Question

JB Ltd. issued ₹ 10,00,000;6% Debentures at a premium of 4% redeemable at a premium of 5% after four years. The debentures were issued on 1st April,2014. Pass journal entries at the time of issue and redemption of debentures assuming that all legal requirements were complied.

Answer 1

Books of JB Ltd.
Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
2014
April 01	Bank A/c	Dr.		10,40,000
	To 6% Debenture Application A/c				10,40,000
	(Debenture Application money received)
April 01	6% Debenture Application A/c	Dr.		10,40,000
	Loss on Issue of Debentures A/c	Dr.		50,000
	To 6% Debentures A/c				10,00,000
	To Securities Premium A/c				40,000
	To Premium on Redemption A/c				50,000
	(Debentures of Rs 10,00,000 issued at 4% Premium with the term redeemable at 5% Premium)
2017
Mar. 31	Statement of Profit and Loss	Dr.		2,50,000
	To Debenture Redemption Reserve A/c*				2,50,000
	(Surplus amount is transferred to Debenture Redemption Reserve)
Apr. 30	Debenture Redemption Investment A/c**	Dr.		1,50,000
	To Bank A/c				1,50,000
	(Investment is made in government securities equal to 15% of the value of debentures redeemed)
2018
March 31	6% Debentures A/c	Dr.		10,00,000
	Premium on Redemption A/c	Dr.		50,000
	To Debentureholders’ A/c				10,50,000
	(Debentures due for redemption along with the premium)
	Bank A/c	Dr.		1,50,000
	To Debenture Redemption Investment A/c				1,50,000
	(Investment made in securities is now encashed)
March 31	Debentureholders’ A/c	Dr.		10,50,000
	To Bank A/c				10,50,000
	(Amount paid to Debentureholders)
March 31	Debenture Redemption Reserve A/c	Dr.		2,50,000
	To General Reserve A/c				2,50,000
	(Debenture Redemption Reserve transferred to General Reserve)

*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 10,00,000 are to be redeemed, so, the amount of DRR will be:
$\mathrm{Amount}\mathrm{of}\mathrm{DRR}=10,00,000\times \frac{25}{100}=\mathrm{Rs}2,50,000$

However, it purely depends upon a company and its discretion to transfer more amount to DRR than the prescribed amount of 25% in the case of companies for whom it is mandatory to create DRR out of profits. In this case, as nothing explicit has been specified about company's discretion, so amount equivalent to 25% of the nominal value of the redeemable debentures has been transferred to DRR similar to the earlier questions.

**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.

Note: 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 as given below.

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
2015 to 2018
Mar. 31	Debenture Interest A/c	Dr.		60,000
	To Debentureholders’ A/c				60,000
	(Interest on 6% debentures due)
Mar. 31	Debentureholders’ A/c	Dr.		60,000
	To Bank A/c				60,000
	(Payment of interest to debentureholders’)
Mar. 31	Statement of Profit and Loss	Dr.		60,000
	To Debenture Interest A/c				60,000
	(Transfer of debenture interest to Statement of Profit and Loss)