ISSUE AND REDEMPTION OF DEBENTURES 203 ‘THEORETICAL QUESTIONS 1. Long Answer Type Questions 1. What is a Debenture? What are its characteristics? Show its presentation in Balance Sheet. 2 Define Debenture, Describe various kinds of debentures. 5. Explain the meaning of debentures issued as collateral securities’ by a company. Give journal entries and show its treatment in the Balance Sheet. 4. Differentiate between redemption of debentures out of capital and out of profits. 5. Explain the guidelines of SEBI for creating Debenture Redemption Reserve. 8. Describe the steps for creating Sinking Fund for redemption of debentures. 7. Can a company purchase its own debentures in the open market? Explain, 8. What is meant by conversion of debentures? Describe the method of such a conversion. 8. What is meant by redemption of debentures? Explain the various methods of redemption of debentures, 10. Whatis meant by redemption of debentures out of profit and out of capital? 11. How would you treat the balance in Debenture Redemption Fund Account after (i) all debentures have been redeemed; (i) a certain proportion of debentures is only redeemed? 12. Explain with the help of journal entries how Sinking Fund Method for redemption of debentures is 18. What is Sinking Fund? How and why Sinking Fund account is prepared? 14. What is debenture redemption fund? How is it credit? IL. Short Answer Type Questions 1. What is meant by debenture ? State any two characteristies of a debenture. Write notes on ‘Calls in Arrears’ and ‘Cash paid in Advance’ with reference to issue of debentures. 3, Distinguish between a debenture and share. 4. What is a debenture ? State its main characteristics. 5, Explain various kinds of debentures in brief. 6. Distinguish between a Bond and a Debenture. 7. Whatismeant by issue of debentures as Collateral Security? Explain with the help of an Illustration. PRACTICAL QUESTIONS Issue of Debentures at Par 1, Rimmy Limited issued 1,000, 12% debentures of € 100 each at par payable & 10 on application, @ 40 on allotment, & 25 on first call and the balance ® 25 on final call. All the money was received when due, Pass Journal Entries in the books of Rimmy Limited. 2. Baby Limited issued 10,000, 10% debentures of % 100 each at par payable % 20 on application and balance on allotment. The public applied for 9,000 debentures and all of these were allotted and money duly received. Record necessary Journal entries in the books of Baby Limited. Calls in Arrears 3. Beta Limited issued 15,000, 15% debentures of & 100 each which was payable as follows : ¥ 20 on application, % 25 on allotment and % 55 on first and final call. All the debentures were applied for and money duly received except Bijoy, the holder of 200 debentures, failed to pay first and final call. Pass necessary Journal entries in the books of Beta Limited. Calls Paid in Advance 4. Raju Limited issued 10,000, 16% debentures of € 100 each. The amount was payable as follows : 10 on application, % 30 on allotment and t 60 on first and final call. All the money were received on called. Ram Bilas, the holder of 500 debentures, paid the entire amount on his holdings on allotment. Pass Journal entries in the books of Raju Limited.ae —————————_ Calls in Arrears and Calls Paid in Advance Simultaneously . 5. Sunny Limited issued 7,500, 20% debentures of € 100 each. The amount was payable ag follow [ on application, % 25 on allotment and ¥ 60 on first and final call. All the debentures Were ap, le 4 and money was duly received. Manju, the holder of 100 debentures, paid the entire amour Kh holdings on allotment and Beena, the holder of 200 debentures, failed to pay the allotment and call. Pass necessary Journal entries in the books of Sunny Limited. al 6. Rajul Ltd. issued 1,000 debentures of ¢ 100 each at par, payable as 10 on application, z % allotment, % 20 on first call and z 40 on second call. One of the conditions of the issue Of debentun, Was that