1

INSTITUTE-UNIVERSITY SCHOOL OF BUSINESS

DEPARTMENT-BACHELOR OF BUSINESS
ADMINISTRATION
Domain Aptitude
(20BAT 226)

DEBENTURES DISCOVER . LEARN . EMPOWER

Recording Financial
Transation

Dr. Varadraj Bapat

2
Index
Corporate Accounting
Share Capital and its types
Issue of share capital
Debentures – issue and
redemption and purchase
of own debentures

Dr. Varadraj Bapat 3

Index
Corporate Accounting
This file discusses various
entries which are peculiar
to companies.

Dr. Varadraj Bapat 4

Corporate Accounting
Share Capital
 Total capital of the company is
divided into a number of small
indivisible units of a fixed amount
and each such unit is called a
share.
 As the total capital of the
company is divided into shares,
the capital of the company is
called ‘share capital’.
Dr. Varadraj Bapat 5
 The fixed value of a share, printed on
the share certificate is called nominal/
par/ face value of a share.
 A company can issue shares at a price
different from the face value of a
share; this is issue price of share.
 Types of shares
Shares issued by a company are
divided into two categories:

Dr. Varadraj Bapat 6

 Preference Shares:
The shares which are assured of
preferential dividend at a fixed rate
during the life of company and carry a
preferential right over other
shareholders to be paid first in case of
winding up of company.
 Equity Shares:
Equity shares are those shares, which
are not preference shares. It means
that they do not enjoy
Dr. Varadraj Bapat 7
 any preferential rights in the matter of
payment of dividend or repayment of
capital.
 Issue of share capital
 The shares can be issued by company
either for cash or for the consideration
other than cash.
 A public company issues a prospectus
inviting general public to subscribe for
its shares. On the basis of prospectus,
application
Dr. Varadraj Bapat 8
 are deposited in a scheduled bank by
the interested parties along with the
amount payable at the time of
application in cash which is called as
application money.
 Company reserves the right to reject
or accept an application fully or
partially. Successful applicants become
shareholders of the company and are
required to pay the second installment
which is known as allotment money.
Dr. Varadraj Bapat 9
 Subsequent installments, if any, to be
called by the company are known as
calls.
 Journal Entries for issues of
shares for cash

1.On the receipt of the application

money
Bank A/c…… Dr.
To Shares Application money
Dr. Varadraj Bapat 10
2.On the allotment of share
Share Allotment A/c…..Dr.
Share Application A/c…Dr.
To Share Capital A/c
To Securities Premium A/c
(if shares are issued at premium)

3.On the receipt of allotment money

Bank A/c…..Dr.
To Share Allotment A/c
Dr. Varadraj Bapat 11
4.On the call being made
Share call A/c…..Dr.
To Share Capital A/c

5. On receipt of call money

Bank A/c……Dr.
To Share Call A/c

6. If call money is received from

shareholders even before making call

Dr. Varadraj Bapat 12

Bank A/c….Dr.
To Calls in Advance A/c

7. If money is not received from

shareholders on any call
Calls in Arrears A/c….Dr.
To Share Allotment A/c
To Share Call A/c

Dr. Varadraj Bapat 13

The Articles of Association of a
company usually empower the
director to charge interest at a
stipulated rate on calls in arrears.
According to Table A of Companies
Act 1956 interest at the rate of 5%
p.a. is to be charged on unpaid calls
from the due date of the call up to
the actual payment.

Dr. Varadraj Bapat 14

 JE for interest receivable on call in
arrears
Shareholders A/c….Dr.
To Interest on Calls in Arrears A/c

For receipt of interest

Interest on Calls in Arrears A/c…Dr.
Shareholders A/c
Dr. Varadraj Bapat 15
 According to Table A of Companies
Act 1956 interest at the rate of 6%
p.a. is to be paid on calls in advance
from the actual payment up to due
date of the call.
JE for Interest due
Interest on Calls in Arrears A/c…Dr.
To Shareholders A/c
Dr. Varadraj Bapat 16
Payment of interest
Shareholders A/c …Dr.
Interest on Calls in Advance A/c

Dr. Varadraj Bapat 17

Debentures
Issuing debt instruments by offering
the same for public subscription is
one of the sources of financing the
business activities. Debt financing
does not only help in reducing the
cost of the capital but also helps in
designing appropriate capital
structure of the company.

