Question

Alpha Ltd. has 10,000, $8\%$ Debentures of Rs 100 each due for redemption on 31st March 2018. Debenture Redemption Reserve has a balance of Rs 1,90,000 on 31st March,2017. It was decided to invest the required amount towards Debenture Redemption Investment. Investments were realised at $104\%$ less $0.5\%$ brokerage and debentures were redeemed. Record the necessary entries for the redemption of debentures.

Answer 1

$\begin{array}{ccccccc}& & & & \text{Books of Alpha Ltd}& & \\ & & & & \text{JOURNAL}& & \end{array}\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ 2017& & & & & \\ \text{March 31}& {\text{Surplus in Statement of Profit and Loss}}^{\left(2\right)}& \text{Dr}& & 60,000& \\ & \text{To Debenture Redemption Reserve A/c}& & & & 60,000\\ & \text{(Transfer of profits as per SEBI guidelines)}& & & & \\ \text{March 31}& \text{Debenture Redemption Investment A/c}& \text{Dr}.& & 1,50,000& \\ & \text{To Bank A/c}& & & & 1,50,000\\ & \text{(Investment made at}15\%\text{of the face value of}& & & & \\ & \text{debentures to be redeemed)}& & & & \\ 2018& & & & & \\ \text{March 31}& {\text{Bank A/c}}^{\left(1\right)}& \text{Dr}& & 1,55,220& \\ & \text{To Debenture Redemption Investment A/c}& & & & 1,50,000\\ & \text{To Profit on Sale of Investments A/c}& & & & 5,220\\ & \text{(Investment encashed at}104\%\text{less brokerage}0.5)\%& & & & \\ \text{March 31}& \text{Profit on Sale of Investment A/c}& & & 5,220& \\ & \text{To Statement of Profit and Loss}& & & & 5,220\\ & \text{(Transfer of profit on sale of investments)}& & & & \\ \text{March 31}& 8\%\text{Debentures A/c}& \text{Dr}& & 10,00,000& \\ & \text{To Debentureholder's A/c}& & & & 10,00,000\\ & \text{(Amount due to redemption)}& & & & \\ \text{March 31}& \text{Debentureholder's A/c}& \text{Dr}& & 10,00,000& \\ & \text{To Bank A/c}& & & & 10,00,000\\ & \text{(Payment of amount due to debentureholders)}& & & & \\ \text{March 31}& \text{Debenture Redemption Reserve A/c}& \text{Dr}& & 2,50,000& \\ & \text{To General Reserve A/c}& & & & 2,50,000\\ & \text{(Transfer of Debenture Redemption Reserve A/c}& & & & \\ & \text{to General Reserve A/c on redemption)}& & & & \end{array}$

Working Note:

$\begin{array}{ccc}\left(1\right)\text{Amount realised from sale of investment :}& & \text{Rs}\\ 1,50,000\times \frac{104}{100}& =& 1,56,000\\ \text{Less: Brokerage}1,56,000\times \frac{0.5}{100}& =& 780\\ & & \overline{\underset{–}{\underset{–}{1,55,220}}}\end{array}$

$\begin{array}{ccc}\left(2\right)\text{Total Amount realised from transfer to}& & \text{Rs}\\ \text{Debenture Redemption Reserve}25\%\text{of}10,00,000& =& 2,50,000\\ \text{Less:Existing Balance}& =& 1,90,000\\ \text{Amount now required to be transferred to Debenture}& & \\ \text{Redemption Reserve}& & \overline{\underset{–}{\underset{–}{60,000}}}\end{array}$