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UNIT 1

Accounting for Share Capital & Debentures

Question Bank:

Q1) Venture Ltd. will issue 10,000 shares of Rs 100 per share. The payment amount is as follows.

January 1, 2018, Rs 20 at application

February 1, 2018, allocation Rs 50

Rs 30 on the first and last phone calls on March 1, 2018.

Display the required journals if:

The company receives an application for 10,000 shares and allocates all shares appropriately.

We accept applications for 9,500 shares and allocate all shares appropriately.

The company receives an application for 12000 shares. We accept applications for 10,000 shares and reject the remaining applications. Allocate all shares appropriately.

A1)

Full subscription:

Journal

In the book of Venture Co. Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1 Jan	Bank A/c	Dr.	200000
	To Share Application A/c	Cr.		200000
	(Being application money received on 10000 shares @20 per share)
1 Feb	Share Application A/c	Dr.	200000
	To Share Capital A/c	Cr.		200000
	(Being share application money transferred to share capital)
1 Feb	Share Allotment A/c	Dr.	500000
	To Share Capital A/c	Cr.		500000
	(Being share allotment due on 10000 shares @50 per share)
1 Feb	Bank A/c	Dr.	500000
	To Share Allotment A/c	Cr.		500000
	(Being share allotment money received)
1 Mar	Share First and Final Call A/c	Dr.	300000
	To Share Capital A/c	Cr.		300000
	(Being money on share call due on 10000 shares @30 per share)
1 Mar	Bank A/c	Dr.	300000
	To Share First and Final Call A/c	Cr.		300000
	(Being share call amount received)

2. Under Subscription:

Journal Entries

In the books of Venture Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1 Jan	Bank A/c	Dr.	190000
	To Share Application A/c	Cr.		190000
	(Being application money received on 9500 shares @20 per share)
1 Feb	Share Application A/c	Dr.	190000
	To Share Capital A/c	Cr.		190000
	(Being share application money transferred to share capital)
1 Feb	Share Allotment A/c	Dr.	475000
	To Share Capital A/c	Cr.		475000
	(Being share allotment due on 9500 shares @50 per share)
1 Feb	Bank A/c	Dr.	475000
	To Share Allotment A/c	Cr.		475000
	(Being share allotment money received)
1 Mar	Share First and Final Call A/c	Dr.	285000
	To Share Capital A/c	Cr.		285000
	(Being money on share call due on 9500 shares @30 per share)
1 Mar	Bank A/c	Dr.	285000
	To Share First and Final Call A/c	Cr.		285000
	(Being share call amount received)

3. Over-Subscription: Journal Entries

In the books of Venture Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1 Jan	Bank A/c	Dr.	240000
	To Share Application A/c	Cr.		240000
	(Being application money received on 12000 shares @20 per share)
1 Feb	Share Application A/c	Dr.	240000
	To Share Capital A/c	Cr.		200000
	To Bank A/c	Cr.		40000
	(Being share application money transferred to share capital and excess refunded)
1 Feb	Share Allotment A/c	Dr.	500000
	To Share Capital A/c	Cr.		500000
	(Being share allotment due on 10000 shares @50 per share)
1 Feb	Bank A/c	Dr.	500000
	To Share Allotment A/c	Cr.		500000
	(Being share allotment money received)
1 Mar	Share First and Final Call A/c	Dr.	300000
	To Share Capital A/c	Cr.		300000
	(Being money on share call due on 10000 shares @30 per share)
1 Mar	Bank A/c	Dr.	300000
	To Share First and Final Call A/c	Cr.		300000
	(Being share call amount received)

Q2) Sahni Ltd. will issue 10,000 shares of Rs 100 each with a 25% premium. Insurance premiums must be paid at the time of allocation. The payment amount is as follows.

January 1, 2018: Rs 20 at application

February 1, 2018: Allocation Rs 75

March 1, 2018: Rs 30 on first and last phone calls.

The company makes allotment properly. Show necessary journal entries.

