Question

Manish Ltd. issued Rs 38,00,000; $8\%$ Debentures of Rs 100 each on 1st April,2013. The terms of issue stated that the debentures were due to redeemed at a premium of $5\%$ on 30th June, 2015. The Company decided to transfer out of profits Rs 5,50,000 to Debenture Redemption Reserve on 31st March, 2014 and Rs 4,00,000 on 31st March, 2015.

Pass the necessary Journal entries the issue and redemption of debentures, without providing for either the interest or loss on issue of debentures.

Answer 1

$\text{Journal of Manish Ltd.}$
$$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ 2013& & & & & \\ \text{April 1}& \text{Bank A/c}& \text{Dr}& & 38,00,000& \\ & \text{To 8\% Debentures Application and}& & & & 38,00,000\\ & \text{Allotment A/c}& & & & \\ & \text{(Money received on issue of debentures)}& & & & \\ & \underset{–}{}& & & & \\ \text{April 1}& \text{8\% Debenture Application and Allotment A/c}& \text{Dr}& & 38,00,000& \\ & \text{Loss on Issue of Debentures A/c}& \text{Dr}& & 1,90,000& \\ & \text{To 8\% Debentures A/c}& & & & 38,00,000\\ & \text{To Premium on Redemption of Debentures A/c}& & & & 1,90,000\\ & \text{(Issue of Debentures at par and redeemable at 5\%}& & & & \\ & \text{Premium)}& & & & \\ & \underset{–}{}& & & & \\ 2014& & & & & \\ \text{March 31}& \text{Surplus of Statement of Profit and Loss}& \text{Dr}& & 5,50,000& \\ & \text{To Debenture Redemption Reserve A/c}& & & & 5,50,000\\ & \text{(Transfer of profits to DRR)}& & & & \\ & \underset{–}{}& & & & \\ 2015& & & & & \\ \text{March 31}& \text{Surplus of Statement of Profit and Loss}& \text{Dr}& & 4,00,000& \\ & \text{To Debenture Redemption Reserve A/c}& & & & 4,00,000\\ & \text{(Transfer of profits to DRR)}& & & & \\ & \underset{–}{}& & & & \\ \text{April 30}& \text{Debenture Redemption Investment A/c}& \text{Dr}& & 5,70,000& \\ & \text{To Bank A/c}& & & & 5,70,000\\ & \text{(Investment made at 15\% of the face value of}& & & & \\ & \text{(debentures to be redeemed)}& & & & \\ & \underset{–}{}& & & & \\ \text{June 30}& \text{Bank A/c}& \text{Dr}& & 5,70,000& \\ & \text{To Debentures Redemption Investment A/c}& & & & 5,70,000\\ & \text{(Investment encashed)}& & & & \\ & \underset{–}{}& & & & \\ \text{June 30}& \text{8\% Debentures A/c}& \text{Dr}& & 38,00,000& \\ & \text{Premium on Redemption of Debentures A/c}& \text{Dr}& & 1,90,000& \\ & \text{To Debenture Holders A/c}& & & & 39,90,000\\ & \text{(Amount due on redemption)}& & & & \\ & \underset{–}{}& & & & \\ \text{June 30}& \text{Debenture holders A/c}& \text{Dr}& & 39,90,000& \\ & \text{To Bank A/c}& & & & 39,90,000\\ & \text{(Payment made to Debenture holders)}& & & & \\ & \underset{–}{}& & & & \\ \text{June 30}& \text{Debentures Redemption Reserve A/c}& \text{Dr}& & 9,50,000& \\ & \text{To General Reserve}& & & & 9,50,000\\ & \text{(Transfer to DRR to General Reserve)}& & & & \end{array}$$

As per Rule 18(7) (c) of the Companies (Share Capital and Debentures) Rules 2014, at least $15\%$ of the face value of Debentures to be redeemed during the year should be invested on or before 30th April of the year in which the redemption is to ba made.