ENRICHMENT MATERIAL ACCOUNTING FOR SHARE CAPITAL& DEBENTURE

MEANING, NATURE AND CHARACTERISTICS OF A COMPANY

A company may be defined as an artificial person created by law having a corporate and legal personality distinct and separate from its members, perpetual succession and a common seal.
MEANING AND CATEGORIES OF SHARE CAPITAL

Share Capital means the Capital collected by the issue of shares. The amounts invested by the shareholders towards the face value of share are collectively known as share capital which is quite distinct the capital put in by individual share holders

The share of capital divided under the following three

heads:
Authorized Capital An Authorized Capital refers to the amount which is stated

in the Capital Clause of the Memorandum of Association as the share capital of the company. This is the maximum limit of the company which it is Authorized to raise and beyond which the company cannot raise unless the capital clause in the Memorandum is altered in accordance with the professions of under Sec. 94 of the Indian Companies Act. 1956. Issued Capital - An Issued Capital refers to the nominal value of that part of Authorise Capital, which has been (i) subscribed for by the signatories to the Memorandum of Association, (ii) Allotted for cash or for consideration other than cash and (iii) allotted as Bonus share. Subscribed Capital Subscribed Capital refers to the paidup 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 UnderSubscribed 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 its fully paid debentures such issue of debentures is called as the issue of debentures for consideration other than (b) On issue of Debentures (i) At Par (ii) At a Premium (iii) At a discount
ISSUE OF DEBENTURES AS COLLETERAL SECURITY

The issue of debentures as a collateral securitymeans the issue of debentures as an additionalsecurity against the loan in addition to any other security that may be offered.

Accounting Treatment: There are two methods of dealing with such debentures in the books of the company as under. (a) When no accounting entry is to be passed. The existence of such debentures has to be maintained by way of a note in the Balance sheet under the specific loan acco b) When an accounting entry is to be passed. One accounting entry may be passed at the timeof issue of such debentures and can be cancelled at the time of repayment of loan.
TREATMENT OF DISCOUNT ON ISSUE OF DEBENTURES

Discount on issue of debentures represents loss of capital. It should be written off as soon as possible. (a) Where the debentures are to be redeemed in lump sum at the end of a specified period. Amount of discount to be written off annually = Total Discount/No. of years after which debentures will be redeemed)

REDEMPTION OF DEBENTURES
MEANING OF REDEMPTION OF DEBENTURES

Redemption of debentures means discharge of liability on account of debentures by repayment made to the debenture-holders.
REDEMPTION OUT OF CAPITAL

When adequate profits are not transferred from Profit & Loss Appropriation Account to the Debenture Redemption Reserve Account, at the time of Redemption of debentures, such redemption is said to be out of capital. The accounting entries are summarized as under 1.On Debentures Becoming due (a)If the debentures are to be redeemed at par Debentures A/c Dr. To Debenture-holder A/c REDEMPTION OUT OF PROFITS When adequate profits are transferred from profit & Loss Appropriation account to the Debenture Redemption reserve account at the time of redemption of debentures, such redemption is said to be out of profits. In addition to the entries explained in case of redemption out of capital the following journal entry is also passed which is displayed in animation. 1. ACE Private Ltd. Issued a prospectus inviting applications for 1,00,000 shares of Rs. 10 each. These shares were issued at pa-r on the following terms: On applications, Rs.3 on allotment Rs. 4 on first call Rs. 2 and final call the balance. Applications were received for 1,20,000 shares. Allotments were made on the following basis: (i) To applicants for 20,000 shares in full;

(ii) To applicants for 40,000 shares 30,000 shares; (iii) To applicants for 60,000 shares 50,000 shares. The shares were fully called and paid up except amount of allotment, first and final call not paid by those who applied for 4,000 shares out of the group applying for 40,000 shares. All the shares on which calls were not paid were forfeited by the Board of Directors. 2,000 forfeited shares were reissued as fully paid on receipt of Rs. 8 per share. Show the Journal Entries in the books of ACE Private Limited.

