Question

Mansi Ltd. had 6,000; 10% Debentures of ₹ 100 each due for redemption on 31st March, 2019. Assuming that the debentures were redeemed out of profits, pass necessary Journal entries for the redemption of debentures. There was a credit balance of ₹ 6,00,000 in Surplus, i.e., Balance in Statement of Profit and Loss.

Answer 1

Journal

 

Date	Particulars			L.F.	Debit Amount (₹)	Credit Amount (₹)
2018
March 31	Statement of Profit and Loss*	Dr.			6,00,000
	To Debenture Redemption Reserve A/c					6,00,000
	(Surplus amount is transferred to Debenture Redemption Reserve)
April 30	Debenture Redemption Investment A/c**		Dr.		90,000
	To Bank A/c					90,000
	(Investment is made in specified securities equal to 15% of the value of debentures redeemed)
2019
March 31	10% Debentures A/c	Dr.			6,00,000
	To Debentureholders’ A/c					6,00,000
	(Debenture 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	Dr.				6,00,000
	(Payment made to debentureholders)
March 31	Debenture Redemption Reserve A/c	Dr.			6,00,000
	To General Reserve A/c					6,00,000
	(Debenture Redemption Reserve transferred to General Reserve)

*In case of redemption of debentures by profits, 100% of the nominal value of debentures is transferred to DRR A/c.

**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. Accordingly, entries for DRR and Investment have been passed in the previous accounting year.

Note: Entries for interest on debentures have been ignored in the above solution as the question was silent in this regards. However, the students' may journalise the entries related to interest on debentures as given below. 

Journal

Date	Particular		L.F.	Debit Amount (₹)	Credit Amount (₹)
2018 & 2019
Mar. 31	Debenture Interest A/c	Dr.		60,000
	To Debentureholders’ A/c				60,000
	(Interest on 10% debentures due)
Mar. 31	Debentureholders’ A/c	Dr.		60,000
	To Bank A/c				60,000
	(Payment of interest to debentureholders’)
Mar. 31	Statement of Profit and Loss	Dr.		60,000
	To Debenture Interest A/c				60,000
	(Transfer of debenture interest to Statement of Profit and Loss)