Question

Godrej Ltd .has 20,000;7% Debentures of ₹ 100 each due for redemption on 31st August, 2017. There is a balance of ₹ 3,50,000 in Debentures Redemption Reserve Account as on 31st March,2015. Investment, as required by the Companies Act, 2013 is made on 1st April, 2016 in fixed deposit bearing interest @6%p.a. Bank deducted TDS @10% on its maturity which is 31st March,2017.
Pass journal entries for redemption of debentures.

Answer 1

Journal In the Books of Godrej Ltd.
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
2016
Apr. 01	Debenture Redemption Investment A/c	Dr.		3,00,000
	To Bank A/c				3,00,000
	(Investment made in specified securities)
2017
Mar. 31	Bank A/c (3,00,000 + 16,200)	Dr.		3,16,200
	Tax Payable A/c	Dr.		1,800
	To Interest on Debenture Redemption Investment A/c				18,000
	To Debenture Redemeption Investment A/c				3,00,000
	(Investment encashed and interest received)
Mar. 31	Statement of Profit & Loss A/c	Dr.		1,50,000
	To Debenture Redemption Reserve A/c				1,50,000
	(DRR created)
Aug. 31	7% Debentures A/c	Dr.		20,00,000
	To Debentureholders' A/c				20,00,000
	(Amount on 7% debentures due)
Aug. 31	Debentureholders' A/c	Dr.		20,00,000
	To Bank A/c				20,00,000
	(Payment made on redemption of debentures)
Aug. 31	Debenture Redemption Reserve A/c	Dr.		5,00,000
	To General Reserve A/c				5,00,000
	(Transfer of Debenture Redemption Reserve to General Reserve)

Working Notes:

Calculation of amount transferred to DRR

$$\begin{gathered} \mathrm{Amount}\mathrm{of}\mathrm{DRR}(25\%\mathrm{of}\mathrm{Debentures})=20,00,000\times \frac{25}{100}=5,00,000 \\ \mathrm{Less}:\mathrm{Amount}\mathrm{already}\mathrm{exists}\mathrm{in}\mathrm{DRR}\underline{3,50,000} \\ \mathrm{DRR}\mathrm{to}\mathrm{be}\mathrm{created}\mathrm{for}\mathrm{redemption}\underline{1,50,000} \end{gathered}$$

Note:

1. The year of transfer to DRR and investment has been assumed to be in 2014 in order to maintain consistency with the guidelines issued by Ministry of Corporate Affairs which requires that 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 if passed in any of the year then redemption would take place in the following year.