x ltd has a balance of 4,00,000 in the profit and loss a/c .the company decided to forego the payment of dividend and instead utilise profits to repay 12% Rs3,50,000 debentures on 30th june 2009 at a premium of 10%. debentures interest is payable anually on 31st december every year when the a/c are closed .the company also has a balance of Rs2,00,000 in the debenture redemption reserve .pass the necessary entries.

please explain the question

 

Books of X Ltd.

Journal

Date

Particulars

 

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

2009

June 30

 

 

 

June 30

 

 

 

June 30

 

 

 

June 30

 

 

 

 

 

June 30

 

 

 

Dec. 31

 

 

Interest on Debenture A/c

To Debenture holders A/c

(Interest on debentures due)

 

Debenture holders A/c

To Bank A/c

(Interest on Debentures paid)

 

Profit and Loss Appropriation A/c

To Debentures Redemption Reserve A/c

(Profit transferred to DRR)

 

Debentures A/c

Premium on Redemption of Debentures A/c

To Debentures holders A/c

(Debenture due for redemption along with Premium on Redemption of Debentures)

 

Debenture holders A/c

To Bank A/c

(Amount paid to debenture holders)

 

Profit and Loss A/c

To Interest on Debentures A/c

(Interest on Debentures charged from the Profit and Loss Account)

 

Dr.

 

 

 

Dr.

 

 

 

Dr.

 

 

 

Dr.

 

 

 

 

Dr.

 

 

 

Dr.

 

 

 

21,000

 

 

 

21,000

 

 

 

1,50,000

 

 

 

3,50,000

35,000

 

 

 

3,85,000

 

 

 

21,000

 

 

21,000

 

 

 

21,000

 

 

 

1,50,000

 

 

 

 

3,85,000

 

 

 

3,85,000

 

 

 

21,000

 

Important Notes:

  1. Company had already made Debenture Redemption Reserve (DRR) Rs 2,00,000 to redeem debentures Rs 3,50,000. However these debentures are to be paid fully out of profit. In order to pay all the debentures out of profit, there is a need to transfer Rs 1,50,000 to the DRR, so that the amount in DRR becomes Rs 3,50,000.

 

 

  1. Premium on Redemption of Debentures has been considered as a liability at the time of allotment of debentures, thereby the Loss on Issue of Debentures has been debited against the Premium on Redemption of Debentures. The Premium on Redemption of Debentures will not be debited to the Profit and Loss Appropriation Account as the Loss on Issue of Debentures has been assumed to be written off from the Profit and Loss Account.

 

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