Q Ltd. issued 60,000 12% debentures of Rs. 100 each at a discount of 10%. The debentureholders have an option to convert their holdings into equity shares of Rs. 10 each at a premium of 20% at any time. J holds 1,000 debentures. Show journal entries for these cases: (i) When J exercises his option to convert debentures before the due date of redemption. (ii) When J exercises his option to convert debentures on the due date of redemption. (iii) When J does not exercise the option.

Dear Student,
Journal
Date Particulars L.F. Debit
Amount
(Rs)
Credit
Amount
(Rs)
1. If Debenture holder decides to convert Debentures into Equity before it becomes due:        
  12% Debentures A/c Dr.   1,00,000  
      To Loss on Issue of Debentures A/c       10,000
       To Debentures’ holders A/c       90,000
  (Debentures due for conversion)        
           
  Debentures’ holders A/c Dr.   90,000  
     To Equity Share Capital A/c       75,000
     To Security Premium Reserve A/c        
  (Conversion of Debentures into Equity shares)       15,000
           
2. If Debenture holder decides to convert Debentures into Equity At the time, it becomes due:        
           
  12% Debentures A/c Dr.   1,00,000  
       To Debentures’ holders A/c       1,00,000
  (Debentures due for conversion)        
           
  Debentures’ holders A/c Dr.   1,00,000  
     To Equity Share Capital A/c       83,333
     To Security Premium Reserve A/c       16,667
  (Conversion of Debentures into Equity shares)        
           
         
 
(3) If he decided not to exercise this option then he has to wait for other alternatives offered by company.
Note: 
1. No. of Debentures to be Issued=90,00012=7,5002. No. of Debentures to be Issued=1,00,00012=8,333
Regards

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