A2) Journal Entries

In the books of Sahni Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1 Jan	Bank A/c	Dr.	200000
	To Share Application A/c	Cr.		200000
	(Being application money received on 10000 shares @20 per share)
1 Feb	Share Application A/c	Dr.	200000
	To Share Capital A/c	Cr.		200000
	(Being share application money transferred to share capital)
1 Feb	Share Allotment A/c	Dr.	750000
	To Share Capital A/c	Cr.		500000
	To Securities Premium A/c	Cr.		250000
	(Being share allotment due on 10000 shares @50 per share)
1 Feb	Bank A/c	Dr.	750000
	To Share Allotment A/c	Cr.		750000
	(Being share allotment money received)
1 Mar	Share First and Final Call A/c	Dr.	300000
	To Share Capital A/c	Cr.		300000
	(Being money on share call due on 10000 shares @30 per share)
1 Mar	Bank A/c	Dr.	300000
	To Share First and Final Call A/c	Cr.		300000
	(Being share call amount received)

Q3) If the company does not amortize, how will the balance of the "Share A / c Issuance Discount" be treated? What happens to the journal if the shares are issued at a discounted price and all the money is recalled at the time of application? Number of shares = 100, face value = Rs.10, discount = Rs.1

A3) The company displays it on the asset-side balance sheet under the heading "Other Expenditures." This is a fictitious asset and is not compulsory, but must be gradually amortized by transfer to P & L A / c.

Journal

Date	Particulars	L.F.	Amount Dr.	Amount Cr.
XXX	Bank A/c Dr.		900
	To Share Application and Allotment A/c Cr.			900
	(Being the amount received after discount)
XXX	Share Application and Allotment A/c Dr.		900
	Discount on Issue of Shares A/c Dr.		100
	To Share Capital A/c Cr,			1,000
	(Being the allotment done)

Q4) MV Ltd. will purchase the machine from Honda Enterprises for Rs 500,000. Pay the amount to be paid in the form of fully paid shares. Calculate the number of shares at the time of issuance.

A share with a face value of Rs 100.

A Rs 25 premium share with a face value of Rs 100.

A4)

Number of shares = {Amount Payable to the Vendor}

____________________________

{Issue Price of the shares}

= {500000}

___________

{100}

= 5000 shares

2. Number of shares = {Amount Payable to the Vendor}

_____________________________________________________________

{Issue Price of the shares}

= {500000}

________________________

{125}

= 4000 shares

Q5) Rudra Ltd. will buy the building from Sun Enterprises for Rs 650,000. We will pay Rs 300,000 in cash and issue fully paid shares of Rs 10 each face value to the balance. It will also issue 50,000 fully paid-in shares to the promoter. Pass the required journals.

A5) Journal Entries

In the books of Rudra Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1.	Building A/c	Dr.	650000
	To Share Capital A/c	Cr.		350000
	To Bank A/c	Cr.		300000
	(Being money paid and shares issued to the vendor for payment of assets purchased)
2.	Goodwill A/c	Dr.	500000
	To Share Capital A/c	Cr.		500000
	(Being fully paid-up shares issued to promoters for services rendered by them)

Q6) Indore Coir Mills Ltd. has issued 2,000,000 shares with 5,000,000 shares each with registered capital of Rs 10, Rs 3 at the time of application, Rs 2 at the time of allocation, Rs 3 on the first call, Rs 2 for the second and last call.

The company legitimately receives the allotted amount. One shareholder holding 6,000 shares pays the second and last call along with the first call. The five shareholders, who hold a total of 10,000 shares, did not pay the first call for shares. The company did not make the final call.

Pass the journal to record the transaction.

A6)

In the Books of Indore Coir Mills Ltd.

JOURNAL Entries

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1.	Bank a/c (2,00,000 @ ₹ 3)	Dr.	6,00,000
	To Equity Shares Application a/c	Cr.		6,00,000
	(Being application money received)
2.	Equity Shares Application a/c	Dr.	6,00,000
	To Equity Shares Capital a/c	Cr.		6,00,000
	(Being application money transferred to Equity Share Capital Account)
3.	Equity Shares Allotment a/c (2,00,000@ ₹2 per share)	Dr.	4,00,000
	To Equity Share Capital a/c	Cr.		4,00,000
	(Being amount due on allotment)
4.	Bank a/c	Dr.	4,00,000
	To Equity Shares Capital a/c	Cr.		4,00,000
	(Being allotment money received)
5.	Equity Shares First Call a/c (2,00,000 @ ₹ 3 per share)	Dr.	6,00,000
	To Equity Share Capital a/c	Cr.		6,00,000
	(Being first call money due)
6.	Bank a/c	Dr.	5,82,000
	To Equity Shares First Call a/c	Cr.		5,70,000
	To Calls-In-Advance a/c			12,000
	(Being first call money received on 1,90,000 shares @ ₹ 3 per share and ₹ 2 per share on 6,000 shares received in advanced)