Dr. Varadraj Bapat 18

Debenture is one of the most
commonly used debt instrument
issued by the company to raise
funds for the business.

A debenture/ bond is the a

security issued by the company
under its seal, acknowledging a debt
and containing provisions as regards
repayment of the principal and
interest.
Dr. Varadraj Bapat 19
Issue of debentures
Issue of debentures can be
categorized into the following:
1.Debenture issued at par and
redeemable at par or at a discount
2.Debenture issued at discount and
redeemable at par or at a discount
3.Debenture issued at premium and
redeemable at par or at a discount
Dr. Varadraj Bapat 20
4.Debenture issued at par and
redeemable at premium
5.Debenture issued at a discount
and redeemable at premium

Dr. Varadraj Bapat 21

 Journal Entries in each of the
above cases are discussed
below:
1. Debenture issued at par and
redeemable at par or at a
discount
For receipt of application money:
Bank A/c……Dr.
To Debenture ApplicationMoney A/c
Dr. Varadraj Bapat 22
 For transfer of application money to
debenture account:
Debenture Application A/c
To Debenture A/c

2.Debenture issued at discount and

redeemable at par or at a discount
For receipt of application money:
Bank A/c……Dr.
To Debenture Application Money A/c
Dr. Varadraj Bapat 23
 For transfer of application money
to debenture account:
Debenture Application A/c
To Debenture A/c

3.Debenture issued at discount and

redeemable at par or at a discount
For receipt of application money:
Bank A/c……Dr.
To Debenture Application Money
A/c
Dr. Varadraj Bapat 24
For transfer of application money to
debenture account:
Debenture Application A/c
Discount on issue of debenture A/c
To Debenture A/c

4.Debenture issued at premium and

redeemable at par or at a discount
For receipt of application money:
Bank A/c……Dr.
To Debenture Application Money
A/c
Dr. Varadraj Bapat 25
For transfer of application money to
debenture account:
Debenture Application A/c
To Debenture A/c
To Securities premium A/c

5.Debenture issued at par and

redeemable at premium
For receipt of application money:
Bank A/c……Dr.
To Debenture Application
Money A/c Dr. Varadraj Bapat 26
For transfer of application money
to debenture account:
Debenture Application A/c
To Debenture A/c
Call made consequent upon
allotment:
Debenture Allotment A/c
Loss on issue of Debenture A/c
To Debenture A/c
To Debenture redemption
Premium A/c
Dr. Varadraj Bapat 27
6.Debenture issued at a discount
and redeemable at premium
For receipt of application money:
Bank A/c……Dr.
To Debenture Application Money
A/c
For transfer of application money to
debenture account:
Debenture Application A/c
To Debenture A/c

Dr. Varadraj Bapat 28

Call made consequent upon
allotment:
Debenture Allotment A/c
Discount /Loss on
issue of Debenture A/c
(Discount + premium on
redemption)
To Debenture A/c
To Debenture redemption
Premium A/c

Dr. Varadraj Bapat 29

7.Debenture issued at a premium
and redeemable at premium
For receipt of application money:
Bank A/c……Dr.
To Debenture Application
Money A/c
For transfer of application money to
debenture account:
Debenture Application A/c
To Debenture A/c
Dr. Varadraj Bapat 30
Call made consequent upon
allotment:
Debenture Allotment A/c
Loss on issue of Debenture A/c
(amount equal to premium on
redemption)
To Debenture A/c
To Debenture redemption
Premium A/c

Dr. Varadraj Bapat 31

Redemption of debentures

Redemption of debentures can

be categorized into the
following:
1. Debenture issued at par and
redeemable at par
2. Debenture issued at discount
and redeemable at par

