TS Grewal Solutions for Class 12 Accountancy Vol 2 Chapter 10

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Class 12 Accountancy Chapter 10- Redemption of Debentures

Question 1

The provisions of the Companies Act, 2013 in respect of redemption of debentures are to protect the interest of,

  • Debenture holders
  • Creditors
  • Shareholders
  • Bankers

Answer: Debenture holders

Question 2

Central Bank Ltd. is to redeem 40,000. 10% debentures of ₹. 100/- each on 31st December 2018. How much amount should it invest in specified securities?

  • ₹. 6,00,000/-
  • ₹. 10,00,000/-
  • ₹. 5,00,000/-
  • Nil

Answer: ₹. 6,00,000/-

Question 3

SBI Ltd. has outstanding 1,00,000; 10% debentures ₹.10/- each issued in 2005 due for redemption on 30th June 2018.  How much amount of debentures redemption reserve must be created before the redemption of debentures begins and also how much amount should it invest in specified securities?

Pass necessary journal entries at the time of redemption of debentures.

Solution:

JOURNAL OF SBI LTD.
Date Particulars L.F. Dr. (₹) Cr. (₹)
June 30
2018
10% Debentures A/c Dr.
10,00,000
To Debenture holders’ A/c 10,00,000
(Being the amount due to debenture holders on redemption)
Debenture holders’ A/c Dr.
10,00,000
To Bank A/c 10,00,000
(Being the amount due to the debenture holders paid)

Question 4

ABC Ltd. issued 1,00,000; 9% debentures of ₹.50/- each @ a premium of 10% on June 30th, 2016 redeemable on 31st March, 2018. The issue was fully subscribed. The company decided to transfer the amount to DRR on 31st March 2017 and invest in Fixed Deposit earning interest @ 10% p.a. on 1st April 2017 to meet the legal requirement. The tax was deducted at source (TDS) by the bank @ 10%.

Pass the necessary journal entries for issue and redemption of debentures along with the interest on the investment.

Solution:

JOURNAL
Date Particulars L.F. Dr. (₹) Cr. (₹)
June 30, 2016
Bank A/c Dr.
55,00,000
To Debentures Application and Allotment A/c 55,00,000
(Being the application money received at a premium of 10%)
June 30
Debentures Application and Allotment A/c Dr.
55,00,000
To 9% Debentures A/c 50,00,000
To Securities Premium Reserve A/c 5,00,000
(Being the application money transferred to 9% debentures and securities premium reserve account)
2017 March 31
Surplus, i.e., Balance in statement of P&L A/c Dr.
12,50,000
To Debentures redemption reserve A/c 12,50,000
(Being 25% of the value of outstanding debentures transferred to DRR)
2019 April 1
Debentures redemption investment A/c Dr. 7,50,000
To Bank A/c 7,50,000
(Being 15% of the value of debentures to be redeemed invested in Government securities)
March 31, 2018
Bank A/c Dr. 8,17,500
TDS collected A/c Dr. 7,500
To Debentures redemption investment A/c 7,50,000
To Interest earned A/c 75,000
(Being the investments bearing 10% interest p.a. realized on the redemption of debentures; TDS deducted @ 10% on interest)
31 Mar
9% Debentures A/c Dr.
50,00,000
To Debenture holders’ A/c 50,00,000
(Being the amount due on redemption of debentures)
31 Mar
Debenture holders’ A/c Dr.
50,00,000
To Bank A/c 50,00,000
(Being the payment made to redeem the debentures)
March 31
Debentures redemption reserve A/c Dr.
12,50,000
To General reserve A/c 12,50,000
(Being the DRR transferred to general reserve after redemption of debentures)
March 31
Interest earned A/c Dr. 75,000
To Statement of P&L A/c 75,000
(Being the interest earned on DRI transferred to the statement of P&L)

Question 5

The premium payable on redemption of debentures is in the nature of,

  • Liability account
  • Asset account
  • Expense account
  • None of these

Answer: Liability account

Question 6

A public limited company is a manufacturer of chemical fertilizers. It’s annual turnover is ₹. 50 crores. The company had issued 5,000, 12% debentures of ₹. 500/- each at par. Calculate the amount of debentures redemption reserve which needs to be created to meet the requirements of law.

Answer : Required Debentures Redemption Reserve (DRR)  = 25% of redemption value

= 25% X 25,00000

= ₹ 6,25,000

Question 7

On March 31st 2013, P Ltd. had ₹.8,00,000/-; 9% debentures due for redemption. The company had a balance of ₹. 1,40,000/- in its DRR. Calculate the amount transferred to be in DRR.

Answer: Amount transferred to DRR = 25% of redemption value

= (25% X ₹ 8,00,000) – ₹1,40,000

= ₹60,000

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