Tuesday, February 27, 2018

AHSEC - Class 12: Issue and Redemption of Debentures Practical Problems

Issue and Redemption of Debenture – Comprehensive Practical problems for March’ 2018 Exam
Average 17 marks expected from this chapter
MCQ – 1, Theoretical Question – 2+3, Practical problems – 8+5
Issue and Redemption of Debentures
(Expected Marks: 1 + 3 + 5 + 8)
Comprehensive Practical Problems
Issue of Debentures for cash (2014, 2016)
1. A company issued 10%, 1,000 debentures of Rs. 100 each at 10% premium payable full on application. Give journal entries.
2. A company issued 10%, 1,000 debentures of Rs. 100 each at 10% premium payable Rs. 50 on application and Rs. 60 on allotment all the debentures are fully subscribed. Give journal entries.
3. A company issued 10%, 1,000 debentures of Rs. 100 each at 10% discount, payable Rs. 50 on application and Rs. 40 on allotment. Debentures are fully subscribed. Give journal entries.
4. Fair Deal Ltd. invited applications for the issue of 2000, 10%Debentures of Rs.100 each at a discount of 10% payable Rs.30 on application on 1st May, 2010, Rs.30 on allotment (after deducting discount) on 1st June, 2010 and balance on first and final call on 1st July, 2010. All the debentures were fully subscribed. Debentures money was duly called and paid up.  Give the Journal Entries and show how the debentures and Debenture Discount will be shown in the Balance sheet of the company.

5. Tata Motors Ltd. invited applications for the issue of 3,000, 10% debentures of Rs. 100/- each at a premium of 10% payable Rs. 30/- on application, Rs. 40/- on allotment (including premium) and the balance on first and final call. All the debentures were subscribed and the debenture money was duly called and paid up. Give Journal entries and show how Debentures Account will be shown in the Balance Sheet of the Company.
6. Tata Motors Ltd. invited applications for the issue of 3,000, 10% debentures of Rs. 100/- each at a premium of 10% payable Rs. 30/- on application, Rs. 40/- on allotment (including premium) and the balance on first and final call. Applications were received for 2800 debentures and the debenture money was duly called and paid up except allotment and call money on 500 debentures. Give Journal entries and show how Debentures Account will be shown in the Balance Sheet of the Company.
7. Tata Motors Ltd. invited applications for the issue of 3,000, 10% debentures of Rs. 100/- each at a premium of 10% payable Rs. 30/- on application, Rs. 40/- on allotment (including premium) and the balance on first and final call. Applications were received for 4,000 debentures and excess application money of 600 debentures were sent letter of regret and balance transferred to allotment. All the debentures were duly called and paid up. Give Journal entries and show how Debentures Account will be shown in the Balance Sheet of the Company. Also prepare cash book.
Issue of Debentures with redemption option (2012, 2013, 2014, 2015, 2016, 2017)
1. Show by means of Journal entries how you will record the following issue:  
(a) X. Ltd. issue 8,000, 12% debenture of Rs 100 each at par, redeemable at the end of 5 year at par.
(b) Y. Ltd. issue 8,000, 12% debenture of Rs 100 each at a discount of 5%, redeemable at the end of 5 year at par.
(c) Z. Ltd. issue 8,000, 12% debenture of Rs 100 each at a premium of 5%, redeemable at the end of 5 year at par.
(d) P. Ltd. issue 5,000, 12% debenture of Rs 100 each at a discount of 5%, redeemable at the end of 5 year at a premium of 5%.
(e) A. Ltd. Issues 6,000, 10% debenture of Rs 100 each at a premium of 5%, redeemable at the end of 5 year at a premium of 10%.
(f) B. Ltd. issue 7,000, 11% debenture of Rs 100 each at par, redeemable at the end of 5 year at a premium of 5%.
2. Swadip Petrochemicals Ltd. issued Rs. 10, 00,000 12% Debentures of Rs.100 each. Give Journal Entries for issue and redemption of debentures in the books of the company under the following situations:                      
(a) Issued at par and redeemable after 5 years at par.
(b) Issued at Par and redeemable after 5 years at a premium of 5%.
(c) Issued at a premium of 5% and redeemable after 5 years at par.
(d) Issued at a premium of 5% and redeemable after 5 years at a premium of 10%.
