Accounting for Share Capital& Debenture

7/31/2019 Accounting for Share Capital& Debenture

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ENRICHMENT MATERIALACCOUNTING FOR SHARE CAPITAL& DEBENTURE

MEANING, NATURE AND CHARACTERISTICS OF A COMPANY

A company may be defined as an artificial personcreated by law having a corporate and legal personality

distinct and separate from its members, perpetualsuccession 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 knownas share capital which is quite distinct the capital put

in by individual share holders

The share of capital divided under the following threeheads:Authorized Capital An Authorized Capital refers to the amount which is statedin 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 isAuthorized to raise and beyond which the company cannot raise unless the

capital clause in the Memorandum is altered in accordance with theprofessions 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 bythe 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 thepaidup 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 thepurposes of the company being wound up(under Sec. 99).


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Distinction between an equity and preference share

EQUITY SHARE Payment of equity dividend is made after the payment of preferencedividend.

PRFERENCE SHARE Payment of preference dividend is madebefore the payment of equity dividend.

Repayment of capital

EQUITY SHARERepayment of Equity share capital is made after the repaymentof preference share capital.

PRFERENCE SHARERepayment of preference share capital is made before therepayment of equity share capital.

Arrears of dividend

EQUITY SHARE In case of an equity share, arrears of dividend cannotaccumulate in any case.

PRFERENCE SHARE In case of a preference share, arrears of dividend mayaccumulate.

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 UnderSubscribed when thenumber of share applied for is less than the number

of shares offered.


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(2) OVER SUBSCRIPTION:

Share are said to be over-Subscription whenthe numbers of share applied is more than thenumber of shares offered.

For example: A company has offered 5,000 shares topublic 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 debtand containing provisions as regards the repayment of principaland the payment of interest at a fixed rate According to Sec.

2(12) of theCompanies Act, 1956, debenture includes debentures

stock, bonds and any other securities of a company

whether constituting a charge on the assets of thecompany 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


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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 premiumor at a discount

(A)Issue of Debentures for Cash at Par Debenturemeans to have beenissued 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 andfictitious 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 theissue price is less than their face value and issue of adebenture of Rs 100 atRs 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 companypurchases some assets and instead of making the payment to

the supplier in the form of cash issues its fully paid debenturessuch 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 debenturesas an additionalsecurity against the loan in addition to any other security that

may be offered.


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Accounting Treatment: There are two methods of dealing with suchdebentures 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 inthe 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 bewritten off as soon as possible.

(a) Where the debentures are to be redeemed in lumpsum at the end of a specified period. Amount of discount to be written off

annually = Total Discount/No. of years after which debentures will beredeemed)

REDEMPTION OF DEBENTURES

MEANING OF REDEMPTION OF DEBENTURES

Redemption of debentures means discharge of liability on account ofdebentures by repayment made to the debenture-holders.

REDEMPTION OUT OF CAPITAL

When adequate profits are not transferred from Profit & Loss AppropriationAccount 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 parDebentures 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 accountat 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 ofcapital 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 followingterms:

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;


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(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 groupapplying for 40,000 shares.

All the shares on which calls were not paid were forfeited by the Board ofDirectors.

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 :

Journal Entries of the books of ACE Private Limited

Date Particulars L.F. Debit Credit

I Bank A/cTo Share Application A/c

(Being application money on

1,20,000 shares @ Rs. 3 per sharereceived)

3,60,0003,50,000

II Share Application A/c

To Share Capital A/c

To Share Allotment A/c(Being application money on

1,00,000 shares @ Rs. 3 per sharetransferred to share capital and on

20,000 shares @ Rs. 3 transferred to

share allotment A/c)

3,60,000

3,00,000

60,000

III Share Allotment A/cTo Share Capital A/c

(Being allotment money on 1,00,000

shares @ Rs. 4 per share made due)