whole of the amount of debentures can be Paid at the time of allotment of debenture, in this case interest @ 5% per annum will be paid by the company on the advance and this in Paid the whole amount ‘on allotment, Another debentureholder, who hold 50 debentures failed topay the amount of both the er The debentures were allotted on Ist April, 2014, date of Ist call Was Ist ‘Second call was made on Ist J; 2015, The C i mae eee n Ist January, '¢ Company pays interest on advance Pass the necessary entries in the books of Company. Interest on calls in advance @ 180, Over-Subscription of Debentures Issue of Debentures at Premium 8. Sonal Limited issued 10,000, 10% debentures of 100 Gach at a premium of 10% on the following terms :? 30 on application, 50 (including premium) on allotment and balance on final call. All eume Were duly received. Pass Journal entries in the books of Sonal Limited. 10. Bihar Oxygen Limited issued 1,000, 12% debentures of 100 each at premium of 10% payable as follows: %30 on application (including premium of 5) 80 on allotment (including premium of 7 5) 750 on first and final call Applications were received for 1,500 debentures, Money over paid on application was utilised towards allotment. All sums were duly received. Pass Journal entries wthe books of Bihar Oxygen Limited Issue of Debentures at Discount 11. Bharat Limited issued 16,000, 17% debentures of € 100 each at a discount of 5% payable 25% on application, 20% on allotment and balance after three month, All the debentures were applied for and the amount duly received. Pass necessary Journal entries in the books of Bharat Limited. Ans, Cash at Bank ® 14,25,000; Discount on Issue of debentures ¢ 75,000. Issue of Debentures for Purchase Consideration of Assets 12, Kumud Limited purchased land and building worth 8 99,00,000 and issued debentures tothe vendor as purchase consideration, Pass necessary Journal entries in the fallowing oxen (a) If 15% debentures of & 100 each are issued to vendor at par, (b) If 159 debentures of ® 100 each issued to vendors at a premium of 10% -(c) If 15% debentures of % 100 each issued to vendors at a discount of 10% on Ans. No. of debentures (a) 99,00,000 + 100 = 99,000; (by 99,00,000 + (c) 99,00,000 + 90 = 1,10,000. a ne__ISSUB AND REDEMPTION OF DEBI 18. Z Ltd. purchased Building for ® 2,20,000. Half the payment was paid in cash and the remaining half by issue of 12% debentures of 100 each at a premium of 10%. Pass necessary Journal entries in the books of Z Ltd. Ans. No. of debentures = 1,10,000 + 110 = 1,000 debentures. 14. Y Ltd. purchased machinery for @ 90,000. Half of the amount was paid in cash and the remaining half by issue of 12% debentures of & 100 each at a discount of ¥ 10 each. Pass necessary Journal entries, Ans, No. of Debentures = 45,000 + 90 = 500 debentures, Issue of Debentures as a Collateral Security 15. Ashoka Limited issued 5,000, 13% debentures of t 100 each at par to the public. Ashoka Limited issued 1,000, 18% debentures of 100 each as collateral security and raised a loan oft 80,000 from Bank. How will you show these debentures in the Balance Sheet of the company assuming that the company has recorded the issue of debentures as collateral security in the books? Ans. Balance Total = 5,80,000. 16. A Ltd. took a loan of & 60,000 from a Bank and deposited 700, 8% Debentures of @ 100 each as collateral security. Company again took a loan of @ 40,000 after two months from a Bank and deposited 500, 8% debentures of & 100 each as a collateral security. Pass the necessary Journal entries and prepare Balance Sheet in the books of A Ltd. Ans. Balance Sheet € 1,00,000. 