Question

Hp Ltd. has 1,00,000;8% Debentures of ₹ 50 each due for redemption in five equal annual installments  starting from 30th June, 2015. Debentures Redemption Reserve has  a balnce of ₹ 5,00,000 on that date . Pass journal entries.  

Answer 1

Books of HP Ltd.
Journal

Date	Particulars				L.F.	Debit Amount Rs	Credit Amount Rs
2015
March 31	Statement of Profit and Loss		Dr.			7,50,000
	To Debenture Redemption Reserve						7,50,000
	(Surplus amount is transferred to Debenture Redemption Reserve)
April 30	Debenture Redemption Investment A/c*			Dr.		1,50,000
		To Bank A/c					1,50,000
	(Investment is made in specified securities @ 15% of the value of debentures redeemable in first instalment, i.e. Rs 10,00,000)
June 30	8% Debenture A/c		Dr.			10,00,000
	To Debentureholders’ A/c						10,00,000
	(20,000 8% Debenture of Rs 50 each due for redemption)
June 30	Bank A/c			Dr.		1,50,000
	To Debenture Redemption Investment A/c**						1,50,000
	(Investment made in securities, now encashed)
June 30	Debentureholders’ A/c		Dr.			10,00,000
	To Bank A/c						10,00,000
	(Payment made to debentureholders)
June 30	Debenture Redemption Reserve A/c                              Dr.					2,50,000
	To General Reserve						2,50,000
	(Debenture Redemption Reserve transferred to General Reserve)
2016
April 30	Debenture Redemption Investment A/c*			Dr.		1,50,000
	To Bank A/c						1,50,000
	(Investment is made in specified securities @ 15% of the value of debentures redeemable in second instalment, i.e. Rs 10,00,000)
June 30	8% Debentures A/c		Dr.			10,00,000
	To Debentureholders’ A/c						10,00,000
	(20,000 8% Debenture of Rs 50 each due for redemption)
June 30	Bank A/c			Dr.		1,50,000
	To Debenture Redemption Investment A/c**						1,50,000
	(Investment made in securities, now encashed)
June 30	Debentureholders’ A/c		Dr.			10,00,000
	To Bank A/c						10,00,000
	(Payment made to debenture holders)
June 30	Debenture Redemption Reserve A/c                              Dr.					2,50,000
	To General Reserve						2,50,000
	(Debenture Redemption Reserve transferred to General Reserve)
2017
April 30	Debenture Redemption Investment A/c*			Dr.		1,50,000
	To Bank A/c						1,50,000
	(Investment is made in specified securities @ 15% of the value of debentures redeemable in third instalment, i.e. Rs 10,00,000)
June 30	8% Debentures A/c		Dr.			10,00,000
	To Debentureholders’ A/c						10,00,000
	(20,000 8% Debenture of Rs 50 each due for redemption)
June 30	Bank A/c			Dr.		1,50,000
	To Debenture Redemption Investment A/c**						1,50,000
	(Investment made in securities, now encashed)
June 30	Debentureholders’ A/c					10,00,000
	To Bank A/c						10,00,000
	(Payment made to debentureholders)
June 30	Debenture Redemption Reserve A/c                              Dr.					2,50,000
	To General Reserve						2,50,000
	(Debenture Redemption Reserve transferred to General Reserve)
2018
April 30	Debenture Redemption Investment A/c*			Dr.		1,50,000
	To Bank A/c						1,50,000
	(Investment is made in specified securities @ 15% of the value of debentures redeemable in fourth instalment, i.e. Rs 10,00,000)
June 30	8% Debentures A/c		Dr.			10,00,000
	To Debentureholders’ A/c						10,00,000
	(20,000 8% Debenture of Rs 50 each due for redemption)
June 30	Bank A/c			Dr.		1,50,000
	To Debenture Redemption Investment A/c**						1,50,000
	(Investment made in securities, now encashed)
June 30	Debentureholders’ A/c		Dr.			10,00,000
	To Bank A/c						10,00,000
	(Payment made to debentureholders)
June 30	Debenture Redemption Reserve A/c                              Dr.					2,50,000
	To General Reserve						2,50,000
	(Debenture Redemption Reserve transferred to General Reserve)
2019
April 30	Debenture Redemption Investment A/c*			Dr.		1,50,000
	To Bank A/c						1,50,000
	(Investment is made in specified securities @ 15% of the value of debentures redeemable in fifth instalment, i.e. Rs 10,00,000)
June 30	8% Debentures A/c		Dr.			10,00,000
	To Debentureholders’ A/c						10,00,000
	(20,000 8% Debenture of Rs 50 each due for redemption)
June 30	Bank A/c			Dr.		1,50,000
	To Debenture Redemption Investment A/c**						1,50,000
	(Investment made in securities, now encashed)
June 30	Debentureholders’ A/c		Dr.			10,00,000
	To Bank A/c						10,00,000
	(Payment made to debentureholders)
June 30	Debenture Redemption Reserve A/c		Dr.			2,50,000
	To General Reserve A/c						2,50,000
	(Debenture Redemption Reserve transferred to General Reserve)

*As per circular no. 04/2015 issued by Ministry of Corporate Affairs (dated 11.02.2013), every company required to create/maintain DRR shall on or before the 30th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the amount of its debentures maturing during the year ending on the 31st day of March next following year. Accodingly, entry for investment in Government securities has been passed a year before first redemption year.

**Since nothing is specified, investments will be encashed before debentures are redeemed.

Note: Since the question is silent regarding the payment of interest, the following entries may be passed at the end of every year (i.e. on 31 March before the redemption of debentures). However, it is not essential to pass these entries unless explicitly stated in the question.

Debenture Interest A/c	Dr.	Interest Rate ×  Amt. of Debentures outstanding
To Debentureholders’ A/c
(Interest due)
Debentureholders’ A/c	Dr.
To Bank A/c
(Payment of interest to debentureholders’)
		With the total amount of interest paid in a year
Statement of Profit and Loss	Dr.
To Debenture Interest A/c
(Transfer of debenture interest to Statement of Profit and Loss)