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9.10 Double Entry Book Keeping (Section A)—ISC XII

March 31 Bank A/c ...Dr. 2,55,000
TDS Collected A/c ...Dr. 7,500
To Debentures Redemption Investment A/c 1,87,500
To Interest Earned A/c 75,000
(Being the fixed deposit placed on 1st April, 2015 encashed and interest
earned on the same @ 10% p.a. but received after deducting tax @ 10%
on all debentures having been redeemed)

March 31 Debentures Redemption Reserve A/c ...Dr. 3,12,500
To General Reserve A/c 3,12,500
(Being the DRR closed by transferring it to General Reserve)
March 31 Statement of Profit and Loss ...Dr. 1,00,000
To Interest on Debentures A/c 1,00,000
(Being the interest on debentures transferred)

March 31 Interest Earned A/c ...Dr. 75,000
To Statement of Profit and Loss (Other Income) 75,000
(Being the interest earned transferred)

Working Notes: `
1. Interest = ` 50,00,000 × 8/100 4,00,000
2. 25% of ` 50,00,000 (Face value of Debentures) 12,50,000
Less: Existing Debentures Redemption Reserve (DRR) 9,00,000
DRR to be created before redemption 3,50,000

3. ` 50,00,000 – ` 12,50,000 = ` 37,50,000 (After Redemption)
Interest = ` 37,50,000 × 8/100 = ` 3,00,000
4. Interest = (` 37,50,000 – ` 12,50,000 = ` 25,00,000) × 8/100 = ` 2,00,000.
5. Investment in fixed deposit in terms of Section 71 (4) of the Companies Act, 2013 is assumed to have been
made on 1st April, 2015.
6. Interest on Debentures Account is shown in Statement of Profit and Loss as ‘Finance Costs’.
Illustration 6.
Ashoka Ltd. issued 10,000; 8% Debentures of ` 100 each on 1st September, 2012 redeemable at
a premium of 7% as under:

On 31st March, 2017 5,000 Debentures;
On 31st March, 2018 2,500 Debentures;

On 31st March, 2019 2,500 Debentures.
The company decided to transfer the required amount to Debentures Redemption Reserve
(DRR) in four equal annual instalments starting from 31st March, 2013. The company decided
to make investment in fixed deposit as required by the Companies Act, 2013 on 1st April, 2016.

Pass Journal entries for issue and redemp tion of debentures and transfer to Debentures
Redemption Reserve.