Accounting for Share capital & Debentures

Q.1 What do you mean by Private placement of shares?

Ans. Private Placement of shares implies issue and allotment of shares to a selected
groups of persons privately and not to public in general through public issue. In order
to place the shares privately, a company must pass a special resolution to this effect.

Q.2 What is Sweat Equity?

Ans. Sweat Equity shares means easily shares issued by the company to its employees or
whole time directors at a discount or for consideration other then cash for providing
know - how or making available right in the nature of intellectual properly rights or
valve addition by whatever name called.

Q.3 What maximum amount of discount can be allowed on the reissue of forfeited
shares?

Ans. The maximum amount of discount on reissue of forfeited shares is that the amount of
discount allowed cannot exceed the amount that had been received on forfeited
shares on their original issue and that the discount allowed on re issue of forfeited
shares should be debited to the share forfeited account.

Q.4 State in brief, the SEBI Guidelines regarding Debenture Redemption Reserve.

Ans. At per SEBI Guidelines, an amount equal to 50% of the debenture issue must be
transferred to DRR before the redemption begins. In other words, before redemption,
at least an amount equal to 50% of the debenture issue must stand to the credit of
DRR

Q.5 Name the head under which discount on issue of debentures appears in the Balance
Sheet of "C" Company.

Ans. Discount on issue of debentures will appear under the heading Miscellaneous
Expenditure.

Q.6 Can a company issue share of discount ? What conditions must a company comply
with before the issue of such shares.

Ans. Section 79 of the companies Act, 1956 permits a company to issue shares at a
discount only if the following conditions are fulfilled :

1) The shares are of a class already issued.

 2) At least one year must have elapsed since the company become entitled to
commence business.

3) The issue of shares at discount is authorises by a revolution passed by the

company in its general meeting and sanctioned by the central Government.

4) The resolution specifies the maximum rate of discount at which the shares are to
be issued. The rate must not exceed 10% unless sanctioned by the central
Government.
Q.7 New India Ltd. forfeited 100 shares of Rs. 10 each, issued at a discount of 10%. The
company had called up only Rs. 8 per share. Final call of Rs. 2 each has not been
made on these shares. These shares were allotted to Ram, who did not pay the first
call of Rs. 3. 60 shares were reissued at Rs. 7 per share, as Rs. 8 paid up. Give
Journal entries in the books of the company, showing the working clearly.

JOURNAL
Date Particulars L.F. Dr. (Rs.) Cr.(Rs)

Share Capital A/c (100 x Rs. 8) ...Dr. 800

To Forfeited Shares A/c (100 xRs. 4) 400
To Discount on Issue of Shares (1 00 x Re. 1 )
100
To Share First Calf A/c (100 x Rs. 3) 300
(Being 100 scares forfeited for non-payment of first call ...)

Bank A/c (60 x Rs. 7) ...Dr. 420

Discount on issue of Shares A/c (60 x Re. 1) ...Dr. 60
Forfeited Shares A/c ...Dr. 60
To Share Capital A/c 540
(Being 60 shares were reissued at Rs. 7 per share,

as Rs. 8 paid up)

Forfeited Shares A/c ...Dr. 180

To Capital Reserve A/c 180
(Being the transfer of profit on reissue o' shoes':

(Working Note)
Q.8 Z Ltd. invited applications for issuing 200000 equity shares of Rs. 25 each at a
premium of Rs. 10 per share. The amount was payable as follows :
On application and allotment Rs. 10 per share Balance including premium on first and
final call.
Applications per 250000 shares were received. Application for 25000 shares were
rejected and shares were allotted on pro rata basis to the remaining applicants. All
calls were made and were duly received except the first and final call on 2000 shares
allotted to Vijay. His shares were forfeited. The forfeited shares were reissued @ Rs.
30 per share fully paid up. Pass the necessary Journal entries in the books of the
company.

