ENRICHMENT MATERIAL
ACCOUNTING FOR SHARE CAPITAL& DEBENTURE
MEANING, NATURE AND CHARACTERISTICS OF A COMPANY
A company may be defined as an artificial person
created by law having a corporate and legal personality
distinct and separate from its members, perpetual
succession and a common seal.
MEANING AND CATEGORIES OF SHARE CAPITAL
Share Capital means the Capital collected by the issue
of shares. The amounts invested by the shareholders
towards the face value of share are collectively known
as share capital which is quite distinct the capital put
in by individual share holders
The share of capital divided under the following three
heads:
Authorized Capital – An Authorized Capital refers to the amount which is
stated in the ‘Capital Clause’ of the Memorandum of Association as the
share capital of the company. This is the maximum limit of the company
which it is Authorized to raise and beyond which the company cannot raise
unless the capital clause in the Memorandum is altered in accordance with
the professions of under Sec. 94 of the Indian Companies Act. 1956.
Issued Capital - An Issued Capital refers to the nominal
value of that part of Authorise Capital, which has been (i) subscribed for by
the signatories to the Memorandum of Association, (ii) Allotted for cash or
for consideration other than cash and (iii) allotted as Bonus share.
Subscribed Capital – Subscribed Capital refers to the
paid–up value of the Issued Capital. Other terms used under the Companies
Act – 1956 are:
Unmissed Capital – Un-issued Capital refers to that portion of the authorized
capital which has not yet been issued.
Uncalled Capital – Uncalled Capital refers to that portion
of the issued Capital which
Reserve Capital – It refers to that portion of that uncalled share capital
which shall not be capable of being called up except in the event and for the
purposes of the company being wound up(under Sec. 99).
Distinction between an equity and preference share
EQUITY SHARE Payment of equity dividend is made after the payment of preference
dividend.
PRFERENCE SHARE Payment of preference dividend is made
before the payment of equity dividend.
Repayment of capital
EQUITY SHARE Repayment of Equity share capital is made after the
repayment of preference share capital.
PRFERENCE SHARE Repayment of preference share capital is made before the
repayment of equity share capital.
Arrears of dividend
EQUITY SHARE In case of an equity share, arrears of dividend cannot
accumulate in any case.
PRFERENCE SHARE In case of a preference share, arrears of dividend may
accumulate.
Convertibility
EQUITY SHARE It cannot be convertible.
PREFERENCE SHARE It may be convertible.
Voting Rights
EQUITY SHARE Equity shareholders generally enjoy voting rights.
PREFERENCE SHARE Preference shareholders
MINIMUM SUBSCRIPTION (Sec. 69)
The minimum subscription are two type subscription
(1) Under – Subscription
(11)Over – Subscription
(1)UNDER – SUBSCRIPTION:
Share are said to be Under–Subscribed when the
number of share applied for is less than the number
of shares offered.
(2) OVER – SUBSCRIPTION:
Share are said to be over-Subscription when
the numbers of share applied is more than the
number of shares offered.
For example: A company has offered 5,000 shares to
public but the public applied for 6,000 only it is called
a Over-Subscription.
Issue of Shares: A company can issue of shares
(1)
At Par
(2)
At a Premium
(3)
At a Discount
Issue of Share at Par :Share are said to be issued at par when they are issued at a
price equal to the face value, i.e. when the issue price is equal to the face value.
Issue of Shares at a Premium [under Sec. 78]: Share are said to be issued at a
premium when they are issued at a higher price than the face value. The excess of
issue price over the face value is called as the amount of ‘Securities Premium’ .
If a share of Rs 10 is issued at Rs 15, it is said that the share has been issued at a
premium of Rs 5. The premium on issue of share is a capital receipt and not a
revenue receipt and must be credited to a separate account called ‘Securities
Premium Account’.
Issue of Shares at a Discount [Sec. 79] The discount of issue
of shares must be treated as a loss of capital nature and not
of revenue nature and must be debited to a separate account called Discount on
Issue of Share Account.
