Issue And Redemption Of Debentures

Question

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On 1st April, 2008'a company made an issue of Rs. 2,00,000, 6% Debentures of Rs. 100 each, repayable at a premium of 10%. The terms of issue provided for the redemption of 400 debentures every year starting from the end of 31-3-2010 either by purchase from the open market or by draw of lots at the company's option.
On 31-3-2010, the company purchased for cancellation 300 Debentures at 95% and 100 Debentures at 90%.
Pass the necessary Journal entries for the issue and redemption of debentures assuming that the company had already created the Debenture Redemption Reserve A/c by the required amount.

Solution

Journal Entries

Date

Particulars

Debit(Rs)

Credit(Rs)

1, April, 2008

Bank a/c Dr

To 6% Debentures application and allotment a/c

(Being amount received on issue of 2000 6% debenture @ Rs100 each

200000

20000

28500

30000

9000

10000

200000

20000

28500

1500

9000

1000

6% Debenture application and

allotment a/c Dr

Loss on issue of debenture a/c Dr

To 6% debenture a/c

To Premium on redemption of debentures a/c

(being issue of 2000, 6% debentures of Rs 100 each at par and redeemable at premium)

Own debentures a/c Dr

To Bank a/c

( Being purchase of own 300 debentures of

Rs 100 each @ 95 per debenture)

6% debenture a/c Dr

To own debentures a/c

To profit on cancellation of debentures a/c

(being cancellation of 300 debentures of Rs 100 each purchasing at Rs 95 per debenture)

Own debenture a/c Dr

To bank a/c

(being the purchase of own 100 debentures of Rs 100 each @ Rs 90 per debenture)

6% debenture a/c Dr

To own debenture a/c

To profit on cancellation of debentures a/c

(being the cancellation of 100 debentures of Rs 100 each by purchasing @Rs 90 per share)

Some More Questions From Issue and Redemption of Debentures Chapter

What is meant by issue of debentures as a collateral security?

Pass the necessary journal entries for issue of 1,000, 7% Debentures of Rs. 100 each in the following cases:
(a) Issued at 5% premium redeemable at a premium of 10%.
(b) Issued at a discount of 5% redeemable at par.

Taneja Constructions Ltd. has an outstanding balance of Rs. 5,00,000, 7% debentures of Rs. 100 each redeemable at a premium of 10%. According to the terms of redemption, the company redeemed 30% of the above debentures by converting them into shares of Rs. 50 each at a premium of 20%. Record the entries for redemption of debentures in the books of Taneja Constructions Ltd.

Give any one advantage for the redemption of debentures by purchase in the open market?

Narain Laxmi Ltd. invited applications for issuing 7500, 12% Debentures of Rs100 each at a premium of Rs 35 per Debenture. The full amount was payable on application.
Applications were received for 10,000 Debentures. Applications for 2500 Debentures were rejected and the application money was refunded. Debentures were allotted to the remaining applicants.
Pass necessary Journal Entries for the above transactions in the books of Narain Laxmi Ltd.

Pass necessary Journal Entries for the following transactions in the books of Sudarshan Ltd:
(i) Redeemed 750, 12% Debentures of Rs 75 each by converting into Equity Shares of Rs 100 each. The Equity Shares were issued at a discount of 10%.
(ii) Converted 550, 12% Debentures of Rs 1,000 each into New 13% Debentures of Rs 100 each. The New Debentures were issued at a premium of 10%.

Pass the necessary Journal entry when 10,000 debentures of Rs. 100 each are issued as collateral security against a Bank loan of Rs. 8,00,000.

X Ltd. redeemed 100, 6% Debentures of Rs. 100 each by converting them into Equity Shares of Rs. 100 each. The 6% Debentures were redeemable at 10% premium for which the Equity Shares were issued at 25% premium. Pass the necessary Journal entries for the redemption of above-mentioned debentures in the books of X Ltd.