% Government securities of Rs.100 each available at par. The sinking fund table shows that if investments earn 6% per annum, to get Re.1 at the end of 3 years, one has to invest Rs.0.31411 every year together with interest that will be earned. On December 31, 2005, all the Government securities were sold at a total loss of Rs. 6,000 and the debentures were redeemed at par. Prepare Debentures Account Sinking Fund Account, Sinking Fund Investment Account and Interest on Sinking Fund Investment Company closes its books of accounts every year on December 31.
• Solution:
Debentures Account
Dr. Cr.
Date Particulars L.F. Amount (Rs.) Date Particulars L.F. Amount (Rs.)
Dec 2001
Bal c/d 10,00,000 Jan 2001 Bank 10,00,000
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10,00,000 10,00,000
Dec 2002
Bal c/d 10,00,000 Jan 2002 Bal b/d 10,00,000
10,00,000 10,00,000
Dec 2003
Bal c/d 10,00,000 Jan 2003 Bal b/d 10,00,000
10,00,000 10,00,000
Sinking Fund Account
Dr. Cr.
Date Particulars L.F. Amount (Rs.) Date Particulars L.F. Amount (Rs.)
Dec 2001
Balance c/d 3,14,110 Jan
2001
P&L Appropriation a/c
3,14,110
3,14,110 3,14,110
Dec 2002
Bal c/d 6,47,067 Jan 2002 Bal b/d 3,14,110
Dec 2002
Bank a/c 18,847
P&L Appropriation a/c
3,14,110
6,47,067 6,47,067
Dec 2003
Loss on sale of investment
6,000 Jan 2003 Bal b/d 6,47,067
General reserve 10,00,000 Bank 38,823
P&L Appropriation a/c
3,14,110
Capital Reserve 6,000
10,06,000 10,06,000
Sinking Fund Investment Account
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Dr. Cr.
Date Particulars L.F. Amount (Rs.) Date Particulars L.F. Amount (Rs.)
Jan 2001
Bank a/c 3,14,110 Dec
2001
Bal c/d 3,14,110
3,14,110 3,14,110
Jan 2002
Bal b/d 3,14,110 Dec 2002
Bal c/d 6,47,067
Bank a/c 3,32,957
6,47,067 6,47,067
Jan 2003
Bal b/d 6,47,067 Dec 2003
Bank a/c (Sale proceeds)
6,41,067
Loss on sale of investment
6,000
6,47,067 6,47,067
23. On January 01, 2004 the following balances appeared in the books of Z. Ltd.:
Rs.
6% Debentures 1,00,000
Debentures Redemption Reserve Fund 80,000
D.R. Reserve Fund Investments 80,000
The investments consisted of 4% Government securities of the face value of Rs.90,000. The annual instalment was Rs.16,400. On December 31, 2004, the balance at Bank was Rs.26,000 (after receipt of interest on D.R.Reserve Fund Investment). Investments were realised at 92% and the Debentures were redeemed. The interest for the year had already been paid. Show the ledger accounts affecting redemption.
• Solution:
Debenture Redemption Fund Account
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Profit on sale of investment
2,800 Bal b/d 80,000
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General reserve 97,200 Interest on DRFI 3,600
P&L Appropriation 16,400
1,00,000 1,00,000
Debenture Redemption Fund Investment Account
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Balance b/d 80,000 Bank(92% of 90,000)
82,800
Profit on sale transferred to Debenture Redemption Fund
2,800
82,800 82,800
Bank Account
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Dec 31, 2004
Balance b/d 26,000 Debenture 1,00,000
Interest on investment
3,600 Balance c/d 12,400
Debenture redemption fund investment (sale proceeds)
82,800
1,12,400 1,12,400
6% Debenture Account
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Dec 31, 2004
Bank a/c 1,00,000 Balance c/d 1,00,000
1,00,000 1,00,000
24. The following balances appeared in the books of A.Ltd. on January 01, 2004
Rs.
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12% Debentures 4,00,000
Debentures Redemption Fund 3,60,000
Debentures Redemption Fund Investment
3,60,000
Securities Premium 30,000
Bank Balance 1,00,000
On January 01, 2004, the company redeemed all the debentures at 105 per cent out of funds raised by selling all the investments at Rs.3,48,000. Prepare the necessary ledger accounts.