MEANING AND NATURE OF DEBENTURE
Debenture is a written instrument acknowledging a
debt and containing provisions as regards the repayment of
principal and the payment of interest at a fixed rate According
to Sec. 2(12) of the
Companies Act, 1956, debenture includes debentures
stock, bonds and any other securities of a company
whether constituting a charge on the assets of the
company or not. Debenture represents debt.
DISTINCTION BETWEEN A SHARE AND A
DEBENTURE
These are some basic given below
1.Capital VS Loan
2.Reward for Investment
3. Fluctuations In the Rate Of interest And Dividend.
4. Charge VS. Appropriation Priority as to Payment of
Interest/ dividend
5. Payment of Dividend Interest Priority
Kind of Debentures
ISSUE OF DEBENTURES
The debentures may be issued at par at a premium
or at a discount
(A)Issue of Debentures for Cash at Par – Debenturemeans to have been
issued at par when the issue price is equal to their face value that is an
issue of debenture of Rs 100 at Rs 100.
(b)Issue of Debentures for Cash at a Premium –
Debentures are said to have been issued at a premiumwhen the issue price
is more than their face value thatis an issue of a debenture of Rs 100 at Rs
110. The amount of premium is credited to a separate account called
Debenture Premium Account. Which can be used for writing off the capital
losses and fictitious assets.This account is shown on the liabilities side of
the Balance Sheet under the head Reserves & Surplus.
( c)Issue of debentures for Cash at a Discount –
Debentures have been issued at a discount when the
issue price is less than their face value and issue of adebenture of Rs 100 at
Rs 90. The amount of discount is debited to a separate account called
Discount on issue of Debentures Account, which Shows a capital loss.
Issue of debentures for consideration other then cash When the company
purchases some assets and instead of making the payment to the supplier in
the form of cash issues it’s fully paid debentures such issue of debentures
is called as the issue of debentures for consideration other than
(b) On issue of Debentures
(i) At Par
(ii) At a Premium
(iii) At a discount
ISSUE OF DEBENTURES AS COLLETERAL SECURITY
The issue of debentures as a collateral securitymeans the issue of
debentures as an additionalsecurity against the loan in addition to any other
security that may be offered.
Accounting Treatment: There are two methods of dealing with such
debentures in the books of the company as under.
(a) When no accounting entry is to be passed.
The existence of such debentures has to be maintained by way of a note in
the Balance sheet under the specific loan acco
b) When an accounting entry is to be passed.
One accounting entry may be passed at the timeof issue of such debentures
and can be cancelled
at the time of repayment of loan.
TREATMENT OF DISCOUNT ON ISSUE OF DEBENTURES
Discount on issue of debentures represents loss of capital. It should be
written off as soon as possible.
(a)
Where the debentures are to be redeemed in lump
sum at the end of a specified period. Amount of discount to be written off
annually = Total Discount/No. of years after which debentures will be
redeemed)
REDEMPTION OF DEBENTURES
MEANING OF REDEMPTION OF DEBENTURES
Redemption of debentures means discharge of liability on account of
debentures by repayment made to the debenture-holders.
REDEMPTION OUT OF CAPITAL
When adequate profits are not transferred from Profit & Loss Appropriation
Account to the Debenture Redemption Reserve Account, at the time of
Redemption of debentures, such redemption is said to be out of capital.
The accounting entries are summarized as under
1.On Debentures Becoming due
(a)If the debentures are to be redeemed at par
Debentures A/c
Dr.
To Debenture-holder A/c
REDEMPTION OUT OF PROFITS
When adequate profits are transferred from profit
& Loss Appropriation account to the Debenture Redemption reserve account
at the time of redemption of debentures, such redemption is said to be out
of profits. In addition to the entries explained in case of redemption out of
capital the following journal entry is also passed which is displayed in
animation.
