Important Questions Class 12 Accountancy Chapter 9 Company Accounts Redemption of Debentures -CoolGyan

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CBSE Class 12 Accountancy Important Questions Chapter 9 Company Accounts – Redemption of Debentures

Redemption Methods : (1) Redemption in Lump-sum
(A) Redemption at Par
Illustration 1 : X Ltd. Redeemed its 10,000 10% Debentures of L10 each at par on 31st March 2015.
X Ltd.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2014 Apr. 30	Debentures Redemption Investment A/c Dr.		15,000
	To Bank A/c			15,000
	(Being investment mode in specified securities)
2015 31^st March	Balance in statement of Profit & Loss A/c Dr.		25,000
	To Debentures Redemption reserve A/c			25,000
	(Being transfer of profit to Debentures Red. Reserve)
	Bank A/c Dr.		15,000
	To Debentures Redemption investment A/c			15,000
	(Investment being encashed)
31^st March	10% Debentures A/c		1,00,000
	To Debenture holder A/c			1,00,000
	(Being the amount paid to Debenture holders)
31^st March	Debentures holder A/c		1,00,000
	To Bank A/c			1,00,000
	(Being the amount paid to Debenture holders)
31^St March	Debenture redemption A/c		25,000
	To General Reserve A/c			25,000
	(Being DRR A/c Closed by transfer to General Reserve A/c after redemption of all Debentures)

(B) Redemption at Premium
Illustration 2: Z Ltd. Redeemed its 1,00,000 10% Debentures of Rs. 10 each at 5% premium on 31 March, 2015.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2014 Apr. 30	Debentures Redemption Investment A/c Dr.		1,50,000
	To Bank A/c			1,50,000
	(Being Investment made)
2015 31^st March	Balance in statement of Profit & Loss A/c Dr.		2,50,000
	To Debentures Redemption Reserve A/c			2,50,000
	(Being transfer of profit to Debentures Redemption Reserve)
2015 March 31	Bank A/c Dr.		1,50,000
	To Deb. Redemption Investment A/c Dr.			1,50,000
	(Being investment encashed)
31^st March	10% Debentures A/c Dr.		10,00,000
	Premium on Redemption of Debentures A/c Dr.		50,000
	To Debenture holders A/c			10,50,000
	(Being the amount due to Debenture holders)
31^st March	Debentures holders A/c Dr.		10,50,000
	To Bank A/c			10,50,000
	(Being the amount paid to Debenture holders)
31^st march	Debentures Redemption Reserve A/c Dr.		2,50,000
	To General Reserve A/c			2,50,000
	(Being DRR A/c Closed by transfer to General Reserve A/c after redemption of all Debentures)

Illustration 3 : Rajesh Export Ltd. has 2,000, 9% Debentures of Rs.100 each due on redemption on 31st march 2015. Debentures redemption reserve has a balance of Rs. 30,000 on that date. Record the necessary journal entries at the time of redemption of debentures.
Illustration 4: Rahul Ltd. has 50,000 9% Debentures of Rs. 50 each due on redemption on 31^st March 2015. Debentures redemption reserve has a balance of Rs. 5,00,000 on that date. Record the necessary journal entries at the time of redemption of debentures.
Rajesh Export Ltd.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2014 31^st March	Balance in statement of profit & loss A/c Dr.		20,000
	To Debentures Redemption Investment A/c Dr.			20,000
	(Being transfer of profit to Debentures Redemption Reserve)
2014 apr. 30	Debentures Redemption Investment A/c Dr.		30,000
	To Bank A/c			30,000
	(Being Investment in Specified Securities made)
31^st March	10 % Debentures A/c Dr.		2,00,000
	To Debenture holders A/c			2,00,000
	(Being the amount due to Debenture holders)
31^st March	Debentures holders A/c Dr.		2,00,000
	To Bank A/c			2,00,000
	(Being the amount paid to Debenturesholders)
2015 Mar. 31	Bank A/c Dr.		30,000
	To Deb. Redemption Investment A/c			30,000
	(Being Investment Encashed)
31^st March	Debentures Redemption Reserve A/c Dr.		50,000
	To General Reserve A/c			50,000
	(Being DRR A/c closed by transfer to General Reserve A/c after redemption of all Debentures)

Illustration 4 : Rahul Ltd. has 50,000 9% Debentures of Rs. 50 each due on redemption on 31st March 2015. Debentures redemption reserve has a balance of Rs. 5,00,000 on that date. Record the necessary journal entries at the time of redemption of debentures.