• Solution:
12% Debentures Account
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Dec 31, 2004
Debenture holders 4,00,000 Dec 31, 2004
Balance b/d 4,00,000
4,00,000 4,00,000
Debenture Redemption Fund
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Dec 31, 2004
Capital reserve 12,000 Dec 31, 2004
Balance b/d 3,60,000
General Reserve 3,60,000 12,000
3,72,000 3,72,000
DRF Investment Account
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Dec 31, 2004
Balance b/d 3,60,000 Dec 31, 2004
Bank a/c 3,48,000
Debenture redemption fund
12,000
3,60,000 3,60,000
Securities Premium Account
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Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Dec 31, 2004
Debenture Redemption premium a/c
20,000 Dec 31, 2004
Balance b/d 30,000
Dec 31
Balance c/d 10,000
30,000 30,000
25. The following balances appeared in the books of Z.Ltd. on January 01, 2004
Rs.
12% Debentures 1,50,000
Debentures Redemption Fund 1,25,000
Debentures Redemption Fund Investment 1,25,000
(Represented by Rs.1,47,500, 3% Govt. Securities)
1,25,000
The annual instalment added to the fund is Rs.20,575. On December 31, 2004, the bank balance after the receipt of interest on the investment was Rs.39,100. On that date, all the investments were sold at 83 per cent and the debentures were duly redeemed. Show the necessary ledger accounts for the year 2004.
• Solution:
Debenture Redemption Fund
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Dec 31, 2004
Debenture redemption fund investment
25,075 Dec 31, 2004
Balance b/d 1,25,000
General reserve 1,04,350 Interest on debenture redemption investment fund
4,425
P&L appropriation 20,575
1,29,425 1,29,425
DRF Investment Account
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Dec 31, 2004
Balance b/d 1,47,500 Dec 31, 2004
Bank 1,22,425
MATHEMATIC CENTER D96 MUNIRKA VILLAGE NEW DELHI 110067 & VIKAS PURI NEW DELHI CONTACT FOR COACHING MATHEMATICS FOR 11TH 12TH NDA DIPLOMA SSC CAT SAT CPT CONTACT FOR ADMISSION GUIDANCE B.TECH BBA BCA, MCA MBA DIPLOMA AND OTHER COURSES 09810144315
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Loss transferred to Debenture redemption fund
25,075
1,47,500 1,47,500
Bank Account
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Dec 31, 2004
Balance b/d 39,100 Debenture 1,50,000
Interest on investment
4,425 Balance c/d 15,950
Debenture redemption fund investment (sale proceeds)
1,22,425
1,65,950 1,65,950
12% Debenture Account
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Dec 31, 2004
Bank a/c 1,50,000 Balance c/d 1,50,000
1,50,000 1,50,000
26. What entries for the redemption of debentures will be done when :
(a) debentures are redeemed by annual drawings out of profits;
(b) debentures are redeemed by drawing a lot out of capital; and
(c) debentures are redeemed by purchasing them in the open market when sinking fund for the redemption of debentures is not maintained –
(i) when out of profit, and
(ii) when out of capital?
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
a) If redeemed out of profits
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Profit and loss Appropriation a/c Dr.
To Debenture redemption reserve a/c
Debentures a/c Dr.
To Debenture holders a/c
Debenture holders a/c Dr.
To Bank
b) If redeemed out of capital
Debentures a/c Dr.
To Debenture holders
Debenture holders a/c Dr.
To Bank a/c
c) On purchase of debentures at a discount
Debentures a/c Dr.
To bank a/c
To Profit on redemption of debentures a/c
On transfer of profit on redemption
Profit on redemption of debentures a/c Dr.
To Capital reserve
On purchase at a price higher than the nominal value
Debentures a/c Dr.
Loss on redemption of debentures a/c Dr.
To Bank a/c
Profit and Loss a/c Dr.
To Loss on redemption of debentures
27. A. Ltd. Company issued Rs,5,00,000 Debentures at a discount of 5% repayable at par by annual drawings of Rs.1,00,000. Make the necessary ledger accounts in the books of the company for the first year.
