Prof.

ARUP BANIK
Assistant Professor
Department of Commerce
Raja Peary Mohan College

Problem – 7: Problem on Redemption by annual drawing

Priya Ltd. issued 1,80,000, 13% Debentures of ₹ 100 each on 01/10/2013
redeemable at a premium of 5% as follows
On 31/03/2017 60,000 Debentures
On 31/03/2018 50,000 Debentures
On 31/03/2019 70,000 Debentures
It was resolved to transfer to DRR
₹20,00,000 on 31/03/2014, ₹8,00,000 on 31/03/2015, & balance on 31/03/2016
to maintain the statutory requirement.
It was also resolved to transfer proportionate amount from DRR to General
Reserve & realize DRI for each redemption. Show the necessary journal entries
& prepare 13% Debentures A/c, Debenture Redemption Reserve A/c &
Debenture Redemption Investment A/c.
Solution: In the books of Priya Ltd.
Journal
Date Particulars Amount (₹) Amount (₹)
1.10.2013 Bank A/c (1,80,000 X ₹100)…………………Dr. 1,80,00,000
Loss on issue of debentures A/c……….…….Dr. 9,00,000
To 13% Debenture a/c 1,80,00,000
To Premium on Redemption on debentures A/c 9,00,000
(1,80,00,000 X 5% )
(Being 1,80,000, 13% debentures of ₹100 each
issued and redeemed at 5% premium, as per Board’s
Resolution No…..dated….)
31.3.2014 Surplus A/c……………..………………….Dr. 20,00,000
To Debenture redemption reserve A/c 20,00,000
(Being amount transferred to Debenture Redemption
reserve, as per Board’s Resolution No…..dated….)
31.3.2015 Surplus A/c…………………………………….Dr. 8,00,000
To Debenture redemption reserve A/c 8,00,000
(Being amount transferred to Debenture Redemption
reserve, as per Board’s Resolution No…..dated….)
31.3.2016 Surplus A/c…………………………………….Dr. 17,00,000
To Debenture redemption reserve A/c(WN-1) 17,00,000
(Being amount transferred to Debenture Redemption
reserve, as per Board’s Resolution No…..dated….)
30.4.2016 Debenture redemption investment……………Dr. 9,00,000
To Bank A/c(WN-2) 9,00,000
(Being statutory minimum debenture redemption
investment made in Govt securities)
31.3.2017 Bank A/c………………………………………Dr. 9,00,000
To Debenture redemption investment A/c 9,00,000
(Being amount realized from debenture redemption
investment associated with 60,000, 13% Debentures
to be redeemed)
13% Debenture a/c (60,000 X ₹100)…….……Dr. 60,00,000
 Premium on Redemption on debentures A/c....Dr. 3,00,000
To 13% Debenture holders a/c 63,00,000
(Being the amount due on 1st redemption installment
of 60,000, 13% debentures at 5% premium,
transferred to Debenture holder a/c )
13% Debenture holders a/c…………………….Dr. 63,00,000
To Bank A/c 63,00,000
(Being payment made to 13% debenture holders on
1st redemption instalment)
Debenture redemption reserve A/c……………Dr. 15,00,000
To General reserve A/c (WN-3) 15,00,000
(Being debenture redemption reserve associated with
60,000, 13% Debentures redeemed, transferred to
general reserve)
30.4.2017 Debenture redemption investment A/c……….Dr. 7,50,000
To Bank A/c (WN-2) 7,50,000
(Being statutory minimum debenture redemption
investment made in Govt. securities)

