Journal Entries for Purchase and Cancellation of Own Debentures

The purchase and cancellation of own debentures involve two transactions, the purchase of debentures and the cancellation of debentures. The journal entries for these transactions are as follows:

1. Purchase of Debentures
When the company purchases its own debentures from the open market, it is recorded as follows:

Debenture A/c Dr. 18,400
To Bank A/c 18,400

Explanation: The debenture account is debited with the cost of purchase of debentures, which is Rs. 18,400 in this case. The bank account is credited with the same amount, which represents the payment made for the purchase of debentures.

2. Cancellation of Debentures
When the company cancels its own debentures, it is recorded as follows:

Bank A/c Dr. 18,400
To Debenture A/c 20,000
To Capital Reserve A/c 1,600

Explanation: The bank account is debited with the amount paid for the cancellation of debentures, which is Rs. 18,400 in this case. The debenture account is credited with the face value of debentures cancelled, which is Rs. 20,000. The difference between the face value and the cost of purchase of debentures is credited to the capital reserve account, which is Rs. 1,600 (20,000-18,400).

Conclusion
The purchase and cancellation of own debentures is a common financial practice for companies. It helps them to reduce their debt burden and improve their financial position. The journal entries for these transactions are simple, and they involve the debenture account, bank account, and capital reserve account.