(e) Issued at a discount of 5% and redeemable after 5 years at par.
(f) Issued at a discount of 5% and redeemable after 5 years at a premium of 10%.
Issue of Debentures for consideration other than cash
1. A company purchased a machinery from Y at an agreed value of Rs. 3,60,000 to be discharged by issuing 10% debentures of Rs. 100 each at par. Give journal entries.
2. A company purchased a machinery from Y at an agreed value of Rs. 3,60,000 to be discharged by issuing 10% debentures of Rs. 100 each at 10% discount. Give journal entries.
3. A company purchased a machinery from Y at an agreed value of Rs. 4,40,000 to be discharged by issuing 10% debentures of Rs. 100 each at a premium of 20%. Give journal entries.
4. A company purchased a machinery from Y at an agreed value of Rs. 4,17,000 to be discharged by issuing 10% debentures of Rs. 100 each at a premium of 10%. Fractional debentures are paid in cash. Give journal entries.
5. A company purchased a machinery from Y at an agreed value of Rs. 3,60,000 to be discharged by issuing 3,000 10% debentures of Rs. 100 each. Give journal entries.
6. A company took assets of Rs. 2, 00,000 and liabilities of Rs. 50,000 and issued 10% debenture of Rs. 100 each. Record the entries.
7. A company purchased assets of book value of Rs. 2,00,000 and liabilities of Rs. 50,000 at a purchase consideration of Rs. 1,65,000 to be discharged by issuing 10% debenture of Rs. 100 each at a premium of Rs. 10 each. Give journal entries.
8. A company purchased assets of book value of Rs. 2,00,000 and liabilities of Rs. 50,000 at a purchase consideration of Rs. 1,20,000 to be discharged by issuing 10% debenture of Rs. 100 each at a premium of 10%. Give journal entries.
9. A company purchased assets of book value of Rs. 2,00,000 and liabilities of Rs. 50,000 at a purchase consideration of Rs. 1,20,000 to be discharged by paying Rs. 32,000 in cash and balance by issuing 10% debenture of Rs. 100 each at a premium of 10%. Give journal entries.
10. A company purchased assets of book value of Rs. 2,00,000 and liabilities of Rs. 50,000 at a purchase consideration of Rs. 1,20,000 to be discharged by paying Rs. 32,000 in cash and balance by issuing 10% debenture of Rs. 100 each at a discount of 10%. Give journal entries.
Treatment of Discount and Loss on issue of debentures (2013, 2015)
1. A Company has issued Rs.1, 00,000 10%Debenture at 5% discount repayable at 5% premium after 4 years. Give journal entries for issue and show the loss on issue of debentures account over 4 years.              
2. Guwahati Engineering Limited issued 10000 6% Debentures of Rs.10 each at a discount of 5% but repayable after 5 years at a premium of 10%. Show the entries in the books of the company and also the accounting treatment of loss on issue of debentures for 5 years.               
3. A company has issued Rs. 2, 00,000, 10% debentures at 5% discount, repayable for four annual equal instalments at 5% premium. Give Journal entries and show the Loss on Issue of Debenture A/c over 4 years.
4. A company has issued Rs. 1, 00,000 debentures at a discount of 10% on 1st Jan. 2016. The debentures are repayable at par by:
1st Year = Nil
2nd Year = 25,000
3rd Year = 50,000
4th Year = 25,000
Give Journal entry for issue and show the Discount Account over the years.
5. A company has issued Rs. 1, 00,000 debentures at a discount of 10% on 1st Jan. 2016. The debentures are repayable at par by:
1st Year = Nil
2nd Year = 25,000 (At the end of 6 months)
3rd Year = 50,000 (At the end of 3 months)
4th Year = 25,000 (At the end of the year)
Give Journal entry for issue and show the Discount Account over the years.
Redemption of Debentures – Purchase of own Debentures
1. A company purchased its own debenture of Rs. 100 each of the face value of Rs. 30,000 from open market for cancellation at Rs. 95 out of profits. Record the transaction.
2. A company purchased its 300 own debenture of Rs. 100 each from open market for cancellation at Rs. 95. Record the transaction.
3. X Ltd. decided to redeem Rs. 1, 00,000, 10% debentures. It purchased Rs. 80,000 debentures in the open market at Rs. 97.50, the expenses being Rs. 400 and balance at Rs. 99. Pass Journal entries.