4,00,0004,00,000

IV Bank A/cTo Share Allotment A/c

(Being allotment money on 97,000

shares received after adjusting

allotment received in advance)

3,31,0003,31,000

V Share First Call A/cTo Share Capita A/c

(Being share first call money on1,00,000 shares @ Rs. 2 per share

made due)

2,00,0002,00,000

VI Bank A/c 1,94,000


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To Share First Call A/c

(Being share Fist call money on

97,000 shares @ Rs. 2 per sharereceived)

1,94,000

VII Share Final Call A/c

To Share Capital A/c(Being share final call on 1,00,000share @Rs. 1 per share made due)

1,00,000

1,00,000

VIII Bank A/c

To Share Final Call A/c

(Being share final call money on97,000 share @ Rs. 1 per share

received)

97,000

97,000

IX Share Capital A/c

To Forfeited Shares A/c

To Share Allotment A/cTo Share First Call A/cTo Share Final Call A./c

(Being forfeiture of 3,000 shares for

non-payment of allotment and calls)

30,000

12,000

9,0006,0003,000

X Bank A/cForfeited A/c


(Being reissue of 2,000 forfeitedshares @ Rs. 8 per share)

16,0004,000

20,000

XI Forfeited Shares A/c

To Capital Reserve A/c(Being transfer of forfeited sharesto capital reserve A/c)

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 asunder :

On application Rs. 2 per share

On Allotment Rs. 5 per share (includingpremium)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, theremaining applications being refused. Money overpaid on


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applications was applied towards sum due on allotment. A, towhom 1,500 shares were allotted. A, to whom, 1,500 shares

were allotted, failed to pay the allotment and call money. B, towhom 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 werereissued @ Rs. 8 per share fully paid. The reissued shares

included al of As shares.

Pass journal entries in the books of the company to record

the above transactions.

Solution :

Journal Entries


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Date Particulars L.F.

Debit Credit

I Bank A/cTo Share Application A/c

(Being share application moneyreceived on 70,000 shares @ Rs. 2 per

share)

1,40,0001,40,000


To Share Capital A/cTo Share Allotment A/c

To Bank A/c(Being share application moneytransferred to Share Capital account,

Share Allotment account and balancerefunded)

1,40,000

80,00020,000

40,000

III Share Allotment A/cTo 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)

2,00,0001,20,000

80,000

IV Bank A/cCalls in Arrears A/c

To Share Allotment A/c

(Being the amount received on shareallotment)

1,73,2506,750,

1,80,000

V Share First Call A/cTo Share Capital A/c

(Being share first call money due on40,000 shares @ Rs. 2 per share)

80,00080,000

VI Bank A/cCalls in Arrears A/c

To Share First Call A/c(Being share first call money due on

36,500 shares @ Rs. 2 per share)

73,0007,000

80,000

VII 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)

1,20,000

1,20,000

VIII Bank A/c

Call in Arrears A/cTo Share Second and Final Call A/c

(Being amount received on 36,500shares @ Rs. 3 per share)

1,09,500

10,5001,20,000

IX Share Capital A/cSecurities Premium A/c

To Calls in Arrears A/cTo Share Forfeited A/c

(Being 3,500 shares forfeited for non-payment of call in arrears)

35,0003,000

24,25013,750

X Bank A/cShare Forfeited A/c

To Share Ca ital A c

24,0006,000

30 000


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Working Notes :

40,000 shares were issued to applicants for 50,000 sharesRatio of allotment is 4:5

A was allotted 1,500 shares so he applied for =15005 =1875 shares 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] =10,500Amount Received =

1,09,500

Amount Forfeited A & B =13,750


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From A = 3,750From B (2,0005 = 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 adiscount 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. 25Shveti 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 : -Journal

Date Particulars L.F. Debit Rs. Credit Rs.Bank A/c

To Share Application A/c(Being the application money

received)

10,00,000

10,00,000

Share application A/c

To Share Capital A/c(Being the application money

adjusted)

