Question

Ruchi Ltd. (an unlisted company) issued 42,000, 7% Debentures of ₹ 100 each on 1st April, 2019, redeemable at a premium of 8% on 31st March 2023. The Company decided to create required Debenture Redemption Reserve on 31st March 2022. The company invested the funds as required by law in a fixed deposit with State Bank of India on 1st April, 2022 earning interest @10% per annum. Tax was deducted at source by the bank on interest @10%. Pass necessary Journal Entries regarding issue and redemption of debentures.

Answer 1

In the books of Ruchi Ltd.
Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2019
April 1	Bank A/c   ...Dr.		42,00,000	-
	To 7% Debentures A/c		-	42,00,000
	(Being issue of 42,000 debentures of ₹100 each)
2022
March 31	Profit & Loss A/c   ...Dr.		4,20,000	-
	To Debenture Redemption Reserve A/c		-	4,20,000
	(Being amount transferred to DRR @10% of ₹42,00,000)
April 1	Debenture Redemption Investment A/c   ...Dr.		6,30,000	-
	To Bank A/c		-	6,30,000
	(Being 15% of face value invested in Fixed Deposit)
2023
March 31	Bank A/c   ...Dr.		56,700	-
	TDS Receivable A/c     ...Dr.		6,300	-
	To Interest on Debenture Redemption Investment A/c		-	63,000
	(Being interest received on investment with 10% TDS deducted)
March 31	7% Debentures A/c   ...Dr.		42,00,000	-
	Premium on Redemption of Debentures A/c   ...Dr.		3,36,000	-
	To Debentureholders A/c		-	45,36,000
	(Being amount due to debentureholders on redemption @8% premium)
March 31	Debentureholders A/c   ...Dr.		45,36,000	-
	To Bank A/c		-	45,36,000
	(Being payment made to debentureholders)
March 31	Debenture Redemption Reserve A/c   ...Dr.		4,20,000	-
	To General Reserve A/c		-	4,20,000
	(Being DRR transferred to General Reserve after redemption)
March 31	Bank A/c   ...Dr.		6,30,000	-
	To Debenture Redemption Investment		-	6,30,000
	(Being Debenture Redemption Investment realized on maturity)

Working Note:

1. Total Value of Debentures Issued: 42,000 debentures × ₹ 100 = ₹ 42,00,000
2. Debenture Redemption Reserve (DRR): 10% of ₹ 42,00,000 = ₹ 4,20,000
3. Debenture Redemption Investment (15%): 15% of ₹ 42,00,000 = ₹ 6,30,000
4. Interest Earned on Investment: ₹6,30,000 × 10% = ₹ 63,000
5. TDS Deducted on Interest:
   ₹ 63,000 × 10% = ₹ 6,300
   ₹ 63,000 − ₹ 6,300 = ₹ 56,700
6. Premium on Redemption: ₹ 42,00,000 × 8% = ₹ 3,36,000
7. Total Amount Payable to Debentureholders: ₹ 42,00,000 + ₹ 3,36,000 = ₹ 45,36,000