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.

Solution

## Books of Alpha Ltd                                                                    JOURNALDate               Particulars         L.FDr (Rs)Cr. (Rs)2017March 31Surplus in Statement of Profit and Loss(2)Dr60,000    To Debenture Redemption Reserve A/c60,000(Transfer of profits as per SEBI guidelines)March 31Debenture Redemption Investment A/cDr.1,50,000    To Bank A/c1,50,000(Investment made at  15% of the face value ofdebentures to be redeemed)2018March 31 Bank A/c(1)Dr1,55,220    To Debenture Redemption Investment A/c1,50,000    To Profit on Sale of Investments A/c5,220(Investment encashed at 104% less brokerage 0.5)%March 31Profit on Sale of Investment A/c5,220    To Statement of Profit and Loss5,220(Transfer of profit on sale of investments)March 31 8% Debentures A/cDr10,00,000    To Debentureholder's  A/c10,00,000(Amount due to redemption)March 31 Debentureholder's  A/cDr10,00,000    To Bank A/c10,00,000(Payment of amount due to debentureholders)March 31Debenture Redemption Reserve A/cDr2,50,000    To General Reserve A/c2,50,000(Transfer of Debenture Redemption Reserve A/c to General Reserve A/c on redemption) Working Note: (1)  Amount realised from sale of investment :Rs              1,50,000×104100=1,56,000      Less: Brokerage 1,56,000×0.5100=780¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯1,55,220–––––––––––––––––––– (2)  Total Amount realised from transfer toRs              Debenture Redemption Reserve 25% of 10,00,000=2,50,000      Less:Existing Balance =1,90,000      Amount now required to be transferred to Debenture      Redemption Reserve¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯60,000––––––––––––––––

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