Balance Sheet of Indore Coir Mills Ltd As At…

	Particulars	Note No.	Amount
I	EQUITY AND LIABILITIES
	1 Shareholders’ Funds
	Share Capital	1	15,70,000
	2 Current Liabilities
	Other Current Liabilities	2	12,000
	Total		15,82,000
II	ASSETS
	Current Assets
	Cash and Cash Equivalents	3	15,82,000
	Total		15,82,000

Notes to Accounts

1	Share Capital
	Authorized Capital
	5,00,000 Equity Shares of ₹10 each	50,00,000
	Issued Capital
	2,00,000 Equity Shares of ₹ 10 each	20,00,000
	Subscribed Capital
	Subscribed but not fully paid-up
	2,00,000 Equity Shares of ₹ 10 each; ₹ 8 called-up 16,00,000
	Less: Calls-in-Arrears(10,000 x ₹ 3 ) 30,000	15,70,000
2	Other Current Liabilities
	Calls-in-Advance	12,000
3	Cash and Cash Equivalents
	Cash at Bank	15,82,000

Q7) Arihant Ltd. Co. will issue 100,000 shares with a face value of Rs 10 on June 1, 2018 at a premium of 20%. Payment arrangements are as follows:

June 1, 2018: Rs 2 at application

July 1, 2018: Allocations including Premium Rs 7

September 1, 2018: Rs 3 on first and last call

The company is accepting applications for 285,000 shares. It treats them in the following ways:

Applicants for 25,000 shares will receive the full amount.

Applicants for 225,000 shares will receive one share for every three shares submitted in proportion.

Refuse to apply for 35,000 shares.

The company legitimately receives the full amount. Pass the required journals.

A7) Journal Entries

In the book of Arihant Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1 June	Bank A/c	Dr.	570000
	To Share Application A/c			570000
	(Being application money received for 285000 shares@ ₹2 each)
1 July	Share Application A/c	Dr.	570000
	To Share Capital A/c			200000
	To Share Allotment A/c			300000
	To Bank A/c			70000
	(Being share application money on 100000 shares @ ₹ 2 each, transferred to share capital, on 225000 shares adjusted towards allotment and on 35000 shares refunded)
1 July	Share Allotment A/c	Dr.	700000
	To Share Capital A/c			500000
	To Securities Premium A/c			200000
	(Being share allotment due on 100000 shares @ ₹ 7 each including a premium of ₹2)
1 July	Bank A/c	Dr.	400000
	To Share Allotment A/c			400000
	(Being share allotment money received)
1 Sept	Share Final Call A/c	Dr.	300000
	To Share Capital A/c			300000
	(Being money on share call due on 100000 shares @ ₹3 each,)
1 Sept	Bank A/c	Dr.	300000
	To Share Final Call A/c			300000
	(Being share call amount received)

Working Notes:

Category	No. of shares applied	No. of shares allotted	Amount received on the application	Application money required	Adjusted towards allotment	Amount due on allotment	Amount received on the allotment	Refund
a.	25000	25000	50000	50000	Nil	175000	175000	Nil
b.	225000	75000	450000	150000	300000	525000	225000	Nil
c.	35000	Nil	70000	Nil	Nil	Nil	Nil	70000
Total	285000	100000	570000	200000	300000	700000	400000	70000

Q8) Enter the journals related to Stock Forfeiture if:

ABC Ltd. has issued 10,000 shares of Rs 10 each with a premium of Rs 2 per share. The amount will be paid as Rs 4 per share in the application, Rs 5 per share (including premium) in the allocation and Rs 3 per share in the first and last calls.

The company has granted Gaurav 200 shares.

Case 1: If Gaurav does not pay the quota and then the first and last phone calls, the company loses his shares.

Case 2: Gaurav fails to pay the first and last phone calls and the company confiscates his shares.

A8) Journal Entries

IN THE BOOKS OF ABC LTD.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
Case 1	Equity Share Capital A/c (200 x ₹ 10)	Dr.	2,000
	Securities Premium A/c (200 x ₹ 2)	Dr.	400
	To Shares Allotment A/c (200 x ₹ 5)	Cr.		1,000
	To Forfeited Shares A/c (200 x ₹ 4)	Cr.		800
	To First and final Call A/c (200 x ₹ 3)	Cr.		600
	(Being 200 shares forfeited for non-payment of allotment and first and final call money)
Case 2	Equity Share Capital A/c (200 x ₹ 10)	Dr.	2,000
	To Forfeited Shares A/c (200 x ₹ 7)	Cr.		1,400
	To First and final Call A/c (200 x ₹ 3)	Cr.		600
	(Being 200 shares forfeited for non-payment of first and final call money)

Q9) XYZ Ltd. will charge Rs 2 per share on the application, Rs 3 per share on the allotment, Rs 3 per first and last call, and Rs 2 per share on the second and last call. Issued 5,000 shares of Rs 10.The company has allocated 40 shares to Mr. Ashish.

