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  :

Journal Entries of the books of ACE Private Limited
Date
Particulars
L.F.
    Debit
  Credit
I
 Bank A/c
   To Share Application A/c
(Being application money on 1,20,000 shares @ Rs. 3 per share received)

3,60,000

3,50,000
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 share transferred 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/c
   To Share Capital A/c
(Being allotment money on 1,00,000 shares @ Rs. 4 per share made due)

4,00,000

4,00,000
IV
Bank A/c
   To Share Allotment A/c
(Being allotment money on 97,000 shares received after adjusting allotment received in advance)

3,31,000

3,31,000
V
Share First Call A/c
   To Share Capita A/c
(Being share first call money on 1,00,000 shares @ Rs. 2 per share made due)

2,00,000

2,00,000
VI
Bank A/c
   To Share First Call A/c
(Being share Fist call money on 97,000 shares @ Rs. 2 per share received)

1,94,000

1,94,000
VII
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)

1,00,000

1,00,000
VIII
Bank A/c
   To Share Final Call A/c
(Being share final call money on 97,000 share @ Rs. 1 per share received)

97,000

97,000

IX
Share Capital A/c
   To Forfeited Shares A/c
   To Share Allotment A/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)

30,000

12,000
9,000
6,000
3,000
X
Bank A/c
Forfeited A/c
   To Share Capital A/c
(Being reissue of 2,000 forfeited shares @ Rs. 8 per share)

16,000
4,000


20,000
XI
Forfeited Shares A/c
   To Capital Reserve A/c
(Being transfer of forfeited shares to 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 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    
   L.F.
   Debit
   Credit
I
Bank A/c
   To Share Application A/c
(Being share application money received on 70,000 shares @ Rs. 2 per share)

1,40,000

1,40,000

II
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)

1,40,000

80,000
20,000
40,000
III
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)

2,00,000

1,20,000
80,000

IV
Bank A/c
Calls in Arrears A/c
   To Share Allotment A/c
(Being the amount received on share allotment)

1,73,250
6,750,


1,80,000

V
Share First Call A/c
   To Share Capital A/c
(Being share first call money due on 40,000 shares @ Rs. 2 per share)

80,000

80,000

VI
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)

73,000
7,000


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/c
   To Share Second and Final Call A/c
(Being amount received on 36,500 shares @ Rs. 3 per share)

1,09,500
10,500


1,20,000

IX
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 non-payment of call in arrears)

35,000
3,000


24,250
13,750
X
Bank A/c
Share Forfeited A/c
   To Share Capital A/c
(Being reissue of 3,000 shares @ Rs. 8 per share as fully paid)

24,000
6,000


30,000

XI
Share Forfeited A/c
   To Capital Reserve A/c
(Being the surplus of amount forfeited in respect of shares reissued transferred to Capital Reserve)

5,250

5,250

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        =1500×5   =    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]                       =     10,500
  Amount Received                                                                     = 1,09,500

Amount Forfeited A & B                                                          =    13,750
 


          From A                       =  3,750
          From B (2,000×5       = 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 : -
                                  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/c
   To Share Capital A/c
(being allotment money due)

10,00,000
 5,00,000


15,00,000

Bank A/c
   To Share allotment A/c
(Being the allotment money received)

10,00,000

10,00,000

Share Ist call A/c
   To Share Capital A/c
(Being the first call money due)

12,50,000

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/c
   To Share Capital A/c
(being the second & final call money received)

12,50,000

12,50,000

Bank A/c
    To Share IInd & Final Call A/c
(Being the second & final call received on 49,900 shares)

12,47,500

12,47,500

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 …..)