17, A Ltd. issued debentures in the following manner : (i) 8,000, 7% debentures of ¥ 100 were given to a creditor who supplied plant of = 7,50,000; (ii) 4,000, 7% Debentures of 100 each at a premium of 5%, (iii) A loan of & 3,00,000 has been taken from a Bank and 4,000, 7% debentures of % 100 each have been deposited with Bank as. collateral security. Pass the necessary Journal entries in the ‘books of A Ltd. for the above transactions, Ans. Total of Journal % 15,00,000, Accounting for Issue of Debentures Considering Terms and Conditions of ‘Redemption 18. X Ltd. issued 5,000, 9% Debentures of 100 each. Give Journal entries for issue of debentures in the following cases : (Ifthe debentures are issued at par and are repayable at par. Gi) Ifthe debentures are issued at a premium of 10% and are repayable at par. Gii) Ifthe debentures are issued at a discount of 5% and are repayable at par. (iv) Ifthe debentures are issued at par and are repayable at a premium of 10%. (v) Ifthe debentures are issued at a discount of 5% and are repayable at a premium of 10%. (vi) Ifthe debentures are issued at a premium of 5% and are redeemable at a premium of 5%. 19, Beeta Ltd. issued 5,000, 9% debentures of 500 each. Pass the ‘necessary journal entries for the issue of debentures in the books of the company in the following cases : (i) When debentures are issued at 10% premium and redeemable at par. ‘When debentures are issued at par and redeemable at 10% premium. (ili) When debentures are issued at 5% premium and redeemable at 10% premium. (iv) When debentures are issued at a premium of 25% to the vendors for machinery purchased for % 6,25,000. 20. Pass the necessary journal entries in the books of B Ltd. in the following cases (only for issue of debentures) : (a) 3,500, 8% debentures of t 100 each have been issued at par and are redeemable at par. (b) 4,500, 8% debentures of & 100 each are issued at par and are redeemable at 5% premium, (c) 3,000, 8% debentures of € 100 each have been issued at 5% discount and are redeemable at par. (d) 2,500, 8% debentures of f 100 each are issued at 5% discount and are redeemable at 4% premium. (e) 3,000, 8% debentures of 100 each are issued at 5% premium and are redeemable at par. Ans, Total of Journal ® 16,97,500. Lump-sum Payment Method Redemption out of Profits 21. Y Ltd, redeemed ® 50,00,000, 8% debentures at a premium of 10% purely out of profits on 31.3.2014, It was also decided to invest the required amount in Debenture Redemption Investment Account. Pass necessary journal entries for the redemption of debentures, Ans, Payment to debentureholders ® 55,00,000, transfer to General Reserve ¥ 50,00,00022. X Ltd. decides to redeem 8,000, 10% debentures of % 100 each on April 1, 2014 at a premium off; SAHITYA BHAWAN PUBLICATIONS: ‘The company has a balance of€2,00,000 at the credit of Debenture Redemption Reserve Ale, ty ° also decided to invest the required amount in Debenture Redemption Investment Account a company clases its books on March 31 every year. What entries will be recorded to redeem the a debentures.? ton Ans. Amount paid to debentureholders % 8,40,000 . X Ltd. issued 500, 15% debentures off 100 each on 1st April, 2010 at a discount of 10% Tedeemabje at a premium of 10% in 4 equal instalments starting from 31st March, 2012. It was decided to iny the required amount towards debenture redemption investment account. Give journal entries boy, atthe time of issue and redemption of debentures. (Ignore the treatment of loss on issue of debent and interest.) 7 Redemption of Debentures by Annual Instalment (Drawings) 24, Payment out of Profits Z Ltd. issued 2,000, 14% debentures of % 100 each on April 1, 2010 at a discount of 10%, redeemable ata premium of 10% in 4 equal instalments starting from 31st March, 2012. It was decided to invest the required amount in Debenture Redemption Investment Account. Give journal entries both at the time of issue and redemption of debentures. (Ignore the treatment of loss on issue of debentures and interest.) Payment out of Capital and out of. Profits . Sujata Ltd. has a liability in respect of 500, 10% Debentures of % 100 each, redeemable at par. The company is planning to redeem these debentures in two equal installments at the end of 2014 and 2015 as per rules, ie., out of profit and out of capital and company also decided to invest the required ‘amount in Debenture Redemption Investment Account. Pass necessary Journal entries for redemp- tion of debentures. Redemption of Debentures by the Purchase of own Debentures in the Open Market 26. 