Case 1: Mr. Ashish fails to pay the allowance and the company confiscates his shares.

Case 2: If Ashish does not pay the first call and then the last call, the company loses his shares.

A9) Journal Entries

IN THE BOOKS OF XYZ LTD.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
Case 1	Equity Share Capital A/c ( 40 x ₹ 5)	Dr.	200
	To Shares Allotment A/c ( 40 x ₹ 3)	Cr.		120
	To Forfeited Shares A/c (40 x ₹ 2)	Cr.		80
	(Being 40 shares forfeited for non-payment of allotment money )
Case 2	Equity Share Capital A/c (40 x ₹ 10)	Dr.	400
	To Forfeited Shares A/c (40 x ₹ 5)	Cr.		200
	To Shares First Call A/c (40 x ₹ 3)	Cr.		120
	To Shares Second and Final Call A/c (40 x ₹ 2)	Cr.		80
	(Being 40 shares forfeited for non-payment of first and second and final call)

Q10) MN Ltd. will issue 100,000 shares at a par value of Rs 10 with a premium of Rs 2 per share. The payment amount is as follows.

Application: Rs 3

Allocation: Rs 6 including premium

First and Last Calls: Unpaid Balance

The company receives a full subscription. A, Shareholders holding 1000 shares will neglect to pay the allowance and telephone until the due date. As a result, the company loses his stake. We will then reissue these shares to B for Rs 11 per fully paid-in share. Pass the required journals to MN Ltd.’s books.

A10)

Journal Entries

In the book of MN Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
1.	Bank A/c	Dr.	300000
	To Share Application A/c	Cr.		300000
	(Being application money received on 100000 shares @ ₹3 per share)
2.	Share Application A/c	Dr.	300000
	To Share Capital A/c	Cr.		300000
	(Being share application money transferred to share capital)
3.	Share Allotment A/c	Dr.	600000
	To Share Capital A/c	Cr.		400000
	To Securities Premium A/c	Cr.		200000
	(Being share allotment due on 100000 shares @₹6 per share including premium)
4.	Bank A/c	Dr.	594000
	To Share Allotment A/c	Cr.		594000
	(Being share allotment money received on 99000 shares @₹6 each)
5.	Share First and Final Call A/c	Dr.	300000
	To Share Capital A/c	Cr.		300000
	(Being money on share call due on 100000 shares @₹3 per share)
6.	Bank A/c	Dr.	297000
	To Share First and Final Call A/c	Cr.		297000
	(Being share call amount received on 99000 shares @₹3)
7.	Share Capital A/c (1000 x ₹10)	Dr.	10000
	Securities Premium A/c (1000 x ₹2)	Dr.	2000
	To Share Allotment A/c (1000 x ₹6)	Cr.		6000
	To Share First and Final Call A/c (1000 x ₹3)	Cr.		3000
	To Forfeited Shares A/c	Cr.		3000
	(Being forfeiture of 1000 shares for non-payment of allotment and call money as per the Board’s Resolution No….dated…..)
8.	Bank A/c (1000 x ₹11)	Dr.	11000
	To Share Capital A/c	Cr.		10000
	To Securities Premium A/c	Cr.		1000
	(Being 1000 forfeited shares re-issued @ ₹11 each as per the Board’s Resolution no… dated….)
9.	Forfeited Shares A/c	Dr.	3000
	To Capital Reserve A/c	Cr.		3000
	(Being profit on re-issue of the shares transferred to capital reserve)

Q11) Shah Ltd. has a £ 5,000,000 loan from the State Bank of India. As collateral, we offer the first 12% mortgage bond with par value of £ 100 and £ 7,000,000, respectively. Show accounting using both methods.

