R. Ltd., issued 88,00,000, 8% debenture of Rs. 50 each at a premium of 5% on July 1, 2014 redeemable at par by conversion of debentures into shares of Rs. 20 each at a premium of Rs. 2 per share on June 30, 2017. Record necessary entries for redemption of debentures.
In the books of R. Ltd. Journal Date: June 30, 2017
1. On Debentures due for redemption:
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| 2017 | 8% Debentures A/c Dr. | 44,00,00,000 | ||
| June 30 | To Debentureholders A/c | 44,00,00,000 | ||
| (Being 88,00,000 debentures of Rs. 50 each due for redemption) |
2. On discharge of liability by conversion:
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| 2017 | Debentureholders A/c Dr. | 44,00,00,000 | ||
| June 30 | To Equity Share Capital A/c | 4,00,00,000 | ||
| To Securities Premium A/c | 40,00,000 | |||
| (Being redemption of debentures by conversion into shares of Rs. 20 each at a premium of Rs. 2) |
Explanation
The question specifies the redemption is by conversion. The total face value of the debentures is calculated as 88,00,000 debentures × Rs. 50 = Rs. 44,00,00,000. These debentures are redeemed at par. The conversion terms are shares of Rs. 20 each issued at a premium of Rs. 2, making the issue price Rs. 22 per share. The number of shares issued is calculated by dividing the total redemption amount by the issue price per share (Rs. 44,00,00,000 / Rs. 22 = 2,00,00,000 shares). The share capital is credited with the face value (2,00,00,000 × Rs. 20 = Rs. 4,00,00,000) and the premium is credited to Securities Premium (2,00,00,000 × Rs. 2 = Rs. 40,00,000).
Solution Steps
Step 1: Calculate the total amount payable to debentureholders on redemption. Number of Debentures = 88,00,000 (Note: The text lists '88,00,000' as the number of debentures, distinct from Q5 which lists 'Rs. 88,00,000'). Face Value per Debenture = Rs. 50. Total Redemption Amount = 88,00,000 × Rs. 50 = Rs. 44,00,00,000.
Step 2: Determine the terms of share issue for conversion. Share Face Value = Rs. 20. Premium per Share = Rs. 2. Issue Price per Share = Rs. 20 + Rs. 2 = Rs. 22.
Step 3: Calculate the number of shares to be issued. Number of Shares = Total Redemption Amount / Issue Price per Share. Number of Shares = Rs. 44,00,00,000 / Rs. 22 = 2,00,00,000 Shares.
Step 4: Calculate the amounts for Share Capital and Securities Premium. Share Capital Amount = 2,00,00,000 shares × Rs. 20 = Rs. 4,00,00,000. Securities Premium Amount = 2,00,00,000 shares × Rs. 2 = Rs. 40,00,000.