Company AccountsQ-2 | Redemption of DebenturesQuestion 4933 of 112
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A company had issued 20,000, 8% partly convertible debentures of 100 each on April 1, 2023. The debentures are due for redemption on June 1, 2024. The terms of issue of debentures provided that 30% of the debentures will be converted into equity shares (Nominal Value 10) at a price of ₹ 20 per share and remaining will be redeemable at a premium of 5%. (i) Calculate the number of equity shares to be allotted to the debenture holders at the time of conversion. (ii) Give the necessary journal entries related to the conversion and redemption of debentures assuming that the company has created the Debenture Redemption Reserve and also invested required amount for redemption of debentures at the time of issue. Debenture Redemption Reserve Investment are sold at par value. [Jan. 2025, Marks 5]

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Detailed Solution & Explanation

(i) Number of Debentures for Conversion = 20,000 X 30% = 6,000 Debentures Redemption Value of 6,000 Debentures= 6,000 X 100 = 6,00,000 Equity shares of 10 each issued on conversion = 30,000 equity shares [6,00,000/ 20] (ii) Journal Entries Partly Convertible Date Particulars L.F. Amount (Dr.) Amount (Cr.) 2024 1 June Bank A/c Dr. To Debentures Redemption Reserve Investment A/c (Being debentures redemption reserve investment i.e. 15% of 14,00,000, sold) 2,10,000 2,10,000 Partly convertible Debenture holders A/c Dr. Premium on Debentures Al c Dr. To 18% Partly convertible Debenture holders A/c (Being Debenture holders made due for redemption) 20,00,000 70,000 20,70,000 18% Partly convertible Debenture holder A/c Dr. To Equity share Capital Al c [30000 X 1 0] To Security Premium Ale [30000 X 10] (Being 30% Debentures converted into equity shares at premium of 10/- per each) 6,00,000 3,00,000 3,00,000 Profit & Loss A/ c Dr. To Premium on Debentures A/ c (Being premium on redemption of 18% Partly Convertible Debentures charged from profits) 70,000 70,000 18% Partly convertible Debenture holder A/c Dr. To Bank A/c (Being redemption· of remaining 18% debentures made) 14,70,000 14,70,000 Debentures Redemption Reserve A/c Dr. To General Reserve A/ c (Being balance of debentures redemption reserve i.e. 10% of 14,00,000, transferred to General reserve) 1,40,000 1,40,000

About This Chapter: Partnership & Companies

Paper

Paper 1: Accounting

Weightage

15-20%

Key Topics

Admission, Retirement, Death, Shares, Debentures

This chapter covers Admission, Retirement, Death, Shares, Debentures and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Debentures

Long-term debt instruments issued by a company to the public for raising loan capital, carrying a fixed rate of interest (coupon rate) payable regardless of profit. Debenture holders are creditors, not owners, of the company.

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