Important Questions & Answers: Redemption of Debentures | Principles and Practice of Accounting - CA Foundation PDF Download

 Page 1


Redemption of Debentures
Q-1 A company had issued 40,000, 12% debentures of ` 100 each on 1
st
 April, 2015. The debentures are due
for redemption on 1
st
 March, 2019. The terms of issue of. debentures provided that they were
redeemable at a premium of 5% and also conferred option to the debenture holders to convert 20% of
their holding into equity shares (nominal value ` 10) at a predetermined price of ` 15 per share and the
payment in cash. 50 debentures holders holding totally 5,000 debentures did not exercise the option.
Calculate the number of equity shares to be allotted to the debenture holders and the amount to be
paid in cash on redemption.
Ans. Calculation of number of equity shares to be allotted
                                                                                                                                                              Number of debentures
Total number of debentures 40,000
Less: Debenture holders not opted for conversion (5,000)
Debenture holders opted for conversion 35,000
Option for conversion 20%
Number of debentures to be converted (20% of 35,000) 7,000
 Redemption value of 7,000 debentures at a premium of 5% [7,000 x (100+5)] ` 7,35,000
Equity shares of ` 10 each issued to debenture holders on redemption
[` 7,35,000/ ` 15] 49,000 shares
Amount of cash to be paid
Amount to be paid into cash [42,00,000 (40,000 x ` 105 ) – 7,35,000] on redemption `34,65,000
Q-2 A Company had issued 1,000 12% debentures of f fOO each redeemable at the company's option at the
end of 10 years at par or prior to that by purchase in open market or at f 102 after giving 6 months notice.
On 31st December, 2016, the accounts of the company showed the following balances:
Debenture redemption fund ` 53,500 represented by 10% Govt. Loan of a nominal value of ` 42,800
purchased at an average price of ` 101 and ` 10,272 uninvested cash in hand.
On 1st January 2017, the company purchased ` 11,000 of its own debentures at a cost of Rs.10,272.
On 30th June, 2017, the company gave a six months notice to the holders of ` 40,000 debentures and on
31st December, 2017 carried out the redemption by sale of ` 40,800 worth of Govt. Loan at par and also
cancelled the own debentures held by it.
Prepare ledger account of Debenture Redemption Fund Account and Debenture Redemption Fund
Investment Account for the year ended 31.12.2017, assuming that, interest on company debentures &
Govt. loan was payable on 31st December every year.
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Page 2


Redemption of Debentures
Q-1 A company had issued 40,000, 12% debentures of ` 100 each on 1
st
 April, 2015. The debentures are due
for redemption on 1
st
 March, 2019. The terms of issue of. debentures provided that they were
redeemable at a premium of 5% and also conferred option to the debenture holders to convert 20% of
their holding into equity shares (nominal value ` 10) at a predetermined price of ` 15 per share and the
payment in cash. 50 debentures holders holding totally 5,000 debentures did not exercise the option.
Calculate the number of equity shares to be allotted to the debenture holders and the amount to be
paid in cash on redemption.
Ans. Calculation of number of equity shares to be allotted
                                                                                                                                                              Number of debentures
Total number of debentures 40,000
Less: Debenture holders not opted for conversion (5,000)
Debenture holders opted for conversion 35,000
Option for conversion 20%
Number of debentures to be converted (20% of 35,000) 7,000
 Redemption value of 7,000 debentures at a premium of 5% [7,000 x (100+5)] ` 7,35,000
Equity shares of ` 10 each issued to debenture holders on redemption
[` 7,35,000/ ` 15] 49,000 shares
Amount of cash to be paid
Amount to be paid into cash [42,00,000 (40,000 x ` 105 ) – 7,35,000] on redemption `34,65,000
Q-2 A Company had issued 1,000 12% debentures of f fOO each redeemable at the company's option at the
end of 10 years at par or prior to that by purchase in open market or at f 102 after giving 6 months notice.
