Read the following information and answer the questions:
On 1st April 2013, a company made an issue of 10,000, 9% debentures of ₹100 each at ₹92 per debenture. The terms of issue provided for redemption of 2,000 debentures every year starting from 31st March 2016, either by conversion into equity shares of ₹20 each or by drawn of lot at par at companies option. On 31st March 2016 Company's redeemed 2,000, 9% debentures by converting them into equity shares of ₹20 each.
What Journal entry will be passed when equity shares are issued in conversion of debentures?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) →
Debentureholders A/c Dr. 1,84,000
To Equity Share Capital A/c 1,84,000.
Company's redeemed 2,000, 9% debentures by converting them into equity shares of ₹20 each.
Debentures = 2,000 x 92
= 1,84,000
The debentureholder account is debited with the due amount and equity share capital account is credited with the same amount. So, the following entry is passed-
Debentureholders A/c Dr. 1,84,000
To Equity Share Capital A/c 1,84,000.