NCERT Solutions for Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 2

Issue and Redemption of Debentures Class 12

Chapter 2 Issue and Redemption of Debentures Exercise Solutions

<< Previous Chapter 1 : Accounting for Share Capital Next Chapter 3 : Financial Statements of a Company >>

Short answerslong answers : Solutions of Questions on Page Number : 144

Q1 :  

What is meant by a Debenture?


Answer :

The word Debenture is derived from a Latin word 'debere' which means to borrow. A debenture is issued in the form of a certificate under the seal of a company and containing a contract for the repayment of the principal sum after a fixed period of time and payment of interest at regular intervals, generally half yearly. Debentures are issued by a company for acquiring long-term borrowings.

Answer needs Correction? Click Here

Q2 :  

What is meant by a debenture? Explain the different types of debentures?


Answer :

The word Debenture is derived from a Latin word 'debere' which means to borrow. A debenture is issued in the form of a certificate under the seal of a company and containing a contract for the repayment of the principal sum after a fixed period of time and payment of interest at regular intervals, generally half yearly. Debentures are issued by a company for acquiring long-term borrowings.

 

The debentures can be classified on the following basis.

 

1. On the basis of Security

a. Secured Debentures- Mortgaged Debentures are those debentures that are secured against asset/s of a company. These are also known as secured debentures. In case the company fails to pay back the principal amount of debenture or fails to meet its interest obligations on the due date, then the debenture holders have the right to sell the mortgaged asset in order to realise their amount due to the company.

b. Unsecured Debentures- These debentures are treated as unsecured creditors. They do not have any security. These are uncommon now days.

 

2. On the basis of Tenure

a. Redeemable Debenture- These debentures are payable after the expiry of a specific period. These debentures can be redeemed at par or premium either in lump sum or in installment. Generally all debentures are redeemable.

b. Irredeemable Debenture- Irredeemable Debentures are those debentures that cannot be repayable or redeemable by a company during its life time. These are repayable only at the time of winding up of the company. These are also known as Perpetual Debentures that means debentures having indefinite life. In India, now days, no company can issue irredeemable debentures.

 

3. On the basis of Mode of Redemption

a. Convertible Debentures- Convertible Debentures are those debentures that can be converted into equity shares after a specified period of time. These are of following two types:

i. Fully Convertible Debentures: When the whole amount of a debenture is  convertible into equity shares of equivalent amount, then these debentures are called Fully Convertible Debentures. There is no need to maintain Debenture Redemption Reserves for such debentures.

 

ii. Partly Convertible Debentures: When only a part of the amount of a debenture is  convertible into equity shares, then these debentures are called Partly Convertible Debentures. In this regards, the Debenture Redemption Reserve is maintained only for the non-convertible part of the debenture.

 

b. Non-Convertible Debenture- These debentures cannot be converted into shares. Generally debentures are non convertible.

 

4. On the basis of Coupon Rate

a. Zero Coupon Rate- These debentures do not contain a specific rate of interest and can be issued at discount. The excess of the face value of the debenture over its issue price is considered as interest amount.

b. Specific Rate- These debentures carry a specific rate of interest which may be fixed or floating.

 

5. On the basis of Registration

a. Registered Debenture- While issuing such debentures, the company maintains a record regarding name, address and number of holding of debentures in the Register of Debenture Holders of the company.

b. Bearer Debentures- When a company does not maintain any record of the debenture holders and the debenture is transferable mere by delivery, then the type of the debenture held by the holders is termed as Bearer Debenture. Interests on such debentures are paid to the persons who produce the interest coupons that are attached with these debentures in a specified bank.

 

Answer needs Correction? Click Here

Q3 :  

What does a Bearer Debenture mean?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q4 :  

Distinguish between a debenture and a share. Why is debenture known as loan capital? Explain.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q5 :  

State the meaning of 'Debentures issued as a Collateral Security'.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q6 :  

Describe the meaning of 'Debenture Issued as Collateral Securities'. What accounting treatment is given to the issue of debentures in the books of accounts?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q7 :  

What is meant by 'Issue of debentures for Consideration other than Cash'?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q8 :  

What is meant by 'Issue of debenture at discount and redeemable at premium?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q9 :  

What is 'Capital Reserve'?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q10 :  

What is meant by an 'Irredeemable Debenture'?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q11 :  

What is a 'Convertible Debenture'?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q12 :  

What is meant by 'Mortgaged Debentures'?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q13 :  

What is discount on issue of debentures?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q14 :  