Solution : Date I Journal Entries of the books of ACE Private Limited Particulars L.F. Debit Bank A/c 3,60,000 To Share Application A/c (Being application money on 1,20,000 shares @ Rs. 3 per share received) Share Application A/c 3,60,000 To Share Capital A/c To Share Allotment A/c (Being application money on 1,00,000 shares @ Rs. 3 per share transferred to share capital and on 20,000 shares @ Rs. 3 transferred to share allotment A/c) Share Allotment A/c 4,00,000 To Share Capital A/c (Being allotment money on 1,00,000 shares @ Rs. 4 per share made due) Bank A/c 3,31,000 To Share Allotment A/c (Being allotment money on 97,000 shares received after adjusting allotment received in advance) Share First Call A/c 2,00,000 To Share Capita A/c (Being share first call money on 1,00,000 shares @ Rs. 2 per share made due) Bank A/c 1,94,000 Credit 3,50,000

II

3,00,000 60,000

III

4,00,000

IV

3,31,000

2,00,000

VI

VII

VIII

IX

XI

To Share First Call A/c (Being share Fist call money on 97,000 shares @ Rs. 2 per share received) Share Final Call A/c To Share Capital A/c (Being share final call on 1,00,000 share @Rs. 1 per share made due) Bank A/c To Share Final Call A/c (Being share final call money on 97,000 share @ Rs. 1 per share received) Share Capital A/c To Forfeited Shares A/c To Share Allotment A/c To Share First Call A/c To Share Final Call A./c (Being forfeiture of 3,000 shares for non-payment of allotment and calls) Bank A/c Forfeited A/c To Share Capital A/c (Being reissue of 2,000 forfeited shares @ Rs. 8 per share) Forfeited Shares A/c To Capital Reserve A/c (Being transfer of forfeited shares to capital reserve A/c)

1,94,000

1,00,000 1,00,000 97,000 97,000

30,000 12,000 9,000 6,000 3,000 16,000 4,000 20,000 4,000 4,000

2. A Company issued for public subscription 40,000 equity shares of Rs. 10 each at a premium of Rs. 2 per share payable as under : On application Rs. 2 per share On Allotment Rs. 5 per share (including premium) On first call Rs. 2 per share On final call Rs. 3 per share Applications were received for 70,000 Shares. Allotment was made pro-rata to the applicants for 50,000 shares, the remaining applications being refused. Money overpaid on

applications was applied towards sum due on allotment. A, to whom 1,500 shares were allotted. A, to whom, 1,500 shares were allotted, failed to pay the allotment and call money. B, to whom 2,000 shares were allotted, failed to pay the two calls. The shares of A and A were subsequently forfeited after the second call was made. 3,000 of the forfeited shares were reissued @ Rs. 8 per share fully paid. The reissued shares included al of As shares. Pass journal entries in the books of the company to record the above transactions. Solution :

Journal Entries

Date I

Particulars . Bank A/c To Share Application A/c (Being share application money received on 70,000 shares @ Rs. 2 per share) Share Application A/c To Share Capital A/c To Share Allotment A/c To Bank A/c (Being share application money transferred to Share Capital account, Share Allotment account and balance refunded) Share Allotment A/c To Share Capital A/c To Securities Premium A/c (Being share allotment money due on 40,000 share@ Rs. 5 per shares, including premium of Rs. 2 per share) Bank A/c Calls in Arrears A/c To Share Allotment A/c (Being the amount received on share allotment) Share First Call A/c To Share Capital A/c (Being share first call money due on 40,000 shares @ Rs. 2 per share) Bank A/c Calls in Arrears A/c To Share First Call A/c (Being share first call money due on 36,500 shares @ Rs. 2 per share) Share Second and Final Call A/c To Share Capital A/c (Being share second and final call money due on 40,000 shares @ Rs. 3 per share) Bank A/c Call in Arrears A/c To Share Second and Final Call A/c (Being amount received on 36,500 shares @ Rs. 3 per share) Share Capital A/c Securities Premium A/c To Calls in Arrears A/c To Share Forfeited A/c (Being 3,500 shares forfeited for nonpayment of call in arrears) Bank A/c Share Forfeited A/c To Share Capital A/c

L.F

Debit 1,40,000

Credit 1,40,000

II

1,40,000 80,000 20,000 40,000

III

2,00,000 1,20,000 80,000

IV

1,73,250 6,750, 1,80,000 80,000 80,000 73,000 7,000 80,000 1,20,000 1,20,000

VI

VII

VIII

1,09,500 10,500 1,20,000 35,000 3,000 24,250 13,750 24,000 6,000 30,000

IX

Working Notes : 40,000 shares were issued to applicants for 50,000 shares Ratio of allotment is 4:5 A was allotted 1,500 shares so he applied for 1875 shares =15005 = 4 = = = = = = = = = =

