Page 148 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 6: Debentures: Concept, Types, Issue

various instalments and any or some instalments are not paid by the debenture-holder, that Notes
amount which is not paid by the debenture-holder is known as calls-in-arrear. For unpaid
amount on any call, no separate account is maintained in the books. The amount of calls-in-
arrear is substracted from the paid-up value of debenture in the liabilities side of the balance
sheet. If there is no provision regarding the interest in calls-in-arrear on debentures, interest is
not calculated on arrears.

Example 4: Calls-in-Arrear and Calls-in-Advance on Debenture
Golu Limited issued 10,000; 12% Debentures of 100 each at premium of 5% payable as under:
With application 15 per debenture

On allotment 45 including premium
On first call 10
On final call 30
One of the conditions of issue of 12% Debentures was that the entire amount of 12% Debenture
can be paid at the time of allotment of 12% Debenture and in this case interest @ 3% per annum
will be paid by Golu Limited on the advance money received and this interest will be paid on
the date of payment of the last call. All the debentures were subscribed. A holder of 3,000; 12%
Debentures paid whole of the amount of 12% debentures on allotment in accordance with this
condition. Another holder of 300; 12% Debentures could not pay the final call. The date of
application and allotment was 1st November 2005 the date of first call was 1st January 2006; the
date of final call was 1st May, 2006.
Pass necessary journal entries in the books of Golu Limited, assuming that all other payments
were duly received.
Solution:
Journal Entries
Date Particulars L.F. ( ) ( )
2005
Nov. 1 Bank Account Dr. 1,50,000
To 12% Debenture Application Account 1,50,000
(Being receipt of application money in 10,000 debentures @ 15 per
debenture)
Nov. 1 12% Debenture Account Dr. 1,50,000
To 12% Debenture Account 1,50,000
(Being transfer of application money to debenture account)
Nov. 1 12% Debenture Allotment Account Dr. 4,50,000
To 12% Debenture Account 4,00,000
To Premium on Debenture Account 50,000
(Being allotment money due on 10,000 debentures @ 45 per
debenture on premium)
Bank Account Dr. 5,70,000
To 12% Debenture Allotment Account 4,50,000
To Calls-in-Advance Account 1,20,000
(Being receipt of allotment money and also calls-in- advance on 3,000
debentures @ 40 per debenture)
2006 Contd...
Jan. 1 12% Debenture First Call Account Dr. 1,00,000
To 12% Debenture Account 1,00,000
(Being first call money due on 10,000 debenture @ 10 each) 141
LOVELY PROFESSIONAL UNIVERSITY
Bank Account Dr. 70,000
Call-in-Advance Account Dr. 30,000
To 12% Debenture First Call Account 1,00,000
(Being receipt of first call money and calls-in-advance adjusted)
May, 1 12% Debenture Second & Final Call Account Dr. 3,00,000
To 12% Debenture Account 3,00,000
(Being second and final call money due on 10,000 debenture @ 30
per debenture)
Bank Account Dr. 2,01,000
Calls-in-advance Account Dr. 90,000
To 12% Debenture Second and Final Call Account 2,91,000
(Being receipt of second and final call on 6,700 debenture and calls-
in-advance adjusted)
Interest on calls in advance Account Dr. 1,500
To Bank Account 1,500
(Interest on calls in advance paid to Debenture-holders)