{"id":2466,"date":"2019-09-25T10:34:28","date_gmt":"2019-09-25T10:34:28","guid":{"rendered":"https:\/\/commerceiets.com\/?p=2466"},"modified":"2019-09-25T10:34:28","modified_gmt":"2019-09-25T10:34:28","slug":"sources-of-redemption-of-debentures","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/","title":{"rendered":"SOURCES OF REDEMPTION OF DEBENTURES"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/#SOURCES_OF_REDEMPTION_OF_DEBENTURES\" title=\"SOURCES OF REDEMPTION OF DEBENTURES\">SOURCES OF REDEMPTION OF DEBENTURES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/#REDEMPTION_OUT_OF_FRESH_ISSUE_OF_SHARES_AND_DEBENTURES\" title=\"REDEMPTION OUT OF FRESH ISSUE OF SHARES AND DEBENTURES\">REDEMPTION OUT OF FRESH ISSUE OF SHARES AND DEBENTURES<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/#JOURNAL_ENTRIES\" title=\"JOURNAL ENTRIES\">JOURNAL ENTRIES<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/#REDEMPTION_OUT_OF_THE_PROFITS\" title=\"REDEMPTION OUT OF THE PROFITS\">REDEMPTION OUT OF THE PROFITS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/#REDEMPTION_OUT_OF_THE_CAPITAL\" title=\"REDEMPTION OUT OF THE CAPITAL\">REDEMPTION OUT OF THE CAPITAL<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/#REDEMPTION_BY_CONVERSION\" title=\"REDEMPTION BY CONVERSION\">REDEMPTION BY CONVERSION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/#REDEMPTION_OUT_OF_PROVISION\" title=\"REDEMPTION OUT OF PROVISION\">REDEMPTION OUT OF PROVISION<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/#SINKING_FUND_METHOD\" title=\"SINKING FUND METHOD\">SINKING FUND METHOD<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/#INSURANCE_POLICY_METHOD\" title=\"INSURANCE POLICY METHOD\">INSURANCE POLICY METHOD<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"SOURCES_OF_REDEMPTION_OF_DEBENTURES\"><\/span>SOURCES OF REDEMPTION OF DEBENTURES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">Redemption of debentures means the amount of repayment to the debenture holders of the debt due to them. The debentures are usually repaid after the expiry of certain time period. When debentures are redeemed, liability on account of debentures is discharged. Amount of funds required for redemption of debentures is quite large and therefore prudent companies make sufficient provisions out of profits and accumulate funds to redeem debentures.The amount involved in the redemption of debentures is very large. Thus the company has to arrange for the funds from various sources. The Sources of Redemption of Debentures are as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide2-3.jpg\" alt=\"SOURCES OF REDEMPTION OF DEBENTURES\" class=\"wp-image-2475\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide2-3.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide2-3-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide2-3-768x576.jpg 768w\" sizes=\"(max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"REDEMPTION_OUT_OF_FRESH_ISSUE_OF_SHARES_AND_DEBENTURES\"><\/span>REDEMPTION OUT OF FRESH ISSUE OF SHARES AND DEBENTURES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">Under this method, the company arranges the funds from the\nissue of the new Equity shares or preference shares or new debentures. The\nmoney collected is used for the repayment of the amount due on the old\ndebentures. In this method:<\/p>\n\n\n\n<ul><li>Creation of DRR is not required.<\/li><li>Investment of the amount of DRR in the specified\nsecurities is not required.<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"JOURNAL_ENTRIES\"><\/span>JOURNAL ENTRIES<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\"><strong>RECEIPT OF APPLICATION MONEY ON SHARES AND DEBENTURES<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td><strong>   ON ISSUE OF SHARES   <\/strong><\/td><\/tr><tr><td>   Bank Account Dr.<br \/>   &nbsp;To share application a\/c   <\/td><\/tr><tr><td><strong>   ON ISSUE OF DEBENTURES   <\/strong><\/td><\/tr><tr><td>   Bank Account Dr.