Chapter 4: Redemption of Pref Share & Debentures Topic: Redemption of Debentures. Practice Questions

Chapter 4: Redemption of Pref Share & Debentures
Topic: Redemption of Debentures.
Practice Questions
Question 1.
On January 1, Rama Ltd, had 500 Debentures of ₹ 100 each outstanding in its books carrying
interest at 6% per annum. In accordance with the powers in the deed, the directors acquired
debentures from the open market for immediate cancellation as follows:
March 1 ₹ 5,000 at ₹ 98.00 (Cum interest)
Aug. 1 ₹ 10,000 at ₹ 100.25 (Cum interest)
Dec 15 ₹ 2,500 at ₹ 98.50 (ex-interest)
Debentures interest is payable half yearly, on 30th June and 31st December.
Show ledger accounts of debentures, debenture interest and profit or loss on cancellation ignoring
income-tax
Solution:
6% debentures Accounts
1st Half Year
Particulars ₹ ₹ Particulars ₹
Mar. 1 To Bank Debentures Jan. 1 By Balance 50,000
Purchased 4,850
[(5,000×98/100)-50]
To Profit & Loss On
cancellation of
debenture A/c 150 5,000
(5,000-4,850)
June 30 To Balance c/d 45,000
50,000 50,000
Profit & Loss on cancellation of Debentures
June 30 To Capital Reserve (transfer ) ₹ 150 Mar. 1 By Debenture Account ₹ 150
Contact - 9228446565 www.konceptca.com info@konceptca.com

Debenture Interest accounts
Particulars ₹ Particulars ₹
Mar 1 To Bank-Interest for 2 months 50 June 30 By Profit & Loss a/c 1,400
On ₹ 5,000 debentures@ 6%
To debenture-holders 1,350
(Interest) A/c
(45,000×6%×6/12)
1,400 1,400
Debentures-Holders (Interest) Accounts
June 30 To Cash 1,350 June 30 By Debenture interest Account 1,350
(Interest on ₹ 45,000 @ 6% upto
30th June )
2nd Half Year

6% Debentures Accounts
Particulars Particulars
Aug To Bank-Debenture 9,975 July By Balance b/d 45,000
1 Purchased 1
[(10,000×100.25/100)-50]
To P&L A/c on cancellation 25
(10,000-9,975)
Dec. To Bank-Deb. purchased 2,462.50
15 (2,500×98.50/100)
To Profit & Loss on 37.5 2,500
cancellation of Debentures
(2,500-2,462.50)
Dec. To balance c/d 32,500
31
45,000 45,000
Profit and Loss on Cancellation of Debentures accounts

Dec. 31 To capital Reserve- Aug. 1 By Debenture A/c 25.00
Transfer 62.5 Dec. 15 By Debenture A/c 37.50
62.5 62.50

Debenture Interest Account
Particulars Particulars
Aug. To bank-interest for one 50.00 Dec. By P&L Account 1,093.75
1 month on ₹ 10,000 @ 6%
Dec. To bank 68.75
15 (2,500×6%×5.5/12)
Dec. To Debenture holders 975.00
31 (32,500×6%×6/12)
1,093.75 1,093.75
Debenture-holders (Interest) Account

₹ ₹
Dec. To Bank 975.00 Dec. By Debenture Interest 975.00
31 31 (On ₹ 32,500 @ 6% for 6
months)
Question 2.
The following balances appeared in the books of a company as on December 31, 20x1: 6% Mortgage
10,000 debenture of ₹ 100 each; Debenture Redemption Reserve (for redemption of debenture) ₹
10,42,000; Investment ₹ 5,28,000, 4% Government loan purchased at par and ₹ 5,60,000, 3-1/2%
Government paper purchased for ₹ 5,42,000.
The Interest on debentures had been paid up to December 31,20X1.
On February 28, 20X2, the investments were sold at ₹ 90 and ₹ 87 respectively and the debentures
were paid off at 101, together with accrued interest.
Write up the ledger accounts concerned. The Debenture Redemption Reserve is non-cumulative.
Solution:
6% Mortgage Debentures Account
20X2 ₹ 20X2 ₹
Feb.28 To Debenture Holders Jan.1 By balance b/d 10,00,000
Account 10,00,000
Premium on Redemption of Debentures Account
20X2 ₹ 20X2 ₹
Feb.28 To Debenture Holders 10,000 Feb. 28 By D.R.R. A/c 10,000
Account

Debentures redemption Reserve Investment Account
20X2 ₹ 20X2 ₹
Jan. 1 To Balance b/d 10,70,000 Feb. By Bank ₹ 5,28,000 4,75,200
(5,28,000+5,42,000) 28 Govt. Loan @₹ 90
By Bank ₹ 5,60,000 4,87,200
Govt. Paper @ ₹ 87
By D.R.R. (Loss) 1,07,600
10,70,000 10,70,000
20X2 ₹ 20X2 ₹
Feb. To cash 10,000 Feb. By Profit & Loss A/c 10,000
28 (10,000×100×6%×2 /12) 28
Cash Account
20X2 ₹ 20X2 ₹
Feb. To Balance b/d ? Feb. By Debenture-holders 10,10,000
28 (10,000×101)
To Debentures 9,62,400 By deb. Interest A/c 10,000
redemption Reserve
Investment A/c
(4,75,200+4,87,200)
By Balance c/d ?
Debenture Redemption reserve Account
20X2 ₹ 20X2 ₹
Feb. To DRR Investment A/c 1,07,600 Jan. By balance b/d 10,42,000
(Loss) 1
To Premium on By Profit & Loss (b.f.) 75,600
Redemption of
Debenture s A/c
To General Reserve 10,00,000
11,17,600 11,17,600
Question 3.
Sencom Limited issued ₹ 1,50,000, 5% debentures on which interest is payable half yearly on 31st
March and 30th September. The company has power to purchase debentures in the open market for

cancellation thereof. The following purchases were made during the year ended 31st December,
20X1 and the cancellation were made on the following 31st March:
1st March ₹ 25,000 nominal value purchased for ₹ 24,725 ex-interest.
1st September ₹ 20,000 nominal value purchased for ₹ 20,125 Cum-interest.
You are required to draw up the following accounts up to the date of cancellation:
(i) Debentures accounts

(ii) Own Debenture Investment accounts:; and
(iii) Debenture interest account.
Ignore taxation and make calculations to the nearest rupee.
Solution:
Sencom limited
Debenture Account
20X1 ₹ 20X1 ₹
Dec. 31, To Balance C/d 1,50,000 Jan, 1 By Balance b/d 1,50,000
20X2 20X2
Mar 31 To Own Debt A/c 45,000 Jan. 1 By Balance b/d 1,50,000
To Balance c/d 1,05,000
1,50,000 1,50,000
April. 1 By Balance b/d 1,05,000
Own Debentures Investment account

20X1 Nomin Intere Cost 20X1 Nomin Intere Cost
al Cost st ₹ al Cost st ₹
₹ ₹ ₹ ₹
Mar. 1 To bank 25,000 5211 24,725 Mar. By Debenture - 625 -
31 Interest A/c
Sep. 1 To bank 20,000 4172 19,7083 Sep. By Debenture - 1,125 -
30 Interest A/c
Dec. To P&L A/c 1,375 Dec. By debenture - 563 -
31 (b.f.) 31 Interest A/c
By Balance 45,000 - 44,443
c/d
45,000 2,313 44,433 45,000 2,313 44,433
20X2 20X2
Jan. 1 To Balance 45,000 44,433 Mar. By debenture - 563 -
b/d 31 Interest A/c
Mar. To capital - - 567 By 5% Deb. 45,000 - 45,000
31 Reserve A/c

(profit on
cancellation)
(b.f.)
To P&L A/c - 563 -
45,000 563 45,000 45,000 563 45,000
1 25,000×5% ×5/12
2 20,000 ×5% × 5/12
3 20125-417

20X1 Particulars ₹ 20X1 Particulars ₹
Mar 31 To Bank (on ₹ 1,25,000 @5% for 6 3,125 Jan. 1 By Accrurd Interst (on ₹ 1,875
months) 1,50,000@ 5% for 3 months)
To interest on own Debentures 625 Dec. 31 By P&L A/c 7,500
(25,000×5%×6/12)
Sep. 30 To bank (on ₹ 1,05,000 @ 5% for 6 2,625
months)
To interest on own Debentures 1,125
(45,000×5%×6/12)
Dec. 31 To Interest accrued (on ₹ 1,05,000 1,312
for 3 months @ 5%)
To interest on own debentures (on 563
₹ 45,000 for 3 months @5%)
9,375 9,375
20X2 20X2
Mar. 31 To Bank (on ₹ 1,05,000 for 6 2,625 Jan. 1 By interest Accrued 1,312
months @ 5%)
To Interest on own debentures (on 563 Mar. By P&L A/c
₹ 45,000 for 3 months) 31
3,188 3,188
Question 4.
MM. Ltd. had the following among their ledger opening balances on January 1, 20X1:
Particulars ₹
11% Debentures A/c (2000 issue) 50,00,000
Debenture redemption reserve A/c 45,00,000
13.5% Debentures in XX Ltd. A/c (Face Value ₹ 20,00,000) 19,50,000
Own debentures A/c (face Value ₹ 20,00,000) 18,50,000
As 31st December, 20X1 was the date for redemption of the 2000 debentures, the company started
buying own debentures and made the following purchases in the open market:

1-2-20X1 2,000 debentures at ₹ 98 Cum-interest.
1-6-20x1 2,000 debentures at ₹ 99 ex-interest.
Half yearly interest is due on the debentures on the 30th June and 31st December in the case of both
the companies.
On 31st December, 20X1, the debentures in XX ltd. were sold for ₹ 95 each ex-interest. On that date,
the outstanding debentures of MM Ltd. were redeemed by payment and by cancellation.
Show the entries in the following ledger accounts of MM Ltd. during 20X1:
(a) Debentures Redemption Reserve A/c
(b) Own debentures a/c
The Face value of a debenture was ₹ 100 (Round off calculation to the nearest rupee.)
Solution:
(a) Debenture Redemption Reserve account

Dec. 31 To 13.5% Deb. In xx Ltd. 50,000 Jan. 1 By balance b/d 45,00,000
(Loss on sale of
investment)
Dec. 31 By 13.5% Deb. In XX Ltd. 2,70,000
To general reserve 49,73,000 By Own Deb. A/c 2,53,000
(transfer)(b.f.) (Int. On own deb.)
50,23,000 50,23,000
11% debentures account:
20X1 ₹ 20X1 ₹
Dec. 31 To own Debentures A/c 24,00,000 Jan. 1 By balance b/d 50,00,000
To bank 26,00,000
50,00,000 50,00,000
(b) Own debentures Accounts