10,000

6,500
2,500
1,000

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…))

2,800
  400
  800




4,000

Forfeited Shares A/c
    To Capital Reserve A/c
(Being the transfer of profit on reissue)

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.2,600
                                                                100 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


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
   To Share Application A/c
(Being application money received on 55,000 shares @ Rs.3 per share)

1,65,000

1,65,000
II
Share Application A/c
   To Share Capital A/c
   To Share Allotment A/c
(Being application money transferred to share capital on 50,000 shares at Rs. 3 per share.  Excess money received on application transferred to allotment)

1,65,000

1,50,000
15,000

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/c
   To Share Allotment A/c
(Be3ing allotment money received on 48,500)

1,80,500

1,80,500

V
Share First Call A/c
   To Share Capital A/c
(Being first call due on 50,000 shares at Rs. 2 per share)

1,00,000

1,00,000
VI
Bank A/c
   To Share First Call A/c
(Being first call money received except on 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 at Rs. 1 per share)

50,000

50,000
VIII
Bank A/c
To Share Final Call A/c
(Being final call money received on 48,500 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/c
   To 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
3,000
1,500
X
Bank A/c
Share Forfeited A/c
   To Share Capital A/c
(Being reissue of 1,000 shares at Rs. 8 per share fully paid)

8,000
2,000


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 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 A/C
             To Debentures A/C
(Premium payable on redemption of debentures)

40,000

40,000
2.
Debentures A/C
Premium on Redemption of
Debenture A/C
         To Debenture holder’s A/C
(Amount paid to Debenture holders)

8,00,000

40,000



8,40,000
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 Reserve A/C
(Amount equal to face value of debentures redeemed, transferred to General Reserve)

8,00,000

8,00,000



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
Rs
Credit
Rs
1.







2.



3.





4.








5.



6.


Land A/c
       To venders A/c
(being purchase of land for Rs 19,80,000)

19,80,000


19,80,000
  2,20,000
  


2,00,000



1,00,000





1,00,000
   10,000




1,10,000


   21,600


   95,000
   15,000
              

19,80,000



22,00,000



2,00,000



  80,000
  20,000





1,10,000




1,10,000


   21,600



1,00,000

   10,000
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)
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
Particulars
L.F
Debit
Credit
1.
Profit and Loss Appropriation A/C
             To Debentures A/C
(Premium payable on redemption of debentures)

40,000

40,000
2.
Debentures A/C
Premium on Redemption of
Debenture A/C
         To Debenture holder’s A/C
(Amount paid to Debenture holders)

8,00,000

40,000



8,40,000
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 Reserve A/C
(Amount equal to face value of debentures redeemed, transferred to General Reserve)

8,00,000

8,00,000



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
Particulars
L.F.
Debit
Credit
(i)
(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)

20,000

  2,000
18,000

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)

18,000

14,400
  3,600
(ii)
12% Debentures A/c
        To debentures-holders A/c
(Being the amount due to debenture-holders on conversion of Rs. 500 each )

 5,000

 5,000

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)

 5,000
 1,200


 6,000
   200
(iii)
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%)

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:
                                                               Journal
Date
Particulars
L.F.
Debit
Rs.
Credit
Rs.

On Issue
Bank A/c
Discount on Issue of Debentures A/c
         To 15% Debentures A/c
(Issue of 500 15% Debentures of Rs.100 each at a discount of 10%)


45,000
  5,000



50,000

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
    Loss on Issue of Debentures A/c
             To 10% debentures
             To Premium on Redemption of debentures A/c
(Issue of Rs.4,00,000 debentures at par redeemable at 5% premium)

4,00,000
   20,000



4,00,000
   20,000

On conversion
  10% debentures A/c
   Premium  on redemption of debentures A/c
              To Equity Share capital A/c
(Conversion of Rs.20,000 debentures at 5% premium into equity shares)

20,000
  1,000



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 of Rs.10each at 4% discount. Show journal entries for redemption.

Solution:
                                                                  Journal
Date
Particulars
L.F
Debit
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)

4,80,000
   48,000


5,28,000

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)

5,28,000
   22,000


5,50,000

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
Particulars
L.F
Debit
Credit
1.1.03
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)

4,50,000
   50,000


5,00,000
1.1.04
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)

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
Rs.
Credit
Rs.
i.
12% Debentures A/c   
     To 10% Preference Share Capital A/c
     To Securities Premium A/c
     To Discount on Issue of Debentures A/c
(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

10,000

7,200
1,800
1,000
ii.
12% Debentures A/c
Discount on Issue of Debentures A/c
     To 15% Debentures A/c
(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
50,000
12,500


62,500
iii.
Bank A/c
Loss on Issue of Debentures A/c
     To 10% Debentures A/c
     To Premium Payable on Redemption A/c
(Being issue of debentures at discount redeemable at premium)
45,000
 7,500


50,000
 2,500