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Krishna Ltd. which had Rs. 50,00,000 10% debentures
outstanding, made following purchase in the open market for
immediate cancellation:
1.4.1997 1,000 debentures of Rs. 100 each at Rs. 99
1.9.1997 2,000 debentures of Rs. 100 each at Rs. 97.
You are required to give the journal entries for purchase and
cancellation of the debentures.
(a) If the above purchase rates are 'Ex-interest'
(b) If the above purchase rates are 'Cum-interest'.
Assume the interest payable every year on 30th June and
31st December.?
Most Upvoted Answer
Krishna Ltd. which had Rs. 50,00,000 10% debentures outstanding, made ...
Journal Entries for Purchase and Cancellation of Debentures
When purchasing debentures for cancellation, the accounting treatment depends on whether the purchase rates are 'Ex-interest' or 'Cum-interest'.
1. If the Purchase Rates are 'Ex-interest'
- For the purchase on 1.4.1997:
- Date: 1.4.1997
- Debit: Debentures Account (1,000 x 100) Rs. 1,00,000
- Credit: Bank Account (1,000 x 99) Rs. 99,000
- Credit: Discount on Debentures Account Rs. 1,000
- For the purchase on 1.9.1997:
- Date: 1.9.1997
- Debit: Debentures Account (2,000 x 100) Rs. 2,00,000
- Credit: Bank Account (2,000 x 97) Rs. 1,94,000
- Credit: Discount on Debentures Account Rs. 6,000
- For cancellation of debentures:
- Debit: Debentures Account Rs. 3,00,000
- Credit: Debenture Redemption Reserve Rs. 3,00,000
2. If the Purchase Rates are 'Cum-interest'
- For the purchase on 1.4.1997:
- Date: 1.4.1997
- Debit: Debentures Account (1,000 x 100) Rs. 1,00,000
- Credit: Bank Account (1,000 x 99 + Rs. 5,000 interest) Rs. 1,04,000
- For the purchase on 1.9.1997:
- Date: 1.9.1997
- Debit: Debentures Account (2,000 x 100) Rs. 2,00,000
- Credit: Bank Account (2,000 x 97 + Rs. 10,000 interest) Rs. 2,04,000
- For cancellation of debentures:
- Debit: Debentures Account Rs. 3,00,000
- Credit: Debenture Redemption Reserve Rs. 3,00,000
Conclusion
In summary, the treatment of interest impacts the cash outflow at the time of purchase. The debentures are recorded at their face value, while any discount (or interest adjustment) is accounted for in the respective accounts.
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Krishna Ltd. which had Rs. 50,00,000 10% debentures outstanding, made following purchase in the open market for immediate cancellation: 1.4.1997 1,000 debentures of Rs. 100 each at Rs. 99 1.9.1997 2,000 debentures of Rs. 100 each at Rs. 97. You are required to give the journal entries for purchase and cancellation of the debentures. (a) If the above purchase rates are 'Ex-interest' (b) If the above purchase rates are 'Cum-interest'. Assume the interest payable every year on 30th June and 31st December.?
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Krishna Ltd. which had Rs. 50,00,000 10% debentures outstanding, made following purchase in the open market for immediate cancellation: 1.4.1997 1,000 debentures of Rs. 100 each at Rs. 99 1.9.1997 2,000 debentures of Rs. 100 each at Rs. 97. You are required to give the journal entries for purchase and cancellation of the debentures. (a) If the above purchase rates are 'Ex-interest' (b) If the above purchase rates are 'Cum-interest'. Assume the interest payable every year on 30th June and 31st December.? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Krishna Ltd. which had Rs. 50,00,000 10% debentures outstanding, made following purchase in the open market for immediate cancellation: 1.4.1997 1,000 debentures of Rs. 100 each at Rs. 99 1.9.1997 2,000 debentures of Rs. 100 each at Rs. 97. You are required to give the journal entries for purchase and cancellation of the debentures. (a) If the above purchase rates are 'Ex-interest' (b) If the above purchase rates are 'Cum-interest'. Assume the interest payable every year on 30th June and 31st December.? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Krishna Ltd. which had Rs. 50,00,000 10% debentures outstanding, made following purchase in the open market for immediate cancellation: 1.4.1997 1,000 debentures of Rs. 100 each at Rs. 99 1.9.1997 2,000 debentures of Rs. 100 each at Rs. 97. You are required to give the journal entries for purchase and cancellation of the debentures. (a) If the above purchase rates are 'Ex-interest' (b) If the above purchase rates are 'Cum-interest'. Assume the interest payable every year on 30th June and 31st December.?.
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