Redemption of Debentures — Part 2: Lump-Sum Redemption, Draw of Lots and Disclosure: visual lesson, ISC Class 12 Accounts

Lesson

Lump-sum redemption, draw of lots and disclosure

Part 2 — a full year of entries, closing every account, premium on redemption, draw of lots and the Balance Sheet.

In this lesson you will

Pass the full set of entries for redeeming debentures in one lump sum at par
Close the Debentures, Debentureholders, investment and reserve accounts and move the reserve to General Reserve
Record redemption at a premium provided for at issue
Explain redemption in instalments by draw of lots and how the investment is kept at 15% of each instalment

Part 2 at a glance

Concept

Lump-sum redemption, step by step

Concept

Learn them in order; most exam problems use five to seven of them.

Table of the seven journal entries of a lump-sum redemption: transfer to the reserve, investment made, investment encashed with interest, amount due to the debentureholders, payment, reserve released to general reserve, and interest closed to the statement of profit and loss
Step	Journal entry
Transfer to reserve	Surplus, i.e., Balance in Statement of Profit and Loss Dr. To Debenture Redemption Reserve A/c
Investment made	Debenture Redemption Investment A/c Dr. To Bank A/c
Investment encashed	Bank A/c Dr. To Debenture Redemption Investment A/c, Interest on Debenture Redemption Investment A/c
Amount due	Debentures A/c Dr. (Premium on Redemption of Debentures A/c Dr.) To Debentureholders' A/c
Payment	Debentureholders' A/c Dr. To Bank A/c
Reserve released	Debenture Redemption Reserve A/c Dr. To General Reserve A/c
Interest closed	Interest on Debenture Redemption Investment A/c Dr. To Statement of Profit and Loss