CS FOUNDATION CS VARUN BHOMIA TEST DEBENTURES

1. On 1st January, 2002 New Castle Limited allotted 10,000 9% Debentures of Rs 100 each at par,
the total amount having been received along with applications.
a) On 1st January, 2004 the company purchased in the open market 1,000 of its own
debentures @ Rs 101 each and cancelled them immediately.
b) On 1st January, 2008, the company purchased debentures of the face value of Rs 2,00,000
for Rs 1,97,800 in the open market, held them as investments for one year and then
cancelled
c) Finally as per resolution of the board of directors, the remaining debentures were
redeemed at a premium of 2% on 1st January, 2012 when Securities Premium Accounting
the company s ledger showed a balance of Rs. 30,000.
Pass journal entries for the abovementioned transactions ignoring debenture redemption reserve,
debenture – interest and interest on own debentures.

2. B Ltd. purchases for immediate cancellation 2,000 of its own 12% Debentures of Rs 100 each on
1st December, 2011, the dates of interest being 31st March and 30th September. Pass the
necessary journal entries relating to the cancellation if (i) debentures are purchased at Rs 92
ex-interest. (ii) debentures are purchased at Rs 92 cum-interest.

3. On 31st March 2011 A Ltd.’s Balance Sheet showed 10,000 12% Debentures of Rs 100 each
outstanding. Interest on debentures is payable on 30th September and 31st March every year
On 1st August, 2011, the company purchased 500 of its own debentures as investment at Rs 97
ex-interest. Pass journal entries supposing:
a) The company cancels all its own debentures on 1st March, 2012
b) The company resells all its own debentures at Rs 105 cum-interest on 1st March, 2012

4. On 1st April, 2010, Sumitra Limited issued 25,000 12% Debentures of Rs 100 each at par.
According to the terms of the issue, interest was payable half yearly on 30th September and
31st March and the company reserved the right to buy any number of debentures in the open
market to be held as investments or to be cancelled at any time.
During the accounting year ended 31st March, 2011 the company purchased 200 of its
debentures at Rs 102 cum- interest on 31 July, 2010 and 800 of its debentures at Rs 99 ex-
interest on 28th February 2011.
On 30th June, 2011, the company sold one half of the debentures purchased on 28th February,
2011 at Rs 104 cum-interest. On 30th November, 2011, the company purchased 1,500
debentures at Rs 97.50 and on 31st December, 2011, it cancelled 600 debentures purchased in
2010-11 and still lying with it.
Pass journal entries for all the transactions relating to debentures for the accounting years
2010- 11 and 2011-2012. Also prepare important ledger accounts. Ignore creation of debenture
redemption reserve.

5.
a) Swati Associates Ltd. has issued 10,000 12% Debentures of Rs 100 each on 1.4.2007.
These debentures are redeemable at par after 3 years Interest is payable annually.
b) On January 1, 2009, it buys 1,500 debentures from the market at Rs 98 per debenture.
These are sold away on September 30, 2009 at Rs 105 per debenture.
c) On April 1, 2009, it buys 1,000 debentures at Rs 104. These are cancelled on July 1,
2009.
d) On January 1, 2010, it buys 2,000 debentures at Rs 106. These debentures along-with
other debentures are redeemed on 31st March, 2010.

CS VARUN BHOMIA 982671-10396

CS FOUNDATION CS VARUN BHOMIA TEST DEBENTURES

Pass Journal entries and prepare the relevant ledger accounts showing the above
transactions. Ignore creation of debenture redemption reserve.

6. On 1st July 2009, Ispat Limited issued 10,000 9% Mortgage Debentures of Rs 150 each at par,
the interest being payable half-yearly on 1st January and 1st July. According to the terms of the
issue the debenture-holders had the option of getting the debentures converted into equity
shares of Rs 100 each at a premium of Rs 50 each on 1st January, 2012. The company had the
right to buy at any time its debentures in the open market for cancellation.
On 1st May 2010 the company purchased 1,000 debentures at Rs 148 cum-interest and on 1st
November 2011 it purchased 1,500 debentures at Rs 146 ex-interest; the debentures being
cancelled immediately in both the cases. On 1st January, 2012 holders of 4,100 debentures
exercised their option getting their debentures converted into equity shares.
The company closed its books of account every year on 31st March. You are required to show
journal entries for all the transactions relating to debentures during 2009-10, 2010-11 and
2011-2012. Also show the relevant portions of the ‘Liabilities’ side of the balance sheet of the
company as on 31st March, 2012.

7. On 1st April, 2006, Old Guards Limited issued 12% Debentures for Rs 5,00,000 at par
redeemable at a premium of 2% after four years on 31st March, 2010.
To collect funds for redemption, the company decided to establish a Sinking Fund; investments
which were to be made to the nearest rupee were to earn interest @ 10% per annum. Sinking
Fund Tables show that Rs 0.2155 invested every year for four years @ 10% per annum will
accumulate Rs 1.
On 31st March, 2010 the investments were sold at a loss of 1% and the debentures were duly
redeemed.
Give journal entries and ledger accounts for the four accounting years ended 31st March, 2010.
Entries relating to interest on debentures and for writing off Loss on Issue of Debentures
Account need not be presented. All calculations may be made to the nearest, rupee.

8. L.B. Ltd. had 12% Debentures of Rs 2,00,000 outstanding in its books as on 1.4.2011. It also had
a balance of Rs 80,000 in Sinking Fund Account represented by 10% investments (Face value,
Rs 1,00,000) On 31.12.2011 it sold investments of the face value of Rs 20,000 @ Rs 90 cum-
interest and with the proceeds purchased own debentures of the face value of Rs 20,000 for
immediate cancellation.
The interest dates for both debentures and investments were 30th September and 31st March.
Annual appropriations to Sinking Fund came to Rs 21,000. Pass journal entries and prepare the
necessary ledger accounts for the year ended 31st March, 2012.

CS VARUN BHOMIA 982671-10396