<br \/>   &nbsp;To debentures application a\/c   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>TRANSFER&nbsp; OF SHARE APPLICATION ACCOUNT<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td><strong>   SHARE APPLICATION MONEY   <\/strong><\/td><\/tr><tr><td><strong>   In case of shares issued at par   <br \/><\/strong>Share Application A\/c&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp; To share capital a\/c   <\/td><\/tr><tr><td><strong>   In case of shares issued at premium<br \/><\/strong>   Share Application A\/c&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp; To share capital a\/c<br \/>   &nbsp;&nbsp; To securities premium a\/c   <\/td><\/tr><tr><td><strong>   DEBENTURE APPLICATION MONEY   <\/strong><\/td><\/tr><tr><td><strong>   In case debentures are issued at par<br \/><\/strong>   Debenture Application A\/c&nbsp;&nbsp;&nbsp;   Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To debenture a\/c   <\/td><\/tr><tr><td><strong>   In case debentures are issued at premium<br \/><\/strong>   Debenture Application A\/c&nbsp;&nbsp;&nbsp;   Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To Debenture A\/c<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To Securities Premium A\/c   <\/td><\/tr><tr><td><strong>   In case debentures are issued at discount<br \/><\/strong>   Debenture Application A\/c&nbsp;&nbsp;&nbsp;   Dr.<br \/>   Discount on issue of debentures A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To debenture A\/c   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>AMOUNT DUE ON REDEMPTION OF DEBENTURES<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td><strong>   In case debentures are redeemed at par<br \/><\/strong>   Debenture A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Debentureholders A\/c   <\/td><\/tr><tr><td><strong>   In case debentures are issued at premium<br \/><\/strong>   Debentures A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   Premium on redemption of debentures A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To debentureholders A\/c   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>PAYMENT TO DEBENTUREHOLDERS<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>   Debentureholders A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Bank A\/c   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"REDEMPTION_OUT_OF_THE_PROFITS\"><\/span>REDEMPTION OUT OF THE PROFITS<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">The company can also redeem the debentures out of the\nprofits of the company. Profits mean the balance or Surplus as per the Income\nstatement of the company. In this method:<\/p>\n\n\n\n<ul><li>100 % of the amount to be repaid on debentures\nmust be transferred to the DRR.<\/li><li>The 15 % of amount reserved must be invested in\nthe specified securities before 30<sup>th<\/sup> April of the year.<\/li><li>The amount invested must be used only for the\npurpose of redemption of debentures.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">If&nbsp; the debentures are\nredeemed by this method, then there is no adverse effect on the existing liquid\nresources of the company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"REDEMPTION_OUT_OF_THE_CAPITAL\"><\/span>REDEMPTION OUT OF THE CAPITAL<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">A company can redeem the debentures out of the capital. In\nthe following of this method the following provisions apply to the company:<\/p>\n\n\n\n<ul><li>100 % of the amount to be repaid on debentures\nmust be transferred to the DRR.<\/li><li>The 15 % of amount reserved must be invested in\nthe specified securities before 30<sup>th<\/sup> April of the year.<\/li><li>The amount invested must be used only for the\npurpose of redemption of debentures.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">The above make the redemption of debentures not out of the\ncapital purely, as the Debenture Redemption reserve is created out of the\nsurplus of income statement.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>JOURNAL ENTRIES<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td><strong>   WHEN DRR IS CREATED   <\/strong><\/td><\/tr><tr><td>   Surplus in statement of profit and loss A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Debenture Redemption Reserve Account   <\/td><\/tr><tr><td><strong>   WHEN INVESTMENT OR DEPOSIT IS MADE IN SPECIFIED SECURITIES   <\/strong><\/td><\/tr><tr><td>   DRR A\/c Dr.