Question

Eagle Ltd. (an unlisted company) has 3,000; 10% Debentures of ₹ 100 each outstanding as on 31st March, 2022. These debentures are due for redemption on 31st March, 2023. The Debenture Redemption Reserve has a balance of ₹ 10,000 on 31st March, 2022.

You are required to pass journal entries to complete the redemption of Debentures.

Answer 1

In the books of Eagle Ltd.
Journal entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2022
March 31	Surplus in Statement of P & L A/c   ...Dr.		20,000	-
	To Debenture Redemption Reserve A/c		-	20,000
	(Being balance transferred to DRR to meet 10% requirement)
April 30	Debenture Redemption Investment A/c   ...Dr.		45,000	-
	To Bank A/c		-	45,000
	(Being 15% investment made as per Companies Act, 2013)
2023
March 31	10 % Debentures A/c   ...Dr.		3,00,000	-
	Debenture Redemption Reserve A/c   ...Dr.		30,000	-
	Debenture Redemption Investment A/c   ...Dr.		45,000	-
	To Bank A/c		-	3,75,000
	(Being debentures redeemed at par and utilization of DRR and DRI for payment)

Working Note:

1. Outstanding Debentures = 3,000 × ₹ 100 = ₹ 3,00,000
2. Debenture Redemption Reserve (DRR) Requirement
   For an unlisted company, DRR must be 10% of the face value:
   10% of ₹ 3,00,000 = ₹ 30,000
   Existing DRR = ₹ 10,000
   Additional transfer needed from P&L = ₹ 20,000
3. Debenture Redemption Investment (DRI) Requirement
   As per Companies Act, 15% of the face value of debentures maturing must be invested: 15% of ₹ 3,00,000 = ₹ 45,000