A sinking fund to be created by yearly appropriations of profit and similar amount to be invested outside.
The company will have the right to purchase for cancellation of debentures from the market if available below par value.
The debentures are to be redeemed on 31 December 2010 at a premium of 2%. The following balances appeared in the books of the company as on 1 January 2010:
Sinking Fund Investments
The following transactions took place during the subsequent 12 months:
On 1 July 2010 Rs.1,20,000 debentures were purchased for Rs.1,06,656 and cancelled immediately, the amount being provided out of sale proceeds of investments of the book value of Rs.1,39,200 at Rs.1,35,600.
The income from sinking fund investments Rs.88,800 received on 1 July 2010 was not invested.
On 29 December 2010, Rs.16,92,000 were received on sale of the remaining sinking fund investments.
On 31 December 2010, the remaining debentures were redeemed.
You are required to show for the year ended 31 December 2010: (i) debentures A/c; (ii) sinking fund account; (iii) sinking fund investments account and (iv) debenture redemption A/c [Model: Cum-interest and ex-interest].
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