A paid on application 1875 2 3,750 A was allotted 1,500 shares and was to pay on application 3,000 Surplus transferred to Share Allotment 750 Total Amount due on allotment = 40,000 5 2,00,000 Less: Surplus adjusted from Share Application 20,000 Balance amount due 1,80,000 Less: Arrears from A (Due Rs. 7,500 Less: Surplus Application amount Rs 750) 6,750 Amount received on allotment 1,73,250 Amount due on share First Call = 40,000 2 80,000 Less: Arrears from A & B [(1,500+2,000) 2] 7,000 Hence amount received 73,000 Amount due on Second and Final Call = 40,000 3 1,20,000 Less: Arrears from A & B [(1,500+2,000) 3] 10,500 Amount Received 1,09,500 Amount Forfeited A & B 13,750

= = = =

From A From B (2,0005

= 3,750 = 10,000 = +

Amount forfeited on 3,000 shares [From A Rs. 3,750 And From B (10,000 2,000) 1,500] 3,750 7,500

= 11,250 Less: Discount allowed on re-issue 6,000 Balance transferred to Capital Reserve 5,250 = =

3. A Company issues 50,000 equity shares of Rs. 100 each at a discount of 10% (allowed at the time of allotment). The net amount payable is as follows: On applications Rs.20, On allotment Rs.20, On first call Rs.25, On final call Rs. 25 Shveti holding 100 shares did not pay final call money. Her shares were forfeited. Out of these, 40 shares were reissued to Shivali at Rs.70 per share. Pass journal entries. Solution : Journal Date Particulars Bank A/c To Share Application A/c (Being the application money received) Share application A/c To Share Capital A/c (Being the application money adjusted) Share allotment A/c Discount on issue of shares A/c To Share Capital A/c (being allotment money due) Bank A/c To Share allotment A/c (Being the allotment money received) Share Ist call A/c L.F. Debit Rs. 10,00,000 Credit Rs. 10,00,000 10,00,000 10,00,000 10,00,000 5,00,000 15,00,000 10,00,000 10,00,000 12,50,000

To Share Capital A/c (Being the first call money due) Bank A/c To Share Ist call A/c (Being the first call received) Share IInd & F8anl call A/c To Share Capital A/c (being the second & final call money received) Bank A/c To Share IInd & Final Call A/c (Being the second & final call received on 49,900 shares) Share Capital A/c To Forfeited Shares A/c To Share IInd & Final Call A/c To Discount on Issue of Shares A/c (Being 100 shares forfeited as per boards resolution dated ..) Bank A/c Discount on Issue shares A/c Forfeited Shares A/c To Share Capital A/c (Being 40 forfeited shares reissued as per boards resolution dated)) Forfeited Shares A/c To Capital Reserve A/c (Being the transfer of profit on reissue) Working Notes : Amount forfeited on 100 shares

12,50,000 12,50,000 12,50,000 12,50,000 12,50,000 12,47,500 12,47,500 10,000 6,500 2,500 1,000

2,800 400 800 4,000

1,800 1,800

= Rs.6,500

:. Amount forfeited on 40 shares reissued = Rs.6,500 x 40 shares = Rs.2,600 100 shares Additional discount allowed on reissue of 40 shares = Rs.800 Thus, profit on reissue of forfeited shares Rs.800 =Rs.1,800 = Rs.2,600

4. A. Ltd, invited applications for 50,000 equity shares of Rs. 10 each payable as to Rs. 3 on application, Rs. 4 on allotment, Rs. 2 on first call and the balance on final call. Applications were received for 55,000 shares. Allotments were made on the following basis : (i) To applications for 35,000 shares in full (ii) To applications for 20,000 shares 15,000 shares. Excess money paid on application was utilized towards allotment money. A share holder who was allotted 1,500 shares out of the group applying for 20,000 shares failed to pay allotment money and money due on call. These shares were forfeited. 1,000 of the forfeited shares were reissued as fully paid on receipt of Rs. 8 per share. Show the journal entries in the books of Co. Solution: Journal Date Particulars L.F. Debit Credit I Bank A/c 1,65,000 To Share Application A/c 1,65,000 (Being application money received on 55,000 shares @ Rs.3 per share) II Share Application A/c 1,65,000 To Share Capital A/c 1,50,000 To Share Allotment A/c 15,000 (Being application money transferred to share capital on 50,000 shares at Rs. 3 per share. Excess money received on application transferred to allotment) III Share Allotment A/c 2,00,000 To Share Capital A/c 2,00,000 (Being allotment money due on 50,00 shares at Rs. 4 per shares) IV Bank A/c 1,80,500 To Share Allotment A/c 1,80,500 (Be3ing allotment money received on 48,500) V Share First Call A/c 1,00,000 To Share Capital A/c 1,00,000 (Being first call due on 50,000 shares at Rs. 2 per share)

