Page 239 - ISCDEBK-12

Joint Stock Company—Redemption of Debentures 9.13
Illustration 7 (Purchase of Debentures from the Open Market for Cancel l ation).
Zenith Ltd. purchased its own 200, 9% Debentures of ` 100 each from the open market for
cancellation at ` 92. Pass Journal entries for purchase and cancellation of own debentures.
Solution: JOURNAL OF ZENITH LTD.
Date Particulars L.F. Dr. (`) Cr. (`)
Own Debentures A/c ...Dr. 18,400
To Bank A/c 18,400
(Being the purchase of 200 own debentures @ ` 92 each)
9% Debentures A/c ...Dr. 20,000
To Own Debentures A/c 18,400
To Gain (Profit) on Cancellation of Own Debentures A/c 1,600
(Being own debentures of the face value of ` 20,000 purchased
for ` 92 each from open market and cancelled)
Gain (Profit) on Cancellation of Own Debentures A/c ...Dr. 1,600
To Capital Reserve A/c 1,600
(Being the transfer of Gain (Profit) on redemption of debentures to
Capital Reserve)

Illustration 8.
X Ltd. has 4,000; 9% Debentures of ` 100 each outstanding as on 31st March, 2019. These
debentures are due for redemption on 31st March, 2019. Debentures Redemp tion Reserve has
a balance of ` 50,000 on 31st March, 2018.
Pass Journal entries at the time of redemption of debentures.
Solution: JOURNAL OF X LTD.
Date Particulars L.F. Dr. (`) Cr. (`)
2018
March 31 Surplus, i.e., Balance in Statement of Profit and Loss A/c ...Dr. 50,000
To Debentures Redemption Reserve A/c 50,000
(Being the transfer of Profit to DRR as per Rule 18(7)) (Note)
April 30 Debentures Redemption Investment A/c ...Dr. 60,000
To Bank A/c 60,000
(Being the investment made of a sum equal to 15% of
the nominal value of debentures to be redeemed)
2019
March 31 Bank A/c ...Dr. 60,000
To Debentures Redemption Investment A/c 60,000
(Being the Debentures Redemption investment realised)
March 31 9% Debentures A/c ...Dr. 4,00,000
To Debentureholders’ A/c 4,00,000
(Being the amount due to debentureholders on redemption)
March 31 Debentureholders’ A/c ...Dr. 4,00,000
To Bank A/c 4,00,000
(Being the amount due to debentureholders paid)
March 31 Debentures Redemption Reserve A/c ...Dr. 1,00,000
To General Reserve A/c 1,00,000
(Being the DRR transferred to General Reserve)
Note: Balance in DRR is ` 50,000 as on 31st March, 2019. A further amount of ` 50,000 is transferred from Surplus,
i.e., Balance in Statement of Profit and Loss to make DRR equal to ` 1,00,000 (i.e., 25% of ` 4,00,000).