Question

On 1-1-2018 an (unlisted Company) issued 15,000, 10% Debentures of ₹ 100 each at par which were repayable at a Premium of 15% on 31-3-2023. On the date of maturity, the company decided to redeem the above mentioned 10% Debentures as per the terms of issue, out of profits. Required investment is made on 30th April, 2022 in fixed deposit bearing interest @ 8% p.a. Bank deducted TDS @ 10% on its maturity i.e. 31st March 2023.

Pass the necessary journal entries in the books of the Company for the redemption of Debentures.

Answer 1

Journal entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2022
Apr 30	Debenture Redemption Investment A/c   ...Dr.		2,25,000	-
	To Bank A/c		-	2,25,000
	(Being investment made in fixed deposit as per Companies Act)
2023
Mar 31	Profit and Loss A/c   ...Dr.		15,00,000	-
	To Debenture Redemption Reserve A/c		-	15,00,000
	(Being DRR created as 100% redemption is out of profits)
Mar 31	Bank A/c   ...Dr.		14,850	-
	TDS Receivable A/c     ...Dr.		1,650	-
	To Interest on Investment A/c		-	16,500
	(Being interest on DRI @8% p.a. and TDS @10% deducted)
Mar 31	Interest on Investment A/c A/c   ...Dr.		16,500	-
	To Profit and Loss A/c		-	16,500
	(Being DRI realized on maturity)
Mar 31	10% Debentures A/c   ...Dr.		15,00,000	-
	Premium on Redemption of Debentures A/c   ...Dr.		2,25,000	-
	To Debentureholders A/c		-	17,25,000
	(Being debentures due for redemption at 15% premium)
Mar 31	Debentureholders A/c   ...Dr.		17,25,000	-
	To Bank A/c		-	17,25,000
	(Being payment made to debentureholders)

Working Notes:

1. Total face value = 15,000 × ₹ 100 = ₹ 15,00,000

2. Redemption premium = 15% of ₹ 15,00,000 = ₹ 2,25,000

3. Total redemption amount = ₹ 17,25,000

4. DRR required (100% since redemption is out of profits) = ₹ 15,00,000

5. DRI required (15%) = ₹ 2,25,000

6. Interest on DRI @8% for 11 months (Apr 30–Mar 31) = `₹ 2,25,000 × 8% × 11/12` = ₹ 16,500

7. TDS @ 10% on interest = ₹ 1,650

8. Net interest received = ₹ 14,850