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A company issued Rs600000 , 8% debentures of Rs100 each redeemable after 3 years either by draw by lots or by purchasing in open market price of debenture at Rs.95 per debenture it purchased all its debenture for immediate cancellation. Pass journal entries for cancellation of debentures assuming the company has sufficient balance in Debenture Redemption Reserve.
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A company issued Rs600000 , 8% debentures of Rs100 each redeemable aft...
Cancellation of Debentures and Journal Entries
Introduction
When a company issues debentures, it is a form of borrowing money from the public. The company promises to pay a fixed interest rate to the debenture holders for a specific period. At the end of the period, the company must redeem the debentures by either drawing lots or purchasing them in the open market. In this scenario, we will discuss how a company cancels its debentures and what journal entries are required.
Cancellation of Debentures
In this scenario, the company purchased all its debentures for immediate cancellation. This means that the company paid Rs.95 per debenture to the debenture holders and canceled the debentures. The company must have sufficient balance in its Debenture Redemption Reserve (DRR) to cancel the debentures.
Journal Entries
The following journal entries are required to cancel the debentures:
1. To record the cancellation of debentures:
Dr. Debentures (face value) Rs. 600,000
Cr. Debenture holders' account Rs. 570,000
Cr. Debenture Redemption Reserve Rs. 30,000
In this entry, we debit the debentures account for their face value of Rs.600,000 and credit the debenture holders' account for the amount paid to them, which is Rs. 570,000 (Rs.95 x 6,000 debentures). We also credit the DRR account for the remaining Rs.30,000.
2. To record the transfer of debentures from the balance sheet to the profit and loss account:
Dr. Debenture Redemption Reserve Rs. 30,000
Cr. Profit and Loss account Rs. 30,000
In this entry, we transfer the amount from the DRR account to the profit and loss account as it is no longer required.
3. To record the reduction in the liability:
Dr. Debenture holders' account Rs. 570,000
Cr. Bank account Rs. 570,000
In this entry, we reduce the liability of the company by paying off the debenture holders. We debit the debenture holders' account for the amount paid to them, which is Rs.570,000. We credit the bank account as the payment is made through the bank.
Conclusion
When a company cancels its debentures, it must ensure that it has sufficient balance in its DRR. The company must also pay the debenture holders the amount promised to them. The journal entries required for the cancellation of debentures involve debiting the debentures account, crediting the debenture holders' account, and crediting the DRR account. The amount from the DRR account is then transferred to the profit and loss account, and the liability is reduced by paying the debenture holders.
Introduction
When a company issues debentures, it is a form of borrowing money from the public. The company promises to pay a fixed interest rate to the debenture holders for a specific period. At the end of the period, the company must redeem the debentures by either drawing lots or purchasing them in the open market. In this scenario, we will discuss how a company cancels its debentures and what journal entries are required.
Cancellation of Debentures
In this scenario, the company purchased all its debentures for immediate cancellation. This means that the company paid Rs.95 per debenture to the debenture holders and canceled the debentures. The company must have sufficient balance in its Debenture Redemption Reserve (DRR) to cancel the debentures.
Journal Entries
The following journal entries are required to cancel the debentures:
1. To record the cancellation of debentures:
Dr. Debentures (face value) Rs. 600,000
Cr. Debenture holders' account Rs. 570,000
Cr. Debenture Redemption Reserve Rs. 30,000
In this entry, we debit the debentures account for their face value of Rs.600,000 and credit the debenture holders' account for the amount paid to them, which is Rs. 570,000 (Rs.95 x 6,000 debentures). We also credit the DRR account for the remaining Rs.30,000.
2. To record the transfer of debentures from the balance sheet to the profit and loss account:
Dr. Debenture Redemption Reserve Rs. 30,000
Cr. Profit and Loss account Rs. 30,000
In this entry, we transfer the amount from the DRR account to the profit and loss account as it is no longer required.
3. To record the reduction in the liability:
Dr. Debenture holders' account Rs. 570,000
Cr. Bank account Rs. 570,000
In this entry, we reduce the liability of the company by paying off the debenture holders. We debit the debenture holders' account for the amount paid to them, which is Rs.570,000. We credit the bank account as the payment is made through the bank.
Conclusion
When a company cancels its debentures, it must ensure that it has sufficient balance in its DRR. The company must also pay the debenture holders the amount promised to them. The journal entries required for the cancellation of debentures involve debiting the debentures account, crediting the debenture holders' account, and crediting the DRR account. The amount from the DRR account is then transferred to the profit and loss account, and the liability is reduced by paying the debenture holders.
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A company issued Rs600000 , 8% debentures of Rs100 each redeemable after 3 years either by draw by lots or by purchasing in open market price of debenture at Rs.95 per debenture it purchased all its debenture for immediate cancellation. Pass journal entries for cancellation of debentures assuming the company has sufficient balance in Debenture Redemption Reserve.
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A company issued Rs600000 , 8% debentures of Rs100 each redeemable after 3 years either by draw by lots or by purchasing in open market price of debenture at Rs.95 per debenture it purchased all its debenture for immediate cancellation. Pass journal entries for cancellation of debentures assuming the company has sufficient balance in Debenture Redemption Reserve. for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A company issued Rs600000 , 8% debentures of Rs100 each redeemable after 3 years either by draw by lots or by purchasing in open market price of debenture at Rs.95 per debenture it purchased all its debenture for immediate cancellation. Pass journal entries for cancellation of debentures assuming the company has sufficient balance in Debenture Redemption Reserve. covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A company issued Rs600000 , 8% debentures of Rs100 each redeemable after 3 years either by draw by lots or by purchasing in open market price of debenture at Rs.95 per debenture it purchased all its debenture for immediate cancellation. Pass journal entries for cancellation of debentures assuming the company has sufficient balance in Debenture Redemption Reserve..
A company issued Rs600000 , 8% debentures of Rs100 each redeemable after 3 years either by draw by lots or by purchasing in open market price of debenture at Rs.95 per debenture it purchased all its debenture for immediate cancellation. Pass journal entries for cancellation of debentures assuming the company has sufficient balance in Debenture Redemption Reserve. for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A company issued Rs600000 , 8% debentures of Rs100 each redeemable after 3 years either by draw by lots or by purchasing in open market price of debenture at Rs.95 per debenture it purchased all its debenture for immediate cancellation. Pass journal entries for cancellation of debentures assuming the company has sufficient balance in Debenture Redemption Reserve. covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A company issued Rs600000 , 8% debentures of Rs100 each redeemable after 3 years either by draw by lots or by purchasing in open market price of debenture at Rs.95 per debenture it purchased all its debenture for immediate cancellation. Pass journal entries for cancellation of debentures assuming the company has sufficient balance in Debenture Redemption Reserve..
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