Question

Modi Ltd. purchased 5000 of its own debentures of Rs. 1000 each at Rs. 990 per debenture. The debentures were purchased in the open market as investment. Give Journal entries if these debentures were cancelled two months later.​

Answer 1

journal entries

Explanation:

For Journal

we have some basic rules

Decrease in Asset Credit

Increase in Liability credit

Decrease in Liability debit

Profit will be credited

Aspect 1. Own debenture is Debited Because we purchased our own debenture for investment means Asset is increase so rule is credit

Aspect 2. bank is decrease by  purchasing debenture so bank will be credited  (Rule above given)

we pass journal for forfeiture

Particulars                                      Dr.(Amount)          Cr.(Amount)

own debenture A/C  Dr.                 4950000

            To    Bank A/C                                                       4950000

(Being Debenture Purchased)

Aspect 1. Own debenture is credited Because we sale our own debenture  means asset is decrease so rule is credit

Aspect 2. % debenture is credited by decreasing liability, means Debited  (Rule above given)

Aspect 3. on cancellation of debenture some profit arrise that will be credited

% Debenture A/C    Dr.                   5000000

          To Own Debenture A/C                                        4950000

          To Profit on cancellation of debenture A/C              50000

(Being Debenture are cancelled)

Aspect 1. Profit on cancellation of debenture A/C  are closed so profit will be deficit or decrease so rule is Debit

Aspect 2. Profit on cancellation of debenture A/C  transfer to Capital Reserve so capital nature profit will increase so rule is credit

Profit on cancellation of debenture A/C      50000

             To Capital Reserve A/C                                           50000

(Profit on cancellation of debenture A/C  transfer to Capital Reserve)

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