27. 29. 31. Purchase of Debentures as an Investments ‘ALtd. purchased 50,000, 9% own debentures of 100 each at 92 cum-interest. The dates of payment ofinterest being June 30 and December 31 every year. The debentures were purchased on September 1, 2014 for immediate cancellation. Pass necessary Journal entries. ‘Ans. Interest on debentures = 50,00,000 x2 x75 =* 75,000; ‘Actual cost of debentures = % 46,00,000 - & 75,000 = 45,25,000 On 1st August, 2014, Shashi Ltd. purchased 300, 12% own debentures of ¥ 100 each at 7 95 each cum-interest. Interest is paid every year on March 31 and September 30. Pass necessary entries when debentures are purchased for immediate cancellation. ‘Ans. Interest on debentures = 30,000 x a x A =2 1,200; ‘Actual cost of debentures = % 28,500 ~ & 1,200 = ® 27,300 Purchase of Own Debentures for Immediate Cancellation LCM Ltd, purchased for cancellation its own 10,00,000, 9% Debentures of @ 500 each at & 450 each. Record necessary journal entries. Gautam Ltd, has outstanding 4,20,000, 8% debentures of @ 100 each on 31st March, 2014. The Board of Directors decided to purchase 10,000 of its own debentures for cancellation @z 100 each. Reco above transactions in the Books. ‘Acompany has an outstanding liability of 10%, @ 100 debentures amounting to? 1,00,000 red at the option of the Company by drawings at par, or by purchase in the open market. Ithas a credit balance of & 30,000 in the Statement of Profit & Loss. It decides to redeem & 25,000 debentures, purchasing ® 20,000 debentures in the open market at ® 99 each and draw lots for 85,000) debentures Show the necessary Ledger Accounts. Redemption by Conversion Record necessary journal entries in the books of the company in the following cases fo of 1,000, 12% Debentures of @ 10 each issued at par : eemable yr redemption al32. 33. ISSUE AND REDEMPTION OF DEBENTURES aut (a) Debentures redeemed at par by conversion into 12% preference shares of @ 100 each. (b) Debentures redeemed at a premium of 10% by conversion into equity shares issued at par. (©) Debentures redeemed at a premi jai it i Dibeniares zed premium of 10% by conversion into equity shares issued at a Gyanda Ltd. issued 4,000, 8% debentures of & 100 each at % 105. The debentureholders have the option of converting at the end of year debentures into 10% Preference Shares of 100 each at ¥ 125. At the end of the first year the interest on debentures was outstanding. Holders of 200 debentureholders decided to take the advantage of the option. Pass entries in the Journal of Gyanda Ltd. and show these items in the Balance Sheet of Gyanda Ltd. ‘Ans, Balance Sheet ¥ 4,20,000. On 1st April, 2014, A Limited issued 200, 5% Debentures of & 1,000 each at 950. Holders of these debentures have an option to convert their holdings into 8% preference shares of 100 each at a premium of @ 25 per share at any time within 8 years. On 81st March, 2015 a year’s interest had accrued on the debentures and remained unpaid and a holder of 20 debentures notified his intention to exercise his option. Pass the necessary Journal entries and show how the items affected would appear in the Balance Sheet of A Ltd. Ans, Balance Sheet Total & 1,99,000. On Ist April, 2010, M Ltd. issued 10,000 ten years 5% debentures of € 100 each. One of the terms of issue was that the debentures could be redeemed by M Ltd., at a premium of 2% by giving six months’ notice at any time after five years, either by payment of cash or by allotment of shares and/or other debentures according to the option of the debentureholders. The necessary notice was given on Ist June, 2015, informing the debentureholders about the intention of M Ltd. to redeem the debentures on 1st December, 2015 either by payment of cash or by allotment of 8% preference shares of € 100 each at % 120 per share or debentures of 7 100 each bearing interest at 4% per annum issued at t 98 each. Holders of 2,000 debentures accepted Preference Shares, holders of 4,900 debentures accepted the offer of the 4% debentures and the rest demanded cash. Pass Journal Entries recording the above transactions in the books of M Ltd. Ans. Premium unpaid of Deb. ¥ 6,200. Payment after a Fixed Period : Sinking Fund Method 35. 