Question

Honesty Ltd., an unlisted manufacturing company, had 30,000, 6% Debentures of ₹ l00 each due for redemption at par on 31st March, 2023. On this date the company had the required amount of ₹ 3,00,000 in its Debenture Redemption Reserve.

The Debenture Redemption Investment, which was purchased on 30th April, 2022, was realized at 101% on the date of redemption of the debentures and the debentures were redeemed.

You are required to pass journal entries in the books of the company for the year 2022-23. (Ignore interest on debentures)

Answer 1

Journal entries in Books of Honesty Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2022
30 April	Debenture Redemption Investment A/c   ...Dr.		4,50,000	-
	To Bank A/c		-	4,50,000
	(Being investment made as required under Companies Act)
2023
31 March	Bank A/c   ...Dr.		4,54,500	-
	To Debenture Redemption Investment A/c		-	4,50,000
	To Capital Reserve A/c		-	4,500
	(Being DRI realised at 101%; profit transferred to Capital Reserve)
31 March	6% Debentures A/c   ...Dr.		30,00,000	-
	To Debentureholders A/c		-	30,00,000
	(Being amount due on redemption of 30,000 debentures at par)
31 March	Debentureholders A/c   ...Dr.		30,00,000	-
	To Bank A/c		-	30,00,000
	(Being payment made to debentureholders)
31 March	Debenture Redemption Reserve A/c   ...Dr.		3,00,000	-
	To General Reserve A/c		-	3,00,000
	(Being DRR transferred after redemption of debentures)

Working Note:

1) Total Debentures: 30,000 × ₹ 100 = ₹ 30,00,000

2) DRI Required (15%): 15% of ₹ 30,00,000 = ₹ 4,50,000 → Invested on 30/04/2022

3) DRI Realisation: ₹ 4,50,000 × 101% = ₹ 4,54,500 → Profit = ₹ 4,500