Question

Rich sugar Ltd. issued ₹ 20 Lakh,8% Debentures divided into debentures of ₹ 100 each on 1st April, 2013, redeemable in four equal annual installments starting from 31st March,2016. The company decided to transfer to Debentures Redemption Reserve  ₹ 2,50,000 each year on 31st March,2014 and 2015.
The company invested ₹ 3,00,000 in Government securities as required by the Companies Act, 2013.
Pass necessary journal entries for the above transactions.

Answer 1

Books of Rich Sugar Ltd.
Journal

Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
2013
April 01	Bank A/c	Dr.		20,00,000
	To 8% Debenture Application A/c				20,00,000
	(Debenture application money received)
April 01	8% Debenture Application A/c	Dr.		20,00,000
	To 8% Debentures A/c				20,00,000
	(Debenture application transferred to 8% Debentures account)
2014
March 31	Statement of Profit and Loss	Dr.		2,50,000
	To Debenture Redemption Reserve A/c				2,50,000
	(Surplus amount is transferred to Debenture Redemption Reserve)
2015
March 31	Statement of Profit and Loss	Dr.		2,50,000
	To Debenture Redemption Reserve A/c				2,50,000
	(Surplus amount is transferred to Debenture Redemption Reserve)
April 30	Debenture Redemption Investment A/c	Dr.		3,00,000
	To Bank A/c				3,00,000
	(Investment is made in securities equal to 15% of the value of debentures redeemed)
2016
March 31	8% Debentures A/c	Dr.		5,00,000
	To Debentureholders’A/c				5,00,000
	(Debentures due for redemption)
March 31	Debentureholders’ A/c	Dr.		5,00,000
	To Bank A/c				5,00,000
	(Amount of debentures paid to debentureholders)
March 31	Debenture Redemption Reserve A/c        Dr.			1,25,000
	To General Reserve				1,25,000
	(Debenture Redemption Reserve transferred to General Reserve)
2017
March 31	8% Debentures A/c	Dr.		5,00,000
	To Debentureholders’ A/c				5,00,000
	(Debentures due for redemption)
March 31	Debentureholders’ A/c	Dr.		5,00,000
	To Bank A/c				5,00,000
	(Amount of debentures paid to debentureholders)
March 31	Debenture Redemption Reserve A/c        Dr.			1,25,000
	To General Reserve				1,25,000
	(Debenture Redemption Reserve transferred to General Reserve)
2018
March 31	8% Debentures A/c	Dr.		5,00,000
	To Debentureholders’ A/c				5,00,000
	(Debentures due for redemption)
March 31	Debentureholders’ A/c	Dr.		5,00,000
	To Bank A/c				5,00,000
	(Amount of debentures paid to debentureholders)
March 31	Debenture Redemption Reserve A/c        Dr.			1,25,000
	To General Reserve				1,25,000
	(Debenture Redemption Reserve transferred to General Reserve)
2019
March 31	8% Debentures A/c	Dr.		5,00,000
	To Debentureholders’ A/c				5,00,000
	(Debenture due for redemption)
March 31	Debentureholders’ A/c	Dr.		5,00,000
	To Bank A/c				5,00,000
	(Amount of debentures paid to debentureholders)
March 31	Bank A/c	Dr.		3,00,000
	To Debenture Redemption Investment A/c				3,00,000
	(Investment made in securities, now encashed)
March 31	Debenture Redemption Reserve A/c	Dr.		1,25,000
	To General Reserve A/c				1,25,000
	(Debenture Redemption Reserve transferred to General Reserve)

*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. Accodingly, entry for investment in Government securities has been passed a year before first redemption year.

Note: Since the question is silent regarding the payment of interest, the following entries may be passed at the end of every year (i.e. on 31 March before the redemption of debentures). However, it is not essential to pass these entries unless explicitly stated in the question. 

Debenture Interest A/c	Dr.	Interest Rate × Amt. of Debentures outstanding
To Debentureholders’ A/c
(Interest due)
Debentureholders’ A/c	Dr.
To Bank A/c
(Payment of interest to debentureholders’)
		With the total amount of interest paid in a year
Statement of Profit and Loss	Dr.
To Debenture Interest A/c
(Transfer of debenture interest to Statement of Profit and Loss)