10,00,000

10,00,000

Share allotment A/c

Discount on issue of shares A/cTo Share Capital A/c

(being allotment money due)

10,00,000

5,00,00015,00,000

Bank A/c

To Share allotment A/c(Being the allotment money

received)

10,00,000

10,00,000

Share Ist call A/c 12,50,000


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(Being the first call money due)

12,50,000

Bank A/c

To Share Ist call A/c(Being the first call received)

12,50,000

12,50,000

Share IInd & F8anl call A/cTo Share Capital A/c

(being the second & final callmoney received)

12,50,00012,50,000

Bank A/cTo Share IInd & Final Call A/c

(Being the second & final callreceived on 49,900 shares)

12,47,50012,47,500

Share Capital A/cTo Forfeited Shares A/c

To Share IInd & Final Call A/cTo Discount on Issue of SharesA/c

(Being 100 shares forfeited asper boards resolution dated ..)

10,0006,500

2,5001,000

Bank A/cDiscount on Issue shares A/c

Forfeited Shares A/cTo Share Capital A/c

(Being 40 forfeited shares

reissued as per boards resolution

dated))

2,800400

8004,000

Forfeited Shares A/c

To Capital Reserve A/c

(Being the transfer of profit onreissue)

1,800

1,800

Working Notes : -

Amount forfeited on 100 shares = Rs.6,500

:. Amount forfeited on 40 shares reissued = Rs.6,500 x 40

shares = Rs.2,600100 shares

Additional discount allowed on reissue of 40 shares = Rs.800

Thus, profit on reissue of forfeited shares = Rs.2,600

Rs.800 =Rs.1,800


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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 towardsallotment 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 theforfeited shares were reissued as fully paid on receipt of Rs. 8

per share. Show the journal entries in the books of Co.Solution:

Journal


I Bank A/c

To Share Application A/c

(Being application money received on55,000 shares @ Rs.3 per share)

1,65,000

1,65,000


To Share Capital A/cTo Share Allotment A/c

(Being application money transferred to

share capital on 50,000 shares at Rs. 3per share. Excess money received on

application transferred to allotment)

1,65,000

1,50,00015,000

III Share Allotment A/c

To Share Capital A/c(Being allotment money due on 50,00

shares at Rs. 4 per shares)

2,00,000

2,00,000

IV Bank A/cTo Share Allotment A/c

(Be3ing allotment money received on48,500)

1,80,5001,80,500

V Share First Call A/c


(Being first call due on 50,000 shares atRs. 2 per share)

1,00,000

1,00,000


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VI Bank A/c

To Share First Call A/c

(Being first call money received excepton 1,500 shares)

97,000

97,000

VII Share Final Call A/c

To Share Capital A/c(being final call due on 50,000 shares atRs. 1 per share)

50,000

50,000

VIII Bank A/c

To Share Final Call A/c

(Being final call money received on48,500 shares)

48,500

48 500

IX Share Capital A/c

To Share Forfeited A/c

To Share Allotment A/c

To Share First Call A/cTo Share Final Call A/c(Being 1,500 shares forfeited for non-

payment of allotment money and call

money)

15,000

6,000

4,500

3,0001,500

X Bank A/cShare Forfeited A/c


(Being reissue of 1,000 shares at Rs. 8per share fully paid)

8,0002,000

10,000

.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 thecredit of its Profit and Loss Appropriation Account. Instead ofdeclaring 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 AppropriationA/C

To Debentures A/C(Premium payable on

redemption of debentures)

40,00040,000

2. Debentures A/C

Premium on Redemption ofDebenture A/C

8,00,00

0


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To Debenture holders A/C

(Amount paid to Debenture

holders)

40,000 8,40,00

0

3. Debenture holders A/CTo Bank A/C

( Amount paid to Debentureholders)

8,40,000 8,40,00

0

4. Profit & Loss Appropriation A/CTo General Reserve A/C

(Amount equal to face value of

debentures redeemed,transferred to General Reserve)

8,00,000 8,00,00

0

6 Pass the necessary journal entries for the followingtransaction 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. DebitRs

CreditRs

1.

