7/31/2019 Accounting for Share Capital& Debenture
1/22
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).
7/31/2019 Accounting for Share Capital& Debenture
2/22
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.
7/31/2019 Accounting for Share Capital& Debenture
3/22
(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
7/31/2019 Accounting for Share Capital& Debenture
4/22
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.
7/31/2019 Accounting for Share Capital& Debenture
5/22
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;
7/31/2019 Accounting for Share Capital& Debenture
6/22
(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
7/31/2019 Accounting for Share Capital& Debenture
7/22
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
To Share Capital 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
7/31/2019 Accounting for Share Capital& Debenture
8/22
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
7/31/2019 Accounting for Share Capital& Debenture
9/22
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
II Share Application A/c
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
7/31/2019 Accounting for Share Capital& Debenture
10/22
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
7/31/2019 Accounting for Share Capital& Debenture
11/22
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
7/31/2019 Accounting for Share Capital& Debenture
12/22
To Share Capital A/c
(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
7/31/2019 Accounting for Share Capital& Debenture
13/22
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
Date Particulars L.F. Debit Credit
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
II Share Application A/c
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
To Share Capital A/c
(Being first call due on 50,000 shares atRs. 2 per share)
1,00,000
1,00,000
7/31/2019 Accounting for Share Capital& Debenture
14/22
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
To Share Capital 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
7/31/2019 Accounting for Share Capital& Debenture
15/22
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
7/31/2019 Accounting for Share Capital& Debenture
16/22
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 )
7/31/2019 Accounting for Share Capital& Debenture
17/22
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
7/31/2019 Accounting for Share Capital& Debenture
18/22
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
Date Particulars L.F. Debit Credit
(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
7/31/2019 Accounting for Share Capital& Debenture
19/22
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
7/31/2019 Accounting for Share Capital& Debenture
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
7/31/2019 Accounting for Share Capital& Debenture
21/22
To Equity Share Capital A/c
(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 Equity Share Capital 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%.
7/31/2019 Accounting for Share Capital& Debenture
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