Question

Mona Ltd., has issued 20,000, $9\%$ Debentues of Rs 100 each of which half the amount is due for redemption on March 31st 2018. It was decided to invest the required amount towards Debenture Redemption Investment. The company has in its Debenture Redemption Reserve Account a balance of Rs 4,40,000 on 31st March, 2017. Record the necessary journal entries for the Redemption of Debentures.

Answer 1

$\begin{array}{ccccccc}& & & & \text{Books of Alpha Ltd}& & \\ & & & & \text{JOURNAL}& & \end{array}\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ 2017& & & & & \\ \text{March 31}& {\text{Surplus in Statement of Profit and Loss}}^{\left(2\right)}& \text{Dr}& & 60,000& \\ & \text{To Debenture Redemption Reserve A/c}& & & & 60,000\\ & \text{(Transfer of profits to Debenture Redemption Reserve)}& & & & \\ \text{April 30}& \text{Debenture Redemption Investment A/c}& \text{Dr}.& & 1,50,000& \\ & \text{To Bank A/c}& & & & 1,50,000\\ & \text{(Investment made at}15\%\text{of the face value of}& & & & \\ & \text{debentures to be redeemed i.e}15\%\text{of Rs}10,00,000)& & & & \\ 2018& & & & & \\ \text{March 31}& \text{Bank A/c}& \text{Dr}& & 1,50,000& \\ & \text{To Debenture Redemption Investment A/c}& & & & 1,50,000\\ & \text{(Investment encashed)}& & & & \\ \text{March 31}& 9\%\text{Debentures A/c}& \text{Dr}& & 10,00,000& \\ & \text{To Debentureholders A/c}& & & & 10,00,000\\ & \text{(Amount due to debentureholders on redemption}& & & & \\ & \text{of debentures)}& & & & \\ \text{March 31}& \text{Debentureholders A/c}& \text{Dr}& & 10,00,000& \\ & \text{To Bank A/c}& & & & 10,00,000\\ & \text{(Payment of amount due to debentureholders)}& & & & \\ \text{March 31}& \text{Debenture Redemption Reserve A/c}& \text{Dr}& & 2,50,000& \\ & \text{To General Reserve A/c}& & & & 2,50,000\\ & \text{(One -half of DRR transferred to General Reserve}& & & & \\ & \text{on redemption of one-half debentures)}& & & & \end{array}$

Note :
(1)
$\begin{array}{cc}\text{Total amount required for transfer to Debenture Redemption}& \text{Rs}\\ \text{Reserve}=25\%\text{of}20,00,000& 5,00,000\\ \text{Less : Existing Balance}& 4,40,000\\ \text{Amount now required to be transferred to Debenture}& \\ \text{Redemption Reserve}& \overline{\underset{–}{\underset{–}{60,000}}}\end{array}$