36, On Ist April, 2010, a company issued debentures of € 1,00,000, redeemable at the end of 5 years and it was resolved that s Sinking Fund shall be formed. The interest received on investment of Sinking Fund was 5% per annum. The investments were realised at a loss of & 300 at the end of 5 years. The Sinking Fund table shows that an investment of % 0.180975 each year will produce ? 1 at the end of 5 years at 5%. Pass Journal Entries assuming that the investments have been made in multiples of one hundred. Prepare necessary Ledger also, Ans. (i) Annual contribution transferred to Debenture Redemption Fund A/c % 10,00,000 x % 0.180975 = % 18,098; (ii) Interest : 7 905, % 1,855, % 2,855, % 3,905, (iii) Transfer to General Reserve A/c % 99,700 A Company issued 6% debentures of 6,00,000 with a condition that they should be redeemed after 3 years at 10% premium. The aniount set aside for the redemption of debentures is invested in 5% Government Securities. The Sinking Fund Table shows that z 0.31720855 at 5% compound interest in 3 years will become % 1. You are required to give journal entries and open necessary Ledger Accounts for recording the transactions. Ans. (i) Annual contribution transferred to Debenture Sinking Fund A/e = 0.31720855 x 6,60,000 = 2,09,358, (i) Interest : % 10,468, % 21,459; (iii) Transfer to General Reserve A/c ® 6,60,000. . On April 1, 2012, X. Ltd. issues 5,000, 8% Debentures of ¢ 100 each repayable at par at the end of three years. It has been decided to set up a cumulative sinking fund for the purpose of their redemption. The investments are expected to realise 4% net. The Sinking Fund Table shows that @ 0.820348 amounts to one rupee @ 4% per annum in three years. On March 31, 2015 the balance at bank was % 2,42,360 and the investments realised ¥ 8,25,000. The debentures were paid off. Give journal entries and show ledger accounts. Ans. (i) Annual contribution to Sinking Fund A/e = & 0.320348 x & 5,00,000 = 1,60,174, (ii) Interest : 6,407, ® 13,071, (ii) Loss on Sale of Sinking Fund Investment Account ¥ 1,755, (iv) Loss on Sale of Investment ® 1,755.208 SAHITYA BHAWAN PUBLICATIONS: 88. On Ist April, 2011 A Ltd, issued 6% debentures for % 5,00,000 redeemable at par on 1st April, 2016, Tt. was decided to establish sinking fund for the purpose of redemption. Show the ledger accounts i, the books of A Ltd. for the five years assuming for the annuity invested amount to earn 5% interes, net and that the amount annually set aside for the purpose is 7 90,412.50. . Ans. Int. in 2015 % 19,484.46. ‘The following balances appeared in the books of Madhu Ltd. as on 1st April, 2014: 39. 12% Debentures 1,50, 000 Debenture Redemption Fund 1,285,000 1,25,009 Debenture Redemption Fund Investments The Debenture Redemption Fund Investments were represented by ¥ 1,30,000, 9% Govt. Securities, ‘The annual instalment added to the fund was ¥ 20,600 on 31st March, 2015, the bank balance before the receipt of interest on investments was % 40,000. On that date, all the investments were sold at 84% and the debentures were duly redeemed. Prepare Debentures Account, Debenture Redemption Fund Account, Debenture Redemption Fund Investment Account and Bank Account for 2014-15. The company closes its books on 31st March every year. [Ans. (i) Loss on Sale of Investment ? 