Pass the journal entry for the redemption of debentures from the following-
X Ltd. issued 5,000, 9% debentures of ₹100 each at par and redeemable at par at the end of 5 years out of capital.
Answer & explanation
Correct answer: option 2
The correct answer is option 2-
1) 9% Debentures A/c Dr. 5,00,000
To Debentureholders A/c 5,00,000
(Amount due on redemption debentures)
2) Debentureholders A/c Dr. 5,00,000
To Bank A/c 5,00,000
(Payment made to debentureholders)
*As redemption is out of capital, there is no need to create to create DRR.
* First entry will be made for the amount due to debentureholders. Amount due = 5000 x 100 = ₹5,00,000
1) 9% Debentures A/c Dr. 5,00,000
To Debentureholders A/c 5,00,000
(Amount due on redemption of debentures)
* 2nd entry will be made for the payment to debentureholders which decrease the bank balance of the company.
2) Debentureholders A/c Dr. 5,00,000
To Bank A/c 5,00,000
(Payment made to debentureholders)