VI

Bank A/c 97,000 To Share First Call A/c (Being first call money received except on 1,500 shares) VII Share Final Call A/c 50,000 To Share Capital A/c (being final call due on 50,000 shares at Rs. 1 per share) VIII Bank A/c 48,500 To Share Final Call A/c (Being final call money received on 48,500 shares) IX Share Capital A/c 15,000 To Share Forfeited A/c To Share Allotment A/c To Share First Call A/c To Share Final Call A/c (Being 1,500 shares forfeited for nonpayment of allotment money and call money) X Bank A/c 8,000 Share Forfeited A/c 2,000 To Share Capital A/c (Being reissue of 1,000 shares at Rs. 8 per share fully paid) .5 A Ltd., has outstanding debentures of Rs. 8,00,000 on 1.1.2003. It has a credit balance of Rs. 8,40,000 standing to the credit of its Profit and Loss Appropriation Account. Instead of declaring dividend it decided to redeem the debentures at 5% premium out of profit. What journal entries will the company record to give effect to these transactions? Solution: Journal Date Particulars L.F Debit Credit 1. Profit and Loss Appropriation 40,000 A/C 40,000 To Debentures A/C (Premium payable on redemption of debentures) 2. Debentures A/C 8,00,00 Premium on Redemption of 0 Debenture A/C

97,000

50,000

48 500

6,000 4,500 3,000 1,500

10,000

3.

4.

To Debenture holders A/C (Amount paid to Debenture holders) Debenture holders A/C To Bank A/C ( Amount paid to Debenture holders) Profit & Loss Appropriation A/C To General Reserve A/C (Amount equal to face value of debentures redeemed, transferred to General Reserve)

40,000 8,40,00 0 8,00,00 0

8,40,00 0 8,40,00 0 8,00,00 0

6 Pass the necessary journal entries for the following transaction in the books of P ltd. 1. Purchased land worth Rs 19, 80,000. it is venders were paid by issue of 12% debentures of Rs.100 each at a discount of 10% 2. Issued Rs 2, 00,000 12% debentures as collateral security. 3. Converted 1,000 12% debentures of Rs 100 each in to 10 % preference shares of Rs 100 each. The preference shares were issued at a premium of 25%. 4. Redeemed 1,000 12% debentures of Rs 100 each at a premium of 10% by draw of lots. 5. Paid half yearly interest on Rs 3, 60,000 12% debentures. 6. Issued Rs 1, 00,000 12% debentures at a discount of 5 % redeemable at a premium of 10%. Solution: Journal Date Particular l.f. Debit Credit Rs Rs 1. Land A/c 19,80,000 To venders A/c 19,80,000 (being purchase of land for Rs 19,80,000) 19,80,000 2,20,000 Venders A/c 22,00,000 Discount on issue of debenture A/c To 12% debentures 2. 2,00,000 A/c

3.

4.

5.

6.

(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 )

2,00,000 1,00,000 80,000 20,000

1,00,000 10,000 1,10,000

1,10,000 1,10,000 21,600 21,600 95,000 15,000 1,00,000 10,000

Bank A/c Loss on issue of debentures A/c To 12% debentures A/c To premium on redemption of Debentures A/c (being issue of 1000 12 % debentures at a discount of 5%, redeemable at a premium of 10%) Journal Date 1. Particulars L.F Profit and Loss Appropriation A/C To Debentures A/C (Premium payable on redemption of debentures) Debentures A/C Premium on Redemption of Debenture A/C To Debenture holders A/C (Amount paid to Debenture holders) Debenture holders A/C To Bank A/C ( Amount paid to Debenture holders) Profit & Loss Appropriation A/C To General Reserve A/C (Amount equal to face value of debentures redeemed, transferred to General Reserve) Debit 40,000 Credit 40,000

2.

8,00,000 40,000 8,40,000

3.

8,40,000 8,40,000 8,00,000 8,00,000

4.