On 31st December, 2016, the accounts of the company showed the following balances:
Debenture redemption fund ` 53,500 represented by 10% Govt. Loan of a nominal value of ` 42,800
purchased at an average price of ` 101 and ` 10,272 uninvested cash in hand.
On 1st January 2017, the company purchased ` 11,000 of its own debentures at a cost of Rs.10,272.
On 30th June, 2017, the company gave a six months notice to the holders of ` 40,000 debentures and on
31st December, 2017 carried out the redemption by sale of ` 40,800 worth of Govt. Loan at par and also
cancelled the own debentures held by it.
Prepare ledger account of Debenture Redemption Fund Account and Debenture Redemption Fund
Investment Account for the year ended 31.12.2017, assuming that, interest on company debentures &
Govt. loan was payable on 31st December every year.
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Ans. Debenture Redemption Fund Account
Date Particulars Rs. Date Particulars Rs.
31-12-17 To Debenture 1-1-17 By Balance b/d 53,500
Redemption
Fund Investment A/c 408
To Premium on redemption 800 31-12-17 By interest on DRFI (10% of 4,280
of debentures Rs.42,800)
To Balance c/d 57,892 By interest on Own debentures 1,320
(ie. 12% on Rs.11,000)
59,100 59,100
1-1-18 To Balance b/d 57,892
Debenture Redemption Fund Investment Account
Rs. Rs.
1.1.17 To Balance b/d 43,228 31.12.17 By Bank A/c 40,800
(428 x Rs.101) By Debenture redemption
Fund (1% of Rs.40,800)
By 12% Debentures 11,000
1.1.17 To Bank 10,272 By Balance c/d 2,020
31.12.17 To Capital Reserve 728
(Profit on cancellation of
Debentures)
54,228 54,228
1.1.18 To Balance b/d 2,020
Q-3 Gurudev Limited purchases for immediate cancellation 6,000 of its own 12% debentures of ` 100 each
on 1st November, 2017. The dates of interest being 31st March, and 30th September. Pass necessary
journal entries relating to the cancellation if:
(i) Debentures are purchased at ` 98 ex-interest,
(ii) Debentures are purchased at ` 98 cum-interest.
Ans.                                              In the books of Gurudev Ltd.
Journal Entries
(i)    In case of ex-interest
Date Particulars Rs. Rs.
1.11.2017 Own Debentures A/c Dr. 5,88,000
Debentures Interest A/c [6,000 x 100 x 12% x (1/12)] Dr 6,000
        To Bank A/c (Purchase of 6,000 Debentures 5,94,000
@ 98 ex interest for immediate cancellation
1.11.17 12% Debentures A/c Dr 6,00,000
        To Own Debentures A/c 5,88,000
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Page 3


Redemption of Debentures
Q-1 A company had issued 40,000, 12% debentures of ` 100 each on 1
st
 April, 2015. The debentures are due
for redemption on 1
st
 March, 2019. The terms of issue of. debentures provided that they were
redeemable at a premium of 5% and also conferred option to the debenture holders to convert 20% of
their holding into equity shares (nominal value ` 10) at a predetermined price of ` 15 per share and the
payment in cash. 50 debentures holders holding totally 5,000 debentures did not exercise the option.
Calculate the number of equity shares to be allotted to the debenture holders and the amount to be
paid in cash on redemption.
Ans. Calculation of number of equity shares to be allotted
                                                                                                                                                              Number of debentures
Total number of debentures 40,000
Less: Debenture holders not opted for conversion (5,000)
Debenture holders opted for conversion 35,000
Option for conversion 20%
Number of debentures to be converted (20% of 35,000) 7,000
 Redemption value of 7,000 debentures at a premium of 5% [7,000 x (100+5)] ` 7,35,000
Equity shares of ` 10 each issued to debenture holders on redemption
[` 7,35,000/ ` 15] 49,000 shares
Amount of cash to be paid
Amount to be paid into cash [42,00,000 (40,000 x ` 105 ) – 7,35,000] on redemption `34,65,000
Q-2 A Company had issued 1,000 12% debentures of f fOO each redeemable at the company's option at the
end of 10 years at par or prior to that by purchase in open market or at f 102 after giving 6 months notice.
