Page 147 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

( )
( )

To 12% Debenture Application Account

(Being receipt of application money on 7,000 debentures @ 20 per

debenture).
12% Debenture Application Account
Dr.

1,30,000
30,000

To Bank Account

1,00,000

To 12% Debentures Account

(Being transfer of application money to Debentures Account and

amount of rejected application refunded)
1,75,000
Dr.

12% Debenture Allotment Account
Dr.
Discount on Issue of Debenture Account
75,000

Date Bank Account Particulars Dr. L.F. 1,40,000 1,40,000

2,50,000
To 12% Debenture Account

(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
Accounting for Companies-I
To 12% Debenture Allotment Account 1,75,000
(Being receipt of allotment money and excess of application money
adjusted in allotment)
Notes 12% Debenture First and Final Call Account Dr. 1,50,000
To 12% Debentures Account 1,50,000
(Being first and final call money due on 5,000 debentures @ 30 per
Debenture)
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)

Issue of Debentures for Consideration Other than Cash
When a company purchases some assets or services of an.otlier company., it has to pay purchase
consdd.eration, which can be paid by many methods. If it paid by issue of fully paid debentures
such issue of debentures is said issue of debentures for consideration other than cash.
Issue of Debentures as a Collateral Security for a Bank Loan
A collateral security means a subsidiary or secondary security_ When a company takes a loan or
overdraft from a ban.k, it may give its own debenture to the bank as collateral security against
the loan or overdraft, in addition to principal security_ Generally" a company delivers its own
debentures as collateral security to bank only in that case,. when principal security is not sufficient
for the loan. Collateral security is not utilised or realised by the bank until the company makes
its payment (interest and repayment of loan). It means that this collateral security can be used by
the bank in the case of default regarding the repayment of the loan_ The bank, may either keep
the debentures and become a debenture-hoildE,:..r or sell them and realise money But upon the
repa.yment of the loan, the bank must ret'urn these debentures and the company should then
cancel them. This type of issue by the company is called issue of debenture as collateral security.
Conditions of Redemption
Sometimes, debentures are issued with specific conditions on which the redemption of debenture
is made by the company. There can be the following five possibilities for redemption:
Possibility Condition of Rssue Condition of Redemption
1 Issued at par Redeemable at par
2 Issued at premium Redeemable at par
3 Issued at discount Redeemable at par
4 Issued at par Redeemable at premium
5 Issued at discount Redeemable at premium
It may be noted that the debentures can be issued at par, at premium, or at discount, but
redemption will be either at par or at premium. This is possible only when the condition of
redemption of debentures is made in advance by the company. If a company redeems its debentures
by purchasing them from the open market at a price below the par valueothe, difference (par
value and purchase price) is treated as profit on redemption or redemption of debentures at
discount.
6.6 Calls-in-Advance and Calls-in-Arrear on Debentures
If the Articles of Association of a company can accept calls-in-advance on debentures and will
pay interest on calls-in-advance to the debenture-holders. This interest is the loss of the company
and therefore, it is transferred to the debit side of Profit and Loss Account. Calls-in-advance are
shown in the liabilities side of the balance sheet. When the amount of debenture is payable in
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