Page 146 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 6: Debentures: Concept, Types, Issue

Balance Sheet under the heading of Miscellaneous Expenditure, until it is written off Notes
completely. Discount on issue of debentures may be written off either out of revenue
profits (credit balance of Profit and Loss Account) or out of capital profits (share premium
account or debenture premium account) during the lifetime of the debentures. In the
absence of any contra information in the examination question, discount should be allowed
on allotment. The journal entry will be as follows –
Debenture Allotment Account Dr

Discount on Issue of Debenture Account Dr
To Debentures Account

Example 3: Issue of Debentures at a Discount
Surjeet Mills Limited issued 5,000 12 % Debentures of 100 each at a discount of 15% payable as
below:

With application 20 per debenture
On allotment 50 per debenture
On final call the balance
The public applied for 7,000 debentures. Applications for 4500 debentures were accepted in full,
the applicants for 1000 debentures were allotted 500 debentures and the remaining applicants
were rejected . Show the journal entries including those for cash assuming that all the instalments
were duly collected.
Solution:
Surjeet Mills Limited
Journal Entries

Date Particulars L.F. ( ) ( )
Bank Account Dr. 1,40,000
To 12% Debenture Application Account 1,40,000
(Being receipt of application money on 7,000 debentures @ 20 per
debenture).
12% Debenture Application Account Dr. 1,30,000
To Bank Account 30,000
To 12% Debentures Account 1,00,000
(Being transfer of application money to Debentures Account and
amount of rejected application refunded)
12% Debenture Allotment Account Dr. 1,75,000
Discount on Issue of Debenture Account Dr. 75,000
To 12% Debenture Account 2,50,000
(Being allotment money due on 5,000 debentures @ 50 per debenture
at discount).
Bank Account Dr. 1,65,000
12% Debenture Application account Dr. 10,000
To 12% Debenture Allotment Account 1,75,000
(Being receipt of allotment money and excess of application money
adjusted in allotment)
12% Debenture First and Final Call Account Dr. 1,50,000
Contd...
To 12% Debentures Account 1,50,000
(Being first and final call money due on 5,000 debentures @ 30 per
Debenture)
LOVELY PROFESSIONAL UNIVERSITY 139
Bank account Dr. 1,50,000
To 12% Debenture First and Final Call Account 1,50,000
(Being receipt of first and final call money)