# DK Goel Solutions Chapter 9 Company Accounts Redemption of Debentures

Read below DK Goel Solutions for Class 12 Chapter 9 Company Accounts Redemption of Debentures. These solutions have been designed based on the latest Class 12 DK Goel Accountancy book used by commerce stream students issued for the current year and the questions given in each chapter.

After a certain period of time, there is a requirement that the company should redeem the debentures and pay back the money to the investors. in such a situation whenever the debentures are redeemed there is a requirement to accordingly pass accounting entries in the books so that the current financial position can be displayed.

In this chapter and Redemption of Debentures DK Goel solutions, the students will understand the basics of redemption of debentures as well as the kind of accounting entry which has to be passed when the debentures are redeemed.

The chapter contains a lot of questions which can be very helpful for Class 12 commerce students of Accountancy and will also help build strong concepts which will be really helpful in your career. These dk goel class 12 solutions are free and will help you to prepare for Class 12 Accountancy. Just scroll down and read through the answers provided below

## Company Accounts Redemption of Debentures DK Goel Class 12 Accountancy Solutions

Q1. Shubh Limited has the following balance appearing in its Balance Sheet:

The Company decided to redeem its 9% debentures at a premium of 10%. You are required to suggest the way in which the company can utilise the securities premium Amount (Rs.).

Sol. 1
1.) Use Rs. 10,00,000 to write off the Commission on Underwriting.
2.) Use Balance Rs. 12,00,000 to pay down 9% Redemption Premium Debentures.

Numerical Questions

Q1. Kaveri Ltd. issued 50,000, 8% Debentures of Rs. 100 each at par on Oct. 1, 2012 redeemable on March 31, 2016. It was decided to invest 15% of the face value of debentures to be redeemed towards Debentures Redemption Investment of 30th April, 2015. Debentures were redeemed on pending date. Record necessary entries for issue & redemption of debentures.

Sol. 1

Points for Students:-
Below are the sources of Finance for the Redemption of Debentures:-
Amount required for the redemption of debentures may be managed by a Company from the following sources:
(1) Redemption from the proceeds of fresh issue of shares and debentures.
(2) Redemption of Debentures out of Capital.
(3) Redemption of Debentures out of Profits.

Q2. On 1st April, 2011. F Ltd. issued Rs. 40,00,000, 7% Debentures of Rs. 100 each at a premium of 5% redeemable at a premium of 10% at the end of 4 years. Investment as required by law was made in fixed deposit of the bank on 30th April earning interest @6% p.a. Pass journal entries at the time of Redemption of Debentures.

Sol. 2

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q3. Bank of Baroda issued 8,000, 8% Debentures of Rs. 100 each at a premium of 6% on 1st April, 2008 redeemable on 31st March, 2015. Record necessary entries for issue & redemption of debentures.

Sol. 3

Point for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q4. AFCON’s India Ltd. (an infrastructure company) issued 5,00,000, 9% Debentures of Rs. 20 each on April 1, 2005 redeemable on March 31, 2015. Investment as required by law was made in fixed deposit of the bank on 30th April. Record journal entries for issue & redemption of debentures.

Sol. 4

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q5. On 1st April, 2013 the following balance appeared in the books of Blue & Green Ltd.:
12% Debentures (Redeemable on 31st August, 2015) Rs. 20,00,000
Debenture Redemption Reserve Rs. 2,00,000

The company met the requirements of Companies Act, 2013 regarding Debenture Redemption Reserve & Debenture Redemption investments & redeemed the debentures.
Ignoring interest on investments, pass necessary Journal entries for the above transactions in the books of company.

Sol. 5

Working Note:-
Computation of Transfer Amount:-

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q6. Gati Ltd. has issued 30,000, 8% Debentures of Rs. 100 each of which one-third is pending for redemption on March 31st 2018. The company has in its Debenture Redemption Reserve Account a balance of Rs. 3,80,000 on 31st March, 2017. Required Investment is made in fixed deposit on 30th April 2017 bearing interest @ 6% p.a. Record the necessary journal entries for the Redemption of Debentures.

Sol. 6

Working Note:-
Computation of Transfer Amount:-

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation. It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q7. On April 1st,2013 following were the balance of Blue Bird Ltd.:
10% Debentures (redeemable on 31st March, 2015)  Rs. 30,00,000
Debenture Redemption Reserve Rs. 5,00,000

On 31st March, 2014the Board of Directors transferred the required Amount (Rs.) to DRR & debentures were redeemed.
Investment was made earning interest @ 8% p.a.
Pass necessary Journal entries for the above transactions in the books of the company.

Sol. 7

Working Note:-
Computation of Transfer Amount (Rs.):-

Point for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q8. X Ltd. had issued Rs. 8,00,000, 9% debentures which are pending to be redeemed out of profit on 1st Oct., 2015 at a premium of 5%. The company had a Debenture Redemption Reserve of Rs. 4,14,000. The Company invested the required Amount (Rs.) in fixed deposit in a Bank on 30th April, 2015 earning interest at 10% p.a. Pass necessary journal entries for the redemption of debentures.

Sol. 8

Working Note:-
Computation of Transfer Amount (Rs.):-

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q9. On 1-1-2010 a Public Limited Company issued 15,000, 10% Debentures of Rs. 100 each at par which were repayable at a Premium of 15% on 31-3-2015. On the date of maturity, the company decided to redeem the above mentioned 10% Debentures as per the terms of issue, out of profits. Required investment is made on 30th April, 2014 in fixed deposit bearing interest @ 8% p.a. Bank deducted TDS @ 10% on its maturity i.e. 31st March, 2015.
Pass the necessary journal entries in the books of the Company for the redemption of Debentures.

Sol. 9

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q10. X Ltd. issued Rs. 80,00,000, 8% debentures of Rs. 100 each on 1st April, 2017. The terms of issue stated that the debentures were to be redeemed at a premium of 5% on 30th June, 2015. The company decided to transfer out of profits Rs. 10,00,000 to Debenture Redemption Reserve on 31st March, 2014 & Rs. 10,00,000 on 31st March, 2015.
Pass the necessary Journal entries regarding the issue & redemption of debentures without providing for either the interest on loss on issue of debentures.

Sol. 10

Point for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q11. Ch&ra Tubes Ltd. issued 70,000, 7% debentures of Rs. 100 each on June 30, 2011 redeemable at a premium of 6% on July 1, 2015. The Board of Directors have decided to transfer out of profits Rs. 7,50,000 to Debenture Redemption Reserve on March 31, 2013, Rs. 5,00,000 on March 31, 2014 & Rs. 5,00,000 on March 31, 2015. Record necessary journal entries regarding issue & redemption of debentures. Ignore entries relating to writing off loss on issue of debentures & interest paid thereon.