15,800; (ii) Interest : 9% of 1,30,000 == 11,700; (ii) transfer to General Reserve ¢ 1,41,500; (iv) Bank balance c/d % 10,900] On April 1, 2014 the following balances appeared in the Books of Z Ltd. : 40. z 6% Debentures 1,00,000 Debenture Redemption Reserve Fund , D.R. Reserve Fund Investments 80,000 ‘The investments consisted of 4% Government securities of the face value of % 90,000. The annual instalment was % 16,400. On March 81, 2015, the balance at Bank was % 26,000 (after receipt of interest on D.R. Reserve Fund Investment). Investments were realised at 92% and the Debentures were redeemed. The interest for the year had already been paid. Show the ledger accounts affecting redemption. ‘Ans. (i) Profit on Sale of Investment % 2,800, (ii) Interest % 3,600, (iii) Transfer to General Reserve %1,00,000, (iv) Bank Balance c/d % 8,800 On ist March, 2014 A Ltd. had a debenture redemption fund of & 5,00,000, represented by the investments amounting to 7 5,90,000 in 4% consols. The company also had a balance in Bank current account on 30th Sept., 2014 of ® 60,000. The debentures amounting to & 5,00,000 were paid off on 30th Sept, 2014. Consols were sold for this purpose and realised 83% net and the proceeds were banked on 30th Sept., 2014. Record the above transactions in the ledger of A Ltd. Ans. 7 4,89,700 is transferred from Debenture Redemption Fund A/c to General Reserve A/c; € 10,300 ‘transferred from Deb. Redemption Fund Investment A/c to Deb. Redemption Fund A/c; Bank Balance % 49,700. B Ltd. has a debenture loan of €2,00,000 distributed into 2,000 debentures of ? 100 each. The Board decided to redeem 50% of these debentures at par by utilising the balance of the debenture redemption fund investment account in full and taking the additional money from the general cash. ‘The balance of cash in hand is ¥ 2,50,000. The debenture redemption fund is invested in securities, the face value of which is equivalent to the total balance of the fund, % 40,000. The securities a” sold and they realise ¥ 40,500 net. Draft the necessary book-keeping entries in the books of B Ltd Ans. 2 500 is profit on sale of investment. B Limited had issued 6% Mortgage Debentures of the sum of & 10,00,000 on Ist April, 2005 at discount of 5% redeemable in twenty years at par but with the right to redeem at any time after tep years at a premium of 5% upon three months’ notice being given. The company gave due notic® © exercise its option on Ist April, 2015. The Sinking Fund Investments by then amounted to half the amount of the liability and were realised at a premium of 10% the whole of the debent off on 1st July, 2015. half the amount required being satisfied by a loan on mortgage from Industrial Bank Ltd. Show the necessary Ledger accounts relating to redemption in the books © Ltd. Ans. % 50,000 is profit on sale of investment, General Reserve % 5,00,000. 41. 42. itures were Pa the fBISSUE AND REDEMPTION OF DEBENTURES a iu. Thefollowing were the balances as 31st March, 2014 in the books of Y¥ & Co. Ltd. z sMortgnged Debentures ture Redemption Fund gas. ture Redemption Fund Investment: 2 5% Govt. bonds of ¥ 8,60,000 purchased at Sas ig Gort. bonds of ® 2,40,000 purchased zat eee ae ie eer were sold at 1% premium and 4% Govt. bonds were sold i , the debenture: i 2 eg upl Sat Marc: serge ues oft company mere redemed a 2% premium Interest, necessary accounts in the books of ¥ & Co. Lid, ‘Ans. Loss on sale of Investment of & 5,600, General Reserve ® 6,87,400, 45, Acompany had % 4,50,000, 14% debentures outstanding on April 1, 2014 (redeemable on March 31, 2015). On that date the sinking fund stood at % 3,74,500 represented by % 50,000 own debentures nce at an average of 99 per debenture and ¥ 3,30,000, 3% stock. The annual instalment was 735,500. On March 31, 2015 investments were realised at 98% and the debentures were redeemed. Open necessary Ledger Accounts in this regard. ‘Ans. Profit on cancellation of own debentures 500; 600; Transfer to Profit on cancellation of oa dsbantures 600: Loss onsale ofTaventnant © 1,600; Tr 