Vishwas Ltd. has outstanding 20,000, 7% debentures of ₹100 each redeemable as follows:

| Date of Redemption | Number of Debentures |
|---|---|
| March 31, 2017 | 3,000 |
| March 31, 2018 | 6,000 |
| March 31, 2019 | 5,000 |
| March 31, 2020 | Balance Debentures |

It decided to

Question

Vishwas Ltd. has outstanding 20,000, 7% debentures of ₹100 each redeemable as follows:

| Date of Redemption | Number of Debentures |
|---|---|
| March 31, 2017 | 3,000 |
| March 31, 2018 | 6,000 |
| March 31, 2019 | 5,000 |
| March 31, 2020 | Balance Debentures |

It decided to create Debenture Redemption Reserve on March 31, 2016. The company made investments in Debenture Redemption Investments to meet the requirement of law. Investments, wherever required, were made on April 01 of the financial year. Pass the necessary journal entries and prepare the ledger accounts.

Accepted Answer

> [!TLDR]
> Redemption in irregular instalments works exactly like equal instalments — Debentures A/c Dr. to Debentureholders A/c, then paid — except the amount redeemed (and the DRI invested ahead of it) differs each year according to the schedule given, not a fixed fraction.

### Concept

Debentures need not always be redeemed in equal yearly amounts — a company can schedule redemption however it needs to manage its cash flow, as long as the terms are disclosed. The accounting is unchanged: at each redemption date, the Debentures Account is debited with the face value falling due that year and Debentureholders Account credited; then Debentureholders Account is debited and Bank credited on payment. The Debenture Redemption Investment (DRI), required at 15% of the face value of debentures maturing, is invested and encashed to match whatever amount is actually due each year — since the yearly redemption amounts differ here, the DRI amounts invested each year differ too.

> [!NOTE]
> The question states that Vishwas Ltd. "decided to create Debenture Redemption Reserve on March 31, 2016", but the book's own printed solution for this illustration does not show a separate DRR journal entry — only the DRI investment/encashment and the redemption entries themselves. This restructuring reproduces the book's own given solution faithfully rather than inventing a DRR entry the source never actually shows.

### Working Note

| Redemption Date | Debentures Redeemed | Face Value (₹) | DRI Required (15%) (₹) |
|---|---|---|---|
| Mar 31, 2017 | 3,000 | 3,00,000 | 45,000 |
| Mar 31, 2018 | 6,000 | 6,00,000 | 90,000 |
| Mar 31, 2019 | 5,000 | 5,00,000 | 75,000 |
| Mar 31, 2020 | 6,000 (balance) | 6,00,000 | 90,000 |

DRI is built up gradually — part invested a year ahead, topped up closer to the redemption date, and encashed exactly when each instalment falls due.

### Solution

**Journal:**

| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|------|-------------|-----|--------

Particulars	Dr. (₹)	Cr. (₹)
Securities Premium Reserve A/c … Dr.	xxx
General Reserve A/c … Dr. (if needed)	xxx
To Premium on Redemption of Debentures/Preference Shares A/c		xxx
(Being the premium payable on redemption provided for)

Date	Particulars	Debit (₹)	Credit (₹)
2016 Apr 1	Debenture Redemption Investment A/c Dr.	45,000
	To Bank A/c		45,000
	(Investment equal to 15% of ₹3,00,000, the debentures due for redemption in 2017)
2017 Mar 31	7% Debentures A/c Dr.	3,00,000
	To Debentureholders A/c		3,00,000
	(Amount of 3,000 debentures due for redemption)
2017 Mar 31	Debentureholders A/c Dr.	3,00,000
	To Bank A/c		3,00,000
	(Amount due to debentureholders paid)
2017 Apr 1	Debenture Redemption Investment A/c Dr.	45,000
	To Bank A/c		45,000
	(Further investment toward the 2018 redemption)
2018 Mar 31	Bank A/c Dr.	15,000
	To Debenture Redemption Investment A/c		15,000
	(Part of the investment realised; the balance stays invested toward the 2019 redemption of ₹5,00,000)
2018 Mar 31	7% Debentures A/c Dr.	6,00,000
	To Debentureholders A/c		6,00,000
	(Amount of 6,000, 7% debentures of ₹100 each due for redemption)
2018 Mar 31	Debentureholders A/c Dr.	6,00,000
	To Bank A/c		6,00,000
	(Amount paid to debentureholders)
2019 Mar 31	7% Debentures A/c Dr.	5,00,000
	To Debentureholders A/c		5,00,000
	(Amount of 5,000, 7% debentures of ₹100 each due for redemption)
2019 Mar 31	Debentureholders A/c Dr.	5,00,000
	To Bank A/c		5,00,000
	(Amount paid to debentureholders)
2019 Apr 1	Debenture Redemption Investment A/c Dr.	15,000
	To Bank A/c		15,000
	(Further investment toward the final, 2020 redemption)
2020 Mar 31	Bank A/c Dr.	90,000
	To Debenture Redemption Investment A/c		90,000
	(DRI fully realised)
2020 Mar 31	7% Debentures A/c Dr.	6,00,000
	To Debentureholders A/c		6,00,000
	(Amount of the balance 6,000, 7% debentures due for redemption)
2020 Mar 31	Debentureholders A/c Dr.	6,00,000
	To Bank A/c		6,00,000
	(Amount paid to debentureholders)

Concept understanding — Premium on Redemption

Why does a company offer a premium on redemption?

The accounting treatment — the core rule

Which account is debited and which is credited — the logic

Where does this appear in the financial statements?

Concept

Working Note

Solution

Date of Redemption	Number of Debentures
March 31, 2017	3,000
March 31, 2018	6,000
March 31, 2019	5,000
March 31, 2020	Balance Debentures

Redemption Date	Debentures Redeemed	Face Value (₹)	DRI Required (15%) (₹)
Mar 31, 2017	3,000	3,00,000	45,000
Mar 31, 2018	6,000	6,00,000	90,000
Mar 31, 2019	5,000	5,00,000	75,000
Mar 31, 2020	6,000 (balance)	6,00,000	90,000

Concept

Working Note

Solution

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