Page 54 - DEBK12

10.4 Double Entry Book Keeping—CBSE XII

Solved Questions

Illustration 1.
N Ltd., an unlisted (Non-NBFC and HFC) company, issued 10,000; 9% Debentures of ` 100
each at par on April, 2014 with the condition that they will be redeemed at a premium of 5%
after the expiry of five years.

Pass Journal entries for issue and redemption of these debentures along with the entries
for DRR. Invest in fixed deposit earning interest @ 6% p.a. on 1st April, 2018 to meet the
legal requirement.

Solution: JOURNAL OF N LTD.
Date Particulars L.F. Dr. (`) Cr. (`)
2014
April 1 On Issue of Debentures
Bank A/c ...Dr. 10,00,000
To Debentures Application and Allotment A/c 10,00,000
(Amount received on 10,000; 9% Debentures @ ` 100 each)
Debentures Application and Allotment A/c ...Dr. 10,00,000
Loss on Issue of Debentures A/c ...Dr. 50,000
To 9% Debentures A/c 10,00,000
To Premium on Redemption of Debentures A/c 50,000
(Allotment of 10,000; 9% Debentures of ` 100 each at par redeemable
at a premium of 5%)
2015
March 31 Statement of Profit and Loss (Finance Cost) ...Dr. 50,000
To Loss on Issue of Debentures A/c 50,000
(Loss on Issue of Debentures written off from Statement of
Profit and Loss)
2018
March 31 On Creation of DRR
Surplus, i.e., Balance in Statement of Profit and Loss A/c ...Dr. 1,00,000
To Debentures Redemption Reserve A/c 1,00,000
(Transfer of profit to DRR equivalent to 10% of the nominal value
of outstanding debentures)

April 1 On Investment being made
Debentures Redemption Investment A/c ...Dr. 1,50,000
To Bank A/c 1,50,000
(Amount equal to 15% of the value of debentures to be redeemed
invested, earning interest @ 6% p.a.)

2019 On Redemption of Debentures
March 31 Bank A/c ...Dr. 1,59,000
To Debentures Redemption Investment A/c 1,50,000
To Interest Earned A/c 9,000
(Investment bearing interest @ 6% p.a. encashed on redemption
of debentures)