# NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 7 Issue and Redemption of Debentures Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

## Issue and Redemption of Debentures NCERT Solutions for Class 12 Accountancy Chapter 7

### Issue and Redemption of Debentures Questions and Answers Class 12 Accountancy Chapter 7

Test your Understanding-1 (Page No. 112-113)
State whether the following statements are True (T) or False (F):

1. Debenture is a written instrument acknowledging a debt under the common seal of the company.
True

2. Debenture is a part of owned capital.
False

3. The payment of interest on debentures is a charge on the profits of the company.
True

4. The debentures cannot be issued at a discount of more than 10% of the face value.
False

5. Redeemable debentures are those debentures, which are payable on the expiry of the specific period.
True

6. Perpetual debentures are also known as irredeemable debentures.
True

7. Debentures cannot be converted into shares.
False

8. Debentures cannot be issued at a premium.
False

9. A Collateral Security is a Subsidiary Security.
True

10. Debentures cannot be issued at a premium and redeemable at par.
False

11. Loss on issue of debentures-account is a revenue loss.
False

12. Premium on redemption of debentures account is shown under the ‘Securities Premium’ in the Balance Sheet.
False

Test your Understanding-II (Page No. -136, 137, 138)
Select the correct answer for the following multiple choice questions:

Question 1.
Debenture which are transferable by mere delivery are
(a) Registered debentures
(b) First debentures
(c) Bearer debentures
(c) Bearer debentures

Question 2.
The following journal entry appears in the books of X Co. Ltd.

(a) 15%
(b) 5%
(c) 10%
(b) 5%

Question 3.
X Co. Ltd. purchased assets worth Rs. 28,80,000. It issued debentures of Rs. 100 each at a discount of 4 percent in full satisfaction of the purchase consideration. The number of debentures issued to vendor is :
(a) 30,000
(b) 28,800
(c) 32,000
(a) 30,000

Question 4.
Convertible debentures cannot be issued at a discount if
(a) They are to be immediately converted
(b) They are not to be immediately converted
(c) None of the above.
(a) They are to be immediately converted

Question 5.
Discount on issue of debentures is shown under the following head in the Balance Sheet :
(a) Profit & Loss Account
(b) Miscellaneous Expenditure
(c) Debentures Account
(b) Miscellaneous Expenditure

Question 6.
When debentures are issued at par and are redeemable at a premium, the loss on such an issue debited to :
(a) Profit & Loss Account
(b) Debentures Applications & Allotment Account
(c) Loss on Issue of Debentures Account.
(c) Loss on Issue of Debentures Account.

Question 7.
Excess value of net assets over purchase consideration at the time of purchase of business is credited to :
(a) General reserve
(b) Capital reserve
(c) Vendor’s account
(b) Capital reserve

Question 8.
When all the debentures are redeemed, balance in the debentures redemption fund account is transferred to :
(a) Capital reserve
(b) General reserve
(c) Profits and loss appropriation account
(b) General reserve

Question 9.
The nominal and book values of debenture redemption fund investments account are respectively Rs. 1,00,000 and Rs. 96,000. The company sold investments of nominal value of Rs. 30,000 at a price which was just sufficient to redeem debentures of Rs.30,0 at 10% premium, the profits on sale of investment is :
(a) Rs. 4,200
(b) Rs. 3,000
(c) Rs. Nil
(a) Rs. 4,200

Question 10.
Own debentures are those debentures of the company which :
(a) The company allots to its own promoters
(b) The company allots to its Director
(c) The company purchases from the market and keeps them as investments.
(c) The company purchases from the market and keeps them as investments.

Question 11.
Profit on cancellation of own debentures is transferred to :
(a) Profit and loss appropriation a/c
(b) Debenture redemption reserve
(c) Capital reserve
(c) Capital reserve

Question 12.
When debentures are redeemed out of profits, an equal amount is transferred to :
(a) General reserve
(b) Debenture redemption reserve
(c) Capital reserve
(b) Debenture redemption reserve

Question 13.
Profit on sale of debenture redemption fund investments in the first instance is credited to :
(a) Debenture redemption fund account
(b) Profit and Loss appropriation account
(c) General reserve account
(a) Debenture redemption fund account

Question 14.
The balance of sinking fund investment account after the realisation of investment is transferred to :
(a) Profit and loss account
(b) Debentures account
(c) Sinking fund account
(c) Sinking fund account

Question 15.
When debentures are issued at a discount and are redeemable at a premium, which of the following accounts is debited at the time of issue :
(a) Debenture account
(b) Premium on redemption of debentures account
(c) Loss on issue of debentures account.
(c) Loss on issue of debentures account.

Test Your Understanding III (Page No-138)

Question 1.
Indicate in the column below, the account to be debited in case of the following transactions.

1. Vendors A/c
2. Profit & Loss Appropriation A/c
3. Debentures Redemption Reserve A/c
4. Own Debentures A/c
5. Profit & Loss A/c

II. Indicate in the column below, the account to be credited in case of the following transactions.

6. Debenture A/c
7. Sinking Fund A/c
8. General Reserve A/c
9. Debenture Redemption Reserve A/c
10. Loss on issue of Debenture A/c

Do it Yourself (Page No. 89-90)

Question 1.
Amrit Company Limited purchased assets of the book value of Rs. 2,20,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000,10% debentures of Rs. 100 each at a premium of 10%. Record necessary journal entries.

Question 2.
A company purchased assets of the value of Rs. 1,90,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000,10% debentures of Rs. 100 each at a discount of 5%. Record necessary journal entries.

Question 3.
Rose Bond Limited purchased a business for Rs. 22,00,000. Purchase Price was paid by 6% debentures. Debentures of Rs. 20,00,000 were issued at a premium of 10% for the purpose. Record necessary journal entries.

Question 4.
Nikhil and Ashwin Limited bought business of Agarwal Limited consisting sundry assets of Rs. 3,60,000, sundry creditors Rs. 1,00,000 for a considerations of Rs. 3,07,200. It issued 14% debentures of Rs. 100 each fully paid at a discount of 4% in satisfaction of purchase consideration. Record necessary journal entries.

