Some years ago M plc had issued £375,000 of 10% loan notes 2006/2010 at par. The terms of the issue allow the company the right to repurchase these loan notes for cancellation at or below par, with an option to redeem, at a premium of 1%, on 30 September 2006. To exercise this option the company must give three months’ notice, which it duly did on 30 June 2006 indicating its intention to redeem all the loan notes outstanding at 30 September 2006.

M plc had established a sinking fund designed to accumulate the sum of £378,750 by 30 September 2006 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 loan notes and the sinking fund.

By 30 June 2006 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 2006, had cost £144,915 and realised £147,243. This was used to repurchase loan notes with a par value of £150,000.

Transactions occurring between 1 July and 30 September 2006 were:

You are to ignore loan note 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 2006, showing the transfer of the final balances to the appropriate accounts.

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(i) interest received on the sinking fund investments: 7 July 13 September 1,756 1,455 (ii) proceeds from the sale of investments: 2 August 25 September 73,215 (book value was 69,322) 160,238 (remaining investments) (iii) redemption of all the loan notes, 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 2006.