Sol. 11

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q12. Kuber Ltd. on 1st April 2010 acquired assets of the value of Rs. 7,00,000 & liabilities worth Rs. 80,000 from Varun Ltd. at an agreed value of Rs. 6,30,000. Kuber Ltd. issued 10% Debentures of Rs. 100 each at a premium of 5% in full satisfaction of purchase consideration. The debentures were redeemable on 31st October, 2015 at a premium of 4%. Pass Journal entries to record the above including redemption of debentures.

Sol. 12

Working Note:-
Computation of Number of Debentures issued

Hence, the 6,000 Debentures @ Rs. 100 each.

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q13. Universe Ltd. has 2,00,000, 9% debentures of Rs. 50 each pending for redemption in five equal annual instalments starting from March 31, 2015. Debenture redemption Reserve has a balance of Rs. 17,00,000. Record necessary journal entries.

Sol. 13

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q14. Priya Ltd. issued 30,000, 8% debentures of Rs. 200 each on August 1, 2011 redeemable as follows:

It was decided to transfer Rs. 4,00,000 to Debenture Redemption Reserve on March 31, 2012 & March 31, 2013 & balance required to be transferred to Debenture Redemption Reserve on March 31, 2014. Record necessary journal entries. Ignore entries for payment of interest.

Sol. 14

Working Note:-
Computation of Debenture Redemption Reserve Account:-

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q15. Tata Power Ltd. issued 90,000, 9% Debentures of Rs. 100 each on July 1, 2011 redeemable at a premium of 5% as under:

It was decided to transfer to debenture Redemption Reserve Rs. 10,00,000 on March 31, 2012; Rs. 4,00,000 on March 31, 2013 & the balance on March 31, 2014. Record necessary journal entries ignoring for interest.

Sol. 15

Working Note:-
Computation of Debenture Redemption Reserve Account:-

Points for Students:-

When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q16. On 31st March, 2016 Z Ltd. purchased its own 5,000, 7% Debentures of Rs. 100 each from the open market at Rs. 96 each for immediate cancellation. Pass Journal entries.

Sol. 16

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q17. X Ltd. purchased from open market its own 2,000, 9% Debentures of Rs. 100 each @ Rs. 102 per debentures for immediate cancellation. Pass Journal entries.

Sol. 17

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q18. On 1-4-2013 JJJ Ltd. had Rs. 1,00,00,000, 10% Debentures of Rs. 100 each outst&ing.
(i) On 1-4-2014 the company purchased in the open market 30,000 of its own debentures for Rs. 99 each & cancelled the same immediately.
(ii) On 28-2-2015 the company redeemed at par debentures of Rs. 50,00,000 by draw of a lot.
(iii) On 31-1-2016 the remaining debentures were purchased for immediate cancellation for Rs. 20,03,000.

Ignoring interest on debentures, investments & debenture redemption reserve, pass necessary Journal entries for the above transactions in the books of the company.

Sol. 18 (i)

(ii)

(iii)

Points for Students:- When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q19. Voltas Ltd. purchased its own 4,000; 8% Debentures of Rs. 100 each @ Rs. 95 per debenture. These debentures were redeemable at 4% premium.

Sol. 19

Points for Students:-
Below are the sources of Finance for the Redemption of Debentures:-
Amount required for the redemption of debentures may be managed by a Company from the following sources:
(1) Redemption from the proceeds of fresh issue of shares and debentures.
(2) Redemption of Debentures out of Capital.
(3) Redemption of Debentures out of Profits.

Q20. Manu Ltd. purchased from open market its own 5,000, 10% Debentures of Rs. 100 each @ Rs. 112 per debenture for immediate cancellation. These debentures were redeemable at 10% premium. Company has a balance of Rs. 15,000 in Capital Reserve. Pass necessary Journal entries.

Sol. 20

Points for Students:-

The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation. It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q21. Shashi Ltd. purchased for immediate cancellation its own 3,000, 9% Debentures of Rs. 100 each redeemable at 5% premium for Rs. 109 each. Company has a balance of Rs. 10,000 in its Capital Reserve.
Pass necessary Journal entries.

Sol. 21

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q22. On 1st April, 2012, a company issued 2,000, 8% Debentures of Rs. 100 each at a premium of Rs. 20, repayable at a premium of Rs. 20. The terms of issue provided for the redemption of Rs. 20,000 debentures every year commencing from 31st March, 2014 either by purchase from the open market or by draw of lots at company’s option.

On 31st March, 2014, the company purchased for cancellation its own debentures of the face value of Rs. 16,000 at Rs. 95 per debenture & of Rs. 4,000 at Rs. 90 per debenture.
Show the Journal entries for redemption of debentures. Ignore entries relating DRR & Investment.

Sol. 22

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q23. Z Ltd. purchased for cancellation 2,000 of its own debentures of Rs. 100 each for Rs. 1,86,000 & 1,000 Debentures for Rs. 95,000. Expenses of purchases Amount (Rs.)ed to Rs. 1,500.
Pass Journal entries ignoring DRR & Investment.

Sol. 23

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q24. On 1st April, 2016 a company made an issue of 5,000, 15% Debentures of Rs. 100 each. The terms of issue provided for the redemption of Rs. 1,00,000 Debentures annually, commencing from 31st March, 2018, either by drawing at drawings at par or by purchase in the market at the company’s option.

The Company transferred the required Amount (Rs.) to DRR on 31st March 2017 & invested the required Amount (Rs.) on 30th April 2017.
On 31st March, 2018 the company purchased for cancellation 300 of its debentures at Rs. 95; 200 at Rs. 96 & 250 at Rs. 98. The expenses of purchase Amount (Rs.)ed to Rs. 230.
Record the redemption of debentures in the company’s Ledger for the year 2017-18 including interest on debentures.

Sol. 24

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q25. On 1st April, 2013 a company made an issue of 20,000, 8% debenture of Rs. 100 each at Rs. 106 per debenture. The terms of issue provided for the redemption of Rs. 5,00,000 debentures every year commencing from 31st March, 2018 either by purchase or by drawings at par at the company’s option.

Company transferred the required Amount (Rs.) to DRR & invested the required Amount (Rs.) as per law.

On 31st March, 2018 the company purchased for cancellation debentures of the face value of Rs. 3,00,000 at Rs. 90 per debenture & of Rs. 2,00,000 at Rs. 95 per debenture. Journalise the above transactions & show how the profit on redemption would be treated.Sol. 25

Working Note:-
(i) Computation of purchase of debentures:
Purchased Debentures = 3,000 debentures @ Rs. 90 + 2,000 debentures @ Rs. 95
Purchased Debentures = 2,70,000 + 1,90,000
Purchased Debentures = 4,60,000

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q26. India Tea Ltd. purchased for cancellation its 800, 13% Debentures of Rs. 100 each at Rs. 95 (i) Make journal entries, (ii) What journal entry will be made if debentures are purchased as investments.
Ignore entries relating to DRR & investment of 15%.