1. ACE Private Ltd. Issued a prospectus inviting applications for 1,00,000
shares of Rs. 10 each. These shares were issued at pa-r on the following
terms:
On applications, Rs.3 on allotment Rs. 4 on first call Rs. 2 and final call the
balance.
Applications were received for 1,20,000 shares. Allotments were made on
the following basis:
(i) To applicants for 20,000 shares – in full;
(ii) To applicants for 40,000 shares – 30,000 shares;
(iii) To applicants for 60,000 shares – 50,000 shares.
The shares were fully called and paid up except amount of allotment,
first and final call not paid by those who applied for 4,000 shares out of the
group applying for 40,000 shares.
All the shares on which calls were not paid were forfeited by the Board
of Directors.
2,000 forfeited shares were reissued as fully paid on receipt of Rs. 8 per
share.
Show the Journal Entries in the books of ACE Private Limited.
Solution :
Date
I
II
III
IV
V
VI
Journal Entries of the books of ACE Private Limited
Particulars
L.F.
Debit
Bank A/c
3,60,000
To Share Application A/c
(Being application money on
1,20,000 shares @ Rs. 3 per share
received)
Share Application A/c
3,60,000
To Share Capital A/c
To Share Allotment A/c
(Being application money on
1,00,000 shares @ Rs. 3 per share
transferred to share capital and on
20,000 shares @ Rs. 3 transferred
to share allotment A/c)
Share Allotment A/c
4,00,000
To Share Capital A/c
(Being allotment money on
1,00,000 shares @ Rs. 4 per share
made due)
Bank A/c
3,31,000
To Share Allotment A/c
(Being allotment money on 97,000
shares received after adjusting
allotment received in advance)
Share First Call A/c
2,00,000
To Share Capita A/c
(Being share first call money on
1,00,000 shares @ Rs. 2 per share
made due)
Bank A/c
1,94,000
To Share First Call A/c
Credit
3,50,000
3,00,000
60,000
4,00,000
3,31,000
2,00,000
1,94,000
VII
VIII
IX
X
XI
(Being share Fist call money on
97,000 shares @ Rs. 2 per share
received)
Share Final Call A/c
To Share Capital A/c
(Being share final call on 1,00,000
share @Rs. 1 per share made due)
Bank A/c
To Share Final Call A/c
(Being share final call money on
97,000 share @ Rs. 1 per share
received)
Share Capital A/c
To Forfeited Shares A/c
To Share Allotment A/c
To Share First Call A/c
To Share Final Call A./c
(Being forfeiture of 3,000 shares
for non-payment of allotment and
calls)
Bank A/c
Forfeited A/c
To Share Capital A/c
(Being reissue of 2,000 forfeited
shares @ Rs. 8 per share)
Forfeited Shares A/c
To Capital Reserve A/c
(Being transfer of forfeited shares
to capital reserve A/c)
1,00,000
1,00,000
97,000
97,000
30,000
12,000
9,000
6,000
3,000
16,000
4,000
20,000
4,000
4,000
2. A Company issued for public subscription 40,000 equity
shares of Rs. 10 each at a premium of Rs. 2 per share payable
as under :
On application
Rs. 2 per share
On Allotment
Rs. 5 per share
(including premium)
On first call
Rs. 2 per share
On final call
Rs. 3 per share
Applications were received for 70,000 Shares. Allotment
was made pro-rata to the applicants for 50,000 shares, the
remaining applications being refused. Money overpaid on
applications was applied towards sum due on allotment. A, to
whom 1,500 shares were allotted. A, to whom, 1,500 shares
were allotted, failed to pay the allotment and call money. B, to
whom 2,000 shares were allotted, failed to pay the two calls.
The shares of A and A were subsequently forfeited after the
second call was made. 3,000 of the forfeited shares were
reissued @ Rs. 8 per share fully paid. The reissued shares
included al of A’s shares.
Pass journal entries in the books of the company to record
the above transactions.
Solution :
Journal Entries
Date
Particulars
Debit
Credit
L.F.
