Question

Universe Ltd. (an unlisted company) has 2,00,000, 9% debentures of ₹ 50 each due for redemption in five equal annual instalments starting from March 31, 2018. Debenture Redemption Reserve has a balance of ₹ 6,00,000. Record necessary journal entries.

Answer 1

Journal entries of Universe Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2017
Mar 31	Profit and Loss A/c   ...Dr.		4,00,000	-
	To Debenture Redemption Reserve A/c		-	4,00,000
	(Being additional DRR created to meet 10% requirement)
Apr 30	Debenture Redemption Investment A/c   ...Dr.		3,00,000	-
	To Bank A/c		-	3,00,000
	(Being investment of 15% made in fixed deposit)
2018
March 31	9% Debentures A/c   ...Dr.		20,00,000	-
	To Debentureholders A/c		-	20,00,000
	(Being 1/5th debentures due for redemption)
March 31	Debentureholders A/c   ...Dr.		20,00,000	-
	To Bank A/c		-	20,00,000
	(Being payment made to debentureholders)
March 31	Debenture Redemption Reserve A/c   ...Dr.		2,00,000	-
	To General Reserve A/c		-	2,00,000
	(Being 1/5th of DRR transferred to General Reserve)
2022
March 31	Bank A/c   ...Dr.		3,00,000	-
	To Debenture Redemption Investment A/c		-	3,00,000
	(Being investment realized on final redemption)

Working Notes:

• Total debentures = 2,00,000 × ₹ 50 = ₹ 1,00,00,000
• Redeemable in 5 equal annual instalments → ₹ 20,00,000 each year
• DRR required = 10% of total face value = ₹ 10,00,000
• DRR balance already = ₹ 6,00,000
• Additional DRR to be created = ₹ 4,00,000 (on 31st March, 2017)
• DRI required = 15% of ₹ 20,00,000 (first instalment) = ₹ 3,00,000 (on 30th April, 2017)
• DRR to be reduced by ₹ 2,00,000 (i.e., one-fifth) each year and transferred to General Reserve after each redemption.