Sol. 26 (i) If debentures are purchased for immediate cancellation:-

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q27. Mafatlal Cotton Ltd. has an outstanding balance of 5,000, 9% debentures of Rs. 100 each. The Board of Directors decided to purchase 4,000 of its own debentures at a price of Rs. 94 for investments purpose. But after few months they took decision to sell them @ Rs. 97 in the market. Record necessary entries to show above transactions.

Sol. 27

Points for Students:-
Below are the sources of Finance for the Redemption of Debentures:-
Amount required for the redemption of debentures may be managed by a Company from the following sources:
(1) Redemption from the proceeds of fresh issue of shares and debentures.
(2) Redemption of Debentures out of Capital. (3) Redemption of Debentures out of Profits

Q28. X Ltd. purchased its 5,000, 8% debentures of Rs. 100 at Rs. 95 for investment on 1st October, 2014. Expenses Amount to Rs. 4,000. On 1st January, 2015 it sold 4,000 of its debentures at Rs. 98 per debenture. Expenses Amount to Rs. 3,000. On 31st March, 2015 it decided to cancel the rest of the debentures.
Journalise these transaction in the book of X Ltd.

Sol. 28

Working Note:-

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q29. On 1st April 2014, Nikita Ltd. had 10,000, 12% Debentures of Rs. 100 each. On the same date it purchased 3,000 of its own debentures from the open market for Rs. 2,95,000, expenses of purchase Rs. 500.
The debentures were held as investment till 31st March, 2015 when it decided to cancel them. Interest is payable half yearly on 31th September & 31st March & the books are closed on 31st March every year.
Pass journal entries in the books of the company.

Sol. 29

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q30. Malwa Textiles Ltd. issued 2,000, 7% debentures of Rs. 500 each redeemable after 5 years by converting them into equity shares of Rs. 100 each. Record Journal entries for issue & redemption of debentures.

Sol. 30

Points for Students:-
Below are the sources of Finance for the Redemption of Debentures:-
Amount required for the redemption of debentures may be managed by a Company from the following sources:
(1) Redemption from the proceeds of fresh issue of shares and debentures.
(2) Redemption of Debentures out of Capital.
(3) Redemption of Debentures out of Profits.

Q31. (A). India Cable Ltd. issued 60,000, 9% debentures of Rs. 50 each at a premium of 5% on March 1, 2012 redeemable by conversion of debentures into shares of Rs. 20 each at a premium of Rs. 4 per share on May 31, 2015. Record necessary entries for issue and redemption of debentures.

Sol. 31 (A)

Working Note:-

(i) Equity Shares Converted into Debentures:-
Debentures = Rs. 3,00,000
Equity Share = Rs. 20 + Rs. 4

Equity Share Capital = 1,25,000 × Rs. 20
Equity Share Capital = Rs. 25,00,000
Security Premium = 1,25,000 × Rs. 4 Security Premium = Rs. 5,00,000

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q32. (B) On 28-2-2015, BCL Ltd. converted its 1,00,000, 9% debentures of Rs. 100 each issued at a premium of 10% into 8% preference shares of Rs. 100 each issued at a premium of 25%. Pass necessary journal entries on the redemption of debentures.

Sol. 32 (B)

Working Note:-
Conversion of Debenture into Shares:-
Debentures into Equity Shares:-
Debentures = Rs. 2,50,000
Equity Shares = Rs. 10 + Rs. 12.5

Debentures into Preference Shares:-
Debentures = Rs. 4,20,000
Equity Shares = Rs. 100 + Rs. 5

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q33. Z Ltd. issued Rs. 20,00,000, 8% debentures on 1st April, 2010 at a premium of 5%. On March, 2015, out of these Rs. 2,00,000, 8% debentures were redeemed by converting them into equity shares of Rs. 100 each issued at par & Rs. 5,00,000, 8% debentures were converted into 10% preference shares of Rs. 100 each issued at a premium of 25%.
Pass the necessary Journal entries in the books of Z Ltd. for the redemption of debentures.

Sol. 33

Q34. Vasudev Ltd. redeemed its 25,000, 8% Debentures of Rs. 100 each as follows:
(i) 15,000 Debentures by converting them into equity shares of Rs. 20 each at a premium of 25%.
(ii) Balance 10,000 Debentures were redeemed out of Profits.

Sol. 34

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q35. Rose Ltd. issued 8,400, 8% Partly Convertible Debentures of Rs. 100 each. As per the terms of issue it redeemed 25% of the face value of debenture in cash & the balance were redeemed by issue of 10% Preference Shares of Rs. 100 each at a Premium of 5%.
Pass necessary journal entries.

Sol. 35

Working Note:-
(i) Conversion of Debentures into Shares:-
Debentures into Preference Shares:
Amount of Debentures = Rs. 6,30,000
Rate of Preference Share = Rs. 100 + Rs. 5
Number of Preference Shares =  Rs. 6,30,000 / 105
Number of Preference Shares = 6,000

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q36. X Ltd. redeemed its 3,800, 10% Debentures of Rs. 100 each, which were issued at a discount of 6% by converting into 12% debentures of Rs. 100 each at a discount of Rs. 5 per debenture. Journalise.

Sol. 36

Working Note:-
(i) Conversion of Debentures to Shares:-
10% Debentures into 12% Debentures:-
Amount of Debentures = Rs. 3,80,000
Rate of 12% Debentures = Rs. 100 – Rs. 5
Rate of 12% Debentures = Rs. 95
Number of 12% Debentures =  Rs. 3,80,000 / 95
Number of 12% Debentures = 4,000 Debentures

Points for Students:- Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q37. Y Ltd. redeemed its 46,000, 9% Debentures of Rs. 25 each, which were issued at a premium of 4% by converting into 11% Debentures of Rs. 100  each, issued at 92%. Journalise.

Sol. 37

Working Note:-
(i) Conversion of Debentures to Shares:-
9% Debentures into 11% Debentures:-
Amount Debentures = Rs. 11,50,000
Rate of 12% Debentures = Rs. 100 – Rs. 8
Number of 12% Debentures =  Rs. 11,50,000 / 92
Number of 12% Debentures = 12,500 Debentures

Points for Students:- When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption

Q38. Journalise the redemption of debentures before maturity in the following cases:

(i) 4,500, 9% debentures of Rs. 100 each issued at a discount of 4% & redeemable at par after 5 years were converted into 12% Debentures of Rs. 100 each issued at par before maturity.

(ii) 4,500, 9% debentures of Rs. 100 each issued at a discount of 4% & redeemable at par after 5 years were converted into 12% debentures of Rs. 100 each issued at a premium of 25% before maturity.

(iii) 4,500, 9% debentures of Rs. 100 each issued at a discount of 4% & redeemable at par after 5 years were converted into 12% debentures of Rs. 100 each issued at a premium of 25% before maturity.

(iv) 4,500, 9% debentures of Rs. 100 each issued at a discount of 4% & redeemable at par after 5 years were converted into 12% debentures of Rs. 100 each issued at a premium of 25% before maturity.