Do it Yourself (Page No. 101-102)

Question 1.
Nena Limited issued 50,000 10% debentures of Rs. 100 each on the basis of the following conditions :
a. Debentures issued at par and redeemable at par.
b. Debentures issued at discount @ 5% and redeemable at par.
c. Debentures issued at premium@ 10% and redeemable at par.
d. Debentures issued at par and redeemable at premium @ 10%.
e. Debentures issued at discount of 5% and redeemable at a premium of 10%.
f. Debentures issued at premium of 6% and redeemable at a premium of 4%
Record necessary journal entries in the above mentioned cases at the time of issue and redemption of debentures

Question 2.
Record necessary journal entries in each of the following cases.
a. 27,000, 7% debentures of Rs. 100 each issued at par, redeemable at par.
b. 25,000, 7% debentures of Rs. 100 each issued at par redeemable at 4% premium.
c. 20,000,7% debentures of Rs. 100 each issued at 5% discount and redeemable at par.
d. 30,000,7% debentures of 100 each issued at 5% discount and redeemable at 2% % premium.
e. 35,000,7% debentures of Rs. 100 each issued at 4% premium and redeemable at par.

Do it Yourself (Page No. 110-111)

Question 1.
X Ltd. Issued 2000,10% debentures of Rs. 100 each at a discount of 8% on 1 Jan, 1992 which are redeemable at par by annual drawings in 4 years commencing from 31st Dec. 1993 as per the following redemption plan: 1st Draw 10%, 2nd Draw, 20%, 3rd Draw 30%, and 4th Draw 40%. Calculate the amount of discount to be written off each year assuming that X Ltd. follows calender year as its accounting year.

Question 2.
Z Ltd. issued 15,00,000,10% debenture of Rs. 50 each at premium of 10% payable as Rs. 20 on application and balance on allotment. Debentures are redeemable at par after 6 years. All the money due on allotment was called and duly received. Record necessary entries when premium money is included :
(i) In application money
(ii) In allotment money

Question 4.
M Ltd. issued 10,000, 8% debentures of Rs. 100 each at a premium of 10% on 1.1.2004. It purchased sundry assets of the value of Rs. 2,50,000 and took over the liabilities of Rs. 1,90,000 and issued 8% debentures at a discount of 5% to the vendor. On the same date it took loan from the Bank for Rs. 1,00,000 and issued 8% debentures as Collateral Security. Record the relevant journal entries in the books of M. Ltd. and prepare the extract of balance sheet on 31.12.2004. Ignore interest.

Question 5.
On 1.1.2005 Fast Computer Ltd. issued 20,00,000, 6% debentures of Rs. 100 each at a discount of 4%, redeemable at a premium of 5% after three years. The amount was payable as follows : On application Rs. 50 per debenture Balance on allotment. Record the necessary journal entries for “issue of debentures”. Answer: In the books of Fast Computer Ltd.

Question 6.
D Ltd. Purchased machinery worth Rs. 2,00,000 from E Ltd. on 1.1.2001. Rs. 50,000 were paid immediately and the balance was paid by issue of Rs. 1,60,000,12% Debentures in D Ltd. Record the necessary journal entries for recording the transactions in the books of D Ltd.

Do it Yourself (Page No. 118)

Question 1.
X Ltd. decides to redeem 8,000,10% debentures of Rs. 100 each on January 1, 2004 at a premium of 5%. The company has a balance of Rs. 9,00,000 at the credit of its profit and loss account. The company closes its books on December 31 every year. What Journal entries the company will be recorded to redeem the above debentures.

Question 2.
G Ltd. issued 5,00,000,12 % debenture of Rs. 100 each on April 1,2002 redeemable at par on July 1,2003. The company received applications for 6,00,000 debentures and the allotment was made to all the applicants on pro-rata basis. The debenture were redeemed on due date. How much amount of Debenture Redemption Reserve is to be created before the redemption is carried out? Also record necessary journal entries regarding issue and redemption of debenture. Ignore tax deducted at source.

Do it Yourself (Page No. 139)

Question 1.
G Ltd. has 800 lakhs, 10% debenture of Rs. 100 each due for redemption on March 31, 2003. Assume that Debenture Redemption Reserve has a balance of Rs. 3,40,00,00,000 on that date. Record necessary entries at the time of redemption of debenture.

Question 2.
R Ltd. Issued 88,00,000, 8% debenture of Rs. 50 each at a premium of 5% on July 1, 2000 redeemable at par by conversion of debenture into shares of Rs. 20 each at a premium of Rs. 2 per share on June 30, 2003. Record necessary entries for redemption of debenture.

Question 3.
C Ltd. has outstanding 11,00,000,10% debentures of Rs. 200 each, on April 1, 2003. The Board of Directors have decided to purchase 20% of own debenture for cancellation at Rs. 200 each. Record necessary entries for the same.

Question 4.
Record necessary journal entries in the books of the Company in following case for redemption of 1,000,12% Debentures of Rs. 10 each issued at par :
(a) Debentures redeemed at par by conversion into 12% Pref. Shares of Rs. 100 each.
(b) Debentures redeemed at a premium of 10% by conversion into Equity Share issued at par.
(c) Debentures redeemed at a premium of 10% by conversion into Equity Shares issued at a premium of 25%.

Question 5.
On 31.1.2005 Janta Ltd. converted its Rs. 88,00,000, 6% debentures into equity shares of Rs. 20 each at a premium of Rs. 2 per share. Record necessary journal entries in the books of the company for redemption of debentures.

Question 6.
Anirudh Ltd. has 4,000, 8% debentures of Rs. 100 each due for redemption on March 31,2005. The company has a debenture redemption reserve of Rs. 1,50,000 on that date. Assuming that no interest is due record the necessary journal entries at the time of redemption of debentures.

Question 1.
What is meant by a Debenture?
Answer: Meaning of Debenture—The term, “debenture” has been
derived from the Latin word “debre” which means “to borrow”. Thus, it is a written document acknowledging a debt under the common seal of the company and containing a contract for the repayment of the principal sum at a specified date and for the payment of interest (usually half yearly) at a fixed rate percent until the principal sum is repaid.
“Debenture includes debenture stock, Bond and any other securities , of a company whether constituting a charge on the assets of the company or not.” – Section 2 (12) of the Companies Act, 1956

“A debenture is a document given by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge” – Topham

“Debenture as a document under company’s seal which provides for the repayment of a principal sum and interest there on at regular intervals which is usually secured, by fixed or floating charge on the company’s property and which acknowledges loan of a company.” – E. Thomas

“Debenture means a document which either creates a debt or acknowledges it and any document which fulfills either of these conditions.” – CHitty j.

Question 2.
What does a Bearer Debenture mean?
From the view point of Registration, Bearer debentures are the debentures which are payable to the bearer thereof. It can be transfered by way of delivery and the company does not keep any record of the debenturehblders. Interest on debenture is paid to a person who produces the interest coupon attached to such debentures.

Question 3.
State the meaning of ‘Debentures issued as a Collateral Security’.
Collateral security means an additional security to obtain secured loan. The borrower mav issue bond/debentures by way of additional security in favour of lender known as collateral security. If borrower fails to repay the loan along with interest in time, the lender is at liberty to recover his dues from the sale of primary security in the first instance. If the realisable value of primary security is insufficient to clear the dues, the lender has the right to invoke the benefit of collateral security whereby, the debentures may either be presented for redemption or sold in the market.

Accounting Treatment: Debentures kept as security, create no immediate liability to the company, therefore no journal entry is passed, but when lender invokes his right vested in the collateral security, the liability of company arise. In such a situation the following journal entry is recorded in the books of company.

LoanA/c — Dr.
Outstanding Interest A/c — Dr.
To Debenture A/c

Collateral security creates a contingent liability which has to be disclosed the balance sheet of the company.
Balance Sheet as at.

Question 4.
What is meant by ‘Issue of Debentures for Consideration other than Cash’?
Issue of Debenture for Consideration Other than Cash : Whenever a company purchases some assets or properties from the vendor or supplier, debentures or bonds may be issued in consideration of purchase price of such assets or properties. Such issue of debentures is known as issue of debentures for consideration other than cash.

When debentures are issued to the vendor or suppliers of patents, copyrights and transfer of intellectual property rights in the satisfaction of the purchase consideration. The following journal entries are to be passed in the books of company :

Question 5.
What is meant by ‘Issue of debenture at discount and redeemable at premium’?
Debenture Issued at discount and redeemable at Premium: In this situation the issue price is less than par value but redemption value is more than par value. The difference between the redemption price and the issue price is treated as discount/loss on issue of debenture.

Suppose, a 12% debenture of Rs. 100 is issued at a discount of Rs. 10 and redeemable at a premium of Rs. 5 per debenture, the amount of loss will be equal to Rs. 90 – Rs. 105 = Rs. 15. This is to be treated as loss on issue. It is to be noted that premium on redemption of debentures is also credited by Rs. 5.

Question 6.
What is ‘Capital Reserve’?
Meaning of Capital Reserve : Capital reserve means any amount which is not available for distribution as a dividend through profit and loss account. Capital reserves are generally created out of profit which are of extraordinary nature or capital receipts and not out of operating profits.

Some of the sources of the capital profits in the case of a limited company are :

• Pemium on the issue of shares or debentures.
• Profit on reissue of forfeited shares.
• Profit on redemption of debentures.
•  Profit on the sale of sinking fund investments, etc.

According to the Companies Act of the expression ‘Capital
Reserve’ shall not include any amount regarded as free for distribution by way of dividend.

Question 7.
What is meant by a ‘Irredeemable Debenture’?
Irredeemable debentures are also known as Perpetual Debentures because the company does not given any undertaking for the repayment of money borrowed by issue of such debentures. These debentures are repayable on the winding up of a company or on the expiry of a long period. In other periods, Irredeemable debentures are those that are not repayable during the life time of the company.

Question 8.
What is a ‘Convertible Debenture’?
Convertible debentures—Convertible debentures are those the holder of which are given an option of exchanging the amount of their debenture for equity shares after a specified period. These are of two types :

• Fully Convertible debentures (FCD) are those debentures where the whole amount is to be converted into equity shares.
• Partly Convertible debentures (PCD) are those debentures where only a part of the amount of debenture is convertible into equity shares.

Question 9.
What is meant by ‘Mortgaged Debentures’?
Mortgaged Debentures refers to those debentures where a charge is created on the assets of the company for the purpose of payment in case of default. The charge may be fixed or floating. A fixed charge is created on a specific assets whereas a floating charge is on the general assets of the company. They also known as secured debentures.

Question 10.
What is discount on issue of debentures?
Issue of Debentures at a Discount—When the debentures are issued at less than the face value, it is said to be issued at discount. Discount on issue of debenture is a capital loss and is shown on the assets side of Balance Sheet under the head “Miscellaneous Expenditure” till it is written off.

Accounting Treatment:
On issue of debentures at a discount
Debenture Allotment A/c — Dr.
Discount on Issue of Debenture A/c — Dr.
To Debenture A/c

Question 11.
What is meant by ‘Premium on Redemption of Debenture’?
Premium on Redemption of Debentures means when the debentures are redeemed at a price more than its face value. It is capital loss and is shown on the assets side of the Balance Sheet under the head ‘Miscellaneous Expenditure’.
Accounting Treatment:
If debentures are to be redeemed at premium :

(a) % Debentures A/c — Dr.
Premium on Redemption of Debentures A/c — Dr.
To Debentureholders A/c

(b) Debentureholders A/c — Dr.
To Bank A/c

Question 12.
How debentures are different from shares? Give two points.

Question 13.
Name the head under which ‘discount on issue of debentures’ appears in the Balance Sheet of a company.
Discount on issue of debentures is a capital loss and is shown on the assets side of the Balance Sheet under the head “Miscellanceous Expenditure” till it is written-off.

Question 14.
What is meant by redemption of debentures?
Redemption of Debenture : The term redemption means the discharge of obligation for payment of debenture or bonds. The redemption of debentures can take place either out of profits or through conversion of convertible debentures into shares or by issuing new debentures or bonds.

Redemption of non-convertible debenture out of profits :
According to Section 117C
(1) of the Companies Act, 1956, when debentures are redeemed out of profits, an adequate amount equal to 50% of issue price of debentures is required to be transferred to Debenture Redemption Reserve Account before the redemption begins. (SEBI Guideline No. 10.3.2(c) (a)). This guideline stipulates that an amount equal to 50% of the debenture issue should stand to the credit of the Debenture Redemption Reserve Account.

Debenture Redemption Reserve should be created before the redemption begins. If debentures are issued for project financing, this reserve may be created upto the date of commercial production either in equal instalments or higher amount if profits so permit. However, in case of convertible issues by new companies, the creation of such reserve shall commence from the year company earns profits for the remaining life of debentures.

Exceptions to the creation of Debenture Redemption Reserve : Following are the exception to the above rule of 50% debenture issue :

(1) For infrastructure companies engaged in developing, maintaining and operating infrastructure facilities are not required to make such reserve.

