Question: 3

Following balances have been extracted from balance sheet of Dhruva

Ltd. As on March 31, 2017.
8,00,000 Equity shares of Rs. 10 each fully paid 80,00,000
Security Premium 5,00,000
General reserve 17,00,000
Dividend Equalization fund 3,00,000
Profit & loss Account 4,00,000
Current liabilities 3,00,000
The board of directors has taken following decisions:
a) To buyback 2,00,000 equity shares at Rs. 15 per share.
b) To issue 10,000 15% debentures of Rs. 100 each at Rs. 120 per
debenture.
Pass necessary journal entries to give effect to the above decision.
There should be minimum reduction in General Reserve. Show all the
balances after buyback of shares.
Answers:
Journal entries in the books of Dhruva Ltd.
Date Particulars L. Debit Credit
F. (Rs.) (Rs.)
1. Eq. share capital A/c dr. 20,00,000
Premium on buyback of eq. share A/c dr. 10,00,000
To Eq.sh. holders A/c 30,00,000
2. Bank A/c dr. 12,00,000
To 15% debenture A/c [ 10,000x100] 10,00,000
To sec. premium A/c [ 10,000 x 20] 2,00,000
3. Sec. premium A/c [5,00,000+2,00,000] dr. 7,00,000
Profit And loss A/c dr. 3,00,000
To premium on buy-back of eq.sh. 10,00,000
4. Profit & loss A/c dr. 1,00,000
Dividend Equalization fund dr. 3,00,000
General reserve A/c dr. 6,00,000
To C.R.R. A/c 10,00,000
5. Eq. Sh. Holders A/c dr . 30,00,000
To bank A/c 30,00,000
Total

Balances after buyback of shares:

6,00,000 Equity shares of Rs. 10 each fully paid 60,00,000
Security Premium -
General reserve 11,00,000
Dividend Equalization fund -
Profit & loss Account -
Current liabilities 3,00,000