On January 01, 2012, 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, 2015 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.

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Solution

Books of X. Ltd.

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2012

Jan. 1

Bank A/c

Dr.

5,00,000

To Debentures A/c

5,00,000

(Issued 5,000 Debentures @ Rs 100 each)

Dec. 31

Profit and Loss Appropriation A/c

Dr.

1,60,174

To Cumulative Sinking Fund A/c

1,60,174

(Annual Installment of Cumulative Sinking Fund debited to Profit

and Loss Appropriation Account)

Cumulative Sinking Fund Investment A/c

Dr.

1,60,174

To Bank A/c

1,60,174

(Amount invested into Cumulative Sinking Fund )

2013

Dec. 31

Bank A/c

Dr.

6,407

To Interest on Cumulative Sinking Fund Investment A/c

6,407

(Interest received @ 4% on Cumulative Sinking Fund Investment)

Interest on Cumulative Sinking Fund Investment A/c

Dr.

6,407

To Cumulative Sinking Fund A/c

6,407

(Interest on Interest on Cumulative Sinking Fund Investment

transferred to Cumulative Sinking Fund)

Profit and Loss Appropriation A/c

Dr.

1,60,174

To Cumulative Sinking Fund A/c

1,60,174

(Annual Installment of Cumulative Sinking Fund debited to Profit

and Loss Appropriation account)

Cumulative Sinking Fund Investment A/c

Dr.

1,66,581

To Bank A/c

1,66,581

(Amount invested in Cumulative Sinking Fund Investment)

2014

Dec. 31

Bank A/c

Dr.

13,070

To Interest on Cumulative Sinking Fund Investment A/c

13,070

(Interest received @ 4% on Cumulative Sinking Fund Investment)

Interest on Cumulative Sinking Fund Investment A/c

Dr.

13,070

To Cumulative Sinking Fund A/c

13,070

(Interest on Cumulative Sinking Fund Investment transferred to

Cumulative Sinking Fund Account)

Profit and Loss Appropriation A/c

Dr.

1,60,174

To Cumulative Sinking Fund A/c

1,60,174

(Annual Installment of Cumulative Sinking Fund debited to Profit

and Loss Appropriation Account)

Bank A/c

Dr.

3,25,000

To Cumulative Sinking Fund Investment A/c

3,25,000

(Cumulative Sinking Fund Investment sold)

Cumulative Sinking Fund A/c

Dr.

1,755

To Cumulative Sinking Fund Investment A/c

1,755

(Loss on sale of Cumulative Sinking Fund Investment transferred to

Cumulative Sinking Fund Account)

Debenture A/c

Dr.

5,00,000

To Debenture Holders

5,00,000

(Amount of debentures due to Debenture Holders)

Debenture Holders

Dr.

5,00,000

To Bank A/c

5,00,000

(Amount due for debentures paid to Debenture Holders)

Cumulative Sinking Fund A/c

Dr.

4,89,245

To General Reserve A/c

4,89,245

(Transfer of credit balance of Cumulative Sinking Fund Account to

General Reserve Account)

8% Debentures Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2012

2012

Dec 31

Balance c/d

5,00,000

Jan 1

Bank A/c

5,00,000

5,00,000

5,00,000

2013

2013

Dec 31

Balance c/d

5,00,000

Jan 1

Balance b/d

5,00,000

5,00,000

5,00,000

2014

2014

Dec 31

Debenture Holders

5,00,000

Jan 1

Balance c/d

5,00,000

5,00,000

5,00,000

Cumulative Sinking Fund Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2012

2012

Dec. 31

Balance c/d

1,60,174

Dec. 31

Profit and Loss Appropriation

1,60,174

1,60,174

1,60,174

2013

2013

Dec. 31

Balance c/d

3,26,755

Jan. 1

Balance b/d

1,60,174

Dec. 31

Profit and Loss Appropriation

1,60,174

Interest on Cumulative Sinking

Fund Investment

6,407

3,26,755

3,26,755

2014

2014

Dec. 31

Cumulative Sinking Fund

Investment A/c

1,755

Jan. 1

Balance b/d

3,26,755

General Reserve

4,89,245

Dec. 31

Interest on Cumulative Sinking Fund Investment A/c

13,071

Profit and Loss Appropriation A/c

1,60,174

5,00,000

5,00,000

Cumulative Sinking Fund Investment Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2012