Dr. Varadraj Bapat 32

3. Debenture issued at premium
and redeemable at par
4. Debenture issued at par and
redeemable at premium
5. Debenture issued at a discount
and redeemable at premium
6. Debenture issued at a premium
and redeemable at premium
Dr. Varadraj Bapat 33
 Journal Entries in each of the
above cases are discussed
below:
1. Debenture issued at par and
redeemable at par

-Closing debenture account

Debenture A/c……Dr.
To Debenture holders A/c

Dr. Varadraj Bapat 34

 -For payment of money to
debenture holders:
Debenture holders A/c
To Bank A/c

2.Debenture issued at discount and

redeemable at par
-For transfer of loss of discount
to profit & loss account:
Profit & Loss A/c……Dr.
To Discount on issue of
debenture A/c
Dr. Varadraj Bapat 35
 the above entry may be
repeated during the tenure of
the debenture for writing off
proportionate discount every
year.
-Closing debenture account
Debenture A/c……Dr.
To Debenture holders A/c

Dr. Varadraj Bapat 36

 -For payment of money to
debenture holders:
Debenture holders A/c
To Bank A/c
3. Debenture issued at premium
and redeemable at par
-Closing debenture account
Debenture A/c……Dr.
To Debenture holders A/c
Dr. Varadraj Bapat 37
 -For payment of money to
debenture holders:
Debenture holders A/c
To Bank A/c

4. Debenture issued at par and

redeemable at premium
-For transfer of loss of premium
to profit & loss account:
Dr. Varadraj Bapat 38
Profit & Loss A/c……Dr.
To Loss on issue of debenture A/c

the above entry may be repeated

during the tenure of the
debenture for writing off
proportionate premium to be paid
on redemption every year.

Dr. Varadraj Bapat 39

 -Closing debenture and
premium account
Debenture A/c……Dr.
Debenture redemption Premium
A/c……Dr.
To Debenture holders A/c
-For payment of money to
debenture holders:
Debenture holders A/c
To Bank A/c
Dr. Varadraj Bapat 40
5. Debenture issued at a
discount and redeemable at
premium
-For transfer of loss of discount
and premium to profit & loss
account:
Profit & Loss A/c……Dr.
To Discount / Loss on issue of
debenture A/c
(Discount + Premium)
Dr. Varadraj Bapat 41
 -Closing debenture and
premium account
Debenture A/c……Dr.
Debenture redemption Premium
A/c……Dr.
To Debenture holders A/c
-For payment of money to
debenture holders:
Debenture holders A/c
To Bank A/c
Dr. Varadraj Bapat 42
6. Debenture issued at a
premium and redeemable at
premium
-For transfer of loss of discount
to profit & loss account:
Profit & Loss A/c……Dr.
To Loss on issue of debenture
A/c
(Premium on redemption)
Dr. Varadraj Bapat 43
 -Closing debenture and
premium account
Debenture A/c……Dr.
Debenture redemption Premium
A/c……Dr.
To Debenture holders A/c
-For payment of money to
debenture holders:
Debenture holders A/c
To Bank A/c
Dr. Varadraj Bapat 44
Purchase of debenture
Debentures sometime are
purchased in an open market
and then cancelled on due date.
Example,
Company has issued 1000 9 %
debentures for Rs. 100000.
interest being payable half
yearly. The company purchases

Dr. Varadraj Bapat 45

 100 debentures at Rs. 98 per
debenture cum interest (interest
for 6 months).
Journal Entries:
Own Debenture A/c….Dr. 9350
Interest A/c….Dr. 450
To Bank
9800

Dr. Varadraj Bapat 46

 Suppose out of these debentures
40 debentures sold at Rs. 102 ex
interest and remaining are
cancelled at the end of 6 months
from date of purchase.
Journal Entries
Bank A/c…DR. 4080
To Own Debentures 4080
To Interest A/c 60
Dr. Varadraj Bapat 47
Own Debentures A/c…DR. 340
To Profit & Loss 340
(Profit on sale transferred to
P & L A/c)
At the end of 6 months
9% debentures A/c….Dr. 6000
To Own Debenture 5610
To Capital Reserve 390
(Profit on cancellation transferred)
Dr. Varadraj Bapat 48