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Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce PDF Download

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

Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
*As per circular no. 04/2015 issued by Ministry of Corporate Affairs (dated 11.02.2013), every company required to create/maintain DRR shall on or before the 30th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the amount of its debentures maturing during the year ending on the 31st day of March next following year. Accordingly, entries for DRR and Investment have been passed in the previous accounting year.
Note: Entries for interest on debentures have been ignored in the above solution as the question was silent in this regards. However, the students' may journalise the entries related to interest on debentures as given below.
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce

Question 12:
Manish  Ltd. issued ₹ 40,00,000; 8% Debentures of ₹ 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 ₹ 10,00,000 out of profits to Debentures Redemption Reserve on 31st March, 2018 and ₹ 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:
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce

Note:
1. As prescribed by Section 71(4) of the Companies Act, 2013, companies are required to create DRR at 25% of the total value of debentures. However, it purely depends upon a company and its discretion to transfer more amount 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. As per circular no. 04/2015 issued by Ministry of Corporate Affairs (dated 11.02.2013), every company required to create/maintain DRR shall on or before the 30th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the amount of its debentures maturing during the year ending on the 31st day of March next following year. Accordingly, entries for DRR and Investment have been passed in the previous accounting year.
3. As explicilty stated in the question, entries for interest on debentures has not been passed.

Question 13:
Godrej Ltd. has 20,000; 7% Debentures of ₹ 100 each due for redemption on 31st August, 2018. There is a balance of ₹ 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:
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Note:
1. The year of transfer to DRR and investment has been assumed to be in 2014 in order to maintain consistency with the guidelines issued by Ministry of Corporate Affairs which requires that every company required to create/maintain DRR shall on or before the 30th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the amount of its debentures maturing during the year ending on the 31st day of March next following year. Accordingly, entries for DRR and investment if passed in any of the year then redemption would take place in the following year.

Question 14:
Apollo Ltd.issued 21,000; 8% Debentures of ₹ 100 each on 1st April, 2013 redeemable at a premium of 8% on 30th June, 2019. The company decided to transfer the required amount to Debentures Redemption Reserve in three equal annual instalments starting with 31st March, 2017. Required investment was made in Government Securities on 30th April, 2019. Ignore interest on debentures and also investment.
Pass necessary Journal entries regarding issue, transfer to DRR, investment, and redemption of debentures.
ANSWER:

Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce
Working Note: Calculation of Amount transferred to DRR
As prescribed by Section 71(4) of the Companies Act, 2013, companies are required to create DRR at 25% of the total value of debentures. Here, debentures worth Rs 21,00,000 are to be redeemed, so, the amount of DRR will be:
Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce

Note:R to be created =6,00,000 × 25100=Rs 1,50,000
1. As per circular no. 04/2015 issued by Ministry of Corporate Affairs (dated 11.02.2013), every company required to create/maintain DRR shall on or before the 30th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than fifteen percent of the amount of its debentures maturing during the year ending on the 31st day of March next following year. Accordingly, entries for DRR and Investment have been passed in the previous accounting year.

The document Redemption of Debentures ( Part - 3) | Accountancy Class 12 - Commerce is a part of the Commerce Course Accountancy Class 12.
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FAQs on Redemption of Debentures ( Part - 3) - Accountancy Class 12 - Commerce

1. What is the process of redeeming debentures?
Ans. The process of redeeming debentures involves the repayment of the principal amount along with any interest accrued to the debenture holders by the issuing company. The company may choose to redeem the debentures either by paying a lump sum amount or by making periodic payments over a specified period of time.
2. Can a company redeem its debentures before the maturity date?
Ans. Yes, a company has the option to redeem its debentures before the maturity date. This is known as an early redemption or premature redemption. However, the company must adhere to the terms and conditions mentioned in the debenture agreement, which may include payment of a redemption premium or complying with a notice period.
3. What is a redemption premium?
Ans. A redemption premium is an additional amount paid by the company over and above the principal amount to the debenture holders at the time of redemption. It is a form of compensation to the debenture holders for early redemption or premature termination of the debentures. The redemption premium is usually specified in the debenture agreement.
4. How does the redemption of debentures affect the company's financial statements?
Ans. The redemption of debentures affects the company's financial statements by reducing its liabilities. The principal amount of the debentures is deducted from the long-term debt or liabilities section of the balance sheet. Additionally, any interest accrued but not paid is also adjusted in the financial statements.
5. What are the consequences of non-redemption of debentures by a company?
Ans. Non-redemption of debentures by a company can have various consequences. It can lead to a loss of trust and confidence among the debenture holders, which may affect the company's ability to raise funds in the future. It can also result in legal actions or penalties imposed by regulatory authorities. Additionally, non-redemption may negatively impact the company's credit rating and overall reputation in the market.
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