What is meant by 'Premium on Redemption of Debentures'?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q15 :  

How are debentures different from shares? Give two points.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q16 :  

Name the head under which 'discount on issue of debentures' appears in the Balance Sheet of a company.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q17 :  

What is meant by redemption of debentures?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q18 :  

Can the company purchase its own debentures?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q19 :  

What is meant by redemption of debentures by conversion?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q20 :  

How would you deal with 'Premium on Redemption of Debentures'?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q21 :  

What is meant by 'Redemption out of Capital?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q22 :  

What is meant by redemption of debentures by 'Purchase in the Open Market'?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q23 :  

Under which head is the 'Debenture Redemption Reserve' shown in the Balance Sheet?


Answer :

Please Register/Login to get access to all solutions Facebook Login
<< Previous Chapter 1 : Accounting for Share Capital Next Chapter 3 : Financial Statements of a Company >>

Numerical questionslong answers : Solutions of Questions on Page Number : 145

Q1 :  

G.Ltd. issued 75,00,000, 6% Debenture of Rs 50 each at par payable Rs 15 on application and Rs 35 on allotment, redeemable at par after 7 years from the date of issue of debenture. Record necessary entries in the books of Company.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q2 :  

Y.Ltd. issued 2,000, 6% Debentures of Rs 100 each payable as follows: Rs 25 on application; Rs 50 on allotment and Rs 25 on First and Final call.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q3 :  

A.Ltd. issued 10,000, 10% Debentures of Rs 100 each at a premium of 5% payable as follows:

Rs 10 on Application;

Rs 20 along with premium on allotment and balance on First and Final call. Record necessary Journal Entries.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q4 :  

A. Ltd. issued 90,00,000, 9% Debenture of Rs 50 each at a discount of 8%, redeemable at par any time after 9 years. Record necessary entries in the books of A. Ltd.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q5 :  

How is 'Discount on Issue of Debentures' treated in the books of accounts? How will you deal with the 'discount in issue of debentures' when the debentures are to be redeemed in installments?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q6 :  

A. Ltd. issued 4,000, 9% Debentures of Rs 100 each on the following terms:

Rs 20 on Application;

Rs 20 on Allotment;

Rs 30 on First call; and

Rs 30 on Final call.

The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400 Debentures were rejected.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q7 :  

Explain the different terms for the issue of debentures with reference to their redemption.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q8 :  

T. Ltd. offered 2,00,000, 8% Debenture of Rs 500 each on June 30, 2002 at a premium of 10% payable as Rs 200 on application (including premium) and balance on allotment, redeemable at par after 8 years. But application are received for 3,00,000 debenture and the allotment is made on pro-rata basis. All the money due on application and allotment is received. Record necessary entries regarding issue of debenture.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q9 :  

Differentiate between redemption of debentures out of capital and out of profits.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q10 :  

Explain the guidelines of SEBI for creating Debenture Redemption Reserve.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q11 :  

Describe the steps for creating Sinking Fund for redemption of debentures.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q12 :  

Can a company purchase its own debentures in the open market? Explain.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q13 :  

What is meant by conversion of debentures? Describe the method of such a conversion.


Answer :

Please Register/Login to get access to all solutions Facebook Login
<< Previous Chapter 1 : Accounting for Share Capital Next Chapter 3 : Financial Statements of a Company >>

Numerical questions : Solutions of Questions on Page Number : 146

Q1 :  

X.Ltd. invites application for the issue of 10,000, 14% debentures of Rs 100 each payable as to Rs 20 on application, Rs 60 on allotment and the balance on call. The company receives applications for 13,500 debentures, out of which applications for 8,000 debentures are allotted in full, 5,000 only 40% and the remaining rejected. The surplus money on partially allotted applications is utilised towards allotment. All the sums due are duly received.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q2 :  

R.Ltd. offered 20,00,000, 10% Debenture of Rs 200 each at a discount of 7% redeemable at premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q3 :  

M.Ltd. took over assets of Rs 9,00,00,000 and liabilities of Rs 70,00,000 of S.Ltd. and issued 8%Debenture of Rs 100 each. Record necessary entries in the books of M. Ltd.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q4 :  

B.Ltd. purchased assets of the book value of Rs 4,00,000 and took over the liability of Rs 50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs,3,80,000, be paid by issuing debentures of Rs 100 each.

What Journal entries will be made in the following three cases, if debentures are issued: (a) at par; (b) at discount; (c) at premium of 10%? It was agreed that any fraction of debentures be paid in cash.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q5 :  

X.Ltd. purchased a Machinery from Y for an agreed purchase consideration of Rs 4,40,000 to be satisfied by the issue of 12% debentures of Rs 100 each at a premium of Rs 10 per debenture. Journalise the transactions.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q6 :  

X.Ltd. issued 15,000, 10% debentures of Rs 100 each. Give journal entries and the Balance Sheet in each of the following cases:

(i) The debentures are issued at a premium of 10%;

(ii) The debentures are issued at a discount of 5%;

(iii) The debentures are issued as a collateral security to bank against a loan of Rs 12,00,000; and

(iv) The debentures are issued to a supplier of machinery costing Rs 13,50,000.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q7 :  

Journalise the following:

(i) A debenture issued at Rs 95, repayable at Rs 100;

(ii) A debenture issued at Rs 95, repayable at Rs 105; and

(iii) A debenture issued at Rs 100, repayable at Rs 105;

The face value of debenture in each of the above cases is Rs 100.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q8 :  

A.Ltd. issued 50,00,000, 8% Debenture of Rs 100 at a discount of 6% on April 01, 2000 redeemable at premium of 4% by draw of lots as under:

20,00,000 Debentures on March, 2002

10,00,000 Debentures on March, 2004

20,00,000 Debentures on March, 2005

Compute the amount of discount to be written-off in each year till debentures are paid. Also prepare discount/loss on issue of debenture account.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q9 :  

A company issues the following debentures:

(i) 10,000, 12% debentures of Rs 100 each at par but redeemable at premium of 5% after 5 years;

(ii) 10,000, 12% debentures of Rs 100 each at a discount of 10% but redeemable at par after 5 years;

(iii) 5,000, 12% debentures of Rs 1,000 each at a premium of 5% but redeemable at par after 5 years;

(iv) 1,000, 12% debentures of Rs 100 each issued to a supplier of machinery costing Rs 95,000. The debentures are repayable after 5 years; and

(v) 300, 12% debentures of Rs 100 each as a collateral security to a bank which has advanced a loan of Rs 25,000 to the company for a period of 5 years.

Pass the journal entries to record the: (a) issue of debentures; and (b) repayment of debentures after the given period.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q10 :  

A company issued debentures of the face value of Rs 5,00,000 at a discount of 6% on January 01, 2001. These debentures are redeemable by annual drawings of Rs,1,00,000 made on December 31 each year. The directors decided to write off discount based on the debentures outstanding each year.

Calculate the amount of discount to be written-off each year. Give journal entries also.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q11 :  

A company issued 10% Debentures of the face value of Rs,1,20,000 at a discount of 6% on January 01, 2001. The debentures are payable by annual drawings of Rs 40,000 commencing from the end of third year.

How will you deal with discount on debentures?

Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on December 31.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q12 :  

B.Ltd. issued debentures at 94% for Rs 4,00,000 on April 01, 2000 repayable by five equal drawings of Rs 80,000 each. The company prepares its final accounts on December 31 every year.

Indicate the amount of discount to be written-off every accounting year assuming that the company decides to write off the debentures discount during the life of debentures. (Amount to be written-off: 2000 Rs 6,000; 2001 Rs 6,800; 2002 Rs 5,200; 2003 Rs 3,600; 2004 Rs 2,000; 2005 Rs 400).


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q13 :  

B. Ltd. issued 1,000, 12% debentures of Rs 100 each on January 01, 2005 at a discount of 5% redeemable at a premium of 10%.

Give journal entries relating to the issue of debentures and debentures interest for the period ending December 31, 2005 assuming that interest is paid half yearly on June 30 and December 31 and tax deducted at source is 10%. B.Ltd. follows calendar year as its accounting year.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q14 :  

What journal entries will be made in the following cases when company redeems debentures at the expiry of period by serving the notice: (a) when debentures were issued at par with a condition to redeem them at premium; (b) when debentures were issued at premium with a condition to redeem that at par; and (c) when debentures were issued at discount with a condition to redeem them at premium?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q15 :  

On January 01, 1998, 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, 2000 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.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q16 :  

On January 01, 2003 a company issued 15% debentures of Rs 10,00,000 at par. The debentures were redeemable at par after three years on December 31, 2003. 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 Re.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, 2005, 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.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q17 :  

 

On January 01, 2004 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 installment was Rs 16,400. On December 31, 2004, 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.

