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Question
On 1st April, 2022, Resorts Ltd. (a listed construction company) had 60,000, 5% Debentures of ₹ 100 each due for redemption at par on 31st March, 2023.
As per the law, investment was made in a fixed deposit of a bank on 30th April, 2022, earning interest @ 5% per annum.
Tax @ 10% was deducted by the bank on the interest.
You are required to pass necessary journal entries in the year of redemption of debentures, including entries for interest on Debenture Redemption Investment. (Ignore the interest on Debentures)
Solution
| In the Books of Resorts Ltd. Journal Entry |
||||
| Date | Particulars | L. F. | Dr. (₹) | Cr. (₹) |
|
2022 |
||||
|
1st April |
Surplus in Statement of Profit & Loss ...Dr. | 6,00,000 | ||
| To Debenture Redemption Reserve A/c | 6,00,000 | |||
| (Being 10% debenture redemption reserve A/c) | ||||
| 30th April | Debenture Redemption Investment A/c ...Dr. | 9,00,000 | ||
| To Bank A/c | 9,00,000 | |||
| (Being Debenture Redemption Investment made @ 15% of a debenture value to be redeemed) | ||||
|
2023 |
||||
| 31st Mar. | Bank A/c ...Dr. | 9,37,125 | ||
| TDS collected (Receivable) A/c ...Dr. | 4,125 | |||
| To Debenture Redemption Investment A/c | 9,00,000 | |||
| To Interest on Debenture Redemption Investment A/c `(9,00,000xx5/100xx11/12)=41,250` | 41,250 | |||
| (Being investments encashed) | ||||
| 31st Mar. | 5% Debentures A/c ...Dr. | 60,00,000 | ||
| To Debentureholders A/c | 60,00,000 | |||
| (Being amount payable to debenture holders made due) | ||||
| 31st Mar. | Debentureholders A/c ...Dr. | 60,00,000 | ||
| To Bank A/c | 60,00,000 | |||
| (Being payment to debentureholders) | ||||
| 31st Mar. | Interest on Debenture Redemption Investment A/c ...Dr. | 41,250 | ||
| To Statement of Profit & Loss | 41,250 | |||
| (Being interest received on investments transferred to statement of profit & loss) | ||||
| 31st Mar. | Debenture Redemption Reserve A/c ...Dr. | 6,00,000 | ||
| To General Reserve A/c | 6,00,000 | |||
| (Being balance of debenture redemption reserve transferred to General reserve) | ||||
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Fill in the blank.
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| Debenture Redemption Reserve | ₹ 5,00,000 |
The Debenture Redemption Investment, which was purchased by the company on 1st April, 2022, was realised at 101% on the date of redemption and the debentures were redeemed on the due date.
You are required to prepare the following accounts for the year 2022-23 in the books of Alpha Pvt. Ltd.
- Debenture holders' Account.
- Debenture Redemption Investment Account.
