Chapter-2 Issue and Redemption of Debentures

X.Ltd. redeemed 1,000, 12% debentures of Rs.50 each by converting them into 15% New Debentures of Rs.100 each. Journalise.

Z.Ltd. redeemed 2,000, 12% debentures of Rs.100 each which were issued at a discount of 5%, by converting them into equity shares of Rs.10 each issued at a premium of 25%. Journalise.

Y.Ltd. redeemed 4,800, 12% debentures of Rs.100 each which were issued at par, at 110 per cent by converting them into equity shares of Rs.10 each issued at a discount of 4%. Journalise.

A.Ltd. redeemed 8,000, 12% debentures of Rs.100 each which were issued at a discount of 5%, by converting them into equity shares of Rs.10 each at par.

On January 01, 2002, X.Ltd. issued 40,000, 9% debentures of Rs.100 each at Rs.95.

The terms of issue provided that, beginning with 1999, Rs.2,00,000 debentures should be redeemed either by drawings at par or by purchase in the open market every year. The expenses of issue amounted to Rs.12,000 which were written-off in 2002. The company also wrote off Rs.40,000 every year from Discount on Debentures Account. At the end of 2004, debentures to be redeemed were repaid by drawings. During 2005, the company purchased for cancellation 2,000 debentures at the market price of Rs.98 on December 31, the expenses being Rs.400. Interest on debentures is payable at the end of every calendar year.

Pass the journal entries in the books of the company to record these transactions.

A.Ltd. purchased for cancellation Rs.50,000 of its 15% debentures at Rs.98. The expenses of purchase amounted to Rs.50.

A.Ltd. purchased its own debentures of the face value of Rs.2,00,000 from the open market for immediate cancellation at Rs.92. Pass the journal entries.

X.Ltd. issued 5,000, 15% debentures of Rs.100 each on January 01, 2004 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years out of capital.

Give journal entries both at the time of issue and redemption of debentures. (Ignore the treatment of loss on issue of debentures and interest.)

A. Ltd. Company issued Rs,5,00,000 Debentures at a discount of 5% repayable at

par by annual drawings of Rs.1,00,000.

Make the necessary ledger accounts in the books of the company for the first year.

What entries for the redemption of debentures will be done when : (a) debentures are redeemed by annual drawings out of profits; (b) debentures are redeemed by drawing a lot out of capital; and (c) debentures are redeemed by purchasing them in the open market when sinking fund for the redemption of debentures is not maintained - (i) when out of profit, and (ii) when out of capital?

On January 01, 2003 a company issued 15% debentures of Rs 10,00,000 at par. The debentures were redeemable at par after three years on December 31, 2003. A sinking fund was set up to raise funds for redemption of debentures. The amount for the purpose was invested in 6% Government securities of Rs 100 each available at par. The sinking fund table shows that if investments earn 6% per annum, to get Re.1 at the end of 3 years, one has to invest Rs 0.31411 every year together with interest that will be earned. On December 31, 2005, all the Government securities were sold at a total loss of Rs 6,000 and the debentures were redeemed at par.

Prepare Debentures Account Sinking Fund Account, Sinking Fund Investment Account and Interest on Sinking Fund Investment Company closes its books of accounts every year on December 31.

On January 01, 1998, X. Ltd. issues 5,000, 8% Debentures of Rs 100 each repayable at par at the end of three years. It has been decided to set up a cumulative sinking fund for the purpose of their redemption. The investments are expected to realise 4% net. The Sinking Fund Table shows that Rs 0.320348 amounts to one rupee @4% per annum in three years. On December 31, 2000 the balance at bank was Rs 2,42,360 and the investments realised Rs 3,25,000. The debentures were paid off.

Give journal entries and show ledger account

What journal entries will be made in the following cases when company redeems debentures at the expiry of period by serving the notice: (a) when debentures were issued at par with a condition to redeem them at premium; (b) when debentures were issued at premium with a condition to redeem that at par; and (c) when debentures were issued at discount with a condition to redeem them at premium?

