Page 212 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 9: Methods of Redemption-II

Working Note: Notes
1. Profit on sale of investments
Total amount for D.R.F. Investment 5,95,000
– Amount invested to purchase own debentures 1,37,200
Amount invested in 10% Government of India loan 4,57,800
Sale of 10% Government of India loan at par 4,90,000
– Cost price of investments 4,57,800
Profit on sale of investment 32,200

2. Opening balance of Debenture Redemption Fund 5,95,000
Add: Profit on sale of investments 32,200
Add: Profit on cancellation of own debentures 2,800
Add: Transfer from P & L account 2,10,000
8,40,000
Less: Transfer to capital reserve
(profit on sale of investment + profit on

cancellation of own debentures) 35,000
Balance transferred to general reserve 8,05,000
Illustration 3 (Redemption by Cancellation of Own Debentures)
st
On 1 January, 2005, Shiwalik Breweries Limited had 8, 00,000; 5% debentures outstanding in
st
its books, redeemable on 31 December, 2005.
On 1 January, 2005, the balance of sinking fund was 7, 49,000 represented by:
st
(i) 1, 00,000 own debentures purchased at an average price of 99 and
(ii) 6, 60,000 nominal value of 3% war loan.
The amount annually credited to the sinking fund was 28,400.
st
The interest on the debentures was paid by the company every year on 31 December and the
interest on war loan was received also on 31 December annually.
st
On 31 December, 2005, the outside investments were realized at 98 per cent and all the outstanding
st
debentures were redeemed on that date.
You are required to write up the necessary ledger accounts for the year 2005 in the books of the
company.
Solution:
Ledger of Shiwalik Breweries Ltd.
Sinking Fund Account
2005 2005
Dec. 31 To Loss on Sale of War Loan A/c 3,200 Jan. 1 By Balance b/d 7,49,000
To Capital Reserve Account 1,000 Dec. 31 by Profit and Loss Appropriation A/c 28,400
To General Reserve Account 7, 99,000 Dec. 31 By Interest on Own Debentures A/c 5,000
Dec. 31 by Interest on War Loan A/c 19,800
Dec. 31 by Own Debentures Account
(Profit on cancellation) 1,000
8,03,200 8,03,200

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