Question

On January 1,2011, the following balances appeared in the books of Z Ltd

$\begin{array}{cc}\text{Items}& \text{Rs.}\\ \text{6 \% Debentures}& 1,00,000\\ \text{Debentures Redemption Reserve Fund}& 80,000\\ \text{Debentures Redemption Reserve Fund Investments}& 80,000\end{array}$

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

Answer 1

$\begin{array}{ccccccc}\text{Dr}& & & & \text{6\% Debentures Account}& & \text{Cr}\end{array}$

$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ 2011& & & & 2011& & & \\ \text{Dec 31}& \text{Debentures Holders A/c}& & 1,00,000& \text{Jan 1}& \text{Balance b/d}& & 1,00,000\\ & & & \overline{\underset{–}{\underset{–}{1,00,000}}}& & & & \overline{\underset{–}{\underset{–}{1,00,000}}}\end{array}$


$\begin{array}{ccccccc}& & & & & & \\ \text{Dr}& & & & \text{Debentures Redemption Reserve Fund}& & \text{Cr}\end{array}$
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ 2011& & & & 2011& & & \\ \text{Dec 31}& \text{General}& & 1,02,800& \text{Jan 1}& \text{Balance b/d}& & 80,000\\ & \text{Reserve}& & & & & & \\ & \text{(Balancing}& & & & & & \\ & \text{figure)}& & & & & & \\ & & & & \text{Dec 31}& \text{Interest on Debenture}& & 3,600\\ & & & & & \text{Redemption Reserve}& & \\ & & & & & \text{Fund}& & \\ & & & & & \text{Investment}& & \\ & & & & & \text{4\% of 90,000}& & \\ & & & & & \text{Profit and Loss}& & 16,400\\ & & & & & \text{Appropriation}& & \\ & & & & & \text{(Instalment)}& & \\ & & & & & \text{Debentures}& & 2,800\\ & & & & & \text{Redemption}& & \\ & & & & & \text{Reserve Fund}& & \\ & & & & & \text{Investment}& & \\ & & & \overline{\underset{–}{\underset{–}{1,02,800}}}& & & & \overline{\underset{–}{\underset{–}{1,02,800}}}\end{array}$

$\begin{array}{ccccccc}& & & & & & \\ \text{Dr}& & & & \text{Debentures Redemption Reserve Fund Investment Account}& & \text{Cr}\end{array}$
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ 2011& & & & 2011& & & \\ \text{Jan 1}& \text{To Balance b/d}& & 80,000& \text{Dec 31}& \text{By Bank}& & \\ & & & & & \text{92\% of 90,000}& & 82,800\\ & \text{To Debentures}& & 2,800& & & & \\ & \text{Redemption}& & & & & & \\ & \text{Reserve Fund}& & & & & & \\ & \text{(Balancing figure)}& & & & & & \\ & & & \overline{\underset{–}{\underset{–}{82,800}}}& & & & \overline{\underset{–}{\underset{–}{82,800}}}\end{array}$

Note Investment account is closed first and the balancing figure, if any (profit or loss on sale of investment) is transferred to Reserve Fund account. Then Reserve Fund account is closed and balancing figure trasferred to General Reserve. Remember that share forfeiture goes to Capital Reserve.