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Particulars
April 1 Bank Account
Dr.
To 12% Debentures Account
Dr.
July 31 Own Debentures Account
15,680
640
Debenture Interest Account
Dr.
To Bank Account
16,320
(Being 160 debentures purchased at 102 cum-interest)
1,19,360
Sep. 30 Debenture Interest Account
Dr.
1,19,040
To Bank Account
320
To Interest on Own Debenture A/c
(Being payment of interest on 19,840 debentures belonging to
outsiders)
2005
Feb. 28 Own Debentures Account
63,360
Dr.
3,200
Debenture Interest Account
Dr.
To Bank Account
66,560
(Being purchase 640 debentures at 99 ex-interest)
March 31 Debenture Interest Account
1,16,800
Dr.
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
2,40,000
Dr.
To Debenture Interest Account
2,40,000
(Being debenture interest transferred to P & L account)
1,920
March 31 Interest on Own Debentures A/c
Dr.
1,920
To Profit and Loss Account
(Being interest on own debentures transferred to P & L account)
June 30 Bank Account
33,280
Dr.
32,320
To Own Debentures Account
960
To Interest on Own Debentures Account
(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
1,17,120
To Bank Account
2,880
To Interest on Own Debentures Account
(Being payment of interest on 19,520 debentures belonging to
outsiders)
Nov. 30 Own Debentures Account
1,17,000
Dr.
2400
Dr.
Debenture Interest Account
1,19,400
To Bank Account
(Being purchase of 1,200 debentures at 97.50 ex-interest)
48,000
Dec. 31 12% Debentures Account
Dr.
47,360
To Own Debentures Account
To Profit on Cancellation of Own Debentures Account
640
(Being cancellation of 480 debentures and profit transferred)
Dec. 31 Profit on Cancellation Account
640
Dr.
Date (Being 20,000 debentures issued at par) L.F. 20,00,000 20,00,000
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
(Being 3 months’ interest cancelled)
Accounting for Companies-I March 31 Debenture Interest Account Dr. 1,14,720
To bank account 1,09,920
To interest on own debentures account 4,800
(Being payment of interest on 18,320 debentures belonging to outsiders)
Notes March 31 Profit on Sale of Own Debentures Account Dr. 960
Interest on Own Debentures A/c Dr. 10,080
To Profit and Loss Account 11,040
(Being profit on sale of own debentures and interest on own
debentures transferred to P & L account)
Profit and Loss Account Dr. 2,38,560
To Debenture Interest A/c 2,38,560
(Being debenture interest transferred)
Illustration 7 (Purchase of Debentures as Investment and Cancellation after Some Time)
On 1 July, 2003, a company issued 1,000; 6% debentures of 100 each. The interest is payable on
st
th
30 June and 31 December every year. The company is allowed to purchase its own debentures,
st
which may be cancelled or kept or reissued at the company’s option. The company made the
following purchases by cheque in the open market.
st
On 31 May 2004, 100 debentures @ 98 ex-interest.
On 30 September 2005, 50 debentures @ 97 cum-interest.
th
st
The debentures which were purchased on 31 May 2004 were cancelled on 31 December 2005.
st
All payments were made on due dates.
Pass the journal entries to record the above mentioned transactions (including receipt and
st
payments) and also the relevant items in the balance sheet as on 31 December 2005. Ignore
income tax.
[Adapted from C.A. (Inter) Nov. 1975]
Solution:
Journal Entries
Date Particulars L.F.
July Bank Account Dr. 1,00,000
To 6% Debentures Account 1,00,000
(Being issue of 1,000 debentures of 100 each)
Dec. 31 Debenture Interest Account Dr. 3,000
To Bank Account 3,000
(Being payment of debenture interest to debenture-holders)
Dec. 31 Profit and Loss Account Dr. 3,000
To Debenture Interest A/c 3,000
(Being debenture interest transferred to P & L accounts)
2004
May 31 Own Debentures Account Dr. 9,800
Debenture Interest Account Dr. 250
To Bank Account 10,050
(Being 100 debentures purchased as investment @ 98 ex-interest)
June 30 Debenture Interest Account Dr. 2,750
To Bank Account 2,700
To Interest on Own Debentures Account 50
(Being payment of interest on 900 debentures belonging to outsiders)
Dec. 31 Debenture Interest Account Dr. 3,000
To Bank Account 2,700
To Interest on Own Debentures A/c 300
(Being payment of interest on debentures belonging to outsiders)
Dec. 31 Profit and Loss Account Dr. 6,000
Contd...
To Debenture Interest Account 6,000
(Being transfer of debenture interest)
Interest on Own Debentures A/c Dr. 350
To Profit and Loss Account
214 LOVELY PROFESSIONAL UNIVERSITY 350
(Being transfer of interest on own debentures to P & L account)
June 30 Debenture Interest Account Dr. 3,000
To Bank Account 2,700
To Interest on Own Debentures A/c 300
(Being payment of interest on debentures belonging to outsiders)
Sep. 30 Own Debentures Account Dr. 4,725
Debenture Interest Account Dr. 75
To Bank Account 4,850
(Being 50 debentures purchased at 97 cum-interest as
investments)
Dec. 31 Debenture Interest Account Dr. 2,925
To Bank Account 2,550
To Interest on Own Debentures A/c 375
(Being payment of interest on debentures belonging to outsiders)
Dec. 31 6% Debentures Account Dr. 10,000
To Own Debentures Account 9,800
To Profit on Cancellation of Debentures Account. 200
(Being cancelled 100 debentures)
Dec. 31 Profits on Cancellation of Debentures A/c Dr. 200
To Capital Reserve Account 200
(Being transfer of profit on cancellation to capital reserve)
Interest on Own Debentures Account Dr. 675
To Profit and Loss Account 675
(Being interest on own debentures transferred to P & L account)
Profit and Loss Account Dr. 6,000
To Debenture Interest Account 6,000
(Being debenture interest transferred to P & L account)
Debenture Redemption Fund Account Dr. 10,000
To General Reserve Account 10,000
(Being an amount equal to the nominal value of debentures redeemed
transferred from D.R.F. to general reserve)
