Question

A Ltd. has credit balance of ₹ 1,26,000 in Surplus, i.e., Balance in Statement of Profit and Loss . Instead of declaring dividend it is resolved to utilize the profits to redeem its ₹ 1,20,000 Debentures redeemable at a premium of 5%.
Pass necessary journal entries in the books of the company.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
Previous Year
31 March	Statement of Profit or Loss*	Dr.		1,20,000
	To Debenture Redemption Reserve A/c				1,20,000
	(Surplus amount is transferred to Debenture Redemption Reserve)
Current Year
30 April	Debenture Redemption Investment A/c**	Dr.		18,000
	To Bank A/c				18,000
	(Investment is made in specified securities equal to 15% of the value of debentures redeemed)
31 March	Debentures A/c	Dr.		1,20,000
	Premium on Redemption of Debentures A/c	Dr.		6,000
	To Debentureholders’ A/c				1,26,000
	(Debenture due for redemption along with premium)
31 March	Bank A/c	Dr.		18,000
	To Debenture Redemption Investment A/c				18,000
	(Investment made in specified securities is now encashed)
31 March	Debentureholders’ A/c	Dr.		1,26,000
	To Bank A/c				1,26,000
	(Payment made to debentureholders)
31 March	Debenture Redemption Reserve A/c	Dr.		1,20,000
	To General Reserve A/c				1,20,000
	(Debenture Redemption Reserve transferred to Capital Reserve)

*In case of redemption of debentures by profits, 100% of the nominal value of debentures is transferred to DRR A/c.

**As per circular no. 04/2015 issued by Ministry of Corporate Affairs (dated 11.02.2013), every company required to create/maintain DRR shall on or before the 30th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the amount of its debentures maturing during the year ending on the 31st day of March next following year. Accodingly, entries for DRR and Investment have been passed in the previous accounting year.