Sol. 38 (i)

Working Note:-
Conversion of Debentures to Shares:-
9% Debentures into 12% Debentures:-
Amount of Debentures = Rs. 4,50,000
Rate of 12% Debentures = Rs. 100
Number of 12% Debentures =  Rs. 4,50,000 / 100
Number of 12% Debentures = 4,500 Debentures

(ii)

Working Note:-

Conversion of Debentures to Shares:-
9% Debentures into 12% Debentures:-
Amount of Debentures = Rs. 4,50,000
Rate of 12% Debentures = Rs. 100 + Rs. 25
Rate of 12% Debentures = Rs. 125
Number of 12% Debentures =  Rs. 4,50,000 / 125
Number of 12% Debentures = 4,500 Debentures

(iii)

Working Note:-
(i) Conversion of Debentures to Shares:-
9% Debentures into 12% Debentures:-
Amount of Debentures = Rs. 4,50,000
Rate of 12% Debentures = Rs. 100 – Rs. 10
Rate of 12% Debentures = Rs. 90
Number of 12% Debentures =  Rs. 4,50,000 / 90
Number of 12% Debentures = 5,000 Debentures

(iv)

Working Note:-
Conversion of Debentures to Shares:-
9% Debentures into 12% Debentures:-
Amount of Debentures = Rs. 4,50,000
Rate of 12% Debentures = Rs. 100 – Rs. 10
Rate of 12% Debentures = Rs. 90
Number of 12% Debentures =  Rs. 4,50,000 / 60
Number of 12% Debentures = 7,500 Debentures

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q39. X Ltd. redeemed Rs. 20,00,000, 7% Debentures of Rs. 100 each which were issued at a discount of 5% & were redeemable at 10% premium by converting them into 9% Debentures of Rs. 100 each issued at a discount of 20% Journalise.

Sol. 39

Working Note:-
Conversion of Debentures to Shares:-
7% Debentures into 9% Debentures:-
Amount of Debentures = Rs. 22,00,000
Rate of 9% Debentures = Rs. 100 – Rs. 20
Rate of 9% Debentures = Rs. 80
Number of 9% Debentures =   Rs. 22,00,000 / 80
Number of 9% Debentures = 27,500 Debentures

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q40. Suruchi Ltd. issued 4,000, 9% debentures of Rs. 500 each at a discount of 5% redeemable after 5 years by conversion into equity shares of Rs. 10 each at Rs. 25 per share. Record necessary entries for issue & redemption of debentures assuming that the debentures were converted at the option of debenture Holders before the date of redemption.

Sol. 40

Working Note:-
Conversion of Debentures to Shares:-
Conversion of 9% Debentures into Equity Shares:-
Amount of Debentures = Rs. 19,00,000
Rate of Equity Shares = Rs. 10 + Rs. 15
Rate of Equity Shares = Rs. 25
Number of Equity Shares =  Rs. 19,00,000 / 25
Number of Equity Shares = 76,000 Debentures

Equity Share Capital = Rs. 76,000 × Rs. 10
Equity Share Capital = Rs. 7,60,000
Security Premium Reserve = Rs. 76,000 × Rs. 15
Security Premium Reserve = Rs. 11,40,000

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q41. Journalise the following transactions:

(i) A Ltd. redeemed 1,000, 13% Debentures of Rs. 500 each which were issued at a discount of 10% by converting them into equity shares of Rs. 10 each at par.

(ii) B Ltd. redeemed 600, 15% Debentures of Rs. 100 each which were issued at a discount of 2% by converting them into equity shares of Rs. 10 each at a premium of Rs. 5 per share.
All of the above debentures were converting at the option of the debenture holders before the date of redemption.

Sol. 41

Working Note:-
Conversion of Debentures to Shares:-
7% Debentures into 9% Debentures:-
Amount of Debentures = Rs. 58,800
Rate of 9% Debentures = Rs. 10 + Rs. 5
Rate of 9% Debentures = Rs. 15
Number of 9% Debentures =  Rs. 58,800 / 15
Number of 9% Debentures = 3,920 Debentures

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q42. On 1st April, 2014 a limited company issued 250, 12% debentures of Rs. 1,000 each at Rs. 950. Holders of these debentures have an option to convert their holding into 10% Preference Shares of Rs. 100 each at a premium of Rs. 25 per share at any time within two years.
On 31st March, 2015 a year’s interest had accrued on the debentures & remained unpaid. A holder of 20 debentures notified his intention to exercise the above option.
Pass necessary journal entries.

Sol. 42

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q43. Jain Motors Ltd. converted its 200, 8% debentures of Rs. 100 each issued at a discount of 6% into equity shares of Rs. 10 each, issued at a premium of 25%. Discount on issue of 8% debentures has not yet been written off.
Showing your working notes clearly pass necessary Journal Entries on conversion of 8% debentures into equity shares assuming that the debentures are converted before maturity.

Sol. 43

Working Note:-
Conversion of Debentures to Shares:-
7% Debentures into Equity Shares:-
Amount of Debentures = Rs. 18,800
Rate of Equity Shares = Rs. 10 + Rs. 2.5
Rate of Equity Shares = Rs. 12.5
Number of Equity Shares =  Rs. 18,800 / 12.5
Number of Equity Shares = 1,504 Debentures

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q44. Govarai Ltd. issue 10,000, 10% Debentures of Rs. 100 each at Rd. 96 each, redeemable after five years at a premium of 10% by conversion into Equity Shares of Rs. 10 each at a premium of 20%. The company had the option to convert the debentures into share earlier than five years. The company converted the debentures into share at end of third year. It had a balance of Rs. 2,00,000 in Securities Premium Reserve against which Loss  on issue of debentures was written off in the first year.
Pass the journal entries for issue, redemption of debentures & writing off loss on issue of Debenturs.

Sol. 44

Points for Students:- Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q45. On 1st April, 2014 X Ltd. issued 6,000, 8% debentures of Rs. 100 each at a discount of 5%. The debentures were redeemable after 5 years or earlier at the option of the company by converting them into equity share of Rs. 20 each at a premium of 50%. On 1st April, 2018, the company converted the debenture into shares.
Pass the Journal entries for issue & conversion.

Sol. 45

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q46. On 1st April 2014 Krishna Ltd. issued 1,600, 8% debentures of Rs. 500 each at a discount of 5% redeemable at a premium of 6% after 5 years or earlier at the option of the company by conversion into equity shares Rs. 10 each at a premium of Rs. 15 per share. On 1st April 2017 the company converted the debentures into shares.
Pass necessary journal entries for issue & conversion of debentures.

Sol. 46

Points for Students:-
Below are the sources of Finance for the Redemption of Debentures:-
Amount required for the redemption of debentures may be managed by a Company from the following sources:
(1) Redemption from the proceeds of fresh issue of shares and debentures.
(2) Redemption of Debentures out of Capital.
(3) Redemption of Debentures out of Profits.