Nominal Int. Amt. Nominal Int. Amt.
20X1 ₹ ₹ ₹ 20X1 ₹ ₹ ₹
Jan. To balance 20,00,000 - 18,50,000 June By Debenture 1,32,0003
1 b/d 30 Int. A/c
Feb. To bank 2,00,000 1,83331 1,94,1672 Dec. By Debenture 1,32,0006
1 31 Int. a/c
June To bank 2,00,000 9,1674 1,98,0005 By 11% Deb 24,00,000 24,00,000
1 A/c
(Cancellation)
Dec. To Capital 1,57,833

31 res. (profit
on
cancellation
)(b.f.)
To deb. 2,53,000
Redemption
Reserve
(b.f.)
24,00,000 2,64,000 24,00,000 24,00,000 2,64,000 24,00,000
12,00,000×11%×1/12
2(2,000×98)-1,833
324,00,000×11%×6/12
42,00,000×11%× 5/12
5 2,000×99
624,00,000×11% ×6/12
Working Notes:
13.5 % Debentures in XX Ltd.
Particular Interest Amt. Particular Interest Amt.
20X1 ₹ ₹ 20X1 ₹ ₹
Jan. 1 To Balance b/d 19,50,000 June By bank 1,35,000
(20,00,000) 30 (20,00,000×13.5%×6/12)
Dec. To Debenture 2,70,000 Dec. By Bank 1,35,000
31 Redemption Reserve 31 (20,00,000×13.5%×6/12)
(1,35,000+1,35,000)
By Bank 19,00,000
(20,00,000×95/100)
By Debenture redemption 50,000
Reserve (Loss on sale)
(19,50,000-19,00,000)
2,70,000 19,50,000 2,70,000 19,50,000
Question 5:
(i) Swati associates Ltd. has issued 10,000 12% debentures of ₹ 100 each on 1-1-20X1. These
debentures are redeemable after 3 years at a premium of ₹ 5 per debenture. Interest is
payable annually.
(ii) On October 1, 20X2, it buys 1,500 debentures from the market at ₹ 98 per debenture. These
are sold away on June 30, 20X3at ₹ 105 per debenture.
(iii) On January 1, 20X3 it buys 2,000 debentures at ₹ 104 per debenture from the open market.
These are cancelled on april 1 , 20X3.

(iv) On October 1, 20X3 it buys 2,000 debentures at ₹ 106 per debenture from the open market.
These debentures along with other debentures are redeemed on 31st December, 20X3
Prepare the relevant Ledger accounts showing the above transactions. Workings should form part
of your answer. Also show the extracts of statement of profit & Loss Own Debenture Account for the
year 20X1, 20X2, 20X3.
Solution
Own Debenture account
20X2 Interest Amount 20X2 Interest Amount
₹ ₹ ₹ ₹
Oct. To Bank (₹ 1,50,000) 13,500 1,47,000 Dec. By Debenture Int. 18,000 1,47,000
1 (refer WN (i)) 31 A/c
(Refer W.N. (ii))
To Profit && Loss A/c (b.f.) 4,500 By Balance c/d
18,000 1,47,000 18,000 1,47,000
20X3 20X3
Jan. 1 To Balance b/d 1,47,000 April By Debenture Int. a/c 3,000
1 (WN (ii))
Jan. 1 To Bank 1,04,000 By 12% Deb. A/c 1,00,000
Apr. To Profit and loss A/c 3,000 By profit & Loss A/c 4,000
1 (1,04,000-1,00,000)
June To Profit & Loss A/c 9,000 10,500* June By Bank 9,000 1,57,500**
30 30
Oct.1 To Bank (₹ 18,000 2,12,000 Dec. By Dec. Int A/c
2,00,000)(W.N.(i)) 31 (W.N.(ii))
Dec. To Profit & Loss A/c 6,000 By 12% Deb. 2,00,000
31 A/c(cancelled )
By Profit & Loss A/c 12,000
(2,12,000-2,00,000)
36,000 4,73,500 36,000 4,73,500
*1,57,500-1,47,000
** 1,500×105
Note:
It has been assumed that all transaction are Ex-interest. The amount of such interest has been
calculated from the previous 1st January to the date of transaction since the interest is payable
annually.
Debenture Interest account
20X1 ₹ 20X1 ₹
Dec. 31 To Bank A/c 1,20,000 Dec. Profit & Loss A/c 1,20,000
(10,000×100×12%) 31
20X2 To Bank A/c 1,02,000 20X2
Dec.31 To Int. on own Deb. A/c 18,000 Dec. By Profit & Loss A/c 1,20,000

31
1,20,000 1,20,000
20X3 20X3
Apl. 1 To Int. of Own Deb. A/c 3,000 Dec. By Profit & Loss A/c (b.f.) 1,11,000
31
Dec. 31 To Int. on own Deb. A/c 24,000
1,11,000 1,11,000
*(10,000-1,000-2,000)×100
Statement of profit & Loss (Extracts) for the year 20X1
Particulars Notes Amount

Expenses 1,20,000
Finance Costs XX
Total Expenses ………..
Notes of Accounts
XX. Finance Costs
Interest on debentures 1,20,000
Statement of profit & Loss (Extracts) for the year 20X2
Particulars Notes Amount

Other Income XX 4,500
Total Revenue ….
Expenses
Finance Costs XXX 1,20,000
Total expenses ….
Notes to accounts
XX. Other Income
Int. on own Deb. A/c (18,000-13,500) 4,500
XXX. Finance Costs
Interest on debenture 1,20,000
Statement of Profit & Loss (Extracts) for the year 20X3
Particulars Note Amount

Other income xx 28,500
Total Revenue
Expenses
Finance costs xxx 51,000
Total expenses
Notes to accounts

xx. Other income
Int. on own Deb. A/c (36,000-18,000) 18,000
Profit on cancellation of debentures 10,500
Total 28,500
xxx. Finance Costs
Loss on cancellation of Debentures(4,000+12,000) 16,000
Premium on redemption of debentures (₹ 7,00,000 @5%) 35,000
Total 51,000
Premium on redemption of Debentures A/c

Dec. 31 To Bank 35,000 Dec. 31 By Profit&Loss A/c 35,000
12% Debentures Account
20X1 ₹ 20X1 ₹
Dec.31 To Balance c/d 10,00,000 Jan.1 By bank 10,00,000
20X2 20X2
Dec. 31 To Balance c/d 10,00,000 Jan. 1 By balance b/d 10,00,000
20X3 20X3
Apl.1 To own Deb. A/c 1,00,000 Jan. 1 By balance b/d 10,00,000
Dec. 31 To own Deb. A/c 2,00,000
To Bank 7,00,000
10,00,000 10,00,000
Working Notes:
(i) Interest Paid on purchase of own debentures:
Date Nominal Period Rate Interest

Amount
20X2 Oct. 1 ₹ 1,50,000 9 months 12% 13,500
20X3 Oct. 1 ₹ 2,00,000 9 months 12% 18,000
(ii) Interest credited to interest on own debenture A/c
Date Nominal Period Rate Interest

Amount
20X2 Dec. 31 ₹ 1,50,000 12 months 12% 18,000
20X3 April 1 ₹ 1,00,000 3 months 12% 3,000

20X3 June 30 ₹ 1,50,000 6 months 12% 9,000
20X3 Dec. 31 ₹ 2,00,000 12 months 12% 24,000
(iii) Profit & loss On Cancellation sales is difference between cost or nominal value
and sales price.
Question 6:
The following balance appeared in the books of paradise Ltd. on 1-4-20X1:
(i) 12% debentures ₹ 7,50,000
(ii) Balance of DRR ₹ 6,00,000
(iii) DRR investment 6,00,000 represented by 10% ₹ 6,50,000 secured bonds of government of
india.
Annual contribution to the DRR was ₹ 1,20,000 made on 31st March each year. On 31-3-20X2,
balance at bank was ₹ 3,00,000 before receipt of interest. The company sold the investment at 90%
of cost, for redemption of debentures at a premium of 10% on the above date.
You are Required to prepare the following accounts for the year ended 31st March, 20X2:
(1) Debenture Account
(2) DRR account
(3) DRR Investment Account
(4) Bank Account
(5) Debenture holders Account.
Solution:
1. 12% Debentures Accounts
Date Particulars ₹ Date Particulars ₹

31st March To Debenture Holders 7,50,000 1st April, By balance b/d 7,50,000
20X2 20X1
7,50,000 7,50,000
2. DRR Account

31st
March To 10% Secured 15,000 1st April, By balance b/d 6,00,000
20X2 Bond A/c (6,00,000- 20X1
5,85,000)
31st March To general Reserve 7,70,000 31st March, By profit and loss a/c 1,20,000
20X2 A/c (bal. fig.) 20X2

By Interest on DRR A/c 65,000
[(Interest on 10% Stock
(₹ 6,50,000×10%))]
7,85,000 7,85,000
3. 10% Secured Bonds of Govt. (DRR investment) A/c

1st
April To Balance 6,00,000 31 March, By Bank A/c (6,50,000
st 5,85,000
20x1 20X2 ×90%) = 5,85,000
By DRR A/c 15,000
6,00,000 6,00,000
4. Bank A/c
31 March To Balance b/d
st 3,00,000 31st March, By 12% Debenture 8,25,000
20X2 20X2
To interest 65,000 By balance c/d 1,25,000
(6,50,000×10%)
To DRR Investment 5,85,000
A/c
9,50,000 9,50,000
5. Debenture Holders A/c

31st To Bank A/c 8,25,000 31st By 12% Debentures 7,50,000
March March,
20X2 20x2
By Premium on 75,000
Redemption of
Debentures @10%
8,25,000 8,25,000

Question 7:
The summary Balance sheet of BEE Co, Ltd. on 31st March, 20X1 read as under:
Liabilities ₹ Assets ₹
Share Capital: Freehold property 1,15,000
Authorized: Stock 1,35,000
30,000 Equity Shares of ₹ 10 each 3,00,000 Trade receivables 75,000
Issued and Subscribed: Cash 30,000
20,000 Equity shares of ₹ 10 each Balance at Bank 2,00,000
Fully paid 2,00,000
Profit and Loss Account 1,20,000
12% Debentures 1,20,000
Trade Payables 1,15,000
5,55,500 5,55,000
At the annual general meeting it was resolved:
(a) To give existing shareholders the option to purchase one ₹ 10 share at ₹ 15 for every four
shares (held prior to the bonus distribution), this option being taken up by all shareholders.
(b) To issue one bonus share for every four shares held.
(c) To repay the debentures at a premium of 3%
Give the necessary journal entries and the company’s Balance sheet after these transaction are
completed.
Solution:
Journal of BEE Co. Ltd.
Particulars Dr. Cr.

