Page 203 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes 2. How are debentures redeemed? What is a sinking fund? How and why is sinking fund
account prepared?
Practical Questions

3. (a) Zeba Hussain Company Limited issued 20,000; 10% Debentures of 100 each to a
discount of 10% but redeemable at a discount of 5% at the end of 5 years. Give the
necessary journal entries both at the time of issue and redemption of the debentures.
(b) Akram Ltd. issued 3,000; 10% Debentures of 100 each on 1st Jan., 1990 at a discount
of 10%. Redeemable at a premium of 10% in equal annual drawings in 4 years. Give
journal entries both at the time of issue and redemption of debentures.
4. Ankit Mills Limited issued 12% Debentures for 50,000 on 1st January. 2002, redeemable
at the end of the third year from the date of their issue. It was decided to make provision
for the redemption of debentures by means of a three-year insurance policy purchased on
1st January, 2002 for an annual premium of 16,000. Pass journal entries and prepare the
necessary ledger accounts to record these transactions relating to debentures in the books
of Ankit Mills Limited, on the assumption that accounting year of the company ends 31st
December.
Ans: Transfer from insurance policy account to debenture redemption fund account is 2,000
5. On 31st December, 2002, the following balances stood in the books of the company:

10% Mortgage Debenture Stock 3,00,000
Debenture Redemption Fund 3,19,620
Debenture Redemption Fund Investment at cost:
1,20,000; 8% Government Loan 1,06,890

120,000; 7% Conversion Stock 96,102
90,000; 10% Corporate Stock 92,565
30,000; 8% Funding Loan 24,063
On the same day the investments were sold: Government Loan at par, Conversion Stock at
91, and Corporation Stock at 99 and Funding Loan at 93. On the following day, the
debentures were redeemed at a premium of 5%.

Write up the accounts concerned, other than cash book, after the above transactions have
been completed.
Ans: Transfer to General Reserve 3, 04,620.

Transfer to Capital Reserve 26,580.

Answers: Self Assessment

1. Difficulty 2. Debentures
3. Maturity 4. Debenture
5. false 6. false

7. false 8. true
9. true 10. false

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