Q47. On 1st April, 2015 X Ltd. issued 8,000, 8% Debentures of Rs. 50 each at a discount of 5% redeemable at par after 5 years & other the holder option to convert their holdings into equity shares of Rs. 25 each at a premium of 60% after 31st march, 2018. On 1st April, 2018, 40% holders exercised their option. Give necessary Journal entries both at the time of issue & at the time of conversion.

Sol. 47

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation. It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q48. On 1st April, 2013, Z Ltd. issued 15,000, 9% Debentures of rs. 100 each at 92% & redeemable at 4% premium after 8 years & offered the holder’s option to convert their holdings into equity shares of Rs. 10 each at a premium of Rs. 30 each, after 31st March, 2018. On 1st April, 2018 holders of 3,000 debentures exercised their option. Pass necessary Journal entries both at the time of issue & the time of conversion.

Sol. 48

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q49. On 1st April, 2015 Z Ltd. issued 5,000, 10% debentures of Rs. 200 cash at a discount of 6% & redeemable at a premium of 4% after 5 years. It offered the holder’s option to convert their holdings into the Equity Shares Rs. 20 each at par. On 31st March, 2018 all the debenture holders exercised their option.
Pass the Journal entries for issue of debentures, writing off loss on issue & conversion into shares.

Sol. 49

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q50. On 1st April, 2014, PQ Ltd. issued 5,000, 9% debentures of Rs. 100 each at Rs. 95 each & redeemable at a premium of 7% after 6 years. It offered the holders option to convert their holdings into Equity Shares of Rs. 10 each at par. On 31st March, 2018 holders of 20% debentures exercised their option.
Pass the Journal entries for issue of debentures, writing off loss on issue & conversion into shares.

Sol. 50

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q51. AH Ltd. issued Rs. 20,000; 9% debentures of Rs. 100 each at a discount of 10% redeemable after five years by converting them into equity shares of Rs. 10 each. Pass necessary Journal entries for the issue & redemption of debentures.

Sol. 51

Points for Students:-
Below are the sources of Finance for the Redemption of Debentures:-
Amount required for the redemption of debentures may be managed by a Company from the following sources:
(1) Redemption from the proceeds of fresh issue of shares and debentures.
(2) Redemption of Debentures out of Capital.
(3) Redemption of Debentures out of Profits.

Q52. On 1st April, 2014 a company issued 500, 15% Debentures of Rs. 1,000 each at par repayable at 5% premium. Holders of these debentures had an option to convert their debentures into 10% Preference Shares of Rs. 100 each at a premium of Rs. 20 per share at any time within 2 years. On 31st March, 2015 a year’s interest had accrued on the debentures but remained unpaid & a holder of 60 debentures notified his intention to exercise his option. Pass the necessary journal entries.

Sol. 52

Working Note:-
(i) Conversion of Debentures into Preference Shares:-
Debentures into Preference Shares:-
Amount of Debentures = Rs. 60,000 + Rs. 3,000 (5% on Premium)
Amount of Debentures = Rs. 63,000

Amount of Preference Share = Rs. 100 + Rs. 20
Amount of Preference Share = Rs. 120

Number of Equity Shares = 63,000/120
Number of Equity Shares = 525

Amount of Equity Share Capital = 525 × Rs. 100
Amount of Equity Share Capital = Rs. 52,500

Amount of Security Premium = 525 × Rs. 20
Amount of Equity Share Capital = Rs. 10,500

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q53. (A)
On 1st October, 2014 a limited company gave notice of its intention to its intention to redeem its outst&ing Rs. 20,00,000, 10% debentures on 31st March, 2015 at 102% & offered the holders the following options:
(a) To apply the redemption money to subscribe for;
(i) 12% cumulative preference shares of Rs. 100 each at Rs. 112.50 per share (accepted by the holders of Rs. 8,55,000 debentures).
(ii) 15% debentures of Rs. 100 each at 96% (accepted by the holders of Rs. 7,20,000 debentures).
(b) To have their holding redeemed for cash if neither of the options under (a) was accepted.
Show the journal entries necessary to record he redemption allotment under options (a) (i) & (a) (ii) & state the Amount (Rs.) of cash required to satisfy option (b).
Ignore depositing or investing the Amount (Rs.) at the beginning of the year.

Sol. 53 (A)

Working Note:-
Debentures to Preference Shares Conversion:
Amount of Debentures = Rs. 8,55,000 + Rs. 17,100 (2% on Premium)
Amount of Debentures = Rs. 8,71,100

Amount of Preference Share = Rs. 100 + Rs. 12.5
Amount of Preference Share = Rs. 112.5

Number of Preference Shares to be issued = 8,71,100/112.5 = 7,752
Amount of Preference Share Capital = 7,752 × Rs. 100
Amount of Preference Share Capital = Rs. 7,75,200

Amount of Security Premium = 7,752 × Rs. 12.50
Amount of Security Premium = Rs. 96,900

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q53. (B)
On 1st October, 2011 Mohan Agro Ltd. issued 5,000, 14% Debentures of Rs. 100 each. One of the conditions of issue was that the debentures could be redeemed by giving six months’ notice at any time after three years at a premium of 4%, either by payment in cash or by allotment of Equity Shares or other debentures according to the option of the debenture holders.

On 1st October, 2014 the company informed the debentures holders to redeem the debentures on 1st April, 2015 either by payment in cash or by allotment of equity shares of Rs. 10 each at Rs. 13 per share or 15% 2nd Debentures of Rs. 100 each at Rs. 96 per debenture.
Holders of 600 debentures agreed to take immediate cash payment; holders of 2,000 debentures accepted the offer of equity shares & the rest accepted the offer of 15% 2nd Debentures.
Give Journal Entries to record the redemption of debentures.
Ignore depositing or investing the Amount (Rs.) at the beginning of the year.

Sol. 53
(B)

Working Note:-
(i) Conversion of Debentures into Shares:-
Debentures into Equity Shares:-
Amount of Debentures = Rs. 2,00,000 + Rs. 8,000 (4% on Premium)
Amount of Debentures = Rs. 2,08,000

Amount of Equity Share = Rs. 10 + Rs. 3
Amount of Equity Share = Rs. 13

Number of Equity Shares = 2,08,000/13
Number of Equity Shares = 16,000

Amount of Equity Share Capital = 16,000 × Rs. 10
Amount of Equity Share Capital = Rs. 1,60,000

Amount of Security Premium = 16,000 × Rs. 3
Amount of Security Premium = Rs. 48,000

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q54. Pass necessary journal entries in the books of Rachana Ltd. for the following:
(i) Converted 740, 9% debentures of Rs. 100 each into equity shares of Rs. 100 each issued at a premium of 25%.
(ii) Issued 1,875, 8% debentures of Rs. 100 each ata a premium of Rs. 10 each redeemable after three year.

