TS Grewal Solution Class 12 Chapter 10 Company Accounts Redemption of Debentures

About this chapter: TS Grewal Class 12 Chapter 10 Company Accounts Redemption of Debentures is an important chapter for Class 12 Accountancy students. This chapter covers important topics such as explaining the process of retention of debentures,  the accounting treatment which has to be done when the redemption is being performed. In this chapter, student will be able to understand the accounting entries which have to be passed in the books of accounts.  there are concepts rating to debenture redemption reserve and the calculation of the Redemption price which has also been explained in this chapter. All the concepts relating to Redemption of debentures have been explained in a very nice manner in this book along with lot of practical questions. Our teachers have provided solutions to all the questions which have been given at the end of the chapter please refer to the answers below for all the problems.

TS Grewal Class 12 Accounting for Companies
Textbook for CBSE Class 12
TS Grewal Solutions Class 12 Accountancy
Chapter 10 Company Accounts - Redemption of Debentures

Question 2. Discuss in Brief:

(i)            Redemption of Debentures by Lump sum.

(ii)           Redemption of Debentures in installment by Draw of Loss.

(i) Redemption of Debentures in Lump Sum on Maturity:

Under this method, all the debentures are redeemed on the redemption date specified in the terms of issue, i.e., on their maturity. The debentures may be redeemed at par or at premium. The Journal entries passed are:

For the Amount due to Debenture holder on redemption:

(i)             If the Debentures are Redeemable at par: 

…..% Debentures A/c……………………Dr.

To Debentures Holder A/c

 

(ii)            If the Debentures are Redeemable at Premium: 

…..% Debentures A/c………………………………...Dr.

Premium on Redemption of Debentures A/c………Dr.

To Debentures Holder A/c

 

(iii)           For Payment to Debenture holders: 

Debenture Holders A/c…………….Dr.

To Bank A/c

 

Debentures may be redeemable by a company:

(i)             Out of Capital, if the Act allows; or

(ii)            Out of Profit

 

(ii)  Redemption of Debentures in Instalments by Draw of Lots: 

Under this method, the company may redeem its debentures by payment each year a part of debentures being selected by draw. The debentures may be redeemed at par or at premium according to the terms of issue. This process is called Redemption of Debentures by Draw of Lots.

DRR is created before commencing redemption of debentures and also Debentures Redemption Investment (DRI) is made under this method.

 

Point of Knowledge:-

As there is no information of about interest in the question we are not give entries in Answer.

 

Question 5:  Export-Import Bank of India (EXIM Bank) issued 20,000, 10% Debentures of Rs. 100 each through public issue and 10,000, 10% Debentures of Rs. 100 each through private placement. State the amount of investment to be made by EXIM Bank before redemption of debentures. 

Answer 5:

The Companies Act, 2013 together with Rule 18(7)(b) of the Companies (Share Capital and Debentures) Rules, 2014 exempts banking companies from creating Debenture Redemption Reserve. Hence, the amount of investment to be made by EXIM Bank before redemption of debentures will be nil.

 

Question 6:  SRCC Ltd. has issued on 1st April, 2017, 20,000, 12% Debentures of Rs. 100 each redeemable by draw of lots as under: During the year ended on 31st March, 2018 : 15% During the year ended on 31st March, 2019 : 25% During the year ended on 31st March, 2020 : 15% During the year ended on 31st March, 2021 : 25% During the year ended on 31st March, 2022 : 20% How much minimum investment should be made by SRCC Ltd. as per Companies Act, 2013 before redemption of debentures? When should it be made?

Answer 6:

Amount to be invested in specified securities:

Page Number 10.30

 

Question 7:  IFCI Ltd.(An All India Financial Institution) issued 10,00,000; 9% Debentures of Rs. 50 each on 1st April, 2011 redeemable on 1st April, 2019.  How much amount of Debentures Redemption Reserve is required before the redemption of debentures? Also, pass Journal entries for issue and redemption of debentures.

Answer 7:

According to SEBI Guidelines, no DRR is required to be created since IFCI Ltd. is an All India Financial Company. This company is not required to create Debenture Redemption Reserve as per the law.

Point of Knowledge:-

Interest on debentures has been ignored in the solution as there is no information in question.

 

Question 8:  On 31st March, 2003, G Ltd. had Rs. 8,00,000;9% Debentures due for redemption. The company had a balance of Rs. 1,40,000 in its Debentures Redemption Reserve . Pass necessary journal entries for redemption of debentures.

