Question 04 Chapter 10 of +2-A - T.S. Grewal 12 Class

Question 04 Chapter 10 of +2-A

Table of Contents

The solution of Question 04 Chapter 10 of +2-A: –

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

4. Nirbhai Chemicals Ltd. issued 10,00,000; 6% Debentures of Rs 50 each at a premium of 8% on 30th June 2018 redeemable on 30th June 2019. The issue was fully subscribed. Pass Journal entries for issue and redemption of debentures. How much amount should be transferred to Debentures Redemption Reserve before redemption of debentures? Also, state how much amount should be invested in specified securities?

The solution of Question 04 Chapter 10 of +2-A: –

Journal In the Books of Nirbhai Chemicals Ltd.
Date	Particulars		L.F.	Debit	Credit
2018
June 30	Bank A/c	Dr		10,80,000
	To 6% Debentures A/c				10,00,000
	To Securities Premium Reserve A/c				80,000
	(Being Debenture issued on premium @Rs 50)
2019
Mar. 31	Statement of Profit and Loss A/c	Dr		2,50,000
	To Debenture Redemption Reserve A/c				2,50,000
	(Being To Debenture Redemption Reserve created on 6% Debenture)
April 30	Debenture Redemption Investment A/c	Dr		1,50,000
	To Bank A/c				1,50,000
	(Being Investment made in specified securities )
April 30	Bank A/c	Dr		1,50,000
	To Debenture Redemption Investment A/c				1,50,000
	(Being Investments encashed)
June 30	6% Debentures A/c	Dr		10,00,000
	To Debentureholders’ A/c				10,00,000
	(Being amount on 6% Debentures )
June 30	Debenture holders’ A/c	Dr		2,50,000
	To Bank A/c				2,50,000
	(Being Payment made on the redemption of debentures)
June 30	Debenture Redemption Reserve A/c	Dr		1,50,000
	To General Reserve A/c				1,50,000
	(Being Transfer of Debenture Redemption Reserve to General Reserve)

Entries for Interest on 6% Debentures the question was silence regarding this.

Date	Particulars		L.F.	Debit	Credit
2019
Mar. 31	Debenture Interest A/c	Dr		45,000
	To Debentureholders’ A/c				45,000
	(Being Interest on 6% Debentures to Debentureholders)
Mar. 31	Debenture holders’ A/c	Dr		45,000
	To Bank A/c				45,000
	(Being Payment of interest to Debentureholders )
Mar. 31	Statement of Profit and Loss	Dr		45,000
	To Debenture Interest A/c				45,000
	(Being Transfer of debenture interest to Statement of Profit and Loss)

Section 71 (4) of the Companies Act, 2013 requires that an amount equal to at least 25% of the value of debentures is to be transferred to the Debenture Redemption Reserve Account. So, Rs 2,50,000 is required to be transferred to DRR i.e. 25.
Further, Rule 18 (7) requires every company that is required to create DRR to invest an amount at least equal to 15% of the value of debentures in specified securities. So, Rs 1,50,000 is to be invested in specified securities i. e. 15.

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