(B) Accounting treatment when debentures are redeemed in Installments by Draw of lots
Under this method the company may redeemed its debenture by payment each year of a certain portain; the debentures to be redeemed being selected by draw.
Note:- Under this method ALL JOURNAL ENTRIES are same as previous Method & in this method only dates are changed because in this method there are installments, so the redeemable amount is divided into installments or by draw of lots as per ques. given.
| If redeemed at par | If redeemed at premium | If redeemed at Discount |
| Debentures a/c____________dr To Debenture holder Redemption of debentures | Debentures a/c____________drholder Prem.on Redemption of debentures To Debenture holders a/c | . Debentures a/c____________drTo Profit. On To Debenture holders a/c |
Note: - It is noted that D.R.R.a/c is shown on the liabilities side of the Balance Sheet
Remember :- Unless otherwise stated in the ques. It is assumed that the company has sufficient amount in D.R.R before initiating the purchase of debentures for cancellation
(C). Accounting treatment when debentures are redeemed in the Open market
The companies act 1956 allows the Issuing Company of debentures that company can purchase its own debentures from the open market. But there should be provision for the same on A.O.A.
Accounting Treatement:-
When debentures are purchased for immediate Cancellation
(i) Own debentures a/c ___________dr. (With purchase amt. of own debentures) To Bank a/c
(ii)...% Debentures a/c __________dr. To own Debentures
(i) Own debentures a/c ___________dr. (With purchase amt. of own debentures) To Bank a/c
(ii)...% Debentures a/c __________dr. (with Nominal price of deb.) To own Debentures (with Purchase price of deb.)
To Profit on cancellation of Debentures (with Profit on Cancellation)
