Question

On 1^st April, 2008 a company made an issue of Rs 2,00,000, 6% Debentures of Rs 100 each, repayable at a premium of 10%. The terms of issue provided for the redemption of 400 debentures every year starting from the end of 31-3-2010 either by purchase from the open market or by draw of lots at the company’s option.

On 31-3-2010, the company purchased for cancellation 300 debentures at 95% and 100 debentures at 90%.

Pass the necessary Journal entries for the issue and redemption of debentures assuming that the company had already created the

Debentures Redemption Reserve A/c by the require amount.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount RS	Credit Amount Rs
2008
April 1	Bank A/c	Dr.		2,00,000
	To 6% Debentures Application A/c				2,00,000
	(Amount received on 2,000 6% debentures of Rs 100 each)
	6% Debentures Application A/c	Dr.		2,00,000
	Loss on Issue of Debentures A/c	Dr.		20,000
	To 6% Debentures A/c				2,00,000
	To Premium on Redemption of Debentures A/c				20,000
	(Issue of 2,000 6% debentures of Rs 100 each, repayable at a premium of 10%)
2010
March 31	Own Debentures A/c [(300 × Rs 95) + (100 × Rs 90)]	Dr.		37,500
	To Bank A/c				37,500
	(Own debentures purchased)
	6% Debentures A/c	Dr.		40,000
	To Own Debentures A/c				37,500
	To Profit on Cancellation of Debentures A/c				2,500
	(Cancellation of debentures by purchase of own debentures)
	Profit on Cancellation of Debentures A/c	Dr.		2,500
	To Capital Reserve A/c				2,500
	(Profit on cancellation of debentures transferred to Capital Reserve)