On 31st December, 2016, the accounts of the company showed the following balances:
Debenture redemption fund ` 53,500 represented by 10% Govt. Loan of a nominal value of ` 42,800
purchased at an average price of ` 101 and ` 10,272 uninvested cash in hand.
On 1st January 2017, the company purchased ` 11,000 of its own debentures at a cost of Rs.10,272.
On 30th June, 2017, the company gave a six months notice to the holders of ` 40,000 debentures and on
31st December, 2017 carried out the redemption by sale of ` 40,800 worth of Govt. Loan at par and also
cancelled the own debentures held by it.
Prepare ledger account of Debenture Redemption Fund Account and Debenture Redemption Fund
Investment Account for the year ended 31.12.2017, assuming that, interest on company debentures &
Govt. loan was payable on 31st December every year.
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Ans. Debenture Redemption Fund Account
Date Particulars Rs. Date Particulars Rs.
31-12-17 To Debenture 1-1-17 By Balance b/d 53,500
Redemption
Fund Investment A/c 408
To Premium on redemption 800 31-12-17 By interest on DRFI (10% of 4,280
of debentures Rs.42,800)
To Balance c/d 57,892 By interest on Own debentures 1,320
(ie. 12% on Rs.11,000)
59,100 59,100
1-1-18 To Balance b/d 57,892
Debenture Redemption Fund Investment Account
Rs. Rs.
1.1.17 To Balance b/d 43,228 31.12.17 By Bank A/c 40,800
(428 x Rs.101) By Debenture redemption
Fund (1% of Rs.40,800)
By 12% Debentures 11,000
1.1.17 To Bank 10,272 By Balance c/d 2,020
31.12.17 To Capital Reserve 728
(Profit on cancellation of
Debentures)
54,228 54,228
1.1.18 To Balance b/d 2,020
Q-3 Gurudev Limited purchases for immediate cancellation 6,000 of its own 12% debentures of ` 100 each
on 1st November, 2017. The dates of interest being 31st March, and 30th September. Pass necessary
journal entries relating to the cancellation if:
(i) Debentures are purchased at ` 98 ex-interest,
(ii) Debentures are purchased at ` 98 cum-interest.
Ans.                                              In the books of Gurudev Ltd.
Journal Entries
(i)    In case of ex-interest
Date Particulars Rs. Rs.
1.11.2017 Own Debentures A/c Dr. 5,88,000
Debentures Interest A/c [6,000 x 100 x 12% x (1/12)] Dr 6,000
        To Bank A/c (Purchase of 6,000 Debentures 5,94,000
@ 98 ex interest for immediate cancellation
1.11.17 12% Debentures A/c Dr 6,00,000
        To Own Debentures A/c 5,88,000
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        To Capital reserve A/c (Profit on 12,000
cancellation of debentures)
(Being profit on cancellation of 6,000
Debentures trasferred to capital reserved account)
(ii)   Incase of cum interest
1.11.17 Own Debenture A/c Dr. 5,82,000
Debenture Interest Account A/c Dr. 6,000
[6,000 x 100 x 12% x (1/12)]
        To Bank A/c 5,88,000
(Being 6,000 debentures purchased @ Rs. 98
cum interest for immediate cancellation
1.11.17 12% Debenture A/c Dr. 6,00,000
        To Own Debentures A/c 5,82,000
        To Capital reserve A/c (Profit on cancellation of debentures) 18,000
(Being Profit on cancelation of 6,000 Debentures
transferred to capital reserve account).
Q-4 A Company had issued 20,000, 13% Convertible debentures of Rs. 100 each on 1st April, 20X1. The
debentures are due for redemption on 1st July, 20X2. The terms of issue of debentures provided that
they were redeemable at a premium of 5% and also conferred option to the debenture holders to
convert 20% of their holding into equity shares (Nominal value Rs. 10) at a price of Rs. 15 per share.
Debenture holders holding 2,500 debentures did not exercise the option.
