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J. K. SHAH CLASSES I. P. C. C.

- ADVANCED ACCOUNTING

CHAPTER - 5 REDEMPTION OF DEBENTURES


Q. 1. Pass journal entries in year 1 in the case of the issue of debentures by ABC Co. Ltd.
Issued ` 1,00,000 11% debentures at 95 per cent redeemable at the end of 10 years
(i) At par (ii) at 102 percent, (iii) at 98 percent.

Q. 2. Libra Limited recently made a public issue in respect of which the following information is
available:
(a) No. of partly convertible debentures issued 2,00,000; face value and issue price
` 100 per debenture.
(b) Convertible portion per debenture 60%, date of conversion on expiry of 6 months
from the date of closing of issue.
(c) Date of closure of subscription lists 1.5.2012, date of allotment 1.6.2012, rate
of interest on debenture 15% payable from the date of allotment, value of
equity share for the purpose of conversion ` 60 (Face Value ` 10).
(d) Underwriting Commission 2%.
(e) No. of debentures applied for 1,50,000.
(f) Interest payable on debentures half-yearly on 30th September and 31st March.
Write relevant journal entries for all transactions arising out of the above during the
year ended 31st March, 2013 (including cash and bank entries).

Q. 3. Videocon Ltd. issued 1,000, 12% debentures of ` 100 each on 1st April, 2009.
Interest is payable on September 30th and March 31st every year.
On 1st July, 2008 the company purchased 100 of its own debentures at ` 98
ex-interest as Investments.
On 1st January, 2010 the Company purchased another 100 of its own debentures at
` 98 cum-interest.
The company closes its books of accounts on 31st March, every year.
On 31st March, 2011 the Company cancelled the debentures purchased on 1st July, 2008.
Journalise the above transactions in the books of Videocon Ltd. and show the relevant
in the balance sheet for the three years.

Q. 5. Progressive Ltd. issued Re. 10,00,000 6% Debentures Stock at par on 21.01.2006.


Interest was payable on 30th September and 31st March, in each year.
Under the terms of the Debentures Trust the owned stock is redeemable at par. The trust
deed obliges the Company to pay to the trustees on 31st March, 2008 and annually
thereafter the sum of ` 1,00,000 to be utilised for the redemption and cancellation of an
equivalent amount of stock, which is to be selected by drawing lots. Alternatively, the
: 77 : REDEMPTION OF DEBENTURES
J. K. SHAH CLASSES I. P. C. C. - ADVANCED ACCOUNTING
Company is empowered as from 31st March, 2008 to purchase its own debentures
on the open market. These Debentures must be surrendered to the Trustees for
cancellation and any adjustments for accrued interest recorded in the books of account.
If in any year the nominal amount of the stock surrendered under this alternative does
not amount to Re. 1,00,000 then the shortfall is to be paid by the company to the
Trustees in cash on 31st March.
The following purchases of stock were made by the Company.
Particulars Nominal value of Purchase price per
stock purchased ` 100 of stock
` `
(1) 31st December, 2008 1,20,000 98 (Cum - Interest)
(2) 31st August, 2009 75,000 95 (Ex-interest)
(3) 31st October, 2010 1,15,000 92 (Cum - Interest)
The Company fulfilled all its obligations under the trust deed. Prepare the following
Ledger Accounts. (a) Debenture Stock A/c (b) Debenture Redemption A/c
(c) Debenture Interest A/c.

Q. 6. On 1.4.2008 Irfan Ltd., issued 20,000 12% Debentures of ` 100 each at par. According to
the terms of the issue, the Debenture - holders had the option of getting the debentures
converted into Equity Shares of ` 100 each at a premium of ` 50 each after 1.4.2010. The
company had the right to buy at anytime its debentures in the open market for cancellation.
On 1.6.2009, the company purchased 2,000 Debentures at ` 99 cum - interest and on
1st December 2010, it purchased 3,000 Debentures at ` 95 ex - interest, the Debentures
being cancelled in both cases immediately. On 31.12.2011, holders of 12,000 Debentures
exercised the option of getting the debentures converted into Equity Shares.
Date of payment of interest is 30th June and 31st December.
You are required to prepare :
(1) 12% Debentures A/c.
(2) Debenture Interest A/c for the years 2008-09, 2009-10 and 2010-11.

Q. 7. The following ledger balances are extracted from the books of PQ Ltd. as on 31.3.2011.
Particulars `
9% Debentures issued @ ` 95 9,50,000
Debentures Redemption Reserve Fund A/c 9,37,000
Discount on Issue of Debentures 26,000
Investment against Debenture Redemption Reserve Fund 9,37,000
Following further information is given.

: 78 : REDEMPTION OF DEBENTURES
J. K. SHAH CLASSES I. P. C. C. - ADVANCED ACCOUNTING
(1) Investments include own debentures of the face value of ` 2,00,000 purchased
on 1.2.2011 @ ` 99.
(2) Interest on debentures is payable on 30th June and 31st December.
(3) All debentures are redeemable at par on 31st March.
(4) Income from outside investments of Redemption Fund from 31-12-2010 to 31-3-2011
is ` 45,000. Show ledger account assuming that the above transactions have been
carried out and all outside investments were sold at a gain of 10% over cost.

Q. 8. B LTD. gave notice of its intention to redeem its outstanding ` 4,00,000 6% Debenture
Stock of ` 100 each at ` 102 and offered the holders the following options to apply
for their redemption moneys :
(a) To subscribe for 5% Cumulative Preference Shares of ` 20 each at ` 22.50 per share.
(b) To subscribe for 6% (New) Debenture Stock of ` 100 each at 96%.
(c) To have their holdings redeemed for cash.
Holders of ` 1,71,000 stock accepted the proposal (a);
Holders of ` 1,44,000 stock accepted the proposal (b);
The remaining stock holders accepted the proposal (c).
Pass the journal entries to record the above transactions in the books of B Ltd.

Q. 9. Bright Ltd., issued ` 6,00,000 debentures during 2001 on the following terms and conditions :
i. A Sinking Fund to be created by yearly appropriation of profit and similar amount
to be invested outside.
ii. The Company will have the right of purchase for cancellation of debentures
from the market if available below par value.
iii. The debentures are to be redeemed on 31st March, 2011 at a premium of 2%.
The following balances appeared in the books of the company as on 1st April, 2010 :
a. Sinking Fund Investment ` 4,43,250
b. Sinking Fund ` 4,43,250
c. Debentures Account ` 4,50,000
The following transactions took place during the subsequent twelve months :
a. On 1st October, 2010 ` 30,000 Debentures were purchased for ` 26,664 and
cancelled immediately, the amount being provided out of sale proceeds of
investments of the book value of ` 34,800 made at ` 33,900.
b. The income from Sinking Fund Investment, ` 22,200 received on 1st October,
2010 was not invested.
c. On 29th March, 2011, ` 4,23,000 was received on sale of the remaining Sinking
Fund Investments.
d. On 31st March, 2011 the remaining debentures were redeemed.
You are required to show for the year ended 31st March, 2011.
i. Debentures Account iii. Sinking Fund Investment Account.
ii. Sinking Fund Account. iv. Debenture Redemption Account.

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