Page 229 - ISCDEBK-12

Joint Stock Company—Redemption of Debentures 9.3

Solved Questions

Illustration 1.
Brooke Bond Ltd. had 10,000, 12% Debentures of ` 100 each outstanding as at 31st March,
2017. These debentures were due for redemption on 30th June, 2018. The company decided to
transfer ` 5,00,000 to Debentures Redemption Reserve on 31st March, 2018 and invest in fixed
deposits with Canara Bank ` 1,50,000 on 1st April, 2018.
Pass Journal entries for Debentures Redemption Reserve, Debentures Redemption Investment
and redemption of debentures.
Solution: JOURNAL OF BROOKE BOND LTD.

Date Particulars L.F. Dr. (`) Cr. (`)
2018
March 31 Surplus, i.e., Balance in Statement of Profit and Loss A/c ...Dr. 5,00,000
To Debentures Redemption Reserve A/c 5,00,000
(Being the amount transferred to DRR)
April 1 Debentures Redemption Investment A/c ...Dr. 1,50,000
To Bank A/c 1,50,000
(Being the amount invested in fixed deposit with bank)
June 30 Bank A/c ...Dr. 1,50,000
To Debentures Redemption Investment A/c 1,50,000
(Being the Debentures Redemption Investment realised)
12% Debentures A/c ...Dr. 10,00,000
To Debentureholders’ A/c 10,00,000
(Being the amount due to debentureholders on redemption)
Debentureholders’ A/c ...Dr. 10,00,000
To Bank A/c 10,00,000
(Being the amount paid to debentureholders)
Debentures Redemption Reserve A/c ...Dr. 5,00,000
To General Reserve A/c 5,00,000
(Being transfer of DRR to General Reserve)
Illustration 2.
Nikhil Cosmetics Ltd. issued 21,000; 7% Debentures of ` 100 each on 31st March, 2010
redeemable at a premium of 8% on 30th June, 2018. The Company decided to transfer the
required amount to Debentures Redemption Reserve in three equal annual instalments starting
from 31st March, 2016. The company invested the funds as required by law in fixed deposit
in a bank on 1st April, 2018 earning interest @ 10% p.a. Tax was deducted on interest earned
@ 10% by the bank.
Interest on Debentures was payable annually on 31st March. Tax on interest was deducted
@ 10% and deposited.
Pass Journal entries for issue, redemption of debentures and interest on debentures for the
years ended 31st March, 2018 and 2019.