REDEMPTION OUT OF THE PROCEEDS OF FRESH ISSUE OF SHARES OR DEBENTURES :

Debentures may be redeemed from the funds raised by the issue of fresh shares or debentures. Accounting entries are to be passed for fresh issue of shares/ debentures apart from the entries for redemption. The following entries will be passed:

1. On issue of fresh shares or debentures –

Bank                                                                                 Dr.                      with the amount raised by fresh  issue
To Share Capital A/c
To Debentures A/c

2. On Redemption of old debentures –

(a)   Debentures A/c                                                      Dr.                with the nominal value of the  debentures

To Debentureholders A/c]

(b) Debentureholders A/c                                            Dr.                with the amount paid
To Bank

Notes:
(1) Working capital remains intact as the new share capital or debenture takes the place of old debentures.

(2) If the fresh issue is made at a premium or at a discount the entry should be passed accordingly.

(3) If the debentures are redeemable at a premium, Premium on Redemption of Debentures A/c should be credited at the time of issue by debiting Loss on Issue of Debentures A/c and before the payment is made, the same should be transferred to Debentureholders A/c.

(4) The creation of Debenture Redemption Reserve may not be necessary in this case since the additional capital or debentures raised for the purpose of redemption of debentures replaces the existing debentures.