Profit on Cancellation of debentures is transfer to Capital Reserve
Profit on cancellation of Debentures a/c____________dr.
To Capital Reserve a/c
When debentures are purchased for investment purpose
Investment in own debenture a/c_________________dr.
To Bank a/c
When Sale for above investment
Bank a/c___________________________dr.
Loss on Sale of own debentures a/c_____dr. (If Any)
To Investment in own Debentures a/c
To Profit on Sale of Own Debentures a/c (If Any)
(D). Accounting treatment when debentures are redeemed by conversion
Usually company redeemed their debentures in cash. But sometimes, debentures are redeemed by converting them into new class of shares or debentures. Thus new Shares or Debentures may be issued at Par, at a Premium or at a Discount.
For Amount due to Debentureholders
| Redeemable at Par Premium | Redeemable at |
| …% Debentures a/c___________dr. a/c____________dr. To on redemption of Debentures | …% Debentures holders a/c Premium To Debenture holders a/c |
For Discharging obligation by issuing shares or debentures
| If new Shares/Debentures issued at Par | If new Shares/Debentures issued at premium | If new Shares/Debentures issued at Discount |
| To Share Capital/new debenture | Debenture holder a/c_____dr To Share Capital/new debenture To Securities Prem. | Debenture holder a/c_________dr Discount on issue of Shares a/c_____dr To Share Capital/new debenture |
Calculations of issue of new Debentures/New shares
Note:---A Working Note should be prepared to no, of shares to be issued
No. of shares it be issued: PURCHASE PRICE
ISSUE PRICE OF SHARES
REMEMBER:--In case of conversion of Debentures into new Debentures, the ‘Discount on Issue of Debentures a/c’ need not be created because there is no violation of any provision of the Company act 1956.
It is important to note that in case of Shares/Debentures are converted on the maturity date or old debentures are converted into new debentures in both cases Nominal/Face value of Debentures will be seen at the time of conversion. So discount on issue will not be credited at the time of conversion.
Accounting Treatement of Interest on Debentures
Calculations of amount of Interest on Debentures
Total value Rate of interest