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: Date (i) Naveen Ltd Journal Particulars (On Redemption) 12% Debentures A/c To Discount on issue of Debentures A/c To Debenture-holders A/c (Being the amount due to debenture-holders on conversion of 200, 12% debentures) Debenture-holders A/c To 10% Preference Share Capital A/c To Securities Premium A/c (Being issue of 144, 12% preference shares of Rs. 100 each at Rs. 125 on conversion of 12% on conversion of 12% debentures) 12% Debentures A/c To debentures-holders A/c (Being the amount due to debenture-holders on conversion of Rs. 500 each ) 12% Debenture-holders A/c Discount on 8issue of Debentures A/c To 15% Debenture A/c (500 x 12) To Bank Account (Being the issue of 12; 15% debentures of Rs. 500 each at 20% discount on conversion of 12% L.F. Debit 20,000 Credit 2,000 18,000

18,000 14,400 3,600

(ii)

5,000 5,000 5,000 1,200 6,000 200

(iii)

debentures) Bank A/c Loss on issue of Debentures A/c To 12% Debentures A/c To Premium on redemption of Debentures A/ (Being issue of 1,000, 12% debentures of Rs. 100 each at a discount of 10% and redeemable at premium of 5%)

90,000 15,000 1,00,000 5,000

Working Notes: For (II) entry: Calculation of debentures and debenture discount: Since debentures are issued at 20%, its one debenture of Rs. 500 is worth Rs. 400. Thus: For making the payment of Rs. 400, the company issues = 1 debentures. For making the payment of Rs. 5,000, the company issues= 5,000 = 12.5 400 debentures. As it is not possible to issue debentures infraction, the company issues only 12 debentures of Rs. 500 each at a discount of 20%. For the fraction of company pays cash. 8 Premier Ltd., issued 500, 15% Debentures of Rs.100 each at a discount of 10%. These debentures are to be redeemed by conversion into equity shares of Rs.10. Make necessary journal entries to record these transactions. Solution: Dat e Particulars On Issue Bank A/c Discount on Issue of Debentures A/c To 15% Debentures A/c (Issue of 500 15% Debentures of Rs.100 each at a discount of 10%) On conversion/redemption 15% Debentures A/c To Equity Share Capital A/c To Discount on Issue of Debentures A/c Journal L.F. Debit Rs. 45,000 5,000 50,000 Credit Rs.

50,000 45,000 5,000

(Conversion of 500 debentures of Rs.100 each issued at 10% discount into equity shares of Rs.10 each) 9. P Ltd., issued Rs.4,00,000 10% debentures of Rs. 100 each at par, redeemable at 5% premium at the option of debenture holders . One debenture holder holding 200 debentures exercised his option. Pass journal entries to record the issue and conversion of debentures. Solution: Date Particulars Debit Credit On Issue Bank A/c 4,00,0 Loss on Issue of Debentures A/c 00 To 10% debentures 20,0 4,00,00 To Premium on Redemption of 00 0 debentures A/c 20,00 (Issue of Rs.4,00,000 debentures at par 0 redeemable at 5% premium) On conversion 10% debentures A/c 20,000 Premium on redemption of debentures 1,000 A/c 21,000 To Equity Share capital A/c (Conversion of Rs.20,000 debentures at 5% premium into equity shares) 32.Sharma Ltd., issued 4,800 16% Debentures of Rs.100 each at par and redeemable at 10% premium by issue of equity shares of Rs.10each at 4% discount. Show journal entries for redemption. Solution: Date Journal Particulars L. Debit F 16% Debentures A/c 4,80,00 Premium on Redemption of Debentures 0 A/c 48,00 To Debenture holders A/c 0 (Amount due to debenture holders on conversion of debentures) Debentures holders A/c 5,28,00 Discount on issue of Debentures A/c 0 Credit

5,28,00 0

To Equity Share Capital A/c (Issue of 55,000 equity shares of Rs . 10each at 4% discount on conversion of debentures)

22,00 0

5,50,00 0

10 On 1.1.2003 a company issued 1,000; 10% Debentures of Rs. 500 each at Rs. 450. The company gave an option to convert their debentures into equity shares of Rs. 100 each at a premium of Rs. 50 any time after one year. Reena, a holder of 120 debentures, exercised her option of converting debentures into equity shares on 1.1.2004. Record necessary journal entries. Solution: Journal Date 1.1.03 Particulars L.F Bank A/c Discount on Issue of Debentures A/c To 10% Debentures A/c (Issue of 1,000; 10% Debentures of Rs. 500 each @ Rs. 450 each) 10% Debenture A/c To Discount on Issue of Debentures A/c To Equity Share Capital A/c To Securities Premium A/c (Conversion of 120 debentures of Rs. 500 issued at Rs. 450 into equity shares of Rs. 100 at a premium of Rs. 50 per share) Debit 4,50,000 50,000 Credit 5,00,000

1.1.04

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 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 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 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)

L.F.

Debit Rs. 10,000

Credit Rs. 7,200 1,800 1,000

ii.

50,000 12,500 62,500

iii.

45,000 7,500 50,000 2,500