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India Textiles Corporation Ltd. Has Outstanding ₹ 50,00,000; 9% Debentures of ₹ 100 Each Due for Redemption on 31st July, 2019. - Accountancy

Journal Entry

India Textiles Corporation Ltd. has outstanding ₹ 50,00,000; 9% Debentures of ₹ 100 each due for redemption on 31st July, 2019. Pass Journal entries for redemption assuming that there is a balance of ₹ 3,00,000 in Debentures Redemption Reserve  on the date of redemption.

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Solution

Books of India Textiles Corporation Ltd.

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019

Statement of Profit and Loss

Dr.

 

9,50,000

 

March 31

To Debenture Redemption Reserve A/c

 

 

9,50,000

 

(Profit transferred to Debenture Redemption Reserve)

 

 

 

 

 

 

 

 

April 30 Debenture Redemption Investment A/c Dr.   7,50,000  
    To Bank A/c       7,50,000
  (Investment is made in specified securities equal to the 15% value of debentures redeemed)        
2019          

July 31

9% Debentures A/c

Dr.

 

50,00,000

 

 

To Debentureholders’ A/c

 

 

50,00,000

 

(Debentures due for redemption)

 

 

 

 

 

 

 

 

July 31 Bank A/c Dr.   7,50,000  
   To Debenture Redemption Investment A/c       7,50,000
  (Investment made in securities is now encashed)        
           

July 31

Debentureholders’ A/c

Dr.

 

50,00,000

 

 

To Bank A/c

 

 

50,00,000

 

(Payment made to debentureholders)

 

 

 

 

 

 

 

 

July 31

Debenture Redemption Reserve A/c

Dr.

 

12,50,000

 

 

To General Reserve A/c

 

 

12,50,000

 

(Debenture Redemption Reserve transferred to General Reserve) 

 

 

 

Working Notes:

WN1: Calculation of amount transferred to DRR 

Amount for DRR (25 % of Debentures Issued) `= 5000000 xx 25 / 100 ` =

Rs 1250000
Less : Amount already exist in DRR  Rs 300000
DRR to be created for redemption Rs 950000

WN 2: Calculation of amount Invested in Specified Securities

Investment made in Specified Securities 

`= 50,00,000 xx 15/100 = Rs 7,50,000`

*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. Accordingly, entries for DRR and Investment have been passed in the previous accounting year.

Note: Entries for interest on debentures have been ignored in the above solution as the question was silent in this regards. However, the students' may journalise the entries related to interest on debentures as given below.

Journal

 

Date

Particular

 

L.F.

Debit Amount
(₹)

Credit Amount
(₹)

2019

 

 

     

Mar. 31

Debenture Interest A/c

Dr.

 

1,50,000

 

 

  To Debentureholders’ A/c

 

   

1,50,000

 

(Interest on 9% debentures due)

 

     

 

 

 

     

Mar. 31

Debentureholders’ A/c

Dr.

 

1,50,000

 

 

  To Bank A/c

 

   

1,50,000

 

(Payment of interest to debentureholders’)

 

     

 

 

 

     

Mar. 31

Statement of Profit and Loss

Dr.

 

1,50,000

 

 

  To Debenture Interest A/c 

 

   

1,50,000

 

(Transfer of debenture interest to Statement of Profit and Loss)

 

     
Concept: Creation of Debenture Redemption Reserve
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APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 2
Chapter 3 Redemption of Debentures
Exercise | Q 11 | Page 30
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