A11)

Method 1

The company displays it in the "Notes to Accounts" on the balance sheet as follows:

Notes on Shah Ltd. accounts ... (including)


Long-term Borrowings	₹
Secured Loan
State Bank of India	5000000
(Collaterally secured by the issue of ₹7000000 12% First Mortgage Debentures)

Method 2

Date	Particulars		Amount (Dr.)	Amount (Cr.)
	Debentures Suspense A/c	Dr.	7000000
	To 12% First Mortgage Debentures A/c	Cr.		7000000
	(Being issue of ₹7000000, 12% First Mortgage Debentures as collateral security as per Board’s Resolution no…dated…)

Balance Sheet of Shah Ltd. as at….(Extracts)

	Particulars		Notes No.	Amount (₹)
	EQUITY AND LIABILITIES
1.	Non-current liabilities
	Long-term borrowings			12000000
		Total		12000000
	ASSETS
2.	Non-current Assets
	Other non-current assets			7000000
3.	Current Assets
	Cash and cash equivalents			5000000
		Total		12000000

Q12) Alabama Ltd. has issued a 10% bond of Rs 10,000, which can be redeemed at face value after 5 years, paid Rs.70 at the time of application and allocated the balance. The bond was fully subscribed and all money was legitimately received. Prepare the journal in full format.

A12)

Journal Entries

Date	Particulars	L.F.	Amount Dr.	Amount Cr.
1.	Bank A/c (10000 X 70) Dr.		7,00,000
	To Debenture Application A/c Cr.			7,00,000
2.	Debenture Application A/c Dr.		7,00,000
	To 10% Debentures A/c Cr.			7,00,000
3.	Debenture Allotment A/c Dr.		3,00,000
	To 10% Debentures A/c Cr.			3,00,000
4.	Bank A/c Dr.		3,00,000
	To Debentures Allotment A/c Cr.			3,00,000

Q13) Obama issues 10% corporate bonds of 10,000 rupees for 120 rupees each (corporate bonds issued at a premium) and can be redeemed at face value in 5 years, 70 rupees on application and allocated balance (30 + 20). pay. ). The bond was fully subscribed and all money was legitimately received. Prepare the journal.

A13) Journal Entires

Date	Particulars	L.F.	Amount Dr.	Amount Cr.
1.	Bank A/c (10000 X 70) Dr.		7,00,000
	To Debenture Application A/c Cr.			7,00,000
2.	Debenture Application A/c Dr.		7,00,000
	To 10% Debentures A/c Cr.			7,00,000
3.	Debenture Allotment A/c Dr.		5,00,000
	To 10% Debentures A/c Cr.			3,00,000
	To Security Premium Reserve A/c Cr. (Debentures issued at Premium)			2,00,000
4.	Bank A/c Dr.		5,00,000
	To Debentures Allotment A/c Cr.			5,00,000

Most entries are similar to Par's, with the only difference being the entries associated with Premium. It can be associated with either the application or subsequent entries. As a result, the assignment input is different from the base input. Above all, premium is an important aspect.

Q14) Harsh Ltd. will issue 10% corporate bonds of Rs 10,000 each at Rs.90 (in the case of corporate bonds issued at a discount), redeem them at face value five years later, pay Rs.70 at the time of application, and balance the allocation. Pay. The bond was fully subscribed and all money was legitimately received. Prepare the journal.

A14) Journal Entires

Date	Particulars	L.F.	Amount Dr.	Amount Cr.
1.	Bank A/c (10000 X 70) Dr.		7,00,000
	To Debenture Application A/c			7,00,000
2.	Debenture Application A/c Dr.		7,00,000
	To 10% Debentures A/c			7,00,000
3.	Debenture Allotment A/c Dr.		2,00,000
	Discount on Issue of Debentures A/c Dr.		1,00,000
	To 10% Debentures A/c			3,00,000
4.	Bank A/c Dr.		2,00,000
	To Debentures Allotment A/c			2,00,000

Q15) April 1, 2017, T.T. Ltd. Issued £ 500 500 and 9% corporate bonds, respectively, with a 4% discount redeemable at a premium of 5% three years later.

Pass the journals required to issue corporate bonds and interest on corporate bonds for the year ended March 31, 2018. Interest is paid on September 30th and March 31st, T.D.S. Is 10%. Every year on March 31, the company closes its books.

A15)

Date	Particulars		Amount (Dr)	Amount (Cr)
2017
April 1	Bank A/c (500 x ₹ 480)	Dr.	2,40,000
	To Debentures Application and Allotment, A/c	Cr.		2,40,000
	(Being the receipt of application money for 500 debentures @ ₹ 480 each)

	Debentures Application and Allotment A/c	Dr.	2,40,000
	Loss on Issue of Debentures A/c	Dr.	22,500
	To 9% Debentures A/c	Cr.		2,50,000
	To Premium on Redemption of Debentures A/c	Cr.		12,500
	(Being the issue of 500, 9% Debentures of ₹ 500 each at 4% discount and redeemable at 5% premium)

Sept 30	Interest on Debentures A/c	Dr.	11,250
	To Debenture holders’ A/c	Cr.		10,125
	To TDS Payable A/c	Cr.		1,125
	(Being the interest payable on 9% Debentures for 6 months and TDS @ 10%)