(2) A company issuing debentures with a maturity period of not more than 18 months.These guideliens issued by SEBI are not mandatory, therefore such companies can also create Debenture Redemption Reserve if they think it appropriate.

Following accounting entries for redemption of debenture may be passed :

Question 15.
Can the company purchase its own debentures? ‘
A company, if authorised by its Articles of Associations, can redeem its own debenture by purchasing them in the open market. If a company purchases it own debenture for the purpose of immediate cancellation, the purchase and cancellation of such debenture are called, redemption by purchase in the open market.

Question 16.
What is meant by redemption of debentures by conversion?
Redemption by Conversion—Sometimes, at the time of issue of debentures, a company gives the convertible debenture holders a privilege that they can get their debentures converted into shares or new debentures after the expiry of a specified period. Whenever debenture are redeemed by conversion, the debenture holders have to apply for the same. The new shares or debentures may be issued at par, discount or at premium.

No DRR is required in case of convertible debentures, because no funds are required for redemption. If debentures to be converted were issued at discount, the issue price of share must be equal to the amount actually received from debentures. If this rule is not followed, it would be violation of Section 79 of Companies Act, 1956.

If the new shares/debentures are issued at a premium the Securities Premium A/c is credited or new shares/debentures are issued at a discount, the discount on issue of shares/debentures A/c is debited in the above mentioned entry (b).

Question 17.
How would you deal with ‘Premium on Redemption of Debentures’?
‘Premium on Redemption of Debentures’ means when the debentures are redeemed at a price more than its face value. It is a capital loss and is shown on the assets side of the Balance sheet under the head ‘Miscellaneous Expenditure’.

Question 18.
What is meant by ‘Redemption out of Capital’?
Redemption of Debenture out of capital—In this case, profits of the company are not utilised for the redemption of debentures, so the assets of the company are reduced by the amount paid. Normally the profits are transferred to Debenture Redemption Reserve for redemption.

In case no profits have been transferred to Debenture Redemption Reserve and debentures are redeemed on the due date, it is regarded as redemption out of the capital. It is however, presumed that the company has adequate funds to redeem the debentures.

Question 19.
What is meant by redemption of debentures by ‘Purchase in the Open Market’?
Redemption by Purchase in the Open Market— company, if authorised by its Articles of Associations, can redeem its own debenture by purchasing them in the open market. If a company purchase its own debentrue for the purpose of immediate cancellation, the purchase and cancellation of such debenture are called, redemption by purchase in the open market.

1. A company can redeem the debentures at its convenience whenever it has surplus funds.
2. A company can save money by purchasing own debenture, when they are available in market at discount.

Accounting Treatment:
(In case of Profits)
(a) On purchase of own debentures for immediate cancellation.

Debenture A/c — Dr.
To Bank A/c
To Profit on cancellation of Debenture A/c

Question 20.
Under which head is the ‘Debenture Redemption Reserve’ shown on the Balance Sheet?
The Debenture Redemption Reserve account appears on the liability side of the Balance Sheet under the head ‘Reserves and Surpluses’.

Question 1.
What is meant by a debenture? Explain the different types of debentures?
Meaning of Debenture—The term, “debenture” has been derived from the Latin word “debre” which means “to borrow”. Thus, it is a written document acknowledging a debt under the common seal of the company and containing a contract for the repayment of the principal sum at a specified date and for the payment of interest (usually half yearly) at a fixed rate percent until the principal sum is repaid.

“Debenture includes debenture stock, Bond and any other securities of a company whether constituting a charge on the assets of the company or not.” — Section 2 (12) of the Companies Act, 1956

“A debenture is a document given by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by ” a charge” — Topham

“Debenture as a document under company’s seal which provides for the payment of a principal sum and interest there on at regular intervals which is usually secured, by fixed or floating charge on the company’s property and which acknowledges loan of a company.” —E. Thomas

“Debenture means a document which either creates a debt or acknowledges it and any document which fulfills either of these conditions.” —Chitty J.

Types of Debentures
1. Security Point of View-
(a) Secured/Mortgage Debentures—Secured Debentures are those which are secured either on a particular asset or on all the assets of the company in general.

(b) Unsecured/Naked Debentures—Unsecured Debentures do not have a Specific charge on the assets of the company.

2. Tenure Point of View—

(a) Redeemable Debentures—Redeemable debentures are those that will be repaid by the company at the end of a specified period during the existence of the company.

(b) Irredeemable Debentures—Irredeemable debentures are those that are not repayable during the life time of the company.

3. Mode of Redemption Point of View—
(a) Convertible Debentures—Convertible debentures are those the holder of which are given an option of exchanging the amount of their debenture for equity shares after a specified period. These are of two types :
(i) Fully Convertible Debentures (FCD) are those debentures where the whole amount is to be converted into equity shares.
(ii) Partly Convertible Debentures (PCD) are those debentures where only a part of the amount of debenture is convertible into equity shares.
(b) Non-Convertible Debentures—The debentures which cannot be converted into shares or in any other securities are called non-convertible debentures.

4. Coupon Rate Point of View:
(a) Zero Coupon Rate Debenture—These debentures do not carry a specific rate of interest.
(b) Specific Coupon Rate Debenture—These debentures are issued with r. specified rate of interest, which may either be fixed or floating.

5. Registration Point of View:—
(a) Registered Debentures—Registered debentures are those which are payable to the persons whose name appears in the Register of Debenture holders. These can be transferred only by executing a transfer deed.

(b) Bearer Debentures—Bearer debentures are those which are payable to the bearer thereof. These can be transferred nearly by delivery. Interest is paid to the persons who produced the interest coupon attached to such debenture.

Question 2.
Distinguish between a debenture and a share. Why debenture is known as loan capital? Explain.

Debenture is known as loan capital because, in actual practice debenture refers to long term indebtedness. A debenture holder will receive a certificate showing the number of debentures, and their distinctive numbers, held by him. It is issued under the seal of the company.

Terms of repayment of the principal sum and payment of interest are given in each debenture certificate. It is usual to “prefix debenture” with the rate of interest. The debenture certificate usually states that the sum borrowed will be repaid by the company on or before a certain date and precise details of the security are given to debenture holder.

Question 3.
Describe the meaning of ‘Debenture Issued as Collateral Securities/ What accounting treatment is given to the issue of debentures in the books of accounts?
Issue of Debentures as a Collateral Securities—
When a company takes a loan from a bank or any other party and gives some additional security in shape of debentures, the debentures are said to be issued as collateral security. In such a case, lender has the absolute right over the debentures unless and until the loan is repaid.