₹ ₹
Bank A/c Dr. 75,000
To equity Shareholders A/c 75,000
(Application money received on 5,000 shares @ ₹ 15 per share to
be issued as rights shares in the ratio of 1:4)
Equity Shareholders A/c Dr. 75,000

To Equity Share Capital A/c 50,000
To Securities Premium A/c 25,000
(Share application money on 5,000 shares @ ₹ 10 per share
transferred to share Capital account, and ₹ 5 per share to securities
Premium Account vide Board’s Resolution dated…)
Securities Premium A/c Dr. 25,000

Profit & Loss A/c Dr. 25,000
To Bonus To shareholders A/c 50,000
(Amount transferred for issue of bonus shares to existing

shareholders in the ratio of 1:4 vide general body’s resolution
dated…..)(refer note below)
Bonus to shareholders A/c Dr. 50,000

To Equity share capital A/c 50,000
(Issue of bonus shares in the ratio of 1 for 4 vide board’s the
solution dated….. )
12% debentures A/c Dr. 1,20,000

Premium payable on Redemption A/c Dr. 3,600
To Debenture holders A/c 1,23,600
(amount payable to debentures holders)
Profit & Loss A/c Dr. 3,600

To premium payable on redemption charges to profit & Loss A/c 3,600
Debenture holders A/c Dr. 1,23,600

To Bank A/c 1,23,600
(Amount paid to debenture holders on redemption)
Note:
The number of bonus shares issued has been calculated on the basis of issued capital before rights
issued i.e. 20,000 shares (and not 25,000 shares after rights issue)
Balance Sheet of BEE Co. ltd. as on …..(after completion Transaction)
Particulars Note no. ₹

I. Equity and Liabilities
(1) Shareholder’s Funds
(a) Share capital 1 3,00,000
(b) Reserves and surplus 2 91,400
(2) Current Liabilities
(a) Trade Payables 1,15,000
Total 5,06,400
II. Assets
(1) Non-current assets
(a)Fixed assets
(i) Tangible Assets 3 1,15,000
(2) Current Assets
(a) Inventories 1,35,000
(b) Trade Receivables 75,000
(c) Cash and Bank Balances 4 1,81,400
Total 5,06,400

Notes to accounts:
₹
1. Share Capital
30,000 shares of ₹10 each fully paid
(5,000 shares of ₹ 10 each, fully paid 3,00,000
issued as bonus shares out of securities
premium and P&L account)
2. Reserve and Surplus
Profit and Loss A/c (1,20,000-3,600) 1,16,400
Less: Utilization for issue of bonus shares (25,000) 91,400
3. Tangible assets
Freehold Property 1,15,000
4. Cash at bank balances
Cash at bank (2,00,000+75,000-1,23,600) 1,51,400
Cash in hand. 30,000 1,81,400
Question 8:
The summarised Balance Sheet of Convertible Limited, as on 30th June, 20X1, stood as follows:
Liabilities ₹
Share Capital : 5,00,000 equity shares of ₹10 each fully paid 50,00,000
General Reserve 75,00,000
Debenture Redemption Reserve 50,00,000
13.5% Convertible Debentures, 1,00,000 Debentures of ₹100 each 1,00,00,000
Other loans 50,00,000
Current Liabilities and Provisions 1,25,00,000
4,50,00,000
Assets :
Fixed Assets (at cost less depreciation) 1,60,00,000
Debenture Redemption Reserve Investments 40,00,000
Cash and bank Balances 50,00,000
Other Current Assets 2,00,00,000
4,50,00,000
The debentures are due for redemption on 1st July, 20X1. The terms of issue of debentures provided
that they were redeemable at a premium 5% and also conferred option to the debenture holders to
convert 20% of their holding into equity shares at a predetermined price of ₹15.75 per share and
the payment in cash.

Assuming that :
(i) except for 100 debenture holders holding totally 25,000 debentures, the rest of them
exercised the option for maximum conversion.
(ii) the investments realise ₹ 44 lakhs on sale; and
(iii) all the transactions are put through, without any lag, on 1st July, 20X1.
Redraft the balance sheet of the company as on 1st July, 20X1 after giving effect to the
redemption. Show your calculations in respect of the number of equity shares to be allotted and
the cash payment necessary.
Solution:
Convertible Limited Balances Sheet as on July 1, 20X1
Particulars Note Figures as at the end of

no. current Reporting period
I. Equity and Liabilities
(1) Share holder’s funds
(a) Share Capital 1 60,00,000
(b) Reserves and Surplus 2 1,29,75,000
(2) Non-current Liabilities
(a) Long-Term borrowings- Unsecured Loans 50,00,000
(3) Current Liabilities
(a) Short Term provisions 1,25,00,000
Total 3,64,75,000
II. Assets
(1) Fixed assets
(i) Tangible assets 1,60,00,000
(2) Current assets
(a) Cash and bank balances 4,75,000
(b) Other current assets 2,00,00,000
Total 3,64,75,000
Notes to accounts
Particulars ₹
1. share capital
6,00,000 equity shares (5,00,000+1,00,000) of each 60,00,000
2. Reserves and surplus
General reserve 75,00,000
Add: debenture redemption reserve transfer 50,00,000
1,25,00,000
Add: profit on sale of investments 4,00,000
(44,00,000- 40,00,000)

1,29,00,000
Less: premium on redemption of debentures (5,00,000) 1,24,00,000
Securities premium account (1,00,000×5.75) 5,75,000
1,29,75,000
Working Notes:
Calculation of number of shares to be allotted:

Total Number of debentures 1,00,000
Less: Number of Debentures not opting for conversion (25,000)
75,000
20% of 75,000 15,000
Redemption value of 15,000 Debentures (15,000×105) 15,75,000
𝟏𝟓,𝟕𝟓,𝟎𝟎𝟎
Number of Equity Shares to be allotted: = 𝟏𝟓.𝟕𝟓
= 𝟏, 𝟎𝟎, 𝟎𝟎𝟎 Shares of ₹ 10
each.
Calculation of cash to be paid:

Number of debentures 1,00,000
Less: number of debentures to be converted into equity shares (15,000)
85,000
Redemption value of 85,000 debentures (85,000×₹ 105) 89,25,000
Cash and bank Balance:

Balance before redemption 50,00,000
Add: Proceeds of investments sold 44,00,000
94,00,000
Less: Cash Paid to debenture holders (89,25,000)
4,75,000
Note: The premium on redemption of debenture can also be adjusted against securities Premium
account.
Question 9.
A Company had issued 20,000, 13% Convertible debentures of ₹ 100 each on 1st April, 20X1. The
debentures are due for redemption on 1st July, 20X2. The terms of issue of debentures provided
that they were redeemable at a premium of 5% and also conferred option to the debenture
holders to convert 20% of their holding into equity shares (Nominal value ₹ 10) at a price of ₹ 15

per share. Debenture holders holding 2,500 debentures did not exercise the option. Calculate the
number of equity shares to be allotted to the Debenture holders exercising the option to the
maximum.
Solution:
Calculation of number of equity shares to be allotted
Number of Debentures
Total number of Debentures 20,000
Less: debenture holder not opted for conversion (2,500)
Debenture Holders Opted for conversion 17,500
Option for conversion 20%
Number of Debentures to be converted (20% of 17,500) 3,500
Redemption value of 3,500 debentures at a premium of 5% [3,500 × (100+5)] = ₹ 3,67,500
Equity share of ₹ 10 each issued on conversion [₹ 3,67,500/₹ 15] = 24,500 Shares
Question 10.
Libra Limited recently made a public issue in respect of which the following information is available:
(a) No. of partly convertible debentures issued- 2,00,000; face value and issue price
₹100 per debenture.
(b) Convertible portion per debenture- 60%, date of conversion- on expiry of 6 months from the date
of closing of issue.
(c) Date of closure of subscription lists- 1.5.20X1, date of allotment- 1.6.20X1, rate of interest on
debenture- 15% payable from the date of allotment, value of equity share for the purpose of
conversion- ₹ 60 (Face Value ₹ 10).
(d) Underwriting Commission- 2%.
(e) No. of debentures applied for- 1,50,000.
(f) Interest payable on debentures half-yearly on 30th September and 31st March.
Write relevant journal entries for all transactions arising out of the above during the year ended
31st March, 20X2 (including cash and bank entries).
Solution:
Journal Entries in the books of Libra Ltd.
Date Particulars Amount Amount

Dr. Cr.
₹ ₹
1.5.20X1 Bank a/c Dr. 1,50,00,000
To Debenture Application A/c 1,50,00,000
(Application money received on 1,50,000
debentures @ ₹ 100 each)

1.6.20X1 Debenture application a/c Dr. 1,50,00,000
Underwriters A/c Dr. 50,00,000
To 15% Debentures A/c 2,00,00,000
(Allotment of 1,50,000 debentures to applicants
and 50,000 debentures to under writers)
Under writing Commission Dr. 4,00,000

To Underwriters A/c 4,00,000
(Commission payable to under writers @ 2% on
2,00,00,000)
Bank A/c Dr. 46,00,000

To Under writers A/c 46,00,000
(Amount received from underwriters in
settlements of accounts )
30.9.20X1 Debenture Interest A/c Dr. 10,00,000

To Bank A/c 10,00,000
(Interest paid on debentures for 4 months @ 15%
on ₹ 2,00,00,000)
30.10.20X1 15% Debentures A/c Dr. 1,20,00,000
To Equity share capital A/c 20,00,000
To securities Premium A/c 1,00,00,000
(Conversion of 60% of debentures into shares of ₹
60 each with a face value of ₹ 10.)
31.3.20X2 Debentures Interest A/c Dr. 7,50,000

To Bank A/c 7,50,000
(Interest paid on debentures for the half year )
(refer working note below.)
Working Notes:
1. Calculation of Debenture Interest for the half year ended 31st March,20X2
On ₹ 80,00,000 for 6 months @ 15% = ₹ 6,00,000
On ₹ 1,20,00,000 for 1 months @ 15% = ₹ 1,50,000
= ₹ 7,50,000

Question 11.
On 1st April, 20X1, in MK Ltd.’s ledger 9% debentures appeared with a opening balance of ₹
50,00,000 divided into 50,000 fully paid debentures of ₹100 each issued at par.
Interest on debentures was paid half-yearly on 30th of September and 31st March every year.
On 31.5.20X1, the company purchased 8,000 debentures of its own @ ₹ 98 (ex-interest) per
debenture.
On 31.12.20X1 it cancelled 5,000 debentures out of 8,000 debentures acquired on 31.5.20X1.
On 31.1.20X2 it resold 2,000 of its own debentures in the market @ ₹ 101 (ex-interest) per
debenture.
You are required to prepare:
(i) Own debentures account;
(ii) Interest on debentures account; and
(iii) Interest on own debentures account.
Solution:
Own Debentures Account.
31.5.X1 To Bank 7,84,000 31.12.X1 By 9% Debenturres A/c 5,00,000
(5,000×100)
31.12.X1 To Capital Reserve 10,000 31.1.X2 By Bank Resale of 2,000 2,02,000
(Profit on debentures(2,000×101)
cancellation)(refer
working notes )
31.1.X2 To Profit and Loss A/c 6,000 31.3.X2 By balance C/d 98,000
(Profit on Resale)(Refer
working Note)
8,00,000 8,00,000
Interest on Debentures account
31.5.X1 To Bank 12,000 31.3.X2 By Profit and Loss A/c 4,38,750
(Interest for 2 months on (b.f.)
8,000 debentures )
30.9.X1 To interest on own 24,000
debentures
(interest for 4 months on
8,000 debentures )
30.9.X1 To Bank 1,89,000
(Interest for 6 months on