I
II
III
IV
V
VI
VII
VIII
IX
X
Bank A/c
To Share Application A/c
(Being share application money
received on 70,000 shares @ Rs. 2 per
share)
Share Application A/c
To Share Capital A/c
To Share Allotment A/c
To Bank A/c
(Being share application money
transferred to Share Capital account,
Share Allotment account and balance
refunded)
Share Allotment A/c
To Share Capital A/c
To Securities Premium A/c
(Being share allotment money due on
40,000 share@ Rs. 5 per shares,
including premium of Rs. 2 per share)
Bank A/c
Calls in Arrears A/c
To Share Allotment A/c
(Being the amount received on share
allotment)
Share First Call A/c
To Share Capital A/c
(Being share first call money due on
40,000 shares @ Rs. 2 per share)
Bank A/c
Calls in Arrears A/c
To Share First Call A/c
(Being share first call money due on
36,500 shares @ Rs. 2 per share)
Share Second and Final Call A/c
To Share Capital A/c
(Being share second and final call
money due on 40,000 shares @ Rs. 3
per share)
Bank A/c
Call in Arrears A/c
To Share Second and Final Call A/c
(Being amount received on 36,500
shares @ Rs. 3 per share)
Share Capital A/c
Securities Premium A/c
To Calls in Arrears A/c
To Share Forfeited A/c
(Being 3,500 shares forfeited for nonpayment of call in arrears)
Bank A/c
Share Forfeited A/c
To Share Capital A/c
1,40,000
1,40,000
1,40,000
80,000
20,000
40,000
2,00,000
1,73,250
6,750,
80,000
73,000
7,000
1,20,000
80,000
1,80,000
80,000
80,000
1,20,000
1,20,000
1,09,500
10,500
1,20,000
35,000
3,000
24,250
13,750
24,000
6,000
30,000
Working Notes :
40,000 shares were issued to applicants for 50,000 shares
Ratio of allotment is 4:5
A was allotted 1,500 shares so he applied for
1875 shares
=1500×5
=
4
A paid on application 1875 × 2
3,750
A was allotted 1,500 shares and was to pay on application
3,000
Surplus transferred to Share Allotment
750
Total Amount due on allotment = 40,000 × 5
2,00,000
Less: Surplus adjusted from Share Application
20,000
Balance amount due
1,80,000
Less: Arrears from A
(Due Rs. 7,500 Less: Surplus Application amount Rs 750)
6,750
Amount received on allotment
1,73,250
=
=
=
=
=
=
=
=
Amount due on share First Call = 40,000 × 2
80,000
Less: Arrears from A & B [(1,500+2,000) × 2]
7,000
Hence amount received
73,000
=
Amount due on Second and Final Call = 40,000 × 3
1,20,000
Less: Arrears from A & B [(1,500+2,000) × 3]
10,500
Amount Received
1,09,500
=
Amount Forfeited A & B
13,750
=
=
=
=
From A
From B (2,000×5
= 3,750
= 10,000
Amount forfeited on 3,000 shares [From A Rs. 3,750
And From B (10,000 ÷ 2,000) × 1,500]
3,750
=
+
7,500
=
11,250
Less: Discount allowed on re-issue
6,000
Balance transferred to Capital Reserve
5,250
=
=
3. A Company issues 50,000 equity shares of Rs. 100 each at a
discount of 10% (allowed at the time of allotment). The
net amount payable is as follows: On applications Rs.20, On allotment Rs.20, On first call
Rs.25, On final call Rs. 25
Shveti holding 100 shares did not pay final call money.
Her shares were forfeited. Out of these, 40 shares were
re-issued to Shivali at Rs.70 per share. Pass journal
entries.
Solution : Date
Journal
Particulars
Bank A/c
To Share Application A/c
(Being the application money
received)
Share application A/c
To Share Capital A/c
(Being the application money
adjusted)
Share allotment A/c
Discount on issue of shares A/c
To Share Capital A/c
(being allotment money due)
Bank A/c
To Share allotment A/c
(Being the allotment money
L.F.
