Page 206 - MA-12

8.14 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)
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, 2017 = ` 2,025 (31st March, 2014) + ` 2,025 (31st March, 2015) +
` 2,025 (31st March, 2016) + ` 2,025 (31st March, 2017) = ` 8,100.
Illustration 7.
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, 2013 and 2014. 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.