42,000 debentures )
31.12.X1 To interest on own 11,250
debentures
(interest for 3 months on
5,000 Debentures )
31.3.X2 To Interest on own 4,500
debentures
1,000 debentures)
31.3.X2 To Bank 1,98,000
44,000*debentures)
4,38,750 4,38,750
*50,000-5,000-1,000
Interest on own Debentures Accounts
31.3.X2 To Profit and loss A/c (b.f.) 45,750 30.9.X1 By Interest on debentures 24,000
a/c
31.12.X1 Bu interest on Debentures 11,250
A/c
31.01.X2 By Bank (Interest for 4 6,000
months on 2,000
debentures )
31.03.X2 By Interest on Debentures 4,500
45,750 45,750
Working Notes:
31.5X1 Acquired 8,000 Debentures @ 98 per debenture (ex- Interest)

Purchase price of Debenture (8,000 × ₹ 98) = 7,84,000
Interest for 2 months [₹ 8,00,000 × 9% × 2/12] = 12,000
30.9.X1 Interest on own debentures

[₹ 8,00,000×9% × ½ ] Less ₹ 12,000 = 24,000
Interest on other Debentures ₹ 42,00,000 × 9% × ½ = 1,89,000
31.12.X1 Cancellation of 5,000 own debentures

Face value ₹ 100 less Acquired at ₹ 98 = 2 ×5,000 = 10,000
31.1.X2 Resale of 2,000 Debentures sold for 101 (ex-interest) acquired for
₹ 98 (ex-interest)
2,000× ₹ 3 per debenture = 6,000

31.12.X1 Interest on Cancelled 5,000 debentures
5,000×₹100×9% × ¼ = 11,250
31.3.X2 Interest on 1,000 own debentures 1,00,000 × 9% × ½ = 4,500
Question 12.
A company had 16,000, 12% debentures of ₹ 100 each outstanding as on 1st April, 20X1,
redeemable on 31st March, 20X2. On that day DRR was ₹ 14,98,000 represented by 2,000 own
debentures purchased at the average price of ₹ 99 and 9% stocks face value of ₹ 13,20,000. The
annual instalment was ₹ 56,800.
On 31st March, 20X2 the investments were realized at ₹ 98 and the debentures were redeemed.
You are required to write up the following accounts for the year ending 31st March 20X2:
(1) 12% Debentures Account
(2) Debenture redemption reserve account.
Solution:
12% Debentures Account

31st March To own 2,00,000 1st April, By balance b/d 16,00,000
20X2 debentures A/c 20X1
To Bank A/c 14,00,000
16,00,000 16,00,000
Debenture Redemption reserve account

31st March, To 9% stock A/c 6,400 1st April, By Balance b/d 14,98,000
20x2 (loss) (W.N.5) 20X1
To General reserve 16,93,200 31st March, By Profit and loss 56,800
A/c(bal.fig) 20x2 a/c
By Interest on DRR 1,42,800

A/c (W.N.3)
By Own Debentures 2,000

A/c
16,99,600 16,99,600
Working Notes:
1. Amount of stock as on 1st April,20X1
₹
14,98,000
DRR balance as on 1st April,20X1
(1,98,000)
Less: Own Debentures (2,000×99)
13,00,000
2. Sales Value of 9% Stock = Face value/ ₹ per stock

= ₹ 13,20,000/₹ 100
= 13,200 stock
Sales Value = ₹ 13,200 stock × ₹ 98 per stock
= ₹ 12,93,600
3. Interest Credited to DRR Fund

(i) Interest on 9% Stock (₹ 13,20,000×9%) ₹ 1,18,800
(ii) Interest on Own debentures (2,000 debentures ×₹ 100 ×12%) ₹ 24,000
₹ 1,42,800
4. Own Debentures account

₹ ₹
To Balance b/d 1,98,000 31st March, By 12% Debenture 2,00,000
1st April,
20X2 A/c
20X1
To DRR A/c 2,000
31st March,
20X2
2,00,000 2,00,000
5. 9% Stock Amount
₹ ₹
To Balance b/d 13,00,000 31st
March, By bank 12,93,600
1st April,
(Face Value ₹ 20X2 Account (W.N.)
20x1
13,20,000) (W.N.1)
By DRR 6,400
(loss on sales)
13,00,000 13,00,000

Question 13.
Hari Ltd has issued 4 years ago 30,000, 15% convertible debentures of ₹ 100 each. The debentures
are due for redemption on 1st march. The terms of issue of debentures provided that they were
redeemable at a premium of 5% and also conferred option to the debentureholders to convert 20%
of their holding into equity shares (nominal value of ₹10) at a price ₹15 per shares.
Debentureholders holding 2,500 debentures did not exercise the option. Calculate the number of
equity to be allotted to the debentureholders exercising the option to the maximum.
Solution:
Particulars Nos.
Total number of debentures 30,000
Less: Number of debentures not opting for conversion 2,500
Balance debentures opting for conversion 27,500
Convertible portion = 20% of 27,500 5,500
Redemption value of 5,500 debentures (5,500×₹105) ₹5,77,500
Number of equity shares to be allotted = 5, 77,500 ÷15 = 38,500 shares of ₹10 each.
Question 14.
On 1st January 2012, vasudev limited issued 10,000 15 years debentures of ₹ 100 each bearing
interest at 10% p.a. One of the conditions of issue was that the company could redeem the
debentures by giving six months’ notice at any time after 5 years, at a premium of 4% either by
payment in cash or by allotment of preference shares and/or other debentures at the option of the
debentureholders.
On 1st April 2017, the company gave notice to the debenture holders of its intention to redeem the
Debentures on 1st October 2015, either by payment in cash, or by allotment of 11% preference
shares of ₹ 100 each, at ₹ 130 per shares, or 11% second debentures of ₹100 at ₹ 96 debentures.
Holders of 4,000 debentures accepted the offer of the preference shares, holders of 4,800
debentures accepted the offer of the 11% Second Debentures, and the rest demanded cash on 1st
Oct 2017.
Give the journal entries to give effect to the above as of 1st October. Suggest how discount on issue
of debentures can be dealt on the accounts.
Solution:
Journal entries in the books of the company (on the date of redemption)
S. Particulars Dr. ( ₹) Cr.( ₹)

No.
1. 10% Debentures A/c Dr. 10,00,000
Premium of redemption of debentures A/c Dr. 40,000
To debentureholders A/c 10,40,000
(being transfer of amount due on redemption of 10% debentures,
towards nominal value of ₹10,00,000 plus premium ₹40,000)
2. Debentureholders A/c Dr. 4,16,000

To 11% preference share capital A/c (3,200 ×₹100) 3,20,000
To securities premium (3,200× ₹30) 96,000
(being issue of 3,200 preference shares of ₹100 each at a
premium of ₹30 each in exchange of 4,000 debentures )(WN 1)

Discount on issue of 11% Second Debentures A/c (5,200×₹4) Dr. 20,800
To 11% second debentures A/c(5,200 ×₹100) 5,20,000
(issue of 5,200 11% second debentures of ₹100 each at a
discount of ₹4 in exchange of 4,800 debentures)(WN 2)

To bank A/c 1,24,800
(being the redemption of 1,200 debentures at ₹104, by cash)
Working notes:
Particulars Results
1. Redemption of debentures by issuing preference shares:
Claim of the holders of 4,000 debentures at ₹104 each ₹4,16,000
₹4,16,000 ₹3,200
Number of preference shares to be issued (face value =₹ 100,premium ₹30)
130
2. Redemption of debentures by issuing 11% Debentures:

Claim of the holders of 4,800 debentures at ₹104 each ₹4,99,000
₹4,99,200 5,200
Number of 11%preference share to be issued 96 (face value =₹ 100, discount ₹4)
Treatment of discount on issue of debentures:

1. Discount on issue of debentures is usually written off against the profit and loss account as
early as possible. However, when the debentures are redeemed after a certain period of
time, the discount on issue of such debentures may be written off at the ratio of amount
outstanding at the end of each year.
2. Balance in securities premium account can also be used to write off the discount on issue of
debentures.

Question 15.
The summarized balance sheet of Krishna Ltd as on 31st march read as under-
Liabilities ₹
Share capital : 4,00,00 equity shares of ₹10 each fully paid up 40,00,000
General reserve 50,00,000
Debentures redemption reserve 35,00,000
12% convertible debentures , 80,000 debentures of ₹100 each 80,00,000
Other loans 45,00,000
Current liabilities and provisions 90,00,000
Total 3,40,00,000
Assets ₹
Fixed assets (at cost less depreciation) 1,50,00,000
Debentures redemption reserve investment 30,00,000
Cash and bank balance 40,00,000
Other current assets 1,20,00,000
Total 3,40,00,000
The debentures are due for redemption on 1st April. The terms of issue of debentures provided that
they were redeemable at a premium 5% and also conferred option to the debentureholders to
convert 25% of their holding into equity shares at a pre-determined price of ₹11.90 per share, and
the balance payment in cash.
Assuming that:
(i) Except for debentureholders holding 12,000 debentures in aggregate ,the rest of them
exercised the option for maximum conversion,
(ii) The investment realized ₹32, 00,000 on sale.
(iii) All the transactions were taken place in 1st April, without any lag ,and
(iv) Premium on Redemption of Debentures is to be adjusted against general reserves.
Redraft the balance sheet of Krishna Ltd as on 1st April giving effect to the redemption. Show
your calculations in respect of number of equity shares to be allotted and the cash payment
necessary.
Solution:
1. Computation of number of shares allotted to debentureholders
Particulars Result
Less: number of debentures opting for cash settlements (i.e. not for conversion) (12,000)
Balance debentures opting for conversion 68,000

Convertible portion debentures = 25% of 68,000 17,000
Redemption value of 17,000 debentures (105 ×17,000) ₹17,85,000
Number of equity shares to be allotted = 17,85,000 ÷ 11.90 = 1,50,000 shares of 1,50,000
₹10 each shares
2. Cash to be paid on redemption/settlement
Particulars ₹
Number of debentures where holders opted for full cash settlement 12,000
Add: Non-convertible portion of other debentures (75% of 68,000) 51,000
Total number of debentures to be settled in cash 63,000
Total cash to be pad on settlement (63,000 ×105) 66,15,000
3. Cash A/c
To balance b/d (given) 40,00,000 By debentures holders (redemption
WN 2) 66,15,000
To investment (sale proceeds) 32,00,000 By balance c/d (bal. figure) 5,85,000
Total 72,00,000 Total 72,00,000
4. General Reserve A/c (to ascertain closing balance after above transactions)
To debentureholders A/c - 4,00,000 By balance b/d (given) 50,00,000
Premium on redemption of By debentures redemption reserves- 35,00,000
debentures transfer on redemption of
debentures
To balance c/d (bal.figure) 83,00,000 By investment A/c-profit on sale = 2,00,000
(sale proceed 32,00,000 - cost
30,00,000)
Total 87,00,000 Total 87,00,000
5. Balance sheet of Krishna Ltd as on 1st April (after debentures redemption)
Particulars as at 1st April Note This year Prev. Yr

