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Question
On 1st April, 2012, Neptune Finance Company (a listed NBFC) issued 4,000, 9 % Debentures of ₹ 100 each to be redeemed at a premium of 5% on 31st March, 2021.
You are required to pass necessary journal entries for the issue and redemption of debentures.
Solution
| In the Books of Neptune Finance Company Journal Entries |
||||
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 2012 April 1 |
Bank A/c Dr. To Debenture Application and Allotment A/c |
4,00,000 | 4,00,000 | |
| April 1 | Debenture Application and Allotment A/c Dr. Loss on Issue of Debentures A/c Dr. To 9% Debentures A/c To Premium on Redemption of Debenture A/c (Being 4,000 9% Debentures issued at par and redeemable @ 5% premium) |
4,00,000 |
4,00,000 20,000 |
|
| 2020 April 1 |
Debenture Redemption Investment A/c Dr. To Bank A/c (Being amount invested) |
60,000 | 60,000 | |
| 2021 March 31 |
Bank A/c Dr. To Debenture Redemption Investment A/c (Being DRI realised) |
60,000 | 60,000 | |
| March 31 | 9% Debentures A/c Dr. Premium on Redemption of Debentures A/c Dr. To Debentureholders A/c (Being amount due) |
4,00,000 20,000 |
4,20,000 | |
| March 31 | Debentureholders A/c Dr. To Bank A/c (Being amount paid) |
4,20,000 | 4,20,000 | |
Note: A listed NBFC is not required to create DRR but has to invest 15% of the value in DRI (Debenture Redemption Investment).
Working Notes:
- Premium on Redemption of Debentures = 5 % × ₹ 4,00,000 = ₹ 20,000
- Amount invested in Debenture Redemption Investment = 15% × ₹ 4,00,000 = ₹ 60,000
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