Page 184 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 8: Methods of Redemption–I

Solution: Notes
Rajesh Limited
Journal Entries
Date Particulars L.F. ` `
2005
Jan. 1 Bank Account Dr. 4,75,000
Discount on Issue of Debentures Account Dr. 25,000
To 15% Debentures Account 5,00,000
(Being 15% Debentures issued at 5% discount)
Dec. 31 Interest on Debentures Account Dr. 75,000
To Debenture-holders Account 75,000
(Being one year’s interest due on debentures but unpaid)
Dec. 31 15% Debentures Account Dr. 25,000
To 12% Preference Shares Account 19,000
To Share Premium Account 4,750
To Discount on Issue of Debentures Account 1,250
(Being 250 debentures redeemed by conversion in 12% preference
shares at premium)
Profit and Loss Account Dr. 75,000
To Interest on Debentures Account 75,000
(Being transfer of interest to P. & L. A/c)
st
Balance Sheet of Rajesh Limited as on 31 December 2008
Liabilities ` Assets `
Share Capital: Current Assets
190, 12% Preference Shares of Rs. 100 each fully paid 19,000 Cash at Bank 4,75,000
Share Premium 4,750 Miscellaneous Expenditure
Secured Loans: Discount on Issue of debentures 23,750
15% Debenture: 4,750 Debentures of Rs. 100 each 4,75,000
Accrued Interest (Debenture-holders’ Account) 75,000 Debit Balance of Profit and Loss
Account 75,000
5,73,750 5,73,750

Working Note: Calculation for number of preference shares given to Mr. Om:
Face value of debentures held by Om ` (250 100) 25,000
Less: 5% discount allowed 1,250
23,750
Face value of preference share 100

+ premium 25% 25
Issue Price of 12% Preference Share 125

23,750
No. of shares given to Mr. Om = ` 190
125
Face value of 12% shares 190 100 = ` 19,000
Premium 25% of face value ` 4,750
If the debenture-holders have a clear right, they can demand the conversion of unpaid interest
into shares.

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