I EUIQTY AND LIABILTIES:
(1) Shareholders’ funds:
(a) share capital (given 40,00,000 + 1,50,000 shares of 55,00,000
10 each on conversion)
(b)reserves and surplus 85,85,000
(2) Non-current liabilities: Long term borrowings (other 45,00,000
loans)

(3) Current liabilities: Current liabilities & provisions 90,00,000
Total 2,75,85,000
II ASSETS
(1) Non-current assets: Tangible fixed assets 1,50,00,000
(2) Current assets:
(a)Cash and cash equivalents cash & bank 5,85,000
(b)other current assets 1,20,00,000
Total 2,75,85,000
Note: Reserves and surplus comprise – (a) general reserves ₹ 83,00,000 (WN 4) + (b) Securities
Premium 1,50,000 shares * ₹ 1.90 = ₹ 2,85,000, Total ₹ 85,85,000.
Since this is not a year-end Financial Statement, and is required only to reflect the transactions
relating to redemption as on a particular date, detailed notes under schedule III are not provided.
Question 16.
The Balance Sheet of Ram Limited on 31st march was as follows:
Equity &Liabilities ₹ Assets ₹

Share capital: Fixed assets (at cost less 8,00,000
depreciation)
Authorised capital: 50,000 equity 5,00,000 Debentures redemption investment 2,00,000
shares of ₹ 10 each
Issued and subscribed capital: 2,50,000 Cash balance 2,50,000
25,000 equity shares of 10 fully
paid up
Reserves and surplus: Other current assets 10,00,000
General reserves 2,75,000
Profit & loss A/c 1,00,000
Debentures redemption reserves 2,50,000
Secured loans:
12% convertible debentures
(5,000 Deb. of ₹ 100 each) 5,00,000
Other secured loans 2,50,000
Current liabilities and provisions 6,00,000
Proposed dividends 25,000
Total 22,50,000 Total 22,50,000
At the general meeting, it was resolved to-

1. Pay proposed dividend of 10% in cash.
2. Give existing shareholders, the option to purchase one share of ₹10 each at ₹15 for every
five shares held. This option was taken up by all shareholders.
3. Redeem the debentures at a premium of 5 % and also confer option to the
debentureholders to converts 50% of their holding into equity shares at a pre-determined
price of ₹15 per share and balance payment to be made in cash.
4. Holders of 3,000 debentures opted to get their debentures redeemed in cash only while the
rest opted for getting the same converted into equity shares as per the term of issue.
Debentures redemption investment realized ₹ 1,80,000 on sales.
You are required to redraft the balance sheet after giving effects to the right issue and
redemption of debentures. Also show the calculations in respect of number of equity shares
issued and cash payment.
Solution:
Balance sheet of Ram Ltd as at 31st march
Particulars Note This year Prev. Yr

(a) share capital 1 3,70,000
(b) reserves and surplus 2 6,40,000
(2) Non-current liabilities:
Long term borrowings –Secured loans 2,50,000
(3) Current liabilities: 6,00,000
Total 18,60,000
II ASSETS
(1) Non-current assets: -fixed assets 8,00,000
(2) Current assets:
(a)Cash and cash equivalents -cash on hand 60,000
(b)other current assets 10,00,000
Total 18,60,000
Note 1: Share Capital
Particulars This year Prev. Yr

Authorized: 50,000 equity shares of ₹10 each 5,00,000
Issued ,subscribed & paid up : 37,000 equity shares of ₹10 each 3,70,000
Total 3,70,000
Note: Additional disclosures are required under schedule III, in the annual financial statements, in
respect of reconciliation of number and amount of shares.

Note 2: Reserves and surplus
Particulars Opg Bal Additions Deduction Clg Bal

Securities premium - Right issue 25,000 Premium on Deb.
account Red, 25,000 35,000
Deb. Conversion 35,000
Debentures redemption 2,50,000 - Loss on Invts sold
reserves 20,000
Tfr to Gen .Res. Nil
2,30,000
General reserves 2,75,000 Tfr form Deb. Red. 5,05,000
reserves 2,30,000
Profit and loss A/c 1,00,000 1,00,000
Total 6,25,000 2,90,000 2,75,000 6,40,000
Working notes:
1. Computation of number of shares to be allotted to Debentureholders of the company
Particulars Nos.
Less: Number of debentures opted only for cash settlements 3,000
Balance debentures opting for conversion to equity shares 2,000
Convertible portion debentures = 50% of 2,000 1,000
Redemption value of 1,000 debentures (₹ 105× 1,000) ₹1,05,000
₹1,05,000 7,000 shares
Number of equity shares to be allotted = ₹15
(face value ₹10, premium
₹5)
2. Cash to be paid on Redemption/ Settlement
Particulars Nos.
Number of debentures opted only for cash settlements 3,000
No-convertible portion of 2, 000 debentures opted for conversion (2,000 × 50%) 1,000
Total number of debentures to be settled in cash 4,000
Total cash to be paid for settlements at ₹105 per debenture (4,000× ₹ 105) ₹4,20,000
3. Rights issue of equity shares
Particulars Result
25,000 5,000
No. of Rights shares issued (25,000 equity shares outstanding & 1:5 ratio) = 5
shares

Issue price per share(face value ₹ 10 + securities premium ₹ 5) ₹15
Total proceeds received (5,000 ×₹ 15) ₹75,000
4. Cash account (to compute revised cash balance)
Receipt ₹ Payments ₹
To balance b/d 2,50,000 By proposed dividend at 10% 25,000
To investment (sale proceeds) 1,80,000 By debentureholders (WN 2) 4,20,000
To equity share capital By balance c/d (balancing 60,000
- Right issue (5,000 ×₹10) 50,000 figures )
To securities premium (5,000 ×₹5) 25,000
Total 5,05,000 Total 5,05,000
Question 17.
The summarized balance sheet of vasudha Ltd as on 30th September was as under-
Equity & Liabilities ₹ Assets ₹

Share capital: issued and fully paid Fixed assets 15,00,000
5,000 equity share of ₹ 100 each fully 5,00,000 Investment 95,000
paid (own debentures of nominal
value of ₹ 1,00,000)
6% redeemable preference shares of 4,95,000 Other securities: 1,00,000
₹100 each
(less calls in arrears on 200 shares)
Reserves and surplus: Current assets:
share premium 1,00,000 Stock 2,00,000
Capital reserve 1,00,000 Debtors 1,00,000
General reserves 2,00,000 Cash at bank 6,00,000
Profit & loss A/c 3,00,000
10% debentures 2,00,000
Sundry creditors 7,00,000
Total 25,95,000 Total 25,95,000
On the above date, the following were due for redemption:

1. 5,000, 6% redeemable preference shares at premium of ₹ 25 per share.
2. 2,000, 10% redeemable debentures at premium of 10%.
The redemption was made on that date of subsequently thus:

(a) For the half ending 30th September (i.e. Above B/s date), the debentures interests and
preference dividend were paid out of the profits of the company.
(b) On an offer made to the 10% debentures holders, the outsider agreed to take new 12%
debentures at par in exchange of old debentures, the company also decided to assume the
new debentures.
(c) A fresh issue of 1,000 equity shares of ₹100 each were made at premium of ₹50 per share
and subscribed in full. All money due were received forthwith.
(d) Redemption of all preference shares were made on the above date. Assume that securities
premium A/c is usable for providing the premium on redemption of preference shares.
You are required to show all journal entries for the above transaction and to give the company’s
opening balance sheet after giving effect to them.
Solution:
S. Particulars Dr. ( ₹) Cr.( ₹)

No.
1. Profit and loss A/c Dr. 24,850
To interests on debentures A/c 10,000
To preference dividend A/c 14,850
(being interest on debentures at 10% for 6 months, and dividend on
pad up value of preference share capital at 6% for 6 months)
2. Interests on debentures A/c Dr. 10,000

To interest on own debentures A/c 5,000
To Bank A/c 5,000
(being adjustment for interests on investment in own debentures sine
50% of the debentures is held by the company and payment of
interest to outsider)
3. preference dividends A/c Dr. 14,850

To bank A/c 14,850
(being payment of preference dividend to outsider)
4. Bank A/c Dr. 5,000

To calls in arrears A/c 5,000
(being the calls in arrears on 200 preference share received prior to
redemption)
5. 10% debentures A/c Dr. 2,00,000

Premium on redemption of debentures A/c Dr. 20,000
To debentureholders A/c 2,20,000
(Being the amount due on redemption of 10% debentures at a
premium of 10%)

6. Securities premium A/c Dr. 20,000
To premium on redemption of debentures A/c 20,000
(being premium on redemption of debentures are written off to
securities premium A/c)

To 12% debentures(new series ) A/c 2,20,000
(being the issue of new 12% debentures to the debentureholders)
8. Investment in own debentures (new series) A/c 1,10,000

To investment A/c –for cancellation 95,000
To profit and loss A/c-for transfer of surplus 15,000
(being the exchange of own 10% debentures by own 12% debentures
(new series), surplus being transferred to profit and loss A/c)
9. Bank A/c Dr. 1,50,000

To equity share capital A/c 1,00,000
To securities premium A/c 50,000
(being the fresh issue of equity shares of ₹ 100 each at a premium of ₹
50 per share made for the purpose of redemption of preference share)
10. General reverses A/c Dr. 2,00,000

Profit and loss A/c Dr. 2,00,000
To capital redemption reserve A/c 4,00,000
(being the transfer out of reserve and surplus an amount equal to
nominal value of preference shares redeemable otherwise then out of
the proceeds of fresh issue i.e. Total ₹ 5,00,000 - fresh equity issue ₹
1,00,000)
11. 6% redeemable preference share capital A/c Dr. 5,00,000

Premium on redemption of preference shares A/c Dr. 1,25,000
To preference shareholders A/c 6,25,000
(being amount due to preference shareholder, at a premium of ₹25
per share)
12. Securities premium A/c Dr. 1,25,000

To premium on redemption of preference shares A/c 1,25,000
(being premium on redemption of preference shares provided out of
securities premium)
13. Preference shareholders A/c Dr. 6,25,000

(being the amount paid to preference shareholders on redemption)