On repayment of the loan, the lender is legally bond to release the debenture fort with. In case the loan is not repaid by the company on the due date, the lender has the right to retain these debenture and realise them. The holder of such debentures is entitled to interest only on the amount of loan, but not on the debentures. Debentures issued as a collateral security can be dealt with in two ways in the books.

(i) No accounting entry is required to be shown in the books at the time of issue of such debentures, but a foot note to the fact that loan has been secured by the issue of debentures is appended.

This is done by stating the facts along with the loan, as shown below :

(ii) If it is desired that such an issue of debentures is to be recorded in the books, the following entries are recorded :

(a) On issue of Debentures as Collateral Security
Debentures Suspense A/c — Dr.
To Debentures A/c

(b) On repayment of the loan
Debentures A/c — Dr.
To Debentures Suspense A/c

The net effect of the above two entries is nil.
Debenture suspense account appears on the assets side of the Balance Sheet under the heading “Miscellaneous Expenditure” while debenture account appears on the liabilities side of the Balance Sheet before the repayment of the loan. Balance Sheet shows these items as under.

Question 4.
How is ‘Discount on Issue of Debenture’ treated in the books of accounts? How will you deal with the ‘discount on issue of debentures’ when the debentures are to be redeemed in instalments?
When debentures are issued at a price less than its nominal (face) value and/or debentures are redeemed at a price more than its nominal value, there arises a loss/discount on issue of debenture.

It is prudent for the company to write off discount/loss on issue of debentures which is in the nature of capital loss or a fictitious assets. A company is allowed to write it off against capital profit or capital reserve or securities premium account. If there are no capital profits or capital reserves, it should be treated as deferred revenue expenditure and therefore, should be written off against the revenue profits during the life of debentures.

When it is decided by the company to write off discount/loss on issue of debentures against the revenue profits, it can be done in two ways :

(a) Fixed Instalment Method, and
(b) Fluctuating Instalment Method.

Fixed Instalment Method—Under this method, total discount or loss is spread over the life of debentures equally. This method is to be applied when debentures are redeemed at the expiry of fixed period. This method spreads the burden of loss equally over the years. Thus, Amount of Loss or Discount to be written off annually Total Discount/Loss Life of the Debenture(in years).
$$=\frac{\text { Total Discount/Loss }}{\text { Life of the Debenture(in years) }}$$

Fluctuating Instalment Method—Under this method, the total discount is written off in the proportion of debenture debt outstanding during the year, i.e., in the proportion of benefit received out of money collected by issuing debentures. This method is used when debentures are redeemed every year by serving a notice and by drawing a lot. This method is also known as Reducing Instalment Method.

Question 5.
Explain the different terms for the issue of debentures with reference to their redemption.
A company may issue debentures at different terms. The issue can be made at par, at a premium or at a discount, the redemption of debentures can also be made at par, at a premium or at a discount. Combining various terms of issue and redemption of debentures, there may be the following six possibilities.

 Case No. Terms of Issue Terms of Redemption 1. Issued at Par Redemption at Par 2. Issued at Discount Redemption at Par 3. Issued at Premium Redemption at Par 4. Issued at Par Redemption at Premium 5. Issued at Discount Redemption at Premium 6. . Issued at Premium Redemption at Premium

Case No. 1 : Issue at Par and Redemption at Par – In this case company can issue the debentures at their face value and to redeem them at their face value. In this case, the company is neither losing nor gaining either on issue or redemption of debentures.

Case No. 2 : Issue at Discount and Redemption at Par – Debentures issued at discount and repayable at par refer to those debentures which are issued below the face value but redeemed at the face value of debentures.

Case No. 3. Issue at Premium and Redemption at Par – It refer to the debenture which are issued at more than the face value and redeemed at the face value of the debentures. In this case, the company gains at the time of issue only.

Case No. 4 : Issue at Par and Redemption at Premium – It refer to those debentures which are issued at the face value but are redeemed at the price higher than the face value. In this case, there will be no loss at the time of issue, but there will be loss on the redemption of debentures.

Case No. 5 Issue at Discount and Redemption at Premium—It refers to those debentures which are issued at below the face value and redeemed at a price higher than the face value of debentures. In this case the company loses at both the times at the time of issue and at the time of repayment.

Question 6.
Differentiate between redemption of debentures out of capital and out of profits.
Redemption of Debentures out of Capital – In this case, profits of the company are not utilised for the redemption of debentures, so the assets of the company are reduced by the amount paid.

It is presumed that the company has sufficient funds to redeem the debentures. Since the profits are not utilised to replace the debentures, debentures are said to redeemed out of capital. This would seriously affect the working capital of the company.

Redemption of Debentures out of Profits—It means the amount equal to that utilised for repayment to debenfure holders is transferred from Profit and Loss Appropriation A/c to a newly opened A/c called ‘Debenture Redemption Reserve A/c’.

(It is mandatory to set up ‘Debenture Redemption Reserve A/c. As per SEBI Guideline, an ” amount equal to 50% of the debenture issue should be transferred to DRR).

Thus, this reduces the balance of profits. It is called redemption out of profit because it reduces the amount of profits available for dividend.

Question 7.
Explain the guidelines of SEBI for creating Debentures Redemption Reserve.
SEBI’s Guidelines—Securities and Exchange Board of India (SEBI) has provided some guidelines for redemption of debentures. The focal points of these guidelines are :

1. Every company shall create Debenture Redemption Reserve in case of issue of debenture redeemable after a period of more than 18 months from the date of issue.

2. The creation of Debenture Redemption Reserve is obligatory only for non convertible debenture and non convertible portion of partly convertible debentures.

3. A company shall create Debenture Redemption Reserve equivalent to at least 50% of the amount of debenture issue before starting the redemption of debenture.

4. Withdrawal from Debenture Redemption Reserve is permissible only after 10% of the debenture liability has already been reduced by the company.

Exemption :
SEBI guidelines would not apply under the following situations:
(a) Infrastructure company (a company wholly engaged in the business of developing, maintaining and operating infrastructure facilites)

(b) A company issuing debentures with a maturity period of not more than 18 months.

Clarification regarding Debentures Redemption Reserve – The Department of Company Affairs, Government of India, vide their circular No. 9/2002, dated 18.04.2002 has issued the following clarifications regarding creation of Debenture Redemption Reserve.

