Question

On 1st April 2014, KK Ltd. invited applications for issuing 5,000 10% debentures of Rs 1,000 each at a discount of 6%. These debentures were repayable at the end of the 3rd year at a premium of 10%. Applications for 6,000 debentures were received and the debentures were allotted on pro-rata basis to all the applicants. Excess money received with applications was refunded.

The directors decided to transfer the minimum amount to Debenture Redemption Reserve on 31.3.2016. On 1.4.2016, the company invested the necessary amount in 9% bank fixed deposit as per the provisions of the Companies Act 2013. A tax was deducted at source by bank on interest @10% p.a.

Pass the necessary journal entries for issue and redemption of debentures. Ignore entries relating to writing off a loss on issue of debentures and interest paid on debentures.

Answer 1

In the books of KK Ltd. Journal
Date	Particulars	L.F	Dr. Rs	Cr. Rs
2014 Apr 1	Bank A/c             Dr.        To Debenture Application & Allotment A/c (Being debenture application money received @ Rs 940 on 6,000 debentures)		56,40,000	56,40,000
Apr 1	Debenture Application & Allotment A/c       Dr. Loss on Issue of Debentures A/c (3,00,000 + 5,00,000)   Dr        To 10% Debenture A/c         To Premium on Redemption of Debenture A/c         To Bank A/c (1000*940) (Being debentures allotted at a discount of 6% to be redeemable at a 10% premium. Excess refunded.)		56,40,000 8,00,000	50,00,000 5,00,000 9,40,000
2016 Mar 31	Balance in Statement of Profit & Loss A/c      Dr         To Debenture Redemption Reserve A/c (Being DRR created at 25%)		12,50,000	12,50,000
Apr 1	Debenture Redemption Investment A/c    Dr.       To Bank A/c (Being DRI in 9% Fixed deposit @ 15% of Debenture Face Value)		7,50,000	7,50,000
2017 Mar 31	10% Debenture A/c      Dr. Premium on Redemption of Debentures A/c    Dr.       To Debentureholders A/c (Being debenture and premium repayment due)		50,00,000 5,00,000	55,00,000
Mar 31	Bank A/c       Dr. Income Tax Paid A/c   Dr.    To Debenture Redemption Investment A/c    To Interest on Debenture Redemption Investment A/c (Being DRI matured and 9% Interest received thereon. Tax Deducted at source being 10% of the interest)		8,10,750 6,750	7,50,000 67,500
Mar 31	Debentureholders A/c      Dr.        To Bank A/c (Being amount paid to Debentureholders)		55,00,000	55,00,000
Mar 31	Debenture Redemption Reserve A/c      Dr.       To General Reserve A/c (Being DRR transferred to General Reserve)		12,50,000	12,50,000