Free PDF Download of Class 12 Accountancy Chapter 10 Available
FAQs on TS Grewal Solutions: Redemption of Debentures (Chapter 10)
1. How do the TS Grewal Solutions for Chapter 10 explain the process of redeeming debentures?
In the context of TS Grewal Solutions for Class 12, the redemption of debentures is explained as the process of repaying and discharging the liability owed to debenture holders. The solutions focus on the precise accounting treatment and journal entries required to record this financial obligation's settlement. This involves closing the Debentures Account and recording the outflow of funds as per the terms of issue specified in the debenture certificate.
2. What are the step-by-step journal entries for redeeming debentures at a premium using the lump-sum method, as per TS Grewal?
When solving problems for redemption at a premium in a lump sum, TS Grewal solutions follow a clear, step-by-step method. The correct journal entries for the 2025-26 session are:
For making the redemption amount due to debenture holders:
Debentures A/c Dr. (with face value)
Premium on Redemption of Debentures A/c Dr. (with premium amount)
To Debenture Holders A/c (with total amount payable)For making the final payment to debenture holders:
Debenture Holders A/c Dr.
To Bank A/cFor transferring the Debenture Redemption Reserve (DRR) to General Reserve after redemption:
Debenture Redemption Reserve A/c Dr.
To General Reserve A/c
3. According to TS Grewal solutions, what is the correct method for calculating the amount to be transferred to Debenture Redemption Reserve (DRR)?
As per the CBSE 2025-26 syllabus and guidelines reflected in TS Grewal, the correct method for calculating the DRR amount is based on the Companies Act, 2013. A company must create a Debenture Redemption Reserve (DRR) equivalent to at least 10% of the face value of the outstanding debentures before redemption begins. It's crucial to note that certain entities, like All India Financial Institutions (AIFIs) and Banking Companies, are exempt from this requirement.
4. Why is it necessary to create a Debenture Redemption Investment (DRI) before redeeming debentures, and how is this accounted for in TS Grewal problems?
Creating a Debenture Redemption Investment (DRI) is a mandatory legal requirement designed to ensure a company has sufficient liquid funds to honour its repayment obligations. It prevents a company from defaulting due to a lack of cash. In TS Grewal problems, this is accounted for by investing at least 15% of the face value of debentures to be redeemed during the financial year. The entries are:
- On making the investment (on or before April 30th):
Debenture Redemption Investment A/c Dr.
To Bank A/c - On encashing the investment before redemption:
Bank A/c Dr.
To Debenture Redemption Investment A/c
5. How do you correctly solve problems in TS Grewal involving the redemption of debentures by purchasing them from the open market for immediate cancellation?
To correctly solve problems on redemption by open market purchase, you must follow these steps:
Record the purchase: Pass a journal entry for buying the debentures from the market. The entry is: Own Debentures A/c Dr. (with the purchase price) to Bank A/c.
Record the cancellation: Immediately after the purchase, pass the entry for cancellation. This entry reverses the debenture liability and accounts for any profit or loss. The entry is: Debentures A/c Dr. (with face value) to Own Debentures A/c (with purchase price) and the balancing figure is transferred to Profit on Cancellation of Debentures A/c (if a profit) or Loss on Cancellation of Debentures A/c (if a loss).
6. What is the key difference in accounting treatment when redeeming debentures out of profits versus out of capital, as illustrated in Chapter 10 of TS Grewal?
The key difference lies in the creation and use of the Debenture Redemption Reserve (DRR).
- Redemption out of Profits: This method requires transferring 100% of the face value of debentures being redeemed from the Statement of Profit and Loss to the DRR. This earmarks profits, making them unavailable for dividends and ensuring funds are retained for redemption. After redemption, the DRR balance is transferred to the General Reserve.
- Redemption out of Capital: For this method, only the legally mandated minimum amount (e.g., 10%) is transferred to the DRR. The company uses its general capital and resources for the rest of the payment. This has a smaller impact on distributable profits compared to redemption out of profits.
7. What is the correct journal entry for the conversion of debentures into equity shares at a premium, according to the TS Grewal Class 12 solutions?
When convertible debentures are exchanged for equity shares at a premium, the correct journal entry extinguishes the debenture liability and creates new share capital and premium accounts. The step-by-step solution involves this entry:
Debentures A/c Dr. (with face value of debentures converted)
Premium on Redemption of Debentures A/c Dr. (if applicable)
To Equity Share Capital A/c (with nominal value of shares issued)
To Securities Premium A/c (with premium amount on new shares)
The number of shares to be issued is calculated by dividing the total amount payable to debenture holders by the issue price per share.
8. If a company buys its own debentures from the open market at a price lower than their face value, how is the profit on cancellation treated in the final accounts as per TS Grewal solutions?
The profit arising from the cancellation of own debentures purchased at a discount is considered a capital profit, not a revenue profit from business operations. Therefore, as per the correct accounting method shown in TS Grewal solutions, this profit must be transferred to the Capital Reserve. It is not available for distribution as dividends. The journal entry to record this transfer is:
Profit on Cancellation of Debentures A/c Dr.
To Capital Reserve A/c
