Accounts Shares, Debenture

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

For Discharging obligation by issuing shares or debentures

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

• When interest on Debentures is Due Interest on Debentures/c_______________dr. To Debenture holder a/c
• When Interest on Debentures is Paid Debenture holder a/c same amount To Bank a/c calculated as Below
• On Transfer of Interest on Debentures to Profit & Loss a/c Profit & Loss a/c___________________dr. To Interest on Debentures/c
  

  Calculations of amount of Interest on Debentures
             Total value           Rate of interest