2012

Dec 31

Bank

1,60,174

Dec 31

Balance c/d

1,60,174

1,60,174

1,60,174

2013

2013

Jan 1

Balance b/d

1,60,174

Dec 31

Balance c/d

3,26,755

Dec 31

Bank

1,66,581

3,26,755

3,26,755

2014

2014

Jan 1

Balance b/d

3,26,755

Dec 31

Bank

3,25,000

Cumulative Sinking Fund

1,755

3,26,755

3,26,755

Bank Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2014

2014

Dec. 31

Debenture Redemption Fund

2,42,360

Dec. 31

Debenture Holders

5,00,000

Investment

3,25,000

Balance c/d

67,360

5,67,360

5,67,360

2015

Jan. 1

Balance b/d

67,360

Suggest Corrections

Similar questions

On January 1, 2011, X Ltd issue 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, 2013 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.

On January 1, 2011 a company issued 15% debentures of Rs. 10,00,000 at par. The debentures were redeemable at par after three years on December 31, 2011. 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 Rs. 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, 2013, 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 1,2011, the following balances appeared in the books of Z Ltd

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The annual instalment was Rs. 16,400. On December 31, 2011, the balance at Bank was Rs. 26,000 (after receipt on interest on Debenture Redemption Reserve Fund Investment). Investments were realised at 92 % and the Debentures were redeemed. The interest for the year had already been paid.
Show the ledger accounts affecting redemption.

On April 01, 2016 the following balances appeared in the books of Z. Ltd.:

	Rs
6% Debentures	1,00,000
Debentures Redemption Reserve Fund	80,000
D.R. Reserve Fund Investments	80,000

The investments consisted of 4% Government securities of the face value of Rs 90,000.

The annual instalment was Rs 16,400. On March 31, 2017, the balance at Bank was Rs 26,000 (after receipt of interest on D.R.Reserve Fund Investment). Investments were realised at 92% and the Debentures were redeemed. The interest for the year had already been paid.

Show the ledger accounts affecting redemption.

Alpha Ltd. has 10,000, $8 %$ Debentures of Rs 100 each due for redemption on 31st March 2018. Debenture Redemption Reserve has a balance of Rs 1,90,000 on 31st March,2017. It was decided to invest the required amount towards Debenture Redemption Investment. Investments were realised at $104 %$ less $0.5 %$ brokerage and debentures were redeemed. Record the necessary entries for the redemption of debentures.

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Books of X. Ltd. Journal
Date	Particulars			L.F.	Debit Amount Rs	Credit Amount Rs
2012
Jan. 1	Bank A/c		Dr.		5,00,000
		To Debentures A/c				5,00,000
	(Issued 5,000 Debentures @ Rs 100 each)

Dec. 31	Profit and Loss Appropriation A/c		Dr.		1,60,174
		To Cumulative Sinking Fund A/c				1,60,174
	(Annual Installment of Cumulative Sinking Fund debited to Profit and Loss Appropriation Account)

	Cumulative Sinking Fund Investment A/c		Dr.		1,60,174
		To Bank A/c				1,60,174
	(Amount invested into Cumulative Sinking Fund )

2013
Dec. 31	Bank A/c		Dr.		6,407
		To Interest on Cumulative Sinking Fund Investment A/c				6,407
	(Interest received @ 4% on Cumulative Sinking Fund Investment)

	Interest on Cumulative Sinking Fund Investment A/c		Dr.		6,407
		To Cumulative Sinking Fund A/c				6,407
	(Interest on Interest on Cumulative Sinking Fund Investment transferred to Cumulative Sinking Fund)

