Q. 40. Suruchi Ltd. issued 4,00,000, 9% debentures of 3500 each at a discount of 5%
redeemable after 5 years by conversion into equity shares of 310 each at 525 per share
.
Record necessary entries for issue and redemption of debentures assuming that the
debentures were converted at the option of the debentureholders before the date of
redemption
TAns. No of equity shares issued on conversion 76,00,000.)
Answers
Answer:
Manish Ltd.issued ₹ 40,00,000;8% Debentures of ₹ 100 each on 1st April, 2016. The terms of issue stated that the debentures are to be redeemed at a premium of 5% on 30th June, 2018. The company decided to transfer ₹ 10,00,000 out of profits to Debentures Redemption Reserve on 31st March, 2017 and ₹ 10,00,000 on 31st March, 2018.
Pass journal entries regarding the issue and redemption of debentures , DRR and investment without providing for the interest or loss on issue of debentures.
ANSWER:
Journal
Date
Particulars
L.F.
Debit
Amount
Rs
Credit
Amount
Rs
2016
April 01
Bank A/c
Dr.
40,00,000
To Debenture Application A/c
40,00,000
(Debenture application money received)
Debenture Application A/c
Dr.
40,00,000
Loss on Issue of Debentures A/c
Dr.
2,00,000
To 8% Debentures A/c
40,00,000
To Premium on Redemption of Debenture
2,00,000
(Debenture issued with the term repayable at 5% premium)
2017
March, 31
Statement of Profit and Loss (See Note 1)
Dr.
10,00,000
To Debenture Redemption Reserve A/c
10,00,000
(Surplus amount is transferred to Debenture Redemption Reserve)
2018
March 31
Statement of Profit and Loss (See Note 1)
Dr.
10,00,000
To Debenture Redemption Reserve A/c
10,00,000
(Surplus amount is transferred to Debenture Redemption Reserve)
April 30
Debenture Redemption Investment A/c (See Note 2)
Dr.
6,00,000
To Bank A/c
6,00,000
(Investment is made in specified securities equal to 15% of the value of debentures redeemed)
June 30
8% Debentures A/c
Dr.
40,00,000
Premium on Redemption of Debenture A/c
Dr.
2,00,000
To Debentureholders’ A/c
42,00,000
(Debenture due for redemption along with premium)
June 30
Bank A/c
Dr.
6,00,000
To Debenture Redemption Investment A/c
6,00,000
(Investment made in securities, now encashed)
June 30 Debentureholders’ A/c Dr. 42,00,000
To Bank A/c 42,00,000
(Amount paid to Debentureholders)
June 30
Debenture Redemption Reserve A/c
Dr.
20,00,000
To General Reserve A/c
20,00,000
(Debenture Redemption Reserve transferred to General Reserve)
Note:
1. As prescribed by Section 71(4) of the Companies Act, 2013, companies are required to create DRR at 25% of the total value of debentures. However, it purely depends upon a company and its discretion to transfer more amount to DRR than the prescribed amount of 25% in the case of companies for whom it is mandatory to create DRR out of profits. In this case, as explicitly specified about company's discretion, DRR has been created for a total of Rs 20,00,000 which is 50% of the total value of redeemable debentures.
2. As per circular no. 04/2015 issued by Ministry of Corporate Affairs (dated 11.02.2013), every company required to create/maintain DRR shall on or before the 30th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the amount of its debentures maturing during the year ending on the 31st day of March next following year. Accordingly, entries for DRR and Investment have been passed in the previous accounting year.
3. As explicilty stated in the question, entries for interest on debentures has not been passed.