Q.R. Ltd., issued 88,00,000, 8% debenture of ₹50 each at a premium of 5% on July 1, 2014 redeemable at par by conversion of debentures into shares of ₹20 each at a premium of ₹2 per share on June 30, 2017. Record necessary entries for redemption of debentures.
88,00,000 debentures of ₹50 (face value ₹44,00,00,000) are redeemed at par on 30 Jun 2017 by issuing equity shares of ₹20 at a ₹2 premium (issue price ₹22). The number of shares issued = ₹44,00,00,000 ÷ ₹22 = 2,00,00,000, giving share capital of ₹40,00,00,000 and securities premium of ₹4,00,00,000. No DRR or DRI is needed for redemption by conversion.
Concept
When debentures are redeemed by conversion into shares, the company does not pay cash; it discharges the debentureholders by allotting shares. The amount payable on redemption (here at par = face value) is divided by the issue price of each share to find the number of shares to be issued. As no cash is used, the DRR/DRI requirements do not apply to the converted portion.
Working Note
- Face value of debentures = 88,00,000 × ₹50 = ₹44,00,00,000
- Redemption at par → amount payable = ₹44,00,00,000
- Issue price per equity share = ₹20 + ₹2 premium = ₹22
- Number of shares issued = ₹44,00,00,000 ÷ ₹22 = 2,00,00,000 shares
- Equity Share Capital = 2,00,00,000 × ₹20 = ₹40,00,00,000
- Securities Premium Reserve = 2,00,00,000 × ₹2 = ₹4,00,00,000
Solution
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2017 Jun 30 | 8% Debentures A/c Dr. | 44,00,00,000 | ||
| To Debentureholders A/c | 44,00,00,000 | |||
| (Amount due to debentureholders on redemption at par) | ||||
| 2017 Jun 30 | Debentureholders A/c Dr. | 44,00,00,000 | ||
| To Equity Share Capital A/c | 40,00,00,000 | |||
| To Securities Premium Reserve A/c | 4,00,00,000 | |||
| (Discharge of debentureholders by issue of 2,00,00,000 equity shares of ₹20 each at ₹2 premium) |
2,00,00,000 equity shares of ₹20 each are issued at a ₹2 premium: Equity Share Capital ₹40,00,00,000 and Securities Premium Reserve ₹4,00,00,000, together discharging the ₹44,00,00,000 due on redemption. No DRR/DRI is required for conversion.
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