Question

On April 1st, 2022 following were the balances of Blue Bird Ltd. (an unlisted company):

10% Debentures (redeemable on 31st March, 2024)	₹ 30,00,000
Debenture Redemption Reserve	₹ 1,00,000

Required investment was made, earning interest @ 8% p.a.

On 31 March, 2023 the Board of Directors transferred the required amount to DRR and debentures were redeemed.

Pass necessary Journal entries for the above transactions in the books of the company.

Answer 1

Journal entries of Blue Bird Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2022
Apr 30	Debenture Redemption Investment A/c   ...Dr.		4,50,000	-
	To Bank A/c		-	4,50,000
	(Being 15% investment made in fixed deposit)
2023
Mar 31	Bank  A/c   ...Dr.		33,000	-
	To Interest on Debenture Redemption Investment A/c		-	33,000
	(Being interest received on debenture redemption investment)
Mar 31	Profit and Loss A/c   ...Dr.		2,00,000	-
	To Debenture Redemption Reserve A/c		-	2,00,000
	(Being balance transferred to DRR to make total ₹3,00,000)
Mar 31	Bank A/c   ...Dr.		4,50,000	-
	To Debenture Redemption Investment A/c		-	4,50,000
	(Being DRI realized on maturity)
Mar 31	10% Debentures A/c   ...Dr.		30,00,000	-
	To Debentureholders A/c		-	30,00,000
	(Being amount due to debentureholders)
Mar 31	Debentureholders A/c   ...Dr.		30,00,000	-
	To Bank A/c		-	30,00,000
	(Being payment made to debentureholders)
Mar 31	Debenture Redemption Reserve A/c   ...Dr.		3,00,000	-
	To General Reserve A/c		-	3,00,000
	(Being transfer of DRR balance to General Reserve)

Working Notes:

1. Debentures = ₹ 30,00,000
2. DRR required (10% of face value) = ₹ 3,00,000
   Already in DRR = ₹ 1,00,000
   Additional to transfer in 2023 = ₹ 2,00,000
3. DRI required (15% of ₹ 30,00,000) = ₹ 4,50,000
4. Investment period: 11 months (from May 1, 2022, to March 31, 2023)
   Interest earned = `("Principal × Rate × Time")/100`
   Interest on investment = `₹ 4,50,000 × 8/100 × 11/12` = ₹ 33,000