Question

Saraswati Ltd. (an unlisted company) issued 8,000, 9% debentures of ₹ 200 each at premium of 5% on June 30, 2013, redeemable on July 1, 2023. The Board of Directors decided to transfer ₹ 60,000 to Debenture Redemption Reserve on March 31, 2022 and balance on March 31, 2023. Record necessary entries for the issue as well as at the time of redemption of debentures. Ignore entries for payment of interest.

Answer 1

Journal entries of Saraswati Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2013
June 30	Bank A/c   ...Dr.		16,80,000	-
	To 9% Debentures A/c		-	16,00,000
	To Securities Premium A/c		-	80,000
	(Being 8,000 debentures of ₹200 each issued at 5% premium)
2022
March 31	Profit & Loss A/c   ...Dr.		60,000	-
	To Debenture Redemption Reserve A/c		-	60,000
	(Being partial DRR created as per board decision)
2023
March 31	Profit & Loss A/c   ...Dr.		1,00,000	-
	To Debenture Redemption Reserve A/c		-	1,00,000
	(Being balance DRR created to meet requirement)
April 30	Debenture Redemption Investment A/c   ...Dr.		2,40,000	-
	To Bank A/c		-	2,40,000
	(Being 15% investment made as per Companies Act)
July 1	Bank A/c   ...Dr.		2,40,000	-
	To Debenture Redemption Investment A/c		-	2,40,000
	(Being encashment of Debenture Redemption Investment)
July 1	9% Debentures A/c   ...Dr.		16,00,000	-
	To Debentureholders A/c		-	16,00,000
	(Being amount due on redemption of debentures)
July 1	Debentureholders A/c   ...Dr.		16,00,000	-
	To Bank A/c		-	16,00,000
	(Being payment made to debentureholders)
July 1	Debenture Redemption Reserve A/c   ...Dr.		1,60,000	-
	To General Reserve A/c		-	1,60,000
	(Being DRR transferred to General Reserve after redemption)

Working Note:

1. Debentures Issued:
   8,000 × ₹ 200 = ₹ 16,00,000
2. Premium on Issue @ 5%:
   ₹ 16,00,000 × 5% = ₹ 80,000
3. Total Amount Received:
   ₹ 16,00,000 + ₹ 80,000 = ₹ 16,80,000
4. DRR Required (for unlisted company: 10%):
   10% of ₹ 16,00,000 = ₹ 1,60,000
5. Debenture Redemption Investment (15%):
   15% of ₹ 16,00,000 = ₹ 2,40,000