how will you treat the profit on cancellation of own debentures purchased by the company in the open market ?
We would like to inform you that this topic i.e. Purchase of Own Debentures in Open Market for Immediate Cancellation is not included in the Syllabus for 2014 Board Examination (Class XII). However, for your knowledge,
When own Debentures are purchased by the company in open market, these can be purchased for two purposes-either for immediate cancellation or for investment purpose. Also, it is important to note that debentures are cancelled in both the cases and profit received on cancellation of own debentures is transferred to Capital Reserve. The Journal Entry for the treatment of profit on cancellation is as follows:
When own Debentures are purchased by the company in open market, these can be purchased for two purposes-either for immediate cancellation or for investment purpose. Also, it is important to note that debentures are cancelled in both the cases and profit received on cancellation of own debentures is transferred to Capital Reserve. The Journal Entry for the treatment of profit on cancellation is as follows:
| Journal | ||||||
| Date | Particulars | L.F. | Debit AmountRs | Credit AmountRs | ||
| Profit on cancellation of Own Debentures A/c | Dr | |||||
| To Capital Reserve | ||||||
| (Profit on cancellation of Own Debentures transferred to Capital Reserve) | ||||||
For further details, you can refer the available Study Material. To view this topic which is already covered in detail on our website follow the path given below;
Accountancy-Study-Study Material-Company Accounts and Analysis of Financial Statements-Issue and Redemption of Debentures-Redemption of Debentures by Purchase in Open Market
Accountancy-Study-Study Material-Company Accounts and Analysis of Financial Statements-Issue and Redemption of Debentures-Redemption of Debentures by Purchase in Open Market