Question

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.

Answer 1

Journal Entries
$$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt. (Cr)}\\ & \text{Profit and Loss Appropration A/c}& \text{Dr}& & 2,00,000& \\ & \text{To Debenture Redemption Reserve A/c}& & & & 2,00,000\\ & \text{(Profit transferred to debenture}& & & & \\ & \text{redemption reserve)}& & & & \\ & \text{Own Debentures A/c}& \text{Dr}& & 1,84,000& \\ & \text{To Bank A/c}& & & & 1,84,000\\ & \text{(2,000 own debentures at Rs 100 eact at}& & & & \\ & \text{(Rs 92 purchased)}& & & & \\ & \text{Debenture A/c}& \text{Dr}& & 2,00,000& \\ & \text{To Own Debenture A/c}& & & & 1,84,000\\ & \text{To Profit on Cancellation of Debentures A/c}& & & & 16,000\\ & \text{(Debenture of Rs 2,00,000 cancelled)}& & & & \\ & \text{Profit on Cancellation of Debentures A/c}& \text{Dr}& & 16,000& \\ & \text{To Capital Reserve A/c}& & & & 16,000\\ & \text{(Transfer of profit on redemption of}& & & & \\ & \text{debenture of capital reserve account)}& & & & \end{array}$$

Note Number of Debenture purchase = $\frac{2,00,000}{100}=2,000$ Debentures
Profit on 2,000 debentures = (100-92) $\times$ 2,000 = Rs 16,000