Page 191 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes Illustration 6 (Debenture Redemption Fund Method)
A company issued 1,000 debentures of 100 each on 1 January, 2003 repayable after 3, years at
st
par. It was decided to set up a Debenture Redemption Fund for the purpose of redeeming these
debentures. Sinking Fund Table reveals that an amount of 0.317208 set aside every year and
invested in 5% securities will yield 1 after three years.

st
On 31 December, 2005 the investments were sold for 60,000 and debentures were redeemed.
Pass journal entries and necessary accounts.
[B. Com. Rohilkhand University 1994]
Solution:
Journal Entries

Date Particulars L.F.
2003
Jan. 1 Bank Account Dr. 1,00,000
To Debentures Account 1,00,000
(Being issue of debentures at par redeemable at par)
Dec. 31 Profit and Loss Appropriation Account Dr. 31,721
To Debenture Redemption Fund Account 31,721
(Being annual provision made for redemption)
Dec. 31 Debenture Redemption Fund Investment Account Dr. 31,721
To Bank Account 31,721
(Being the amount of D.R.F. invested)
2004
Dec. 31 Bank Account Dr. 1,586
To Interest on Debenture Redemption Fund Investment A/c 1,586
(Being receipt of interest on investment)
Dec. 31 Interests on Debenture Redemption Fund Investment A/c Dr. 1,586
To Debenture Redemption Fund Account 1,586
(Being interest transferred to D.R.F.)
Dec. 31 Profit and Loss Appropriation Account Dr. 31,721
To Debenture Redemption Fund Account 31,721
(Being annual provision made for redemption)
Dec. 31 Debenture Redemption Fund Investment Account Dr. 33,307
To Bank Account 33,307
(Being amount of debenture redemption fund invested)
2005
Dec. 31 Bank Account Dr. 3,251
To Interest on Debenture Redemption Fund Investment A/c 3,251
(Being receipt of Interest on investment)
Dec. 31 Interest on Debenture Redemption Fund Investment Dr. 3,251
To Debenture Redemption Fund Account 3,251
(Being interest on investment transferred to debenture redemption
fund account)
Profit and Loss Appropriation Account Dr. 31,721
“ “ To Debenture Redemption Fund Account 31,721
(Being annual provision made from profits)
Bank Account Dr. 60,000
“ “ Debenture Redemption Fund Account Dr. 5,028
To Debenture Redemption Fund Investment Account 65,028
(Being investments sold for 60,000 at a loss of 6,614) Contd...
“ “ Debentures Account Dr. 1,00,000
To debenture-holders’ Account 1,00,000
(Being amount due to debenture-holders on redemption)
“ “ Debenture-holders’ Account Dr. 1,00,000
184 LOVELY PROFESSIONAL UNIVERSITY
To Bank Account 1,00,000
(Being amount paid to debenture-holders on redemption)
“ “ Debenture Redemption Fund Account Dr. 93,386
To General Reserve Account 93,386
(Being the transfer of balance of DRF account to general reserve)