Calls in Advance on Debentures

  

Meaning of Debentures

Debentures are also known bonds and debt but there are slightly differences.

Company issues debentures; government and semi government issues bonds.

Both debentures and bonds are long-term loan.

The owner of debentures is called debenture holders.

Debentures have fixed interest rate and maturity period.

Normally, interest is payable annually or sometime half yearly.

Debenture holders have priority to receive interest and refund money before equity shareholder at the time dissolution of firm.

 

 

Calls in Advance

When a debentures holders pays due amount before calling, it is called calls in advance.

Reason for calls in advance:

·          Debenture holder has to go out from home for long time.

·          May be, in future he/she cannot pay due amount within time.

Keep in Mind (KIM)

Calls in advance may be on allotment  and calls Calls in advance one time credited and another time debited with bank Calls in advance is liabilities,  if it is not adjusted

 

Journal Entry

Date	Particulars		LF	Amount Dr	Amount Cr
Received	When calls in advance received
	Bank account          To  Debentures allotment account          To Calls in advance account   (Being- amount received on …… debentures @ Rs …. and calls in advance adjusted)	Dr		xxxx	xxxx xxxx
Received	When calls in advance adjusted
	Bank account Calls in advance account          To  Debentures first and final call (Being- amount received on …… debentures @ Rs …. and calls in advance adjusted)	Dr Dr		xxxx xxxx	xxxx
	Interest on calls in advance
	Interests on calls in advance account          To Bank account (Being- interest paid on calls in advance)	Dr		xxxx	xxxx

 

Keep in Mind (KIM)

Calls in advance may be on allotment  and calls Calls in advance one time credited and another time debited with bank Calls in advance is liabilities,  if it is not adjusted

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

PROBLEM: 5

SVS Company Ltd issued 80,000; 9% debentures of $/₹/Rs 100 each for Rs 90 per debentures. The amount payable as under:

On application Rs 30; on allotment Rs 20; on first call Rs 25; second and final call Rs 15

All the debentures were issued, called and paid up. The entire amount was duly received. When allotment was called up, a debentures holder who held 4,000 debentures paid entire amount with allotment.

Required: Journal entries

[Answer: Advance = Rs 160,000]

SOLUTION

Given and working note:

Shares Issued	Issued Price	Installation		Arrears and Advance		Share Applied	Shares Allotted
80,000	100 –10D	Application Allotment First & Final call	30 20 [30C–10D] 40	+4,000

Note: lack of information, premium is adjusted with allotment

 

Calls in advance for first and final call   = 4,000 debentures x Rs 40  = 160,000¹

 

Journal Entries

In the book of SVS Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
Received	Amount received on application
	Bank account          To Debentures application account (Being- amount received on 80,000 debentures @ Rs 30)	Dr		24,00,000	24,00,000
Transfer	Amount transfer of application
	Debentures application account          To  9% Debentures account (Being- amount transfer of application to debentures)	Dr		24,00,000	24,00,000
Due	Amount due/receivable on allotment
	Debentures allotment account Debentures allotment account          To 9% Debentures account (Being- amount due/ receivable on allotment and discount   adjusted)	Dr Dr		16,00,000 8,00,000	24,00,000
Received	Amount received on allotment
	Bank account          To  Debentures allotment account          To Calls in advance  (Being- amount received on 80,000 debentures @ Rs 20 and advance adjusted)	Dr		17,60,000	16,00,000 1,60,000
Due	Amount due/receivable on calls
	Debentures first and final call account          To 9% Debentures account (Being- amount due/ receivable on calls)	Dr		32,00,000	32,00,000
Received	Amount received on calls
	Bank account Calls in advance account          To  Debentures first and final call account (Being- amount received on 80,000 debentures @ Rs 40 and advance adjusted 32,00,000 – 1,60,000 = Rs 30,40,000)	Dr Dr		30,40,000 1,60,000	32,00,000

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PROBLEMS   AND   ANSWERS

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

Basic Problem: 5                   [calls in advance]

Ocean Company Ltd issued 100,000; 10% debentures of Rs 100 each at Rs 90, payable Rs 40 on application; Rs 30 on allotment and Rs 20 on first and final call. All the debentures were subscribed and allotted. All the money was duly received but when allotment was called up, a debenture holder who held 500 debentures paid entire amount.

Required: Journal entry for the issue of debentures

[Answer: Advance for call = Rs 10,000]

 

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