Sept 30	Debenture holders’ A/c	Dr.	10,125
	TDS Payable A/c	Dr.	1,125
	To Bank A/c	Cr.		11,250
	(Being payment of interest to debenture holders and deposit of tax deducted at source in the bank)

2018
March 31	Interest on Debentures A/c	Dr.	11,250
	To Debenture holders’ A/c	Cr.		10,125
	To TDS Payable A/c	Cr.		1,125
	(Being interest payable on 9% Debentures for 6 months and tax deducted at source @ 10%)

March 31	Debenture holders’ A/c	Dr.	10,125
	TDS Payable A/c	Dr.	1,125
	To Bank A/c	Cr.		11,250
	(Being payment of interest to debenture holders and deposit of tax deducted at source in the bank)

March 31	Statement of Profit and Loss	Dr.	22,500
	To Interest on Debentures A/c	Cr.		22,500
	(Being transfer of the interest in debentures to Statement of Profit and Loss)

Q16) A company bought 6% corporate bonds of Rs.30000 and Rs.100 for investment at Rs.95 respectively. Six months later, the bond was cancelled. Display the journal.

A16)

Own Debentures A/c To Bank A/c (300 own debentures purchased for investment at Rs.95)	Dr	28500	28500
6% Debentures A/c To own debentures A/c To Profit on redemption of debentures A/c (Cancellation of debentures held as investment)	Dr	30000	28500 1500
Profit on redemption of debentures A/c Dr To Capital Reserve (Transfer of profit on redemption to C.R)		1500

Q17) On April 1, 2009, Fast Ltd issued 800 12% corporate bonds of Rs.1000, each at Rs.950. Bondholders had the option to convert their shares to 6% preferred stock of Rs 100 each with a premium of Rs 25 per share. On March 31, 2010, these unpaid bonds earned one-year interest. Holders of 50 corporate bonds have announced their intention to convert their shares to 13% preferred stock. As of March 31, 2010, we will journal the transaction.

A17)

2009 Apr 1	Bank A/c Dr Discount on issue of debentures A/c Dr To 12% Debentures A/c (Issue of 800, 12% debentures of Rs.1000 each at Rs.950)		760000 40000
				800000
2010 Mar 31			96000	96000
	Interest on debentures A/c To sundry debenture holder’s A/c (interest due on debentures)	Dr
	12% Debentures A/c Dr To 13% Preference Share Capital A/c To Security Premium A/c (Conversion of 50 debentures to 400,13% preference shares of Rs.100 each at a premium of Rs. 25)		50000	40000 10000
	Sundry debenture holder’s A/c To Bank A/c (Interest on 50,12% debentures paid on conversion)	Dr	6000
				6000
	P&L A/c Dr To interest on debentures A/c (Interest on debentures transferred to P&L A/c)		96000

Q18) Athul Ltd has issued 1000 6% corporate bonds of 100 rupees each with a 10% premium and a redemption amount after 5 years. At the time of the issuance of corporate bonds on April 1, 2006, an insurance policy was signed to provide the necessary funds for redemption. The annual premium paid at the beginning of each year is Rs.18280. Shows the redemption account.

A18)

6% Debentures A/c

2007			2006
Mar 31 2011 Mar 31	To Balance c/d To Debenture holder’s A/c	100000	Apr 1 2010 Apr 1	By Bank (first year) By Balance b/d	100000 100000
		100000

Premium on redemption of debentures A/c

2007			2006	By loss on issue of
Mar 31 2011 Mar 31	To Balance c/d To Debenture holder’s A/c	10000	Apr 1 2010 Apr 1	debentures A/c By Balance b/d	10000 10000

Debenture Redemption Fund A/c

2007 Mar 31 2008 Mar 31	To Balance c/d To Balance c/d	18280	2007 Mar 31 Apr 1 2008 Mar 31	By P&L Appn A/c By Balance b/d By P&L Appn A/c	18280
2007 Mar 31 2008 Mar 31	To Balance c/d To Balance c/d	36560	2007 Mar 31 Apr 1 2008 Mar 31	By P&L Appn A/c By Balance b/d By P&L Appn A/c	18280 18280
		36560			36560
2009 Mar 31	To Balance c/d	54840	2008 Apr 1 2009 Mar 31	By Balance b/d By P&L Appn A/c	36560 18280
		54840			54840
2010 Dec 31 2011 Mar 31	To Balance c/d To loss on issue of debentures A/c To General Reserve	73120	2009 Apr 1 2010 Mar 31 2010 Apr 1 2011 Mar 31	By Balance b/d By P&L Appn A/c By Balance b/d By P&L Appn A/c By Debenture Redemption Policy (profit on realization – B.F)	54840 18280
		73120			73120 73120 18280 18600
		10000 100000			73120 73120 18280 18600
		110000			110000