Answer 8:

Point of Knowledge:-

Interest on debentures has been ignored in the solution as there is no information in question.

 

Point of Knowledge:-

Interest on debentures has been ignored in the solution as there is no information in question.

 

Question 10:  Mansi Ltd. had 6,000; 10% Debentures of Rs. 100 each due for redemption on 31st March, 2019. Assuming that the debentures were redeemed out of profits, pass necessary Journal entries for the redemption of debentures. There was a credit balance of Rs. 6,00,000 in Surplus, i.e., Balance in Statement of Profit and Loss.

Answer 10:

Point of Knowledge:-

(1.) Instead of declaring a dividend, the company decided to redeem the debentures means the debentures are redeemed fully out of profit. So, an amount equal to the nominal value of debentures to be redeemed and it is transferred to DRR.

(2.) In the absence of the information regarding the date of investment in specified securities, it is presumed that investment in specified securities is made on 1^st April every year.

(3.) Interest on debentures has been ignored in the solution as there is no information in question.

Interest on debentures = Rs. 6,00,000 × 10% = Rs. 60,000

 

 

Question 11:  India Textiles Corporation Ltd. has outstanding Rs. 50,00,000; 9% Debentures of Rs. 100 each due for redemption on 31st July, 2019. Pass Journal entries for redemption assuming that there is a balance of Rs. 3,00,000 in Debentures Redemption Reserve  on the date of redemption.

Answer 11:

Invested in Specified Securities = Rs. 50,00,000 × 15% = Rs. 7,50,000

(2.) In the absence of the information regarding the date of investment in specified securities, it is presumed that investment in specified securities is made on 1^st April every year.

(3.) Interest on debentures has been ignored in the solution as there is no information in question.

 

Question 12:  Manish Ltd. issued Rs. 40,00,000; 8% Debentures of Rs. 100 each on 1st April, 2017. The terms of issue stated that the debentures are to be redeemed at a premium of 5% on 30th June, 2019. The company decided to transfer Rs. 10,00,000 out of profits to Debentures Redemption Reserve on 31st March, 2018 and Rs. 10,00,000 on 31st March, 2019. Pass Journal entries regarding the issue and redemption of debentures, DRR and Investment without providing for the interest or loss on issue of debentures.

Answer 12:

Point of Knowledge:-

(1.) As per Section 71(4) of the Companies Act, 2013, companies are required to create DRR @ 25% of the total value of debentures. However, it is depends upon a company and its discretion to transfer more amounts to DRR than the prescribed amount of 25% in the case of companies for whom it is mandatory to create DRR out of profits. In this case, as explicitly specified about company's discretion, DRR has been created for a total of Rs 20,00,000 which is 50% of the total value of redeemable debentures.

(2.) In the absence of the information regarding the date of investment in specified securities, it is presumed that investment in specified securities is made on 1^st April every year.

(3.) As explicitly stated in the question, so entries of interest on debentures has not been passed.

 

Question 13:  Godrej Ltd. has 20,000; 7% Debentures of Rs. 100 each due for redemption on 31st August, 2018. There is a balance of Rs. 3,50,000 in Debentures Redemption Reserve Account as on 31st March, 2016. Investment, as required by the Companies Act, 2013 is made on 1st April, 2017 in fixed deposit bearing interest @ 6% p.a. Bank deducted TDS @ 10% on its maturity which is 31st March, 2018. Pass Journal entries for redemption of debentures.

Answer 13:

 

Question 22:  'Ananya Ltd.' had an authorised capital of Rs. 10,00,00,000 divided into 10,00,000 equity shares of Rs. 100 each. The company had already issued 2,00,000 shares. The dividend paid per share for the year ended 31st March,2007 was Rs. 30 . The management decided to export its products to African countries . To meet the requirements of additional funds, the finance manager put up the following three alternate proposals before the Board of Directors:

(a) Issue 47,500 equity shares at a premium of Rs. 100 per share .

(b) Obtain a long-term loan from bank which was available at 12% per annum.

(c) Issue 9% Debentures at a discount of 5%.

After evaluating these alternatives, the company decided to issue 1,00,000; 9% Debentures on 1st April,2008. The face value of each debenture was Rs. 100. These debentures were redeemable in four installments starting from the end of third year, which were as follows: 

 Prepare 9% Debenture Account form 1st April, 2008 till all the debentures were redeemed.

Answer 22:

Point of Knowledge:-

When debentures are redeemed in part amount proportion to the debentures redeemed is transferred to General Reserve unless the company decides to transfer DRR to General reserve after redemption of all debentures.