A Company Ltd. issued 4000, 10% debentures of Rs. 100 each at par. These debentures were redeemed after 7…

Question

A Company Ltd. issued 4000, 10% debentures of Rs. 100 each at par. These debentures were redeemed after 7 years at 10% premium. Required: Entries for issue and redemption of debentures.

Padhai · Accepted Answer

Journal Entries for Issue and Redemption of Debentures 1. Issue of Debentures When a company issues debentures at par, the following entry is passed: Date Particulars L.F. Amount (Rs.) Amount (Rs.) 2075/01/01 Bank A/c Dr. 400,000 To 10% Debentures A/c 400,000 Explanation: Issued 4,000 debentures of Rs. 100 each at par (Rs. 100 × 4,000 = Rs. 400,000). 2. Interest on Debentures (Annual Entry) Assuming interest is paid annually on 31st December each year: Date Particulars L.F. Amount (Rs.) Amount (Rs.) 2075/12/31 10% Debenture Interest A/c Dr. 40,000 To Interest Payable A/c 40,000 Explanation: Interest on 4,000 debentures at 10% (Rs. 100 × 10% × 4,000 = Rs. 40,000). (This entry is repeated for 7 years.) 3. Redemption of Debentures (After 7 Years) When debentures are redeemed at a 10% premium , the following entries are passed: a) Transfer of Debenture Interest to Debenture Redemption Reserve (DRR) (Assuming the company maintains a DRR for redemption.) Date Particulars L.F. Amount (Rs.) Amount (Rs.) 2082/01/01 10% Debenture Redemption Reserve A/c Dr. 280,000 To 10% Debenture Interest A/c 280,000 Explanation: Transferred 7 years’ interest (Rs. 40,000 × 7 = Rs. 280,000) to DRR for redemption. b) Redemption of Debentures (Assuming redemption is done out of DRR and premium is paid.) Date Particulars L.F. Amount (Rs.) Amount (Rs.) 2082/01/01 10% Debentures A/c Dr. 400,000 10% Debenture Redemption Reserve A/c Dr. 40,000 To Bank A/c 440,000 Explanation: Redeemed 4,000 debentures at 10% premium (Rs. 100 × 4,000 = Rs. 400,000 + Rs. 40,000 premium = Rs. 440,000 ). Final Amount Paid at Redemption: Rs. 440,000

Date	Particulars	Amount (Rs.)	Amount (Rs.)
2075/01/01	Bank A/c Dr.	400,000
	To 10% Debentures A/c		400,000
Explanation:	Issued 4,000 debentures of Rs. 100 each at par (Rs. 100 × 4,000 = Rs. 400,000).

Date	Particulars	Amount (Rs.)	Amount (Rs.)
2075/12/31	10% Debenture Interest A/c Dr.	40,000
	To Interest Payable A/c		40,000
Explanation:	Interest on 4,000 debentures at 10% (Rs. 100 × 10% × 4,000 = Rs. 40,000).

Date	Particulars	Amount (Rs.)	Amount (Rs.)
2082/01/01	10% Debenture Redemption Reserve A/c Dr.	280,000
	To 10% Debenture Interest A/c		280,000
Explanation:	Transferred 7 years’ interest (Rs. 40,000 × 7 = Rs. 280,000) to DRR for redemption.

Date	Particulars	Amount (Rs.)	Amount (Rs.)
2082/01/01	10% Debentures A/c Dr.	400,000
	10% Debenture Redemption Reserve A/c Dr.	40,000
	To Bank A/c		440,000
Explanation:	Redeemed 4,000 debentures at 10% premium (Rs. 100 × 4,000 = Rs. 400,000 + Rs. 40,000 premium = Rs. 440,000).

A Company Ltd. issued 4000, 10% debentures of Rs. 100 each at par. These debentures were redeemed after 7 years at 10% premium. Required: Entries for issue and redemption of debentures.

Journal Entries for Issue and Redemption of Debentures

1. Issue of Debentures

2. Interest on Debentures (Annual Entry)

3. Redemption of Debentures (After 7 Years)

a) Transfer of Debenture Interest to Debenture Redemption Reserve (DRR)

b) Redemption of Debentures

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