Redemption of Debenture (Draw of Lots Method) Video Lecture | Principles and Practice of Accounting - CA Foundation

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hello friends let us continue with
redemption of debentures right now in
this we have been discussing about
methods of redemption and in the last
lecture we did the practical problems on
method one that is redemption on
maturity in lump sum right so this is
what we discussed in the last lecture we
did this we did some practical problems
on this right methods of redemption
Redemption on maturity in lump sum right
now in this lecture we are going to do
the second method for this that is
redemption in installments by draw of
lots in the first case there was lump
sum payment and in this case there is
payment in installments by draw of lots
see on one for 2016 you issued one lakh
debentures rupees one lakh debentures
right and these debentures were issued
as thirty thousand aventures to a twenty
thousand to be then twenty thousand to
see ten thousand to be how much it is
eighty then twenty thousand to e right
so this is how the debentures were
issued thirty thousand to a twenty
thousand to be
20,000 to see 10,000 2d and 20,000 to e
this is rupees one lakh right then the
company decided that in this year there
will be no redemption then they say on
30th of September 17 we want to redeem
50000 aventures right company says we
want to redeem 50000 aventures to be
redeemed right now how they will decide
this 50000 because there are five
debenture holders now to whom this
payment of 50000 will be made this is
what they have to decide for that they
say we will take out a draw draw just
like a lucky draw they will put the
chit's with the name of a B C and D they
will take out a draw on 30th of
September and whose name is there they
will pay accordingly 50000 clear then
what will happen then on 31st of March
2018 they want to redeem another 10,000
again to whom the payment is to be made
that will be decided by draw they will
draw the chit's
just like lucky draw so whosoever name
will be there he will be the lucky
person right draw off lots draw off lots
right and then on 20th September 2018
they again say we want to redeem the
balance forty thousand debentures again
right either by draw or by that time
they will know to whom the payment is to
be made so this is redemption in
installments by draw of Lots clear this
is how we do redemption in installments
by draw of lots clear so let us do a
practical problem on this and you will
have more clarity from that okay
ABC Limited issued 1510 percent
debentures of one thousand each at pal
on 1st of April 2014 which are
redeemable in three equal half yearly
installments right by draw of Lots
beginning 30th September 2015 the
company complied with the requirements
of Companies Act 2013 with respect to
the venture redemption Reserve and
investment past journal entries assuming
the investment was in cashed each time
the debentures were redeemed clear it is
a very simple question but the only
thing important here is DRI let us see
why
creation of DRI will be important in
this right let's start let's draw the
diagram first on one for 2014 they have
issued 1500 debentures of rupees 1000
each that is they have issued 15 lakh
rupees debentures right now this year
will close on 31st of March 2015
is there any transaction in this period
no because the redemption is to start
from 30th of September 2015 we are at
31st of March 2015 what you have to do
here you have to create drr right the
question doesn't talk about the interest
payment then we will ignore interest the
question are specifically given ignore
interest right so in this year we'll
just create drr then this year started
next financial year started on 30th of
September 2015 he says debentures are to
be redeemed
how much debentures to be redeemed out
of 15 lakh 15 lakh is the total amount
of debentures issued these are to be
redeemed in three equal half yearly
installments right that is 5 lakh in
each installment so on 30th September
what is the amount to be redeemed 5 lakh
rupees debentures to be redeemed
now how this will be identified to whom
we have to make a payment of 5 lakhs
that will be by draw-off lots here by
lucky drop right then next half year
when this half year is going to end 31st
of March
2016 here again you have to redeem five
lakh debentures debentures to be
redeemed right how much is left out of
15 lakh by the next year you have
redeemed 10 lakh rupees and in the next
half that is on 30th of September 16 you
will redeem the remaining 5 lakh rupees
debentures to be redeemed right now what
are the transactions you will take in
this period what are the transactions
that you will take in this period this
is one financial year from 1 1 1st of
April 15 to 21st March 16 this is one
financial year 1 here is there is
redemption so we'll pass journal entries
related to redemption and I told you for
the debentures which are redeemable in
the financial year what you have to do
you have to create you have to invest in
the specified securities we have to
create bri-bri
is minimum 15 percent of face value of
debentures to be redeemed now this word
is important face value of debentures to
be redeemed because what are what is the
amount of dimensions that are being
redeemed in this year 5 lakh +5 lat that
is 10 lakh rupees right so the in this
financial year on or before 30th of
April 2015 we have to invest in the
securities specified securities and it
be 15% of 10 lakh rupees and not 15 lakh
rupees this is important right because
we have to create DRI for the debentures
that are redeemable in that particular
financial year this is out of financial
year this is for the next financial year
in this 1516 financial year we are
redeeming 10 lakh rupees so DRI