• Solution:
MATHEMATIC CENTER D96 MUNIRKA VILLAGE NEW DELHI 110067 & VIKAS PURI NEW DELHI CONTACT FOR COACHING MATHEMATICS FOR 11TH 12TH NDA DIPLOMA SSC CAT SAT CPT CONTACT FOR ADMISSION GUIDANCE B.TECH BBA BCA, MCA MBA DIPLOMA AND OTHER COURSES 09810144315
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Discount on Issue of Debentures Account
Dr. Cr.
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
Debentures 25,000 Profit & Loss 8,333
Balance c/d 16,667
25,000 25,000
28. X.Ltd. issued 5,000, 15% debentures of Rs.100 each on January 01, 2004 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years out of capital. Give journal entries both at the time of issue and redemption of debentures.
(Ignore the treatment of loss on issue of debentures and interest.)
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 4,50,000
Loss on issue of debenture a/c Dr. 1,00,000
To 15% debentures a/c 5,00,000
To Premium on redemption of debenture a/c 50,000
(Issue of debentures at a discount of 10% and redeemable @ 10%)
Profit and Loss Appropriation a/c Dr. 50,000
To Debenture redemption reserve a/c 50,000
(Transfer of profits to DRR)
15% debentures a/c Dr. 5,00,000
Debenture redemption premium a/c Dr. 50,000
To Debenture holders a/c 5,50,000
(Amount due on redemption)
Debenture holders a/c Dr. 5,50,000
To Bank a/c 5,50,000
(Amount paid to debenture holders)
Debenture redemption reserve a/c Dr. 50,000
To General reserve a/c 50,000
MATHEMATIC CENTER D96 MUNIRKA VILLAGE NEW DELHI 110067 & VIKAS PURI NEW DELHI CONTACT FOR COACHING MATHEMATICS FOR 11TH 12TH NDA DIPLOMA SSC CAT SAT CPT CONTACT FOR ADMISSION GUIDANCE B.TECH BBA BCA, MCA MBA DIPLOMA AND OTHER COURSES 09810144315
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(Transfer of DRR to general Reserve after total redemption)
Profit and Loss a/c Dr. 20,000
To bank 20,000
(Profit and loss for the first year)
Profit and Loss a/c Dr. 15,000
To bank 15,000
(Profit and loss for the Second year)
Profit and Loss a/c Dr. 10,000
To bank 10,000
(Profit and loss for the Third year)
Profit and Loss a/c Dr. 5,000
To bank 5,000
(Profit and loss for the last year)
29. Z.Ltd. issued 2,000, 14% debentures of Rs.100 each on January 01, 2005 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years out of profits. Give journal entries both at the time of issue and redemption of debentures.
(Ignore the treatment of loss on issue of debentures and interest.)
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Bank a/c Dr. 1,80,000
Loss on issue of debenture a/c Dr. 40,000
To 14% debentures a/c 2,00,000
To Premium on redemption of debenture a/c 20,000
(Issue of debentures at a discount of 10% and redeemable @ 10%)
Profit and Loss Appropriation a/c Dr. 20,000
To Debenture redemption reserve a/c 20,000
(Transfer of profits to DRR)
14% debentures a/c Dr. 2,00,000
Debenture redemption premium a/c Dr. 20,000
To Debenture holders a/c 2,20,000
MATHEMATIC CENTER D96 MUNIRKA VILLAGE NEW DELHI 110067 & VIKAS PURI NEW DELHI CONTACT FOR COACHING MATHEMATICS FOR 11TH 12TH NDA DIPLOMA SSC CAT SAT CPT CONTACT FOR ADMISSION GUIDANCE B.TECH BBA BCA, MCA MBA DIPLOMA AND OTHER COURSES 09810144315
CONTACT FOR MATHEMATICS GROUP/HOME COACHING FOR CLASS 11TH 12TH BBA,BCA, DIPLOMA CPT CAT SSC AND OTHER EXAMS Also home tutors for other subjects in south and west delhi EMAIL:32 [email protected] web site www.mathematic.in
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(Amount due on redemption)
Debenture holders a/c Dr. 2,20,000
To Bank a/c 2,20,000
(Amount paid to debenture holders)
Debenture redemption reserve a/c Dr. 20,000
To General reserve a/c 20,000