Calculate the number of equity shares to be allotted to the Debenture holders exercising the option to
the maximum.
Ans.                    Calculation of number of equity shares to be allotted
Number of
debentures
Total number of debentures 20,000
Less; Debenture holders not opted for conversion 2,500
Debenture holders opted for conversion 17,500
Option for conversion 20%
Number of debentures to be converted (20% of 17,500) 3,500
Redemption value of 3,500 debentures at a premium of 5% [3,500 x (100+5)] Rs. 3,67,500
Equity shares of Rs. 10 each issued on conversion [Rs. 3,67,500/ Rs. 15 ] 24,500 shares
Q-5 Omega Limited (a manufacturing company) recently made a public issue in respect of which the
following information is available:
(a) No. of partly convertible debentures issued- 2,00,000; face value and issue price- ` 100 per
debenture.
(b) Convertible portion per debenture- 60%, date of conversion- on expiry of 6 months from the date
of closing of issue i.e 31.10.20X1.
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Page 4


Redemption of Debentures
Q-1 A company had issued 40,000, 12% debentures of ` 100 each on 1
st
 April, 2015. The debentures are due
for redemption on 1
st
 March, 2019. The terms of issue of. debentures provided that they were
redeemable at a premium of 5% and also conferred option to the debenture holders to convert 20% of
their holding into equity shares (nominal value ` 10) at a predetermined price of ` 15 per share and the
payment in cash. 50 debentures holders holding totally 5,000 debentures did not exercise the option.
Calculate the number of equity shares to be allotted to the debenture holders and the amount to be
paid in cash on redemption.
Ans. Calculation of number of equity shares to be allotted
                                                                                                                                                              Number of debentures
Total number of debentures 40,000
Less: Debenture holders not opted for conversion (5,000)
Debenture holders opted for conversion 35,000
Option for conversion 20%
Number of debentures to be converted (20% of 35,000) 7,000
 Redemption value of 7,000 debentures at a premium of 5% [7,000 x (100+5)] ` 7,35,000
Equity shares of ` 10 each issued to debenture holders on redemption
[` 7,35,000/ ` 15] 49,000 shares
Amount of cash to be paid
Amount to be paid into cash [42,00,000 (40,000 x ` 105 ) – 7,35,000] on redemption `34,65,000
Q-2 A Company had issued 1,000 12% debentures of f fOO each redeemable at the company's option at the
end of 10 years at par or prior to that by purchase in open market or at f 102 after giving 6 months notice.
On 31st December, 2016, the accounts of the company showed the following balances:
Debenture redemption fund ` 53,500 represented by 10% Govt. Loan of a nominal value of ` 42,800
purchased at an average price of ` 101 and ` 10,272 uninvested cash in hand.
On 1st January 2017, the company purchased ` 11,000 of its own debentures at a cost of Rs.10,272.
On 30th June, 2017, the company gave a six months notice to the holders of ` 40,000 debentures and on
31st December, 2017 carried out the redemption by sale of ` 40,800 worth of Govt. Loan at par and also
cancelled the own debentures held by it.
Prepare ledger account of Debenture Redemption Fund Account and Debenture Redemption Fund
Investment Account for the year ended 31.12.2017, assuming that, interest on company debentures &
Govt. loan was payable on 31st December every year.
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Ans. Debenture Redemption Fund Account
Date Particulars Rs. Date Particulars Rs.
31-12-17 To Debenture 1-1-17 By Balance b/d 53,500
Redemption
Fund Investment A/c 408
To Premium on redemption 800 31-12-17 By interest on DRFI (10% of 4,280
of debentures Rs.42,800)
To Balance c/d 57,892 By interest on Own debentures 1,320
(ie. 12% on Rs.11,000)
59,100 59,100
1-1-18 To Balance b/d 57,892
Debenture Redemption Fund Investment Account
Rs. Rs.
