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Nirbhai Chemicals Ltd. Issued ₹ 10,00,000; 6% Debentures of ₹ 50 Each at a Premium of 8% on 30th June, 2018 Redeemable on 30th June, 2019. - Accountancy

Journal Entry

Nirbhai Chemicals Ltd. issued ₹ 10,00,000; 6% Debentures of ₹ 50 each at a premium of 8% on 30th June, 2018 redeemable on 30th June, 2019. The issue was fully subscribed. Pass Journal entries for issue and redemption of debentures. How much amount should be transferred to Debentures Redemption Reserve before redemption of debentures? Also, state how much amount should be invested in specified securities?

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Solution

Section 71 (4) of the Companies Act, 2013 requires that an amount equal to at least 25% of the value of debentures is to be transferred to the Debenture Redemption Reserve Account. So, Rs 2, 50,000 is required to be transferred to DRR (i.e. 25% of 10,00,000). Further, Rule 18 (7) requires every company that is required to create DRR to invest an amount at least equal to 15% of the value of debentures in specified securities. So, Rs 1,50,000 is to be invested in specified securities (i.e. 15% of 10,00,000).

Journal
In the Books of Nirbhai Chemicals Ltd.

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2018

 

 

 

 

 

June 30

Bank A/c

Dr.

 

10,80,000

 

 

To 6% Debentures A/c

 

 

 

10,00,000

 

To Securities Premium Reserve A/c

 

 

 

80,000

 

(Debentures issued)

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

March 31

Statement of Profit and Loss

Dr.

 

2,50,000

 

 

To Debenture Redemption Reserve A/c

 

 

 

2,50,000

 

(DRR created)

 

 

 

 

 

 

 

 

 

 

April 30

Debenture Redemption Investment A/c

Dr.

 

1,50,000

 

 

To Bank A/c

 

 

 

1,50,000

 

(Investment made in specified securities)

 

 

 

 

 

 

 

 

 

 

June 30 Bank A/c Dr.   1,50,000  
     To Debenture Redemption Investment A/c       1,50,000
  (Investments encashed)        
           

June 30

6% Debentures A/c

Dr.

 

10,00,000

 

 

To Debentureholders’ A/c

 

 

 

10,00,000

 

(Amount on 6% debentures due)

 

 

 

 

 

 

 

 

 

 

June 30

Debentureholders’ A/c

Dr.

 

10,00,000

 

 

To Bank A/c

 

 

 

10,00,000

 

(Payment made on redemption of debentures)

 

 

 

 

 

 

 

 

 

 

June 30

Debenture Redemption Reserve A/c

Dr.

 

2,50,000

 

 

To General Reserve A/c

 

 

 

2,50,000

 

(Transfer of Debenture Redemption Reserve to General Reserve)

 

 

 

 

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.

 

45,000

 

 

  To Debentureholders’ A/c

 

   

45,000

 

(Interest on 6% debentures due for 9 months)

 

     

 

 

 

     

Mar.31

Debentureholders’ A/c

Dr.

 

45,000

 

 

  To Bank A/c

 

   

45,000

 

(Payment of interest to debentureholders’)

 

     

 

 

 

     

Mar. 31

Statement of Profit and Loss

Dr.

 

45,000

 

 

  To Debenture Interest A/c

 

   

45,000

 

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

 

     
Concept: Creation of Debenture Redemption Reserve
  Is there an error in this question or solution?
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APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 2
Chapter 3 Redemption of Debentures
Exercise | Q 4 | Page 29
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