Question

On 31st March, 2018, W Ltd. had the following balances in its books:	₹
9% Debentures	6,00,000
Debentures Redemption Reserve	50,000
Surplus,i.e., Balance in Statement of Profit and Loss	3,00,000

On that date, the company decided to transfer ₹ 1,00,000 to Debentures Redemption Reserve. It also decided to redeem  debentures of ₹ 3,00,000 on 30th June, 2018.

Pass necessary Journal entries in the books of the company. 

Answer 1

Books of W Ltd.
Journal

 

Date.	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
31/3/18	Statement of Profit or Loss	Dr.		1,00,000
	To Debenture Redemption Reserve A/c				1,00,000
	(Surplus transferred to Debenture Redemption Reserve)
30/4/18	Debenture Redemption Investment A/c                          Dr.			45,000
	To Bank A/c				45,000
	(Investment is made in specified securities equal to 15% of the value of debentures redeemed)
30/6/18	9% Debentures A/c	Dr.		3,00,000
	To Debentureholders’ A/c				3,00,000
	(Debenture due for redemption)
30/6/18	Bank  A/c                                                              Dr.			45,000
	To Debenture Redemption Investment A/c				45,000
	(Investment made in specified securities is now encashed)
30/6/18	Debentureholders’ A/c	Dr.		3,00,000
	To Bank A/c				3,00,000
	(Amount due to debentureholders paid)
30/6/18	Debenture Redemption Reserve A/c                               Dr.			75,000
	To General Reserve A/c				75,000
	(50% DRR transferred to General Reserve)

Working Notes: 

Investment made in Specified Securities 

`= 300000 xx 15/100 = "Rs" 45000`

Note:
1. Here, the entry for transferring the amount of DRR to General Reserve A/c has been passed with 50% of DRR amount, since the company has not fully redeemed all its debentures. Therefore, 50% of DRR amount i.e. 50% of 1,50,000, transferred to General Reserve.
2. Entries for interest on debentures have been ignored in the above solution as the question was silent in this regards. However, the students' may journalise the entries related to interest on debentures as given below.

Journal

 

Date	Particular		L.F.	Debit Amount (₹)	Credit Amount (₹)
2018
Mar. 31	Debenture Interest A/c	Dr.		33,750
	To Debentureholders’ A/c				33,750
	(Interest on 9% debentures due)
Mar.31	Debentureholders’ A/c	Dr.		33,750
	To Bank A/c				33,750
	(Payment of interest to debentureholders’)
Mar. 31	Statement of Profit and Loss	Dr.		33,750
	To Debenture Interest A/c				33,750
	(Transfer of debenture interest to Statement of Profit and Loss)