(DRR) —

a. No DRR is required for debentures issued by All India Financial Institutions, by RBI and, Banking Companies .for both public as well as privately placed debentures.

b. No DRR is required in case of privately placed debentures.

c. Section 117c will apply to debentures issued and pending to be redeemed and, therefore, DRR will also be created for debentures issued prior to 13.12.2000 and pending redemption.

d. Section 117c will apply to non-convertible portion of debentures issued whether they are fully or partly paid.

Question 8.
Describe the steps for creating Sinking Fund for redemption of debentures.
Sinking Fund Method for Redemption of Debentures—
The following steps involved in the working of Sinking Fund Method :
1. Calculate the amount of profit to be set aside with the help of Sinking Fund Table.
2. Set aside the amount of profit at the end of each year.
3. Purchase the Investments at the end of each year (except last year)
4. Receive the interest on investments at the end of each year.
5. Repeat Step 2 including interest for each year, Repeat Step 3 for each year except last year, repeat Step 4 for each year.
6. Realise the investments in the year of redemption.
7. Transfer profit/loss on sale of Investment to Debenture Redemption Fund Account.
8. Make due the amount payable to Debenture-holders.
9. Make payment to Debenture-holders
10. Transfer the balance left in Debenture Redemption Fund Account to General Reserve if all the debentures have been redeemed.

Or
Transfer the nominal value of the debentures redeemed to Debenture Redemption Reserve if a certain proportion of debentures is redeemed.

The amount required for the redemption of debentures is generally large and the date of redemption is known to the company. Thus, it is prudent for a company to make arrangements to ensure the availability of adequate funds for the redemption of debenture at the end of the stipulated period for which debentures are issued. Hence, it is better for the company to set aside every year a part of divisible profits and to invest the same outside the business in marketable securities.

This is done by creating a Sinking Fund. The company adopts the method of Debenture Redemption Sinking Fund. An appropriate amount calculated by referring to Sinking Fund Factors, depending upon the interest rate on investments and the number of years for which investments are made, is set aside.

Debenture Redemption Sinking Fund A/c will be created every year to provide means for the redemption of debentures. The company set aside every year a certain sum of money out of its profits and invests the same along with interest that may be earned on investment. The investment are sold when debentures fall due for redemption. The amount available from the sale of investment is utilized for redemption of debentures.

Question 9.
Can a company purchase its own debentures in the open market? Explain.
Redemption by Purchase in the Open Market—A
company, if authorised by its Articles of Association, can redeem its own debenture by purchasing them in the open market.

If a company purchase its own debentrue for the purpose of immediate cancellation, the purchase and cancellation of such debenture are called, redemption by purchase in the open market.

1. A company can redeem the debentures at its convenience ‘ whenever it has surplus funds.
2. A company can save money by purchasing own debenture, when they are available in market at discount.

Question 10.
What is meant by conversion of debentures? Describe the method of such a conversion.
Sometimes, at the time of issue of debentures, a company gives the convertible debenture holders a privilege that they can get their debentures converted into shares or new debentures after the expiry of a specified period. Whenever debenture are redeemed by conversion, the debenture holders have to apply for the same. The new shares or debentures may be issued at par, discount or at premium.

No DRR is required in case of convertible debentures, because no funds are required for redemption. If debentures to be converted were issued at discount, the issue price of share must be equal to the amount actually received from debentures. If this rule is not followed, it would be violation of section 79 of Companies Act, 1956.

If Redemption at premium Debentures A/c — Dr.
To Debentureholder A/c

(b) For discharging obligation by issuing shares or debentures Debentureholder A/c — Dr.
To Equity Share capital Or To Debentures A/c (new)

If the new share/debentures are issued at a premium, the Securities Premium A/c is credited or new shares/debentures are issued at a discount, the Discount on Issue of Shares/Debentures A/c is debited in the above mentioned entry (b).

Numerical Exercises

Question 1.
G. Ltd. issued 75,00,000, 6% Debenture of Rs. 50 each at par payable Rs. 15 on application and Rs. 35 on allotment, redeemable at par after 7 years from the date of issue of debenture. Record necessary entries in the books of Company.

Question 2.
Y. Ltd. issued 2,000 6% Debentures of Rs. 100 each payable as follows : Rs. 25 on application; Rs. 50 on allotment and Rs. 25 on First and Final call. Application were received for all the debentures along with the application money and allotment was made. The call money was also received on the due date. Pass necessary Journal entries in the books of the company.

Question 3.
A Ltd. issued 10,000,10% Debentures of Rs. 100 each at a premium of 5% payable as follows : Rs. 10 on Application; Rs. 20 along with premium on allotment and balance on First and Final Call. Record necessary Journal Entries.

Question 4.
A. Ltd. issued 90,00,000, 9% Debenture of Rs. 50 each at a discount of 8%, redeemable at par any time after 9 years. Record necessary entries in the books of A. Ltd.

Question 5.
A. Ltd. issued 4,000, 9% Debentures of Rs. 100 each on the following terms :
Rs. 20 on Application; Rs. 20 on Allotment; Rs. 30 on First call; and Rs. 30 on Final call.
The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400 Debentures were rejected. Pass Journal entries.

Question 6.
T. Ltd. offered 2,00,000,8% Debenture of Rs. 500 each on June 30,2002 at a premium of 10% payable as Rs. 200 on application (including premium) and balance on allotment, redeemable at par after 8 years. But application are received for 3,00,000 debenture and the allotment is made on pro-rata basis. All the money due on application and allotment is received. Record necessary entries regarding issue of debentures.

Question 7.
X. Ltd. invites application for the issue of 10,000, 14% debentures of Rs. 100 each payable as to Rs. 20 on application, Rs. 60 on allotment and the balance on call. The company receives applications for 13,500 debentures, out of which applications for 8,000 debentures are allotted in full, 5,000 only 40% and the remaining rejected. The surplus money on partially allotted applications is utilised towards allotment. All the sums due are duly received. Journalise the transactions.

Question 8.
R.Ltd. offered 20,00,000,10% Debenture of Rs. 200 each at a discount of 7% redeemable at premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.

Question 9.
M.Ltd. took over assets of Rs. 9,00,00,000 and liabilities of Rs. 70,00,000 of S. Ltd. and issued 8% Debenture of Rs. 100 each. Record necessary entries in the books of M. Ltd.