2.

Land A/c

To venders A/c(being purchase of landfor Rs 19,80,000)

19,80,000

19,80,000

2,20,000

2,00,000

19,80,000

22,00,000Venders A/c

Discount on issue of

debenture A/cTo 12% debentures

A/c


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3.

4.

5.

6.

(being issue of 22,000

shares at a discount of Rs

10 in discharge forliability for purchase of

land)

1,00,000

1,00,00010,000

1,10,000

21,600

95,00015,000

2,00,000

80,000

20,000

1,10,000

1,10,000

21,600

1,00,000

10,000

Debentures suspense A/cTo 12 % debentures

A/c

(being issue of 12%debentures of Rs 100

each as collateral

security )

12% debentures A/cTo 10 % preference

share capital A/c

To share premiumA/c

(being conversion of1000 12% debentures of

Rs 100 each into 10 %

preference shares of Rs100 each, at a premium

of 25%)

12% debentures A/c

premium on redemptionof debenture A/c

To debenture holdersA/c

(being the redemption of

1000 12% debentures ofRs 100 each at a

premium of 10% by drawof lots made due)

Debenture holders A/cTo bank A/c

(being the payment

made)Interest on debenturesA/c

To bank A/c(being the interest on

debentures paid on Rs

3,60,000 12%debentures for half year )


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Bank A/c

Loss on issue of

debentures A/cTo 12% debentures

A/c

To premium onredemption of

Debentures A/c

(being issue of 1000 12

% debentures at adiscount of 5%,

redeemable at a premiumof 10%)

Journal

Date Particulars L.F Debit Credit1. Profit and LossAppropriation A/C

To Debentures A/C

(Premium payable onredemption of debentures)

40,00040,000

2. Debentures A/C

Premium on Redemption of

Debenture A/CTo Debenture holders

A/C

(Amount paid to Debentureholders)

8,00,000

40,0008,40,000

3. Debenture holders A/C

To Bank A/C( Amount paid to Debenture

holders)

8,40,000

8,40,000

4. Profit & Loss Appropriation

A/C

To General ReserveA/C

(Amount equal to facevalue of debentures

redeemed, transferred toGeneral Reserve)

8,00,000

8,00,000


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7 . Journalize the following transactions in the books of Raja Ltd:

(i) 200 12% Debentures of Rs. 100 each issued at a discount of10% 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 dateof redemption.

(ii) 50 12% Debentures of Rs. 100 each were converted into15% 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 discountof 10% redeemable at a premium of 5%.

Solution:Naveen Ltd Journal


(i) (On Redemption)

12% Debentures A/cTo Discount on issue of Debentures A/c

To Debenture-holders A/c

(Being the amount due to debenture-holders onconversion of 200, 12% debentures)

20,000

2,00018,000

Debenture-holders A/c

To 10% Preference Share Capital A/cTo Securities Premium A/c

(Being issue of 144, 12% preference shares of

Rs. 100 each at Rs. 125 on conversion of 12% onconversion of 12% debentures)

18,000

14,4003,600

(ii) 12% Debentures A/c

To debentures-holders A/c

(Being the amount due to debenture-holders onconversion of Rs. 500 each )

5,000

5,000

12% Debenture-holders A/cDiscount 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%

5,0001,200

6,000200


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debentures)

(iii) Bank A/cLoss on issue of Debentures A/c

To 12% Debentures A/cTo Premium on redemption of Debentures

A/(Being issue of 1,000, 12% debentures of Rs. 100each at a discount of 10% and redeemable at

premium of 5%)

90,00015,000

1,00,0005,000

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 =12.5400

debentures.

