CS Executive · Corporate Accounting and Financial Management · Accounting for Debentures
Arjun Ltd. holds Rs 6,00,000 of 12% debentures redeemable in equal instalments over 3 years. Rs 2,00,000 was redeemed on the first date. Own debentures of Rs 40,000 nominal were purchased earlier for Rs 38,000 and held as investment. On the second redemption date, the company redeems Rs 2,00,000 by drawing lots, including those own debentures held as investment at cost. How much cash must it pay to outsiders at par?
Rs 1,60,000. Of the Rs 2,00,000 redeemed, Rs 40,000 nominal is the company's own debentures, which are simply cancelled against the investment without payment. Only the remaining Rs 1,60,000 is paid in cash at par to outside holders.
- ARs 1,60,000Correct
- BRs 1,98,000
- CRs 2,00,000
- DRs 1,62,000
Explanation
Total redeemed on this date is Rs 2,00,000 nominal. Own debentures of Rs 40,000 nominal are part of that amount and are cancelled against investment, so no cash goes out for them. Cash to outsiders = 2,00,000 - 40,000 = Rs 1,60,000. Rs 1,62,000 wrongly adds the Rs 2,000 gain.
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