Page 233 - ISCDEBK-12

Joint Stock Company—Redemption of Debentures 9.7

Debentures Application and Allotment A/c ...Dr. 10,00,000
Loss on Issue of Debentures A/c ...Dr. 50,000
To 9% Debentures A/c 10,00,000
To Premium on Redemption of Debentures A/c 50,000
(Being the allotment of 10,000; 9% Debentures of ` 100 each at par
redeemable at a premium of 5%)
2015
March 31 Statement of Profit and Loss ...Dr. 50,000
To Loss on Issue of Debentures A/c 50,000
(Being the loss written off)
2018
March 31 On Creation of DRR
Surplus, i.e., Balance in Statement of Profit and Loss A/c ...Dr. 2,50,000
To Debentures Redemption Reserve A/c 2,50,000
(Being the transfer of profit to DRR equivalent to 25%
of the nominal value of outstanding debentures)
April 1 On Investment being made
Debentures Redemption Investment A/c ...Dr. 1,50,000
To Bank A/c 1,50,000
(Being the amount equal to 15% of the value of debentures
invested, earning interest @ 6% p.a.)
2019 On Redemption of Debentures
March 31 Bank A/c ...Dr. 1,59,000
To Debentures Redemption Investment A/c 1,50,000
To Interest Earned A/c 9,000
(Being the investment bearing interest @ 6% p.a. encashed on
redemption of debentures)
9% Debentures A/c ...Dr. 10,00,000
Premium on Redemption of Debentures A/c ...Dr. 50,000
To Debentureholders’ A/c 10,50,000
(Being the amount payable on redemption, transferred to
Debentureholders’ Account)
Debentureholders’ A/c ...Dr. 10,50,000
To Bank A/c 10,50,000
(Being the amount paid to debentureholders on redemption)
Debentures Redemption Reserve A/c ...Dr. 2,50,000
To General Reserve A/c 2,50,000
(Being the transfer of Debentures Redemption Reserve to
General Reserve after redemption of debentures)
Interest Earned A/c ...Dr. 9,000
To Statement of Profit and Loss (Other Income) 9,000
(Being the interest on DRI transferred)
Illustration 5.
Pragati Ltd. has 50,000; 8% Debentures of ` 100 each due for red emption in four equal annual
instalments starting from 31st March, 2016. Debentures Redemption Reserve has a balance of
` 9,00,000 on that date. The company pays interest annually and deducted tax @ 10% on interest
payment and deposits in Government Account on due date.
Pass Journal entries for investment, redemption of debentures and payment of interest
on debentures. The company made investment in fixed deposit with bank earning interest
@ 10% p.a. Bank deducted TDS @ 10%.