Some years ago M plc had issued £375,000 of 10 per cent debentures 20X6/20X0 at par. The terms of the issue allow the company the right to repurchase these debentures for cancellation at or below par, with an option to redeem, at a premium of 1 per cent, on 30 September 20X6. To exercise this option the company must give three months’ notice, which it duly did on 30 June 20X6 indicating its intention to redeem all the debentures outstanding at 30 September 20X6. M plc had established a sinking fund designed to accumulate the sum of £378,750 by 30 September 20X6 and had appropriated profits annually and invested these, together with the interest from such investments and the profits made on any realisations from time to time. A special No. 2 bank account was established specifically to deal with the receipts and payments relating to the debentures and the sinking fund.

By 30 June 20X6 annual contributions amounting to £334,485, together with the interest on the sinking fund investments of £39,480, had all been invested except for £2,475 which remained in the No. 2 bank account at that date.

The only investments sold, prior to 30 June 20X6, had cost £144,915 and realised £147,243. This was used to repurchase debentures with a par value of £150,000.

Transactions occurring between 1 July and 30 September 20X6 were:

(i) Interest received on the sinking fund investments:

(ii) Proceeds from the sale of investments:

(iii) Redemption of all the debentures, on 30 September, with the exception of £15,000 held by B Limited. The company had received notice of a garnishee order.

(iv) M plc deposited with the W Bank plc the sum of £15,150 on 30 September 20X6.

You are to ignore debenture interest and income tax.

You are required, from the information given above, to prepare the ledger accounts (including the No. 2 bank account) in the books of M plc for the period 30 June to 30 September 20X6, showing the transfer of the final balances to the appropriate accounts.

Note – Garnishee order

This order, issued by the court, instructs M plc not to release the money owing to B Limited until directed by the court to do so.

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7 July 13 September £1,756 £1,455