Page 144 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

( )

( )
Bank Account
5,00,000
Dr.

5,00,000
To 12% Debenture Application Account
(Being the receipt of application money on 5,000; 12% debenture @ 100 per
debenture)
12% Debenture Application Account
Dr.
5,00,000

5,00,000
To 12% Debenture Account
(Being application money transferred to debenture account).
Dr.
12% Debenture Allotment Account

To 12% Debenture Account
(Being allotment money due on 5,000 debenture @ 200 per debenture) 10,00,000 10,00,000

Bank Account Dr. 10,00,000
To 12% Debenture Allotment Account 10,00,000
(Being receipt of allotment money on debenture)
Unit 6: Debentures: Concept, Types, Issue
12% Debenture Final Call Account Dr. 10,00,000
To 12% Debenture Account 10,00,000
(Being final call money due on 5000 debenture @ 200 per debenture)
Bank Account Dr. 10,00,000 Notes
To 12% Debenture Final Call Account 10,00,000
(Being receipt of final call money on debentures)
Bank Account Dr. 2,50,000
To 10% Debenture Application Account 2,50,000
(Being receipt of when money on 2000 debenture @ 100 each in lump sum)
10% Debenture Application Account Dr. 2,00,000
To 10% Debenture Account 2,00,000
(Being application money transferred to debenture accounts)
10% Debenture Application Account Dr. 50,000
To Bank Account 50,000
(Being excess money refunded to the applicants)

2. Issue of Debentures at Premium: When the issue price of a debenture is more than the face
value or nominal value of the debentures, it is said that debentures are issued at premium.
Take for example, the issue of a debenture of 500 for 550. Here, the excess of issue price
of 50 (550-500) is termed as premium on debenture. The amount of premium is not a
revenue profit. This amount is kept in a separate account known as “Debenture Premium
Account.” At the end of accounting period this should be transferred to Capital Reserve
account. The amount of premium can be utilized for writing off capital losses and useless
fictitious assets as preliminary expenses, under-writing commission, amortization of
goodwill etc. The balance debenture premium is shown in the liabilities side of the balance
sheet under the head of Reserve and Surplus. In the absence of any contra information,
premium should be due on allotment. The journal entry will be as follows:
Debenture allotment account Dr
To Debenture Account
To Debenture Premium Account

Example 2: Issue of Debenture at Premium
Ashutosh Company Limited issued 5,000; 10% Debenture of 100 each at a premium of 15%
payable as follows: 20 on application, 40 on allotment including premium, and balance on
first and final call.
The public applied for 6,000 debentures. Applications for 4,750 debentures were accepted in full,
applications for 500 were allotted 250 debentures and the remaining applicants were rejected.
All moneys were duly received. Pass the necessary cash book and journal entries.
Solution:
Ashutosh Co. Ltd. Journal
Date Particulars L.F. ( ) ( )
10% Debenture Application Account Dr. 1,05,000
To 10% Debenture Account 1,00,000
To 10% Debenture Account 5,000
(Being utilisation of application money)
10% Debenture Allotment Account Dr. 2,00,000
To 10% Debenture Allotment Account 1,25,000
To Debenture Premium Account 75,000
Contd...
(Being allotment money due with premium on 5,000 debenture @ 40)
10% Debenture First & Final Call Account Dr. 2,75,000
To 10% Debenture Account 2,75,000
LOVELY PROFESSIONAL UNIVERSITY 137
(Being first and final call money due on 5,000 debentures @ 55 per
debenture)
Debenture Premium Account Dr. 75,000
To Capital Reserve Account 75,000
(Debenture premium transferred to capital reserve account)