Question

Apollo Ltd.issued 21,000; 8% Debentures of ₹ 100 each on 1st April, 2013 redeemable at a premium of 8% on 30th June, 2019. The company decided to transfer the required amount to Debentures Redemption Reserve in three equal annual instalments starting with 31st March, 2017. Required investment was made in Government Securities on 30th April, 2019. Ignore interest on debentures and also investment.
Pass necessary Journal entries regarding issue, transfer to DRR, investment, and redemption of debentures.

Answer 1

Books of Apollo Ltd. Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2013
April 01	Bank A/c	Dr.		21,00,000
	To 8% Debenture Application A/c				21,00,000
	(Debenture application money received)
	8% Debenture Application A/c	Dr.		21,00,000
	Loss on Issue of Debentures A/c	Dr.		1,68,000
	To 8% Debentures A/c				21,00,000
	To Premium on Redemption A/c				1,68,000
	(21,000 8% Debentures of Rs 100 each issued with the term repayable at 8% Premium)
2017
March 31	Statement of Profit and Loss	Dr.		1,75,000
	To Debenture Redemption Reserve A/c				1,75,000
	(Profit transferred to Debenture Redemption Reserve)
2018
March 31	Statement of Profit and Loss	Dr.		1,75,000
	To Debenture Redemption Reserve A/c				1,75,000
	(Profit transferred to Debenture Redemption Reserve)
2019
Mach 31	Statement of Profit and Loss	Dr.		1,75,000
	To Debenture Redemption Reserve A/c				1,75,000
	(Profit transferred to Debenture Redemption Reserve)
April 30	Debenture Redemption Investment A/c	Dr.		3,15,000
	To Bank A/c				3,15,000
	(Investment is made in government securities equal to 15% of the value of debentures redeemed)
June 30	8% Debenture A/c	Dr.		21,00,000
	Premium on Redemption Reserve A/c	Dr.		1,68,000
	To Debentureholders’ A/c				22,68,000
	(Debenture due for redemption along with premium)
	Bank A/c	Dr.		3,15,000
	To Debenture Redemption Investment A/c				3,15,000
	(Investment made in specifed securities now encashed)
	Debentureholders’ A/c	Dr.		22,68,000
	To Bank A/c				22,68,000
	(Payment made to debentureholders)
	Debenture Redemption Reserve A/c	Dr.		5,25,000
	To General Reserve A/c				5,25,000
	(Debenture Redemption Reserve transferred to General Reserve)

Working Note:

Calculation of Amount transferred to DRR

As prescribed by Section 71(4) of the Companies Act, 2013, companies are required to create DRR at 25% of the total value of debentures. Here, debentures worth Rs 21,00,000 are to be redeemed, so, the amount of DRR will be:

Note:R to be created =6,00,000 × 25100=Rs 1,50,000
1. 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. Accordingly, entries for DRR and Investment have been passed in the previous accounting year.