31.3.2018 Bank A/c………………………………………Dr. 7,50,000

To Debenture redemption investment A/c 7,50,000
(Being amount realized from debenture redemption
investment associated with 50,000, 13% Debentures
to be redeemed)
13% Debenture a/c (50,000 X ₹100)……….…Dr. 50,00,000
Premium on Redemption on debentures A/c....Dr. 2,50,000
(50,00,000 X 5% )
To 13% Debenture holders a/c 52,50,000
(Being the amount due on 2nd redemption
installment of 50,000, 13% debentures at 5%
premium, transferred to Debenture holder a/c )
13% Debenture holders a/c…………………….Dr. 52,50,000
To Bank A/c 52,50,000
(Being payment made to 13% debenture holders on
2nd redemption instalment)
Debenture redemption reserve A/c……………Dr. 12,50,000
To General reserve A/c (WN-3) 12,50,000
(Being debenture redemption reserve associated with
50,000, 13% Debentures redeemed, transferred to
general reserve)
30.4.2018 Debenture redemption investment A/c……….Dr. 10,50,000
To Bank A/c (WN-2) 10,50,000
(Being statutory minimum debenture redemption
investment made in Govt. securities)
31.3.2019 Bank A/c………………………………………Dr. 10,50,000
To Debenture redemption investment A/c 10,50,000
(Being amount realized from debenture redemption
investment associated with 70,000, 13% Debentures
to be redeemed)
13% Debenture a/c (70,000 X ₹100)……….…Dr. 70,00,000
Premium on Redemption on debentures A/c...Dr. 3,50,000
(70,00,000 X 5% )
To 13% Debenture holder a/c 73,50,000
 (Being the amount due on 2nd redemption
installment of 70,000, 13% debentures at 5%
premium, transferred to Debenture holder a/c )
13% Debenture holder a/c…………………….Dr. 73,50,000
To Bank A/c 73,50,000
(Being payment made to 13% debenture holders on
3rd redemption instalment)
Debenture redemption reserve A/c……………Dr. 17,50,000
To General reserve A/c (WN-3) 17,50,000
(Being debenture redemption reserve associated with
70,000, 13% Debentures redeemed, transferred to
general reserve)
13% Debentures A/c
Date Particulars ₹ Date Particulars ₹
31.3.14 To balance c/d 1,80,00,00 1.10.13 By Bank A/c 1,80,00,000
1,80,00,00 1,80,00,00
31.3.15 To balance c/d 1,80,00,00 1.4.14 By balance b/d 1,80,00,000
1,80,00,00 1,80,00,00
31.3.16 To balance c/d 1,80,00,00 1.4.15 By balance b/d 1,80,00,000
1,80,00,00 1,80,00,00
31.3.17 To 13% debenture 60,00,000 1.4.16 By balance b/d 1,80,00,000
holders A/c (1st
redemption instalment)
To balance c/d 1,20,00,000
1,80,00,000 1,80,00,000
31.3.18 To 13% debenture 50,00,000 1.4.17 By balance b/d 1,20,00,000
holders A/c (2nd
redemption instalment)
To balance c/d
70,00,000
1,20,00,000 1,20,00,000
31.3.19 To 13% debenture 70,00,000 1.4.18 By balance b/d 70,00,000
holders A/c (3rd
redemption instalment)

70,00,000 70,00,000
Debenture redemption reserve A/c
Date Particulars ₹ Date Particulars ₹
31.3.14 To balance c/d 20,00,000 31.314 Surplus A/c(transfer) 20,00,000
20,00,000 20,00,000
31.3.15 To balance c/d 28,00,000 1.4.14 By balance b/d 20,00,000
31.3.15 Surplus A/c(transfer) 8,00,000
28,00,000 28,00,000
31.3.16 To balance c/d 45,00,000 1.4.15 By balance b/d 28,00,000
31.3.16 Surplus A/c(transfer 17,00,000
WN-1)
45,00,000 45,00,000
31.3.17 To general reserve 15,00,000 1.4.16 By balance b/d 45,00,000
A/c(transfer)
31.3.17 To balance c/d 30,00,000
45,00,000 45,00,000
31.3.18 To general reserve 12,50,000 1.4.17 By balance b/d 30,00,000
A/c(transfer)
31.3.18 To balance c/d 17,50,000
30,00,000 30,00,000
31.3.19 To general reserve 17,50,000 1.4.18 By balance b/d 17,50,000
A/c (transfer)
17,50,000 17,50,000
. Debenture redemption investment A/c
Date Particulars ₹ Date Particulars ₹
30.4.16 To Bank A/c 9,00,000 31.3.17 By Bank A/c(encashed) 9,00,000
(Investment made)
9,00,000 9,00,000
30.4.17 To Bank A/c 7,50,000 31.3.18 By Bank A/c(encashed) 7,50,000
(Investment made)
7,50,000 7,50,000
30.4.18 To Bank A/c 10,50,000 31.3.19 By Bank A/c(encashed) 10,50,000
(Investment made)
10,50,000 10,50,000

Working Notes – 1. Transfer to DRR

Face value of debentures outstanding = ₹1,80,00,000
Minimum amount of transfer to DRR (25% of ₹1,80,00,000) = ₹45,00,000
Less : Transfer to DRR on 31.3.14 (given) =₹20,00,000
Less : Transfer to DRR on 31.3.15 (given) =₹ 8,00,000
Transfer to DRR required to made on 31.3.16 ₹ 17,00,000
Working Notes :2 Minimum debenture redemption investment (DRI)
Date of redemption 31.3.17 31.3.18 31.3.19
No. of debentures redeemed 60,000 50,000 70,000
Face value of debenture 60,00,000 50,00,000 70,00,000
redeemed (₹)

Required minimum DRI @ 15% of

Face value redeemed (₹) 9,00,000 7,50,000 10,50,000

Date of making DRI 30.4.16 30.4.17 30.4.18

Working Notes – 3.Transfer from DRR to general reserve

Date No. of debenture redeemed Amount transferred from DRR to general
reserve(₹)
31.3.17 60,000 45,00,000 X 60,000/1,80,000 = 15,00,000
31.3.18 50,000 45,00,000 X 50,000/1,80,000 = 12,50,000
31.3.19 70,000 45,00,000 X 70,000/1,80,000 = 17,50,000
Total 1,80,000 45,00,000