Sol. 54

Working Note:-
Conversion of Debentures into Shares:-
Debentures into Shares:-
Amount of Debentures = Rs. 74,000

Rate of Equity Share = Rs. 100 + Rs. 125
Rate of Equity Share = Rs. 225

Number of Equity Shares = 74,000/125
Number of Equity Shares = 592

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q55. Pass necessary journal entries in the books of Varun Ltd. for the following transations:
(i) Issued 58,000, 9% debentures of Rs. 1,000 each at a premium of 10%.
(ii) Converted 350, 9% debentures of Rs. 100 each into equity shares of Rs. 10 each issued at a premium of 25%.

Sol. 55

Working Note:-
Conversion of Debentures into Equity Shares:-
Debentures into Equity Shares:-
Amount of Debentures = Rs. 35,000
Rate of Equity Share = Rs. 10 + Rs. 2.5
Rate of Equity Share = Rs. 12.5

Number of Equity Shares = 35,000/12.5
Number of Equity Shares = 2,800

Points for Students:-
Below are the sources of Finance for the Redemption of Debentures:-
Amount required for the redemption of debentures may be managed by a Company from the following sources:
(1) Redemption from the proceeds of fresh issue of shares and debentures.
(2) Redemption of Debentures out of Capital.
(3) Redemption of Debentures out of Profits.

Q56. Pass necessary journal entries for the redemption of debentures for the following in the books of X Ltd.
X Ltd. converted Rs. 8,00,000, 12% debentures into equity shares of Rs. 100 each at a premium of 24%.

Sol. 56

Working Note:-
Debentures to Preference Shares Conversion::-
Amount of Debentures = Rs. 8,00,000
Amount of Equity Share = Rs. 100 + Rs. 25

Number of Equity Shares = 8,00,000/125
Number of Equity Shares = 6,400

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q57. Mudra Ltd. had 10,000, 12% Debentures of Rs. 100 each pending for redemption at a premium of 5% on March 31, 2018. The Board of Directors of the company decided to transfer the required Amount (Rs.) to Debenture Redemption Reserve. Required investment was also made & the debentures were redeemed.

Sol. 57

Q58. Anupama Ltd. had issued 20,000, 9% Debentures of Rs. 100 each which is pending for redemption on 31st March 2018. The company has in its Debenture Redemption Reserve Account a balance of Rs. 4,00,000. Record the necessary journal entries for the Redemption of Debentures.

Sol. 58

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q59. Ruchi Ltd. issued 42,000, 7% debentures of Rs. 100 each on 1st April, 2011, redeemable at a premium of 8% on 31st March, 2015. The Company decided to create required Debenture Redemption Reserve on 31st March, 2014. The Company invested the funds as required by law in a fixed deposit with State Bank of India on 1st April, 2014 earning interest @ 10% per annum. Tax was deducted at source by the bank on interest @ 10%. Pass necessary Journal Entries regarding issue & redemption of debentures.

Sol. 59

Points for Students:-
Below are the sources of Finance for the Redemption of Debentures:-
Amount required for the redemption of debentures may be managed by a Company from the following sources:
(1) Redemption from the proceeds of fresh issue of shares and debentures.
(2) Redemption of Debentures out of Capital.
(3) Redemption of Debentures out of Profits.

Q60. Saraswati Ltd. issued 8,000, 9% debentures of Rs. 200 each at premium of 5% on June 30, 2005, redeemable on July 1, 2015. The Board of Directors decided to transfer Rs. 2,00,000 to Debenture Redemption Reserve on March 31, 2014 & on March 31, 2015. Record necessary entries for the issue as well as at the time of redemption of debentures. Ignore entries for payment of interest.

Sol. 60

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them.

Q61. Pooja Ltd. issued 80,000, 8% debentures of Rs. 100 each on June 30, 2011 redeemable at a premium of 6% on July 1, 2015. The Board of Directors have decided to transfer out of profits Rs. 12,00,000 to Debentures Redemption Reserve on March 31, 2013, Rs. 4,00,000 on March 31, 2014 & Rs. 4,00,000 on March 31, 2015. Record necessary journal entries regarding issue & redemption of debentures. Ignore entries relating to writing off loss on issue of debenture & interest paid thereon.

Sol. 61

Points for Students:- Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q62. ABC Ltd. Purchased for cancellation its own 5,000, 9% Debentures of Rs. 100 each for Rs. 95 per debenture. The brokerage charges Rs. 15,000 were incurred.
Calculated the Amount (Rs.) to be transferred to Capital Reserve.

Sol. 62

Profit on redemption = Rs. 5,00,000 – Rs. 4,90,000 = Rs. 10,000
Hence, the profit on redemption is Rs. 10,000.

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q63. On 1st April, 2015 a company issued 10,000, 9% debentures of Rs. 100 each at a premium of 5%. The terms of issue provide for redemption of Rs. 1,00,000 worth Debentures every year commencing from March, 2018 either by purchasing in the open market or by draw of lots at the company’s option.
The company transferred the required Amount (Rs.) to DRR & invested the required Amount (Rs.) as per law. On 31st March, 2018 the company purchased 400 debentures @ Rs. 95 & 500 Debentures @ Rs. 96 for cancellation & redeemed the balance of Rs. 10,000 debentures by draw of loss. Journalise these transactions & also show how you would deal with the profit on redemption of debentures.

Sol. 63

Working Note:-
Computation of Amount of Debenture Purchased:-
Amount of Debenture Purchased = 400 Debentures @ Rs. 95 + 500 Debentures @ Rs. 96
Amount of Debenture Purchased = Rs. 38,000 + Rs. 48,000 Total Amount Paid = Rs. 86,000

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q64. A Ltd. purchased for cancellation rs. 2,50,000 of its 12% Debentures at Rs. 92. The brokerage 1%. Journalise.

Sol. 64

Working Note:-
Computation of Amount of Debenture Purchased:-
= 2,500 Debentures @ Rs. 92 + Brokerage 1%
= Rs. 2,30,000 + Rs. 2,300 = 2,32,300

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q65. Y Ltd. issued 6,000, 13% Debentures of Rs. 100 each on 1st April, 2013 at par. The terms of Debentures Trust Deed provided for the redemption of Rs. 1,50,000 annually commencing from March, 2018 either by drawings at par or by purchase in the open market at the company’s option.
The Company transferred the required Amount (Rs.) to DRR & invested the required Amount (Rs.) as per Law.
On 31st March, 2018 the Company purchased Rs. 1,20,000 of its Debentures at Rs. 95 & incurred the brokerage @ 2%. Prepare necessary accounts for the year 2017-18.

Sol. 65

Points for Students:-
Below are the sources of Finance for the Redemption of Debentures:-
Amount required for the redemption of debentures may be managed by a Company from the following sources:
(1) Redemption from the proceeds of fresh issue of shares and debentures.
(2) Redemption of Debentures out of Capital.
(3) Redemption of Debentures out of Profits.