Debenture Redemption Policy A/c (Investment)

2006 Apr 1 2007 Apr 1	To Bank To Balance b/d To Bank	18280	2007 Mar 31 2008 Mar 31	By Balance c/d By Balance c/d	18280
		18280 18280			36560
2008 Apr 1	To Balance b/d To Bank	36560	2009 Mar 31	By Balance c/d	36560
		36560 18280			54840
2009 Apr 1 2010 Apr 1 2011Mar 31	To Balance b/d To Bank To Balance b/d To Bank To Deb. Red. Fund (profit‐B.F)	54840	2010 Mar 31 2011 Mar 31	By Balance c/d By Bank (realization of policy)	54840 73120 73120
		54840 18280
		73120
		73120 18280 18600			110000
		110000			110000

Debenture holder’s A/c

			2011	By 6% Debentures
2011 Mar 31	To Bank A/c	110000	Mar 31	A/c By premium on	100000
				Redemption of debentures A/c	10000
		110000			110000

Q19) On January 1, 2007, Balu Ltd issued a 6% corporate bond of Rs 1000. Each bond will be repaid at a premium of 10% at the end of four years. It was decided to create a sinking fund for that purpose. The investment is expected to result in a net return of 5%. According to the table of the Sinking Fund, the annual investment amount of Re.0.232012 will be Re.1 of 5% in 4 years. The investment was made only in multiples of 100. On December 31, 2010, the bank balance was Rs.40000 and the investment was Rs.82000. The bond has paid off. Enter the journal to display the ledger account excluding interest on corporate bonds.

A19) Amounts annually set aside = (100000+10% premium)x 0.232012 = Rs.25521

2007 Jan 1	Bank A/c Dr Loss on issue of debentures A/c Dr To 6% Debentures A/c To premium on redemption of debentures A/c (issue of 1000, 6% debentures of Rs.100 each redeemable at 10% premium)		100000 10000
				100000 10000

Dec 31	P & L Appropriation A/c To Sinking Fund A/c	Dr	25521	25521

	(Transfer of profit to sinking fund)
		25500
			25500
	Sinking Fund Investment, A/c Dr To Bank A/c (Investment made to nearest multiple of 100)		25500
2008Dec 31		1275	1275
2008Dec 31	Bank A/c Dr To Interest on Sinking Fund Investment A/c (interest received @ 5% on investment)	1275	1275
		1275
			1275
	Interest on Sinking Fund Investment A/c Dr To Sinking Fund A/c (Transfer of interest to sinking fund)		1275
		25521
			25521
	P & L Appropriation A/c Dr To Sinking Fund A/c (Transfer of profit to sinking fund)		25521
		26800
			26800
	Sinking Fund Investment, A/c Dr To Bank A/c (Investment with interest 25521+1275)	2615
			2615
2009Dec 31	Bank A/c Dr To Interest on Sinking Fund Investment A/c (Interest received @ 5% on investment)	2615	2615
	Interest on Sinking Fund Investment A/c Dr To Sinking Fund A/c (Transfer of interest to sinking fund)	25521
			25521
	P & L Appropriation A/c Dr To Sinking Fund A/c (Transfer of profit to sinking fund)	28100
			28100
	Sinking Fund Investment, A/c Dr To Bank A/c (Investment with interest 25521+2615)	4020
			4020
	Bank A/c Dr To Interest on Sinking Fund Investment A/c (interest received @ 5% on investment)	4020
			4020
2010Dec 31	Interest on Sinking Fund Investment A/c Dr To Sinking Fund A/c (Transfer of interest to sinking fund)	25521	25521
	P & L Appropriation A/c Dr To Sinking Fund A/c (Transfer of profit to sinking fund)	82000
			82000
	Bank A/c Dr To Sinking Fund Investment A/c (sale of investment)		82000
		1600

Sinking Fund Investment, A/c Dr To Sinking Fund A/c (Transfer of profit on sale of investment)			1600
		100000 10000
6% Debentures A/c Dr Premium on redemption of debentures A/c Dr To Debenture holder’s A/c (Amount due to debenture holders)
			110000
		110000
			110000
Debenture holder’s A/c To Bank A/c (Amount paid to debenture holders)	Dr	10000
			10000
Sinking Fund, A/c Dr To loss on issue of debentures A/c (redemption provided out of sinking fund)		101594
			101594
Sinking Fund, A/c Dr To General Reserve A/c (Transfer of balance in sinking fund A/c to GR)

