Prof.

ARUP BANIK
Assistant Professor
Department of Commerce
Raja Peary Mohan College

Problem – 2 (Redemption by Lumpsum) (S.M book problem no. 10)

R. Ltd issued ₹6,00,000, 13% debentures of ₹100 each on 1st April,2015 at a premium of
6%. Such debentures were redeemable at a premium of 10% on 31 st March,2019. The
debentures were redeemed on due date. Assume that the required minimum investment
was made by the company in 10% Govt securities on the last date meant for the purpose
of this redemption. Show the necessary journal entries to record the above transactions.

Solution :
In the books of R Ltd.
Journal
Date Particulars Amount(₹) Amount(₹)
01/4/2015 Bank A/C…………………………………..Dr. 6,36,000
Loss on issue of debenture A/C…………...Dr. 60,000
To 13% Debentures A/C 6,00,000
To Securities Premium A/C 36,000
To Premium on redemption of 60,000
debentures
(Being ₹6,00,000, 13% debentures of
₹100each issued at 6% premium and
redeemable at 10% premium as per board
resolution no….dated….)
30/4/2018 Debenture redemption Investment A/C….Dr 90,000
To Bank A/C 90,000
(Being minimum statutory Debenture
redemption investment made in 10%
Government securities )
31/3/2019 Surplus A/C………………………….….Dr 1,50,000
To Debenture redemption Reserve A/C 1,50,000
(Being statutory minimum amount transferred
to debenture redemption reserve as per board
 resolution….dated…..)
31/3/2019 Bank A/C ………………………..…..…Dr 98,250
To Debenture redemption investment A/C 90,000
To Interest on debenture redemption
investment A/C 8,250
(Being amount realized from debenture
redemption investment including interest there
on)
31/3/2019 13% Debentures A/C………………...Dr 6,00,000
Premium on redemption of debenture A/C....Dr 60,000
To 13% Debentures holders A/C 6,60,000
( Being the amount due on redemption of 13%
debentures transferred to debentures holders
A/C)
31/3/2019 13% Debenture holders A/C………….….Dr 6,60,000
To Bank A/C 6,60,000
( Being payment made on 13% debenture
holder on redemption)
31/3/2019 Debenture Redemption Reserve A/C……Dr 1,50,000
To General reserve A/C 1,50,000
(Being debenture redemption reserve
associated with 13% debentures redeemed,
transferred to general reserve)
31/3/2019 Interest on Debenture redemption investment 8,250
A/C……Dr
To Profit and Loss A/C 8,250
(Being interest received on investment in DRI
transferred)

Working Notes 1: Calculation of amount to be transferred to DRR

Face value of debentures to be redeemed ₹6,00,000
Minimum amount transferred to DRR 25% of ₹6,00,000 = ₹1,50,000
Working Notes 2: Calculation of minimum amount of investment in DRI
Face value of debentures to be redeemed ₹6,00,000
Minimum amount investment in DRI 15% of ₹6,00,000 = ₹90,000
Working Notes 3: Calculation of interest on DRI
11
90,000 X 10% X = 8,250
12

Problem – 3 (Redemption by Lumpsum) (S.M book problem no. 11)

Y Ltd. has 80,000, 12% debentures of ₹100 each redeemable at par on 31/3/2019. On 1 st
April,2018 the balance of the debenture redemption reserve stood at ₹15,20,000. Any
transferred to DRR, if required, is to be made on 10/4/2018. The mandatorily required
debenture redemption investment was made by investing the minimum amount in
specified bonds on the last date meant for the purpose of this redemption. The debentures
were duly redeemed on the due date. On that date the investment realized at 110% less 5%
brokerage. Show the necessary journal entries to record the above transactions.

Solution :
In the books of Y Ltd.
Journal
Date Particulars Amount(₹) Amount(₹)
10/4/2018 Surplus A/C……………………………..Dr. 4,80,000
To Debenture redemption reserve A/C 4,80,000
(Being required amount transferred to debenture
redemption reserve as per board resolution
no….dated….)
30/4/2018 Debenture redemption Investment A/C…..….Dr 12,00,000
To Bank A/C 12,00,000
(Being statutory minimum Debenture
redemption investment made in specified 10%
Bonds )
31/3/2019 Bank A/C ………………………….……..…Dr 12,54,000
To Debenture redemption investment A/C 12,00,000
To Profit on sale of DRI A/C (balancing fig) 54,000
(Being amount realized from sale of debenture
redemption investment at a profit for the
purpose of redemption)
 31/3/2019 12% Debentures A/C………………………..Dr 80,00,000
To 12% Debentures holders A/C
( Being the amount due on redemption of 12% 80,00,000
debentures transferred to debentures holders
A/C)

31/3/2019 12% Debenture holders A/C……………..….Dr 80,00,000

To Bank A/C
( Being payment made to 12% debenture holder 80,00,000
on redemption)
31/3/2019 Debenture redemption reserve 20,00,000
A/C…………..Dr 20,00,000
To General reserve A/C
(Being debenture redemption reserve associated
with 12% debentures redeemed, transferred to
general reserve)
31/3/2019 Profit on sale of debenture redemption
investment A/C…………………………Dr 54,000
To Profit and loss A/C 54,000
(Being profit on sale of DRI transferred)
Working Notes 1: Calculation of amount to be transferred to DRR
Face value of debentures to be redeemed ₹80,00,000
Minimum amount transferred to DRR 25% of ₹80,00,000 = ₹20,00,000
Less- balance of DRR on 1/4/2018 ₹15,20,000
Further transfer required ₹ 4,80,000
Working Notes 2: Calculation of minimum amount of investment in DRI
Face value of debentures to be redeemed ₹80,00,000
Minimum amount investment in DRI 15% of ₹80,00,000 = ₹12,00,000
Working Notes 3: Calculation of net amount realized on sale of DRI
Proceeds from sale of DRI (₹12,00,000 X 110%) = ₹13,20,000
Less : brokerage on sale (₹13,20,000 X 5%) = ₹66,000
Net amount realized on sale of DRI ₹12,54,000
Steps used for solving problems involving lumpsum payment

 Issue of debentures (Debentures are issued at premium/discount)

 Preparation for redemption of debentures
 Redemption of debentures