14. Interest on own debentures A/c Dr. 5,000
To profit and loss A/c 5,000
(being transfer of interests on own debentures)
Note: Preference dividend is payable in proportion to the amount paid up on preference shares. It is
assumed that the articles of association of the company authorizes such payment.
2. Computation of Bank balance
Receipt ₹ Payment ₹
To balance b/d 6,00,000 By preference dividend 14,850
To calls in arrears (preference 5,000 By interest on debentures (outsider) 5,000
shares)
To equity share capital (fresh issue) 10,00,000 By preference shareholders 6,25,000
(redemption)
To security premium (fresh issue) 50,000 By balance c/d 1,10,150
Total 7,55,000 Total 7,55,000
3. Profit and Loss account of vasudha Ltd for the year ending…..
Receipt ₹ Payment ₹
To interests on debentures 10,000 By balance b/d 3,00,000
(expenses)
To balance c/d (balancing figures) 3,10,000 By interests on own debentures 5,000
By gain on conversion of 15,000
debentures
Total 3,20,000 Total 3,20,000
To preference dividend 14,850 By balance b/d 3,10,000

To capital redemption reserve 2,00,000
To balance c/d (balancing figure) 95,150
Total 3,10,000 Total 3,10,000
Note: As per schedule III requirements, appropriations are to be shown in the notes, i.e. schedule of
reserves and surplus. However, in the above solution, these are shown in the P & L A/c itself, for
ease of computation..
4. Balance sheet of vasudha Ltd as on ……. (after redemption)
Particulars Note This year Prev. Yr

(a)share capital 1 6,00,000
(b)reserves and surplus 2 6,00,150
(2) Non-current liabilities:

Long term borrowings –12% debentures –secured loans 2,20,000
(3) Current liabilities:
(a)trade payables-sundry creditors 7,00,000
Total 21,20,150
II ASSETS
(1) Non-current assets:
(a)Fixed assets 15,00,000
(b)Non-Current investment 3 2,10,000
(2) Current assets:
(a)inventories- stock- in-trade 2,00,000
(b) trade receivables –sundry debtors 1,00,000
(c) Cash and cash equivalents-balance with banks 1,10,150
Total 21,20,150
Note 1: Share Capital

Authorized ….. Equity shares of...each
Issued ,subscribed & paid up : 6,000 equity shares of ₹100 each 6,00,000
Total 6,00,000
Note: Additional disclosures are required under schedule III, in the annual financial statement, in
respect of reconciliation of number and amount of shares.
Note 2: Reserves and surplus
Particulars Opg Bal Additions Deduction Clg Bal

Capital reserves 1,00,000 1,00,000
Capital redemption - PSC redemption 4,00,000
reserve 4,00,000
Securities premium A/c 1,00,000 Fresh issue of ESC Debentures premium
50,000 20,000 5,000
PSC premium 1,25,000
General reserves 2,00,000 Tfr to CRR 2,00,000 Nil

Profit & loss A/c 3,00,000 As per WN 3 As per WN 3 95,150
Total 7,00,000 4,70,000 5,69,850 6,00,150
Note 3: Non-current Investment

(a)Debentures of bonds -12% own debentures 1,10,000
(b)other non-current investment-other securities 1,00,000
Total 2,10,000

Question 18.
ZED Ltd had ₹25,000, 10% debentures of ₹100 each outstanding as on 1st April 2017, redeemable
on 31st march 2018. On 1st April 2017, sinking funds was ₹24 lakhs represented by 3,000 own
debentures purchased at the average price of ₹98, and 8% stock of face value of ₹22 lakhs. The
annual installment towards sinking funds was ₹90,000.
On 31st march 2018, the investments were realized at ₹ 97 and the debentures were redeemed.
Draw the following accounts for the year ended 31st march 2018:
(i) 10% debentures accounts,

(ii) debentures redemption sinking fund account,
Show necessary working notes:

Solution:
1. Investment on own debentures A/c
Particular Fv Int.
Date Cost Date Particular FV Int. Cost
1st To bal. b/d 3,00,000 - 2,94,000 31st By Deb. Interests - 30,000 -
Apr (3,000× (3,000 × 98) Mar (3 lakh× 10%)
2017 100) 2018
31st To Deb. Red. - 30,000 6,000 31st By 10% 3,00,000 - 3,00,000

mar sinking fund (Int.) (gain on Mar debentures
2018 A/c(Tfr) cancelation) 2018
Total total 3,00,000 30,000 3,00,000 Total 3,00,000 30,000 3,00,000
2. Investment in 8% stock A/c

Date Particular Fv Int. Cost Date Particular FV Int. Cost
1st Apr To bal. b/d 22,00,000 - 21,06,000 31st By bank A/c - 1,76,000
2017 (Note) Mar (22,00,000
2018 ×8%)
31st To Deb. - 1,76,000 - 31st By bank A/c 22,00,000 - 21,34,000
mar Red. sinking (Int tfr) Mar (22,0000
2018 fund A/c 2018 × 97)
31st To Deb. - - 28,000
Mar Red. sinking (gain on
2018 Fund A/c sales )
Total 22,00,000 1,76,000 21,34,000 Total 22,00,000 1,76,000 21,34,000
Notes:
 It is assumed that interest on 10% debentures and 8% stock is paid on annual basis (year-
end).
 cost of 9% stock = total sinking fund balance - cost of own debentures
= [₹24,00,000 - (3,000 × ₹98, i.e. ₹ 2,94,000)]

= ₹21,06,000
3.10% debentures A/c

31.03.18 To own debentures A/c (cancelled) 3,00,000 01,04,17 By balance b/d 25,00,000
31.08.18 To bank A/c-payment (bal.fig) 22,00,000
Total 25,00,000 Total 25,00,000
4. Debentures redemption sinking fund A/c

31.03.18 To Gen. Reserve (FV of Deb 25,00,000 01.04.17 By balance b/d (given) 24,00,000
tfr)
31.08.18 To capital reserve A/c (bal.fig) 2,30,000 31.03.18 By P&L (annual approp.) 90,000
(excess tfr to capital reserves)
31.03.18 By Int. on 8% stock A/c 1,76,000
31.03.18 By Int. on own debentures 30,000
A/c
By own debentures A/c 6,000
(WN 1)
By 8% stock (WN 2) (gain) 28,000
Total 27,30,000 Total 27,30,000
Question 19.
The following balance appeared in the books of soma Ltd, at the beginning of the year-
Particulars ₹
Sinking fund A/c 11,74,900
Sinking fund investment A/c 11,74,900
6% debentures A/c 12,00,000
The trustees have power to purchase, for immediate cancellation, of any debenture available at
market price below par, and to realize investment of the sinking fund for this purpose. The said
debentures are due for redemption at the end of this year; at premium of 4%. The under mentioned
transactions took place during the year:
(a) First half years an interest on debentures was paid.

(b) Immediately after six months, debentures of ₹ 1,00,000 were purchased at ₹ 97,000 from the
market and cancelled . For this purpose, investment of ₹ 97,500 were sold and ₹ 1,05,000
were realized.
(c) Interest of ₹ 69,500 was received at the end of the year on the investment.
(d) Second-half yearly interest was paid on 6% debentures.
(e) Remaining investment were sold at the year-end for ₹ 11,10,000 and the proceed were
utilized for debentures redemption.
(f) Debentures were fully redeemed at the end of the year.
Prepare the following ledger account with the relevant working-

(1) 6% debentures A/c,
(2) Sinking fund investment A/c,
(3) Sinking Fund A/c and
(4) Debenture interest A/c.
Solution:
1. Computation of profit on sale investment
Particulars After six months A end of year Total

Sale value of investment (given) 1,05,000 11,10,000 12,15,000
Less: Cost of investment (given) 97,500 (bal.fig) 10,77,400 11,74,900
i.e. (11,74,900 - 97,500) (given)
Profit on sale of investment 7,500 32,600 40,100
2. Computation of premium on redemption of debentures
Particulars ₹
Opening balance of debentures A/c 12,00,000
Less: Amount redeemed and canceled after six months 1,00,000
Hence, balance to be redeemed at the end of the year 11,00,000
Premium on redemption of debentures on ₹11,00,000 at 4% 44,000
3. 6% Debentures A/c
To bank A/c (amount paid after 6 97,000 By balance b/d (given) 12,00,000
months)
To sinking fund (profit on purchase 3,000 By skinning A/c (premium on 44,000
and cancelation of own redemption of debentures ) (WN 2)
debentures)
To bank (amount paid at the end of 11,44,000
the year)

Total 12,44,000 Total 12,44,000
4. Sinking Fund investment A/c
To balance b/d (given) 11,74,900 By bank 1,05,000
(sale of investment)
To sinking fund A/c 7,500 By bank 11,10,000
(Pft on sale of Invt) (WN 1) (sale of Invts at end of the year)
To sinking fund A/c 32,600
(Pft on sale of Invt) (WN 1)
Total 12,15,000 Total 12,15,000
5. Sinking Fund A/c

To 6% debentures 44,000 By balance b/d 11,74,900
(Prem. on redemption )(WN 2) (given)
TO general reserve 12,43,500 By sinking fund investment A/c 7,500
(transfer of balance ) (profit on sale of investment)(WN 1)
(alternatively ,the face value of
debentures can be transfer to general -
reserve ,the balance being trfd to
capital reserve)
By 6% debentures 3,000
(profit on purchase)
By bank 69,500
(interest reserved)(given)
By singing fund investment A/c 32,600
(profit on sale of investment)(WN 1)
Total 12,87,500 Total 12,87,500
6. Debentures Interests A/c
To bank (₹ 12,00,000× 6%× 6/12) 36,000 By profit and loss A/c-transfer of 69,000
bal.
To bank (₹11,00,000× 6%× 6/12) 33,000
Total 69,000 Total 69,000

Question 20.
Mallika Ltd has authorized capital of 8,00,000 equity shares of ₹ 10 each. But out of these 2,40,000
shares have been issued as fully paid. The company has an outstanding 14% debentures loan of ₹
24,00,000 redeemable at 102% and interest has been paid up to date the directors resolved to
redeem the debentures on 1st January and the holders are given an option to receive payment either
wholly in cash or wholly in fully paid equity shares @ 8 share for every ₹100 of debentures.
On that date, the balance of the debentures redemption reserve account is ₹ 20,00,000 and
corresponding Investment Account ₹ 20,00,000 (at cost) of which the market value is ₹ 18,00,000.
75% of the holder’s decided to exercise the option for taking shares in repayment and cash for the
rest is procured by realizing an adequate amount of investment at the prevailing market value.
Draw up journal entries (including cash book entries) to give effect to the above transactions.
Solution:
Sr. Particulars Debit. (₹) Credit.

