Question

Can anyone explain me the full concept of "Purchase and Cancellation of Own Debentures" - with Journal Entries??
I'll mark the best as Brainliest answer!!!​

Answer 1

Answer:

The purchase of own debentures in the market may be for different reasons: 1. Where Debentures are Purchased for Cancellation 2. When Debentures are Purchased for Investment.

1. Where Debentures are Purchased for Cancellation:

When Company’s own debentures are purchased by the Company, “Own Debenture Account” (or Investment in Own Debenture Account) will be debited as against cash paid for it. Purchases of own debentures are to be treated in accounts in the same way as ordinary investments.

The entry will be:

Own Debentures Account ‘ Dr.

(Investment in Own Debenture A/c)

To bank Account

As and when the Company cancels the investments in Own Debenture Account, the paid up value of the debentures purchases should be debited. When the Company cancels its own debentures immediately after purchase, outstanding debentures are reduced by the amount cancelled. After the redemption, the Company need not pay any interest on such debentures. The profit or loss on redemption of debenture should be credited or debited to Profit and Loss on redemption of Debenture Account. The amount paid as interest is debited to Interest Account.

Answer 2

cash. ac. dr. 2000

To p/r. ac 1000

To purchase ac. 1000

thank you