Question

Nirbhai Chemicals Ltd. issued 10,00,000; 6% Debentures of Rs.50 each at a premium of 8% on 30th June, 2013 redeemable on 30th June, 2014. The issue was fully subscribed. Pass Journal entries for issue and redemption of debentures. How much amount of Debenture Redemption Reserve is to be created before redemption of debentures? Also, state how much amount should be invested in specified securities?

Answer 1

Section 71 (4) of the Companies Act, 2013 requires that an amount equal to at least 25% of the value of debentures is to be transferred to the Debenture Redemption Reserve Account. So, its Rs.2,50,000 is required to be transferred to DRR (i.e. 25% of Rs.10,00,000). Further, Rule 18 (7) requires every company that is required to create DRR to invest an amount at least equal to 15% of the value of debentures in specified securities. So, Its Rs.1,50,000 is to be invested in specified securities (i.e. 15% of Rs.10,00,000).

Note: Entries for interest on debentures have been ignored in the above solution as the question was silent in this regards. Howerve the students may journailze the entriles to interest on debentures as given below.