Lesson eLearning

XYZ Ltd redeemed 3,000 debentures of Rs\,100 each on 31 Dec 2025. The debentures bear 10\% interest payable annually on 31 March. The redemption price is 104\% of face value and interest up to the redemption date is payable. Prepare the journal entry for the redemption, including interest.

medium 3 marks Class 12 · Accountancy · Accounting for Debentures
Answer
Bank A/c Dr. Rs\,334,500; Debentures A/c Cr. Rs\,300,000; Premium on Redemption A/c Dr. Rs\,12,000; Interest Payable A/c Dr. Rs\,22,500

Step-by-step solution

  1. Find total face value of debentures: 3,000 Rs\,100 = Rs\,300,000.
  2. Calculate redemption premium: 4\% of Rs\,300,000 = Rs\,12,000.
  3. Determine the period for interest: from 1 Apr 2025 to 31 Dec 2025 = 9 months = 9/12 year.
  4. Compute interest for 9 months: Rs\,300,000 10\% 9/12 = Rs\,22,500.
  5. Total cash outflow = face value + premium + accrued interest = 300,000 + 12,000 + 22,500 = Rs\,334,500.
  6. Journal entry: Debit Debentures A/c Rs\,300,000, Debit Premium on Redemption A/c Rs\,12,000, Debit Interest Payable A/c Rs\,22,500; Credit Bank A/c Rs\,334,500.
Common mistake: Calculating interest for a full year instead of the 9‑month period.

Concept tested: Redemption of debentures at premium with accrued interest

Published · How this solution was prepared and checked

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