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Sinking Fund – Method of redemption of Debenture

This is very important method of redemption of debenture. Sinking fund means take one part of profit for repayment of debenture. This is calculated with sinking fund table. This is invested in such scheme which gives us Lumbsum amount so that we can easily repay the debenture without any tension. This is very popular and scientific method of redemption of debenture. In this method we open the sinking fund and sinking fund investment account. Sinking fund’s other name is also Debenture Redemption Fund Account. The following accounting treatment is done by the accountant of company when the company follow this method .

In the end of first year

1st journal entry for taking reserve from profit
Profit and loss appropriation account Debit
Sinking Fund Account Credit

2nd Journal Entry for invest the sinking fund
Sinking fund investment Account Debit
Bank Account Credit
In the end of next years but not end last year

3rd Journal Entry for receiving interest on investment
Bank Account Debit
Interest on sinking fund investment Account Credit
4th Journal Entry for transferring interest to sinking fund
Interest on Sinking fund investment account Debit
Sinking fund Account Credit

5st journal entry for taking reserve from profit
Profit and loss appropriation account Debit
Sinking Fund Account Credit

6th Journal Entry for invest the sinking fund
Sinking fund investment Account Debit
Bank Account Credit
At the end of last year

Bank Account Debit
Interest on sinking fund investment Account Credit
7th Journal Entry for transferring interest to sinking fund
Interest on Sinking fund investment account Debit
Sinking fund Account Credit

8st journal entry for taking reserve from profit
Profit and loss appropriation account Debit
Sinking Fund Account Credit
9th Journal Entry for receiving the money from sale of investment

Bank account Debit
Sinking fund investment account Credit
10th journal entry for any profit on sale
Sinking Fund investment Account Debit
Sinking fund account Credit

11th journal entry for repayment to debenture holders
Debenture Account debit
Bank account credit
12th journal entry for balance of sinking fund transferred to general reserve account

Sinking fund account debit
General reserve account credit

COMMENTS

: 5
  1. I jst want to get d glimpse of sinking fund as it was sliping from my mind..nd i did nt get my book to refer...this really helpd me

    ReplyDelete
  2. Awesome thanks bcz of u guys m serviveing my life

    ReplyDelete
  3. In which situation premium on redemption not enter in dsf acc some exemption of this transfer ?

    ReplyDelete
  4. tell me reason why we have to transfer the balance to general reserve

    ReplyDelete
  5. When we don't have any material money in sinking fund, as we have invested the same. Then when we transfer sinking fund to general reserve we don't have such bank balance. Then what is left in bank in the name of general reserve?

    ReplyDelete
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Accounting Education: Sinking Fund – Method of redemption of Debenture
Sinking Fund – Method of redemption of Debenture
Accounting Education
http://www.svtuition.org/2008/11/sinking-fund-method-of-redemption-of.html
http://www.svtuition.org/
http://www.svtuition.org/
http://www.svtuition.org/2008/11/sinking-fund-method-of-redemption-of.html
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