Question

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?

Answer 1

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)