investment will be 15 percent of 10 lakh
and not 15 lakhs this is important here
right and for this 5 lakhs which is in
the next financial year we will create
BR ie on or before 30th of April 16 this
will be 15 percent of 5 lakh
clear remember these words Bri is to be
created on the debentures which are
redeemable in that particular financial
year right in 1516 financial year how
much debentures are redeemable 5 lakh
plus 5 lakh lakh this is the only
important point in this right so let us
start with the journal entries on 1 for
2014 you have received applications you
will say bank account debit to debenture
application account right this comes to
15 lakh
then the venture application account
debate to 10% debentures account that
comes to 15 lakh right now anything on
this date mode no we should ventures in
this financial year at the end of the
financial year we will create drr on
31st of March 2015 will pass entry for
Diarra that is surplus account debit
2dr account now this has to be what is
the number of debentures issued 15 lakh
minimum 25 percent so question until and
unless otherwise specified you have to
create at the minimum rate 3 lakh 75
thousand clear now next next you have to
make investment in the specified
securities on or before 30th of April
because in this financial year we have
10 lakh debentures that are redeemable
so entry will be say we invested on 30th
for 15 - Ceyda venture redemption
investment account debit
- bank account on 10 lakh debentures
which are redeemable in the current
financial year you will create DRI at
the rate of 15 percent that is 1 lakh
50,000 1 lakh 50,000 right now on 30th
of September you have to redeem
debentures 5 lakh rupees now regarding
the DRI the question says investments
were in cashed each time the debentures
were redeemed now we created DRI for 10
lakh debentures but on 20th of September
we are redeeming 5 lakh only so if we
are in cashing on 30th of September
before the redemption we have to in cash
investments bank account debit to
debenture now will you in cash the whole
of investments no you cannot in cash the
whole of investments because this 5 lakh
is to be redeemed on 31st March you are
standing on 30th of September 15 so you
will in cash investments to the extent
of five lakh debentures only right how
much 75 thousand you can in cash you
cannot in cash the remaining investments
because you have to in cash it just
before the redemption right then on 30th
September we have to redeem for that we
will say 10 percent debentures
accountable to debenture holders
account 5 lakh and 5 lakh
debenture holders account debit to bank
account five lakh and five lat clear
this is for the redemption now now we
come to 31st of March 2016 first of all
we will in cash the remaining
investments of 75,000 31st of March 16th
bank account debit to DaVinci redemption
investment account here we will redeem
the remaining investments we cannot
redeem on 30th of September because on
30th we are redeeming 5 lakh only
whereas investment is done on 10 lakh
rupees so to the extent that the benches
are redeemable or redeemed just before
the redemption in cash the investments
to that extent then we have to pay to
the debenture holders 10% ventures to
debenture holders 5 lakh and 5 lakh
then the venture holders account debit
to bank account again five lakh now now
we have completed till this point right
now there is only one Lord that is left
that is to be redeemable on 30th of
September 2016 now in this financial
year we have a redemption of debentures
so we have to create dri again we have
to invest in specified securities on or
before 30th of April 2016 so let's
create that 30th of April 16 what we are
going to do is debenture redemption
investment account debate - bank account
now what will be the amount the amount
of debentures redeemable in that
particular financial year multiplied by
a minimum rate that is 15 percent this
comes to seventy five thousand and
seventy five thousand now on the date of
redemption you will in cash these
investments bank account debit to
debenture redemption investment account
seventy five thousand you are in cashing
the investment right before the
redemption then will redeem the
debentures 10 percent ventures
accountable to debenture holders how
much 5 lakh and then
we'll pay to the debenture holders for
that will say debenture holders account
debit to bank account five lakh and five
lakh now is now here the redemption has
closed we have redeemed 15 lakh
debentures anything else left yes on
this date you will transfer the balance
in DRR DRR account debit to general
reserve after redemption whatever the
balance is there in the drr that will be
transferred to general reserve yeah so
with this we complete draw off lots
always remember this picture always draw
this picture this will definitely help
you right
so the important point here in this
question to remember is that on what
amount you have to create DRI of 15% on
the amount of debentures that are
redeemable in that particular financial
year or accounting year financially or
here I want to say is 1 for 15 to 31st
of March 16 financially oriented
accounting year at the same in this case
okay right clear this is one important
point that is to be remembered in this
question I hope this is clear friends
redemption in installments by draw-off
lots so we have done the question on
this so if you have any queries just
send me an e-mail at ksj teaching
at the rate of gmail.com right in the
next lecture what we are going to do is
we are going to start with method 3 that
is Redemption by purchase of own
debentures from open market right
Redemption by purchase of own debentures
from open market this is the next topic
that we are going to cover in the next
lecture
so that's all for this lecture friends
thank you so much