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2014 31^st March	Balance in Statement of Profit & Loss A/c Dr.		1,25,000
	To Debentures Redemption Reserve A/c			1,25,000
	(Being transfer of profit to Debenture Redemption Reserve)
2014 Apr. 30	Debentures Redemption Investment A/c Dr.		75,000
	To bank A/c			75,000
	(Being Investment in specified securities made)
31^st March	10 % Debentures A/c Dr.		25,00,000
	To Debenture holders A/c			25,00,000
	(Being the amount due to Debenture holders)
31^st March	Debenture holders A/c Dr.		25,00,000
	To Bank A/c			6,25,000
	(Being the amount paid to Debenture holders)
2015 31^st Match	Bank A/c Dr.		75,000
	To Deb. Redemption Investment A/c			75,000
	(Being Investment Encashed)
31^st March	Debentures Redemption Reserve A/c Dr.		6,25,000
	To General Reserve A/c			6,25,000
	(Being DRR A/c Closed by transfer to General Reserve A/c after redemption of all Debentures)

Illustration 5 : HDFC Bank Ltd. has outstanding 10,000, 9% Debentures of Rs.50 each due on redemption on 31st March 2015. Record the necessary journal entries at the time of redemption of debentures.
Rajesh Export Ltd.

Date	Particulars	L.F.	Debit (Rs.)	Credit(Rs.)
2015 31^st March	10 % Debentures A/c Dr.		5,00,000
	To Debenture holders A/c			5,00,000
	(Being the amount due to Debenture holders)
31^st March	Debenture holders A/c		5,00,000
	To Bank A/c			5,00,000
	(Being the amount paid to Debenture holders)

Note: The Banking Companies are exempted from creating DRR as per Rule 18 (7) of companies (Share Capital and Debentures) Rules, 2014.
Illustration 6 : ICICI Bank Ltd., a Banking company has outstanding 10 lac, 9% Debentures of Rs.5 each due for redemption on 30st Sept. 2015. Record the necessary entries at the time of redemption of debentures.
Solution :
Journal of AN power Ltd.
(Rs. In lac)

Date	Particulars	L.F	Debit (Rs.)	Credit (Rs.)
2015 30^th Sept.	9% Debentures A/c Dr.		50
	To Debenture holders A/c			50
	(Being the amount due to Debenture holders on Redemption)
30^th Sept.	Debenture holders A/c Dr.		50
	To Bank A/c			50
	(Being the amount due to Debenture holders paid)

Note : As per SEBI Guideline, Banking companies are exempted from creating Debenture Redemption Reserve.
Illustration 7 : Abha Ltd. has 5,000 10% Debentures of Rs.20 each due for redemption on 30th Sept. 2015. Debenture Redemption Reserve has a balance of Rs.20,000 on that date. Record the necessary entries at the time of redemption of debentures.
Journal in the Books of Abha Ltd.

Date	Particulars	L.f	Debit(Rs.)	Credit(Rs.)
2015 Apr. 30	Debentures Redemption Investment A/c Dr.		15,000
	To Bank A/c			15,000
	(Being investment made).
2015 30^th Sept.	Balance in Statement of Profit and Loss A/c Dr.		5,000
	To Debentures Redemption Reserve A/c			5,000
	(Being the required amount transfer to DRR)
2015	Bank A/c Dr.		15,000
	To Debentures Redemption Investment A/c			15,000
	(Being Investment encashed)
30^th Sept.	10% Debentures A/c Dr.		1,00,000
	To Debenture holders A/c			1,00,000
	(Being the amount due to Debenture holders on redemption)
30^th Sept.	Debentures holders A/c		1,00,000
	To bank A/c			1,00,000
	(Being the amount due to Debenture holders paid)
30^th Sept	Debenture Redemption Reserve A/c Dr.		25,000
	To General Reserve A/c			25,000
	(Being the DRR Transfer to General Reserve)

Illustration 8: Vivek Transport Ltd. has 5,000; 10% Debentures of Rs. 20 each due for redemption on 30^th sept. 2015. Debentures Redemption Reserve has a balance of Rs. 80,000 on that date. Record the necessary entries at the time of redemption of debentures.
Solution:
Journal in the Books of Vivek Transport Ltd.

