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Question

Venus Ltd. had 9,000, 9% Debentures of ₹ 100 each due for redemption . These debentures are to be redeemed in 3 equal installments (starting from 31st March,2015) at a premium of 10%. The company had a balance of ₹ 25,000 in the Debentures Redemption Reserve .
Pass necessary entries for redemption of debentures assuming that company transfer the balance of DRR to General Reserve after redeeming all the debentures.

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Solution

Journal
Date
Particulars
L.F.
Debit
Amount
(₹)
Credit
Amount
(₹)
2014
Mar. 31
Statement of Profit and Loss
Dr.
2,00,000
To Debenture Redemption Reserve A/c
2,00,000
(Transfer of balance amount to DRR)
Apr. 30
Debenture Redemption Investment A/c
Dr.
45,000
To Bank A/c
45,000
(15% amount invested in securities)
2015
Mar. 31
9% Debentures A/c
Dr.
3,00,000
Premium on Redemption of Debentures A/c
Dr.
30,000
To Debentureholders’
3,30,000
(3,000, 9% Debentures due for payment at 10% premium)
Bank A/c
Dr.
45,000
To Debenture Redemption Investment A/c
45,000
(DRI encashed)
Debentureholders’ A/c
Dr.
3,30,000
To Bank A/c
3,30,000
(Payment to debentureholders’)
Apr. 30
Debenture Redemption Investment A/c
Dr.
45,000
To Bank A/c
45,000
(15% amount invested in securities)
2016
Mar. 31
9% Debentures A/c
Dr.
3,00,000
Premium on Redemption of Debentures A/c
Dr.
30,000
To Debentureholders’
3,30,000
(3,000, 9% Debentures due for payment at 10% premium)
Bank A/c
Dr.
45,000
To Debenture Redemption Investment A/c
45,000
(DRI encashed)
Debentureholders’ A/c
Dr.
3,30,000
To Bank A/c
3,30,000
(Payment to debentureholders’)
Apr. 30
Debenture Redemption Investment A/c
Dr.
45,000
To Bank A/c
45,000
(15% amount invested insecurities)
2017
Mar. 31
9% Debentures A/c
Dr.
3,00,000
Premium on Redemption of Debentures A/c
Dr.
30,000
To Debentureholders’
3,30,000
(3,000, 9% Debentures due for payment at 10% premium)
Bank A/c
Dr.
45,000
To Debenture Redemption Investment A/c
45,000
(DRI encashed)
Debentureholders’ A/c
Dr.
3,30,000
To Bank A/c
3,30,000
(Payment to debentureholders’)
Debenture Redemption Reserve A/c
Dr.
2,25,000
To General Reserve A/c
2,25,000
(DRR closed by transferring to General Reserve)

Working Notes:
Amount to be transferred to DRR=9,00,000×25100=2,25,000Existing Balance in DRR=Rs 25,000Net Amount to be Transferred=2,25,00025,000=Rs 2,00,000Amount transferred to DRI=9,00,000×15100=1,35,000 (in three equal instalments of 45,000 each)

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