Question

Profit on cancellation of own debentures is transferred to

Answer 1

1. Since profit on redemption of debentures is a Capital Profit, the same should be transferred to Capital Reserve Account, if there is no Sinking Fund. But, if there is Sinking Fund, the said profit should be transferred to Sinking Fund Account. On the contrary, the loss on redemption of debentures is a capital loss, and, hence, should be adjusted against either Capital Profit or Securities Premium Account.

2. An amount equal to the nominal value of the debentures cancelled should be transferred to General Reserve out of profits.

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Answer 2

"1. Since benefit on recovery of debentures is a Capital Profit, the equivalent ought to be exchanged to Capital Reserve Account, if there is no Sinking Fund. Be that as it may, if there is Sinking Fund, the said benefit ought to be exchanged to Sinking Fund Account. Despite what might be expected, the misfortune on recovery of debentures is a capital misfortune and subsequently, ought to be balanced against either Capital Profit or Securities Premium Account.  

2. A sum equivalent to the ostensible estimation of the debentures dropped ought to be exchanged to General Reserve out of benefits."