1.1.17 To Balance b/d 43,228 31.12.17 By Bank A/c 40,800
(428 x Rs.101) By Debenture redemption
Fund (1% of Rs.40,800)
By 12% Debentures 11,000
1.1.17 To Bank 10,272 By Balance c/d 2,020
31.12.17 To Capital Reserve 728
(Profit on cancellation of
Debentures)
54,228 54,228
1.1.18 To Balance b/d 2,020
Q-3 Gurudev Limited purchases for immediate cancellation 6,000 of its own 12% debentures of ` 100 each
on 1st November, 2017. The dates of interest being 31st March, and 30th September. Pass necessary
journal entries relating to the cancellation if:
(i) Debentures are purchased at ` 98 ex-interest,
(ii) Debentures are purchased at ` 98 cum-interest.
Ans.                                              In the books of Gurudev Ltd.
Journal Entries
(i)    In case of ex-interest
Date Particulars Rs. Rs.
1.11.2017 Own Debentures A/c Dr. 5,88,000
Debentures Interest A/c [6,000 x 100 x 12% x (1/12)] Dr 6,000
        To Bank A/c (Purchase of 6,000 Debentures 5,94,000
@ 98 ex interest for immediate cancellation
1.11.17 12% Debentures A/c Dr 6,00,000
        To Own Debentures A/c 5,88,000
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        To Capital reserve A/c (Profit on 12,000
cancellation of debentures)
(Being profit on cancellation of 6,000
Debentures trasferred to capital reserved account)
(ii)   Incase of cum interest
1.11.17 Own Debenture A/c Dr. 5,82,000
Debenture Interest Account A/c Dr. 6,000
[6,000 x 100 x 12% x (1/12)]
        To Bank A/c 5,88,000
(Being 6,000 debentures purchased @ Rs. 98
cum interest for immediate cancellation
1.11.17 12% Debenture A/c Dr. 6,00,000
        To Own Debentures A/c 5,82,000
        To Capital reserve A/c (Profit on cancellation of debentures) 18,000
(Being Profit on cancelation of 6,000 Debentures
transferred to capital reserve account).
Q-4 A Company had issued 20,000, 13% Convertible debentures of Rs. 100 each on 1st April, 20X1. The
debentures are due for redemption on 1st July, 20X2. The terms of issue of debentures provided that
they were redeemable at a premium of 5% and also conferred option to the debenture holders to
convert 20% of their holding into equity shares (Nominal value Rs. 10) at a price of Rs. 15 per share.
Debenture holders holding 2,500 debentures did not exercise the option.
Calculate the number of equity shares to be allotted to the Debenture holders exercising the option to
the maximum.
Ans.                    Calculation of number of equity shares to be allotted
Number of
debentures
Total number of debentures 20,000
Less; Debenture holders not opted for conversion 2,500
Debenture holders opted for conversion 17,500
Option for conversion 20%
Number of debentures to be converted (20% of 17,500) 3,500
Redemption value of 3,500 debentures at a premium of 5% [3,500 x (100+5)] Rs. 3,67,500
Equity shares of Rs. 10 each issued on conversion [Rs. 3,67,500/ Rs. 15 ] 24,500 shares
Q-5 Omega Limited (a manufacturing company) recently made a public issue in respect of which the
following information is available:
(a) No. of partly convertible debentures issued- 2,00,000; face value and issue price- ` 100 per
debenture.
(b) Convertible portion per debenture- 60%, date of conversion- on expiry of 6 months from the date
of closing of issue i.e 31.10.20X1.
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(c) Date of closure of subscription lists- 1.5.20X1, date of allotment- 1.6.20X1, rate of interest on
debenture- 15% payable from the date of allotment, value of equity share for the purpose of
conversion- ` 60 (Face Value ` 10).
(d) Underwriting Commission- 2%.
(e) Number of debentures applied for - 1,50,000.
(f) Interest payable on debentures half-yearly on 30th September and 31st March.
Write relevant journal entries for all transactions arising out of the above during the year ended 31st
March, 20X2 (including cash and bank entries).
Ans. Journal Entries in the books of Omega Ltd.
Journal Entries
Date Particulars Amount Dr. Amount Cr.