Q66. On 1st April, 2012, X Ltd. made an issue of 8,000, 11% debentures of Rs. 100 each. According to the terms of issue, debentures of the terms of issue, debentures of the face value of Rs. 1,00,000 are to be redeemed annually commencing from March, 2018, either by drawings at par or by purchase in the open market.
The Company transferred the required Amount (Rs.) to DRR & invested the required Amount (Rs.) as per law.
On 31st March, 2018 the Company purchased for cancellation Rs. 50,000 debentures at Rs. 96 & Rs. 30,000 debentures at Rs. 95 & redeemed the balance by draw of lots. The expenses on purchase Amount (Rs.)ed to Rs. 1,200.
Prepare necessary accounts for the year ending 31st March, 2018.

Sol. 66

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q67. On 1-4-2011, X Ltd. issued 500, 13% Debentures of Rs. 100 each at par redeemable at par & offered the holders option to convert their holdings into equity shares of Rs. 10 each at par after 31-3-2016.
On 1-4-2016, 30% holders exercise their option. Give journal entries on 1-4-2016.

Sol. 67

Working Note:-
i) Debentures to Preference Shares Conversion:
Amount of Debentures = Rs. 15,000
Amount of Equity Shares = Rs. 10
Number of Equity Shares =  Rs. 15,000 / 10
Number of Equity Shares = Rs. 1,500

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q68. On 1-4-2011, Y Ltd. issued 500, 13% Debentures of 100 each at par redeemable at par & offered the holders option to convert their holding into equity shares of Rs. 10 each at 20% premium after 31-3-2016.
On 1-4-2016, 60% holders exercised their option. Give journal entries on 1-4-2016.

Sol. 68

Working Note:-
Conversion of Debentures into Equity Shares:-
Conversion of Debentures into Equity Shares:-
Amount of Debentures = Rs. 30,000

Rate of Equity Shares = Rs. 10 + Rs. 2
Rate of Equity Shares = Rs. 12

Number of Equity Shares =  Rs. 30,000 / 12
Number of Equity Shares = Rs. 2,500

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q69. On 1-4-2011, Z Ltd. issued 600, 13% Debentures of Rs. 100 each at par redeemable at par & offered the holders option to convert their holdings into equity shares of Rs. 10 each at a premium of Rs. 6 each after 31-3-2016.
On 1-4-2016, 80% holders exercised their option. Give journal entries on 1-4-2016.

Sol. 69

Working Note:-
Conversion of Debentures into Equity Shares:-
Debentures into Equity Shares:-
Amount of Debentures = Rs. 48,000
Rate of Equity Shares = Rs. 10 + Rs. 6
Rate of Equity Shares = Rs. 16

Number of Equity Shares =  Rs. 48,000 / 16
Number of Equity Shares = Rs. 3,000

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q70. On January 1, 2013, Rhytm Limited issued, 10% debentures of Rs. 500 each at par. Debentures are redeemable after 7 years. However, the company gave an option to debenture holders to get their debentures converted into equity shares of Rs. 100 each at a premium of Rs. 25 per share any time after the expiry of one year.
Shivansh, holder of 200 debentures, informed on Jan.1, 2015 that he wanted to exercise the option of conversion of debentures into equity shares.
The company accepted his request & converted debentures into equity shares.
Pass necessary journal entries to record the issue of debentures on Jan. 1, 2013 & conversion of debentures on Jan. 1, 2015.

Sol. 70

Working Note:-
Conversion of Debentures to Shares:-
Debentures into Equity Shares:-
Amount of Debentures = Rs. 1,00,000
Rate of Equity Share = Rs. 100 + Rs. 25
Rate of Equity Share = Rs. 125

Number of Equity Shares =  Rs. 1,00,000 / 125
Number of Equity Shares = 800

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q71. On 1-4-2010, A ltd. issued Rs. 1,00,000, 12% Debentures of Rs. 100 each at par redeemable at 5% premium after 6 years. It offered the holders option to convert their holdings into equity shares of Rs. 10 each at par after 31-3-2016. On 1-4-2016, 50% holders exercised their option. Give journal entries on 1-4-2016.

Sol. 71

Working Note:-
Conversion of Debentures into Debentures:-
Debentures into 15% debentures
Amount of Debentures = Rs. 1,05,000
Rate of 15% debentures = Rs. 10
Number of 15% debentures =   52,500 / 10
Number of 15% debentures = Rs. 5,250

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q72. On 1-4-2016, B Ltd. issued Rs. 5,00,000, 11% Debentures of Rs. 100 each at par redeemable at a premium of 5% after 6 years. If offered the holders option to convert their holding into equity shares of Rs. 10 each at Rs. 14 after 31-03-2016. On 1-4-2016, 20% holders exercised their option. Give journal entries on 1-4-2016.

Sol. 72

Working Note:-
Debentures to Equity Shares Conversion:
Amount of Debentures = Rs. 1,05,000
Rate of Equity Share = Rs. 10 + Rs. 4
Rate of Equity Share = Rs. 14

Number of Equity Shares =  Rs. 1,05,000 / 14
Number of Equity Shares = Rs. 7,500

Points for Students:- When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q73. On 1-4-2010, C Ltd. issued Rs. 4,00,000, 13% Debentures of Rs. 100 each at par redeemable at 102% & offered the holders option to convert their holdings into 15% Debentures at 96% after 31-3-2016, the holders of Rs. 1,72,800 Debentures exercised their option. Give journal entries on 1-4-2016.

Sol. 73

Working Note:-
Conversion of Debentures into Equity Shares:-
Amount of Debentures = Rs. 1,76,256
Rate of Equity Share = 96%

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q74. Pass necessary Journal entries in the books of the company in the following cases for redemption of 3,000, 12% Debentures of Rs. 10 each issued at par:
(a) Debentures redeemed at par by conversion into 10% preference shares of Rs. 50 each
(b) Debentures redeemed at a premium of 5% by conversion into equity shares issued at par.
(c) Debentures redeemed at a premium of 10% by conversion into equity shares issued at premium of 20%.

Sol. 74

Working Note:-
Computation of Face Value of Share & Securities Premium Reserve:-

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q75. On 1-4-2011, Raja Ltd. issued 1,000, 9% debentures of Rs. 100 each, 40% of these debentures were redeemable at the end of 3rd year by converting them into Equity Shares of Rs. 100 each at par. The remaining debentures were redeemable at the end of 4th year by converting the same into Equity Shares of Rs. 100 each issued at a premium of 25%.
Pass necessary journal entries in the books of the company for the issue & Redemption of Debentures.