<br \/>   &nbsp;&nbsp;&nbsp; To Bank A\/c   <\/td><\/tr><tr><td><strong>   WHEN INTEREST RECEIVED IN DEBENTURE REDEMPTION INVESTMENT   <\/strong><\/td><\/tr><tr><td>   Bank A\/c Dr.<br \/>   TDS Collected A\/c&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To Interest on Debenture   Redemption Investment A\/c   <\/td><\/tr><tr><td><strong>   SALE OF INVESTMENT FOR REDEMPTION   <\/strong><\/td><\/tr><tr><td>   Bank A\/c&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Debenture Redemption   Investment Account   <\/td><\/tr><tr><td><strong>   AMOUNT DUE TO DEBENTUREHOLDERS ON REDEMPTION   <\/strong><\/td><\/tr><tr><td>   Debentures A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   Premium on Redemption of Debentures A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Debentureholders A\/c   <\/td><\/tr><tr><td><strong>   PAYMENT MADE TO DEBENTUREHOLDERS   <\/strong><\/td><\/tr><tr><td>   Debentureholders A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To Bank Account   <\/td><\/tr><tr><td><strong>   TRANSFER OF DRR ON REDEMPTION OF ALL DEBENTURES   <\/strong><\/td><\/tr><tr><td>   DRR A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To General Reserve A\/c    <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"REDEMPTION_BY_CONVERSION\"><\/span>REDEMPTION BY CONVERSION<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">The debentures may also be redeemed by the conversion into\nthe shares and debentures. The option to convert the debentures into the equity\nor preference shares would only be exercised by the debenture holders only if the\noffer is beneficial to them.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>JOURNAL ENTRIES<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td>   Debentures A\/c (old)&nbsp;&nbsp;&nbsp;   Dr.&nbsp;&nbsp;&nbsp;&nbsp; (with face value)<br \/>   Discount on issue of debentures A\/c&nbsp;&nbsp;&nbsp;   Dr.&nbsp;&nbsp;&nbsp;&nbsp; (when debentures are   issued at discount)<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To share capital A\/c   (new)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (with nominal value)<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To debentures   account&nbsp;&nbsp; (with nominal value)<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Securities Premium   A\/c&nbsp;&nbsp;&nbsp;&nbsp; (if new shares or debentures   are issued at premium)   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h3 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"REDEMPTION_OUT_OF_PROVISION\"><\/span>REDEMPTION OUT OF PROVISION<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">It may happen that the company makes the provision of\nredemption of debentures out of the funds provided for in the advance. Under\nthis method, the provision can be made in two ways:<\/p>\n\n\n\n<ul><li>Sinking Fund Method<\/li><li>Insurance Policy Method<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"SINKING_FUND_METHOD\"><\/span>SINKING FUND METHOD<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-background has-medium-font-size has-pale-cyan-blue-background-color\"><strong>ACCORDING TO BG VICKERY<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">\u201cSinking fund may be defined as the fund created by a charge\nagainst or an appropriation of profits represented by specific investments,\nwhich is brought into existence for a specific purpose.\u201d<\/p>\n\n\n\n<p class=\"has-medium-font-size\">Under this method, sinking fund or debenture redemption fund\nof an equal amount is created out of the profits every year. The amount to be\ncreated to sinking fund is calculated with the help of sinking fund table. This\nfund is invested outside the business in securities every year. The amount\ninvested in securities is debited to \u2018Sinking Fund Investment\u2019 or \u2018Debenture\nRedemption Fund Investment Account\u2019.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">The amount invested in securities is allowed to accumulate\nwith compound interest. The face value and market price of securities may\ndiffer. But the interest is always calculated on the face value of\nsecurities.