No. ( ₹)
1. 14% Debentures A/c Dr. Dr. 24,00,000
Premium on redemption of debentures A/c Dr. 48,000
To debentures holders A/c 24,48,000
(being amount payable on redemption of ₹24,00,000
debentures at 2% premium)
2. Profit and loss A/c Dr. 48,000

To premium on redemption of debentures A/c 48,000
(being premium on redemption provided out of profit)Note:
Alternatively, general reserves A/c, debentures redemption
reserve A/c, may be used for this purpose.
3. Debenture holders A/c ₹24,48,000 ×75% Dr. 18,36,000

To equity share capital A/c (1,44,000 ₹10) 14,40,000
To securities premium A/c (1,44,000 ₹2.75) 3,96,000
(being issue of 1,44,000 shares of ₹10 each at a premium of
₹2.75 per share to 75% debentures holders who exercised
conversion option)(WN 1 & 2)
4. Bank A/c (₹ 24, 48,000 25%) Dr. 6,12,000

Profit and loss A/c (6,80,000 10%) or (balancing figures) 68,000
To debentures redemption reserve investment A/c 6,80,000
(WN 3)
(being investment sold & loss transferred to profit and loss
A/c)

5. Debentureholders A/c (24,48,000 25%) Dr. 6,12,000
(Being cash payment for settlements to debentures holders of
25%)
6. Debenture redemption reserve A/c (₹20,00,000-68,000) Dr. Dr. 19,32,000

To general reserves A/c 19,32,000
(being balance of debentures redemption reserve transferred
on 100% redemption)
7. Investment A/c Dr. 13,20,000

To debentures redemption reserve investment A/c 13,20,000
(20,00,000-6,80,000)
(being balance of debenture redemption reserve investment
transferred to investment (general)A/c)
Working notes:
Particulars ₹
(1) For every ₹ 100 debenture, amount payable on redemption ₹102
including premium=
Less: Face value of 8 share of ₹10 each to be issued for redemption of ₹80
each debentures(8× ₹10)
Premium on issue of 8 shares ₹22
So ,premium on issue of each share = ₹ 22÷ 8 shares= ₹2.75
(2) Shares to be issued on conversion = 8 shares for every ₹ 100 debenture 1,44,000
= ₹24,00,0000 × 75% × 8/100 shares
(3) Investment cost = ₹20, 00,000 but market value ₹6,80,000

= ₹18, 00,000.
So, market value realizable = 90% of cost. So, to realizes ₹ 6,12,000 for
payment, cost of investment to be sold = ₹6,12,000 ÷ 90 =
Question 21.
On 1st April 2017, Vasu ltd had outstanding in its books 1,00,000 debentures of ₹100 each, Interests
at 12% per annum. The interest on debentures was paid half yearly on 30th September and 31st
march of every year. On 31st may 2017, the company purchased 30,000 debentures of its own at

₹98 (ex-interests) per debentures. The Company cancelled the debentures so purchased on 31st
march 2018.
Pass the necessary journal Entries to record the above transaction for the year ended 31st march
2018.
Solution:
Journal entries
Date Particulars Dr. ( ₹) Cr.( ₹)

31.05.17 Investment in own 12% debentures A/c Dr. 29,40,000
(30,000Deb.× ₹ 98)
Interests on own 12% debentures A/c Dr. 60,000
(30,000 ×100 ×12% 2/12)
To bank A/c 30,000,000
(being purchase of 30,000 own debentures of ₹100
each at ex-interests price of ₹98)
30.09.17 Interests expenses A/c Dr. 6,00,000

(10,000× Deb ₹100× 12% of for 6 months)
To interests on own debentures (income) A/c 1,80,000
(₹30,000 × 12% × 6/12)
(Being interest due on 1,00,000 debentures for 6
months, interests on own debentures recognized
and balance paid to outsider
31.03.18 Interests expenses A/c Dr. 6,00,000

(10,000 ×Deb ₹100× 12% of for 6 months)
To interests on own debentures (income)A/c 1,80,000
(₹30,000× 12%× 6/12)
(Being interest due on 1,00,000 debentures for 6
months, interests on own debentures recognized and
balance paid to outsider
31.03.18 12% debentures A/c (liability reserved) Dr. 30,00,000

To investment in own debentures (cost reserved) 29,40,000
To P&L A/c (profit on cancellation) 60,000
(Being profit on cancellation of own debentures)

Question 22.
Himalayas Ltd had ₹10,00,000, 8% debentures of ₹ 100 each as on 31st march 2017. The Company
purchased in the open market flowing debentures for immediate cancellation:
On 01.07.2017: 1,000 debentures at ₹97 (cum-interests)
On 29.02.2017: 1,800 Debentures at ₹99 (ex-interests)
Debentures interests due dates are 30th September 31st march.
Give journal entries in the book of the year ended 31st march 2018.
Solution:
Journal entries
01.07.2017 Investment in own debentures A/c Dr. 95,000
Interest on own 8% debentures A/c Dr. 2,000
To bank A/c (WN 1) 97,000
(Being 1,000 debentures purchased at ₹ 97 cum interest. Payment
= 97,000, Interests form 1st July to 30th sep = 1,00,000× 8 %× 3/12
=2,000, hence, balance = cost )
01.07.2017 8% debentures A/c Dr. 1,00,000

To investment in own 8% debentures A/c 95,000
To profit on cancellation of own debentures A/c 5,000
(Being cancellation of own debentures)
30.09.2017 Interests expense A/c Dr. 36,000

To bank A/c (90,000× 8% ×6/12) 36,000
(Being half yearly debentures interests paid on ₹ 9,00,000 for 6
months)
29.02.2018 Investment in own debentures A/c (1,800 × ₹99) Dr. 1,78,200

Interests on own 8% debentures A/c DR. Dr. 6,000
(being 1,800 debentures purchased at ₹99 ex-interests. Interests
form 1st Oct to 29 Feb, i.e. for 5 months =1,800× 100 ×8%× 5/12 =₹
6,000)
29.03.2018 Interests expenses A/c Dr. Dr. 1,80,000

To interests on own 8% debentures A/c 1,78,200
To profit on cancellation of own debentures A/c 1,800
(being cancellation of own debentures)
31.03.2018 Interest expenses A/c Dr. Dr. 28,800

To bank A/c(7,20,000× 8%× 6/12) 28,800
(being half-yearly interest paid on debentures ₹7,20,000 for 6
months)

31.03.2018 Profit & loss A/c Dr. Dr. 72,800
To interest on own 8% debentures A/c 8,000
To interests expenses A/c 64,800
(being interests expenses transferred to profit & Loo A/c)
31.03.2018 Profit on cancellation of own debentures A/c Dr. Dr. 6,800

To profit & loss A/c 6,800
(being profit on cancellation transferred to profit & loss A/c)
Question 23.
Rama limited issued 8% debentures of ₹ 3,00,000 in earlier year, on which interest is payable half
yearly on 31st march and 30th September. The Company has power to purchase its own debenture
in the open market for cancellation thereof. The following purchase were made during the financial
year 2017-2018 and cancellation made on 31st march 2018-
 On 1st April, ₹ 50,000 nominal value purchased for ₹ 49,450 ex-interests.

 On 1st September, ₹30,000 nominal value purchased for ₹ 30,250 cum-interests.
Show the journal entries transactions held in the year 2017-2018.

Solution:
Journal entries
01.04.2017 Investment in own debentures A/c Dr. 49,450
To bank A/c 49,450
(being purchase of ₹ 50,000 nominal value own debentures at ₹
49,250 ex-interest)
01.09.2017 Investment in own debentures A/c(balancing figure) Dr. 29,250

Interests on own debentures A/c(₹30,000 ×8% ×5/12 ) Dr. 1,000
To bank A/c (given) 30,250
(Being purchase of 30,000 nominal value own debentures at ₹ 30,250
cum-int.)
30.09.2017 Interest on debentures A/c (₹3,00,000× 8% ×6/12) Dr. 12,000

To bank A/c 3,200
(being interest due on 30,000 debentures for 6 months ,interests on 8,800
own debentures recognize ad balance paid on outsider)
31.03.2018 Interest on debentures A/c(₹3,00,000× 8% ×6/12) Dr. 12,000

To interests on own debentures (income)A/c (₹80,000 ×8%× 3,200
6/12))
To bank A/c 8,800
(being interest due on 30,000 debentures for 6 months ,interests on
own debentures recognize ad balance paid on outsider)
31.03.2018 8% debentures A/c(50,000+30,000) Dr. 80,000

To investment in own debentures A/c (49,450+29,250) 78,700
To P&L A/c (profit on cancellation) (balancing figure) 1,300
(being cancellation of own debentures against debentures liability )
Question 24.
Airawada limited issued 10% debentures at par for ₹ 8 lakhs. Interest was payable half yearly on
30th June and 31st December every year. Under the terms of the trust deed. The debentures are
redeemable at par (three years after issue) by the company purchasing them in the open market
and cancelling. Them with minimum redemption of ₹ 80,000 every year.
In case, there is shortfall in redemption by the company by open market operations, the shortfall
would be made good by the company by payment on the last day of the accounting year to the
trustees, who would draw lots and redeem the balance debentures.
The company purchased its own debentures or cancellation as under:-
 30.09.2015 ₹1,00,000 at ₹98 cum-interest.

 31.05.2016 ₹60,000 at ₹95 ex-interest.
 31.07.2017 ₹90,000 at ₹96 cum-interest.
The company carried out its obligations under the trust deed. Prepare the following ledger accounts
in the books of the company. For calendar years 2015, 2016 and 2017 – (a) debentures A/c,
(b)debentures redemption A/c and (c)debentures interests A/c. Ignore taxation.
Solution:
1.10% Debentures A/c
Date Particular ₹ Date Particulars ₹
30.09.2015 To debentures redemption 1,00,000 01.01.2015 By balance b/d 8,00,000
A/c(purchase for cancellation)
31.12.2015 To balance c/d 7,00,000
Total 8,00,000 Total 8,00,000
31.05.2016 To debentures redemption A/c 60,000 01.01.2016 By balance b/d 7,00,000

(purchase for cancellation)
31.12.2016 To debentures redemption A/c 20,000

(shortfall made over to trustee)
31.12.2016 To balance c/d 6,20,000
Total 7,00,000 Total 7,00,000
31.07.2017 To debentures redemption A/c 90,000 01.01.2017 By balance b/d 6,20,000

(purchase for cancellation)
31.12.2017 To balance c/d 5,30,000
Total 6,20,000 Total 6,20,000
2. Computation of Interest paid on Debentures at 10% p.a.
Date Amount of debentures (in₹) Period (in Amount of interests (in ₹)

(A) Months)(B) (C)=[(A)×(B)/12]
30.06.2015 8,00,000 6 40,000
30.09.2015 1,00,000 3 2,500
31.12.2015 7,00,000 6 35,000
31.05.2016 60,000 5 2,500

30.06.2016 6,40,000 6 32,000
31.12.2016 6,40,000 6 32,000
30.06.2017 6,20,000 6 31,000
31.07.2017 90,000 1 750
31.12.2017 5,30,000 6 26,500
Note: Refer debentures A/c, in WN 1 for the amount outstanding as on the respective date.
3. Debentures Interest A/c
30.06.2015 To bank 40,000 31.12.2015 By profit and loss 77,500
A/c(transfer)
30.09.2015 To bank (Note) 2,500
31.12.2015 To bank 35,000
31.05.2016 To bank (Note) 2,500 31.12.2016 By profit and loss 66,500
A/c (transfer )
30.06.2016 To bank 32,000
31.12.2016 To bank 32,000
30.06.2016 To bank 31,000 31.12.2017 By profit and loss 58,250
(transfer)
31.07.2017 To bank (note) 750
31.12.2017 To bank 26,500

