Question

On 1^st 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 31^st March, 2021.

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

Answer 1

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