Page 194 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 8: Methods of Redemption–I

Debenture Redemption Fund Investment Account Notes
2006 2006
Jan. 1 To Balance b/d: Jan.1 By Bank Account:
1,05,000 Electricity Bonds 1,06,890 1,05,000 Electricity Bonds 1,05,000
1,20,000 UP Water Bonds 96,102 1,20,000 UP Bond @ 91 1,09,200
90,000 G.O.I. Bonds 92,565 90,000 G.O.I. Bonds @ 109 98,100
24,000 ICICI Bonds 24,063 24,000 ICICI Bonds @ 103 24,720
By Debenture Redemption
Fund A/c 17,400
3,37,020 3,37,020
Premium on Redemption of Debentures Account
2006 2006
Jan. 1 To Debenture-holders’ A/c 15,000 Jan. 1 By Debenture Redemption Fund A/c 15,000
15,000 15,000

Working Note:
1. In the next balance sheet 12% Mortgage Debentures and D.R.F. investment will not be
shown and cash of 22,020 (3,37,020 – 3,15,000) will be shown.

2. Profit on sale of D.R.F. investment is a capital profit, therefore it is transferred to Capital
Reserve.
Illustration 8 (Redemption by Sinking Fund and Calculation of Profits set aside)

Ram Chandran Company Limited issued 12,610. 12% Debentures of 100 each on 1st January
2003. They are paid at the end of three years. A sinking fund account is to be opened in the books
of the company and every year on 31st December, a fixed amount is to be transferred to this
account. The first investment was made on 31st December, 2003 at 5% per annum compound rate
of interest. Prepare necessary account in the books of the company.
Solution:
The annually transferable amount from Profit and Loss Account to sinking fund will be calculated
as follows:

In 2003 Investment of 1 1.000
In 2004 Balance of 2003 1.000

5
1
100
+ Interest @ 5% 0.050

+ Investment of 1 1.000
2.050
In 2005
Balance of 2004 2.050

2.05 5

100
+ Interest @ 5% 0.1025

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