Ans. JOURNAL

Date Particulars L.F. Dr. (Rs.) Cr.(Rs)

Bank A/c ...Dr. 25,00,000

To Equity Share Application and Allotment A/c
25,00,000
(Being the application money received on 2,50,000 shares)
Equity Share Application and Allotment A/c ...Dr. 25,00,000
To Equity Share Capital A/c 20,00,000
To Cash-in-Advance A/c (25,000 x Rs. 10)
2,50,000
To Bank A/c (25,000 xRs, 10) 2,50,000
(Being the application money adjusted)
Equity Share First and Final Call A/c ...Dr. 50,00,000
To Equity Share Capital A/c (2,00,000 x Rs. 15)
30,00,000
To Securities Premium A/c (2,00,000 x Rs. 10)
20,00,000
(Being the amount due on first and final call on 2,00,000

shares @ Rs, 25 including Rs. 10 per share as premium)

Calls-in-Advance A/c ...Dr. 2,50,000
To Equity Share First and Final Call A/c
2,50,000
 (Being Calls-in-Advance adjusted)
Bank A/c ...Dr. 47,02,500
To Equity Share First and Final Call A/c (Note)
47,02,500
(Being the first and final call money received except

on 2,000 shares)
Equity Share Capital A/c (2,000 x Rs. 25) ...Dr. 50,000
Securities Premium A/c (2,000 x Rs. 10) Dr. 20,000
To Equity Share First and Final Call A/c (Note)
47,500
To Forfeited Shares A/c (Bal. Fig.) 22,500
{Being 2,000 shares forfeited for non-payment of calls money)
Bank A/c (2,000 x Rs. 30) ...Dr. 60,000
To Equity Share Capital A/c (2.000 x 25)
50,000
To Securities Premium A/c (2,000 x 5)
10,000
(Being forfeited shares reissued at Rs. 30 fully paid)
Forfeited Shares A/c ...Dr. 22,500
To Capital Reserve A/c 22,500
(Being profit on reissued transfer 10 capital reserve)

Q.9 Raghav Ltd. purchased a running business from Krishna Traders for a sum of Rs.
15,00,000 payable 3,00,000 by cheque and for the balance issued 9% debenture of
Rs. 100 each at par. The assets and liabilities consisted of the following :
Plant & Machinery Rs. 4,00,000
Building Rs. 6,00,000
Stock Rs. 5,00,000
Sundry debtors Rs. 3,00,000
Sundry creditors Rs. 3,00,000

Ans.
JOURNAL
 Date Particulars L.F. Dr. (Rs.) Cr.(Rs)

Plant and Machinery A/c ...Dr. 4,00,000

Buildings A/c ...Dr. 6,00,000
Stock A/c ...Dr. 5,00,000
Sundry Debtors A/c ...Dr. 3,00,000
To Sundry Creditors A/c 2,00,000
To Krishna Limited 15,00,000
To Capital Reserve A/c (Balancing Figure)
1,00,000
(Being the purchase of assets liabilities)
Krishna Limited ...Dr. 3,00,000
TO Bank A/c 3,00,000
(Being Rs. 3,00,000 paid by cheque)
Krishna Limited ...Dr. 12,00,000
To 9% Debentures A/c 12,00,000
(Being the balance of Re. 12,00,000 discharged by
issue of 9% Debentures at par)

Q.10 Dhyey Ltd. redeemed Rs. 30,00,000, 8% debentures issued at a premium of 5% as

follows :
Rs. 12,00,000, 8% debentures were converted into equity shares of Rs. 100 each
issued at a premium of Rs. 25 per share and the balance by converting them into 8%
preference shares of Rs. 100 each issued at a discount of Rs. 10 per shares.
Pass the Journal entries.

