Question

India Textiles Corporation Ltd. has outstanding ₹ 50,00,000; 9% Debentures of ₹ 100 each due for redemption on 31st July, 2019. Pass Journal entries for redemption assuming that there is a balance of ₹ 3,00,000 in Debentures Redemption Reserve  on the date of redemption.

Answer 1

Books of India Textiles Corporation Ltd.

Journal

Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019	Statement of Profit and Loss	Dr.		9,50,000
March 31	To Debenture Redemption Reserve A/c				9,50,000
	(Profit transferred to Debenture Redemption Reserve)
April 30	Debenture Redemption Investment A/c	Dr.		7,50,000
	To Bank A/c				7,50,000
	(Investment is made in specified securities equal to the 15% value of debentures redeemed)
2019
July 31	9% Debentures A/c	Dr.		50,00,000
	To Debentureholders’ A/c				50,00,000
	(Debentures due for redemption)
July 31	Bank A/c	Dr.		7,50,000
	To Debenture Redemption Investment A/c				7,50,000
	(Investment made in securities is now encashed)
July 31	Debentureholders’ A/c	Dr.		50,00,000
	To Bank A/c				50,00,000
	(Payment made to debentureholders)
July 31	Debenture Redemption Reserve A/c	Dr.		12,50,000
	To General Reserve A/c				12,50,000
	(Debenture Redemption Reserve transferred to General Reserve)

Working Notes:

WN1: Calculation of amount transferred to DRR 

Amount for DRR (25 % of Debentures Issued) `= 5000000 xx 25 / 100 ` =	Rs 1250000
Less : Amount already exist in DRR	Rs 300000
DRR to be created for redemption	Rs 950000

WN 2: Calculation of amount Invested in Specified Securities

Investment made in Specified Securities 

`= 50,00,000 xx 15/100 = Rs 7,50,000`

*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. Accordingly, entries for DRR and Investment have been passed in the previous accounting year.

Note: 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 (₹)
2019
Mar. 31	Debenture Interest A/c	Dr.		1,50,000
	To Debentureholders’ A/c				1,50,000
	(Interest on 9% debentures due)
Mar. 31	Debentureholders’ A/c	Dr.		1,50,000
	To Bank A/c				1,50,000
	(Payment of interest to debentureholders’)
Mar. 31	Statement of Profit and Loss	Dr.		1,50,000
	To Debenture Interest A/c				1,50,000
	(Transfer of debenture interest to Statement of Profit and Loss)