Page 244 - ISCDEBK-12

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

Interest Receivable A/c ...Dr. 8,100
To Interest Accrued But Not Due A/c* 8,100
(Being the Interest Accrued became due)
Bank A/c ...Dr. 45,600
To Debentures Redemption Investment A/c 37,500
To Interest Receivable A/c 8,100
(Being the Investment made in fixed deposit realised)
8% Debentures A/c ...Dr. 2,50,000
Premium on Redemption of Debentures A/c ...Dr. 50,000
To Debentureholders’ A/c 3,00,000
(Being the amount due on 5,000; 8% Debentures on redemption)
Debentureholders’ A/c ...Dr. 3,00,000
To Bank A/c 3,00,000
(Being the payment made to debentureholders)
Debentures Redemption Reserve A/c ...Dr. 62,500
To General Reserve A/c 62,500
(Being the amount of DRR transferred to General Reserve)
Statement of Profit and Loss ...Dr. 20,000
To Interest on Debentures A/c 20,000
(Being the interest transferred)
Interest Earned A/c ...Dr. 2,250
To Statement of Profit and Loss 2,250
(Being the interest earned transferred)

* Interest Accrued but not due on 31st March, 2019 = ` 2,025 (31st March, 2016) + ` 2,025 (31st March, 2017) +
` 2,025 (31st March, 2018) + ` 2,025 (31st March, 2019) = ` 8,100.
Advanced Level Question

Illustration 10.
Master Business Ltd., on 1st July, 2012 issued 27,500, 8% Debentures of ` 50 each at a premium of
10% redeemable at a premium of 20% in five equal annual instalments either by draw of lots or by purchase
from the open market beginning 31st March, 2015. Interest on debentures is payable yearly on 31st March on
which TDS is 10%. Applications were received for 25,000 debentures.
The terms and conditions of issue of debentures provided that the company shall, as far as possible, purchase
debentures from open market and if the debentures could not be purchased from open market then it will resort
to redemption by draw of lots. In case, debentures were to be redeemed by draw of lots, the debentureholders
will be paid nominal (face) value and premium on redemption of debentures.
The company decided to set aside to DRR an amount as prescribed in law in two equal instalments in the years
ended 31st March, 2014 and 2015. The company also decided to invest amount as required in fixed deposit on
1st April, 2014 with Canara Bank earning 10% interest to be realised at the time of last redemption. Bank deducts
TDS every year on interest @ 10%.
The company purchased 5,000, 8% Debentures on 31st March, 2015 at an average price of ` 52 and cancelled them.
The company, on 31st March, 2016, purchased 2,500, 8% Debentures @ ` 62 per debenture and 1,500,
8% Debentures @ ` 61 per debenture. Balance debentures were redeemed by draw of lots.
The company could not purchase any debenture from open market in the year ended 31st March, 2017 and thus,
had to resort to redemption by draw of lots.
Pass Journal entries according to the above transactions for the years ended 31st March, 2015, 2016 and
2017. Also prepare Debentures Redemption Reserve Account, Interest Accrued But Not Due Account,
TDS Payable and TDS Receivable Account.