Question

Anirudh Ltd. has 4,000, 8% debentures of Rs. 100 each due for redemption on March 31, 2017. The company has a debenture redemption reserve of Rs. 50,000 on that date. Assuming that no interest is due, record the necessary journal entries at the time of redemption of debentures.

Answer 1

Journal of Anirudh Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2017
Mar 31	Surplus in Statement of Profit & Loss A/c   ..Dr.		50,000	-
	To Debenture Redemption Reserve (DRR) A/c		-	50,000
	(Being additional profit transferred to DRR to meet the 25% statutory limit)
Mar 31	8% Debentures A/c   ...Dr.		4,00,000	-
	To Debentureholders A/c		-	4,00,000
	(Being the amount due to debentureholders on redemption at par)
Mar 31	Debentureholders A/c   ...Dr.		4,00,000	-
	To Bank A/c		-	4,00,000
	(Being the final payment made to the debentureholders)
Mar 31	Debenture Redemption Reserve A/c   ...Dr.		1,00,000	-
	To General Reserve A/c		-	1,00,000
	(Being the total accumulated DRR balance transferred to General Reserve after complete redemption)

Working Notes:

Total Nominal Value to be Redeemed = 4,000 × 100

= 4,00,000

Required Debenture Redemption Reserve (DRR):

Total Required DRR = `4,00,000 xx 25/100`

= 1,00,000

Additional DRR Transfer Needed = 1,00,000 − 50,000

= 50,000