A sinking
fund may be defined as a fund created by a charge against or appropriation of
profits and represented by specific investments. The accounting entries for
creating a Sinking Fund would be as under:
I.
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First Year:
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On the date of issue of Debentures:
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1.
For issue of Debentures
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Bank A/c Dr.
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To %
Debentures A/c
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At the end of first year:
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2.
For amount of Sinking Fund Charged to Profit & Loss Appropriation A/c
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Profit & Loss Appropriation A/c Dr.
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To
Sinking Fund A/c
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3.
For Investments made for the amount of sinking fund
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Sinking Fund Investment A/c Dr. (with the amount of sinking
fund)
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To
Bank A/c
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II.
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At the end of second and subsequent years during
the life of the debentures excepting last year:
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1.
For receipt of interest on investment
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Bank A/c Dr.
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To
Interest on Sinking Fund Investment A/c
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2.
For interest on investment t/f to sinking fund
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Interest on Sinking Fund Investment A/c Dr.
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To
Sinking Fund A/c
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3.
For amount of Sinking Fund Charged to Profit & Loss Appropriation A/c
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Profit & Loss Appropriation A/c Dr.
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To
Sinking Fund A/c
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4.
For Investments made for the amount of sinking fund
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Sinking Fund Investment A/c Dr. (with the total amount of annual
sinking fund + interest)
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To Bank A/c
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III.
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Last year:
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1.
For receipt of interest on investment
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Bank A/c Dr.
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To
Interest on Sinking Fund Investment A/c
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2.
For interest on investment t/f to sinking fund
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Interest on Sinking Fund Investment A/c Dr.
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To
Sinking Fund A/c
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3.
For amount of Sinking Fund Charged to Profit & Loss Appropriation A/c
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Profit & Loss Appropriation A/c Dr.
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To
Sinking Fund A/c
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4.
For sale of investment
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Bank A/c Dr.
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To
Sinking Fund Investment A/c
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5.
For gain on sale of investment
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Sinking Fund Investment A/c Dr.
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To
Sinking Fund A/c
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Or
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For loss on sale of investment
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Sinking Fund A/c Dr.
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To
Sinking Fund Investment A/c
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6.
For amount of debentures due to Debenture holders:
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(a) when debentures are
redeemable at par:
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% Debentures A/c Dr.
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To
Debenture holders A/c
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(b) when debentures are
redeemable at premium:
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% Debentures A/c Dr.
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Premium on Redemption of Debentures A/c Dr.
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To
Debenture holders A/c
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7.
For payment to Debenture holders:
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Debenture holders A/c Dr.
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To Bank
A/c
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8.
For transfer of Sinking Fund to General reserve
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Sinking Fund A/c Dr.
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To
General Reserve A/c
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