Question

Tulip Ltd. issued Rs 4,00,000 $9\%$ Debentures of Rs 100 each on April 1,2014 at a premium of $6\%$ redeemable at a premium of $10\%$ on 31st March, 2018. Assume that required investment was made in $10\%$ Government Securities on April 30 of the financial year in which redemption is due. Debentures were redeemed on the due date.

Pass journal entries at the time of Issue and Redemption of Debentures.

Answer 1

$\begin{array}{ccccccc}& & & & \text{Books of Tulip Ltd}& & \\ & & & & \text{JOURNAL}& & \end{array}\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ 2014& & & & & \\ \text{April 1}& \text{Bank A/c}& \text{Dr}& & 4,24,000& \\ & \text{To}9\%\text{Debenture Application and Allotment A/c}& & & & 4,24,000\\ & \text{(Receipt of application money)}& & & & \\ \text{April 1}& 9\%\text{Debenture Application and Allotment A/c}& \text{Dr}& & 4,24,000& \\ & \text{Loss on Issue of Debentures A/c}& \text{Dr}& & 40,000& \\ & \text{To}9\%\text{Debentures A/c}& & & & 4,00,000\\ & \text{To Securities Premium Reserve A/c}& & & & 24,000\\ & \text{To Premium on Redemption of Debentures A/c}& & & & 40,000\\ & \text{(Transfer of application money)}& & & & \\ 2017& & & & & \\ \text{March 31}& \text{Surplus in Statement of Profit and Loss}& \text{Dr}& & 1,00,000& \\ & \text{To Debenture Redemption Reserve A/c}& & & & 1,00,000\\ & \text{(Transfer of profits equal to}25\%\text{of the nominal}& & & & \\ & \text{value of debentures issued)}& & & & \\ \text{April 30}& \text{Debenture Redemption Investment A/c}& \text{Dr}.& & 60,000& \\ & \text{To Bank A/c}& & & & 60,000\\ & \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}& & 65,500& \\ & \text{To Debenture Redemption Investment A/c}& & & & 60,000\\ & \text{To Interest Received A/c}& & & & {}^{\ast }5,500\\ & \text{(Investment bearing}10\%\text{p.a interest encashed)}& & & & \\ \text{March 31}& 9\%\text{Debentures A/c}& \text{Dr}& & 4,00,000& \\ & \text{Premium on Redemption of Debentures A/c}\text{Dr}& & & 40,000& \\ & \text{To Debentureholder's A/c}& & & & 4,40,000\\ & \text{(Amount due to redemption)}& & & & \\ \text{March 31}& \text{Debentureholder's A/c}& \text{Dr}& & 4,40,000& \\ & \text{To Bank A/c}& & & & 4,40,000\\ & \text{(Payment of amount due to debentureholders)}& & & & \\ \text{March 31}& \text{Debenture Redemption Reserve A/c}& \text{Dr}& & 1,00,000& \\ & \text{To General Reserve A/c}& & & & 1,00,000\\ & \text{(Transfer of Debenture Redemption Reserve}& & & & \\ & \text{A/c to General Reserve A/c on redemption)}& & & & \\ \text{March 31}& \text{Interest Received A/c}& \text{Dr}& & 5,500& \\ & \text{To Statement of Profit and Loss}& & & & 5,500\\ & \text{(Transfer of interest on investments)}& & & & \end{array}$

*Interest is calculated for 11 months.