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March 1 12% Debentures Account
Dr.
Debenture Interest Account
960
Dr.
To Bank Account (480 × 98)
To Profit on Cancellation of Debentures Account
1,920
(Being 480 debentures purchased cum-interest at 98 for
immediate cancellation).
Dr.
1,920
March 1 Profit on Cancellation of Debentures Account
To debenture redemption fund account
1,920
(Being profit on cancellation of debentures transferred to D.R. fund)
47,040
Dr.
Bank Account
46,320
To Debenture Redemption Fund Investment Account
720
To Interest on D.R. Fund Investment A/c
(Being D.R.F. investments sold)
Debenture Redemption Fund Investment Account
1,320
Dr.
1,320
To Debenture Redemption Fund A/c
(Being transfer of profit on sale of investment)
Dr.
48,000
Profit and Loss Account
48,000
To Debenture Redemption Fund Account
2005 Particulars L.F. 48,000 47,040
(Being profit transferred to debenture redemption fund for redemption
of debentures)
June 30 Debenture Interest Account Dr. 21,120
To Bank Account 21,120
(Being payment of interest on 3,520 debentures for 6 months)
Accounting for Companies-I Bank Account Dr. 5,040
To Interest on D.R. Fund Investment Account 5,040
(Being interest received on investment of 1,26,000 @ 8% for
6 months)
Notes Dec. 31 Debenture Interest Account Dr. 21,120
To Bank Account 21,120
(Being payment of interest on 3,520 debentures for 6 months)
Bank Account Dr. 5,040
To Interest on D.R. Fund Investment A/c 5,040
(Being interest received on investment of 1,26,000 @ 8% for
6 months)
Interest on D.R. Fund Investment Account Dr. 10,800
To D.R. Fund Account 10,800
(Interest on D.R.F. investment transferred to D.R. Fund account i.e.,
720 + 5,040 + 5,040)
Profit and Loss Account Dr. 40,000
To D.R. Fund Account 40,000
(Being annual profit transferred to D.R. Fund account)
Debenture Redemption Fund Investment Account Dr. 41,800
To Bank Account 41,800
(Being 8% IDBI Bonds purchased with the amount of annual profits
and interest i.e., 40,000 + 1,800)
Profit and Loss Account Dr. 43,200
To Debenture Interest Account 43,200
(Being interest on debentures transferred to P/L account i.e.,
21,120 + 21,120 + 960)
Debenture Redemption Fund Account Dr. 48,000
To General Reserve Account 48,000
(Being an amount equal to the nominal value of debentures
redeemed transferred from D.R. Fund to General Reserve)
Illustration 6 (Sale and Purchase of Debentures at Cum-interest and Ex-interest Price)
st
Jaslin Company Limited issued 20,000; 12% Debentures of 100 each at par on 1 April, 2004.
th
According to the terms of issue, interest was payable half yearly on 30 September and 31 st
March and the company reserved the right to buy any number of debentures in the open market
to be held as an investment or to be cancelled at any time.
st
During the accounting year ended 31 March, 2005, the company purchased 160 of its debentures
st
th
at 102 cum-interest on 31 July and 640 of its debentures at 99 ex-interest on 28 February
2005.
th
th
On 30 June, 2005, the company sold one-half of the debentures purchased on 28 February 2005
th
at 104 cum-interest. On 30 November 2005, the company purchased 1,200 debentures at 97.50
st
and on 31 December 2005 it cancelled 480 debentures purchased in 2004 and still lying with it.
Prepare important journal entries ignoring the creation of debenture redemption reserve.
Solution:
Journal Entries
Date Particulars L.F.
April 1 Bank Account Dr. 20,00,000
To 12% Debentures Account 20,00,000
(Being 20,000 debentures issued at par)
July 31 Own Debentures Account Dr. 15,680
Debenture Interest Account Dr. 640
To Bank Account 16,320
(Being 160 debentures purchased at 102 cum-interest)
Sep. 30 Debenture Interest Account Dr. 1,19,360 Contd...
To Bank Account 1,19,040
To Interest on Own Debenture A/c 320
(Being payment of interest on 19,840 debentures belonging to
212 LOVELY PROFESSIONAL UNIVERSITY
outsiders)
2005
Feb. 28 Own Debentures Account Dr. 63,360
Debenture Interest Account Dr. 3,200
To Bank Account 66,560
(Being purchase 640 debentures at 99 ex-interest)
March 31 Debenture Interest Account Dr. 1,16,800
To Bank Account 1,15,200
To Interest on Own Debenture A/c 1,600
(Being payment of interest on 19,200 debentures belonging to outsiders)
Profit and Loss Account Dr. 2,40,000
To Debenture Interest Account 2,40,000
(Being debenture interest transferred to P & L account)
March 31 Interest on Own Debentures A/c Dr. 1,920
To Profit and Loss Account 1,920
(Being interest on own debentures transferred to P & L account)
June 30 Bank Account Dr. 33,280
To Own Debentures Account 32,320
To Interest on Own Debentures Account 960
(Being sale of 320 debentures at 104 cum-interest)
Own Debentures Account Dr. 640
To Profit on Sale of Own Debentures Account 640
(Being profit on sale of own debentures)
Sep. 30 Debenture Interest Account Dr. 1,20,000
To Bank Account 1,17,120
To Interest on Own Debentures Account 2,880
(Being payment of interest on 19,520 debentures belonging to
outsiders)
Nov. 30 Own Debentures Account Dr. 1,17,000
Debenture Interest Account Dr. 2400
To Bank Account 1,19,400
(Being purchase of 1,200 debentures at 97.50 ex-interest)
Dec. 31 12% Debentures Account Dr. 48,000
To Own Debentures Account 47,360
To Profit on Cancellation of Own Debentures Account 640
(Being cancellation of 480 debentures and profit transferred)
Dec. 31 Profit on Cancellation Account Dr. 640
To Capital Reserve Account 640
(Being profit on cancellation transferred to capital reserve)
Dec. 31 Debenture Interest Account Dr. 1,440
To Interest on Own Debentures Account 1,440
