Forums
Back
Redemption of debentures
Accountancy
If the debentures are purchased within the interest period, the price would be inclusive of interest provided these are purchased "Cum-interest"; but if purchased " Ex-interest", the interest to the date of purchase would be payable to the seller additionally. In order to adjust the effect thereof the amount of interest accrued till the date of purchase, if paid, is debited to the Interest Account against which the interest for the whole period will be credited. As a result, the balance in the account would be left equal to the interest for the period for which the debentures were held by the company. Please explain above with an example
Answers (1)
lets say if ex-interest value=100 (F.V=100,INT@12%) interest accrued for 2 months =2 then cum- interest value = 102 then J.E would be debenture a\c Dr. 100 interest a\c Dr. 2 to bank a\c 102 after 6 months interest received bank a\c DR. 6 To interest a\c 6 so 6-2=4 this rs.4 is the interest income for 4 months (6= interest received for 6months, 2= interest paid for 2months )