 

 


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q18 :  

 

The following balances appeared in the books of A.Ltd. on January 01, 2004

 

 

Rs

12% Debentures

4,00,000

Debentures Redemption Fund

3,60,000

Debentures Redemption Fund Investment

3,60,000

Securities Premium

30,000

Bank Balance

1,00,000

 

On January 01, 2004, the company redeemed all the debentures at 105 per cent out of funds raised by selling all the investments at Rs 3,48,000. Prepare the

necessary ledger accounts.

 

 


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q19 :  

 

The following balances appeared in the books of Z.Ltd. on January 01, 2004

 

 

Rs

12% Debentures

1,50,000

Debentures Redemption Fund

1,25,000

Debentures Redemption Fund Investment

1,25,000

(Represented by Rs 1,47,500, 3% Govt. Securities

1,25,000

 

The annual installment added to the fund is Rs 20,575. On December 31, 2004, the bank balance after the receipt of interest on the investment was Rs 39,100. On that date, all the investments were sold at 83 per cent and the debentures were duly redeemed.

Show the necessary ledger accounts for the year 2004.

 

 


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q20 :  

What entries for the redemption of debentures will be done when : (a) debentures are redeemed by annual drawings out of profits; (b) debentures are redeemed by drawing a lot out of capital; and (c) debentures are redeemed by purchasing them in the open market when sinking fund for the redemption of debentures is not maintained - (i) when out of profit, and (ii) when out of capital?


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q21 :  

A. Ltd. Company issued Rs,5,00,000 Debentures at a discount of 5% repayable at

par by annual drawings of Rs.1,00,000.

Make the necessary ledger accounts in the books of the company for the first year.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q22 :  

X.Ltd. issued 5,000, 15% debentures of Rs.100 each on January 01, 2004 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years out of capital.

Give journal entries both at the time of issue and redemption of debentures. (Ignore the treatment of loss on issue of debentures and interest.)


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q23 :  

Z.Ltd. issued 2,000, 14% debentures of Rs.100 each on January 01, 2005 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years out of profits.

Give journal entries both at the time of issue and redemption of debentures. (Ignore the treatment of loss on issue of debentures and interest.)


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q24 :  

A.Ltd. purchased its own debentures of the face value of Rs.2,00,000 from the open market for immediate cancellation at Rs.92. Pass the journal entries.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q25 :  

A.Ltd. purchased for cancellation Rs.50,000 of its 15% debentures at Rs.98. The expenses of purchase amounted to Rs.50.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q26 :  

On January 01, 2002, X.Ltd. issued 40,000, 9% debentures of Rs.100 each at Rs.95.

The terms of issue provided that, beginning with 1999, Rs.2,00,000 debentures should be redeemed either by drawings at par or by purchase in the open market every year. The expenses of issue amounted to Rs.12,000 which were written-off in 2002. The company also wrote off Rs.40,000 every year from Discount on Debentures Account. At the end of 2004, debentures to be redeemed were repaid by drawings. During 2005, the company purchased for cancellation 2,000 debentures at the market price of Rs.98 on December 31, the expenses being Rs.400. Interest on debentures is payable at the end of every calendar year.

Pass the journal entries in the books of the company to record these transactions.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q27 :  

A.Ltd. redeemed 8,000, 12% debentures of Rs.100 each which were issued at a discount of 5%, by converting them into equity shares of Rs.10 each at par.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q28 :  

Y.Ltd. redeemed 4,800, 12% debentures of Rs.100 each which were issued at par, at 110 per cent by converting them into equity shares of Rs.10 each issued at a discount of 4%. Journalise.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q29 :  

Z.Ltd. redeemed 2,000, 12% debentures of Rs.100 each which were issued at a discount of 5%, by converting them into equity shares of Rs.10 each issued at a premium of 25%. Journalise.


Answer :

Please Register/Login to get access to all solutions Facebook Login
Q30 :  

X.Ltd. redeemed 1,000, 12% debentures of Rs.50 each by converting them into 15% New Debentures of Rs.100 each. Journalise.


Answer :

Please Register/Login to get access to all solutions Facebook Login
<< Previous Chapter 1 : Accounting for Share Capital Next Chapter 3 : Financial Statements of a Company >>

Company Accounts and Analysis of Financial Statements - Accountancy : CBSE NCERT Exercise Solutions for Class 12th for Issue and Redemption of Debentures will be available online in PDF book form soon. The solutions are absolutely Free. Soon you will be able to download the solutions.

Popular Articles