Question 10.
B.Ltd. purchased assets of the book value of Rs. 4,00,000 and took over the liability of Rs. 50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs. 3,80,000, be paid by issuing debentures of Rs. 100 each.
What Journal entries will be made in the following three cases, if debentures are issued :
(a) at par;
(b) at discount 10%,
(c) at premium of 10%? It was agreed that any fraction of debentures be paid in cash.

Question 11.
X.Ltd. purchased a Machinery from Y for an agreed purchase consideration of Rs. 4,40,000 to be satisfied by the issue of 12% debentures of Rs. 100 each at a premium of Rs. 10 per debenture. Journalise the transactions.

Question 12.
X. Ltd issued 15,000, 10% debentures of Rs. 100 each. Give journal entries and the Balance Sheet in each of the following cases :
(i) The debentures are issued at a premium of 10%.
(ii) The debentures are issued at a discount of 5%.
(iii) The debentures are issued at a collateral security to bank against a loan of Rs. 12,00,000; and
(iv) The debentures are issued to a supplier of machinery costing Rs. 13,50,001.

Question 13.
Journalise the following :
(i) A debenture issued at Rs. 95, repayable at Rs. 100;
(ii) A debenture issued at Rs. 95, repayable at Rs. 105; and
(iii) A debenture issued at Rs. 100, repayable at Rs. 105; The face value of debentrue in each of the above cases is
Rs. 100.

Question 14.
A. Ltd. Issued 50,00/000, 8% Debenture of Rs. 100 at a discount of 6% on April 1, 2000 redeemable at premium of 4% by draw of lots as under :
20,0,000 Debenture on March, 2003
10,0,000 Debenture on March/ 2004
20,0,000 Debenture on March/ 2005
Compute the amount of discount to be written off in each year till debentures are paid. Also prepare discount/loss on issue of debenture account.
Value of Debentures issued = 50,00,000 x 100
= Rs. 50,00,000 or Rs.50 crore
Discount on Issue of Debenture of 6%
= 50,00,00,000 x $$\frac{6}{100}$$
= Rs. 300,00,000 or Rs.3 crore
Loss on Issue of Debenture of 4% .
= 50,00,00,000 x $$\frac{4}{100}$$
= Rs. 2,00,00,000 or Rs.2crore
Total Discount/Loss to written off = Rs. 3 crore + Rs. 2 crore
= Rs. 5 crore
= Rs. 500 lakhs.

Question 15.
A company issues the following debentures—
(i) 10,000, 12% debentures of Rs.100 each at par but redeemable at premium of 5% after 5 years;
(ii) 10,000,12% debentures of Rs.100 each at a discount of 10% but redeemable at par after 5 years;
(iii) 5,000,12% debentures of Rs.1000 each at a premium of 5% but redeemable at par after 5 years;
(iv) 1,000,12% debentures of Rs.100 each issued to a supplier of machinery costing Rs. 95,000. The debentures are repayable after 5 years; and
(v) 300,12% debentures of Rs.100 each as a collateral security to a bank which has advanced a loan of Rs. 25,000 to the company for a period of 5 years.
Pass the journal entries to record the (a) issue of debentures; and (b) repayment of debentures after the given period.

Question 16.
A company issued debentures of the face value of Rs. 5,00,000 at a discount of 6% on January 01, 2001. These’debentures are redeemable by annual drawing of Rs, 1,00,000 made on December 31 each year. The directors decided to write off discount based on the debentures outstanding each year. Calculate the amount of discount to be written off each year. Give journal entires also.
Value of Debenture issued = Rs. 5,00,000
Discount on Issue of Debenture = 6%
= 500000 x $$\frac{6}{100}$$= Rs. 30,000
Total Discount to be written off = Rs. 30,000

Question 17.
A company issued 10% Debentures of the face value of Rs. 1,20,000 at a discount of 6% on January 01,2001. These debentures are payable by annual drawing of Rs, 40,000 commencing from the end of third year. How will you deal with discount on debentures? Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on December 31.
Ans.
As the debentures are to be redeemed by annual drawings, it is equitable to adopt the fluctuating installment method of writing off the discount. In this way, the burden of discount would be distributed in proportion to the benefits derived out of the debentures money.
Value of Debenture issued=Rs. 120,000
Discount on Issue of Debenture = 6%
= 120,000 x $$\frac{6}{100}$$ = Rs. 7,200
Total Discount to be written off = Rs. 7,200.

Question 18.
B. Ltd. issued debentures at 94% for Rs. 4,00,000 on April 01, 2000 repayable by five equal drawing of Rs. 80,000 each. The company prepares its final accounts on December 31 every year. Indicate the amount of discount to be written off every accounting year assuming that the company decides to write off the debentures discount during the life of debentures. (Amount to be written off : 2000 Rs. 6,000; 2001 Rs. 6,800; 2002 Rs. 5,200; 2003 Rs. 3,600; 2004 Rs. 2000; 2005 Rs. 400.)
Value of Debenture issued = Rs. 4,00,000
Discount on Issue of Debenture = 6%
= $$\frac{6}{100}$$ x 400,000
= Rs 24,000

Amount of discount to be written off in the year.
2000 = Rs. 6,000
2001 Rs. 6,800
2002 = Rs. 5,200
2003 = Rs. 3,600
2004 = Rs. 2,000
2005 = Rs. 400

Question 19.
B. Ltd. issued 1,000,12% debentures of Rs. 100 each on January 01, 2005 at a discount of 5% redeemable at a premium of 10%. Give journal entries relating to the issue of debentures and debentures interest for the period ending December 31, 2005 assuming that interest is paid half yearly on June 30 and December 31 and tax deducted at source is 10%. B. Ltd. follows calendar year as its accounting year.

Question 20.
What journal entries will be made in the following cases when company redeems debentures at the expiry of period by serving the notice: (a) when debentures were issued at par with a condition to redeem them at premium; (b) when debentures were issued at Premium with a condition to redeem that at par; and (c) when debentures were issed at discount with a condition to redeem them I at premium?

