Question

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.

Answer 1

$\text{Journal Entries}\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ & \text{12\% Debentures A/c Dr}& & & 8,00,000& \\ & \text{To Debenture Holders A/c}& & & & 7,60,000\\ & \text{To Discount on Issue of Debentures A/c}& & & & 40,000\\ & \text{(Amount of 12\% debenture due to}& & & & \\ & \text{debenture holders)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debenture Holders A/c}Dr& & & 7,60,000& \\ & \text{To Equity Share Capital A/c}& & & & 7,60,000\\ & \text{(Equity shares issued to debenture}& & & & \\ & \text{holder in lieu of debentures)}& & & & \end{array}$

Note If the debentures are converted before the date of maturity then the net proceeds (collection) from issue of debenture will be taken on conversion as assumed in this question.

Working Note

Number of shares to be issued $=\frac{\text{Amount due to Debenture Holders}}{\text{Agreed Price of Share}}$
$=\frac{7,60,000}{10}=76,000$ shares