Model: Sinking fund method ABC Ltd. issued 4,000, 12% debentures of Rs.100 each at par on 1 April 2008. These debentures are redeemable at the end of 5th year at 10% premium. It was resolved that sinking fund should be formed and invested in 10% development bonds of Rs.100 each. Interest on bonds is payable on 31 March every year. Reference to Sinking Fund Table 3 shows that Rs.0.1638 invested at the end of every year at 10% compound interest will produce Rs.1 at the end of 5th year.
10% Development bonds of the required amount were purchased on different dates at the following prices:
|
On March 2009 |
Rs.80 |
|
On March 2011 |
Rs.90 |
|
On March 2010 |
Rs.100 |
You are required to show debenture redemption fund A/c and debenture redemption fund investment A/c for the first 3 years in the books of ABC Ltd. Accounting year of this company ends on 31 March.
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