Skip to content

CS Executive · Corporate Accounting and Financial Management · Accounting for Debentures

Zenith Textiles Ltd purchased 1,000 of its own 10% debentures of Rs 100 each from the open market at Rs 99 per debenture cum-interest, and cancelled them immediately. Accrued interest included in the price is Rs 3 per debenture. What is the profit on cancellation of these debentures?

The profit on cancellation is Rs 4,000. The cum-interest price of Rs 99 includes Rs 3 of accrued interest, so the cost of the debenture itself is Rs 96. Against the face value of Rs 100, the gain is Rs 4 on each of 1,000 debentures.

  1. ARs 4,000Correct
  2. BRs 1,000
  3. CRs 3,000
  4. DRs 7,000

Explanation

The ex-interest price is 99 - 3 = Rs 96 per debenture. The profit is (100 - 96) x 1,000 = Rs 4,000. Rs 1,000 wrongly uses the cum-interest price, Rs 3,000 is only the accrued interest, and Rs 7,000 wrongly adds interest to the gain.

Did you get it right without looking?

One question tells you little. A timed set on Accounting for Debentures shows your real accuracy, how long you take and where you lose marks.

Practise Accounting for DebenturesFree diagnostic mock

More Accounting for Debentures questions