	Profit and Loss Appropriation A/c		Dr.		1,60,174
		To Cumulative Sinking Fund A/c				1,60,174
	(Annual Installment of Cumulative Sinking Fund debited to Profit and Loss Appropriation account)

	Cumulative Sinking Fund Investment A/c		Dr.		1,66,581
		To Bank A/c				1,66,581
	(Amount invested in Cumulative Sinking Fund Investment)

2014
Dec. 31	Bank A/c		Dr.		13,070
		To Interest on Cumulative Sinking Fund Investment A/c				13,070
	(Interest received @ 4% on Cumulative Sinking Fund Investment)

	Interest on Cumulative Sinking Fund Investment A/c		Dr.		13,070
		To Cumulative Sinking Fund A/c				13,070
	(Interest on Cumulative Sinking Fund Investment transferred to Cumulative Sinking Fund Account)

	Profit and Loss Appropriation A/c		Dr.		1,60,174
		To Cumulative Sinking Fund A/c				1,60,174
	(Annual Installment of Cumulative Sinking Fund debited to Profit and Loss Appropriation Account)

	Bank A/c		Dr.		3,25,000
		To Cumulative Sinking Fund Investment A/c				3,25,000
	(Cumulative Sinking Fund Investment sold)

	Cumulative Sinking Fund A/c		Dr.		1,755
		To Cumulative Sinking Fund Investment A/c				1,755
	(Loss on sale of Cumulative Sinking Fund Investment transferred to Cumulative Sinking Fund Account)

	Debenture A/c		Dr.		5,00,000
		To Debenture Holders				5,00,000
	(Amount of debentures due to Debenture Holders)

	Debenture Holders		Dr.		5,00,000
		To Bank A/c				5,00,000
	(Amount due for debentures paid to Debenture Holders)

	Cumulative Sinking Fund A/c		Dr.		4,89,245
		To General Reserve A/c				4,89,245
	(Transfer of credit balance of Cumulative Sinking Fund Account to General Reserve Account)

8% Debentures Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2012				2012
Dec 31	Balance c/d		5,00,000	Jan 1	Bank A/c		5,00,000
			5,00,000				5,00,000

2013				2013
Dec 31	Balance c/d		5,00,000	Jan 1	Balance b/d		5,00,000
			5,00,000				5,00,000

2014				2014
Dec 31	Debenture Holders		5,00,000	Jan 1	Balance c/d		5,00,000
			5,00,000				5,00,000

Cumulative Sinking Fund Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs

2012				2012
Dec. 31	Balance c/d		1,60,174	Dec. 31	Profit and Loss Appropriation		1,60,174
			1,60,174				1,60,174

2013				2013
Dec. 31	Balance c/d		3,26,755	Jan. 1	Balance b/d		1,60,174
				Dec. 31	Profit and Loss Appropriation		1,60,174
					Interest on Cumulative Sinking Fund Investment		6,407
			3,26,755				3,26,755

2014				2014
Dec. 31	Cumulative Sinking Fund Investment A/c		1,755	Jan. 1	Balance b/d		3,26,755
	General Reserve		4,89,245	Dec. 31	Interest on Cumulative Sinking Fund Investment A/c		13,071
					Profit and Loss Appropriation A/c		1,60,174
			5,00,000				5,00,000

Cumulative Sinking Fund Investment Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2012				2012
Dec 31	Bank		1,60,174	Dec 31	Balance c/d		1,60,174
			1,60,174				1,60,174

2013				2013
Jan 1	Balance b/d		1,60,174	Dec 31	Balance c/d		3,26,755
Dec 31	Bank		1,66,581
			3,26,755				3,26,755

2014				2014
Jan 1	Balance b/d		3,26,755	Dec 31	Bank		3,25,000
					Cumulative Sinking Fund		1,755
			3,26,755				3,26,755

Bank Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2014				2014
Dec. 31	Debenture Redemption Fund		2,42,360	Dec. 31	Debenture Holders		5,00,000
	Investment		3,25,000		Balance c/d		67,360
			5,67,360				5,67,360

2015
Jan. 1	Balance b/d		67,360