Page 213 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes Sinking Fund Investment Account
(a) 3% War Loan Account
2005 2005
Jan. 1 To Balance b/d 6,50,000 Dec. 31 By Bank Account (98% of 6,50,000) 6,46,800
By Sinking Fund A/c (loss on sale) 3,200
6,50,000 6,50,000
(b) Own Debentures Account
2005 2005
Jan. 1 To Balance b/d 99,000 Dec. 31
Dec. 31 To Sinking Fund Account
(profit on cancellation) 1,000 By 5% Debentures Account 1,00,000
1,00,000 1,00,000
5% Debentures Account

2005 2005
Dec. 31 To Debenture-holders Account 7,00,000 Jan. 1 By Balance b/d 8,00,000
Dec. 31 To Own Debentures A/c 1,00,000
8,00,000 8,00,000
Debenture-holder’s Account

2005 2005
Dec. 31 To Bank Account 7,00,000 Dec. 31 By 5% Debentures Account 7,00,000
7,00,000 7,00,000
Working Note:

`
Loss on sale of 3% War Loan

Total amount available of S.F. Investment 7,49,000
Less: own debentures purchased 99,000
Cost price of 3% War Loan 6,50,000

Selling price of 3% War Loan 6,46,800
Loss on sale of 3% War Loan 3,200

!

Caution From the legal point of view, there are no restrictions on the sources of funds for
redeeming debentures – even assets can be sold for the purpose.

Self Assessment

State whether the following statements are true or false:
1. It is compulsory to maintain D.R.R. 50% of debenture before the redemption of debentures.

2. Premium on debentures and premium on redemption of debentures carry same meaning.
3. If a company buys its own debenture at cum-interest basis, it will pay interest (in addition
to purchase price) from the last date of interest payment to the date of transaction.

4. If there are same prices at cum-interest and ex-interest basis, there will be more profit on
the purchase of ex-interest basis.

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