Debit Rs.
10,00,000
Credit Rs.
10,00,000
10,00,000
10,00,000
10,00,000
5,00,000
10,00,000
15,00,000
10,00,000
received)
Share Ist call A/c
To Share Capital A/c
(Being the first call money due)
Bank A/c
To Share Ist call A/c
(Being the first call received)
Share IInd & F8anl call A/c
To Share Capital A/c
(being the second & final call
money received)
Bank A/c
To Share IInd & Final Call A/c
(Being the second & final call
received on 49,900 shares)
Share Capital A/c
To Forfeited Shares A/c
To Share IInd & Final Call A/c
To Discount on Issue of Shares
A/c
(Being 100 shares forfeited as
per boards resolution dated …..)
Bank A/c
Discount on Issue shares A/c
Forfeited Shares A/c
To Share Capital A/c
(Being 40 forfeited shares
reissued as per boards
resolution dated…))
Forfeited Shares A/c
To Capital Reserve A/c
(Being the transfer of profit on
reissue)
Working Notes : Amount forfeited on 100 shares
12,50,000
12,50,000
12,50,000
12,50,000
12,50,000
12,50,000
12,47,500
12,47,500
10,000
6,500
2,500
1,000
2,800
400
800
1,800
4,000
1,800
= Rs.6,500
:. Amount forfeited on 40 shares reissued = Rs.6,500 x 40
shares = Rs.2,600
100 shares
Additional discount allowed on reissue of 40 shares = Rs.800
Thus, profit on reissue of forfeited shares
Rs.800 =Rs.1,800
= Rs.2,600 –
4. A. Ltd, invited applications for 50,000 equity shares of Rs.
10 each payable as to Rs. 3 on application, Rs. 4 on allotment,
Rs. 2 on first call and the balance on final call. Applications
were received for 55,000 shares. Allotments were made on the
following basis :
(i) To applications for 35,000 shares – in full
(ii) To applications for 20,000 shares – 15,000 shares.
Excess money paid on application was utilized towards
allotment money.
A share holder who was allotted 1,500 shares out of the
group applying for 20,000 shares failed to pay allotment money
and money due on call. These shares were forfeited. 1,000 of
the forfeited shares were reissued as fully paid on receipt of
Rs. 8 per share. Show the journal entries in the books of Co.
Solution:
Journal
Date
Particulars
L.F.
Debit
Credit
I
Bank A/c
1,65,000
To Share Application A/c
1,65,000
(Being application money received on
55,000 shares @ Rs.3 per share)
II
Share Application A/c
1,65,000
To Share Capital A/c
1,50,000
To Share Allotment A/c
15,000
(Being application money transferred
to share capital on 50,000 shares at Rs.
3 per share. Excess money received on
application transferred to allotment)
III
Share Allotment A/c
2,00,000
To Share Capital A/c
2,00,000
(Being allotment money due on 50,00
shares at Rs. 4 per shares)
IV
Bank A/c
1,80,500
To Share Allotment A/c
1,80,500
(Be3ing allotment money received on
48,500)
V
Share First Call A/c
1,00,000
To Share Capital A/c
(Being first call due on 50,000 shares
at Rs. 2 per share)
VI
Bank A/c
97,000
To Share First Call A/c
(Being first call money received except
on 1,500 shares)
VII
Share Final Call A/c
50,000
To Share Capital A/c
(being final call due on 50,000 shares
at Rs. 1 per share)
VIII
Bank A/c
48,500
To Share Final Call A/c
(Being final call money received on
48,500 shares)
IX
Share Capital A/c
15,000
To Share Forfeited A/c
To Share Allotment A/c
To Share First Call A/c
To Share Final Call A/c
(Being 1,500 shares forfeited for nonpayment of allotment money and call
money)
X
Bank A/c
8,000
Share Forfeited A/c
2,000
To Share Capital A/c
(Being reissue of 1,000 shares at Rs. 8
per share fully paid)
.5 A Ltd., has outstanding debentures of Rs. 8,00,000 on
1.1.2003. It has a credit balance of Rs. 8,40,000 standing to
the credit of its Profit and Loss Appropriation Account. Instead
of declaring dividend it decided to redeem the debentures at
5% premium out of profit.