A company issues the following debentures:

(i) 10,000, 12% debentures of Rs 100 each at par but redeemable at premium of 5% after 5 years;

(ii) 10,000, 12% debentures of Rs 100 each at a discount of 10% but redeemable at par after 5 years;

(iii) 5,000, 12% debentures of Rs 1,000 each at a premium of 5% but redeemable at par after 5 years;

(iv) 1,000, 12% debentures of Rs 100 each issued to a supplier of machinery costing Rs 95,000. The debentures are repayable after 5 years; and

(v) 300, 12% debentures of Rs 100 each as a collateral security to a bank which has advanced a loan of Rs 25,000 to the company for a period of 5 years.

Pass the journal entries to record the: (a) issue of debentures; and (b) repayment of debentures after the given period.

B.Ltd. issued debentures at 94% for Rs 4,00,000 on April 01, 2000 repayable by five equal drawings of Rs 80,000 each. The company prepares its final accounts on December 31 every year.

Indicate the amount of discount to be written-off every accounting year assuming that the company decides to write off the debentures discount during the life of debentures. (Amount to be written-off: 2000 Rs 6,000; 2001 Rs 6,800; 2002 Rs 5,200; 2003 Rs 3,600; 2004 Rs 2,000; 2005 Rs 400).

A company issued 10% Debentures of the face value of Rs,1,20,000 at a discount of 6% on January 01, 2001. The debentures are payable by annual drawings of Rs 40,000 commencing from the end of third year.

How will you deal with discount on debentures?

Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on December 31.

A company issued debentures of the face value of Rs 5,00,000 at a discount of 6% on January 01, 2001. These debentures are redeemable by annual drawings of Rs,1,00,000 made on December 31 each year. The directors decided to write off discount based on the debentures outstanding each year.

Calculate the amount of discount to be written-off each year. Give journal entries also.

A company issues the following debentures:

(i) 10,000, 12% debentures of Rs 100 each at par but redeemable at premium of 5% after 5 years;

(ii) 10,000, 12% debentures of Rs 100 each at a discount of 10% but redeemable at par after 5 years;

(iii) 5,000, 12% debentures of Rs 1,000 each at a premium of 5% but redeemable at par after 5 years;

(iv) 1,000, 12% debentures of Rs 100 each issued to a supplier of machinery costing Rs 95,000. The debentures are repayable after 5 years; and

(v) 300, 12% debentures of Rs 100 each as a collateral security to a bank which has advanced a loan of Rs 25,000 to the company for a period of 5 years.

Pass the journal entries to record the: (a) issue of debentures; and (b) repayment of debentures after the given period.

A.Ltd. issued 50,00,000, 8% Debenture of Rs 100 at a discount of 6% on April 01, 2000 redeemable at premium of 4% by draw of lots as under:

20,00,000 Debentures on March, 2002

10,00,000 Debentures on March, 2004

20,00,000 Debentures on March, 2005

Compute the amount of discount to be written-off in each year till debentures are paid. Also prepare discount/loss on issue of debenture account.

Journalise the following:

(i) A debenture issued at Rs 95, repayable at Rs 100;

(ii) A debenture issued at Rs 95, repayable at Rs 105; and

(iii) A debenture issued at Rs 100, repayable at Rs 105;

The face value of debenture in each of the above cases is Rs 100.

X.Ltd. issued 15,000, 10% debentures of Rs 100 each. Give journal entries and the Balance Sheet in each of the following cases:

(i) The debentures are issued at a premium of 10%;

(ii) The debentures are issued at a discount of 5%;

(iii) The debentures are issued as a collateral security to bank against a loan of Rs 12,00,000; and

(iv) The debentures are issued to a supplier of machinery costing Rs 13,50,000.

X.Ltd. purchased a Machinery from Y for an agreed purchase consideration of Rs 4,40,000 to be satisfied by the issue of 12% debentures of Rs 100 each at a premium of Rs 10 per debenture. Journalise the transactions.

B.Ltd. purchased assets of the book value of Rs 4,00,000 and took over the liability of Rs 50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs,3,80,000, be paid by issuing debentures of Rs 100 each.

