A Ltd. decided to redeem its 2,000, 8% Debentures of ₹100 each, at a premium of 5%, out of profits. Before redemption, an equal nominal amount was transferred from the Surplus in Statement of Profit and Loss to the Debenture Redemption Reserve. Pass journal entries for (a) the tr

Question

A Ltd. decided to redeem its 2,000, 8% Debentures of ₹100 each, at a premium of 5%, out of profits. Before redemption, an equal nominal amount was transferred from the Surplus in Statement of Profit and Loss to the Debenture Redemption Reserve. Pass journal entries for (a) the transfer to the Debenture Redemption Reserve, (b) the amount becoming due for redemption, (c) writing off the premium, (d) the actual payment, and (e) the transfer of the Debenture Redemption Reserve after redemption is complete.

Accepted Answer

**Step 1 — Amounts involved.**

Face value = 2,000 × 100 = **₹2,00,000.** Premium on redemption @ 5% = 2,00,000 × 5% = **₹10,000.** Total amount payable to debenture holders = 2,00,000 + 10,000 = **₹2,10,000.**

**(a) Transfer to Debenture Redemption Reserve, before redemption.**

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Surplus in Statement of Profit and Loss A/c Dr. | 2,00,000 | |
|   To Debenture Redemption Reserve A/c | | 2,00,000 |

**(b) Amount due for redemption.**

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| 8% Debentures A/c Dr. | 2,00,000 | |
| Premium on Redemption of Debentures A/c Dr. | 10,000 | |
|   To Debentureholders A/c | | 2,10,000 |

**(c) Writing off the premium on redemption.**

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Statement of Profit and Loss A/c Dr. | 10,000 | |
|   To Premium on Redemption of Debentures A/c | | 10,000 |

**(d) Actual payment to debenture holders.**

| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Debentureholders A/c Dr. | 2,10,000 | |
|   To Bank A/c | | 2,10,000 |

**(e) Transfer of the Debenture Redemption Reserve after redemption is complete.** …

Q.A Ltd. decided to redeem its 2,000, 8% Debentures of ₹100 each, at a premium of 5%, out of profits. Before redemption, an equal nominal amount was transferred from the Surplus in Statement of Profit and Loss to the Debenture Redemption Reserve. Pass journal entries for

Concept understanding — Redemption of Debentures

Particulars	Dr. (₹)	Cr. (₹)
Surplus in Statement of Profit and Loss A/c Dr.	2,00,000
To Debenture Redemption Reserve A/c		2,00,000

Particulars	Dr. (₹)	Cr. (₹)
8% Debentures A/c Dr.	2,00,000
Premium on Redemption of Debentures A/c Dr.	10,000
To Debentureholders A/c		2,10,000

Particulars	Dr. (₹)	Cr. (₹)
Statement of Profit and Loss A/c Dr.	10,000
To Premium on Redemption of Debentures A/c		10,000

Q.A Ltd. decided to redeem its 2,000, 8% Debentures of ₹100 each, at a premium of 5%, out of profits. Before redemption, an equal nominal amount was transferred from the Surplus in Statement of Profit and Loss to the Debenture Redemption Reserve. Pass journal entries for

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