Page 209 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes (b) when loss on cancellation of debentures is written off against capital
reserve—
Capital Reserve Account Dr.

To Loss on Redemption of Debentures Account.
(iii) When debentures are purchased and cancelled, an amount equal to the nominal
value of debentures cancelled is transferred from the divisible profits to general
reserve account. For this, the journal entry will be:
Profit and Loss Account Dr.
To General Reserve Account

2. If a sinking fund is maintained in the books—
(i) When sinking fund investments are sold for the purchase of debentures:
Bank Account Dr.
To Sinking Fund Investment Account

Profit or loss on the sale of sinking fund investments will be transferred to the
sinking fund.
(ii) When debentures are purchased for cancellation.

Debentures Account Dr.
To Bank Account
If there is any profit or loss on the cancellation of debentures, the same will be
transferred to sinking fund account.
(iii) When debentures are purchased and cancelled, an equal amount to the nominal
value of debentures is transferred to general reserve from the sinking fund
account. For this, the entry will be:
Sinking Fund Account Dr.
To General Reserve Account

B. When debentures are purchased as investment:
1. If the sinking does not exist in the books and debentures are purchased as
investment—

Own Debentures Account Dr. (value paid)
To Bank Account
2. If a sinking fund account is maintained in the books, the first sinking fund investment
will be sold—
Bank Account Dr.
To Sinking Fund Investments Account.
If there is any profit or loss on the sale of sinking fund investment, the same will be
transferred to the sinking fund.
3. When own debentures are cancelled—
Debentures Account Dr. (nominal value)

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