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.
Sometimes when company is well-known or earning high profit, debentures applicants like to purchase more debentures.
In such a condition public applied more than offered debentures of the company.
When debentures applicants applied more than offered debentures, it is called over subscription.
Normally the company allots debentures in proportion.
But sometimes company uses these three methods.
1. Full rejection of excess applications
2. Pro-rata allotment
3. Mixes methods
Under this method, excess applications are rejected. Excess money is returned to applicants with a letter of regret.
Under this method, excess applications are allotted in proportion.
For example the company received 5,000 applications and allotted 1,000 shares. Now 5,000: 1,000 or 5: 1.
Here, the applicant of five debentures received one debenture.
Under this method:
Some applications are rejected (nil),
Some applications are allotted in full (100%),
Some excess applications are allotted in proportion (pro-rata),
Generally, excess money of pro-rata is adjusted on allotment and subsequent calls.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 7
Excel Corporation Ltd issued 100,000; 9% debentures of Rs 100 each payable as under:
On application Rs 30; on allotment Rs 20; on first and final call Rs 50
The Company received applications for 120,000 debentures and allotment was made on pro rata basis. The BOD has authority to utilize excess money toward allotment. The entire amount was duly received.
Required: Journal entries
Solution:
Given and working note:
Shares Issued |
Issued Price |
Installation |
|
Arrears and Advance |
|
Share Applied |
Shares Allotted |
100,000 |
100 |
Application Allotment First & Final call |
30 20 50 |
|
|
120,000 |
100,000 |
Excess money
= Difference in pro rata debentures x Always application money
= (120,000 – 100,000) debentures x Rs 30
= 20,000 x Rs 30
= Rs 600,000*
Journal Entries
In the book of Excel Company Ltd
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Received |
Amount received on application |
|
|
|
|
|
Bank account To Debentures application account (Being- amount received on 120,000 debentures @ Rs 30) |
Dr
|
|
36,00,000
|
36,00,000 |
Transfer |
Amount transfer of application |
|
|
|
|
|
Debentures application account To 9% Debentures account To Debentures allotment account (excess) (Being- amount transfer of application to debentures) |
Dr
|
|
36,00,000
|
30,00,000 6,00,000 |
Due |
Amount due/receivable on allotment |
|
|
|
|
|
Debentures allotment account To 9% Debentures account (Being- amount due/ receivable on allotment) |
Dr
|
|
20,00,000
|
20,00,000 |
Received |
Amount received on allotment |
|
|
|
|
|
Bank account To Debentures allotment account (Being- amount received on 100,000 debentures @ Rs 20 And excess adjusted 20,00,000 – 6,00,000* = Rs 14,00,000) |
Dr
|
|
14,00,000
|
14,00,000 |
Due |
Amount due/receivable on calls |
|
|
|
|
|
Debentures first and final call account To 9% Debentures account (Being- amount due/ receivable on calls) |
Dr
|
|
50,00,000 |
50,00,000 |
Received |
Amount received on calls |
|
|
|
|
|
Bank account To Debentures first and final call account (Being- amount received on 100,000 debentures @ Rs 50) |
Dr
|
|
50,00,000 |
50,00,000 |
#####
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SHARE IN Nepali http://tiny.cc/k99jkz
DEBENTURES http://tiny.cc/yeakkz
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#####
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
AP: 11 [over subscription pro rata and reject]
NP Garments Limited has invited applications for 20,000; 12% Debenture of $/₹/Rs 1,000 each @ Rs 1,200 per share. The amount was payable as under:
On application Rs 40; on allotment Rs 40; on first call Rs 20; on second and final call balance amount
The company has received applications for 25,000 debentures. Allotment was made on pro-rata basis. Excess money was utilized on allotment. All the debentures were subscribed, allotted and the entire amount was received.
Required: Journal entries
[Answer: excess for allotment = 20,00,000]
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