Date	Particulars	L.F	Debit(Rs.)	Credit(Rs.)
2015 30Apr.	Debentures Redemption Investment A/c Dr.		15,000
	To bank A/c			15,000
	(Being investment made for Debentures redemption)
30 sep.	Balance in Statement of Profit/loss A/c Dr.		20,000
	To Debentures Redemption Reserve A/c			20,000
	(Being Deb. Red. Reserve Created upto 100% of amount of Debentures.)
30 Sep.	Bank A/c Dr.		15,000
	To Debentures Red. Investment A/c			15,000
	(Being investment encased)
30 Sep.	10% Debentures A/c Dr.		1,00,000
	To Debentures A/c			1,00,000
	(Being amount due to Debentures holders on Red.)
30 sep.	Debentures holders A/c Dr.		1,00,000
	To Bank A/c			1,00,000
	(Being amount paid to Debentures holders)
30 sep.	Debentures Red. Reserve A/c		1,00,000
	To General Reserve A/c			1,00,000
	(Being Deb. Red. Res. Amount transferred is Gen. Reserve)

Illustration 9: Rahul Ltd. Redeemed Rs. 25,00,000; 12% Debentures at a premium of 5% out of profit on 30^th Sept., 2015. Pass the necessary journal entries for the redemption of Debentures.
Solution :
Journal in the Books of Rahul Ltd.

Date	Particulars	L.F	Debit (Rs.)	Credit(Rs.)
2015	Debentures Redemption investment A/c dr.		3,75,000
	To Bank A/c			3,75,000
	(Being investment made equal to 15% of the debentures be redeemed in current financial year)
30 Sep.	Bank A/c Dr.		3,75,000
	To Debentures Redemption investment A/c			3,75,000
	(Being Deb. Red. Investment encashed)
30. Sep.	Balance in Statement of Profit & Loss A/c Dr.		25,00,000
	To Debentures Red. Reserve A/c			25,00,000
	(Being amount equal to 100% of Debenture amount transferred to Deb. Red. Reserved A/c)
30 Sep.	12% Debentures A/c Dr.		25,00,000
	Premium on Red. Of Debentures A/c Dr.		1,25,000
	To Debentures holders A/c			26,25,000
	(Being the amount due to Debentures holders)
30 Sep.	Bank A/c Dr.		3,75,000
	To Deb. Red. Investment A/c			3,75,000
	(Being Deb. Red. Investment encashed)
30 Sep.	Debenture holders A/c		26,25,000
	To bank A/c			26,25,000
	(Being Payment made to Debentures holders)
30 sep.	Debentures Redemption Reserve A/c Dr.		25,00,000
	To Gern. Reserve A/c			25,00,000
	(Being DRR transferred to General Reserve)

Redemption method : 2 Draw of lots
Illustration 10 : S Ltd. redeemed its Rs.10,000, 8% Debentures out of capital by drawing a lot on 30 Nov. 2015. Journalise.
Solution:
Journal of S. Ltd.

Date	Particulars	L.F	Debit(Rs.)	Credit(Rs.)
2015 Apr. 30	Debentures Redemption Investment A/c Dr.		1,500
	To Bank A/c			1,500
	(Being investment in specified securities made)
2015 30^th Nov.	Balance in Statement of Profit & Loss A/c Dr.		2,500
	To Debentures Redemption Reserve A/c Dr.			2,500
	(Being transfer of profit to Debentures Redemption Reserve)
	Bank A/c Dr.		10,000
	To. Deb. Redemption Investment A/c			10,000
	(Being Investment encashed)
30^th Nov.	10% Debentures A/c		10,000
	To Debenture holders A/c			10,000
	(Being the amount due to Debenture holders)
30^thNov.	Debentures holders A/c Dr.		10,000
	To Bank A/c			10,000
	(Being the amount paid to Debenture holders)

Note: The DRR Balance will be transferred to General Reserve after all the debentures are redeemed.)
Illustration 12: Y Ltd redeemed its Rs. 20,000, 9% debentures out of profit by drawing of lot on 30^thNov. 2015 Journalise.
Y Ltd.

Date	Particulars	L.F	Debit(Rs.)	Credit(Rs.)
2015 Apr. 30	Deb. Redemption Investment A/c Dr.		3,000
	To Bank A/c			3,000
	(Being Investment Made)
2015 30^th Nov.	Balance in Statement of profit & Loss A/c Dr.		5,000
	To Debentures Redemption Reserve A/c			5,000
	(Being transfer of profit to Debentures Redemption Reserve)
2015 Nov. 30	Bank A/c Dr.		3,000
	To Deb. Redemption Investment A/c			3,000
	(Being Investment encashed)
30^th Nov.	10% Debentures A/c		20,000
	To Debentures holders A/c			20,000
	(Being the amount due to Debentures)
30^th Nov.	Debentures holders A/c		20,000
	To Bank A/c			20,000
	(Being the amount paid to Debenture holders)