What journal entries will the company record to give effect to
these transactions?
Solution:
Journal
Date
Particulars
L.F Debit
Credit
1.
Profit and Loss Appropriation
40,000
A/C
40,000
To Debentures A/C
(Premium payable on
redemption of debentures)
1,00,000
97,000
50,000
48 500
6,000
4,500
3,000
1,500
10,000
2.
3.
4.
Debentures A/C
Premium on Redemption of
Debenture A/C
To Debenture holder’s A/C
(Amount paid to Debenture
holders)
Debenture holders A/C
To Bank A/C
( Amount paid to Debenture
holders)
Profit & Loss Appropriation A/C
To General Reserve A/C
(Amount equal to face value of
debentures redeemed,
transferred to General Reserve)
8,00,00
0
40,000
8,40,0
00
8,40,00
0
8,40,0
00
8,00,00
0
8,00,0
00
6 Pass the necessary journal entries for the following
transaction in the books of P ltd.
1. Purchased land worth Rs 19, 80,000. it is venders
were paid by issue of 12% debentures of Rs.100 each
at a discount of 10%
2. Issued Rs 2, 00,000 12% debentures as collateral
security.
3. Converted 1,000 12% debentures of Rs 100 each in to
10 % preference shares of Rs 100 each. The
preference shares were issued at a premium of 25%.
4. Redeemed 1,000 12% debentures of Rs 100 each at
a premium of 10% by draw of lots.
5. Paid half yearly interest on Rs 3, 60,000 12%
debentures.
6. Issued Rs 1, 00,000 12% debentures at a discount of
5 % redeemable at a premium of 10%.
Solution:
Journal
Date Particular
l.f. Debit
Credit
Rs
Rs
1.
Land A/c
19,80,000
To venders A/c
19,80,000
(being purchase of land
for Rs 19,80,000)
19,80,000
2.
3.
4.
5.
6.
Venders A/c
Discount on issue of
debenture A/c
To 12% debentures
A/c
(being issue of 22,000
shares at a discount of
Rs 10 in discharge for
liability for purchase of
land)
Debentures suspense
A/c
To 12 % debentures
A/c
(being issue of 12%
debentures of Rs 100
each as collateral
security )
12% debentures A/c
To 10 % preference
share capital A/c
To share premium
A/c
(being conversion of
1000 12% debentures of
Rs 100 each into 10 %
preference shares of Rs
100 each, at a premium
of 25%)
12% debentures A/c
premium on redemption
of debenture A/c
To debenture
holders A/c
(being the redemption of
1000 12% debentures of
Rs 100 each at a
premium of 10% by
draw of lots made due)
Debenture holders A/c
To bank A/c
(being the payment
made)
2,20,000
22,00,000
2,00,000
2,00,000
1,00,000
80,000
20,000
1,00,000
10,000
1,10,000
1,10,000
1,10,000
21,600
21,600
95,000
15,000
1,00,000
10,000
Interest on debentures
A/c
To bank A/c
(being the interest on
debentures paid on Rs
3,60,000 12%
debentures for half year
)
Bank A/c
Loss on issue of
debentures A/c
To 12% debentures
A/c
To premium on
redemption of
Debentures A/c
(being issue of 1000 12
% debentures at a
discount of 5%,
redeemable at a
premium of 10%)
Journal
Date
1.
2.
3.
4.
