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.
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) |
|
