Issue of Debentures at Par :
Debentures are said to be issued at par when the debentureholder is required to pay an amount equal to the
nominal or face value of the debentures e.g. the issue of ` 1,000 debenture for ` 1,000.
(a) If the full amount is payable along with the application
(1) On receipt of application money:
Bank Dr. with the money received on Application application
To Debentures and Allotment A/c
(2) On allotment:
Debenture Application and Allotment A/c Dr. with the money received on debentures allotted
To Debentures A/c
(b) If the amount is payable in instalments
1. On receipt of application money:
Bank Dr. with the money received on application
To Debentures Application A/c
2. On Allotment:
Debenture Application A/c Dr. with the application money and allotment money due on debentures
Debenture Allotment A/c Dr.
To Debentures A/c
3. On receipt of allotment money:
Bank Dr. with the money received on allotment
To Debenture Allotment A/c
4. On making calls:
Debenture Calls A/c Dr. with the money due on respective calls
To Debenture A/c
5. On receipt of call money:
Bank Dr. with the money received on respective calls
To Debenture Calls A/c
Note: All cash transactions are generally passed through the Cash Book
Case of Over-subscription: Like shares, the company cannot allot more debentures than issued. The excess
application money may be retained by the company against the allotment money due. But the excess application
money received on debentures rejected has to be refunded to the applicants. For, this, the accounting entry will be as follows:
Debenture Application A/c Dr. with the excess application money refunded
To Bank
Illustration 1
X Ltd. made an issue of 10,000 12% Debentures of ` 100 each, payable as follows:
` 25 on Application
` 25 on Allotment
` 50 on First and Final Call.
Applications were received for 12,000 debentures and the directors allotted 10,000 debentures rejecting an application for 2,000 debentures. The money received on application for 2,000 debentures rejected was duly refunded. All the calls were made and the moneys duly received.
Show the necessary Cash Book and Journal Entries to record the above transactions and prepare the Balance Sheet of the company.
Solution:
Cash Book (Bank Column)
Particulars |
Rs. | Particulars |
Rs. |
To 12% Debenture Application A/c
(Receipt of application money for 12,000 debentures @ ` 25 per debenture) |
3,00,000 |
By 12% Debenture Application A/c
(Refund of application money on an application for 2,000 debentures @ ` 25) |
50,000 |
To 12% Debenture Allotment A/c (Receipt of allotment money on 10,000 debentures @ Z 25 per debenture) |
2,50,000 |
By Balance c/d |
10,00,000 |
To 12% Debenture First and Final Call A/c
(Receipt of first and final call money on 10,000 debentures @ ` 50 per debenture) |
5,00,000
———————- |
————————– |
|
10,50,000 | 10,50,000 |
Journal Entries
Particulars Dr. (Rs.) Cr. (Rs.)
12% Debenture Application A/c Dr. 2,50,000
12% Debenture Allotment A/c Dr. 2,50,000
To 12% Debentures A/c 5,00,000
(Allotment of 10,000, 12% Debentures of Z 100 each and the allotment money due @ Z 25 per debenture as per Board’s resolution dated…)
12% Debenture First and Final Call A/c Dr. 5,00,000
To 12% Debentures A/c 5,00,000
(First and Final Call money due on 10,000, 12% Debentures @ ` 50 per debenture as per Board’s resolution dated…)
X Limited
Balance Sheet
As at ——————
I. EQUITY AND LIABILITIES
(1) Non-current liabilities
Long Term Borrowing 1 10,00,000
TOTAL 10,00,000
II. ASSETS
(1) Current Assets
Cash and cash equivalents 10,00,000
TOTAL 10,00,000
Notes No.1
Long term Borrowing
6% debentures 10,00,000