6% Debentures A/c

2007	To Balance c/d To Balance c/d To Balance c/d To Debenture holder’s A/c		2007 Jan 1 2008 Jan 1 2009 Jan 1 2010 Jan 1
Dec 31 2008 Dec 31		100000		By Bank	100000
Dec 31 2008 Dec 31		100000		By Balance b/d	100000
2009
Dec 31 2010 Dec 31				By Balance b/d By Balance b/d
		100000			100000 100000
		100000			100000 100000

Premium on Redemption of debentures A/c

2007	To Balance c/d To Balance c/d To Balance c/d To Debenture holders A/c		2007 Jan 1 2008 Jan 1 2009 Jan 1 2010 Jan 1	By loss on issue of debentures A/c By Balance b/d By Balance b/d By Balance b/d
Dec 31 2008 Dec 31		10000			10000
Dec 31 2008 Dec 31		10000			10000
2009
Dec 31 2010
		10000			10000
					10000
Dec 31		10000			10000

Debenture holder’s A/c

2010			2010	By 6% Debentures
Dec	To Bank A/c	110000	Dec 31	A/c	100000
31				By premium on
				redemption of	10000
				debentures A/c
		110000		debentures A/c	110000

Sinking Fund, A/c

2007 Dec 31 2008 Dec 31 2009 Dec 31	To Balance c/d To Balance c/d To Balance c/d To loss on issue of debentures To general reserve (balance transferred)	25521	2007 Jan 1 2008 Jan 1 Dec 31 2009 Jan 1 Dec 31	By P&L Appn A/c By Balance b/d By interest on S.F.I By P&L Appn A/c By Balance b/d By interest on S.F.I By P&L Appn A/c By Balance b/d By interest on S.F.I By P&L Appn A/c By S.F.I(profit on sale)	25521 25521 1275 25521 52317
		52317
		52317
		80453			52317 2615 25521
		80453			80453 80453 4020 25521 1600 111594
		10000 101594
		111594

Sinking Fund Investment, A/c

2007 Dec 31 2008 Jan 1 Dec 31	To Bank To Balance b/d To Bank	25500	2007 Dec 31 2008 Dec 31	By Balance c/d By Balance c/d By Balance c/d By Bank	25500 52300
		25500 26800
		52300			52300
2009 Jan 1 Dec 31	To Balance b/d To Bank	52300 28100	2009		80400
		80400	Dec 31		80400
2010 Jan 1 Dec 31	To Balance b/d To Sinking Fund A/c (profit)	80400 1600	2010 Dec 31		82000 82000
		82000

Bank A/c

2010 Dec 31	To Balance b/d	40000	2010 Dec 31	By Debenture holder’s A/c	110000
	To S.F.I A/c	82000		By Balance b/d	12000
		122000			122000

Q20) On October 1, 2010, Abin Ltd issued 12,000 corporate bonds of 100 rupees each, with a redemption perspective that one-third of the corporate bonds can be redeemed every six months. Journal the transaction.

A20)

2010 Oct 1	Bank A/c To 8% Debentures A/c (issue of 12000, 8% debentures)	Dr	1200000	1200000
2011Mar 31			400000	400000
	P & L Appropriation A/c Dr To Debenture Redemption Reserve A/c (Transfer of amount for debenture redemption)
	8% Debentures A/c To Debenture holder’s A/c (Amount due to debenture holders)	Dr	400000
	Debenture holder’s A/c To Bank A/c (Payment to debenture holders)	Dr		400000
			400000
	8% Debentures A/c To Debenture holder’s A/c (Amount due to debenture holders)	Dr		400000
2011 Sep			400000

30	Debenture holder’s A/c To Bank A/c (Payment to debenture holders)	Dr		400000
			400000
	P & L Appropriation A/c Dr To Debenture Redemption Reserve A/c (Transfer of amount for debenture redemption)			400000
2012Mar 31			800000	800000
	8% Debentures A/c To Debenture holder’s A/c (Amount due to debenture holders)	Dr
			400000
	Debenture holder’s A/c Dr To Bank A/c (Payment to debenture holders)			400000
			400000
	Debenture Redemption Reserve A/c To General Reserve A/c (Transfer of DRR to GR after redemption)	Dr		400000

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