As it is not possible to issue debentures infraction, the company issuesonly 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 conversioninto equity shares of Rs.10. Make necessary journal entries to record

these transactions.

Solution:

Journal

Dat

e

Particulars L.F. Debit

Rs.

Credit

Rs.

On Issue

Bank A/cDiscount on Issue of Debentures

A/c

To 15% Debentures A/c(Issue of 500 15% Debentures ofRs.100 each at a discount of 10%)

45,0005,000

50,000

On conversion/redemption

15% Debentures A/c

To Equity Share Capital A/c

To Discount on Issue ofDebentures A/c

50,000

45,000

5,000


20/22

(Conversion of 500 debentures of

Rs.100 each issued at 10%

discount into equity shares of Rs.10each)

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 . Onedebenture 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

Loss on Issue of Debentures A/c

To 10% debentures

To Premium on Redemption ofdebentures A/c(Issue of Rs.4,00,000 debentures at par

redeemable at 5% premium)

4,00,0

00

20,0

00

4,00,00

0 20,000

On conversion

10% debentures A/cPremium on redemption of debentures

A/c

To Equity Share capital A/c(Conversion of Rs.20,000 debentures at 5%

premium into equity shares)

20,0001,000

21,000

32.Sharma Ltd., issued 4,800 16% Debentures of Rs.100 each at par

and redeemable at 10% premium by issue of equity shares ofRs.10each at 4% discount. Show journal entries for redemption.

Solution:Journal

Date Particulars L.F

Debit Credit

16% Debentures A/cPremium on Redemption of Debentures

A/cTo Debenture holders A/c

(Amount due to debenture holders onconversion of debentures)

4,80,000

48,000

5,28,000

Debentures holders A/cDiscount on issue of Debentures A/c

5,28,000


21/22


(Issue of 55,000 equity shares of Rs .

10each at 4% discount on conversion ofdebentures)

22,00

0

5,50,00

0

10 On 1.1.2003 a company issued 1,000; 10% Debentures ofRs. 500 each at Rs. 450. The company gave an option to converttheir 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 Particulars L.F Debit Credit1.1.03 Bank A/cDiscount on Issue of Debentures

A/c

To 10% Debentures A/c(Issue of 1,000; 10% Debentures

of Rs. 500 each @ Rs. 450 each)

4,50,00050,000

5,00,000

1.1.04 10% Debenture A/c

To Discount on Issue ofDebentures A/c


To Securities Premium A/c(Conversion of 120 debentures of

Rs. 500 issued at Rs. 450 intoequity shares of Rs. 100 at a

premium of Rs. 50 per share)

60,000

6,000

36,000

18,000

Q11 Journalise the following transactions in the books of SunLtd.:

(i) 100, 12% Debentures of Rs. 100 each issued at a discount of10% were converted into 10%. Preference shares of Rs. 100

each issued at a premium of 25%. The debentures wereconverted at the option of the debenture holders before the dateof redemption.

(ii) 100, 12% Debentures of Rs. 500 each were converted into15% 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 discountof 10% redeemable at a premium of 5%.


22/22

Solution:

Date Particulars L.F. Debit

Rs.

Credit

Rs.

i. 12% Debentures A/cTo 10% Preference Share Capital A/c

To Securities Premium A/cTo Discount on Issue of Debentures A/c

(Being 100 debentures originally issued at a

discount converted into 10%. Preference sharesof 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

10,0007,200

1,8001,000

ii. 12% Debentures A/c

Discount on Issue of Debentures A/cTo 15% Debentures A/c

(Being 12%, 100 debentures converted into625 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

50,000

12,500 62,500

iii. Bank A/c

Loss on Issue of Debentures A/cTo 10% Debentures A/c

To Premium Payable on Redemption A/c(Being issue of debentures at discount

redeemable at premium)

45,000

7,50050,000

2,500

Documents

Accounting for Share Capital& Debenture