Issue of Debentures at Premium

Arjun EP

Published on: July 17, 2020

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.

Debentures Issued at Premium

When a company issues its debentures more than par or face value, it is called debentures issued at premium. Premium on issue of debentures is capital profit.

It is credited in journal entry and is shown in liabilities side of balance sheet.

Value of one debenture Rs 100 ® issued at Rs 110 or Rs 120 or more

Keep in Mind (KIM)

There are two methods for debentures premium.

Due method and receipt methods. Due method is applied more than receipt.

Therefore only due method is applied in this book

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

PROBLEM: 3

ABC Company Ltd issued 50,000; 8% debentures Rs 100 each for Rs 105 per Debentures. The amount payable as under:

On application Rs 40; On allotment Rs 50; On first and final call Rs 30

All the debentures were issued, called and paid up. The entire amount was duly received.

Required: Journal entries

[Answer: premium = Rs 250,000]

Solution:

Given and working note:

Shares

Issued

Price

Installation

Arrears and

Advance

Share

Applied

Shares

Allotted

100,000

100+5P

Application

Allotment

F&F call

50 [45C+5P]

Note: Lack of information, premium is adjusted with allotment

Journal Entries

In the book of ABC Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
Received	Amount received on application
	Bank account To Debentures application account (Being- amount received on 50,000 debentures @ Rs 40)	Dr		10,00,000	10,00,000
Transfer	Amount transfer of application
	Debentures application account To 8% Debentures account (Being- amount transfer of application to debentures)	Dr		10,00,000	10,00,000
Due	Amount due/receivable on allotment
	Debentures allotment account To 8% Debentures account To Premium on issue of deb. (security premium) (Being- amount due/ receivable on allotment and premium adjusted)	Dr		25,00,000	22,50,000 2,50,000
Received	Amount received on allotment
	Bank account To Debentures allotment account (Being- amount received on 50,000 debentures @ Rs 50)	Dr		25,00,000	25,00,000
Due	Amount due/receivable on calls
	Debentures first and final call account To 8% Debentures account (Being- amount due/ receivable on calls)	Dr		7,50,000	7,50,000
Received	Amount received on calls
	Bank account To Debentures first and final call account (Being- amount received on 50,000 debentures @ Rs 15)	Dr		7,50,000	7,50,000