Particulars
L.F
Profit and Loss
Appropriation A/C
To Debentures A/C
(Premium payable on
redemption of debentures)
Debentures A/C
Premium on Redemption of
Debenture A/C
To Debenture
holder’s A/C
(Amount paid to Debenture
holders)
Debenture holders A/C
To Bank A/C
( Amount paid to
Debenture holders)
Profit & Loss Appropriation
A/C
To General Reserve
A/C
Debit
40,000
Credit
40,000
8,00,000
40,000
8,40,000
8,40,000
8,40,000
8,00,000
8,00,000
(Amount equal to face
value of debentures
redeemed, transferred to
General Reserve)
7 . Journalize the following transactions in the books of Raja
Ltd :
(i) 200 12% Debentures of Rs. 100 each issued at a discount
of 10% were converted in to 10% preference shares of Rs. 100
each issued at a premium of 25%. The debentures were
converted at the option of the debenture-holders before the
date of redemption.
(ii) 50 12% Debentures of Rs. 100 each were converted into
15% debentures of Rs. 500 each. The new debentures were
issued at a discount of 20%.
(iii) Issued 1,000 12% Debentures of Rs. 100 each at a
discount of 10% redeemable at a premium of 5%.
Solution:
Naveen Ltd Journal
Date
(i)
(ii)
Particulars
(On Redemption)
12% Debentures A/c
To Discount on issue of Debentures A/c
To Debenture-holders A/c
(Being the amount due to debenture-holders on
conversion of 200, 12% debentures)
Debenture-holders A/c
To 10% Preference Share Capital A/c
To Securities Premium A/c
(Being issue of 144, 12% preference shares of
Rs. 100 each at Rs. 125 on conversion of 12%
on conversion of 12% debentures)
12% Debentures A/c
To debentures-holders A/c
(Being the amount due to debenture-holders on
L.F. Debit
20,000
Credit
2,000
18,000
18,000
14,400
3,600
5,000
5,000
(iii)
conversion of Rs. 500 each )
12% Debenture-holders A/c
Discount on 8issue of Debentures A/c
To 15% Debenture A/c (500 x 12)
To Bank Account
(Being the issue of 12; 15% debentures of Rs.
500 each at 20% discount on conversion of 12%
debentures)
Bank A/c
Loss on issue of Debentures A/c
To 12% Debentures A/c
To Premium on redemption of Debentures
A/
(Being issue of 1,000, 12% debentures of Rs.
100 each at a discount of 10% and redeemable
at premium of 5%)
5,000
1,200
6,000
200
90,000
15,000
1,00,000
5,000
Working Notes: For (II) entry:
Calculation of debentures and debenture discount:
Since debentures are issued at 20%, its one debenture of Rs. 500 is
worth Rs. 400. Thus:
For making the payment of Rs. 400, the company issues = 1
debentures.
For making the payment of Rs. 5,000, the company issues= 5,000 =
12.5
400
debentures.
As it is not possible to issue debentures infraction, the company issues
only 12 debentures of Rs. 500 each at a discount of 20%. For the
fraction of company pays cash.
8 Premier Ltd., issued 500, 15% Debentures of Rs.100 each at a
discount of 10%. These debentures are to be redeemed by conversion
into equity shares of Rs.10. Make necessary journal entries to record
these transactions.
Solution:
Dat
e
Particulars
On Issue
Bank A/c
Discount on Issue of Debentures
A/c
Journal
L.F.
Debit
Rs.
45,000
5,000
Credit
Rs.
50,000
To 15% Debentures A/c
(Issue of 500 15% Debentures of
Rs.100 each at a discount of 10%)
On conversion/redemption
15% Debentures A/c
To Equity Share Capital A/c
To Discount on Issue of
Debentures A/c
(Conversion of 500 debentures of
Rs.100 each issued at 10%
discount into equity shares of
Rs.10 each)
50,000
45,000
5,000
9. P Ltd., issued Rs.4,00,000 10% debentures of Rs. 100 each at par,
redeemable at 5% premium at the option of debenture holders . One
debenture holder holding 200 debentures exercised his option. Pass
journal entries to record the issue and conversion of debentures.
