If the debentures are issued at a price higher than the nominal value of the debentures, the debentures are said
to be issued at a premium. The excess of issue price over the nominal value is regarded as the premium
amount.

In such a case, the Debentures Account should be credited only with the nominal value of the debentures and
the premium should be credited to “Securities Premium Account”. The accounting entry will be as follows:

Bank                                                                                                   Dr.                With the amount received
Debenture Application A/c                                                           Dr.                with the money due on application
Debenture Allotment A/c                                                              Dr.                and allotment including premium
To Debentures A/c                                                                                 with the nominal value of the
debentures
To Securities Premium A/c                                                                  with the premium money received
on debentures

 

Illustration 2
B Ltd. issued 2,000, 13% Debentures of ` 100 each at ` 110 payable as follows:
On Application                                                               Rs. 25
On Allotment                                                                  Rs. 35 (including premium)
On First and Final Call                                                  Rs. 50
The debentures were fully subscribed and the moneys were duly received.
Show the necessary Cash Book and the Journal entries and prepare the Balance Sheet of the company.

Solution:

Cash Book (Bank Column)

Particulars	Rs.	Particulars	Rs.
To 13% Debenture Application A/c   (Application money on 2,000 debentures @ ` 25 each)	50,000	By Balance c/d	2,20,000
To 13% Debenture Allotment A/c   (Allotment money on 2,000 debentures @ ` 35 each including premium of ` 10 each)	70,000
To 13% Debenture First and Final Call A/c   (First and final call money on 2,000 debentures @ ` 50 each)	1,00,000   ————————–		———————-
	2,20,000		2,20,000

Journal Entries

Particulars	Dr.(Rs).	Cr.9Rs.)
13% Debenture Application A/c                                                                           Dr. 13% Debenture Application A/c                                                                           Dr. To 13% Debentures A/c To Securities Premium A/c   (Allotment of 2,000, 13% Debentures of ` 100 each issued at a premium of ` 10 each and the allotment money due @ ` 35 per debenture on 2,000 debentures including the premium of ` 10 per debenture as per Board’s resolution dated…)	50,000
	70,000
		1,00,000
		20,000
13% Debenture First and Final Call A/c                                                               Dr.     To 13% Debentures A/c   (First and final call money due on 2,000 debentures @ ` 50 per debenture as per Board’s resolution dated…)	1,00,000
		1,00,000

B Limited
Balance Sheet
As at ——————

I. EQUITY AND LIABILITIES
(1) Shareholders’ funds

(a) Share Capital

(b) Reserve and Surplus                                              1                                                                    20,000

(2) Non-current liabilities
Long term borrowing                                                   2                                                                2,00,000
TOTAL                                                                                                                                                  2,20,000

II. Assets
(1) Current Assets

Cash and cash equivalents                                                                                                            2,20,000
TOTAL                                                                                                                                                 2,20,000
Notes

1. Reserve and Surplus
Securities premium                                                                                                                          20,000
2. Long term borrowing
6% debentures                                                                                                                               2,00,000