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Chapter 10 . Company Accounts—Redemption of Debentures 10.5

9% Debentures A/c ...Dr. 10,00,000
Premium on Redemption of Debentures A/c ...Dr. 50,000
To Debentureholders’ A/c 10,50,000
(Amount payable on redemption, transferred to Debentureholders’ Account)

Debentureholders’ A/c ...Dr. 10,50,000
To Bank A/c 10,50,000
(Amount paid to debentureholders on redemption)
Debentures Redemption Reserve A/c ...Dr. 1,00,000
To General Reserve A/c 1,00,000
(Transfer of Debentures Redemption Reserve to General Reserve after
redemption of debentures)
Interest Earned A/c ...Dr. 9,000
To Statement of Profit and Loss (Other Income) 9,000
(Interest earned transferred)

Illustration 2.
Pragati Ltd., an unlisted (Non-NBFC and HFC) company has 50,000; 8% Debentures of ` 100
each due for red emption in four equal instalments starting from 31st March, 2016. Debentures
Redemption Reserve has a balance of ` 4,00,000 on that date. The company deducted tax @ 10%
on interest payment and deposits in Government Account on due date.
Pass Journal entries for investment, redemption of debentures and payment of interest
on debentures. The company made investment in fixed deposit with bank earning interest
@ 10% p.a. on 1st April, 2015. Bank deducted TDS @ 10%.

Solution: JOURNAL OF PRAGATI LTD.
Date Particulars L.F. Dr. (`) Cr. (`)
2015
March 31 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 profits to Debentures Redemption Reserve) (WN 2)

April 1 Debentures Redemption Investment A/c ...Dr. 1,87,500
To Bank A/c 1,87,500
(Fixed deposit placed with Bank for 15% nominal value of debentures
to be redeemed)

2016
March 31 Interest on Debentures A/c (WN 1) ...Dr. 4,00,000
To Debentureholders’ A/c 3,60,000
To TDS Payable A/c 40,000
(Interest on debentures due and tax deducted @ 10%)
March 31 Debentureholders’ A/c ...Dr. 3,60,000
To Bank A/c 3,60,000
(Payment of debentures’ interest)