Question

A Ltd. has credit balance of ₹ 1,26,000 in Surplus, i.e., Balance in Statement of Profit and Loss. Instead of declaring dividend it is resolved to utilize the profits to redeem its ₹ 1,20,000 Debentures redeemable at a premium of 5%.
Pass necessary journal entries in the books of the company.

Answer 1

ANSWER :

1) Statement of P/L A/c. 120000

To Debenture Holders A/c 120000

2) Debenture Holders A/c. 120000

To Bank A/c 120000

Answer 2

The necessary journal entries in the books of the company are prepared below:

Explanation:

Given,

A Ltd. has credit balance of ₹ 1,26,000 in Surplus,

i.e., Balance in Statement of Profit and Loss

Instead of declaring dividend, it is resolved to utilize the profits to redeem its ₹ 1,20,000

Debentures redeemable at a premium of 5%.

In case of redemption of debentures by profits, 100% of the nominal value of debentures is transferred to Debenture Redemption Reserve A/c.

The necessary journal entries in the books of the company are prepared below: