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
|
