Balance of Debenture Redemption Reserve is transferred to which account after the redemption of all debentures?
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- Profit and Loss Account
- Capital Reserve Account
- General Reserve Account
- Statement of Profit and Loss
The Correct Option is C
Solution and Explanation
Once all debentures are redeemed, the purpose of the DRR is fulfilled. As per accounting treatment, any remaining balance in the DRR is transferred to the General Reserve Account. This is because General Reserve is a free reserve that can be used by the company for any general purpose.
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The following journal entry appears in the books of X Co. Ltd.
\[\text{Bank A/c Dr. 4,75,000} \\ \text{Loss on Issue of Debentures A/c Dr. 75,000} \\ \text{To 12\% Debentures A/c 5,00,000} \\ \text{To Premium on Redemption of Debenture A/c 50,000} \]
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\hspace{0.5cm} To 9% Debenture A/c ...................................... 1,00,000
\hspace{0.5cm} To Premium on Redemption of Debentures A/c .... 5,000
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