Question 21.
On January 01,1998, X Ltd. issues 5,000,8% Debentures of Rs. 100 each repayable at par at the end of three years. It has been decided to set up a cumulative sinking fund for the purpose of their redemption. The investments are expected to realise 4% net. The Sinking Fund Table shows that Rs. 0.320348 amounts to one rupee @ 4% per annum in three years. On December 31, 2000 the balance at bank was Rs. 2,42,360 and the investments realised Rs. 3,25,000. The debentures were paid off. Give Journal entries and show ledger account. [Loss on Sale of Investments Rs. 2,246]

Question 22.
On January 01, 2003 a company issued 15% debentures of Rs. 10,00,000 at par. The debentures were redeemable at par after three years on December 31,2005. A sinking fund was set up to raise funds for redemption of debentures. The amount for the purpose was invested in 6% Government securities of Rs. 100 each available at par. The sinking fund table shows that if investments earn 6% per annum, to get Re. 1 at the end of 3 years, one has to invest Rs. 0.31411 every year together with interest that will be earned. On December 31,2005, all the Government securities were sold at a total loss of Rs. 6,000 and the debentures were redeemed at par. Prepare Debentures Account, Sinking Fund Account, Sinking Fund Investment Account and Interest on Sinking Fund Investment. Company closes its books of accounts every year on December 31.

Working Notes

1. Amount Set aside for investment purpose.
= 0.31411 x 10,00,000 = Rs. 3,14,110/-

2. Sinking Fund A/c and Sinking Fund investment A/c mean Debentures Redemption Fund A/c and Debentures Redemption Fund Investment A/c.

Question 23.
On January 01,2004 the following balances appeared in the books of Z. Ltd :
6% Debentures – 1,00,000
Debentures Redemption Reserve Fund – 80,000
D.R. Reserve Fund Investments – 80,000
On December 31, 2004, the balance at Bank was Rs. 26,000 (after receipt of interest on D.R. Reserve Fund Investment). Investments were realised at 92% and the Debentures were redeemed. The interest for the year had already been paid. Show the ledger accounts affecting redemption.

Question 24.
The following balances appeared in the books of A. Ltd. on January 01, 2004
12% Debentures – 4,00,000
Debentures Redemption Fund – 3,60,000
Debentures Redemption Find Investment – 3,60,000
Bank Balance – 1,00,000
On January 01,2004, the company redeemed all the debentures at 105 percent out of funds raised by selling all the investments at Rs. 3,48,000. Prepare the necessary ledger accounts.

Question 25.
The following balances appeared in the books of Z. Ltd.
12% Debentures – 1,50,000
Debentures Redemption Fund – 1,25,000
Debentures Redemption Fund Investment – 1,25,000
(Represented by Rs. 1,47500,3% Govt. Securities) – 1,25,00012% Debentures – 1,50,000
Debentures Redemption Fund – 1,25,000
Debentures Redemption Fund Investment – 1,25,000
(Represented by Rs. 1,47500,3% Govt. Securities) – 1,25,00012% Debentures – 1,50,000
Debentures Redemption Fund – 1,25,000
Debentures Redemption Fund Investment – 1,25,000
(Represented by Rs. 1,47500,3% Govt. Securities) – 1,25,000
(Represented by Rs. 1,47,500,3% Govt. Securities) 1,25,000 The annual installment added to the fund is Rs. 20,575. On December 31,2004, the bank balance after the receipt of interest on the investment was Rs. 39,100. On that date, all the investments were sold at 83 percent and the debentures were duly redeemed. Show the necessary ledger accounts for the year 2004. [Loss on Sale Rs. 2,575]

Question 26.
What entries for the redemption of debentures will be done when (a) debentures are redeemed by annual drawings out of profits; (b) debentures are redeemed by drawing a lot out of capital; and (c) debentures are redeemed by purchasing them in the open market when sinking fund for the redemption of debentures is not maintained : (i) when out of profit, and (ii) when out of capital?

Question 27.
A. Ltd Company issued Rs. 5,00,000 Debentures at a discount of 5% repayable at par by annual drawings of Rs. 1,00,000.
Make the necessary ledger accounts in the books of the company for the first year.

Question 28.
X. Ltd. issued 5,000,15% debentures of Rs. 100 each on January 01, 2004 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years Out of capital. Give journal entries both at the time of issue and redemption of debentures. (Ignore the treatment of loss on issue of debentures and interest.)

Z. Ltd. issued 2,000,14% debentures of Rs. 100 each on January 01,2005 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years out of profits. Give journal entries both at the time of issue and redemption of debentures. (Ignore the treatment of loss on issue of debentures and interest.)

Question 30.
A. Ltd. purchased its own debentures of the face value of Rs. 2,00,000 from the open market for immediate cancellation at Rs. 92. Pass the journal entries.

Question 31.
A.Ltd. purchased for cancellation Rs. 50,000 of its 15% debentures at Rs. 98. The expenses of purchase amounted to Rs. 50 Pass the journal entries.

Question 32.
On January 01,2002, X. Ltd. issued 40,000,9% debentures of Rs. 100 each at Rs. 95. The terms of issue provided that, beginning with 1999, Rs. 2,00,000 debentures should be redeemed either by drawings at par or by purchase in the open market every year. The expenses of issue amounted to Rs. 12,000 which were written off in 2002. The company also wrote off Rs. 40,000 every year from Discount on Debentures Account.

At the end of 2004, debentures to be redeemed were repaid by drawings. During 2005, the company purchased for cancellation 2,000 debentures at the market price of Rs. 98 on December 31, the expenses being Rs. 400. Interest on debentures is payable at the end of every calendar year. Pass the journal entries in the books of the company to record these transactions.

Question 33.
A. Ltd. redeemed 8,000,12% debentures of Rs. 100 each which were issued at a discount of 5%, by converting them into equity shares of Rs. 10 each at par. Journalise.

Question 34.
Y . Ltd. redeemed 4,800,12% debentures of Rs, 100 each which were issued at par, at 110 percent by converting them into equity shares of Rs. 10 each issued at a discount of 4%. Journalise.

Working Notes
Amount due to Debentureholders = Rs.5,28,000
Issue price of Share = Rs 1,Less 4 % = Rs.60
No. of shares to be Issued = $$\frac{5,28,000}{9.60}$$ = 55,000 shares

Question 35.
Z. Ltd. redeemed 2,000,12% debentures of Rs. 100 each which were issued at a discount of 5%, by converting them into equity shares of Rs. 10 each issued at a premium of 25%. Journalise.

Working Notes
Amount due to Debentureholder = Rs. 1,90,000
Issue price of Shares = Rs. 10 plus 25% = Rs. 12.50
No. of Shares to be issued = $$\frac{1,90,000}{12.50}$$
= 15,200 shares

Question 36.
X. Ltd. redeemed 1,000,12% debentures of Rs. 50 each by converting them into 15% New Debentures of Rs. 100 each. Journalise. Ans. In the books of X Ltd.
No. of Debentures to be issued = $$\frac{50000}{100}$$