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.
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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