Question

Shakti Enterprises Ltd. issued 30,000;8% Debentures of ₹ 100 each on 1st October ,2014 redeemable in five equal annual installments starting with 31st March, 2018. The Board decides to transfer to Debentures Redemption Reserve ₹ 50,000 and ₹ 4,00,000 on 31st March 2015 and 2016 respectively and balance required to be transferred to Debentures Redemption Reserve on 31st March, 2017.
Pass journal entries.

Answer 1

Books of Shakti Enterprises Ltd.
Journal
Date	Particulars				L.F.	Debit Amount Rs	Credit Amount Rs
2014
Oct 01	Bank A/c			Dr.		30,00,000
	To 8% Debentures A/c						30,00,000
	(Debentures issued)
2015
March 31	Statement of Profit & Loss			Dr.		50,000
	To Debenture Redemption Reserve A/c						50,000
	(DRR created)
2016
March 31	Statement of Profit & Loss			Dr.		4,00,000
	To Debenture Redemption Reserve A/c						4,00,000
	(DRR created)
2017
March 31	Statement of Profit & Loss			Dr.		3,00,000
	To Debenture Redemption Reserve A/c						3,00,000
	(DRR created)
April 30	Debenture Redemption Investment A/c*			Dr.		90,000
		To Bank A/c					90,000
	(Investment is made in specified securities @ 15% of the value of debentures redeemable in first instalment, i.e. Rs 6,00,000)
2018
March 31	8% Debenture A/c		Dr.			6,00,000
	To Debentureholders’ A/c						6,00,000
	(6,000 8% Debenture of Rs 100 each due for redemption)
March 31	Bank A/c			Dr.		90,000
	To Debenture Redemption Investment A/c						90,000
	(Investment made in securities, now encashed)
March 31	Debentureholders’ A/c		Dr.			6,00,000
	To Bank A/c						6,00,000
	(Payment made to debentureholders)
April 30	Debenture Redemption Investment A/c*			Dr.		90,000
	To Bank A/c						90,000
	(Investment is made in specified securities @ 15% of the value of debentures redeemable in second instalment, i.e. Rs 6,00,000)
2019
March 31	8% Debentures A/c		Dr.			6,00,000
	To Debentureholders’ A/c						6,00,000
	(6,000 8% Debenture of Rs 100 each due for redemption)
March 31	Bank A/c			Dr.		90,000
	To Debenture Redemption Investment A/c						90,000
	(Investment made in securities, now encashed)
March 31	Debentureholders’ A/c		Dr.			6,00,000
	To Bank A/c						6,00,000
	(Payment made to debentur holders)
April 30	Debenture Redemption Investment A/c*			Dr.		90,000
	To Bank A/c						90,000
	(Investment is made in specified securities @ 15% of the value of debentures redeemable in third instalment, i.e. Rs 6,00,000)
2020
March 31	8% Debentures A/c		Dr.			6,00,000
	To Debentureholders’ A/c						6,00,000
	(6,000 8% Debenture of Rs 100 each due for redemption)
March 31	Bank A/c			Dr.		90,000
	To Debenture Redemption Investment A/c						90,000
	(Investment made in securities, now encashed)
March 31	Debentureholders’ A/c					6,00,000
	To Bank A/c						6,00,000
	(Payment made to debentureholders)
April 30	Debenture Redemption Investment A/c*			Dr.		90,000
	To Bank A/c						90,000
	(Investment is made in specified securities @ 15% of the value of debentures redeemable in fourth instalment, i.e. Rs 6,00,000)
2021
March 31	8% Debentures A/c		Dr.			6,00,000
	To Debentureholders’ A/c						6,00,000
	(6,000 8% Debenture of Rs 100 each due for redemption)
March 31	Bank A/c			Dr.		90,000
	To Debenture Redemption Investment A/c						90,000
	(Investment made in securities, now encashed)
March 31	Debentureholders’ A/c		Dr.			6,00,000
	To Bank A/c						6,00,000
	(Payment made to debentureholders)
April 30	Debenture Redemption Investment A/c*			Dr.		90,000
	To Bank A/c						90,000
	(Investment is made in specified securities @ 15% of the value of debentures redeemable in fifth instalment, i.e. Rs 6,00,000)
2022
March 31	8% Debentures A/c		Dr.			6,00,000
	To Debentureholders’ A/c						6,00,000
	(6,000 8% Debenture of Rs 100 each due for redemption)
March 31	Bank A/c			Dr.		90,000
	To Debenture Redemption Investment A/c						90,000
	(Investment made in securities, now encashed)
March 31	Debentureholders’ A/c		Dr.			6,00,000
	To Bank A/c						6,00,000
	(Payment made to debentureholders)
March 31	Debenture Redemption Reserve A/c		Dr.			7,50,000
	To General Reserve A/c						7,50,000
	(Debenture Redemption Reserve transferred to General Reserve)

*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. Accodingly, entry for investment in Government securities has been passed a year before first redemption year and will be passed before redemption of debentures every year in case of draw of lots.

Note: Since the question is silent regarding the payment of interest, the following entries may be passed at the end of every year (i.e. on 31 March before the redemption of debentures). However, it is not essential to pass these entries unless explicitly stated in the question.

Debenture Interest A/c	Dr.	Interest Rate $\times$ Amt. of Debentures outstanding
To Debentureholders’ A/c
(Interest due)
Debentureholders’ A/c	Dr.
To Bank A/c
(Payment of interest to debentureholders’)
		With the total amount of interest paid in a year
Statement of Profit and Loss	Dr.
To Debenture Interest A/c
(Transfer of debenture interest to Statement of Profit and Loss)