Sol. 75

Working Note:-
1.) Conversion of Debentures into Shares:-
Debentures into Equity Shares:-
Amount of Debentures = Rs. 40,000
Rate of Equity Share = Rs. 100 + Rs. 25
Rate of Equity Share = Rs. 125
Number of Equity Shares =  Rs. 40,000 /25
Number of Equity Shares = 400
(2) Amount of Debentures = Rs. 60,000
Rate of Equity Share = Rs. 100 + Rs. 25
Rate of Equity Share = Rs. 125
Number of Equity Shares =  Rs. 60,000 / 125
Number of Equity Shares = 480

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q76. X Ltd. redeemed 100 6% Debentures of Rs. 100 each by converting them into Equity Shares of Rs. 100 each. The 6% Debentures were redeemable at 10% premium for which the Equity Shares were issued at 25% premium. Pass the necessary Journal entries for the redemption of above mentioned debentures in the books of X Ltd.

Sol. 76

Working Note:-
Conversion of Debentures into Equity Shares:-
Amount of Debentures = Rs. 11,000
Rate of Equity Share = Rs. 100 + Rs. 25
Rate of Equity Share = Rs. 125
Number of Equity Shares =  Rs. 11,000 / 12
Number of Equity Shares = 88

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them.

Q77. On 1-4-2011, D Ltd. issued 800, 13% Debentures of Rs. 100 each at Rs.95 & offered the holders to convert their holdings into equity shares of Rs. 10 each at par after 31-03-2015. On 1-4-2015, 60% holders exercised their option. Give journal entries on 1-4-2015, assuming that the debentures were converted before the date of redemption.

Sol. 77

Working Note:-
Conversion of Debentures into Shares:-
Debentures into Shares:-
Amount (Rs.) of Debentures = Rs. 45,600
Rate of Equity Share = Rs. 100
Number of Equity Shares =  Rs. 45,600 / 100
Number of Equity Shares = 4,560

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

Q78. On 1-4-2011, E Ltd. issued 2,000, 13% Debentures of Rs. 500 each at a Rs. 450 & offered the holders to convert their holdings into equity shares of Rs. 100 each at 125 per share after 31-3-2015. On 1-4-2015, 20% holders exercised their option. Give journal entries on entries on 1-4-2015, assuming that the debentures were converted before the date of redemption.

Sol. 78

Working Note:-
Conversion of Debentures into Equity Shares:-
Amount of Debentures = Rs. 1,44,000
Rate of Equity Share = Rs. 100 + Rs. 25
Rate of Equity Share = Rs. 125
Number of Equity Shares =  Rs. 1,80,000 / 125
Number of Equity Shares = 1,440

Points for Students:-
The term “redemption out of capital” refers to when no profits are set aside for debenture redemption. No benefit is passed to the debenture redemption reserve in this situation.
It is not possible to redeem debentures solely out of capital because Section 71 of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) guidelines require the establishment of a Debenture Redemption Reserve equal to at least 50% of the amount of debentures issued before redemption begins.

Q79. Journalise the following transaction in the books of Sun Ltd.
100, 12% Debentures of Rs. 100 each issued at a discount of 10% were converted into 10% preference shares of Rs. 100 each issued at a premium of 25%. The Debentures were converted at the option of the debenture holders before the date of redemption.

Sol. 79

Working Note:-
Conversion of Debentures to Shares:-
Conversion of Debentures into Equity Shares:-
Amount of Debentures = Rs. 9,000
Rate of Equity Share = Rs. 100 + Rs. 25
Rate of Equity Share = Rs. 125
Number of Equity Shares =  Rs. 9,000 / 125
Number of Equity Shares = 72

Points for Students:-
Unsecured debentures are also called Naked Debentures. These Debentures are those which are not given any security. The holders of such debentures are treated as unsecured creditors at the time of liquidation of the Company. Such debentures are not very common these days, so much so that, unless otherwise stated, a debenture is presumed to be secured.

Q80. On 1.4.2010 X Ltd. issue 1,00,000 8% debentures of Rs. 100 each at a discount of 5% redeemable after 5 years by converting them into equity shares of Rs. 100 each issued at a premium of 25%.
Pass necessary journal entries for the issue & redemption of debentures.

Sol. 80

Working Note:-
Conversion of Debentures to Shares:-
Conversion of Debentures into Equity Shares:-
Amount (Rs.) of 8% Debentures = Rs. 1,00,00,000
Rate of Equity Share = Rs. 100 + Rs. 25
Rate of Equity Share = Rs. 125
Number of Equity Shares =  Rs. 1,00,00,000 / 125
Number of Equity Shares = 80,000

Points for Students:-
Secured or Mortgage Debentures are those which are secured either on particular assets of the Company called fixed charge or on all assets of the company in general, called a floating charge. Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the Company from using the assets. If the company is unable to repay the debentures on the due date, the debenture holders can realise their money from the assets mortgaged with them. First mortgage debentures are those that have a first claim on the assets charged and second mortgage debentures are those having a second claim on the assets charged. In India, debentures have necessarily to be secured.

Q81. On 1st April, 2014, X Ltd. issued 5,000, 9% Debentures of Rs. 100 each at 93% redeemable at par after 7 years & offered the holders option to convert their holding into equity shares of Rs. 40 each at a premium of 25% after 31st March, 2018. On 1st April, 2018, 30% holders exercised their option. Give necessary Journal entries both at the time of issue & at the time of conversion.

Sol. 81

Working Note:-
Conversion of Debentures to Shares:-
Debentures into Equity Shares:-
Number of Debentures converted into Shares = 1,500
Discount on Debentures = 1,500 × Rs. 7 Discount on Debentures = Rs. 10,500

Points for Students:-
When a company needs more money to pay off its debentures, it may decide to issue new equity shares, preferred shares, or debentures. The proceeds from the new share capital and debenture issue are used to pay off the old debentures. The Company’s financial status is not harmed as a result of this form of redemption.

What is meant by the redemption of debentures?

Redemption of debentures can be defined as the process of repayment of the debentures issued by a firm to its debenture holders. Typically, it is the process of repayment of the principal amount to the debenture holders.

What do you mean by debenture redemption reserve?

Debenture Redemption Reserves depict a fund supervised by the debenture issuing company. The primary objective behind the creation of DRR is to clear off the risk of default on the repaying of the debentures. These funds help the companies meet the obligations of the debenture holders. According to the Indian Companies Act, all companies shall mandatorily create a debenture redemption reserve before the expiry date of a specific debenture.

Here are the main ways to reclaim debent the debentures by converting them to shares or new debentures?

A company can conveniently turn the old debentures into a new class of debentures or shares to reclaim them. If the deal is beneficial for the debenture holders, they can simply use their rights to transform the existing debentures into new shares or debentures. However, the convertible debentures are only applicable to this method of reclamation.

How can you reclaim the debentures through payments in installments?

In case the company desires to repay the amount through monthly installments, the debenture holder accepts payment in a series of installments at regular or irregular intervals as per the terms and conditions defined by the redemption of the debentures.

What do you mean by redemption through the purchase of the debenture on the market?

In this case, the firms which desire to purchase debentures on the market have the authority to cancel them immediately. In case the debentures are picked at a discount rate, the firms get the chance to push down the overall redemption payment, which helps them to elevate their business revenue.

Also refer to TS Grewal Solutions for Class 12