Question

Chandra Tubes Ltd. (an unlisted company) issued 70,000, 7% debentures of ₹ 100 each on June 30, 2019 redeemable at a premium of 6% on July 1, 2023. The Board of Directors have decided to transfer out of profits ₹ 2,50,000 to Debenture Redemption Reserve on March 31, 2021, ₹ 2,50,000 on March 31, 2022 and balance on March 31, 2023. Record necessary journal entries regarding issue and redemption of debentures. Ignore entries relating to writing off loss on issue of debentures and interest paid thereon.

Answer 1

Journal Entries of Chandra Tubes Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2019
June 30	Bank A/c   ...Dr.		70,00,000	-
	To 7% Debentures A/c		-	70,00,000
	(Being issue of 70,000 debentures at par)
2021
Mar 31	Profit and Loss A/c   ...Dr.		2,50,000	-
	To Debenture Redemption Reserve A/c		-	2,50,000
	(DRR created out of profits)
2022
Mar 31	Profit and Loss A/c   ...Dr.		2,50,000	-
	To Debenture Redemption Reserve A/c		-	2,50,000
	(DRR created out of profits)
2023
Mar 31	Profit and Loss A/c   ...Dr.		2,42,000	-
	To Debenture Redemption Reserve A/c		-	2,42,000
	(Final DRR created to meet 10% requirement)
Apr 30	Debenture Redemption Investment A/c   ...Dr.		10,50,000	-
	To Bank A/c		-	10,50,000
	(Being 15% investment made as required)
July 1	7% Debentures A/c   ...Dr.		70,00,000	-
	Premium on Redemption of Debentures A/c   ...Dr.		4,20,000	-
	To Debentureholders A/c		-	74,20,000
	(Being debentures due with premium)
July 1	Debentureholders A/c    ...Dr.		74,20,000	-
	To Bank A/c		-	74,20,000
	(Being payment made on redemption)
July 1	Debenture Redemption Reserve A/c   ...Dr.		7,00,000	-
	To General Reserve A/c		-	7,00,000
	(Being DRR transferred to General Reserve)

Working Notes:

1. Total debentures = 70,000 × ₹ 100 = ₹ 70,00,000
2. Redemption premium = 6% of ₹ 70,00,000 = ₹ 4,20,000
3. DRR required (10%) = ₹ 7,00,000 (since it's an unlisted company redeeming out of profits)
4. DRI required (15%) = ₹ 10,50,000 (invested on 30th April, 2023)
5. DRR transfer schedule:
   1. ₹ 2,50,000 on 31 March 2021
   2. ₹ 2,50,000 on 31 March 2022
   3. ₹ 2,00,000 on 31 March 2023
6. DRR transferred to General Reserve after redemption.