Note: Interest paid on debentures redeemed during the year can be shown through debentures
redemption A/c also.
4. Debentures redemption A/c
30.09.2015 To bank (98,000- 95,5000 30.09.2015 By 10% debentures 1,00,000
2,500)[WN 2(b)] A/c
30.09.2015 To P&L (profit on 4,500
cancellation)
Total 1,00,000 Total 1,00,000
31.05.2016 To bank (600× 95) 57,000 31.05.2016 By 10% debentures 60,000
A/c
31.05.2016 To P&&L A/c(60,000- 3,000 31.12.2016 By 10% debentures 20,000
57,000) A/c
31.12.2016 To bank –amount made 20,000
over to trustee –(assumed
redeemed at par)
31.07.2017 To bank [(900 ×96 )-750] 85,650 31.07.2017 By 10% debentures 90,000
A/c
31.07.2017 To P&L A/c (Pft on 4,350
canceln) [WN 2(h)]
Question 25.
Eesana Ltd issued ₹10, 00,000, 6% debentures stock at par on 21.01.2014.interts was payable on
30th June and December in each year.
Under the terms of the debentures trust deed, the stock is redeemable at par. the trust deed obliges
the company to pay to the trustee on 31.12.2015, and annually thereafter the sum of ₹1,00,000 to
be utilized for the redemption and cancelation of an equivalent amount of stock, which is to be
selected by drawing lots.
Alternatively, the company is empowered as form 01.01.2015, to purchase its own debentures o the
open market. These debentures must be surrendered to the trustee for cancellation and nay
adjustment for accrued interests recorded in the books of account. If any year, the nominal amount
of the stock surrendered under this alternative does not amount to ₹1,00,000 ,then the shortfall is
to be paid by the company to trustee in ash on 31st December.
The following purchases of stock were made by the company.

Date Nominal value of stock purchased purchase price per₹100 of stock
(₹) (₹)
30.09.2015 1,20,000 95(cum-interest)
31.05.2016 75,000 95(Ex-interests)
31.07.2017 1,15,000 92(Cum interests)
Assuming that the company fulfilled all its obligation under the trust deed, prepare the following
ledger account-(a)debentures stock A/c,(b)debentures redemption A/c, and(c)debentures interests
A/c. ignore cots of transaction and taxation.
1.6% Debentures stock A/c

30.09.2015 To debentures redeem- 1,20,000 01.01.2015 By balance b/d 10,00,000
ption A/c
Purchase for cancellation
31.12.2015 To balance c/d(bal.fig) 8,80,000
Total 10,00,000 Total 10,00,000
31.05.2016 To debentures 75,000 01.01.2016 By balance b/d 8,80,000
redemption A/c-
Purchase for cancellation
31.05.2016 To debentures 25,000
redemption A/c
-Shortfall made over to
trustee
31.12.2016 To balance c/d(bal.fig) 7,80,000
Total 8,80,000 Total 8,80,000
31.07.2017 To debentures 1,15,000 01.01.2017 By balance b/d 7,80,000
redemption A/c-
To balance c/d(bal.fig)
6,65,000
Total 7,80,000 Total 7,80,000
2. Interest paid on Debentures p.a.
Date Amount of debentures (in₹) Period (in Months) Interests at 6% p.a. (in ₹)
(A) (B) (C)=[(A)×(B)/12]
30.06.2015 10,00,000 6 30,000
30.09.2015 1,20,000 3 1,800
31.12.2015 8,80,000 6 26,400
31.05.2016 75,000 5 1,875

30.06.2016 8,05,000 6 24,150
31.12.2016 8,05,000 6 24,150
30.06.2017 7,80,000 6 23,400

31.07.2017 1,15,000 1 575
31.12.2017 6,65,000 6 19,950
Note: It has been assumed that debentures are purchased for immediate cancellation
3. Debentures Interest A/c
30.06.2015 To bank 30,000 31.12.2015 By profit and loss A/c 58,200
(tfr)
30.09.2015 To bank (Note) 1,800
31.12.2015 To bank 26,400
31.05.2016 To bank(Note) 1,875 31.12.2016 By profit and loss A/c 50,175

(tfr)
30.06.2016 To bank 24,150
31.12.2016 To bank 24,150
30.06.2016 To bank 23,400 31.12.2017 By profit and loss A/c 43,925

(tfr)
31.07.2017 To bank(note) 575
31.12.2017 To bank 19,950
Note: Interest paid on debentures redeemed during the year can be shown through debentures
redemption A/c also.
4. Debentures redemption A/c
30.09.2015 To bank [(1,200 ×98)-1,800] 1,15,800 30.09.2015 By debentures stock 1,20,000
A/c
To P&L (profit on 4,200
cancellation)[Note 2(b)]
Total 1,20,000 Total 1,20,000
31.05.2016 To bank (750× 95) 71,250 31.05.2016 By debentures stock 75,000

A/c
To P&L A/c(profit on 3,750 31.12.2016 By debentures stock 25,000
cancellation) A/c
31.12.2016 To bank –shortfall 25,000

(1,00,000-75,000)
Total 1,00,000 Total 1,00,000
31.07.2017 To bank [(1,150 ×92 )-575] 1,05,225 31.07.2017 By debentures stock 1,15,000
A/c
31.07.2017 To P&L A/c(Pft on 9,775
cancellation)[note2(h)]
Total 1,15,000 Total 1,15,000
Question 26.
Piyush Ltd had the following among their edger opening balances on 1st January:
11% debentures A/c ₹80,000,000

Debentures redemption reserves A/c ₹70,00,000
13.5% debentures in sneha Ltd A/c(face value₹30,00,000 ) ₹29,00,000
Own debenture A/c (face value ₹30,00,000) ₹27,00,000
As 31st December was the date of redemption of the debenture, the company started buying own
debentures and made the following purchase in the open market:
(a)1st February -5000 debentures at ₹ 98 cum-interests. (b) 1st may -5000 debentures at ₹99 ex-
interested.
half-yearly inters is due on the debenture on 30th June and 31st December in the case of both the
companies .on 31st December, the debenture in sneha Ltd. were fold for₹ 95 each ex-interests. on
that date, the outstanding debentures of piyush ltd were redeemed by payment and by cancellation.
Show the entries in the following ledger account of piyush Ltd during: Note: the face value of
debenture was ₹ 100.
(i) Debentures redemption reserves accounts, (ii) own debentures accounts.
Solution:
1. Debenture Redemption fund accounts in the books of piyush Ltd
Dec 31 To debenture in sneha Ltd. 50,000 Jan 1 By balance b/d 70,00,000
(loss on sale)
Dec 31 To Gen. reserve (transfer ) 77,67,500 June 30 By interests from sneha 2,02,500
Ltd. A/c (I half year)
Dec 31 By interests form sneha 2,02,500
Ltd. A/c (II half year)

Dec 31 By profit on cancellation 4,12,500
Total 78,17,500 Total 78,17,500
2. Own Debentures Account

Date Particular Nominal Interests ₹ Date Particular Nominal Interest ₹
Jan 1 To balance 30,00,000 - 27,00,000 June By Deb. - 2,20,000 -
b/d 30 Interests A/c
Feb To bank A/c 5,00,000 4,583 4,85,417 Dec By Deb. - 2,20,000 -
1 (note 1) 31 Interests A/c
Dec To bank A/c 5,00,000 22,917 4,95,000 Dec By 11% 40,00,000 - 40,00,000
31 (note 2) (5,000× 99) 31 debentures
3,19,583 (cancellation)
Dec To P&L 4,12,500
31 (profit on (Int.Tfr)
cancellation)
To DRR A/c
Total 40,00,000 4,40,000 40,00,000 Total 40,000,000 4,40,000 40,00,000
Note:
1
1. interest components of purchase on 1st Feb=₹5,00,000 × (Jan month only)= ₹4,583.(included
12
in cost)
5
2. interests components of punchers on 1st June=₹5,00,000 ×12 (Jan to many)= ₹22,917.(not
included in cost)
3.13.5% Debenture in sneha Ltd.
Date Particular FV Interest Cost Date Particular FV Interest Cost
Jan 1 To balance b/d 30,00,000 - 29,00,000 June By bank A/c(I - 2,02,500 -
30 half year)
To Deb. Red. 4,05,000 - Dec 31 By bank A/c(II - 2,02,500 -
reserves (Int.Tfr) half year)
Dec 31 By bank (sale) - - 28,50,000
By Deb. Red. - - 50,000
reserve(loess
on sale)
By bal c/d 30,00,000
Total 30,00,000 4,05,000 29,00,000 Total 30,00,000 4,05,000 29,00,000
4.11% Debentures Account

Dec 31 To own debentures A/c 40,00,000 Jan 1 By balance c/d 80,00,000
Dec 31 To bank A/c (Bal.fig) 40,00,000
Total 80,00,000 Total 80,00,000


Chapter 4: Redemption of Pref Share & Debentures Topic: Redemption of Debentures. Practice Questions

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Chapter 4: Redemption of Pref Share & Debentures

Topic: Redemption of Debentures.

Profit & Loss on cancellation of Debentures

June 30 To Capital Reserve (transfer ) ₹ 150 Mar. 1 By Debenture Account ₹ 150

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Debentures-Holders (Interest) Accounts

2nd Half Year

Profit and Loss on Cancellation of Debentures accounts

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Debenture-holders (Interest) Account

Premium on Redemption of Debentures Account

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Debenture Interest Account

Debenture Redemption reserve Account

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(i) Debentures accounts

Own Debentures Investment account

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Debenture Interest Account

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20X1 Particulars ₹ 20X1 Particulars ₹

11% debentures account:

(b) Own debentures Accounts

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Debenture Interest account

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Statement of profit & Loss (Extracts) for the year 20X1

Particulars Notes Amount

Statement of profit & Loss (Extracts) for the year 20X2

Particulars Notes Amount

Statement of Profit & Loss (Extracts) for the year 20X3

Particulars Note Amount

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Premium on redemption of Debentures A/c

20X1 Particulars ₹ 20X1 Particulars ₹

12% Debentures Account

Date Nominal Period Rate Interest

(ii) Interest credited to interest on own debenture A/c

Date Nominal Period Rate Interest

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Date Particulars ₹ Date Particulars ₹

Date Particulars ₹ Date Particulars ₹

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3. 10% Secured Bonds of Govt. (DRR investment) A/c

Date Particulars ₹ Date Particulars ₹

5. Debenture Holders A/c

Date Particulars ₹ Date Particulars ₹

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Particulars Dr. Cr.

Equity Shareholders A/c Dr. 75,000

Securities Premium A/c Dr. 25,000

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Bonus to shareholders A/c Dr. 50,000

12% debentures A/c Dr. 1,20,000

Profit & Loss A/c Dr. 3,600

Debenture holders A/c Dr. 1,23,600

Particulars Note no. ₹

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Particulars Note Figures as at the end of

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Calculation of number of shares to be allotted: