Issue and Redemption of Debentures LEARNING OBJECTIVES After studying this chapter you will be able to : • state the

meaning of debenture capital and explain the difference between debentures and shares; • describe vari ous types of debentures; • record the journal entries for the issue of debentures at par, at a discount and at premium; • explain the concept of debentures issued f or consideration other than cash and the accounting thereof; • explain the concept of issue of debentures as a collateral security and the accounting thereof; • rec ord the journal entries for issue of debentures with various terms of issue term s of redemption; • show the items relating to issue of debentures in company’s balan ce sheet; • describe the methods of writing-off discount/loss on issue of debentur es; • explain the methods of redemption of debentures and the accounting thereof; and • explain the concept of sinking fund, its use for redemption of debentures an d the accounting thereof; 2 company raises its capital by means of issue of shares. But the funds raised by the issue of shares are seldom adequate to meet their long-term financial needs of a company. Hence, most companies turn to raising long-term funds also through debentures which are issued either through the route of private placement or by offering the same to the public. The finances raised through debentures are als o known as long-term debt. This chapter deals with the accounting treatment of i ssue and redemption of debentures and other related aspects. A SECTION I 2.1 Meaning of Debentures Debenture: The word ‘debenture’ has been derived from a Latin word ‘debere’ which means to borrow. Debenture is a written instrument acknowledging a debt under the comm on seal of the company. It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payme nt of interest at a fixed rate payable usually either half-yearly or yearly on f ixed dates. According, to section 2(12) of The Companies Act,1956 ‘Debenture’ includ es Debenture Stock, Bonds and any other securities of a company whether constitu ting a charge on the assets of the company or not. E. Thomas : “A debenture is a document under company’s seal which provides for the r epayment

74 Accountancy : Company Accounts and Analysis of Financial Statements of a principal sum and interest thereon at regular intervals which is usually se cured by a fixed or floating charge on the company’s property and which acknowledg es loan of a company”. Topham: “Debenture is a document given by a company as eviden ce of debt to the holder usually arising out of a loan and most commonly secured by a charge.” Chitty J.: “Debenture’ means a document which either creates a debt or acknowledges it and any document which fulfills either of these conditions.” Bond: Bond is also an instrument of acknowledgement of debt. Traditionally, the Government issued bonds, but these days’ bonds are also being issued by semi-gover nment and non-governmental organisations. The terms ‘debentures’ and ‘Bonds’ are now bei ng used inter-changeably. 2.2 Distinction between Shares and Debentures Ownership: A shareholder is an owner of the company whereas a debenture holder i s only a loan creditor. A share is a part of the owned capital whereas a debentu re is a part of borrowed capital. Return: The return on shares is known as divid end while the return on debentures is called interest. The rate of return on sha res may vary from year to year depending upon the profits of the company but the rate of interest on debentures is pre-fixed. The payment of dividend is an appr opriation out profits, whereas the payment of interest is a charge on profits an d is to be paid even if there is no profit. Repayment: Normally, the amount of s hares is not returned during the life of the company, while the debentures are i ssued for a specified period and the amount of debentures is returned after that period. However, an amendment in 1998 to The Companies Act, 1956 has permitted the companies to buy back its own shares from the market, particularly, when the price of its share in the market is lower than the book value. Voting Rights: S hareholders enjoy voting rights whereas debentureholders do not normally enjoy a ny voting right. Issue on Discount: Both shares and debentures can be issued at a discount. However, shares can be issued at discount in accordance with the pro visions of Section 79 of The Companies Act, 1956 which stipulates that the rate of discount must not exceed 10% of the face value. Security : Shares are not sec ured by any charge whereas the debentures are generally secured and carry a fixe d or floating charge over the assets of the company. Convertibility: Shares cann ot be converted into debentures whereas debentures

Issue and Redemption of Debentures 75 can be converted into shares if the terms of issue so provide, and in that case these are known as convertible debentures. 2.3 Types of Debentures A company may issue different kinds of debentures which can be classified as und er: 2.3.1 From the Point of view of Security () a Secured Debentures: Secured debent ures refer to those debentures where a charge is created on the assets of the co mpany for the purpose of payment in case of default. The charge may be fixed or floating. A fixed charge is created on a specific asset whereas a floating charg e is on the general assets of the company. The fixed charge is created against t hose assets which are held by a company for use in operations not meant for sale whereas floating charge involves all assets excluding those assigned to the sec ured creditors. Unsecured Debentures: Unsecured debentures do not have a specifi c a charge on the assets of the company. However, a floating charge may be creat ed on these debentures by default. Normally, these kinds of debentures are not i ssued. () b 2.3.2 From the Point of view of Tenure () a Redeemable Debentures: Redeemable de bentures are those which are payable on the expiry of the specific period either in lump sum or in Instalments during the life time of the company. Debentures c an be redeemed either at par or at premium. Irredeemable Debentures: Irredeemabl e debentures are also known as Perpetual Debentures because the company does not given any undertaking for the repayment of money borrowed by issuing such deben tures. These debentures are repayable on the on winding-up of a company or on th e expiry of a long period. () b 2.3.3 From the Point of view of Convertibility () a Convertible Debentures: Debe ntures which are convertible into equity shares or in any other security either at the option of the company or the debentureholders are called convertible debe ntures. These debentures are either fully convertible or partly convertible. Non -Convertible Debentures : The debentures which cannot be converted into shares o r in any other securities are called nonconvertible debentures. Most debentures issued by companies fell in this category. () b

2. In order to compensate the in vestors. The floating interest rate is usually tagged with the bank rate.5 From the view Point of Regist ration () a Registered Debentures: Registered debentures are those debentures in respect of which all details including names. at a premium . Bearer Debentures: Bearer debentures are the debentures which can be transferred by way of delivery and the company does not keep any record of the debentureholders. Zero Coupon Rate Debentures: These de bentures do not carry a specific rate of interest. The specified rate may either be fixed or floating. I nterest on debentures is paid to a person who produces the interest coupon attac hed to such debentures.3. The company may either ask for the entire amount to be paid on application or by means of instalments on application. addresses and particulars of hold ing of the debentureholders are entered in a register kept by the company. which is called the coupon rate. Such debentures can be transferred only by executing a regular transfer deed. on allotment and on various calls.3.4 Issue of Debentures The procedure for the issue of debentures is the same as that for the issue of s hares. such debentures are issued at substantial discount and the difference b etween the nominal value and the issue price is treated as the amount of interes t related to the duration of the debentures.76 Accountancy : Company Accounts and Analysis of Financial Statements 2.4 From Coupon Rate Point of view Specific Coupon Rate Debentures: These debe ntures are issued with a specified rate of interest. The intending investors apply for debentures on the basis of the prospect us issued by the company. Types of Debenture/Bond () b Security Tenure Mode of Redemption Coupon rate Registration Secured/ Unsecured/ Redeemable Perpetual/ Mortgage Naked debenture Irredeemable debenture debenture debenture Convertible debenture NonConvertible debenture Zero Specific coupon rate rate Redeemable debenture Bearer debenture Fully convertible debenture Partly convertible debenture 2. Debentures can be issued at par.

.

More than two instalments involving calls is a rarity.100 each payable Rs. and show the portion of the balan ce sheet. To Debenture Application A/c (i i) For adjustment of applicat ions money on allotment Debenture Application A/c Dr.30 on applic ation and remaining amount on allotment. . To Debentures A/c (i i) On the receipt of the first call Bank A/c Dr. 12% debentures of Rs. issues Rs.e. To Debentures A/c If d ebenture amount is received in two instalments: ( i ) On receipt of application money Bank A/c Dr.1 Issue of Debentures for Cash Debentures are said to be issued at par when their issue price is equal to the f ace value. 2. However. ( i ) () c Notes: Illustration 1 ABC Ltd. To Debentures A/c (i) For a allotment money due ii Debenture Allotment A/c Dr. () a () b If whole amount is received in one instalment: ( i ) On receipt of the money on application Bank A/c Dr. To Debenture Allotment A/c If debenture money is received in more than two instalments Additional entries: On making the first call Debenture First Call A/c Dr. To Debenture First Call A/c Similar entries may be made for the second call and final call. They can also be issued for consideration other than cash or a s a Collateral Security.000. Give journal entries in the books of ABC Ltd. i.4.10.000 debentures which were fully allotted. on applicatio n and allotment. and all the relevant allotment money duly received.Issue and Redemption of Debentures 77 or at a discount. normally the wh ole amount is collected on application or in two instalments.. The journal entries recorded for such issue are as under. To Debenture Application & Allotment A/c (i i) On makin g the allotment Debenture Application & Allotment A/c Dr. The public applied for 9. To Debentures A/c (v i) On receipt of allotment money Bank A/c Dr.

00. To 12% Debentures A/c (Amount due on 9.000 debent ures received) 12% Debenture Application A/c Dr.70.000 Assets Cash at bank Amount (s) R. Debit Amount (s) R. 6. Amount (s) R. 10. during the life time of debentures. it is said to be issued at a discount.70.5 being the amount of discount. . To 12% Debentures A/c (Applicat ion money transferred to debentures Account on allotment) 12% Debenture Allotmen t A/c Dr.30.70.2 Issue of Debentures at a Discount When a debenture is issued at a price below its nominal value. For example.4.000 6..30. The discount on issue of debentures can be w ritten-off either by debiting it to profit and loss account or out of the capita l profits.000 Credit Amount (s) R. Bank A/c Dr.70.78 Accountancy : Company Accounts and Analysis of Financial Statements Solution Books of ABC Limited Journal Date Particulars LF .30.000 6.100 debentures at Rs.95.000 2.000 6.000 debentures on allotment @ R s. 2.00.30. the issue of Rs.000 2. Rs.000 2.70 per debenture) Bank A/c To 12% Debenture Allotment A/c (Amount received on allotment) Dr. Discount on issue of debentures is a capital loss and is shown on the asset side of the balance sheet under the head “Miscellaneous Expenditure” till it is written-off. if any.000 Balance Sheet of ABC Limited as on ——— Laiiis iblte 12% Debentures *Relevant data only. To 12% Debenture Application A/c (Application money on 9. 10.000 2.

4.000 6. However.000 Dr. Debit Amount (s) R.000 Credit Amount (s) R. 1956 does not impose any restrictions upon the issue of deben tures at a discount. Illustration 2 TV Components Ltd.. if they are to be converted immediately. Journal Date Particulars LF . convertible debentures cannot be issued at a disco unt. 4. 5.50.00. Also show the relevant portion of the balance sheet.00. 5.50. 12% debentures of Rs.Issue and Redemption of Debentures 79 The Companies Act.000 4.000 4.40 On allotment Rs. Dr. Solution Books of TV Components Ltd.000 Dr.000 5.100 each at a discount of 5% payable as follows: On application Rs.00. 30 per debenture) 12% Debenture Application A/c To 12% Debenture A/c (Transfer of application money to debenture account) 12% Debenture Allotment A/c Discount on Issue of Debentures A/c To 12% Debenture A/c (Allotment money due on debentures) Bank A/c To 12% Debenture Allotment A/c (Receipt of allotment money on debentur es) Dr.000 .00.000 50.00.55 Show the journal entries including these for cash.50. Bank A/c To 12% Debenture Application A/c (Receipt of application money @ Rs. assuming that all the instalments were duly c ollected. issued 10.000.

issued 2. as on ——— Laiiis iblte Secured Loans: 12% Debentures Amount Assets (s) R. The amount of premium is credited to Securities Premi um account and is shown on the liabilities side of the balance sheet under the h ead “Reserves and Surpluses”.100 each. Cash at bank 10. 2.000 1. (Rs . Bank A/c To 10% Debenture Application A/c Dr.50.00.100 debentures for Rs. Illustration 3 XYZ Industries Ltd.10 per debenture payable as follows: On application Rs. 9. Solution Books of XYZ Industries Limited Journal Date Particulars LF .000 50.000. Debit Amount (s) R. 10% debentures of Rs. (application money on 10% debentures received) 10% Debenture Application A/c To 10% Debentures A/c (Transfer of application money on allotment) Dr.50 On allotment Rs.60 The debentures were fully subscribed and all money was duly received.3 Debentures issued at Premium A debenture is said to be issued at a premium when the price charged is more tha n its nominal value.0 0..000 Credit Amount (s) R.10 is being the premium).000 .000 1. Show how the amounts will appear in t he balance sheet.00. 1.00.000 Miscellaneous Expenditure: Discount on issue of debenture s Amount (s) R.000 * Relevant data only. 1. Record th e journal entries in the books of company. at a premium of Rs.110.80 Accountancy : Company Accounts and Analysis of Financial Statements Balance Sheet of TV Component Ltd. For example.4.00. the issue of Rs.

000 81 1.000 Balance Sheet of XYZ Industries Ltd.20.00.000.20. Show how the amounts will appear in balance sheet.000 Amount (s) R.45 (including premium) Rs. Cash at bank 20. Amount Assets (s) R.20.000 1. issued 5.40 The debentures were fully subscribed and all money was duly received.20.20. . 1.Issue and Redemption of Debentures 10% Debenture Allotment A/c To 10% Debentures A/c To Securities Premium A/c (All otment money due on debentures including the premium) Bank A/c To 10% Debenture Allotment A/c (Allotment money received) Dr. as on ——— Laiiis iblte Reserves and Surplus: Securities premium Secured loans : 10% Debentures 2.000 2.000 20.000 * Relevant data only. 1. at a premium of Rs.00. Record the necessary entries in the books of the company.000 Illustration 4 A Ltd.000 2.100 each.20.10 per de benture payable as follows: On application On allotment On first and final call Rs. 2.25 Rs.000 Dr. 10% debentures of Rs.

50. 2.25.000 5.82 Accountancy : Company Accounts and Analysis of Financial Statements Solution Books of A Limited Journal Date Particulars LF .25.000 2.25. ..000 Dr.000 2.000 2.00.000 Amount (s) R. 5.000 * Relevant data only.25.00.000 1. 1.000 2.25.000 Balance Sheet of A Limited as on ———— Laiiis iblte Reserves and Surplus: Securities premium Secured Loans : 10% Debentures Amount Assets (s) R.00.000 5. To 10% Debenture Application A/c (Application money on 10% debentures received) 10% Debenture Application A/c Dr.25. To 10% Debentures A/c (Transfer of application money on allotment) 10% Debenture Allotment A/c Dr.000 5.000 50. 2. 1.00. Debit Amount (s) R. Cash at bank 50. 1. To 10% Debentures A/c To Se curities Premium A/c (Allotment money of due on debentures including the premium ) Bank A/c To 10% Debenture Allotment A/c (Allotment money received) 10% Debentu re First & Final Call A/c To 10% Debentures A/c (First and final call money due on debentures) Bank A/c To 10% Debenture A/c (First and final call money receive d) Dr.00.000 1.000 Credit Amount (s) R.000 Bank A/c Dr.25.50.75.50.000 Dr.000 2.

000 debentures. Illustration 5 X Ltd.000 4. will be refunded to them.000 Dr. cannot allot more debentures than it has invited for subscription. 1.00.20.14.000 6. But the money received fro m applicants to whom no debentures have been allotted.Issue and Redemption of Debentures 83 2. were rejected.10.60.000 1.000 5. the issue is said to be over subscribed.000 (Amount due on allotment on 10. 4.40 on applicat ion and Rs. 5.000 debentures and the remaining application.. Journalise the transactions.00 0 debentures) 12% Debenture Application A/c To 12% Debentures A/c (Transfer of a pplication money on 10. All money was duly received. A company. applications for 2. Debit Amount (s) R.000 debentures on allotment) 12% Debenture Application A/ c To Bank A/c (Application money on rejected applications refunded) 12% Debentur e Allotment A/c To 12% Debentures A/c Dr.000 Credit Amount (s) R. howev er. Applica tions of 9. Issued Rs.000 debentures were accepted in full.00. The exces s money received on over subscription may.100 each payable Rs. 6. The public applied for Rs.000 debentur es were allotted 1. be retained for adjustment t owards allotment and the respective calls to be made.60 on allotment. however.60.00. 12% debentures of Rs.000.000 debentures) . Dr.5 Over Subscription When the number of debentures applied for is more than the number of debentures offered to the public.000 Dr. Solution Books of X Limited Journal Date Particulars LF .20. Bank A/c To 12% Debenture Application A/c (Receipt of application money on 14.00.

On issue of debentures (a) At Par Vendors To Debentures A/c Dr. 2. A/c Dr.000 Debenture Application A/c To Debenture Allotment A/c (Surplus application money on 1. Dr.60.100 each.000 40. . On purchase of assets Sundry Assets A/c To Vendor’s Dr.000 6.000 from a nother company and agreed to make the payment of purchase consideration by issui ng 2.00. 5. 10% debentures of Rs. () At premium b Vendors To Debentures A/c To Securities Premium Dr.000.84 Bank A/c Accountancy : Company Accounts and Analysis of Financial Statements Dr. Dr.00.6 Issue of Debentures for Consideration other than Cash Sometimes a company purchases assets from vendors and instead of making payment in cash issues debentures for consideration thereof. the debentures may be issued at par.000 debentures transferred to debenture allotmen t account and the balance due was received) 2. at a premium or at a discount then entries made in such a situation are similar to those of the shares issued for considera tion other than cash. Record the necessary journal entries. (c) At a discount Vendors Discount on Issue of Debenture A/c To Debentures A/c Illustration 6 Aashirward Company Ltd. 2.purchased assets of the book value of Rs. Such issue of debentures is called debantures issued for consideration other than cash. which are as follows : 1. In that case also.

000 Illustration 8 National Packaging company purchased assets of the value of Rs. Record necessary jo urnal entries. . 1.20. Debit Amount (s) R.000 Illustration 7 Rai Company purchased assets of the book value of Rs.Issue and Redemption of Debentures 85 Solution Books of Aashirwad Company Limited Journal Date Particulars LF .000 2.00. Vendors Dr. 100 each at a premium of 10%. Sundry Assets A/c To Vendors (Assets purchased from vendors) Vendors To 10% Debe ntures A/c (Allotment of debentures to vendors as purchase consideration) Dr. 10% debentures of Rs.20. 2.000 2.000 debentures of Rs.20.00. Debit Amount (s) R. 100 each at a discount of 5%. 2. 1 0% debentures of Rs. 2.. Dr. 2.000 Credit Amount (s) R. To 10% Debentures A/c To Securities Premium A/c (Allotment of 2.90. 100 each at a premium of 10% as purchase consideration) 2.000 Credit Amount (s) R.000 2.00.000.000 2.000 from an other company and agreed to make the payment of purchase consideration by issuin g 2.000.20. Solution Books of Rai Company Limited Journal Date Particulars LF .000 from another comp any and agreed to make the payment of purchase consideration by issuing 2.000 20.00.. Sundry Assets A/c To Vendors (Assets purchased from vendors) Dr.00. Record necessary journal entr ies.

000 2. Solution Books of G. Discount on Issue of Debenture A/c Dr.000 10. Assume debentures have been issued.. Sundry Assets A/c To Vendors (Assets purchased from vendors) In Ist Case Vendors To 10% Debentures A/c (Allotment of debentures to vendors as purchase considera tion) Dr.90. Debit Amount (s) R.000 Credit Amount (s) R. and .000 Illustration 9 G. 100 each. . 1 At par . Record necessary journal entries. 99. 99. Dr. Debit Amount (s) R. To 10% Debentures A/c (Allotm ent of debentures .90.000 .00.000 from another fi rm.000 debentures of Rs.Rai company purchased assets of the book value of Rs.S. 100 each at a discount of 5% as purc hase consideration) 1.86 Accountancy : Company Accounts and Analysis of Financial Statements Solution Books of National Packaging Limited Journal Date Particulars LF .90.S.Rai Company Limited Journal Date Particulars LF . 2 At discount of 10%. Sundry Assets A/c To Vendors (Assets purchased from vendors) Dr.000 99.. 99.2. 3 At a premium of 10%.000 1.000 Credit Amount (s) R.000 99. Vendors Dr. It was agreed that purchase consideration be paid by issuing 11% debentures of Rs. 1.

000 Sometimes a company may purchase the assets as well as take over its liabilities of another concern.. the purchase consideration will be equal to the value of net assets and assets . 100 issued at a premium of 10% to the vendors) 99.000 9. 2 lakh f rom Kapil Enterprises. Journal Date Particulars LF . Debit Amount (s) R. acquired assets of Rs. In such a situation.000 11.00. Illustration 10 Romi Ltd. Case Discount on Issue of Debenture A/c Dr.000 99.10. Case To 11% Debentures A/c To Securities Premium A/c (900 debentures of Rs. the journal entry will be: Sundry Assets A/c To Sundry Liabilities A/c To Vendors (Purchase of the Vendors’ b usiness) Dr.liabilities) taken over.00. To 10% Debenture s A/c (1. 100 each at par as purchase consideration. Solution Books of Romi Ltd. Romi Ltd. 20. issued 8% debentures of Rs. 20 lakh and took over creditors of Rs. It happens usually is case of purchase of the whole busines s of the other concern.000 2. .000 Credit Amount (s) R. Record necessary journal entries in the books of Romi Lt d. Sundry Assets A/c To Kapil Enterprises To Sundry Creditors A/c (The purchase of business) Dr. 100 issued at discount of 10% to vendor) In IIIrd Vendors Dr. and if th e whole amount of the consideration is paid by issue of debentures.000 90.Issue and Redemption of Debentures In IInd Vendors Dr.000 18.000 87 1.100 debenture of Rs.00.

Building A/c Dr. machinery worth Rs. 8% debentures of Rs.20.40.000 .000 for a purchase consideration of Rs. Furniture A/c Dr.10. (Purchase of assets and taking over of liabil ities of XYZ Co. Debit Amount (s) R. 100 each) In case of the whole business being taken over if the amount of debentures issue d is more than the amount of the net assets taken over.40.000. Dr. 18.000 10.0 00 and furniture worth Rs. Blue Prints Ltd. Its difference (excess) will be treated as value of goodwill and the same shall also be debited while pa ssing the journal entry for the purchase of vender’s business (see Illustration 10 ).000 15.e.000 Credit Amount (s) R.15.) XYZ Co.88 Vendors Accountancy : Company Accounts and Analysis of Financial Statements Dr. and took over its liabilities of R s.50.000 To 8% Debentures A/c (The issue of 18.000.000 from XYZ Co.000.1.100 each at a premium of 5%.000 20.15.. the value of debentures is less than t he value of the net assets taken over the difference will be credited to capital Reserve accounts (See Illustration 12).3.00. Record necessary journal entries.000 3. Plant & Machinery A/c Dr.000 3. But if it is the other way round i.50.15.000 debentures at a premium of 5%) 3.1.00.000 35. 1. paid the purchase consideration by issuing 12% debentures of Rs.000 1. Solution Books of Blue Prints Limited Journal Date Particulars LF . To Liabilities (Sundry) To XYZ Co.. Purchased building worth Rs. Illustration 11 Blue Prints Ltd. Goodwill A/c 1 Dr.000 18. To 12% Debentures A/c To Securities Premium A/c (I ssue of 3.00.

000 to be satisfied by issue of 15% debentures of Rs. To 15% Debe ntures A/c To Securities Premium A/c (Issue of 2250 debentures of Rs. Debit Amount (s) R.00.000 45. To Sundry Liabilities A/c To B & Co.2. To Capital Reser ve (Purchase of assets and liabilities from B Ltd.000 from B & Co.000 2. the .000 from another company and agreed to make the payment of purchase consi deration by issuing 2.000 = 3. Show the journal entries in t he journal of A Ltd.000 from another company and agreed to make the payment of purchase considera tion by issuing 2. 10% debentures of Rs. 3. Re cord necessary journal entries.70. 3. No.000 Credit Amount (s) R. Sundry Assets A/c Dr.000 105 Illustration 12 A Ltd.70. dif ference has been debited to Goodwill account.100 each at a premium of 10%.100 each at a discount of 5%.000 10. 90.000. Dr. 2 No.000 Do it Yourself 1 . took over the assets of Rs.15. Ltd.Issue and Redemption of Debentures *Note: 89 1 Since the purchase consideration is more than net assets taken over.1.25.. 10% debentures of Rs. Record necessary journal entries. for an agreed purchase consideration of Rs. of debentures issued .000 and liabilities of Rs.000. . Ltd. 2 .) B & Co.100 each at a premium of 20%) 2.000 2.10.00.20. Ltd. o f debentures = = Purchase Consideration Issue Price of a Debenture Rs. A company purchased assets of the value of Rs.000 20.100 at 20% premium.2. Solution Books of A Limited Journal Date Particulars LF . Amrit Company Limited purchased assets of the book value of R s.3.70.

000. Pass the necessary journa l entries for the purchase of machinery and issue of debentures when: ( Debentur es are issued at par. Illustration 13 Suvidha Ltd.07.00. Journal Date Particulars LF . 3. (Machinery purchased) Case(i) When debentures ar e issued at par: Suppliers Ltd.60.000 from Suppliers Ltd.000 2. and i i (i) Debentures are issued at 10% premium ii Solution Books of Suvidha Ltd.000.98. Record necessary journal entries. Nikhil and Ashwin Limited bou ght business of Agarwal Limited consisting sundry assts of Rs.00. Debit Amount (s) R.000 22. Dr.98.000 Credit Amount (s) R. 1. Dr.00. 1.000 . Machinery A/c To Suppliers Ltd.98.000 were issued at a premium of 10% for the purpose..000 Dr. 4 .000 1. 3.20. i ) () Debentures are issued at 10% discount.000 1.) Case(ii) When debentures are issued at 10% discount: Suppliers L td.98. 20. 1.98. sundry creditors Rs. Purchase Price was pai d by 6% debentures. Accountancy : Company Accounts and Analysis of Financial Statements Rose Bond Limited purchased a business for Rs. Record necessary journal entries. 100 each fully paid at a discount of 4% in satisfaction of purchase consideration. at 10% discount) Dr. Debentures of Rs. 1.90 3 .000 for a consideration of Rs. purchased machinery worth Rs. It issued 14% debent ures of Rs. 22.100 each.98. The payme nt was made by issue of 12% debentures of Rs. To 12% Debentures A/c (12% Debentures issued to Suppliers Ltd. Discount on Issue of Debentures A/c To 12% Debentures A/c (12% Debentures is sued to Suppliers Ltd.1.200.

7 Issue of Debentures as a Collateral Security A collateral security may be defined as a subsidiary or secondary or additional security besides the primary security when a company obtains a loan or overdraft from a bank or any other financial Institution. Such an issue of debenture is known as ‘Debe ntures issued as Collateral Security’. the lender has the right to invoke the benefit of collate ral security whereby debentures may either be presented for redemption or sold i n the open market.98.000 Workings: () a Number of debentures issued in case of 10% discount: (s) R. the company may issue its own debentures to the lenders in addition to some other assets already pledged.000 91 1.800 Debentures 2. It may pledge or mortgage some assets as a secured loan against the said loan. Face value 100 Add: Premium 10% 10 110 Value at which issued Rs .9 8 . But the lending institutions may insist on some more assets as collateral security so that the amount of loan ca n be realised in full with the help of collateral security in case the amount fr om the sale of principal security should fall short of the loan money. If the company fails to repay the loan alon g with interest.000 18.0 0 0 110 () b = 1. 1 .80. Face value 100 Less: Discount 10% 10 Value at which issued 90 Rs .0 0 0 = 2 . To 12% Deben tures A/c To Premium on Issue of Debentures A/c (12% Debentures issued to Suppli ers Ltd.2 0 0 Deb en tu r es 90 Number of debentures issued in c ase of 10% premium: (s) R.9 8 . In such a situation. 1. Debentures issued as collateral security can be dealt with in two ways in the books of the company: . at 10% premium) Dr.Issue and Redemption of Debentures Case(iii) When debentures are issued at 10% premium: Suppliers Ltd. the sender is free to receive his money from the sale of primar y security and if the realisable value of the primary security falls short to co ver the entire amount.1 .

000. 10. a note to the effect that it has been secured by issue of debentures as a co llateral security is appended.00.000 To 10. security for bank 9% Debentures A/c rity on repayment i i .92 Accountancy : Company Accounts and Analysis of Financial Statements First Method No entry is made in the books of accounts since no liability is created by such issue. When loan is repaid the above entry will b e cancelled by a reverse entry : 9% Debentures A/c Dr.000 i Issue of 10.00. on the liability side of the Balance Sheet.000 (No entry is made for issuing debentures as a Collateral Security) Second Method The issue of debentures as a collateral security may be recorded by means of jou rnal entry as follows: Journal Entries .000 taken from a bank.10. However.000 debe ntures of Rs. For example. Debenture Suspense account will appear as a deduction from the debentures on the liability side of the Balance Sheet. .00.00.000.00. 10. below the item of lo an.100 each as collateral loan of Rs.100 each for a loan of Rs. 9% debentures of Rs. 10. 10.000 For cancellation of 9% debentures as collateral secu of bank loan.10.000 Debentures of Rs. X Company has issued 9%. 10 each as col lateral security) 10.00.000 To Debenture Su spense A/c 10. Debenture Suspense A/c Dr. This fact m ay be shown in the balance sheet as under: Balance Sheet of X Company as on ———— Liabilities Secured Loans: Bank loan (secured by 9%. 00.

. Second Method: Journal Entries Date Particulars LF .00. 10. Debenture Suspense A/c To 10% Debentures A/c (12. Note: No entry recorded in the books of accounts. 12.000 of Rs. Secured Loans: Bank loan 10.100 each is sued as collateral security to PN Bank) Dr. Debit Amount (s) R.000 Credit Amount (s) R.00.000 Debentures of Rs.10. Explain how y ou will deal with the issue of debentures in the books of the company.100 each as a collateral security.00.00.Issue and Redemption of Debentures 93 Balance Sheet of X Company as on ———— Laiiis iblte Amount (s) R.00.000 12.00. 10% debenture of Rs.000 from Punjab National Bank and issued 10% d ebentures of Rs.12.000 9%.000 debenture of Rs.000 Assets Amount (s) R.00.100 each as collateral security) Amount (s) R. Solution First Method: Balance Sheet (Extract) Laiiis iblte Secured Loans: Loan from PN Bank (Secured by issued of 12.000. . 10.000 10.00.100 eac h Less : Debentures 10.000 Suspense A/c ————— Illustration 14 A company took a loan of Rs. Assets Amount (s) R.

2. 8% debentures of Rs.000 after two months from a bank and deposited 1. Record necessary journal entries an d prepare balance sheet of a company.00.00. State h ow the debenture stock be dealt with while preparing the balance sheet of a comp any.000 from a bank and deposited 1. Loan from PNB 10. 2 lakhs. 50. 1.000 Less : Debentures Suspense A/c 12. 2. 22.000.00.00. .00.50. 40.000 for which principal security is Business Premises worth Rs. 2.400.000 from bank against Plant as primary security and deposited 6. Assets Amount (s) R. The issue (1) and (2) are redeemable at the end of 10 years at par. 5. .000 2 Creditor for Rs.000. 2. Redemption of debentures means discharge of li ability on account of debentures by repayment made to the debentureholders. 2 Hassan Limited took a loan of Rs. 100 each as a collateral security. Company again took a loan of Rs. as follows to: Rs. 3 Meghnath Limited took a loan of Rs. 8% debentu res of Rs.50. 30.000 and issued 4. 6% debent ures of Rs.000 from a bank against primary . Depending upon the terms a nd conditions of issue and redemption of debentures. 80.5 0.000. it usually mentions the terms on which they wi ll be redeemed at their maturity. The company again after one year took a loan of Rs.000 10% Debentures 12. 6% debentures of Rs. 100 each as collateral security.8 Terms of Issue of Debentures When a company issues debentures.000 worth Rs.0 0. 8% debentures stock which was issued . the following six situation s are commonly found in practice. 000.20 .94 Accountancy : Company Accounts and Analysis of Financial Statements Balance Sheet (Extract) Laiiis iblte Amount (s) R.000 capital expenditure .000. 100 each as collateral security.00.000 ————— Do it Yourself 1 Raghuveer Limited created 10.000 in satisfaction of his claim 3 Bankers as Collateral Security for a bank loan .00. 20. security worth Rs. Debe ntures can be redeemed either at par or at a premium.00. 1 Sundry Subscribers for Cash at 90% . Record necessary journal entries and prepare a balance sheet of a company. 100 each as collate ral security along with primary security worth Rs.00.

To Debenture Application & Allotment A/c 2 . Dr. Issue at par and redeemable at par () a Bank A/c (Receipt of application money) () b Debenture Application & Allotm ent A/c To Debentures A/c (Allotment of debentures) Dr. Issue at a discount and redeemable at par () a Bank A/c (Receipt of application money) () b Debenture Application & Allotm ent A/c Discount on Issue of Debentures A/c To Debentures A/c (Allotment of debe ntures at a discount) Dr. Dr. To Debenture Application & Allotment A/c . Dr. Dr.Issue and Redemption of Debentures 95 ( i ) () i i (i) ii (v i) () v (i v) Issued at par and redeemable at par Issued at discount and redeemable at par Iss ued at a premium and redeemable at par Issued at par and redeemable at a premium Issued at a discount and redeemable at a premium Issued at a premium and redeem able at a premium The journal entries to be recorded for the for above six cases of issue of deben tures are as follows. 1 . To Debenture Application & Allotment A/c 3 . Issue at premium and redemption at par () a Bank A/c (Receipt of application money) () b Debenture Application & Allotm ent A/c To Debentures A/c To Securities Premium A/c (Allotment of debentures at a premium) Dr.

Dr.(with premium on redemption) (with nominal val ue of debenture) (with premium on redemption) 5 . (with disc ount on issue plus premium on redemption) To Debentures A/c To Premium on Redemp tion of Debentures A/c (Allotment of debentures at a discount and redeemable at premium) (with nominal value of debenture) (with premium on redemption) 6 . Accountancy : Company Accounts and Analysis of Financial Statements Issue at par and redeemable at premium () a Bank A/c Dr. To Debenture Application & Allotment A/c (Receipt of application e Application & Allotment A/c Loss on Issue of Debentures A/c To To Securities Premium A/c To Premium on Redemption of Debentures h premium on redemption) (with nominal value of debenture) (with e) (with premium on redemption) money) Debentur Debentures A/c A/c Dr. Issued at a premium and redeemable at premium Bank A/c Dr. Issue at discount and redemption at premium Bank A/c Dr. Dr.96 4 . To Debenture Application & Allotment A/c (Receipt of application money) () b Deb enture Application & Allotment A/c Loss on Issue of Debentures A/c To Debentures A/c To Premium on Redemption of Debenture A/c (Allotment of debentures at par a nd redeemade at a premium) Dr.(wit premium on issu . To Debenture Application & Allotment A/c (Receipt of application money) Debentur e Application & Allotment A/c Loss on Issue of Debentures A/c Dr. Dr.

5 Is sue of Rs.10. It is a .000. 2 Premium on redemption is a liability of a company payable in futu re. righ t at the time of the issue by debiting the amount to ‘Loss on Issue of Debentures A/c’. 1.000 1.. Solution Journal Date Particulars LF .000 1. at a premium of 5%.000. To 9% Debenture Application & Allotment A/c (Debentures Application money received) Debenture Application & Allotment A/c To 9% Debentures A/c (App lication money transferred to Debentures Account) Dr. gradually against the profit and loss account or securities premium account. 100 each and redeemable at .00 0.Issue and Redemption of Debentures Notes: 1 When debentures are redeemable at a premium. 3 Issue of Rs. 100 each at prem ium of 5% .000 Credit Amount (s) R.000 1. It may be noted that when the debentures are issued at a discount and are redeemable at par.10.000. Just like discount on issue o f debenture account. but redeemab le at premium of 5%. 100 each at discount of 5% . .000. 9% debe ntures of Rs. Debit Amount (s) R. It may be noted that when debentures are issued at a discount and are redeem able at a premium.00.10. 100 each at par but repayable . par. 9% debentures of Rs. 1 Bank A/c Dr.00. 4 Issue of Rs. 9% debentures of Rs. 9% debentures of R s.10. and redeemable at premium of 5%. 2 Issue of Rs. the amount debited to ‘Discount on Issue of Debentures A/c’ as usual.00. 9% debentures of Rs.10.000. a provision has to be made . but redeemable at par. repayable at par. 100 each at premium of 5% . provision and is shown under the head ‘Secured Loans’ until debentures are redeemed.10. 97 Illustration 15 Give Journal Entries for the following: 1 Issue of Rs. the amount of discount issue is also debited to ‘Loss on Issue of Debentures’. 3 Loss on issue of debenture account is a capital loss and it is to be written-off . 6 Issue of Rs. 100 each at discount of 5% . The unwritten-off amount is shown on the assets side of the bal ance sheet under the head ‘Miscellaneous Expenditure’.00. 9% debentures of Rs.

05. 1. To 9% Debentures A/c To Securities Premium A/c (Debentures application money transferred to Debenture s & Securities Premium account) 3 Bank A/c Dr.00.000 95.000 5 Bank A/c Dr.000 1.00.000 5.000 1.00.05.00.000 1.000 5.000 10.000 95.000 5.000 1. To 9% Debenture Application & All otment A/c (Debentures application money received) 9% Debenture Application & Al lotment A/c Discount on Issue of Debentures A/c To 9% Debentures A/c (Debentures application money transferred to Debentures account) 4 Dr.000 .00.000 5. To 9% Debenture Application & Allotment A/c (Debentures Application money received) Debenture Application & Allotment A/c Dr.98 2 Accountancy : Company Accounts and Analysis of Financial Statements Bank A/c Dr.000 Bank A/c Dr.000 95. To 9% Debentures A/c To Premium on Redemption of Debentures A/c ( Debentures Application money transferred to Debentures account) 1. Dr.00. To 9% Debentures A/c To Premium on Redemption of Debentures A/c ( Debentures application money transferred to debentures and Premium on debenture account) 95.00 0 1.000 1.000 1.05.000 95.000 1. To 9% Debenture Application & Allotment A/c (Debentures Application money received) Debenture Application & Allotment A/c Dr.000 95. Loss on Issue of Debe ntures A/c Dr. Loss on Issue of Debe ntures A/c Dr.00.000 5. To 9% Debenture Application & Allotment A/c (Debentures application money received) Debenture Application & Allotment A/c Dr.

00. 150.000 each are issued at 5% discount and repayable at premium of 10%. 7% debentures of Rs.1. Discount on issue of Debentures A/c Dr. To 9% Debenture A/c To Premium on Redemption of Debentures A/c To Securities Premium A/c (Debenture application money transferred to debentures account) 1.000 Credit Amount (s) R.000 each are issued at 5% discount and repayable at par. Bank A/c Dr. 8% debentures of Rs.1 .000. Journal Particulars LF . 8% debentures at a discount of 5% repayable at par) .000 1. Solution () a Date Books of X Ltd.000 each are issued at 5% premium. 8% debentures of Rs.000 5.. 80.100 each are issued as collateral security against a loan of Rs. Debit Amount (s) R.05. Loss on Issue of De bentures A/c Dr.40. Another 400.000 5. 1.Issue and Redemption of Debentures 6 Bank A/c Dr. and show how they would appear in its balance she et under the following cases: () a () b () c () d 120.20.000 6.14. To 9% Debenture Application & Allotment A/c (Debentures Applicati on money received) Debenture Application & Allotment A/c Dr.05.000 5.000 1.1. To 8% Debentures A/c (Issue of 120.000 1.000 99 1. 9% debe ntures of Rs.000 Illustration 16 You are required to set out the journal entries relating to the issue of the deb entures in the books of X Ltd.05.

Balance Sheet of X Ltd.50.500* 1.000 () b Date Journal Particulars LF . Bank A/c To 9% Debentures A/c To Securities premium A/c (Issue of 80. Cash at bank 1. 1. 1. 1.50. Bank A/c Dr.000 Credit Amount (s) R. 1.000 each at 5% premium) Dr.000 6. 84.1.000 80.000 4.000..15.000 Credit Amount (s) R.000 15.000 Miscellaneous expenditure: 15.. Debit Amount (s) R.500 and premium on redemption of debentur es Rs.100 Accountancy : Company Accounts and Analysis of Financial Statements Balance Sheet of X Ltd. Laiiis iblte Secured loans: 7% Debentures Premium on redemption of debentures Amount Assets (s) R. Loss on Issue of Debentures A/c Dr.42.500 () c Date Journal Particulars LF . 9% debentu res of Rs. 7% debentures at a discount of 5% repayable at premium of 10%) * Discount on issue of debentures Rs. To 7% Debentures A/c To Premium on Redemption of Debenture A/c (Issue of 150. Laiiis iblte Secured Loans: 8% Debentures Amount (s) R.14.20.000 Loss on issue of debentu res Amount (s) R. Debit Amount (s) R. .42.7.500 22.000 Assets Cash at Bank Miscellaneous Expenditure Discount on debentures Amount (s) R.500 22.

Record necessary journal entries in the above mentio ned cases at the time of issue and redemption of debentures. b . To 8% Debentures A/c (Issue of 400.000 -------Assets Amount (s) R. e . 84. 40. 4%. Nena Limited issued 50.40.000 () d Date Journal Particulars LF .000 40.000. Debenture Suspense A/c Dr. Debentures issued at par and redeemable at premium @ 10%.. f Debentures issued at premium of 6% and redee mable at a premium of .000 80.000 40.000 40. d . 8% debentures of Rs. 4. c .000 Credit Amount (s) R. Laiiis iblte Reserve & Surpluses: Securities premium Secured loans: 9% Debentures Amount (s) R. Debentures issued at discount @ 5% and redeemable at par. 40. 100 each on the basis of the following conditions: a . Debit Amount (s) R. Debentures issued at par and redeema ble at par.000 Assets Cash at bank Amount (s) R. .000) Balance Sheet of X Ltd.Issue and Redemption of Debentures 101 Balance Sheet of X Ltd. Do it Yourself 1 . 8% Debentures Rs. De bentures issued at premium @ 10% and redeemable at par. Laiiis iblte Secured loans: Bank loan 400.100 each as collateral security against a loan of Rs. 10% debentures of Rs. Debentures issued at discount of 5% an d redeemable at a premium of 10%.100 Less : Debenture suspense A/c Amount (s) R.

9.000.000. 2. 100 each issued at 4% premium and redeemable. 25. a company must deduct income tax at a prescribed rate fro m the interest payable on debentures if it exceeds the prescribed limit. 100 each issued at 5% discount and redeemable at par.1 Accounting Treatment The following journal entries are recorded in the books of a company in connecti on with the interest on debentures: 1 . it is under an obligation to pay interest ther eon at fixed percentage (half yearly) periodically until debentures are repaid. 7% debentures of Rs. 100 each issued at par redeemable at 4% premium. To Income Tax payable A/c To Deb entureholders A/c (Amount of interest due on debenture and tax deducted at sourc e ) For payment of interest to debentureholders Debentureholders A/c To Bank A/c (Amount of interest paid to debentureholders) Dr. e . 3 . redeemable at par. 10% debentures. 35.000. etc. This percentage is usually as part of the name of debentures like 8% debentures. When interest is due Debenture Interest A/c Dr. b .102 2 .9 Interest on Debentures When a company issues debentures. d . 7% debentures of Rs. 2. 7% debentures of 100 each issued at 5% discount and redeemable at 2½ % premium. 2 .000 . c . To Debenture Interest A/c (Debenture interest transferred to profit an d loss A/c) . On transfer debenture Interest Account to profit and loss account Profit and Los s A/c Dr.. Accountancy : Company Accounts and Analysis of Financial Statements Record necessary journal entries in each of the following cases: a . According t o Income Tax Act 1961. Of course. 7% de bentures of Rs. 7% debe ntures of Rs. 100 each issued at par. 30. Interest on debenture is a charge against the profit of the compan y and must be paid whether the company has earned any profit or not. 27. It is c alled Tax Deducted at Source (TDS) and is to be deposited with the tax authoriti es. and interest payable is calculated at the nominal value o f debentures. the debentureholders can adjust this amount against the tax due f rom them. 20.000.

Give journal entries relating to the i ssue of debentures and debenture interest for the period ending December 31. Loss on Issue of Debenture A/c Dr . 10% debentures) Dr.00. issued 2000 10% debentures of Rs.Issue and Redemption of Debentures 4 .Ltd. Journal Date Particulars LF . On payment of tax deducted at source to Government Income Tax Payable A/c Dr . 1. 9. A. To 10% Debentures A/c To Premium on Redemption of Debentures A/c (Allotment of debentures at a discount of 10% and redeemable at a premium of 10%) Jun.. To Bank A/c (Payment of tax deducted at source on interest on debentures) 103 Illustration 17 A Ltd.80.000 Dr.01 Bank A/c To 10% Debenture Application & Allotment A/c (Application money receive d on 2.000 1. 2004 at a discou nt of 10% redeemable at a premium of 10%. follows calendar year as its accounting year. 10% Debentures Application & Allotment A/c Dr. 1. Solution Book of A Ltd.000 .000 20.80.000 2.100 each on January 01.30 10% Debenture Interest A/c To Debentureholders A/c To Income Tax Payable A/c (Intere st due for 6 months and tax deducted at source) 10% Debenturesholders A/c To Ban k A/c (Payment of interest) Dr.000 40. 200 4 assuming that interest was paid half yearly on June 30 and December 31 and tax deducted at source is 10%. Debit Amount (s) R. 2004 Jan.000 10.000 Credit Amount (s) R.80.000.000 9.000 9.000 1.

spread user the duration of debentures say 5-7 years meanwhile it should b e shown under the head ‘Miscellaneous Expenditure’ on the asset side of Balance Shee t.00.80. treated as capital loss and.00.000 1. therefore.000 2. 10. 2.31 Accountancy : Company Accounts and Analysis of Financial Statements 10% Debenture interest A/c To Debentureholders A/c To Income Tax Payable A/c (In terest due for 6 months and tax deducted at source) 10% Debenturesholders A/c To Bank A/c (Payment of interest) Dr. every year.000 Dr.000. the amount of .104 Dec. Company deducts income tax fro m the interest of these debentures at source.000 Dec. Amount of income tax deducted half-yearly is Rs.000 1 . The discount/loss on it is. Issued 10. 1956 also permits the utilisation of ‘Securiti es Premium Account’ and other capital profits for writing off the discount/loss on issue of debentures. 100 each at par. therefore.000 9. In case.31 Income Tax Payable A/c Dr. 18. 9. Inter est is paid on September 30. Interest is to be paid on these de bentures half-yearly on September 30 and March 31.000 9. 2.10 Writing off Discount/Loss on Issue of Debentures The discount/loss on issue of debentures is a capital loss or a fictitious asset and. must be w ritten-off during the life time of debentures. there are no capital profits or if the c apital profits are not adequate.000. To Bank A/c (Paid tax deducted at source to the gover nment) Profit & Loss A/c To Debenture Interest A/c (Debenture interest transferr ed to profit and loss account) Do it Yourself Dr. 2002. Issue d 7. 2 . 2. 8% debentures of Rs. 2003. however. Diwakar enterprises Ltd. Record necessary journal e ntries assuming that income tax is deducted @30% of the amount of interest.000 for the year ending March 31.000. 2003) Laser India Ltd. (Amo unt of tax Rs.000 20. 2002 and March 31.000 20. 6% debentures on April 1. norm ally. Section 78 of The Companies Act. The amount of discount/loss on is sue of debentures should normally not be written-off in the year of issue itself since the benefit of the debentures would accrue to the company till their rede mption.

000 Illustration 18 X Ltd.000 Rs.1.00.15. issued 5. There are two methods. 6. For example. the total amount of discount should be writtenoff in equal instalments of fixed amount over that period. 9% Debentures at a discount of 10% redeemable by annua l drawings of Rs. . Profit and Loss A/c To Discount/Loss on Issue of Debentures A/c (Discount/loss o n issue of debentures written-off) Dr.000 Rs. 16% debentures of Rs. annual drawings or in instalments.1.50. For example.1.30.50.1.10.000. end of a specified period.20.000 5/15 4/15 3/15 2/15 1/15 = = = = = Rs.000 Rs.50. The amount of discount to be written-off will be calculated as under: Year First Year Second Year Third Year Fourth Year Fifth Year Amount utilised du ring the Year Rs.000 wi ll be written-off every year. if the debentures are to be redeemed afte r 10 years then out of the total amount of discount of Rs. which can be adopted to write off discount/loss on issue of debentures against the revenue profits.00.40.100 each at a discount of 5% repayable after 5 years at a premium of 5%.1.000 Rs.000. under this method. 1 Fixed Instalm ent Method: When the debentures are redeemed at the . 3. 9. goes on reducing every year and so this method may also be known as Reducing Instalment Method.000 Rs.00.000 Rs.000 Rs.00.000 Rs. a com pany issues Rs.10. These are as follows.00. 2 Fluctuating Instalment Method: When debentures a re repaid by .000 at the end of each year.12. the discount should be written -off in the ratio of debentures outstanding as at the end of each accounting yea r. The amount of discount. Rs.3.00.00. the amount of discount to be written-off every year will be as under : First Year Second Year Third Year Fourth Year Fifth Year Rs.Issue and Redemption of Debentures 105 such discount/loss can be written-off against the revenue profits every year by passing the following journal entry.50.1.00. You are required to write-off the loss on iss ue of debentures over the period of five years.000.000 R atio 5 4 3 2 1 Hence.000 Rs.50.15.50.000 Rs.00 0 Rs.000 Rs.

Dr.000 50.000 50.00. Bank A/c Dr.106 Accountancy : Company Accounts and Analysis of Financial Statements Solution Books of X Limited Journal Date Particulars LF .000 Loss on Issue of Debenture Account D.75.000 Credit Amount (s) R. r Date Jan.000 Second Profit & Loss A/c Year To Loss on Issue of Debentures A/c Third Year Four th Year Fifth Year Profit & Loss A/c To Loss on Issue of Debentures A/c Profit & Loss A/c To Loss on Issue of Debentures A/c Profit & Loss A/c To Loss on Issue of Debentures A/c Dr.000 Dr..000 10.000 5.000 10. 4.00 4. Dr. 10.000 Dr.000 Dr.000 10. 4.000 40. 50.000 10.01 (year1) Particulars Debentures Amount (s) R.75.000 25.000 50.000 10.000 Date Dec.31 (year 1) Particulars Profit & Loss Balance c/d C.75. Debit Amount (s) R. 10. r Amount (s) R.000 10. 10. 10. To Debenture Application & Allotment A/c (Debentures application mo ney received) Debenture Applications Allotment A/c Loss on Issue of Debentures A /c To 16% Debentures A/c To Premium on Redemption of Debenture A/c (Debenture ap plication money transferred to Debentures A/c repayable at premium of 5%) First Year Profit & Loss A/c To Loss on Issue of Debentures A/c Dr.000 . 10.

.

000 at a discount of 6%.000 Jan.000 12.000 30.Issue and Redemption of Debentures Jan.31 (year 4) Profit & Loss Balance c/d 10.000 Jan.000 40.000.000 Illustration 19 A company issued 9% debentures of the face value of Rs.01 (year3) Balance b/d .000 20.31 (year 2) Profit & Loss Balance c/d 107 10.31 (year 5) Profit & Loss 10.000 10.200 4.000 Dec.01 (year3) Balance b/d 30.000 12.000 8.000 10. 000 Dec. 12.000 Date Dec.000 30.31 (year 3) Profit & Loss Balance c/d 10.000 8.2.31 (year 2) Profit & Loss Balance c/d 3.40.000 Dec.000 Jan.000 30. r Date Jan.000 40. Solution Discount on Issue of Debentures Account D. 4.31 (year 1) Particulars Profit & Loss Balance c/d C. r Amount (s) R.000 20. How would yo u deal with discount on issue of debenture? Show the discount account in company’s ledger for the duration of debentures.000 Jan.01 (year2) Balance b/d 40.000 Jan.00.000 10. The debentures were repayable by annual drawings of Rs.000 20.01 (year2) Balance b/d 8.01 (year4) Balance b/d 20.01 (year5) Balance b/d 10.800 8.000 Dec.000 Dec.01 (year1) Particulars 9% Debentures Amount (s) R.

400 4.4.800 Dec.400 2.800 4.800 .31 (year 3) Profit & Loss Balance c/d 2.

00.000 40 . 1. 8% Debenture Applications A/c Dr.000 4.00.20.. To 8% Debentures A/c (Applications money trans ferred to DebenturesA/c) 1.200 2.108 Jan.000 19.000 9. Rs. Bank A/c 8% Debenture Applications A/c (Debenture Application money received) Dr.000 Debentures of Rs.10 on applicat ion.40 0 Dec.) B 2.000 80.01 (year5) Balance b/d 800 800 Working Note : Statement showing the Debentures Discount to be written-off each year : Year end ed on Face Value of Debentures used (Rs.000 1.100 each at 8%.40.00.31 (year 4) Profit & Loss Balance c/d 1.000 14. and the balance on allotment. issued 10.000 E 5 4 3 2 1 15 Illustration 20 Z Ltd.) (12000 E/15) 4.00. payable.000 Credit Amount (s) R.000 1. Solution Books of Z Ltd. Record the e ntries in the books of the company.00.000 Period of use C months months months months months Product Ratio Amount of Discount (Rs.60.60.600 800 A End of Ist year End of IInd year End of IIIrd year End of IVth year End of Vth year 12 12 12 12 12 D=B C 24.000 3.000 . Debit Amount (s) R.000 1.31 (year 5) Profit & Loss 800 800 Jan.400 1.80.400 Dec.000 1. All the money was duly received.600 800 2.00.400 2. Journal Entries Date Particulars LF .01 (year4) Accountancy : Company Accounts and Analysis of Financial Statements Balance b/d 2.20.

Applications were received for 7.000 debentures i i (i) To allot the remaining debentures on pro-rata basis i i The excess money received on applications is to be adjusted on allotment.000 50.25 payable on application.000 .87. Journal Date Particulars LF .00. 1.Issue and Redemption of Debentures 8% Debenture Allotment A/c To 8% Debentures A/c (Amount due on allotment) Bank A /c To 8% Debentures Allotment A/c (Allotment money received) Dr. pre mium. Solution Books of A Ltd.00.000 37..500 2.000 2.87.000.25. 9. surplus refunded and excess money adjusted) 10% Debenture Allotment A/c Dr. To 10% Debentures A/c To Securities Premium A/c (Allotment money due received on de bentures) 1. Rs. Reco rd the necessary journal entries assuming that full money has been received.000 Dr.000 25. 10% debentures of Rs. Bank A/c Dr.00.000 9.50 (including premium) on allotment and t he balance on first and final call.100 each at 10%.00.500 1. 9.500 Credit Amount (s) R. To 10% Debentures A/c To 10% Deben ture Allotment A/c To Bank A/c (Application money transferred to Debentures A/c. Debit Amount (s) R. Als o prepare the extract of Balance Sheet. Rs.87.500 1.50. To 10% Debenture Application A/c (Application money on 10% debentur es received) 8% Debenture Application A/c Dr.500 debentu res and it was decided to make allotment as under: ( To refuse allotment to the applicants of 1.000 109 9. invited applications for 5.500 debentures i ) () To give full allotment to the applicants o f 1.000 Illustration 21 A Ltd.00.

1992 which are redeemable at par by annual drawings in 4 yea rs commencing from 31st March 1993 as per the following redemption plan: Ist Dra w 10%. X Ltd.000 1. 10% debentures of Rs.100 each at a disco unt of 8% on 1 Jan. 2.1.000 10% Debenture First & Final Call A/c Dr. All the money due on allotment was called and duly received.2005. Z Ltd.2005. Debentures are redeemable at par after 6 years.75.110 Accountancy : Company Accounts and Analysis of Financial Statements Bank A/c To 10% Debenture Allotment A/c (Allotment money received on debentures) Dr.50 each at pre mium of 10% payable as Rs.25.000 1.000 Extract of Balance Sheet Laiiis iblte Reserves and Surplues: Securities premium Secured loans: 10% Debentures Amount (s) R.000 2. 50. Closes its books of accounts on 31st December. follows calendar year as its accounting year.75.50.12. Record the necessary journal entries including the payment of i nterest and writing off the discount on issue of debentures.50. issued 5. Z Ltd. 2nd Draw 20%. 10% debentu res of Rs.50. The interest is pay able on 30th June and 31st December. issued 15.00. 5.100 each at a discount of 10% on 1. .000. The debentures are to be re deemed every year draw of lots – 1.000 Do it Yourself 1 . Record necessary entries when premium money is included: ( i ) in application money (i i) in allotment money Z Ltd.000 5. Calculate the amount of dis count to be written-off each year assuming that X Ltd. To 10% Debenture First & Final Call A /c (Debenture First & Final Call money received) 1.25.20 on application and balance on allotment.000 Assets Amount (s) R.000 Cash at bank 5.000 5.75. and 4th Draw 40%.000. 2 . 3 .00. To 10% Debentures A/c (First and Final Call money due on debentures) Bank A/c Dr. 3rd Draw 30%. 10% debenture of Rs. Issued 2.75.000 debenture to be redeemed every year startin g on 31.000 1.000.

6.00. Record the relevant journal entries in the book s of M Ltd.000 and took over the lia bilities of Rs. Solution Books of A Ltd.000.00.00.000 from E Ltd. and prepare the extract of balance sheet on 31. Purc hased machinery worth Rs.1. on 1.2004. issued 20. 9% debentures at a discount of 6%.000 IInd year Balance b/d 4.20 04.000 and issued 8% debentures at a discount of 5% to the vend or. issued 10. Company has issued Rs. Illustration 22 A Ltd.000 were paid i mmediately and the balance was paid by issue of Rs.1. Ignore inter est.1.Issue and Redemption of Debentures 4 . 12% Debentures in D Ltd.50 per debenture. Show Di scount on Issue of Debentures Account for five years. D Ltd.000. 6% debentures of Rs.60. Discount on Issue of Debentures Account D.2001.000 IInd year .1.000.2005 Fast Computers Ltd.000 Date It s year Particulars Profit & Loss Balance c/d Amount (s) R.50.12. 111 5 . Rs. Record the necessary journal entries for issue of debentures.1. The am ount was payable as follows: On application Rs. r Date Ist year C.000 4. On the same date it took loan from the Bank for Rs.000 and issued 8% de bentures as Collateral Security.000.50. 2.000 6.100 each at a premium of 10% on 1. 8% debentures of Rs. Balance on allo tment.1. spread over 5 annual instalments. M Ltd. redeemable at a premium of 5% after three years.100 e ach at a discount of 4%. Record the necessary journal entries for recording the transactions in the books of D Ltd. It purchased sundry assets of the value of Rs.2. These debentures are to be redeemed equally. 6 .00.90.1. On 1.2.000 6. r Particulars Debenture Amount (s) R.

600 2.Profit & Loss Balance c/d 1.400 2.400 .400 4.400 IId Ir year Profit & Loss Balance c/d 1.000 4.200 1.000 IIIrd year Balance b/d 2.200 2.

6 .600 15 3 60.0 0 0 100 Amount of discount to be written off is determined as foll ows: Rs . 1 .000 15 2 80.000 = 1.200 Vth year Balance b/d 400 400 400 Workings Notes: Total discount on the issue of debentures 6 = Rs .000 1 _______ 1 × 6.) 5 × 6.0 0 0 Year 1 Amount 1.000 = 1.0 0 .000 = 2.200 Vth year Pro fit & Loss 400 1.000 3 _______ 3 × 6.000 Ratio 5 _______ Amount (Rs.00.000 2 _______ 2 × 6.000 = .200 15 4 40.112 IVth year Accountancy : Company Accounts and Analysis of Financial Statements Balance b/d 1.000 4 _______ 4 × 6.000 = 800 15 5 20.200 IVth year Profit & Loss Balance c/d 800 400 1.

The payment of interest on debentures is a charge on the profits of the company. Th e debentures cannot be issued at a discount of more than 10% of the face value. 3 . 4 . . Debenture is written instrument acknowledging a debt under the common seal of the company. Debenture is a part of owned capital. 2 .400 15 Test your Understanding – I State whether the following statements are True (T) or False (F): 1 .

Loss on issue of debentures account is a revenue loss. There are four ways by which the debentures can be redeemed. A Collateral Security is a Subsidiary Security. redemption of debentures is made in ins talments at the end of each year during the tenure of the debentures. 10. In this case. which are payable on the expiry of t he specific period. Met hods of Redemption of Debentures Payment in Lump sum Payment in Installments Purchase in Open Market Conversion into Shares or New Debentures Payment in lump sum : The company redeems the debentures by paying the whole amo unt in one lump sum to the debenturesholders at the expiry of the agreed time or earlier at the option of the company. Debentures cannot be converted into shares. The total amount of debenture liability is divided by the number of years it is to . SECTION II 2. Debentures cannot be i ssued at a premium and redeemable at par. the time of repayment is kn own in advance and the company can plan its financial resources accordingly. Perpetual debentures are also known as irredeemable debentur es. Debentures cannot be issued at a premium. Payment in lump sum Payment in instalme nts Purchase in the open market By conversion into shares or new debentures. Pay ment in instalments : Under this method. 7 . 113 Redeemable debentures are those debentures.Issue and Redemption of Debentures 5 . 9 . These are : 1 . 2 . In other words redemption of debentures means repayment of the amoun t of debentures by the company. 6 . 3 . 8 . 4 .11 Redemption of Debentures Redemption of debentures refers to extinguishing o r discharging the liability on account of debentures in accordance with the term s of issue. 12. Premium on redemption of debentures account is shown under the ‘S ecurities Premium’ in the Balance Sheet. 11.

1. These ne w shares or debentures can be issued at par.114 Accountancy : Company Accounts and Analysis of Financial Statements last and the actual debentures redeemable are identified by means of drawing the requisite number of lots from out of the debentures outstanding for payment. () b Illustration 23 Give the necessary journal entries at time of redemption of debentures in each o f the following cases. It s hould be noted that only the actual proceeds of debentures are to be taken into account for ascertaining the number of shares to be issued in lieu of the debent ures to be converted. such an act of purchasing and cance lling the debentures constitutes redemption of debentures by purchase in the ope n market. 2 . journal entries are recorded i n the books of the company. the following. Dr.12 Redemption by Payment in Lump Sum When the company pay s the whole amount in one lumpsum. If debenture holders find that the offer is beneficial to them. Dr. at a discount or at a premium. 2. If debentures are to be redeemed at par ( ) Debentures A/c a To Debenturehold ers ( ) Debentureholders b To Bank A/c If debentures are to be redeemed at premi um () a Debentures A/c Premium on Redemption of Debentures A/c To Debenture holders Debentureholders To Bank A/c Dr. It may be noted that this method i s applicable only to convertible debentures. Conversion into shares or new debentures : A company can redeem its de bentures by converting them into new class of debentures or shares. Pu rchase in open market: When a company purchases its own debentures through stock exchanges for the purposes of cancellation. Non-convertible debentures can be r edeemed in this way. they can exercise their right of converting their debentures into new class of debentures or shares. . If debentures are originally issued at discount. Dr. Dr. the actua l amount realised from them at the time of issue is used as the basis for comput ing the actual number of shares to be issued.

00.1.10.000 Dr.10.00.000 1. 1.000 1. 12% Debentures A/c To Debentureholders (Amount due on redemption) Debentureholde rs A/c To Bank A/c (Payment made to debenturesholders) Dr. 3 . issued 500.000 10. X Ltd.000 Dr. 5.000 2 .000. issued 12% debentures of the total face value of Rs.00.Issue and Redemption of Debentures 115 1 .000 . 2 . Dr.000 Credit Amount (s) R. 4 . 1. 12% debentures of Rs.000 at premi um of 5% to be redeemed at par at the end of 4 years.00.000 1.00.00.10.00. 1.100 each at par.000 5. 9% debentures of Rs. X Ltd. 1.. X Ltd.000.000 3 .00.00.000 1. 5. 12% Debentures A/c Premium on Redemption of Debentures A/c To Debentureholders ( Amount due on redemption of debentures) Debentureholders To Bank A/c (Payment ma de to debenturesholders) Dr. 9% Debentures A/c To Debentureholders (Amount due on redemption debentures) Debe ntureholders To Bank A/c (Payment made to debenturesholders) Dr. 12% debentures at a discount of 5% but redeemable at a premium of 5% at the end of 5 years. X Ltd.100 each at par and redeemable at par at the end of 5 years out of capital. Dr.000 5. 1 .00.00. Debit Amount (s) R. These debentures are redeemable at 10% premium at the end of 4 yea rs. issued 1. issued Rs. Solution Journal Date Particulars LF .1.

116 4 . it shall create a Debenture Redemption Reserve for the red emption of such debentures.0 00 As per the latest provisions of The Companies Act. at least 50% of the amount of debenture issue before starting the redemption of debenture. The journal entry recorded for the purpose is as follows : Provisions of The Companies (Amendment ) Act. SEBI guidelines would not apply under the following situations: () Infrastructure company (a company wholly engaged in the business a of developing. 2000 .Section 117C () Where a company issued debentures after the commen cement of this a Act. 2 The crea tion of Debenture Redemption Reserve is obligatory only for . SEBI’s Guidelines Securities and Exchange Board of India (SEBI) has provided some guidelines for r edemption of debentures. maintaining and operating infras tructure facilities).05. 3 A compa ny shall create Debenture Redemption Reserve equivalent to .000 5.05.000 1. Dr.000 1. non-convertible de bentures and non-convertible portion of partly convertible debentures. issue of debenture red eemable after a period of more than 18 months from the date of issue.05.000 Dr. to which adequate amount shall be credited. () The amount cred ited to the Debenture Redemption Reserve shall not b be utilised by the company except for the purpose of redemption of debentures.00. The focal points of these guidelines are: 1 Every compa ny shall create Debenture Redemption Reserve in case of . Accountancy : Company Accounts and Analysis of Financial Statements 12% Debentures A/c Premium on Redemption of Debentures A/c To Debentureholders A /c (Amount due on redemption of debentures) Debentureholders To Bank A/c (Paymen t made to debenturesholders) Dr. 1. 1. the company must sets aside a portion of profits every year and transfer it to Debenture Redemption Reserve f or redemption of debentures until the debentures are redeemed. 4 Withdr awal from Debenture Redemption Reserve is permissible only . and . after 10% of the de benture liability has already been reduced by the company. from out of its profit every year until such debentures are redeemed.

c Section 117C will apply to debentures issued and pending to be . d Section 117C wi ll apply to non-convertible portion of debentures .01 Bank A/c Dr. . 15% debentures of Rs. Give journal entries at t he time of issue and redemption of debentures if debentures are to be redeemed i n lump sum at the end of 4th year.2000 and pending redemption.2002 has issued the following clarifications regarding creati on of Debenture Redemption Reserve (DRR)a No DRR is required for debentures issu ed by All India Financial . regulated by RBI and Banking Companies for both public as well as privately placed debentures. Government of India. Institutions.1 Clarifications regarding creation of Debenture Redemption Reserve The Department of Company Affairs.000 4. 18..000 Credit Amount (s) R.Issue and Redemption of Debentures 117 () b A company issuing debentures with a maturity period of not more than 18 months.12.12. Illustration 24 XYZ Ltd. Loss on Issue of Debenture A/c Dr. Journal Date Particulars LF . b No DRR is required in case of privately placed debentures. DRR will also be created for debentures issued prior to 13.000 2. To 15% Debentures A/c To Premium on Redemption of Debenture A/c (Issue of debentures at 10% discount and redeema ble at 10% premium) . therefore. the requisite amount of Debenture Redemption Reserve is tra nsferred to General Reserve by recording the following journal entry. redeemed and.” When the debe ntures are redeemed. 2002 Jan. 31 2002.000 20.100 each on January 01. The Debenture Redemption Reserve account appears on the liabil ity side of the Balance sheet under the head “Reserves and Surpluses. issued whether they are full y or partly paid.04. vide their circular No. Debit Amount (s) R. issued 200. The directors decided to transfer the minimum amount to Debenture Redemption Reserve on December. Solution Books of XYZ Ltd. dated 18.9 /2002. 2002 at discou nt of 10% redeemable at premium of 10% out of profits. 2.

000 22.000.100 each on January 1.000 2.2 Redemption by Payment in Instalments When.31 Dr. How much amount of De benture Redemption Reserve is to be created before the redemption is carried out ? Also record necessary journal entries regarding issue and redemption of debent ure.000 debentures and the allotment was made to all the applicants o n pro-rata basis.000 2004 Dec. 2002 redeemable at par on July 1.000 10. and the redemption to be made either out of profi ts or out of capital.000 10. The company has a balance of Rs. 2 .9. 2004 at a premium of 5%. 10. the actual debentures to be redeemed are sel ected usually by draw of lots. Ignore tax deducted at source. The company closes its books on December 31 every year. 2.000 It may be noted that when Debenture Redemption Reserve is created.00.100 each on April 1. G Ltd. decides to redeem 8.000 22. 20. The company received applica tions for 6. Otherwise. the debentures are to be redeemed in instalment s beginning from a particular year. it is treated as redemption out of capital. 00. The debenture were redeemed on due date.00. issued 5.118 Dec.12. Dr. 10% debentures of Rs. The entries will be: . 2003.000 Dr. 10. X Ltd. redemption of debentures is termed as redemption out of profits.31 Accountancy : Company Accounts and Analysis of Financial Statements Profit & Loss Appropriation A/c To Debenture Redemption Reserve A/c (Transfer of profits to DRR as per Sec 117(C) and SEBI) 15% Debentures A/c Debenture Redempt ion Premium A/c To Debentureholders A/c (Amount due on redemption ) Debenturehol ders A/c To Bank A/c (Amount paid to debentures holders) Debenture Redemption Re serve A/c To General Reserve A/c (Transfer of DRR to General Reserve after total redemption) Dr. What journal entries the company will be recorded to red eem the above debentures.00 0 at the credit of its profit and loss account. 22. Do it Yourself 1 .000 Dr.000. 12 % debenture of Rs. as per terms of the issue.

00.000 Balance c/d Debenture Application A/c Discount on Issue of Debentures A/c 3.000 . Disc ount on Issue of Debentures Account and Debenture Interest Account in the books of the company.31 Particulars JF . fourth and fifth year.00.31 Balance c/d 3.85. () a () b Debentures A/c To Debentureholders Debe ntureholders To Bank A/c Dr. 2 If redeemed out of capital .000 2003 Jan.00. 3. r Date 2002 Dec. 2.000 15.01 Balance b/d 3. 2002. Soluation 14% Debentures Account D.000 3. 100 each at a discount of 5% on Jan uary 1.01 Dec.Issue and Redemption of Debentures 1 .000 2003 Dec.00. Dr. The debentures are redeemable at part in three equal instalments at t he end of the third. issued 3. Dr. To Debenture Redemption Res erve A/c Debentures A/c To Debentureholders Debentureholders To Bank A/c Dr. 14% Debentures of Rs.000..00. Prepare 14% Debentures Account. Illustration 25 ABC Ltd.000 3.000 Date 2002 Jan. Interest on these debentures is payable annually on 31st December each year.00. 119 If redeemed out of profits () a () b () c Profit and Loss Appropriation A/c Dr.31 Particulars JF .00. C.000 3.. Amount (s) R. r Amount (s) R.

r Date 2002 Dec.00.000 2005 Dec.000 2.31 2004 Dec.31 2005 Dec.31 2003 Dec.00.31 Particulars JF .000 Balance b/d 3.31 2005 Dec.01 Bank A/c Balance c/d 1..00.31 2006 Dec.31 2004 Dec.000 Debentures Interest Account D.00.31 2006 Dec.31 Balance c/d 1.120 2004 Dec. Amount (s) R.000 Date 2002 Dec.000 1. C.000 3.000 3. 42.01 Balance b/d 2. r Amount (s) R. 42.000 2006 Dec.00.31 Dec.00.000 2006 Jan.00.00.000 Bank ..000 1.00.01 Balance b/d 1. 31 Particulars JF .31 Bank A/c Balance c/d 1.00.31 Dec.31 Accountancy : Company Accounts and Analysis of Financial Statements 2004 Jan.000 2005 Jan.00.000 2.00.31 2003 Dec.000 1.00.000 2.00.

000 Profit and Loss 42.000 Dec.000 Profit and Loss Balance c/d .000 Profit and Loss 14.000 Bank 14.000 Profit and Loss 42.250 15.000 Bank 28.31 15.000 Profit and Loss 28.Profit and Loss Bank 42.000 Bank 42. r Amount (s) R. 3.750 11.. Amount (s) R.000 Balance c/d 2002 15. Date Particulars JF . C.000 Discount on Issue Debentures Account D.01 Particulars JF .31 Dec.. r Date 2002 Jan.

.

Beginning of 2002 3. 31 Dec.750 12 3 2003 Rs.500 2005 Jan. 31 Profit and Loss Balance c/d 2.000 Beginning of 2006 1.750 12 3 2004 Rs.500 11.250 2006 Dec.750 7.00 0 2. 31 Profit and Loss 1.250 1. Discount on Issue of Debentures is written off in the ratio of the amount of debentures outstanding in the beginning of each year.750 12 2 2005 Rs.750 7. each year is Debenture Outstanding Rs.250 2006 Rs.000 2 .00. 15.000 Beginning of 2005 2. 00.250 1.500 12 1 1. 15.750 2006 Jan. 31 Dec.250 3.250 11. 31 Dec.750 3. 3 2002 Rs.250 Working Notes: 1 Debenture interest is calculated @ 14% on the amount of debentu res outstanding .250 2004 Jan.01 Balance c/d 7.01 2003 Dec. 31 Profit and Loss Balance c/d 3. S o amount of discount to be written-off will be Year Amount Rs.00.0 0.750 3.500 7.000 Beginning of 2004 3. 15.01 Balance c/d 1.00.000 3. in the beginning of each year. The amount of debentures outsta nding on January 1.500 2004 Dec.000 12 It may be noted that the company will also have to transfer every year an amount equal to the nominal value of debentures .01 Balance c/d 3. 31 121 Balance c/d 11.000 Beginning of 2003 3.750 2005 Dec.500 1. 15.Issue and Redemption of Debentures 2003 Jan.250 Profit and Loss Balance c/d 3. The ratio is 3:3:3:2:1. 15.000 3.000 3.

2006). the same shall be transfered to general reserve.12. .redeemed and at the end of fifth year (31.

Illustration 26 X Ltd. the compa ny can purchase them when they are available in market at a discount. Debit Amount (s) R. the debentures are purchased from the market at a price which is above the nominal value of debenture. To Capital Reserve In case. the journal entries are recorded as follows : 1 . On purchase of our debentures for immediate cancellation Debentures A/c Dr. 20. the purchas e and cancellation of such debentures are termed as redemption by purchase in th e open market. purchased its own debentures of Rs. 100 each of the face value of Rs.000 18. 000 from the open market for cancellation at Rs.122 Accountancy : Company Accounts and Analysis of Financial Statements 2.13 Redemption by Purchase in Open Market When a company purchases its own debe ntures in the open market for the purpose of immediate cancellation. 2 . When the d ebentures are purchased from the market at a discount and cancelled. the excess will be debited to loss on redemption of debentures. The journal entry in that case will be 1 .92.400 1. Debentures A/c Loss on Redemption of Debentures A/c To Bank A/c Profit and L oss A/c To Loss on Redemption of Debentures A/c Dr. Secondly. Dr.. Debentures A/c Dr.600 Credit Amount (s) R. Record necessary journal ent ries. Dr. 2 . Solution Books of X Limited Journal Date Particulars LF . 20. The advantage of such an option is that a company can redeem the debentures at its convenience whenever it has surplus funds.92 from the market) . To B ank A/c To Profit on Redemption of Debentures A/c On transfer of Profit on Redem ption Profit on Redemption of Debenture A/c Dr. To Bank A/c To Profit on Redemption of Debentures A/c (Own de bentures purchased at Rs.

decided to redeem Rs. 25.20.000 25.50 each. Journalise. 1. 200 200 Dr.. 25.000 debentures by draw of lots. 12% Debentures A/c Dr.000 debe ntures in the open market at Rs. and redee med the balance of Rs.000 Illustration 27 X Ltd.000 Note : The balance of Debenture Redemption Reserve has not been transferred to general reserve under the assumption that the company still some has debenture liability to be redeemed in future. Debit Amount (s) R.000 5. Solution Books of X Ltd. To Bank A/c To Profit on Redemption of Debentures A/c (Pu rchase of 200 debentures @ Rs.5.000 19.000 Dr.5 plus Rs.98. .5.800 200 Credit Amount (s) R.600 123 1.000 20. 20.100. Journal Date Particulars LF . It purchased Rs. 20.000 debentures) Profit on Redemption of Debentu re A/c To Capital Reserve (Transfer of profits on Redemption of debentures to Ca pital Reserve A/c) Profit & Loss Appropriation A/c To Debenture Redemption Reser ve A/c (Transfer of profit to Debenture Redemption Reserve) Dr. the expenses being Rs.Issue and Redemption of Debentures Profit on Redemption of Debenture A/c To Capital Reserve (Transfer of profit on cancellation of debentures to capital reserve) Profit & Loss Appropriation A/c T o Debenture Redemption Reserve A/c (Transfer of profits to Debenture Redemption Reserve) Dr.000. 5. 12% debentures.100 for expenses ) 12% Debentures A/c To Bank A/c (Redemption of Rs.98.600 Dr.

000 10.900 per debenture. To Bank A/c To Profit on Redemption of Debentu re A/c (Redemption of 80 debentures by purchasing @ Rs.000 . On 31. The terms of issue provided for the redemption of 200 debentures every year starting from the end of 2005 either by purchase or b y draw of lot at par at the company’s option.000.950 per deb enture and of the face value of Rs.000 1..000 4.08. Jan. To Bank A/c To Profit on Redemption of Debentures A/c (Re demption of 120 debentures @ Rs.000 at Rs.000 Profit & Loss A/c Dr.60.12.000 at Rs. Solution Date Particulars LF .31 Dr.31 6% Debentures A/c Dr. 9. Journalise the above transaction and show the profit on redemption would be treated.000 each at Rs. 2004 Bank A/c Dr.000 76.000 40.60. 6% debentures of Rs. To Discount on Issue of Debenture A/c (Discount on issue o f debentures written-off) 10.01 To 6% Debentures Application & Allotment A/c (Debenture s application money received) 6% Debenture Application & Allotment A/c Discount on Issue of Debentures A/c To 6% Debentures A/c (Debentures application money tr ansferred to Debentures A/c) Dec.000 Credit Amount (s) R. 2004.80. Debit Amount (s) R.00.000 was written-off the debent ure discount account in 2004 and so also 2005.60.1.000 1. Dr.10.000 12.20.124 Accountancy : Company Accounts and Analysis of Financial Statements Illustration 28 On January 01.000 10.900 by purchasing in open market) 80.960 per debenture.1.2005. Rs.000 2005 Dec. the company purcha sed for cancellation debentures of the face value of Rs.20. a company made an issue of 1.000 9.31 6% Debentures A/c Dr. 9.950 per debenture) Dec.

000 2. 16.000 125 16. 15% debentures of Rs.31 Dr. Debit Amount (s) R.Issue and Redemption of Debentures Dec. If debenturehol ders find that the offer is beneficial to them.000.2. The company also redeemed 500 debentures by utilising Rs.000 Credit Amount (s) R. 1.31 Dr.00.31 Profit on Redemption of Debentures A/c To Capital Reserve A/c (Transfer o f profits on cancellation of debentures to Capital Reserve A/c) Profit & Loss Ap propriation A/c To Debenture Redemption Reserve A/c (Transfer of profit to Deben ture Redemption Reserve) Profit & Loss A/c To Discount on Issue of Debentures A/ c (Discount on debentures written-off) Dr. Illustration 29 Arjun Plastics Limited redeemed 1. Solution Books of Arjun Plastic Limted Journal Date Particulars LF .50 per share.000 2.00. Give the necessary journal entries.100 each by converti ng them into equity shares of Rs.00. 10.10 each at a premium of Rs.000 out of profit. 15% Debentures A/c To Debentureholders (Amount due to debentureholders) Debentur eholders A/c To Equity Shares Capital A/c To Securities Premium A/c (Issue of 80 0 equity shares at a premium of Rs.2. The new shares or debentures may be issued at par.50 per share) Dr. It may be noted that no Debenture Redemption Reserve is required in ca se of convertible debentures because no funds are required for redemption.000 80.14 Redemption by Conversion As stated earlier the debentures can also be deben tures redeemed by converting them into shares or new debentures. 2. 1.50.000 Dec. at a discount or at a premium.000 . they will take advantage of this offer.00.000 1.00.000 Dec.000 20..000 10. Dr.

000 50. The creation of Debenture Redemption Fund Account serves the purpose of Debenture Redemption Reserve as required by law and the SEBI guidelines. . This is called Sinking Fund method according to while the company makes nece ssary arrangements is sets aside a part of divisible profit every year and inves t the same outside the business in marketable securities. An appropriate amount is calculated by referring to on Sinking Fund Table depending upon the rate of r eturn on investments and the number of years for which investments are made.126 Accountancy : Company Accounts and Analysis of Financial Statements Debentures A/c To Debentureholders A/c (Amount due to debentureholders) Debentur eholders To Bank A/c (Payment to debentureholders) Profit & Loss Appropriation A /c To Debenture Redemption Reserve A/c (Transfer of profit to Debenture Redempti on Reserve) Dr. at this stage the Debenture Redemption Fund Investme nts are encashed and the amount so obtained is used for the redemption of debent ures. Any profit or loss made on the encashment of Debenture Redemption Fund inv estments is also transferred to Debenture Redemption Fund Account. and is. the steps involved in the working of Sinki ng Fund method are : 1 . In last year. Thus. Set aside the amount of profit at the end of each year and credit to Debenture Redemption Fund (DRF) Account. 50. Calculate the amount of profit to be set-aside annu ally with the help of sinking fund table.000 50.000 Dr.000 50.000 2. 2 . To meet this requirement. 50. The amount thus ascertained is transferred from profits every year to Debenture Red emption Fund and its investment is termed as Debenture Redemption Fund Investmen t. This investment earns as certain amount of income (call it interest) which is reinvested together with the fixed appropriated amount for the purpose in subse quent years. after redemption is transferred to general reserve. a company ensures that an equal amoun t is set aside every year to arrange the necessary funds at the time of redempti on. In fact. the interest earned and the appropriated fixed amount are not invested. Normally. the company may decide t o create a sinking fund and invest adequate amount in marketable securities or b onds of other business entities. 50.000 Dr.15 Sinking Fund Method Sufficient funds are required to redeem debentures at t he end of a specified period.

Issue and Redemption of Debentures 127 3 . 4 . 5 . 6 . 7 . 8 . 9 . 10. 11. Purchase the investments of the equivalent amount at the end of first year and d ebit it Debenture Redemption Fund Investment (DRFI) Account. Receive interest on investment at the end of each subsequent year. Purchase the investments equival ent to the fixed amount of profit set aside and the interest earned every year e xcept last year (year of redemption). Receive interest on investment for the las t year. Set aside the fixed amount of profit for the last year. Encash the inves tments at the end of the year of redemption. Transfer the profit/loss on sale of investments reflected in the balance of Debenture Redemption Fund Investment Ac count to Debenture Redemption Fund Account. Make payment to debenture holders. T ransfer Debenture Redemption Fund A/c balance to General Reserve. The sinking fund method is used for redemption of debentures by payment in lump sum on naturily, and the journal passed from year to year are as follows. 1 . At the end of First Year () For setting aside the fixed amount of profit for redem ption a Profit & Loss Appropriation A/c To Debenture Redemption Fund A/c () b Fo r investing the amount set aside for redemption Debenture Redemption Fund Invest ment A/c To Bank A/c Dr. Dr. 2. At the end of second year and subsequent years other than last year () a For receipt of interest on Debenture Redemption Fund Investments Bank A/c D r. To Interest on Debenture Redemption Fund Investment A/c For transfer of Inter est on Debenture Redemption Fund Investment to Debenture Redemption Fund Account Interest on Debenture Redemption Fund Investment A/c Dr. To Debenture Redemptio n Fund A/c () b

128 Accountancy : Company Accounts and Analysis of Financial Statements () c For setting aside the fixed amount of profit for redemption Profit & Loss Approp riation A/c To Debenture Redemption Fund A/c Dr. () d For investments of the amount set aside for redemption and the interest earned o n DRFI Debenture Redemption Fund Investment A/c To Bank A/c Dr. 3. At the end of last year () a For receipt of interest Bank A/c Dr. To Interest on Debenture Redemption Fu nd Investment A/c For transfer of interest on Debenture Redemption Fund Investme nt to Debenture Redemption Fund Investment A/c Interest on Debenture Redemption Fund Investment A/c Dr. To Debenture Redemption Fund A/c For setting aside the f ixed amount of profit for redemption Profit & Loss Appropriation A/c Dr. To Debe nture Redemption Fund A/c For encashment of Debenture Redemption Fund Investment s Bank A/c Dr. To Debenture Redemption Fund Investment A/c For the transfer of p rofit/loss on realisation of Debenture Redemption Fund Investments In case of Pr ofit Debenture Redemption Fund Investment A/c Dr. To Debenture Redemption Fund A /c In case of Loss Debenture Redemption Fund A/c Dr. To Debenture Redemption Fun d Investment A/c For amount due to debentureholders on redemption Debenture A/c Dr. To Debentureholders A/c For payment to debentureholders Debentureholders A/c Dr. To Bank A/c () b () c () d () e ( f ) () g

Issue and Redemption of Debentures 129 () h For transfer of Debenture Redemption Fund Account balance to General Reserve Deb enture Redemption Fund A/c Dr. To General Reserve A/c Illustration 30 X Ltd. issued Rs.10,00,000 debentures on January 01, 2000. These were to be rede emed on December 31, 2002. For this purpose, the company established a sinking f und. The investments were expected to earn interest @ 5% p.a. Sinking fund table shows that Rs.0.317208 invested annually at 5% amount to Rs.1 in 3 years. On De cember 31, 2002, the bank balance was Rs.4,20,000 before receipt of interest on Sinking Fund Investments. On that date, the investments were sold for Rs.6,56,00 0. Calculate the interest to nearest rupee and investments be made to the neares t of Rs.100. Record necessary journal entries. Show Debentures Account. Debentur e Redemption Fund Account and Debenture Redemption Fund Investment Account in th e books of the company. Solution Books of X Ltd. Journal Date Particulars LF .. Debit Amount (s) R. 10,00,000 10,00,000 Credit Amount (s) R. 2004 Jan.1, Bank A/c To Debentures A/c (Issue of debentures of Rs.10,00,000) Dr. Dec.31, Profit & Loss Appropriation A/c Dr. To Debenture Redemption Fund A/c (An nual instalment for redemption debited to Profit & Loss Appropriation A/c) Deben ture Redemption Fund Investments A/c Dr. To Bank A/c (Investment purchased) 2001 Dec.31, Bank A/c To Interest on DRFI A/c (Interest received @5% on investment ) 3,17,208 3,17,208 3,17,200 3,17,200 Dr. 15,860 15,860

Bank A/c To Interest on DRFI A/c (Interest received @5% on investme nt) Interest on DRFI A/c To Debenture Redemption Fund A/c (Interest on DRFI tran sferred to Debenture Redemption Fund) Profit & Loss Appropriation A/c To Debentu re Redemption Fund A/c (Annual instalment debited to Profit & Loss Appropriation Account) Dr.000 10. 6.208 3.208 3.33.17.516 32.000 6.56. To Debenture Redemption Fund A/c ( Transfer of profit on sale of investments to Debenture Redemption Fund) Debentur es A/c To Debenturesholders A/c (Debentures amount transferred to debentureholde rs) Dr.17.31. To Debenture Redemption Fund A/c (Annual instalment debited to Profit and L oss Appropriation Account) Debenture Redemption Fund Investment A/c Dr.516 Dr.130 Accountancy : Company Accounts and Analysis of Financial Statements Interest on DRFI A/c Dr.700 5. To Debenture Redemption Fund Investment A/c (Sale proceeds of DRFI) Debenture Redemption Fund Investment A/c Dr.33.516 32.00. To Bank A/c (Investment purchased for annual instalment plus interest) 15. 32.100 2002 Dec. 3.700 10.17.00.000 5.17.000 .56. To Debenture Redemption Fund Investment A/c (Interest o n DRFI transferred to Debenture Redemption Fund) Profit & Loss Appropriation A/c Dr.100 3.860 15.860 3.208 3.516 Dr.208 Bank A/c Dr. 32.

00.01 Balance b/d 10.00.000 10.000 2002 Jan. C.00.000 2002 Dec.31 Balance c/d 10. 10.000 10..31 Particulars JF .00.000 Balance c/d Bank 2001 Dec.00. 10.00..31 Bank 10.00.00.000 10.700 Debenture Account D.000 Date 2000 Jan.000 10. 10.00. r Amount (s) R.Issue and Redemption of Debentures Debenturesholders A/c To Bank A/c (Debentures holders paid the money) Debenture Redemption Fund A/c To General Reserve A/c (Transfer of credit balance of Debent ure Redemption Fund General Reserve) Dr. r Date 2000 Dec.05.01 Balance b/d .700 10.000 131 10. Amount (s) R.05.01 Particulars JF .00.00.000 Dr. 10.00.000 10.000 2001 Jan.

208 15.17.208 Balance c/d Profit & Loss Appropriation 2001 Dec.276 .17. 3. C.17.276 6.01 Balance b/d Interest on DRFI Profit & Loss Appropriation 3..50. 3.10. r Date 2000 Dec.276 2001 Jan.00.860 3.31 Particulars JF .208 3.31 Balance c/d 6.208 Date 2000 Jan.17.17.50.000 Debenture Redemption Fund Account D.50.00.208 3.208 6.000 10.01 Particulars JF . Amount (s) R. r Amount (s) R.17..

700 Debenture Redemption Fund Investment Account D.01 General Reserve 10.01 .50.516 3.200 3.17.300 2001 Jan.31 Balance b/d DRF 6..276 32.17. C.208 5.05.17.200 3.700 6. r Amount (s) R.50.01 Particulars JF .100 6.01 Balance c/d 6.33.05.300 6.17.31 Balance b/d Bank 3. 3..05. 3. Amount (s) R.200 Bank Bank 2001 Dec.700 Balance b/d Interest on DRFI Profit & Loss Appropriation DRFI 6. r Date 2000 Dec.200 Date 2000 Jan.700 10.200 3.31 Particulars JF .50.17.56.31 Accountancy : Company Accounts and Analysis of Financial Statements 2002 Jan.000 2002 Jan.50.17.300 2002 Dec.132 2002 Dec.700 10.50.300 5.

208.000 Debenture Balance c/d 2003 Jan.000 = Rs.000 10. Amount (s) R.76.17.317208 10.31 6.000 Balance b/d DRF 2002 4.000 76.Bank (Sale Proceeds) 6. 3.000 Note : The annual instalment of profit to be set aside for redemption has been w orked out as 0. .000 10. Amount (s) R.31 Particulars JF .56.00.000 Bank Account Date 2002 Dec.56...56. Date Particulars JF .00.76.20.1 Balance b/d 76.000 6. 10.000 Dec.

Solution Debenture Account D..000 15.000 Balance c/d Balance b/d 2005 Dec.13.000 and interest on securities on Decemb er 31.10.00. r Date 2004 Dec. 2005 for a sum of Rs.00.. 15. Debentures are due for payment on December 31.000 Date 2004 Jan.00. r Amount (s) R.63.800 p.01 Balance b/d 15.a. Prepare the a bove accounts in the books of company assuming that securities were realised on December 31.63. 2005. Amount (s) R.52.01 Particulars JF .600 Debenture Redemption Fund Investment 11.00. was immediately invested. for the year 2 004 and 2005. C.00.31 Particulars JF . Amount (s) R. Rs.31 Particulars JF .760 .31 Bank 15. 15.30. 14.00.000 Debenture Redemption Fun d 11. r Date 2004 Dec.600 (10% Govt. 31 2003.Issue and Redemption of Debentures 133 Illustration 31 The balance sheet of XYZ Ltd.000 Debenture Redemption Fund Account D.00.000 2005 Jan.000 15.. disclosed the following informatio n as on December.000 15.00.00.000 15. 15% debentures 15. Securities ) The contribution to Debenture Redemption Fund was 1.

076 1.16.01 Dec.63.82.10.760 16.876 16.10.30.23.30. C.636 Balance b/d Interest on DRFI Profit and Loss Appropriation 14.31 2005 Jan.31 Sinking Fund Investment General Reserve 58.82.600 1.01 Dec. r Amount (s) R.800 16.10.760 2005 Dec.760 Balance c/d Balance b/d Interest on DRFI Profit and Loss Appropration 14.360 1.Date 2004 Jan.41..31 Particulars JF . 11.760 1.800 14.636 .

Amount (s) R.600 2.000 58.10.10.760 2005 Dec. To Bank A/c (Purchased its own debenture @ Rs.134 Accountancy : Company Accounts and Analysis of Financial Statements Debenture Redemption Fund Investment Account D.000 Credit Amount (s) R. 2. To Own Debenture To Profit on cancellation of debenture A/c (Own debenture purchased being cancelled) Profit on cancellation of debentures .. 9% Debenture of Rs. Record necessary journal entries.10.160* 14.800 = Rs.31 Particulars JF .480 each.47. Solution Books of LCM Ltd Journal Date Particulars LF .. r Date 2004 Jan. C.760 14.00. 1.00.31 Particulars JF . 11.10.160) Illustration 32 LCM Ltd.63.30.760 Date 2004 Dec. 480 each) 9% Debenture A/c Dr.500 ea ch at Rs.16.31 Bank Debenture Redemption Reserve 13.360 + Rs.47. 48.10.760 Balance b/d Bank Balance c/d 2005 Jan.. 14. 1.01 Balance b/d 14.000 48.760 14.52. purchased for cancellation its own 10.00.00.000.01 Dec. r Amount (s) R. Debit Amount (s) R. Own Debentures A/c Dr.10.760 * (Interest + Instalment = Rs.760 14.00.

A/c Dr.00.00.00.00. To Capital Reserve (Profits on cancellation of debentures transferred to capital reserve) 50.00.000 2.000 .00.00.00.000 48.000 2.00.00.000 2.

Amount (s) R.41. 1. Securities.40.000 1.700 20.200 15.1.31 15.50.57. the bank balance before the receip t of interest on investments was Rs.. every year. 2001 Mar.25. Solution Books of Madhu Ltd. Particulars Balance b/d Interest on Debenture Redemption Fund Investment A/c (9% on Rs.000 Debenture Red emption Fund Investments 1. r Date Particulars JF . On the date. 2001.25.30.30. r Date Particulars JF .. Date 2000 April 1 2001 Mar.000 11.31 1. The annual instalment added to the fund was Rs. 1. 1. Amount (s) R.57. 000) Profit & Loss Appropriation JF . 1. 12% Debentures 1. Date 2000 Mar.000) Loss transferred to Debenture Redemption Fund 1. all the investments wer e sold at 84% and the debentures were duly redeemed. Debenture Redemption Fund Account D.000.000 The Debenture Redemption Fund Investments were represented by Rs.31 Debenture Redemption Fund Investment (Loss on Sale) General Reserve (Transfer) Amount (s) R.500 1. 9% Govt. Particulars JF .800 1..600 1.800 2001 April.25.1. 2000: (s) R.000 .Issue and Redemption of Debentures 135 Illustration 33 The following balances appeared in the books of Madhu Ltd.01 Balance b/d (Face value Rs. Debenture Redemption Fund Investment Account and Bank Account for 2000-2001.300 Cr. Amount (s) R..20.25. Prepare Debentures Account. On 31st March.25.000.30.25.600.300 Debenture Redemption Fund Investment Account D. as on April 01.000) Bank (84% of Rs.000 Debenture Redemption Fund 1.30. The company closes its books on March 31.09.000 Cr. Debenture Redemption Fund Account.

000 will realise Rs. The following journal entry appears in the books of X Co.200.II Select the correct answer for the following multipl e choice questions: 1 . the investmen ts of Rs. Hence..50.900 12% Debentures Account D.31 Balance b/d Interest on Investment Debenture Redemption Fund Investm ent (Sales Proceeds) 2000 40. 1. 5.31 11..50. 2 .60.136 Accountancy : Company Accounts and Analysis of Financial Statements Bank Account D.000 Loss on issue of debenture a/c Dr. () c Bearer debentures.000 To 12% Debentures a/c To Premium on Redemption of Debenture A/c Debentures have been issued at a discount of: (a) 15%.30.75 .1. Amount (s) R. Bank a/c Dr..31 Bank A/c 2000 April 31 Balance b/d Working Notes : 1 . Amount (s) R.700 1.60.000 Mar.00.900 2001 Mar. Date Particulars JF . Interest on Debenture Redemption Fund Investments of 1. Ltd. Amount (s) R. 1.000 50.30. a () b First debentures. Debentures which are transferable by mere delivery are: ( ) Registered debentures.50.000 2001 Mar.000 Cr.11. Cr.000 1.09. Test your Understanding .. 75. 2 . Amount (s) R. (b) 5%.1. r Date Particulars JF . Investments realised at 84%.000 .000 1.700.900 1.000 10.50. 1.00 0 at 9% will be Rs. (c) 10%.50. Date Particulars JF .200 Debenture Balance c/d 1. r Date Particulars JF .09. 4.

c When all the debentures are redeemed. b () Capital reserve.000.200.Issue and Redemption of Debentures 3 . the loss on such an issue debited to : ( ) Profit & Loss Account.000 at 10% premium. The company purchases from the market and keeps them as investment s. b () None of the above. Ltd. ba lance in the debentures redemption fund account is transferred to : ( ) Capital reserve. It issued debentures of Rs. 6 .(b) Rs. 8 . c Discount on issue of debentures is shown under the followi ng head in the Balance Sheet: ( ) Profit & Loss Account. Profit on cancellation of own debentures is transferred to : ( ) Profit and loss appropriation a/c.00. a ( ) Debentures Applications & Allotment Account.28. Own () a () b () c debentures are those debentures of th e company which: The company allots to its own promoters. 10. 9 .000.800.30.000. (c) Rs.96. b () Debentures Account. a ( ) They are not to be immediately converted. b () Vendors’ account. c T he nominal and book values of debenture redemption fund investments account are respectively Rs. a ( ) Debenture redemption reserve. 7 . 4 .100 e ach at a discount of 4 per cent in full satisfaction of the purchase considerati on. a ( ) General reserve. 5 .1. The number of debentures issued to vendor is: ( ) 30. (c) 32. c When debentures are issued at par and are r edeemable at a premium. a ( ) Capital reserve. The company sold investments of nominal value of Rs. Nil.000 at a price which was just sufficient to redeem debentures of Rs. The company allots to its Director. a (b) 28. Convertible debentures cannot be issued at a discount if: ( ) They are t o be immediately converted. b () Loss on issue of debentures account.30. c . c Excess value of net assets over purchase consideration at the time of purchase of business is credited to : ( ) General reserve. purchased assets worth Rs. 11.80. a ( ) Miscellaneous Exp enditure. the profit on sale of investment is : (a) Rs.000.4. b () Profits and loss appropriation account.000 and Rs. 137 X Co.3.000.

9 . the account to be de bited in case of the following . c The balance of sinking fund investment account after the realisation of investments is transferred to: ( ) Profit and loss account. 2 . 3 . Transaction Account to be Credited 6 . The balance of debenture redemption reserve account after redemption of the debentures. Purchase of own debentures by the company.138 12. Test your Understanding – III I Indicate in the column below. the account to be credited in case of the I following transactions. Accountancy : Company Accounts and Analysis of Financial Statements When debentures are redeemed out of profits. Debentures issued at a discount and are redeemable at par Transfer of interest on Sinking fund investments to sinking fund account Balance of DRR account after the redemption of Debentures Profit on sale of sink ing fund investment account Writing off the loss on issue of debentures . transactions. 10. b () General reserve account. 4 . Transaction Account to be Debited 1 . an equal amount is transferred to : ( ) General reserve. c When debentures are issued at a discount and are redeemable at a premium. b () Loss on issue of debe ntures account. c Profit on sale of debenture redemption fund investments in the first instance is credited to : ( ) Debenture redemption fund account. a ( ) Profit and loss ap propriation account. 5 . b () Capital reserve. Indicate in the column below. a ( ) Debentures account. 7 . 14. a ( ) Debenture redemption reserve. Issue of debentures to a vendor in consideration of the business purchase. a ( ) Premium on redemption of debentures account. I. Setting aside the amount for creating sinking fund for redemption of debentu res. Writing off discount on issue of debentures. 8 . 15. c 13. b () Sinking fund account. which of the following accounts is debited at the time of issue: ( ) Debentures accoun t.

has 800 lakhs.200 each.00. 8 % debenture of Rs.4. Record necessary entries for the same.3.40. The Board of Directors have decided to purchase 20% of own debenture for cancellation at Rs. The company has a debenture redempti on reserve of Rs.1. Record necessary entries at the time of redemption of deben ture.000 made on 31st December each year. 2005. 12% Debentures of Rs. Assume that Debenture Redemption Reserve has a balance of Rs. 00. ii (v Bank Account.88. 2003. 4 . 2003.50. has 4.Issue and Redemption of Debentures Do it YourSelf 1 . 139 2 . 3 . Record necessary journal entries in the books of the compa ny for redemption of debentures.2005 Janta Ltd.00.1. 6 .00.000 12% Debentures Sinking Fund Rs. 50 each at a premium of 5 % on July 1. 3. 10% debentures o f Rs. has outstanding 11. 8% debentures of Rs. i) .100 each. on April 1.2 0 each at a premium of Rs. The company sold the investment at a loss of 18% and the debentures were paid off.00.10 each issued at par : ( ) Debentures redeemed at par by conversion into 12% Preference Shares a of R s.3. On 31. () Debentures redeemed at a premium of 10% by conversio n into Equity c Shares issued at a premium of 25%.00.4.00.2 per share on June 30. of India) Annual contribution to the sinking fund was Rs. You are r equired to prepare the following accounts for the year 2000: ( Debentures Accoun t. 6% debentures into equity shares of Rs.000 on that date. 000 after receipt of interest on Debenture Sinking Fund Investment. Illustration 34 The following balances appeared in the books of a company on January 01. issued 88. Record necessary entries for redemption of debenture.60. 5 .100 each due for redemption on March 31. ( ) Debentures redeemed at a premium of 10% by conversion into Equit y b Share issued at par. G Ltd.000 secured Bon ds of Govt.00. conve rted its Rs. 2000: 1 2% Debentures Rs.200 each.000 on that date. i i (i) Debentures Sinking Fund Inves tment Account. i ) () Debentures Sinking Fund Account. 10% debentures of Rs.00.000 Investment (Represented by 10% Rs.000.000. Anirudh Ltd.000 12% Debentures Sinking Fund Rs.00.20 each at a premi um of Rs.000. Record necessary journal entries in the books of the Company in fo llowing case for redemption of 1.100 each due for redemption on March 31.3. C Ltd. 2000 redeemable at par by conversion of debenture into shares of Rs.2 per share.000. On 31st December 2000. balance at bank was Rs. 2003.000. R Ltd. Assuming that no interest is due record the necessary journal entries at the time of redemption of debentures.

000 4. r Date .31 Balance b/d Profit and Loss Appropriation Interest on Debenture Sinking Fund Inv estment A/c Debenture Fund Investment A/c 28. r Date 2000 Dec.. Amount (s) R. Amount (s) R.140 Accountancy : Company Accounts and Analysis of Financial Statements Solution 12% Debentures Account D. 4.000 40. 4.00. Amount (s) R.31 Particulars JF .000 12% Debenture Sinking Fund Account D. Amount (s) R. r Date 2000 Dec.000 Date 2000 Jan..000 4.000 60.000 12% Debenture Sinking Fund Investment Account D.01 Particulars Balance b/d JF .31 Dec.00.00. 3. r Particulars JF . r Particulars Bank JF . 4.00.28.28.000 4.00.01 Dec.000 Date 2000 Jan.000 General Reserve Dec...000 4.31 C.31 C.28.

. Amount (s) R.31 28.000 3.000 . Date Particulars JF .000 Bank 3.2000 Jan.00.28. 3. Amount (s) R.000 Dec. r Particulars JF .31 C.01 Dec.28..28.000 Balance b/d Profit transferred to Debenture Sinking Fund 2000 3.

000 Secured Bonds of Govt. the investments were sold as follow s: 9% loan at par.Issue and Redemption of Debentures 141 Bank D.00. Amount (s) R.10.3. r Date Particulars JF . 7.000 Particulars JF . 4. interest @ 10% on Rs ..000 Debenture Redemption Fund Rs.28.000 (10% Rs. The Debentures we re also redeemed accordingly. 10.000 Dec..360 Debenture Redemption Fund Investments represented by: Rs.00.000 8 % Govt.360 On the above date.000 6.28.000 Illustration 35 The following balances stood as on 31. r Date 31. Paper at 90% of nominal value.40.000 Date Particulars Balance b/d .4.10.20.000 includes Rs.00.80.31 12% Debentures Balance c/d 3. r Date 2000 Jan. of India) 12% Debentures Sink ing Fund Investment 2000 3.00.000 Rs.3.00. Amount (s) R.31 Balance b/d (The balance of Rs.28.00.28.000 9% Loan Rs.00. Paper Rs. 4. Dec. 4.00.00.000..000 6.1 Account C.00.3.3.6. Show the necessary ledger accounts.2003 C.000 2. r Particulars Bank JF . Solution 12% Debentures Account D. Amount (s) R.2003 in the books of a Company: 12% Debe ntures Rs. and 8% Govt.

000 31.00.JF . 10.00.000 10.00.3.2003 . Amount (s) R.000 10..

00.3.142 Accountancy : Company Accounts and Analysis of Financial Statements Debenture Redemption Fund Account D.30.360 (8% Govt.80.640 10.30.000 31. Paper 4.30.000 6. r Particulars General Reserve JF .30.000 .000 Bank Account D.30.000 10.2003 C.30.00.30.000 31.. 4.3. Date Particulars JF . r Date 31.2003 balance b/d Debenture Redemption Fund Investment 10.360 29. Amount (s) R.3.000 10. Amount (s) R.000 10. 10.3. r Date 31.000 C. Amount (s) R.00. Date Particulars JF .30.30.. 10. Amount (s) R.000 10.64 0 Amount (s) R.00 0 10.00.20.000 Debenture Redemption Fund Investment Account D.2003 Bank (9% Loan ) 3.. r Particulars Balance b/d 9% Loan 8% Govt.000 6. r JF .2003 Bank 6. 31.Paper) 29.3. r Date Particulars To Debenture Redemption Fund Investment: 9% Loan 8% Govt...2003 C. Amount (s) R.Paper Debenture Redemption Fund JF .. Date Particulars JF .

2003 By Balance c/d The Bank Balance has not been given. .000 31.2003 By 12% Debentures 31.30.3.3.

Issue and Redemption of Debentures 143 Terms Introduced in the Chapter 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Debenture Bond Mortgaged Debenture Pe rpetual Debenture Zero Coupon Rate Debenture Specific Coupon Rate Debenture Regi stered Debenture Bearer Debenture Charge Fixed Charge Floating Charge First Char ge Maturity Date 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. Principal D iscount/Loss on Issue of Debenture Purchase Consideration Redemption of Debentur e Draw by Lots Own Debenture Redemption out of Capital Redemption out of Profits Redemption of Convertible Debenture Debentures Sinking Fund Collateral Security Second Charge Purchase of Debenture from Open Market Summary Debenture:Debenture is the acknowledgements of debt. It is a loan capital raised by the company from general public. A person/holder of such a written acknowled gement is called ‘debenture holder’. Bond: Bond is similar to debenture in terms of contents and texture. The only difference is with respect of issue condition, i. e bonds can be issued without predetermined rate of interest as is in case of de ep discount bonds. Charge: Charge is an incumbrance to meet the obligation under trust deed under which company agrees to mortgage specific portion either by wa y of first or second charge. First charge implies the priority in repayment of l oan. Those who hold first charge against any specific assets will realise their claim from the net realisable value of such assets. Any amount of surplus from a ssets given under first charge will be utilised for setting the claims for secon d chargeholder. Types of Debenture: Debentures are of various types such as: sec ured and unsecured debentures redeemable and perpetual debentures, convertible a nd non-convertible debentures, zero coupon rate and specific rate, registered an d bearer debentures. Issue of Debenture: Debenture are said to be issued at par when the amount to be collected on them is equal to their nominal or face value. If the issue price is more than nominal or face value, it is said to be issued at a premium. If the issue price is less than the nominal or face value, it is s aid to be issued on discount. The amount received as premium is credited to ‘secur ities premium account’ whereas amount of discount allowed is debited to “loss/discou nt on issue” and is written-off over the years. Issue of Debenture other than Cash : Sometimes debenture can be issued to vendor or suppliers of patents, copyright s and for transfer of intellectual property rights on preferential basis without receiving money in cash.

144 Accountancy : Company Accounts and Analysis of Financial Statements Purchase Consideration: Purchase consideration is amount paid by purchasing comp any in consideration for purchase of assets/business firm, another enterprise/ve ndor. Collateral Security: Any security in addition to primary security is calle d ‘collateral security’. Redemption of Debenture: Means discharge of liability on ac count of debenture/bond by repayment made to debenture holders. Normally, the re demption takes place on the expiry of period for which they have been issued, de pending upon the terms and conditions of issue. Question for Practice Short Answer Questions 1 . 2 . 3 . 4 . 5 . 6 . 7 . 8 . 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. W hat is meant by a Debenture? What does a Bearer Debenture mean? State the meanin g of ‘Debentures issued as a Collateral Security’. What is meant by ‘Issue of debentur es for Consideration other than Cash’? What is meant by ‘Issue of debenture at disco unt and redeemable at premium? What is ‘Capital Reserve’? What is meant by a ‘Irredeem able Debenture’? What is a ‘Convertible Debenture’? What is meant by ‘Mortgaged Debentur es’? What is discount on issue of debentures? What is meant by ‘Premium on Redemptio n of Debentures’? How debentures are different from shares? Give two points. Name the head under which ‘discount on issue of debentures’ appears in the Balance Sheet of a company. What is meant by redemption of debentures? Can the company purchas e its own debentures? What is meant by redemption of debentures by conversion? H ow would you deal with ‘Premium on Redemption of Debentures? What is meant by ‘Redem ption out of Capital? What is meant by redemption of debentures by ‘Purchase in th e Open Market’? Under which head is the ‘Debenture Redemption Reserve’ shown in the Ba lance Sheet. What is meant by a debenture? Explain the different types of debent ures? Distinguish between a debenture and a share. Why debenture is known as loa n capital? Explain. Describe the meaning of ‘Debenture Issued as Collateral Securi ties’. What accounting treatment is given to the issue of debentures in the books of accounts? Long Answer Questions 1 . 2 . 3 .

Issue and Redemption of Debentures 4 . 145 How is ‘Discount on Issue of Debentures’ treated in the books of accounts? How will you deal with the ‘discount in issue of debentures’ when the debentures are to be re deemed in instalments? Explain the different terms for the issue of debentures w ith reference to their redemption. Differentiate between redemption of debenture s out of capital and out of profits. Explain the guidelines of SEBI for creating Debenture Redemption Reserve. Describe the steps for creating Sinking Fund for redemption of debentures. Can a company purchase its own debentures in the open market? Explain. What is meant by conversion of debentures? Describe the method of such a conversion. 5 . 6 . 7 . 8 . 9 . 10. Numerical Questions 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 dat e of issue of debenture. Record necessary entries in the books of Company. Y.Ltd . issued 2,000, 6% Debentures of Rs.100 each payable as follows: Rs.25 on applic ation; Rs.50 on allotment and Rs.25 on First and Final call. A.Ltd. issued 10,00 0, 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 Fin al call. Record necessary Journal Entries. A. Ltd. issued 90,00,000, 9% Debentur e of Rs.50 each at a discount of 8%, redeemable at par any time after 9 years. R ecord necessary entries in the books of A. Ltd. A.Ltd. issued 4,000, 9% Debentur es of Rs.100 each on the following terms: Rs.20 on Application; Rs.20 on Allotme nt; Rs.30 on First call; and Rs.30 on Final call. The public applied for 4,800 D ebentures. Applications for 3,600 Debentures were accepted in full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400 Debent ures were rejected. T. Ltd. offered 2,00,000, 8% Debenture of Rs.500 each on Jun e 30, 2002 at a premium of 10% payable as Rs.200 on application (including premi um) and balance on allotment, redeemable at par after 8 years. But application a re 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 ent ries regarding issue of debenture. 2 . 3 . 4 . 5 . 6 .

Journalise the following: ( i ) A debenture issued at Rs.9. repayable at Rs.000 from Mohan Bros. A company issues the following debentures: 14. and (i) A debenture is sued at Rs.000 and took over the liability of Rs .60 on allotment and the balance on call .000 Debentures on March.000.000. Give journal entries and the Balance Sheet in each of the following cases: ( i ) (i i) (i) ii (v i) The debentures are issued at a premium of 10%.Ltd.Ltd.00. R. 5.20 on application.100 .95.000.100 each.105. repayable at Rs.100 at a d iscount of 6% on April 01. The debentures ar e issued as a collateral security to bank against a loan of Rs. What Journal entri es will be made in the following three cases. 2002 10. 8% Debenture of Rs.4. The surplus money on partially allotted applications is utilised towa rds allotment.00.000 debentures are allotted in full.80.000. 2004 20 .000 to be satisfied by the issue of 12% debentures of Rs. A.000. (i i) A debenture issued at Rs.00.000. 12. 11.95.Ltd. 2005 Compute the amount of discount to be written-o ff in each year till debentures are paid.Ltd.Ltd.000 only 40% and the remaining rejected.12. issued 50.Ltd. 13.00. Also prepare discount/loss on issue of debenture account. Record necessary entries in the books of M. be paid by issuing debentures of Rs. All the sums due are duly received. B.50. Ltd.000 Debentures on March.100.100 each.146 7 . Rs. settled at Rs.100 each at a premi um of Rs.00.00. Record necessary entries in the books of R. ii The face value of debenture in each of t he above cases is Rs. X.40. M.000 of S.200 each at a discount of 7% redeemable at premium of 8% after 9 years. Journalise the transactions. 14% debentures of Rs.3.100 eac h payable as to Rs. out of which applicat ions for 8.13.00.4 . took over asset s of Rs.00. 9 . X. pur chased assets of the book value of Rs. (b) at discount.100.100 each. if debentures are issued: (a) at p ar.105. repayable at Rs. and Th e debentures are issued to a supplier of machinery costing Rs.Ltd. and issued 8%Deben ture of Rs. (c) at premium of 10%? It was agreed that any fraction of d ebentures be paid in cash. 10. . It was agreed that the purchase consideration.00. The company receives applications for 13. offered 20.50.000 and liabilities of Rs.000 Debentures on March. 10% Debenture of Rs.00. 15. issued 15. 8 . 2000 redeemable at premium of 4% by draw of lots as u nder: 20.000. The debentures are issued at a discount of 5%. 10 % debentures of Rs.Ltd.10 per debenture. purchased a Machinery from Y for an agreed purchase consideration of Rs. Ltd.500 debentures.70. Accountancy : Company Accounts and Analysis of Financial Statements X. invites application for the issue of 10.

000 at a discount o f 6% on January 01.800. 2005 Rs.600. 2003 Rs.000 made on December 31 each year.1.40 . (Amount to be written-off: 2000 Rs. and (b ) repayment of debentures after the given period. 2005 assuming that interest is paid half yearly on June 30 and December 31 and t ax deducted at source is 10%.6.400).00. Give journal entries relating to the issue of debentures and debentures interest for the period ending December 31. 2005 at a dis count of 5% redeemable at a premium of 10%.000 on April 01.000. 2001. 17. issued 1. Give journal entries also. A company issued 10% Debentures of the face value of Rs.6. A company issued debentures of the face value of Rs. B.Ltd.200.000. Pass the journal entries to record the: (a) issue of debentures. 1.00.5.000.3. Ltd. and 300. 2000 repayable by f ive equal drawings of Rs. The debentures are repayable after 5 years.000 each.5.000 at on January 01. 16. Calculate the nt to be written-off each year. The debentures are payable by annual drawings of Rs.95.1000 each at a premium o f 5% but redeemable at par after 5 years.100 each i ssued to a supplier of machinery costing Rs. 12% debentures of Rs.2. 19.000 to the company for a period of 5 years. (b) when debentures w ere issued at premium with a condition to redeem that at par.100 each at par but redeemable at premium of 5% aft er 5 years.1 write off discou amount of discou .100 each at a discount of 10% but redee mable at par after 5 years. These debentures are redeemable by annual .000. 2001 Rs. 2004 Rs. 12% debentures of Rs.80. 2002 Rs. 12% debentures of Rs. B. The directors decided to nt based on the debentures outstanding each year.Issue and Redemption of Debentures ( i ) (i i) (i) ii (v i) () v 147 10.000.000. What journal entries will be made in the following cases when company redeems de bentures at the expiry of period by serving the notice: (a) when debentures were issued at par with a condition to redeem them at premium.000. How will you deal with discount on d ebentures? Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on December 31.4. and (c) when deben tures were issued at discount with a condition to redeem them at premium? a discount of 6% drawings of Rs.000. 10.100 each as a collateral security to a bank which has advanced a loan of Rs.000 commencing from the end of third year. 20. 12% debentures of Rs. 12% debentures of Rs. The company prepares its final accounts on December 31 every year. 2001. 12% debentures of Rs.20.00. follows calendar year as its accounting yea r. Indicate the amount of discount to be written-off every accounting year assuming that the company decides to write off the debentures d iscount during the life of debentures.100 each on January 01.Ltd.25. 5. B. 18. issued debentures at 94% for Rs.

000.000 Debentures Redemption Fund 3.000 at par. The Sinking Fund Table shows that Rs. The interest for the year had already been paid. [Ans. The amount for the purpose was invested in 6% Government securities of Rs.0.10.000 Securities Premium 30. all the Government securi ties were sold at a total loss of Rs.2. 1 2% Debentures 4.Ltd. The debentures were redeemable at par after three years on December 31.60.90.00.26.246].400. Reserve F und Investments 80.100 each available at par. Prepare Debentures Account Sinking Fund Account. The following balances appeared in the books of A. 2004 the following balances appeared in the books of Z.R. Accountancy : Company Accounts and Analysis of Financial Statements On January 01. Investments were realised at 92% and the Debentures were r edeemed.60. 23. 2004 Rs.148 21. Prepare the necessary ledger accounts. 1998.320348 amounts to one ru pee @4% per annum in three years. Give journal entries and show ledger account.Rese rve Fund Investment).000. On December 31. 2000 the balance at bank was R s.000 (after receipt of interest on D.16.0. the balance at Bank was Rs. On January 01. 2005. on January 01. 2003. The debentures were paid of f. A sink ing fund was set up to raise funds for redemption of debentures.000 Debentures Redemption Reserve Fund 80. 22.3. Profit on Sale of Investment Rs.42.R. 2004. On December 31. 2.48.360 and the investments realised Rs. Sinking Fund Investment Ac count and Interest on Sinking Fund Investment Company closes its books of accoun ts every year on December 31.31411 every year together wi th interest that will be earned.25.1 at the end of 3 years.100 each repayabl e at par at the end of three years.000 D. 6% Debentures 1.00.000.000 On Jan uary 01. the company redeemed all the debentures at 105 per cent out of fu nds raised by selling all the investments at Rs.000 The investments consisted of 4% Government securities of the face value of Rs. Loss on Sale of Investme nts Rs. Show the ledger accoun ts affecting redemption.: Rs. It has been decided to set up a cumulative s inking fund for the purpose of their redemption. The investments are expected to realise 4% net.000 Bank Balance 1.00. On December 31 .2. The annual instalment was Rs. On January 01. . [Ans.000. issues 5.3. 2003 a company issued 15% debentures of Rs. 6.000 and the debentures were redeemed at par. one has to invest Rs. X. The sinking fund table shows that if investments earn 6% per annum. to get Re. Ltd. 8% Debentures of Rs. 2004. Ltd.800] 24.00.000 Debentures Redemption Fund Investment 3.

575.92. (b) debentures are redeemed by drawing a lot out of capital. issued 40. and (ii) when out of capital? A. Z. 31.Ltd.Issue and Redemption of Debentures 25. Show the necessary ledger accounts for the year 2004.98.575] 26. redeemable at a premium of 10% in equal annual drawings in 4 years out of capital. 14% debentures of Rs.Ltd.2. 000 The annual instalment added to the fund is Rs.25. beginning w ith 1999.Ltd. Securities 1.50.000 Debentures Redemption Fund Investment 1. X. issued 2. [Ans. 3% Govt. 2005 at a disc ount of 10%.000 Debentures at a discount of 5% repayable at par by annual draw ings of Rs.) 30. Pass the journal entries. 1 2% Debentures 1.100. Lo ss on Sale Rs. Make the necessary ledger accounts in the books of the comp any for the first year.25.39. The expense s of purchase amounted to Rs. 2004 at a disc ount of 10%.50. purchased its own debentures of the face value of Rs.12.000.000 (Represented by Rs.) 29.100 each on January 01. 2004.000 Debentures Redemption Fund 1. 149 The following balances appeared in the books of Z.000 debentures should be redeemed either by drawings at par or by purchase in the open market every year. 27.20. all the investments were sold at 83 per cent and the debentures we re duly redeemed.5. The expenses of issue amounted to Rs .Ltd.000. A.Ltd. issued 5.40.100 each at Rs.000 which were written-off in 2002.50. X.00. The terms of issue provided that.1. On that date.000 of its 15% debentures at Rs. 9% d ebentures of Rs. Give journal entries both at the time of issue and redemption of debentures. What entries for the redemption of debentures will be done when : (a) debentures are redeemed by annual drawings out of profits.000 eve ry year from Discount on Debentures .000. 2004 Rs. redeemable at a premium of 10% in equal annual drawings in 4 years out of profits. 28. On December 31. 15% debentures of Rs. Rs. Ltd. purchased for cancellation Rs. Company i ssued Rs.000. The company also wrote off Rs.100 each on January 01.2. on January 01. 2002. On January 01.2. the bank balance after the receipt of interest on the investment was Rs. and (c) debentures are redeemed by purchasing them in the open market when sinking fund for the redemption of debentures is not ma intained – (i) when out of profit.95.000 from the op en market for immediate cancellation at Rs. (Ignore the treatment of loss on issue of debentures and interest. A.25.47.00.500. Give journal entries both at the time of issue and redemption of debentures.00. (Ignore the treatment of loss on issue of debentures and interest.00.1.Ltd.

Test your Understanding – II 1 (c).98 on December 31. Z. (2) Sinking Fund Account. 35. Journa lise. 2. True.Ltd. 4 (a). 1 2 (b). False. at 110 pe r cent by converting them into equity shares of Rs. 5.10 each at par.000 debentures at the mark et price of Rs. 10. 6. Y. debentures to be redeemed were repaid by drawings. False. (3)Debenture I ) Redemption Reserve Account. 10 (c).000. (5)Profit & Loss Account.10 ea ch issued at a premium of 25%. 12% debentures of Rs. 12. 15 (c).100 each. 8 (b).100 each which were issued at a disc ount of 5%. the expenses being Rs. True. 9. 12% debentures of Rs. False.400.000. I) (4) Debenture Redemption Reserve Account.100 each which were issued at par. Answers to Test your Understanding Test your Understanding – I 1.150 Accountancy : Company Accounts and Analysis of Financial Statements Account. True .Ltd. (4) Own Debentures Account. X. redeemed 1.000. by converting them into equity shares of Rs. . Journalise. 34.50 each by converting them into 15% New Debentures of Rs. Journalise. 7 (b).Ltd.100 each which we re issued at a discount of 5%. During 2005. 6 (c). At the end of 2004. Pass the journal entries in th e books of the company to record these transactions. 11. 5 (b). False. 2 (b). (I (1) Debenture Account. 7. 4. redeemed 2. 12% debentures of Rs. 3 (a). 3. 9 (a). 8. False. True.800. 32. (2)Profit & Loss Appropriation Ac count. False. 11 (c). 33. the company purchased for cancellation 2. (5) Loss on Issue of Debentures Account. A. Test your Understanding – III ( Vendors Account. 13 (a). False. 14 (c). (3 ) General Reserve Account.Ltd. r edeemed 4. True.10 each issued at a discount of 4%. Interest on debentu res is payable at the end of every calendar year. 12% debentures of Rs. redeemed 8. by converting them into equity shares of Rs.