Calls in Arrears 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 Arrears

When debentures holder(s) cannot pay due amount on due date, it is called calls in arrears.

It may be on allotment, first call or second and final call.

Arrear is not possible on application.

Reason for calls in arrear

·          Debentures holders does not have money to pay

·          He/she does not want to pay the money

·          He/she has not received calls letter.

Journal Entries

Date	Particulars		LF	Amount Dr	Amount Cr
	Debentures allotment/first and final calls account To % Debenture account (Being: amount due on …	Dr
	Bank account Calls in arrears account To  Debentures allotment/first and final call (Being: amount received on …. debentures @ Rs.. each and arrear adjusted)	Dr Dr

 

Keep In Mind (KIM)

There are no calls in arrears on application  Calls in arrear is debited/adjusted with received entry viz with bank  Calls in arrear is deducted from issued  debenture in balance sheet, liabilities side

 

 

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

PROBLEM: 4

MC Company issued 60,000; 7% debentures of $/₹/Rs 100 each for Rs 110 per Debentures. The amount payable as under:

On application Rs 50; on allotment Rs 40; on first and final call Rs 20

All the debentures were issued, called and paid up. The entire amount was duly received except a debentures holder who held 2,000 debentures failed to pay allotment and calls.

Required: Journal entries

[Answer: Arrear on allotment = Rs 80,000; Arrear on calls = Rs 40,000;

SOLUTION

Given and working note:

Shares Issued	Issued Price	Installation		Arrears and Advance		Share Applied	Shares Allotted
60,000	100+10P	Application Allotment First & Final call	50 40 [30C+10D] 20

Note: lack of information, premium is adjusted with allotment

 

Journal Entries

In the book of MC Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
Received	Amount received on application
	Bank account      Dr          To Debentures application account (Being- amount received on 60,000 debentures @ Rs 50)	Dr		30,00,000	30,00,000
Transfer	Amount transfer of application
	Debentures application account          To  7% Debentures account (Being- amount transfer of application to debentures)	Dr		30,00,000	30,00,000
Due	Amount due/receivable on allotment
	Debentures allotment account          To 7% Debentures account          To Premium on issue of deb. (security premium) (Being- amount due/ receivable on allotment and premium adjusted)	Dr		24,00,000	18,00,000 6,00,000
Received	Amount received on allotment
	Bank account Calls in arrears account           To  Debentures allotment account  (Being- amount received on 60,000 – 2,000 = 58,000  debentures @ Rs 40 and arrear adjusted)	Dr Dr		23,20,000 80,000	24,00,000
Due	Amount due/receivable on calls
	Debentures first and final call account          To 7% Debentures account (Being- amount due/ receivable on calls)	Dr		12,00,000	12,00,000
Received	Amount received on calls
	Bank account Calls in arrears account          To  Debentures first and final call account (Being- amount received on 60,000 – 2,000 = 58,000  debentures @ Rs 20 and arrear adjusted)	Dr Dr		11,60,000 40,000	12,00,000

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PROBLEMS   AND   ANSWERS

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

Basic Problem: 4                   [calls in arrears]

Unity Company Ltd issued 40,000; 10% debentures of Rs 100 each at Rs 120, payable as under:

On application Rs 50; on allotment Rs 50; on first and final call Rs 20

All the debentures were subscribed and allotted. All the money was duly received except a debenture holders who held 200 debentures failed to pay allotment and calls.

Required: Journal entry for the issue of debentures

[Answer: Arrear on allotment = Rs 10,000; arrear on calls = Rs 4,000]

 

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