Page 185 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes Illustration 4 (Redemption by Conversion of Shares at Premium and Discount)
Shobhit Limited redeemed, 5,000, 15% Debentures of ` 100 each, which were originally issued at
a discount of 5%, by converting them into equity shares of ` 10 each. Pass the journal entries
relating to redemption of debentures if (i) the new shares are issued at 25% premium, (ii) the
new shares are issued at 5% discount (iii) the shares are issued at ` 9.50 paid up value.

Solution
Shobhit Limited
Journal
Date Particulars ` `
15% Debentures Account Dr. 5,00,000
To Discount on Issue of Debentures Account 25,000
To Debenture-holders Account 4,75,000
(Being the amount due to debenture-holders on redemption)
Debenture-holders Account Dr. 4,75,000
To Equity Share Capital Account 3,80,000
To Share Premium Account 95,000
(Being the conversion of 5,000 debentures into share at premium)
15% Debenture A/c Dr. 5,00,000
To Discount on Issue of Debentures Account 25,000
To Debenture-holders Account 4,75,000
(Being the amount due to debenture-holders on redemption)
Debenture-holders Account Dr. 4,75,000
Discount on Issue of Shares Account Dr. 25,000
To Equity Share Capital Account 5,00,000
(Being redemption of 5,000 debentures by conversion into shares
at discount)
15% Debentures Account Dr. 5,00,000
To Discount on Issue of Debentures Account 25,000
To Debenture-holders Account 4,75,000
(Being amount due to debenture-holders on redemption)
Debenture-holders Account Dr. 4,75,000
To Equity Share Capital Account 4,75,000
(Being conversion of 5,000 debentures of ` 100 each in 50,000
equity shares of ` 10 each at ` 9.50 paid up)

Did u know? Alternatively the company can take an insurance policy by paying regular
premium, so that the policy matures coinciding with the time of redemption.

Self Assessment

State whether the following statements are true or false:
5. A company cannot purchase its own debenture.
6. Profit on sale of sinking fund investment is transferred to general reserve.
7. If a debenture is issued at a discount it cannot be redeemed at premium.

8. A company is bound to write off ‘The Discount on Issue of Debentures’ to profit and loss
account.

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