44. Meena Ltd. has 7 3,00,000, 5% Debentures outstanding on Ist April, 2014. On that date, the Debentures Redemption Fund stood at & 2,50,000 represented by & 2,95,000, 3% (2015) loan of the Govt. of India. The annual instalment added to the Debentures Redemption Fund is @ 41,150. On 31st March, 2015 the bank balance was ¢ 70,000. Received interest on investment on that date. The investments were sold at 83% net and the debentures were paid off. Show the necessary ledger accounts for the year ended 31st March, 2015 in the books of Meena Ltd. ‘Ans. Transfer to General Reserve ® 2,94,850; Bank Balance 23,700; Loss on sale of Investment % 5,150. 41, BLimited has outstanding ? 1,00,000, 5 per cent debentures redeemable at the company’s option on crafter 1st April, 2014 at 105 per cent. Interest has been paid half-yearly on 30th September and 3ist March. \ Amounts have been appropriated annually out of profits to a Debenture Sinking Fund and Invest- ments have been purchased at a cost which equals the amount of the Sinking Fund. On 31st March, 2014, the balance on the following accounts were : z zt Security Premium Reserve 30,000 5% Debentures 300,000 Debentures Sinking Fund 90,000 Debenture Sinking General Reserve 20,000 Fund Investments 90,000 Statement of Profit & Loss (Cr.) 18,000 Bank Balance 25,000 ‘Thedirectors decide to exercise their option to redeem the debentures on Ist April, 2014 and towards financing thit i tments were sold for cash realising ¢ 87,000. fs ae 8 fect to the redemption in the books of B Ltd. Write up the Ledger accounts concerned to give ef ‘Ans.® 87,000 are transferred from 5% Deb. Sinking Fund A/c to General Reserve A/c; Loss on sale of Investment % 3,000; Bank Balance % 7,000. a eamaative Sinking Fund vaphtesss trimer * On Apri “Ltd. issued 1,200, 8% Debentures of€ 100 each. Redemption of These El Ga Ci ce rca redemption of these debentures. Debenture Sinking Fnd Investments were sold for % 87,000 on march 31, 2017 Before this sale bank balance was % 25,000. Interest received on Debenture Sinking Investment during 2014-15, 2015-16 and 2016-17 respectively was ® 2,100, % 4,200 and ¥ 6,300. of company it in the books Ane Gener rene 117,000; Less on Sale of Investment 3,000.210 SAHITYA BHAWAN PUBLICATIONS Insurance Policy Method (Without Interest) 49. Insurance Policy Meth: 51. Gaurav Ltd. issued 5, 52. 1,000 debentures of ¢ 100 each. These debentures were to be to take out an insurance policy of the end of each On 1st April, 2014 Steel Ltd. issued redeemed at par at the end of three years. The directors decided % 1,00,000 to provide necessary cash. The annual premium of Z 30,000 was paid at year. Open necessary accounts in the books of the company. ‘Ans. Profits or Bonus 10,000; General Reserve %1,00,000. On 1st April, 2014 Copper Ltd. issued 3,000 debentures of = 100 each. These debentures were to be cided to take out an insurance policy of redeemed at par at the end of three years. The directors de = 3,00,000 to provide necessary cash. The annual premium of f 90,000 was paid at the end of each year. Open necessary accounts in the books of company. Ans. Profit or Bonus % 30,000; General Reserve & 3,00,000. od (with Interest) 000, 9% depentures of 100 each on 1 April, 2014. Their payment is to be made taken by company to provide for On 1st April, 2014 an insurance policy was , is 1,58,000 on which return is at 3% per annum at the end of third year. the books of Gaurav Ltd. redemption of these debentures. Annual premium at compound interest. Open necessary accounts in Ans. Loss Z 3,013; General Reserve = 5,00,000. seareateihi . Ltd. took an insurance policy on 1st April, 2014 tor if aaa ofthe third year The company has created a Sinking. Fund. The annual was & 1,12,000. The directors want to charge 8% p.a. int accounts. in the books of the company for three eee ‘Ang. Profit or Bonus = 7,315; General Reserve = 4,00, 0% debentures of & 4,00,000 at premium of the policy 000.