Question

Saraswati Ltd. issued 10,000 $6\%$ Debentures of Rs 100 each at a premium of $5\%$ on 1st April, 2013 redeemable on March 31,2018. The issue was fully subscribed. It was decided to invest $15\%$ of the face value of debenture to be redeemed towards Debenture Redemption Investment on 30th April 2017. Investments were encashed and Debentures were redeemed on due date. Record necessary entries for issue and redemption of deberature.

Answer 1

$\begin{array}{ccccccc}& & & & \text{Books of Saraswati Ltd}& & \\ & & & & \text{JOURNAL}& & \end{array}\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ 2013& & & & & \\ \text{April 1}& \text{Bank A/c}& \text{Dr}& & 10,50,000& \\ & \text{To}6\%\text{Debenture Application and Allotment A/c}& & & & 10,50,000\\ & \text{(Receipt of application money)}& & & & \\ \text{April 1}& 6\%\text{Debenture Application and}& & & & \\ & \text{Allotment A/c}& \text{Dr}& & 10,50,000& \\ & \text{To}6\%\text{Debenture A/c}& & & & 10,00,000\\ & \text{To Securities Premium Reserve A/c}& & & & 50,000\\ & \text{(Transfer of application money)}& & & & \\ 2017& & & & & \\ \text{March 31}& \text{Surplus in Statement of Profit and Loss}& \text{Dr}& & 2,50,000& \\ & \text{To Debenture Redemption Reserve A/c}& & & & 2,50,000\\ & \text{(Transfer of profits equal to}25\%\text{of the}& & & & \\ & \text{nominal value of debentures issued)}& & & & \\ \text{April 30}& \text{Debenture Redemtption Investment}& \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)}& & & & \\ 2018& & & & & \\ \text{March 31}& \text{Bank A/c}& \text{Dr}& & 1,50,000& \\ & \text{To Debenture Redemption Investment A/c}& & & & 1,50,000\\ & \text{(Investmenst encashed)}& & & & \\ \text{March 31}& 6\%\text{Debentures A/c}& \text{Dr}& & 10,00,000& \\ & \text{To Debentureholder's A/c}& & & & 10,00,000\\ & \text{(Amount due to redemption)}& & & & \\ \text{March 31}& \text{Debentureholder's 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{(Transfer of Debenture Redemption Reserve}& & & & \\ & \text{A/c to General Reserve A/c on redemption)}& & & & \end{array}$

Note :(1) DRR will be created on 31st March of the previous year.

(2) Minimum investment of $15\%$ will be made on or before 30th April of the year in which debentures are to be redeemed and the same will be encashed at the time of redemption of debentures.

(3) Interest on Investment is not calculated because rate of interest is not given.

(4) As per CBSE marking scheme there is no need to pass entries for interest on debentures unless required.