What Journal entries will be made in the following three cases, if debentures are issued: (a) at par; (b) at discount; (c) at premium of 10%? It was agreed that any fraction of debentures be paid in cash.

M.Ltd. took over assets of Rs 9,00,00,000 and liabilities of Rs 70,00,000 of S.Ltd. and issued 8%Debenture of Rs 100 each. Record necessary entries in the books of M. Ltd.

R.Ltd. offered 20,00,000, 10% Debenture of Rs 200 each at a discount of 7% redeemable at premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.

X.Ltd. invites application for the issue of 10,000, 14% debentures of Rs 100 each payable as to Rs 20 on application, Rs 60 on allotment and the balance on call. The company receives applications for 13,500 debentures, out of which applications for 8,000 debentures are allotted in full, 5,000 only 40% and the remaining rejected. The surplus money on partially allotted applications is utilised towards allotment. All the sums due are duly received.

What is meant by conversion of debentures? Describe the method of such a conversion.

Can a company purchase its own debentures in the open market? Explain.

Describe the steps for creating Sinking Fund for redemption of debentures.

Explain the guidelines of SEBI for creating Debenture Redemption Reserve.

Differentiate between redemption of debentures out of capital and out of profits.

T. Ltd. offered 2,00,000, 8% Debenture of Rs 500 each on June 30, 2002 at a premium of 10% payable as Rs 200 on application (including premium) and balance on allotment, redeemable at par after 8 years. But application are received for 3,00,000 debenture and the allotment is made on pro-rata basis. All the money due on application and allotment is received. Record necessary entries regarding issue of debenture.

Explain the different terms for the issue of debentures with reference to their redemption.

A. Ltd. issued 4,000, 9% Debentures of Rs 100 each on the following terms:

Rs 20 on Application;

Rs 20 on Allotment;

Rs 30 on First call; and

Rs 30 on Final call.

The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400 Debentures were rejected.

How is 'Discount on Issue of Debentures' treated in the books of accounts? How will you deal with the 'discount in issue of debentures' when the debentures are to be redeemed in installments?

A. Ltd. issued 90,00,000, 9% Debenture of Rs 50 each at a discount of 8%, redeemable at par any time after 9 years. Record necessary entries in the books of A. Ltd.

A.Ltd. issued 10,000, 10% Debentures of Rs 100 each at a premium of 5% payable as follows:

Rs 10 on Application;

Rs 20 along with premium on allotment and balance on First and Final call. Record necessary Journal Entries.

Y.Ltd. issued 2,000, 6% Debentures of Rs 100 each payable as follows: Rs 25 on application; Rs 50 on allotment and Rs 25 on First and Final call.

G.Ltd. issued 75,00,000, 6% Debenture of Rs 50 each at par payable Rs 15 on application and Rs 35 on allotment, redeemable at par after 7 years from the date of issue of debenture. Record necessary entries in the books of Company.

Under which head is the 'Debenture Redemption Reserve' shown in the Balance Sheet?

What is meant by redemption of debentures by 'Purchase in the Open Market'?

What is meant by 'Redemption out of Capital?

How would you deal with 'Premium on Redemption of Debentures'?

What is meant by redemption of debentures by conversion?

Can the company purchase its own debentures?

What is meant by redemption of debentures?

Name the head under which 'discount on issue of debentures' appears in the Balance Sheet of a company.

How are debentures different from shares? Give two points.

What is meant by 'Premium on Redemption of Debentures'?

What is discount on issue of debentures?

What is meant by 'Mortgaged Debentures'?

What is a 'Convertible Debenture'?

What is meant by an 'Irredeemable Debenture'?

What is 'Capital Reserve'?

What is meant by 'Issue of debenture at discount and redeemable at premium?

What is meant by 'Issue of debentures for Consideration other than Cash'?

Describe the meaning of 'Debenture Issued as Collateral Securities'. What accounting treatment is given to the issue of debentures in the books of accounts?

State the meaning of 'Debentures issued as a Collateral Security'.

Distinguish between a debenture and a share. Why is debenture known as loan capital? Explain.

What does a Bearer Debenture mean?

What is meant by a debenture? Explain the different types of debentures?

What is meant by a Debenture?