Solution:
Date
Particulars
Debit
Credit
On Issue
Bank A/c
4,00,0
Loss on Issue of Debentures A/c
00
To 10% debentures
4,00,00
To Premium on Redemption of
20,000 0
debentures A/c
(Issue of Rs.4,00,000 debentures at par
20,000
redeemable at 5% premium)
On conversion
10% debentures A/c
20,000
Premium on redemption of debentures
1,000
A/c
21,000
To Equity Share capital A/c
(Conversion of Rs.20,000 debentures at
5% premium into equity shares)
32.Sharma Ltd., issued 4,800 16% Debentures of Rs.100 each at par
and redeemable at 10% premium by issue of equity shares of
Rs.10each at 4% discount. Show journal entries for redemption.
Solution:
Date
Particulars
Journal
L. Debit
F
Credit
16% Debentures A/c
Premium on Redemption of Debentures
A/c
To Debenture holders A/c
(Amount due to debenture holders on
conversion of debentures)
Debentures holders A/c
Discount on issue of Debentures A/c
To Equity Share Capital A/c
(Issue of 55,000 equity shares of Rs .
10each at 4% discount on conversion
of debentures)
4,80,00
0
48,000
5,28,00
0
5,28,00
0
22,000
5,50,00
0
10 On 1.1.2003 a company issued 1,000; 10% Debentures of
Rs. 500 each at Rs. 450. The company gave an option to
convert their debentures into equity shares of Rs. 100 each at a
premium of Rs. 50 any time after one year.
Reena, a holder of 120 debentures, exercised her option of
converting debentures into equity shares on 1.1.2004. Record
necessary journal entries.
Solution:
Journal
Date
1.1.03
1.1.04
Particulars
Bank A/c
Discount on Issue of Debentures
A/c
To 10% Debentures A/c
(Issue of 1,000; 10%
Debentures of Rs. 500 each @
Rs. 450 each)
10% Debenture A/c
To Discount on Issue of
Debentures A/c
To Equity Share Capital A/c
To Securities Premium A/c
(Conversion of 120 debentures
of Rs. 500 issued at Rs. 450 into
equity shares of Rs. 100 at a
premium of Rs. 50 per share)
L.F
Debit
4,50,000
50,000
Credit
5,00,000
60,000
6,000
36,000
18,000
Q11 Journalise the following transactions in the books of Sun
Ltd.:
(i) 100, 12% Debentures of Rs. 100 each issued at a discount
of 10% were converted into 10%. Preference shares of Rs.
100 each issued at a premium of 25%. The debentures were
converted at the option of the debenture holders before the
date of redemption.
(ii) 100, 12% Debentures of Rs. 500 each were converted into
15% debentures of Rs. 100 each. The new debentures were
issued at a discount of 20%.
(iii) Issued 500, 10% debentures of Rs. 100 each at a discount
of 10% redeemable at a premium of 5%.
Solution:
Date Particulars
L.F.
Debit
Credit
Rs.
Rs.
i.
12% Debentures A/c
10,000
To 10% Preference Share Capital A/c
7,200
To Securities Premium A/c
1,800
To Discount on Issue of Debentures A/c
1,000
(Being 100 debentures originally issued at a
discount converted into 10%. Preference
shares of Rs. 100 each issued at Rs. 125 per
share) Note: Amount Redeemable(100XRs.90)
= 9,000. No. of Pref. Shares to be issued =
Rs.9,000 = 72
Rs.125
ii.
12% Debentures A/c
50,000
Discount on Issue of Debentures A/c
12,500
To 15% Debentures A/c
62,500
(Being 12%, 100 debentures converted into
625 new 15% debentures of Rs. 100 each at a
discount of 20%)
Note: No. of Debentures to be issued =
Rs.50,000 = 625
Rs.80
iii.
Bank A/c
45,000
Loss on Issue of Debentures A/c
7,500
To 10% Debentures A/c
50,000
To Premium Payable on Redemption A/c
2,500
(Being issue of debentures at discount
redeemable at premium)