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On 1st April, 2012, Neptune Finance Company (a listed NBFC) issued 4,000, 9 % Debentures of ₹ 100 each to be redeemed at a premium of 5% on 31st March, 2021. - Accounts

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Journal Entry

On 1st April, 2012, Neptune Finance Company (a listed NBFC) issued 4,000, 9 % Debentures of ₹ 100 each to be redeemed at a premium of 5% on 31st March, 2021.

You are required to pass necessary journal entries for the issue and redemption of debentures.

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Solution

In the Books of Neptune Finance Company
Journal Entries
Date Particulars L.F. Debit (₹) Credit (₹)
2012
April 1
Bank A/c         Dr.
    To Debenture Application and Allotment A/c
  4,00,000 4,00,000
April 1 Debenture Application and Allotment A/c     Dr.
Loss on Issue of Debentures A/c       Dr.
    To 9% Debentures A/c
    To Premium on Redemption of Debenture A/c
(Being 4,000 9% Debentures issued at par and redeemable @ 5% premium)
 

4,00,000
20,000

4,00,000
20,000
2020
April 1
Debenture Redemption Investment A/c      Dr.
     To Bank A/c
(Being amount invested)
  60,000 60,000
2021
March 31
Bank A/c       Dr.
     To Debenture Redemption Investment A/c
(Being DRI realised)
  60,000 60,000
March 31 9% Debentures A/c       Dr.
Premium on Redemption of Debentures A/c     Dr.
    To Debentureholders A/c
(Being amount due)
  4,00,000
20,000
4,20,000
March 31 Debentureholders A/c     Dr.
    To Bank A/c
(Being amount paid)
  4,20,000 4,20,000

Note: A listed NBFC is not required to create DRR but has to invest 15% of the value in DRI (Debenture Redemption Investment).

Working Notes:

  1. Premium on Redemption of Debentures = 5 % × ₹ 4,00,000 = ₹ 20,000
  2. Amount invested in Debenture Redemption Investment = 15% × ₹ 4,00,000 = ₹ 60,000
Concept: Issue of Debentures at Par at Premium and at Discount
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