4. X Ltd. purchased 5,000 of its own 8% debentures of Rs. 1,000 each at Rs. 987 per debenture. It also purchased another lot of 600 debentures of the same series at Rs. 986 per debenture. The debentures were purchased for the purpose of cancellation. Record necessary journal entries in the books of the company.
Redemption of Debentures – Conversion of Debentures
1. Redeemed 800, 9% debentures of Rs. 100 each by converting the same into equity shares of Rs. 100 each issued at a premium of 25%.
2. Rs. 2, 00,000, 14% Debentures of Rs. 100 each issued at a 5% discount and redeemable at 10% premium after 4 years by converting them 15% Preference shares of Rs. 10 each issued at a premium of 10%.
3. Rs. 2, 00,000, 14% Debentures of Rs. 100 each issued at 5% premium and redeemable at 10% premium after 4 years by converting them into equity shares of Rs. 10 each issued at a premium of 10%.
4. Rs. 2, 00,000, 14% Debentures of Rs. 100 each issued at par and redeemable at 20% premium after 4 years by converting them into 10% Debentures of Rs. 10 each issued at a discount of 30%.
5. Pass necessary journal entries in the books of the Company in following cases for redemption of 1,000, 12% Debentures of Rs. 100 each issued at par:
a)      Debentures redeemed at a premium of 10% by conversion into Equity Shares issued at par.
b)      Debentures redeemed at a premium of 10% by conversion into Equity Shares issued at a premium of 25%.
c)       Debentures redeemed at a premium of 10% by conversion into Equity Shares issued at a discount of 20%.
6. Janata Iron Stores Pvt. Ltd. redeemed Rs. 30, 00,000, 8% debentures issued at premium of 5% as follows: Rs. 12, 00,000, 8% debentures were converted into equity shares of Rs. 100 each issued at a premium of Rs. 25 per share and the balance by converting them into 8% preference shares of Rs. 100 each issued at a discount of Rs. 10 per share. Pass the necessary journal entries of in the books of the company.
Redemption of Debentures – Out of profit and DRR
1. X Ltd. had Rs. 10, 00,000, 9% debentures due to be redeemed out of profits on 1st October 2016. The company had a Debenture Redemption Reserve of Rs. 4, 14,000. Pass necessary journal entries at the time of redemption.
2. Janata Iron Store Ltd. redeemed Rs. 25, 00,000, 9% debentures at a premium of 5% out of profit on 31.3.2016. Pass necessary journal entries for the redemption of debenture.
3. Assam Iron Stores Pvt. Ltd. issued Rs. 1, 00,000, 15% Debentures of Rs. 100 each at a premium of 5%, redeemable at a premium of 10% at the end of 4 years. The board of directors decided to transfer the minimum required amount to ‘Debenture Redemption Reserve Account’ at the time of redemption. Give necessary journal entries for redemption.
4. Pawan Hardware Pvt. Ltd. has 4,000, 8% Debentures of Rs. 100 each due for redemption on 31st March, 2016. There is a balance of Rs. 1, 50,000 in Debenture Redemption Reserve on the date of redemption. Record the necessary entries at the time of redemption of debentures. Here Pawan Hardware Pvt. Ltd is an infrastructure company.
5. Balaji Marvel Ltd. has issued 20,000, 9% Debentures of Rs. 100 each of which half the amount is due for redemption on 31st March 2016. The company has in its Debenture Redemption Reserve Account a balance of Rs. 4, 40,000. Record the necessary entries at the time of redemption of debentures.
6. Lohia Hardware Ltd. had a balance of Rs. 11, 00,000 in its Profit and Loss Account. Instead of declaring dividend it decided to redeem in its Rs. 10, 00,000, 9% debentures at a premium of 10%. Pass necessary journal entries in the books of the company for the redemption of debentures.
7. The company had a balance of Rs. 6, 00,000, 8% debentures. Out of these 25% debentures were redeemed by draw of lots at a premium of 25%.

8. X Ltd. has Rs. 5, 00,000, 10% Debentures outstanding on 1st April 2016. Give journal entries relating to debenture interest for the period ended 31st March, 2016 assuming that the interest is payable annually on 31st March every year.