&nbsp; <\/p>\n\n\n\n<p class=\"has-medium-font-size\">&nbsp;Sinking fund is of\ntwo types:<\/p>\n\n\n\n<ul><li>Cumulative Sinking fund<\/li><li>Non- Cumulative Sinking Fund<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\"><strong>JOURNAL ENTRIES<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>AT THE END OF THE FIRST YEAR<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td><strong>   ON TRANSFER OF PROFIT TO SINKING FUND   <\/strong><\/td><\/tr><tr><td>   Surplus in Statement of Profit and Loss A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Sinking Fund Account   <\/td><\/tr><tr><td><strong>   ON INVESTMENT IN SINKING FUND   <\/strong><\/td><\/tr><tr><td>   Sinking Find Investment A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;   Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Bank A\/c   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>&nbsp;AT THE END OF SUBSEQUENT YEARS<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td><strong>   ON RECEIPT OF INTEREST ON SINKING FUND INVESTMENT   <\/strong><\/td><\/tr><tr><td>   Bank A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>    &nbsp;&nbsp;&nbsp;&nbsp; To Sinking Fund Investment   A\/c   <\/td><\/tr><tr><td><strong>   ON TRANSFER OF INTEREST TO SINKING FUND   <\/strong><\/td><\/tr><tr><td>   Surplus in statement of profit and loss A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Sinking Fund   Account   <\/td><\/tr><tr><td><strong>   ON INVESTMENT OF ANNUAL APPROPRIATION OF PROFIT AND INTEREST RECEIVED   ON INVESTMENT   <\/strong><\/td><\/tr><tr><td>   Sinking Fund Investment A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;   Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Bank A\/c   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\"><strong>AT THE END OF THE LAST YEAR<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td><strong>   ON RECEIPT OF INTEREST ON SINKING FUND INVESTMENT   <\/strong><\/td><\/tr><tr><td>   Bank A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>    &nbsp;&nbsp;&nbsp;&nbsp; To Sinking Fund Investment   A\/c   <\/td><\/tr><tr><td><strong>   ON TRANSFER OF INTEREST TO SINKING FUND   <\/strong><\/td><\/tr><tr><td>   Surplus in statement of profit and loss A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Sinking Fund   Account   <\/td><\/tr><tr><td><strong>   ON INVESTMENT OF ANNUAL APPROPRIATION OF PROFIT AND INTEREST RECEIVED   ON INVESTMENT   <\/strong><\/td><\/tr><tr><td>   Sinking Fund Investment A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;   Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Bank A\/c   <\/td><\/tr><tr><td><strong>   ON SALE OF INVESTMENT   <\/strong><\/td><\/tr><tr><td>   Bank A\/c&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Sinking Fund   Investment A\/c<br \/><strong>If sold on Profit<br \/><\/strong>   Sinking Fund Investment A\/c&nbsp;&nbsp;&nbsp;&nbsp;   Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Sinking Fund Account   <br \/><strong>If sold on loss   <br \/><\/strong>Sinking Fund Account&nbsp;&nbsp;&nbsp; Dr.<br \/>    &nbsp;&nbsp;&nbsp; To Sinking Fund Investment   A\/c   <\/td><\/tr><tr><td><strong>   ON REDEMPTION OF DEBENTURES   <\/strong><\/td><\/tr><tr><td>   Debentures A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   Premium on Redemption of Debentures A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Debentureholders A\/c   <\/td><\/tr><tr><td><strong>   TRANSFER OF PREMIUM ON REDEMPTION   <\/strong><\/td><\/tr><tr><td>   Sinking Fund A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp; &nbsp;&nbsp;&nbsp;To Premium on Redemption of Debentures   Account   <\/td><\/tr><tr><td><strong>   ON TRANSFER OF THE BALANCE OF THE SINKING FUND ACCOUNT   <\/strong><\/td><\/tr><tr><td>   Sinking Fund Account&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To General Reserve   Account&nbsp;&nbsp;&nbsp;&nbsp; (with revenue profits)<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Capital Reserve   A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ( with capital   profits)   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h4 class=\"wp-block-heading\" style=\"text-align:center\"><span class=\"ez-toc-section\" id=\"INSURANCE_POLICY_METHOD\"><\/span>INSURANCE POLICY METHOD<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\">Under this method, an insurance policy for an amount\nnecessary to pay off the debentures after the fixed period is taken out. The\ncompany pays the premium annually or half yearly to the insurance company.