` `
1.5.20X1 Bank A/c Dr. 1,50,00,000
To Debenture Application A/c 1,50,00,000
(Application money received on 1,50,000
debentures @ ` 100 each)
1.6.20X1 Debenture Application A/c Dr. 1,50,00,000
Underwriters A/c Dr. 50,00,000
To 15% Debentures A/c 2,00,00,000
(Allotment of 1,50,000 debentures to applicants
and 50,000 debentures to underwriters)
Underwriting Commission Dr. 4,00,000
To Underwriters A/c 4,00,000
(Commission payable to underwriters @ 2% on ` 2,00,00,000)
Bank A/c Dr. 46,00,000
To Underwriters A/c 46,00,000
(Amount received from underwriters in settlement of account)
01.06.20X1 Profit & Loss A/c
To Debenture Redemption Reserve A/c Dr. 20,00,000
(200,000 x 100 x 25% x 40%) 20,00,000
(Being Debenture Redemption Reserve created
on non-convertible debentures)
Debenture Redemption Reserve Investment A/c
To Bank A/c (200,000 x 100 x 15% x 40%) Dr. 12,00,000
(Being Investments made for redemption purpose)
12,00,000
30.9.20X1 Debenture Interest A/c Dr. 10,00,000
To Bank A/c 10,00,000
(Interest paid on debentures for 4 months @
15% on ` 2,00,00,000)
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Redemption of Debentures
Q-1 A company had issued 40,000, 12% debentures of ` 100 each on 1
st
 April, 2015. The debentures are due
for redemption on 1
st
 March, 2019. The terms of issue of. debentures provided that they were
redeemable at a premium of 5% and also conferred option to the debenture holders to convert 20% of
their holding into equity shares (nominal value ` 10) at a predetermined price of ` 15 per share and the
payment in cash. 50 debentures holders holding totally 5,000 debentures did not exercise the option.
Calculate the number of equity shares to be allotted to the debenture holders and the amount to be
paid in cash on redemption.
Ans. Calculation of number of equity shares to be allotted
                                                                                                                                                              Number of debentures
Total number of debentures 40,000
Less: Debenture holders not opted for conversion (5,000)
Debenture holders opted for conversion 35,000
Option for conversion 20%
Number of debentures to be converted (20% of 35,000) 7,000
 Redemption value of 7,000 debentures at a premium of 5% [7,000 x (100+5)] ` 7,35,000
Equity shares of ` 10 each issued to debenture holders on redemption
[` 7,35,000/ ` 15] 49,000 shares
Amount of cash to be paid
Amount to be paid into cash [42,00,000 (40,000 x ` 105 ) – 7,35,000] on redemption `34,65,000
Q-2 A Company had issued 1,000 12% debentures of f fOO each redeemable at the company's option at the
end of 10 years at par or prior to that by purchase in open market or at f 102 after giving 6 months notice.
On 31st December, 2016, the accounts of the company showed the following balances:
Debenture redemption fund ` 53,500 represented by 10% Govt. Loan of a nominal value of ` 42,800
purchased at an average price of ` 101 and ` 10,272 uninvested cash in hand.
On 1st January 2017, the company purchased ` 11,000 of its own debentures at a cost of Rs.10,272.
On 30th June, 2017, the company gave a six months notice to the holders of ` 40,000 debentures and on
31st December, 2017 carried out the redemption by sale of ` 40,800 worth of Govt. Loan at par and also
cancelled the own debentures held by it.
Prepare ledger account of Debenture Redemption Fund Account and Debenture Redemption Fund
Investment Account for the year ended 31.12.2017, assuming that, interest on company debentures &
Govt. loan was payable on 31st December every year.
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Ans. Debenture Redemption Fund Account
Date Particulars Rs. Date Particulars Rs.
31-12-17 To Debenture 1-1-17 By Balance b/d 53,500
Redemption
Fund Investment A/c 408
To Premium on redemption 800 31-12-17 By interest on DRFI (10% of 4,280
of debentures Rs.42,800)
To Balance c/d 57,892 By interest on Own debentures 1,320
(ie. 12% on Rs.11,000)
59,100 59,100
1-1-18 To Balance b/d 57,892
Debenture Redemption Fund Investment Account
Rs. Rs.
