Page 317 - MA-12

M.8 Management Accounting (Section B)—ISC XII

Answers

1. (i) When a company purchases its own debentures in the open market for the purpose
of cancellation, such an act of purchasing and cancelling the debentures is known
as redemption by purchase of debentures in the open market.
(ii) ADJUSTMENT JOURNAL ENTRY

Date Particulars L.F. Dr. Cr.
` `
Malti’s Current A/c ...Dr. 200
Arti’s Current A/c ...Dr. 200
To Paro’s Current A/c 400
(Being the excess interest credited to partners now rectified)
ADJUSTMENT TABLE
Particulars Malti‘s Current A/c Paro‘s Current A/c Arti’s Current A/c Firm
Dr. (`) Cr. (`) Dr. (`) Cr. (`) Dr. (`) Cr. (`) Dr. (`) Cr. (`)
Interest on Capital already
credited @ 12%, now taken back 9,600 ... 4,800 ... 6,000 ... ... 20,400
Interest on Capital to be
credited @ 10% ... 8,000 ... 4,000 ... 5,000 17,000 ...
Share of Profit ` 3,400
(i.e., ` 20,400 – ` 17,000) ... 1,400 ... 1,200 ... 800 3,400 ...
in ratio of 7 : 6 : 4
9,600 9,400 4,800 5,200 6,000 5,800 20,400 20,400
Net Effect 200 Dr. 400 Cr. 200 Dr. Nil
(iii) (a) On the basis of time; (b) On the basis of sales or turnover.
Deceased partner’s share of profit will be credited to his Capital Account and debited to
the continuing Partners’ Capital Accounts in their Gaining Ratio when the profit-sharing
ratio of the continuing partners changes.
(iv) Company can utilise the Securities Premium Reserve of ` 22,00,000 as follows:
(a) ` 10,00,000 to write off underwriting commission.
(b) Remaining ` 12,00,000 to provide for premium on redemption of 9% Debentures.
(v) (a) Capital Reserve.
(b) Securities Premium Reserve.
(c) Debentures Redemption Reserve.
(d) Surplus, i.e., Balance in Statement of Profit and Loss.
(vi) JOURNAL OF LENOVO LTD.
Date Particulars L.F. Dr. Cr.
` `
Sundry Assets A/c ...Dr. 8,40,000
To Sundry Liabilities A/c 80,000
To Motorola Ltd. 7,20,000
To Capital Reserve A/c (Balancing Figure) 40,000
(Being assets and liabilities taken over from Motorola Ltd.)
Motorola Ltd. ...Dr. 7,20,000
To 9% Debentures A/c 6,00,000
To Securities Premium Reserve A/c 1,20,000
(Being 6,000; 9% Debentures issued at a premium of 20%)

Working Note:
No. of Debentures to be issued = Purchase Consideration ÷ Issue Price = ` 7,20,000 ÷ ` 120 = 6,000 Debentures.