Page 199 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes (b) In the last year, in addition to the above two entries, the following entries will also be
passed-
(i) When amount is realized from insurance policy on its maturity—
Bank Account Dr.

To Debenture Redemption Fund Policy Account
(ii) When the profit on policy (difference of total instalment paid and amount received
on maturity of policy) is transferred to debenture redemption fund—
Debenture Redemption Fund Policy Account Dr.
To Debenture Redemption Fund Account.

Alternatively, in the place of above (i) and (ii) entries, the following single combined
entry can be passed—
Bank Account Dr.
To Debenture Redemption Fund Account
(iii) When amount is due to debenture-holders at premium—

Debenture Account Dr.
Premium on Redemption of Debenture Account Dr.
To Debenture-holders’ Account.
(iv) When the premium payable on redemption of debentures is transferred to debenture
redemption fund account—
Debenture Redemption Fund Account Dr.
To Premium on Redemption of Debentures Account
(v) When payment is made to debenture-holders—
Debenture-holders’ Account Dr.

To Bank Account
(vi) When after the redemption of debenture, the balance of debenture redemption fund
is transferred to general reserve.

Debenture Redemption Fund Account Dr.
To General Reserve Account.

Did u know? In sinking fund method profits are invested at the end of the year while
premium is paid in the beginning of the year in the case of insurance policy method.
Illustration 10 (Redemption by Insurance Policy Method)
Nimish Limited issued 2,100; 12% Debentures of 100 each at par on 1st January 2003, repayable
at par after three years on 31st December 2005. It was decided to take over an insurance policy for
2,10,000 to provide the necessary cash for redemption of debentures. The annual premium of
the policy was 65,000.

Prepare the necessary accounts in the books of Nimish Limited relating to issue and redemption
of debentures.

192 LOVELY PROFESSIONAL UNIVERSITY