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Question

IFCI Ltd.(An All India Financial Institution) issued 10,00,000; 9% Debentures of ₹ 50 each on 1st April, 2011 redeemable on 1st April, 2019. How much amount of Debentures Redemption Reserve is required before the redemption of debentures? Also, pass Journal entries for issue and redemption of debentures.

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Solution

Books of IFCI Ltd.

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2011

April 01

Bank A/c

Dr.

5,00,00,000

To 9% Debenture Application A/c

5,00,00,000

(Debenture application money received)

April 01

9% Debenture Application A/c

Dr.

5,00,00,000

To 9% Debentures A/c

5,00,00,000

(Debenture application money transferred to debenture account)

2017

April 01

9% Debentures A/c

Dr.

5,00,00,000

To Debentureholders’ A/c

5,00,00,000

(Debentures due for redemption)

April 01

Debentureholders’ A/c

Dr.

5,00,00,000

To Bank A/c

5,00,00,000

(Amount due for redemption paid to debenture holders)

Notes:
1. All India Financial Institutions are exempted from creating DRR. Hence, in this case, no DRR is to be created.
2. Entries for interest on debentures have been ignored in the above solution as the question was silent in this regards. However, the students' may journalise the entries related to interest on debentures every year from April 01, 2011 to March 31, 2017 as given below.

Journal
Date Particulars L.F. Debit
Amount
(Rs)
Credit
Amount
(Rs)
2011
Mar. 31 Debenture Interest A/c Dr. 45,00,000
To Debentureholders’ A/c 45,00,000
(Interest on 9% debentures due)
Mar.31 Debentureholders’ A/c Dr. 45,00,000
To Bank A/c 45,00,000
(Payment of interest to debentureholders’)
Mar. 31 Statement of Profit and Loss Dr. 45,00,000
To Debenture Interest A/c 45,00,000
(Transfer of debenture interest to Statement of Profit and Loss)

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