1.1.17 To Balance b/d 43,228 31.12.17 By Bank A/c 40,800
(428 x Rs.101) By Debenture redemption
Fund (1% of Rs.40,800)
By 12% Debentures 11,000
1.1.17 To Bank 10,272 By Balance c/d 2,020
31.12.17 To Capital Reserve 728
(Profit on cancellation of
Debentures)
54,228 54,228
1.1.18 To Balance b/d 2,020
Q-3 Gurudev Limited purchases for immediate cancellation 6,000 of its own 12% debentures of ` 100 each
on 1st November, 2017. The dates of interest being 31st March, and 30th September. Pass necessary
journal entries relating to the cancellation if:
(i) Debentures are purchased at ` 98 ex-interest,
(ii) Debentures are purchased at ` 98 cum-interest.
Ans.                                              In the books of Gurudev Ltd.
Journal Entries
(i)    In case of ex-interest
Date Particulars Rs. Rs.
1.11.2017 Own Debentures A/c Dr. 5,88,000
Debentures Interest A/c [6,000 x 100 x 12% x (1/12)] Dr 6,000
        To Bank A/c (Purchase of 6,000 Debentures 5,94,000
@ 98 ex interest for immediate cancellation
1.11.17 12% Debentures A/c Dr 6,00,000
        To Own Debentures A/c 5,88,000
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        To Capital reserve A/c (Profit on 12,000
cancellation of debentures)
(Being profit on cancellation of 6,000
Debentures trasferred to capital reserved account)
(ii)   Incase of cum interest
1.11.17 Own Debenture A/c Dr. 5,82,000
Debenture Interest Account A/c Dr. 6,000
[6,000 x 100 x 12% x (1/12)]
        To Bank A/c 5,88,000
(Being 6,000 debentures purchased @ Rs. 98
cum interest for immediate cancellation
1.11.17 12% Debenture A/c Dr. 6,00,000
        To Own Debentures A/c 5,82,000
        To Capital reserve A/c (Profit on cancellation of debentures) 18,000
(Being Profit on cancelation of 6,000 Debentures
transferred to capital reserve account).
Q-4 A Company had issued 20,000, 13% Convertible debentures of Rs. 100 each on 1st April, 20X1. The
debentures are due for redemption on 1st July, 20X2. The terms of issue of debentures provided that
they were redeemable at a premium of 5% and also conferred option to the debenture holders to
convert 20% of their holding into equity shares (Nominal value Rs. 10) at a price of Rs. 15 per share.
Debenture holders holding 2,500 debentures did not exercise the option.
Calculate the number of equity shares to be allotted to the Debenture holders exercising the option to
the maximum.
Ans.                    Calculation of number of equity shares to be allotted
Number of
debentures
Total number of debentures 20,000
Less; Debenture holders not opted for conversion 2,500
Debenture holders opted for conversion 17,500
Option for conversion 20%
Number of debentures to be converted (20% of 17,500) 3,500
Redemption value of 3,500 debentures at a premium of 5% [3,500 x (100+5)] Rs. 3,67,500
Equity shares of Rs. 10 each issued on conversion [Rs. 3,67,500/ Rs. 15 ] 24,500 shares
Q-5 Omega Limited (a manufacturing company) recently made a public issue in respect of which the
following information is available:
(a) No. of partly convertible debentures issued- 2,00,000; face value and issue price- ` 100 per
debenture.
(b) Convertible portion per debenture- 60%, date of conversion- on expiry of 6 months from the date
of closing of issue i.e 31.10.20X1.
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(c) Date of closure of subscription lists- 1.5.20X1, date of allotment- 1.6.20X1, rate of interest on
debenture- 15% payable from the date of allotment, value of equity share for the purpose of
conversion- ` 60 (Face Value ` 10).
(d) Underwriting Commission- 2%.
(e) Number of debentures applied for - 1,50,000.
