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On 1st April 2014, Kk Ltd. Invited Applications for Issuing 5,000 10% Debentures of Rs 1,000 Each at a Discount of 6%. Pass the Necessary Journal Entries for Issue and Redemption of Debentures. Ignore Entries Relating to Writing off a Loss on Issue of Debentures and Interest Paid on Debentures. - CBSE (Arts) Class 12 - Accountancy

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Question

On 1st April 2014, KK Ltd. invited applications for issuing 5,000 10% debentures of Rs 1,000 each at a discount of 6%. These debentures were repayable at the end of the 3rd year at a premium of 10%. Applications for 6,000 debentures were received and the debentures were allotted on pro-rata basis to all the applicants. Excess money received with applications was refunded.

The directors decided to transfer the minimum amount to Debenture Redemption Reserve on 31.3.2016. On 1.4.2016, the company invested the necessary amount in 9% bank fixed deposit as per the provisions of the Companies Act 2013. A tax was deducted at source by bank on interest @10% p.a.

Pass the necessary journal entries for issue and redemption of debentures. Ignore entries relating to writing off a loss on issue of debentures and interest paid on debentures.

Solution

In the books of KK Ltd.
Journal
Date Particulars L.F

Dr.

Rs

Cr.

Rs

2014

Apr 1

 

 

 

 

Bank A/c             Dr.

       To Debenture Application & Allotment A/c

(Being debenture application money received @ Rs 940 on 6,000 debentures)

 

 

56,40,000

 

 

 

 

56,40,000

 

Apr 1

 

 

 

 

 

 

Debenture Application & Allotment A/c       Dr.

Loss on Issue of Debentures A/c (3,00,000 + 5,00,000)   Dr

       To 10% Debenture A/c

        To Premium on Redemption of Debenture A/c

        To Bank A/c (1000*940)

(Being debentures allotted at a discount of 6% to be redeemable at a 10% premium. Excess refunded.)

 

56,40,000

8,00,000

 

 

 

 

 

 

 

50,00,000

5,00,000

9,40,000

 

 

2016

Mar 31

 

Balance in Statement of Profit & Loss A/c      Dr

        To Debenture Redemption Reserve A/c

(Being DRR created at 25%)

 

 

12,50,000

 

 

 

 

12,50,000

 

Apr 1

 

 

Debenture Redemption Investment A/c    Dr.

      To Bank A/c

(Being DRI in 9% Fixed deposit @ 15% of Debenture Face Value)

 

7,50,000

 

 

 

 

7,50,000

 

 

2017

Mar 31

 

 

 

10% Debenture A/c      Dr.

Premium on Redemption of Debentures A/c    Dr.

      To Debentureholders A/c

(Being debenture and premium repayment due)

 

 

50,00,000

5,00,000

 

 

 

 

 

55,00,000

 

Mar 31

 

 

 

 

 

Bank A/c       Dr.

Income Tax Paid A/c   Dr.

   To Debenture Redemption Investment A/c

   To Interest on Debenture Redemption Investment A/c

(Being DRI matured and 9% Interest received thereon. Tax Deducted at source being 10% of the interest)

 

8,10,750

6,750

 

 

 

 

 

 

7,50,000

67,500

 

 

Mar 31

Debentureholders A/c      Dr.

       To Bank A/c

(Being amount paid to Debentureholders)

 

55,00,000

 

 

55,00,000

Mar 31

 

 

Debenture Redemption Reserve A/c      Dr.

      To General Reserve A/c

(Being DRR transferred to General Reserve)

 

12,50,000

 

 

 

12,50,000

 

 

  Is there an error in this question or solution?
Solution On 1st April 2014, Kk Ltd. Invited Applications for Issuing 5,000 10% Debentures of Rs 1,000 Each at a Discount of 6%. Pass the Necessary Journal Entries for Issue and Redemption of Debentures. Ignore Entries Relating to Writing off a Loss on Issue of Debentures and Interest Paid on Debentures. Concept: Meaning and Concept of Debentures.
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