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REDEMPTION OF DEBENTURES

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					                             REDEMPTION OF DEBENTURES
Q.1
(When the redemption is out of capital)
1000, 5% redeemable Debentures of Rs.100 each of X Ltd., are due for redemption at 5% premium on
31.12.2009.On 1.12.2009 X Ltd., issued 500 Equity shares of Rs.100 each at 20% premium & 450, 8%
redeemable Preference shares of Rs.100 each at par. The issue has been fully subscribed and with this
amount 1,000 5% redeemable Debentures of Rs.100 are redeemed. You are further informed that
Company pays interest on Debentures on 31.12. every year.
Pass necessary journal entries in the books of the Company.

Q.2
(When the redemption is out of profit)
Y Ltd. has issued 2,000, 9% redeemable Debentures of Rs.100 at 10% premium, redeemable at 20%
premium on 1.1.2000. It redeems its 500 Debentures on 1.7.2008 and 300 Debentures on 1.4.2009.
Company has not maintained Debenture Redemption Fund Account. Redemption is carried out of profit
of the Company.
Show journal entries to the record the transaction mentioned above and show relevant entries in Profit
and Loss Appropriation Account and in the Balance Sheet of the Company assuming that Company
closes its books of accounts on 31.12.every year. (Ignore interest on debentures).

Q.3
White Ltd. gave notice of its intention to redeem its outstanding Rs.4,00,000, 6% Debenture Stock of
Rs.100 each at Rs.102 and offered the holders following options to apply for their redemption money -
a) To subscribe for 5% Cumulative Preference Shares of Rs.20 each at Rs.22.50 per share.
b) To subscribe for 6% (New) Debenture Stock of Rs.100 each at 96%.
c) To have their holding redeemed for Cash.
Holders of Rs.1,71,000 stock accepted the proposal (a)
Holders of Rs.1,44,000 stock accepted the proposal (b)
The remaining stock holders accepted the proposal (c)
Pass the journal entries to record the above transaction in the books of White Ltd.

Q.4
On 1st January 2001, Motor Corporation Ltd. issued 10,000 Fifteen Year Debentures of Rs.100 each
bearing interest at 6% per annum. One of the conditions of issue was that the Debentures could be
redeemed by giving six month notice at any time after 5 years at a premium of 4%, either by payment in
cash or by allotment of Preference Shares and / or other Debentures according to the option of the
debenture holders.
On 1st April, 2006, the Company informed the Debenture holders to redeem the Debentures on the 1st
October, 2006,either by payment in cash or by allotment of 8% Preference Shares of Rs.100 each at
Rs.130 per share or 7% 2nd Debentures of Rs.100 each at Rs.96 per Debenture.
Holders of 4,000 Debentures accepted the offer of the Preference shares; holders of 4,800 Debentures
accepted the offer of the 7% 2nd Debentures and the rest demanded cash.
Give journal entries recording the above transactions.

Q.5
The summarised Balance Sheet of X Ltd., as on 30th June 2000 was as follows:
Particulars                                 Rs. Particulars                                       Rs.

Redemption of Debentures                                                                             - 21 -
Share Capital:                                     Goodwill                                  4,00,000
4,000, 9% Redeemable Preference                    Fixed Assets                              8,26,000
Sh. of Rs.100 each fully paid up          4,00,000 Stock                                     9,00,000
(Redeemable at par)                                Sundry Debtors                            4,30,000
80,000 Equity Shares of Rs.10                      Discount on Debentures                      24,000
each fully paid up                        8,00,000
8% Debentures                             6,00,000
(Redeemable at par)
Profit & Loss A/c                        5,00,000
Bank Loan                                1,00,000
Sundry Creditors                         1,80,000
                                        25,80,000                                           25,80,000
The Company decided to redeem the Preference Shares and Debentures & in due course offered to
the preference share holders & debenture holders the option to convert their holding into equity shares
which are to be treated as worth Rs.12.50 each. One half of the preference holders & one-third of the
debenture holders (in value) agreed to accept the offer.
The Company issued 60,000 equity shares of Rs.10 each @ Rs.12.50 to public for cash & with the
proceeds of such issue, paid off the bank loan & redeemed the remaining Preference shares &
Debentures. It was also decided to write off the discount on debentures.
Journalise the transactions and show the Balance sheet as it will appear thereafter.

Q.6
Lakme Ltd. issued on 1.4.2001, 4000, 14% redeemable Debentures of Rs.100 each at par redeemable
at a premium of 10% after 4 years, the Company decided to set up a sinking fund for the redemption of
the Debentures setting aside necessary amount every year and investing it in investment carrying 12%
interest p.a. The sinking fund factor for 4 years @12% was Rs 0.20964. On 31.3.2005, the sinking fund
investments were sold for Rs.3,15,000.
Show the ledgers accounts in the book of the Company to carry out redemption of Debentures.

Q.7
On June 30, 2003 the following balances stood in the book of P Ltd.
10% First Mortgage Debentures                           Rs.4,00,000
Debentures Redemption Reserve Fund                      Rs.4,13,000
The above fund was invested in the following securities:
Rs.2,40,000 5% Govt. Loan 2005                           Rs.2,42,000
Rs.1,90,000 6% Govt. Loan 2007                           Rs.1,71,000
To redeem the debentures on June 30, 2003 the above investment were sold on the same day as
under:
5% Govt. Loan at par.
6% Govt. Loan at Rs.96
Give Journal Entries and necessary Ledger Accounts.




Q.8
On 30th September, 2004 the following balances stood in the book of R Ltd.-
14% Second Mortgage Debenture Stock                      Rs.4,00,000
Income received on Sinking Fund Investment               Rs.14,500
Discount on issue of Debentures                          Rs.25,000
Sinking Fund                                             Rs.3,65,500
Redemption of Debentures                                                                              - 22 -
Sinking Fund Investment:
  1) Rs.80,000 5% State Development Loans                Rs.76,000
  2) Rs.90,000 6% National Defence Bonds.                Rs.1,00,000
  3) Rs.70,000 7% Plan Progress Loans                    Rs.70,000
  4) Rs.1,80,000 7 ½% Central Securities                 Rs.1,85,000
On the same day the investments were sold; the 5% State Development Loans at 90, the 6% National
Defence Bonds at par, the 7% Plan Progress Loans at 115 and the 7½% Central Securities at 120. On
1st October, 2004, the Debentures of Rs.3,00,000 were redeemed at a premium of 2½ %. On the very
same day 18% Moon Landing Loans of Rs.1,00,000 were purchased at a premium of 3%. Annual
contribution of redemption was Rs.50,000. Ignore interest. Prepare the following accounts after passing
journal entries: 1) Debenture Stock 2) Sinking Fund 3) Sinking Fund Investments 4) General Reserve.

Q.9
The summarised Balance Sheet of Strong Limited, as on 30th June, 2005, stood as follows:
Liabilities                                                                                     Rs.
Share Capital: 5,00,000 Equity shares of Rs.10 each fully paid                            50,00,000
General Reserve                                                                           75,00,000
Debenture Redemption Fund                                                                 50,00,000
                                                                                        1,75,00,000
13.5% Convertible Debentures (1,00,000 Debentures of Rs.100 each)                       1,00,00,000
Other Loans                                                                               50,00,000
Current Liabilities and Provisions                                                      1,25,00,000
                                                                               Total 4,50,00,000
Assets
Fixed Assets (at cost less depreciation)                                                1,60,00,000
Debenture Redemption Fund Investment                                                      40,00,000
Cash and Bank Balance                                                                     50,00,000
Other Current Assets                                                                    2,00,00,000
                                                                               Total 4,50,00,000
The Debentures are due for redemption on 1st July, 2005. 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 at a pre-determined price of Rs.15.75 per share and the
payment in cash. Assuming that:
1) Except for 100 debenture holders holding totally 25,000 debentures, the rest of them exercised the
   option for maximum conversion.
2) The investments realised Rs.44 lakh on sale and
3) All the transactions are put thought, without any lag, on 1st July, 2005.
Re-draft the Balance Sheet of the Company as on 1st July 2005 after giving effect to the redemption.

Q.10
The following balances appeared in the books of Unique Limited as on 31st December, 2007:
Particulars                                                                        Rs.             Rs.
12% Debentures                                                                                5,00,000
Debenture Redemption Insurance Policy                                        4,60,000
Debenture Redemption Fund                                                                     4,60,000




Redemption of Debentures                                                                               - 23 -
The policy amount was Rs.5,00,000 and the annual premium was a sum of Rs.20,000. Debentures fell
due for redemption on 31st December, 2008. The insurance policy money was received and the
Debentures were redeemed.
Prepare the necessary ledger accounts in the book of the Company for the year 2008.

Q.11
Libra Ltd recently made a public issue in respect of which the following particulars are available:
1) Number of Partly Convertible Debentures issued 2,00,000, face value and issue price Rs.100 per
    Debenture.
2) Convertible portion per debenture 60%, date of conversion-on expiry of 6 month from the date of
    Allotment.
3) Date of closure of subscription list 1.5.2001, date of allotment 1.6.2001, rate of interest of
    Debentures 15% payable from the date of allotment, value of equity share for the purpose of
    conversion Rs.60 (F.V.Rs.10).
4) Number of Debentures applied for 1,50,000.
5) Interest is payable on 30th Sept. and 31st March.
6) Underwriting commission is to be paid @ 2% on the amount devolving on the underwriters and @
    1% on the amount subscribed by the public.
Give journal entries.




Redemption of Debentures                                                                          - 24 -

				
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