\nAfter the expiry of certain specified period, the policy matures and insurance\ncompany repays the insured amount to the company. The debentures are thus,\nredeemed from the proceeds received from insurance company. The journal entries\nare as follows:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>AT THE END OF THE FIRST YEAR<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td><strong>   ON PAYMENT OF INSURANCE PREMIUM IN THE BEGINNING OR DURING THE YEAR   <\/strong><\/td><\/tr><tr><td>   Debenture Redemption Policy Fund A\/c &nbsp;&nbsp;&nbsp;Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Bank A\/c   <\/td><\/tr><tr><td><strong>   FOR ANNUAL APPROPRIATION OF PROFIT AT THE END OF THE YEAR   <\/strong><\/td><\/tr><tr><td>   Surplus in statement of profit and loss A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To debenture   redemption fund account   <\/td><\/tr><tr><td><strong>   RECORDING OF INCREASE IN THE VALUE OF THE POLICY   <\/strong><\/td><\/tr><tr><td>   Debenture Redemption Fund Policy Account&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Debenture Redemption   Fund Account   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p><strong>&nbsp; AT THE END OF LAST YEAR<\/strong><\/p>\n\n\n\n<table class=\"wp-block-table\"><tbody><tr><td><strong>   ON PAYMENT OF INSURANCE PREMIUM IN THE BEGINNING OR DURING THE YEAR   <\/strong><\/td><\/tr><tr><td>   Debenture Redemption Policy Fund A\/c&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Bank A\/c   <\/td><\/tr><tr><td><strong>   FOR ANNUAL APPROPRIATION OF PROFIT AT THE END OF THE YEAR   <\/strong><\/td><\/tr><tr><td>   Surplus in statement of profit and loss A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To debenture   redemption fund account   <\/td><\/tr><tr><td><strong>   RECORDING OF INCREASE IN THE VALUE OF THE POLICY   <\/strong><\/td><\/tr><tr><td>   Debenture Redemption Fund Policy Account&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Debenture Redemption   Fund Account   <\/td><\/tr><tr><td><strong>   ON REALISATION OF POLICY   <\/strong><\/td><\/tr><tr><td>   Bank A\/c Dr.<br \/>   &nbsp;&nbsp;&nbsp; To Debenture Redemption   Fund Policy A\/c   <\/td><\/tr><tr><td><strong>   ON REDEMPTION OF DEBENTURES   <\/strong><\/td><\/tr><tr><td>   Debentures A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; To Bank Account   <\/td><\/tr><tr><td><strong>   ON TRANSFER OF BALANCE OF DEBENTURE REDEMPTION FUND ACCOUNT   <\/strong><\/td><\/tr><tr><td>   Debenture Redemption Fund Account Dr.<br \/>   &nbsp;&nbsp;&nbsp;&nbsp; To General Reserve Account   <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p class=\"has-medium-font-size\">There is another method also to treat the interest accrued\non the policy. As per this, the interest is not accrued o the yearly basis, but\nis transferred to Debenture Redemption Fund Account at the end of the last\nyear.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>SOURCES OF REDEMPTION OF DEBENTURES Redemption of debentures means the amount of repayment to the debenture holders of the debt due to them. The debentures are usually repaid after the expiry of certain time period. When debentures are redeemed, liability on account of debentures is discharged. Amount of funds required for redemption of debentures is&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/sources-of-redemption-of-debentures\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;SOURCES OF REDEMPTION OF DEBENTURES&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":2474,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102],"tags":[164],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2466"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=2466"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2466\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/2474"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=2466"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=2466"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=2466"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}