Note: The DRR Balance will be transferred to General Reserve after all the debenture are redeemed.
Illustration 13: Pass the necessary journal entries for the issue and redemption of Debentures in the following cases:
(i) 10,000, 10% Debentures of Rs. 120 each issued at 5% premium, repayable at par.
(ii) 20,000, 9% Debentures of Rs. 200 each issued at 20% premium, repayable at 30% premium.
Journal

Date	Particulars	L.F	Debit(Rs.)	Credit(Rs.)
(i)	Bank A/c Dr.		12,60,000
	To Debentures application and Allotment A/c			12,60,000
	(Being receipt of Application money)
	Debentures Application and Allotment A/c Dr.		12,60,000
	To 10% Debentures A/c			12,00,000
	To Securities Premium A/c			60,000
	(Being Issue of 10% Debenture at Premium Redeemable at par)
At the time of redemption	10% Debentures A/c		12,00,000
	To Debentures Holders A/c			12,00,000
	(Being amount due to Debentures holders)
	Debentures holders A/c		12,00,000
	To bank A/c			12,00,000
	(Being the amount paid to debentures)
(ii)	Bank A/c Dr.		48,00,000
	To Debentures Application and Allotment A/c			48,00,000
	(Being Receipt of Application money)
	Debentures Application and Allotment A/c Dr.		48,00,000
	Loss on Issue of Debentures A/c Dr.		12,00,000
	To 9% Debentures A/c			40,00,000
	To Securities Premium Reserve A/c			8,00,000
	To Premium on Redemption of Debentures A/c			12,00,000
	(Being Issue of 9% Debentures at premium redeemable at premium)
At the time of redemption	9% Debentures A/c Dr.		40,00,000
	Premium on Redemption of Debentures A/c		12,00,000
	To Debentures holders A/c			52,00,000
	(Being amount due to Debentures holder)
	Debenture holders A/c Dr.		52,00,000
	To bank A/c			52,00,000
	(Being the amount paid to Debentures holders)

Illustration 14: Raj Electrical Ltd. had Rs.5,00,000; 10% Debentures of Rs.100 each outstanding on 31st Jan 2015. On this date, company decided to purchase Rs.50,000 worth debentures at Rs.97 in the open market.
Give Journal entries if:
(i) Debentures are purchased for immediate cancellation.
(ii) Debentures are purchase as investment (A), and on 31st March 2015 sold for Rs.52,000 or (B) if cancelled on 31st March, 2015 (treatment of interest is to be ignored).
Solution :
I. Debentures Purchased for Cancellation
Journal

Date	Particulars	L.F	Debit(Rs.)	Credit(Rs.)
2015 Jan. 31	Own Debentures A/c Dr.		48,500
	To Bank A/c			48,000
	(Rs. 50,000 debentures Purchased at Rs. 97 per debenture for cancellation)
Jan. 31	10% Debentures A/c Dr.		50,000
	To own Debentures A/c			48,500
	To profit on Cancellation of own Debentures A/c			1,500
	(Cancellation of own Debenture)
	Profit Cancellation of own Debentures A/c Dr.		1,500
	To capital Reserve A/c			1,500
	(Profit Cancellation transferred to capital Reserve)

II. When Debentures are purchased as investment.
Journal

Date	Particulars	L.F	Debit(Rs.)	Credit(Rs.)
2015 Jan 31.	Investment in own Debentures A/c Dr.		48,500
	To Bank A/c			48,500
	(Purchase of 500 Debentures @ Rs. 97 each as investment)

II. (A) If Debentures Purchases as investment at investment are sold for Rs. 52,000 on 31^st march, 2014
Journal

Date	Particulars	L.F	Debit (Rs.)	Credit(Rs.)
2015 Mar. 31	Bank A/c Dr.		52,000
	To investment in own Debentures A/c			48,500
	To profit on sale of Own Debenture A/c			3,500
	(Sale of investment in own debentures)
Mar. 31	Profit on sale of Own Debentures A/c Dr.		3,500
	To Statement of Profit & Loss A/c			3,500
	(Profit on sale of own debentures transferred to statements of P/L

II. (B) If Debentures Purchase as investment are cancelled.

Date	Particulars	L.F	Debit (Rs.)	Credit(Rs.)
2015 Mar. 31	10% Debentures A/c Dr.		50,000
	To Investment in own Debentures A/c			48,500
	To profit on Cancellation of Own Debentures A/c			1,500
	(Being own Debentures Concealed)
Mar. 31	Profit on Cancellation of own Deb. A/c Dr.		1500
	To Capital Reserve A/c			15000
	(Being Profit on Cancelation transferred to capital reserve)