(Transfer of DRR to general Reserve after total redemption)
Profit and Loss a/c Dr. 8,000
To bank 8,000
(Profit and loss for the first year)
Profit and Loss a/c Dr. 6,000
To bank 6,000
(Profit and loss for the Second year)
Profit and Loss a/c Dr. 4,000
To bank 4,000
(Profit and loss for the Third year)
Profit and Loss a/c Dr. 2,000
To bank 2,000
(Profit and loss for the last year)
30. A.Ltd. purchased its own debentures of the face value of Rs.2,00,000 from the open market for immediate cancellation at Rs.92. Pass the journal entries.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
Debentures a/c Dr. 2,00,000
To bank a/c 1,84,000
To Profit on redemption a/c 16,000
(own debentures purchased at Rs. 92 from the market)
Profit on redemption of debenture a/c Dr. 16,000
To Capital reserve a/c 16,000
MATHEMATIC CENTER D96 MUNIRKA VILLAGE NEW DELHI 110067 & VIKAS PURI NEW DELHI CONTACT FOR COACHING MATHEMATICS FOR 11TH 12TH NDA DIPLOMA SSC CAT SAT CPT CONTACT FOR ADMISSION GUIDANCE B.TECH BBA BCA, MCA MBA DIPLOMA AND OTHER COURSES 09810144315
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(Transfer of profit on cancellation of debentures to capital reserve)
Profit & Loss appropriation a/c Dr. 2,00,000
To Debenture Redemption Reserve a/c 2,00,000
(Transfer of profits to Debenture Redemption Reserve)
31. A.Ltd. redeemed 8,000, 12% debentures of Rs.100 each which were issued at a discount of 5%, by converting them into equity shares of Rs.10 each at par.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
12% Debentures a/c Dr 8,00,000
To Discount on issue of Debentures a/c 40,000
To 12% Equity Share Capital a/c 7,60,000
(Being conversion of debentures which were originally issued at discount by issue of equity shares at par)
32. Z.Ltd. redeemed 2,000, 12% debentures of Rs.100 each which were issued at a discount of 5%, by converting them into equity shares of Rs.10 each issued at a premium of 25%. Journalise.
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
12% Debentures a/c Dr. 2,00,000
To Discount on issue of debentures a/c 10,000
To Equity Share Capital 1,52,000
To Securities Premium a/c 38,000
(Conversion of debentures which were originally issued at discount by issue of equity shares)
33. X.Ltd. redeemed 1,000, 12% debentures of Rs.50 each by converting them into 15% New Debentures of Rs.100 each. Journalise.
•
• Solution:
Date Particulars J.F. Debit (Rs) Credit (Rs)
12% Debentures a/c Dr. 50,000
To 15% Ddebentures a/c 1,00,000
MATHEMATIC CENTER D96 MUNIRKA VILLAGE NEW DELHI 110067 & VIKAS PURI NEW DELHI CONTACT FOR COACHING MATHEMATICS FOR 11TH 12TH NDA DIPLOMA SSC CAT SAT CPT CONTACT FOR ADMISSION GUIDANCE B.TECH BBA BCA, MCA MBA DIPLOMA AND OTHER COURSES 09810144315
CONTACT FOR MATHEMATICS GROUP/HOME COACHING FOR CLASS 11TH 12TH BBA,BCA, DIPLOMA CPT CAT SSC AND OTHER EXAMS Also home tutors for other subjects in south and west delhi EMAIL:34 [email protected] web site www.mathematic.in
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(Conversion of debentures which were originally issued at discount by issue of equity shares)
MATHEMATIC CENTER D96 MUNIRKA VILLAGE NEW DELHI 110067 & VIKAS PURI NEW DELHI CONTACT FOR COACHING MATHEMATICS FOR 11TH 12TH NDA DIPLOMA SSC CAT SAT CPT CONTACT FOR ADMISSION GUIDANCE B.TECH BBA BCA, MCA MBA DIPLOMA AND OTHER COURSES 09810144315
CONTACT FOR MATHEMATICS GROUP/HOME COACHING FOR CLASS 11TH 12TH BBA,BCA, DIPLOMA CPT CAT SSC AND OTHER EXAMS Also home tutors for other subjects in south and west delhi EMAIL:35 [email protected] web site www.mathematic.in
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