The ‘Debenture Redemption Fund’ of a company stood at Rs. 16,000 represented by Rs. 20,000 (nominal) investment. The company in order to redeem debentures of Rs. 10,000 at 1% premium sold Rs. 12000 (nominal) investments of Rs. 100 each at Rs. 84 each for the purpose of redeeming Rs. 10,000 debentures at a premium of 1%. After the redemption of debentures, the balance in the Debenture Redemption Fund a/c will be:

The correct answer is: A. Rs. 5,690.

Explanation:

The face value of the investments sold is Rs. 12,000. The investments were sold at Rs. 84 each, so the total sale proceeds is Rs. 10,080.

The company needs to redeem debentures of Rs. 10,000 at a premium of 1%. The amount payable to the debenture holders is therefore Rs. 10,000 + 1% of Rs. 10,000 = Rs. 10,100.

The balance in the Debenture Redemption Fund after the redemption of debentures is therefore Rs. 16,000 – Rs. 10,080 – Rs. 10,100 = Rs. 5,690.

Here is a step-by-step solution:

1. Calculate the face value of the investments sold:

Face value of investments sold = Rs. 12,000

1. Calculate the total sale proceeds:

Total sale proceeds = Rs. 12,000 x 84/100 = Rs. 10,080

1. Calculate the amount payable to the debenture holders:

Amount payable to debenture holders = Rs. 10,000 + 1% of Rs. 10,000 = Rs. 10,100

1. Calculate the balance in the Debenture Redemption Fund after the redemption of debentures:

Balance in Debenture Redemption Fund = Rs. 16,000 – Rs. 10,080 – Rs. 10,100 = Rs. 5,690