Illustration 15: If in illustration no. 14. Interest on debentures to be provided on 30^th Sept, 31^st March every year. Give the journal entries for int. on debentures on 31^st March, 2015.
Solution:
Journal

Date	Particulars	L.F	Debit(Rs.)	Credit(Rs.)
2014 Mar 31	Debentures Interest A/c Dr.		25,000
	To Debentures holders A/c			22,500
	To Interest on own debentures A/c			2,500
	(Inst. On Rs. 4,50,000 Debentures @ 10% p.a. for half year and on Rs. 50,000 own Deb.)
Mar. 31	Debenture holders A/c Dr.		22,500
	To Bank A/c			22,500
	(Interest Paid no Rs. 4,50,000 Debentures)
Mar. 31	Statement of Profit & Loss Dr.		50,000
	To Debentures interest A/c			50,000
	(Interest of whole year transferred to statement of profit & Loss)
Mar. 31	Interest on own Debentures A/c Dr.		2,500
	To statement of Profit & Loss			2,500
	(Interest earned on own debentures transferred to statement of Profit & Loss)

Questions 1: Fill the missing figures in the following journal entries
Journal Entries

Date	Particulars	L.F	Debit(Rs.)	Credit(Rs.)
2014 April, 30	Debentures Redemption Investment A/c Dr.		….
	To Bank A/c			….
	(Being Investment @ 15% of the redeemable debenture made as per rule 18 (7))
2015 March, 31	Bank A/c Dr.		….
	To Debentures Redemption Investment A/c			….
	(Being Investment encashed)
“	Balance in statement of P&L A/c Dr.		….
	To Debenture Redemption Reserve A/c			….
	(Being profits transferred to DRR as per Rule 18 (7))
“	8% Debenture A/c Dr.		6,00,000
	Premium Redemption of Deb. A/c Dr.		….
	To Debentures holders A/c			….
	(Being amount of 8% Debentures of Rs. 100 due redemption at 5% premium)
“	Debenture holders A/c Dr.		….
	To Bank A/c			….
	(Being Payment Made)
“	Debentures Redemption Resour A/c Dr.		….
	To General Reserve A/c			….
	(Being amount of DRR transferred to General Reserve A/c

Question 2: Filling the missing figures
Journal Entries

Date	Particulars	L.F	Debit (Rs.)	Credit(Rs.)
	Case 1
	Own Debentures A/c Dr.		….
	To bank A/c			….
	(Being 500 own debentures of Rs. 97 for immediate cancellation)
	10% Debentures A/c Dr.		….
	To own Debentures A/c			….
	To Profit on Redemption of Deb. A/c
	(Being own debentures cancelled)
	…………………A/c Dr.		….
	To ……………..A/c			….
	(Being profit on redemption transferred to capital Reserve)
	Case 2
	……………………A/c Dr.		….
	To bank A/c			….
	(Being 200 own debentures of Rs. 100 each purchased at Rs. 96 plus 150 for brokerage)
	8% Debentures A/c Dr.		….
	To own Debentures A/c			….
	To …………… A/c			….
	(Being own debentures cancelled)
	Profit and Redemption of Deb. A/c Dr.		….
	To…………………… A/c			….
	(Being profit an Redemption transferred)

Question 3: Filling the missing information in following journal entries
Journal Entries

Date	Particulars	L.F	Debit (Rs.)	Credit (Rs.)
2012 Apr. 1	Bank A/c		….
	To Debentures Application and Allotment A/c			….
	(Being Application money received)
“	Debentures Application and Allotment A/c Dr.		….
	Loss as issue of Debenture A/c Dr.		….	20,000
	To Premium on Redemption of Debentures A/c			….
	(being Debentures issued to discount of 5% repayable at 10% premium)
2014 Apr. 30	Debentures Redemption Investment A/c Dr.		….
	To Bank A/c			….
	(Being Investment @ 15% of Redeemable amount mode in specified securities)
2015 March 31	Bank A/c		….
	To Debentures Redemption Investment A/c			….
	(Being investment encashed)
“	Balance in Statement of P/L A/c Dr.		….
	To Debenture Redemption Reserve A/c			….
	(Being profit transferred to DRR)
	8% Debentures A/c Dr.		….
	Premium Redemption of Deb. A/c Dr.		….
	To Debenture holders A/c			….
	(Being Debenture due for redemption)
	Debenture holders A/c		2,20,000
	To Bank A/c			2,20,000
	(Being Debenture paid to Debenture holders)
	Debenture Redemption Reserve A/c Dr.		….
	To General Reserve A/c			….
	(Being Balance in DRR transferred to General Reserve)