Question

What journal entries wilt be made in the following case s when company redeems debentures at the expiry of period by serving the notice:

(a) when debentures were issued at par with a condition to redeem them at premium;

(b) when debentures were issued at premium with a condition to redeem that at par; and

(c) when debentures were issued at discount with a condition to redeem them at premium?

Answer 1

$\text{Journal Entries}$
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ \text{(a)}& \text{Debentures A/c}& \text{Dr}& & & \\ & \text{Premium on Redemption of Debentures A/c}& \text{Dr}& & & \\ & \text{To Debentures Holdeers A/c}& & & & \\ & \text{(Being amount due on redemption of}& & & & \\ & \text{debentures)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debentures Holders A/c}& \text{Dr}& & & \\ & \text{To Bank A/c}& & & & \\ & \text{(Being payment made to debentures holders)}& & & & \\ & \underset{–}{}& & & & \\ \text{(b)}& \text{Debentures A/c}& \text{Dr}& & & \\ & \text{To Debentures Holders A/c}& & & & \\ & \text{(Being amount due for redemption of debentures}& & & & \\ & \text{that were issued at premium with term of}& & & & \\ & \text{redeemable at par)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debentures Holders A/c}& \text{Dr}& & & \\ & \text{To BankA/c}& & & & \\ & \text{(Being payment made to debenture holders)}& & & & \\ & \underset{–}{}& & & & \\ \text{(c)}& \text{Debentures A/c}& \text{Dr}& & & \\ & \text{Premium on Redemption on Debenture A/c}& \text{Dr}& & & \\ & \text{To Debentures Holders A/c}& & & & \\ & \text{(Being amount due for redemption on debentures}& & & & \\ & \text{that were issued at discount with the term of}& & & & \\ & \text{redeemable at premium)}& & & & \\ & \underset{–}{}& & & & \\ & \text{Debentures Holders A/c}& \text{Dr}& & & \\ & \text{To Bank A/c}& & & & \\ & \text{(Being payment made to debenture holders)}& & & & \end{array}$

Note : The condition of issue of debenture at par, premi um or discount does not make any effect on the entry of redemption. It is only the premium on redemption (debit) or discount on redemption (credit) that is shown in entry of redemption as in case (c) of this question.