(f) Interest payable on debentures half-yearly on 30th September and 31st March.
Write relevant journal entries for all transactions arising out of the above during the year ended 31st
March, 20X2 (including cash and bank entries).
Ans. Journal Entries in the books of Omega Ltd.
Journal Entries
Date Particulars Amount Dr. Amount Cr.
` `
1.5.20X1 Bank A/c Dr. 1,50,00,000
To Debenture Application A/c 1,50,00,000
(Application money received on 1,50,000
debentures @ ` 100 each)
1.6.20X1 Debenture Application A/c Dr. 1,50,00,000
Underwriters A/c Dr. 50,00,000
To 15% Debentures A/c 2,00,00,000
(Allotment of 1,50,000 debentures to applicants
and 50,000 debentures to underwriters)
Underwriting Commission Dr. 4,00,000
To Underwriters A/c 4,00,000
(Commission payable to underwriters @ 2% on ` 2,00,00,000)
Bank A/c Dr. 46,00,000
To Underwriters A/c 46,00,000
(Amount received from underwriters in settlement of account)
01.06.20X1 Profit & Loss A/c
To Debenture Redemption Reserve A/c Dr. 20,00,000
(200,000 x 100 x 25% x 40%) 20,00,000
(Being Debenture Redemption Reserve created
on non-convertible debentures)
Debenture Redemption Reserve Investment A/c
To Bank A/c (200,000 x 100 x 15% x 40%) Dr. 12,00,000
(Being Investments made for redemption purpose)
12,00,000
30.9.20X1 Debenture Interest A/c Dr. 10,00,000
To Bank A/c 10,00,000
(Interest paid on debentures for 4 months @
15% on ` 2,00,00,000)
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31.10.20X1 15% Debentures A/c Dr. 1,20,00,000
To Equity Share Capital A/c 20,00,000
To Securities Premium A/c 1,00,00,0000
(Conversion of 60% of debentures into shares
of ` 60 each with a face value of ` 10)
31.3.20X2 Debenture Interest A/c Dr. 7,50,000
To Bank A/c 7,50,000
(Interest paid on debentures for the half year)
(refer working note below)
Working Note :
Calculation of Debenture Interest for the half year ended 31st March, 20X2
On ` 80,00,000 for 6 months @ 15% = ` 6,00,000
On ` 1,20,00,000 for 1 months @ 15% = ` 1,50,000
` 7,50,000
Q-6 On 1st January, 2008 Raman Ltd. allotted 20,000 9% Debentures of ?100 each at par, the total amount
having been received along with applications.
(i) On 1st January, 2010 the Company purchased in the open market 2,000 of its own debentures @
Rs.101 each and cancelled them immediately.
(ii) On 1st January, 2013 the companyredeemed at par debentures for Rs.6,00,000 by draw of a lot.
(iii) On 1st January, 2014 the company purchased debentures of the face value of Rs.4,00,000 for 3,95,600
in the open market, held them as investments for one year and then cancelled them.
(iv) Finally, as per resolution of the board of directors, the remaining debentures were redeemed at a
premium of 2% on 1st January, 2018 when Securities Premium Account in the company's ledger
showed a balanceof Rs.60,000.
Pass journal entries for the above mentioned transactions ignoring debenture redemption reserve,
debenture - interest and interest on own' debentures.
Ans.                                                                               Journal
Date Particulars Dr. (Rs.) Cr. (Rs.)
2008 Jan 1 Bank Dr. 20,00,000 20,00,000
     To 9% Debenture Applications  SAIIotment Account
(Being application  money on 20,000 debentures  @ Rs.100
per debenture received)
9% Debentures Applications  & Allotment Account Dr. 10,00,000
     To 9% Debentures Account 20,00,000
(Being allotment of 20,000 9% Debentures of Rs.100each at par)
(i) 9% Debenture Account Dr. 2,00,000
2010 Jan. 1 Loss on Redemption of Debentures Account Dr. 2,000
     To Bank 2,02,000
(Being redemption  of 2,000 9% Debentures of Rs.100
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