Ans. JOURNAL
Date Particulars L.F. Dr. (Rs.) Cr.(Rs)
8% Debentures A/c ..Dr. 30,00,000
To Debentureholders1 A/c 30,00,000
(Being the amount due to the debenture holders)
Debenture holders A/c ..Dr. 12,00,000
To Equity Share Capital A/c (9,600 x Rs. 100)
9,60,000
To Securities Premium A/c (9,600 x Rs. 25)
2,40,000
 (Being debentures converted into equity shares at a
premiurn)
[Rs. 12.0n,QOO + 125 =- 9,600 shares]
Debentureholders A/c (20,000 x Rs. 90) ..Dr. 18,00,000
Discount on Issue Of Debentures A/c ..Dr. 2,00,000
(20,000 x Rs. 10)
To Preference Share Capital A/c 20,00,000
(Being debentures converted into preference shares
Q.11 ABC Ltd. redeemed 2000, 8% debentures of Rs. 100 each which were issued at a
discount of 5% by converting them into equity shares Rs. 10 each issued at a premium
of 25% Journalise.

JOURNAL
Date Particulars L.F. Dr. (Rs.) Cr.(Rs)
8% Debentures A/c ...Dr. 2,00,000
To Discount on Issue of Debentures A/c (Note 2) 10,000
To Debenture holders A/c 1,90,000
(Being the amount due to debenture holders)
Debenture holders A/c ...Dr. 1,90,000
To Equity Share Capital A/c (15,200xRs. 10)
1,52,000
To Securities Premium A/c (15,200 x Rs. 2.50) 38,000
(Being the issue of 15,200 Equity Shares of Re. 10 each
at Rs. 12.50)
Notes : 1. Number of equity shares issued = Rs. 1,90,000/Rs. 12.50 = 15,200,
2. It has been assumed that no part of Discount on Issue of Debentures'
has been written off.
Q.12 Journalise the following transactions in the books of sum ltd.
i) 100, 12% debentures of Rs. 100 each issued at a discount of 10% were
converted into 10% preference shares of Rs. 100 each issued at a premium of
25%. The debentures were converted at the option of the debenture holders
before the date of redemption.
ii) 100, 10% debentures of Rs. 500 each were converted into debentures of Rs.
100 each. The new debentures were issued at a discount of 20%.
Ans. JOURNAL

Date Particulars L.F. Dr. (Rs.) Cr.(Rs)

i) 12% Debentures A/c ..Dr. 10,000

To Discount on Issue of Debentures A/c 1,000
To Debonture holders' A/c 9,000
(Being the amount due on redemption of !00 debentures)

Debenture holders' A/c ...Dr. 9,000

To 10% Preference Share Capital A/c (Note 1) 7,200
To Securities Premium A/c 1,800
(Being the issue of 72 Preference Shares of Rs. 100
each at 25% premium)

ii) 10% Debentures A/c ...Dr. 50,000

To Debentureholders1 A/c 50,000
(Being the amount due on redemption of 500,

10% debentures)
Debenture holders' A/c ...Dr. 50,000
Discount on Issue of Debentures A/c ...Dr. 12,500
To 12% Debentures A/c 62,500
(Being Issue of 625, 12%, Debentures at discount of 20%)

Notes : 1. = = 72 Preference Shares; 2. = 625, 12% Debentures

Q.13 On 1 Jan. 2001, a company issued 1000, 12% debentures of Rs. 500 each at Rs. 450
each. Debenture holders were given an option to get their debentures converted into
equity shares of Rs. 10 each at a premium of Rs. 50 per shares on 31sdt Dec, 2002,
One year's interest had accrued on these debentures which was not paid. A holder of
100 debentures informed that he wanted to exercise the option per conversion of
debentures into equity shares. The company, therefore accepted his request and
redeemed these 100 debentures by issuing him equity shares. The interest, however,
on these 100 debentures was paid to the debenture holders. Pass necessary journal
entries.
Ans. Journal

Date Particulars L.F. Dr. (Rs.) Cr.(Rs)

01.01x1 Bank A/c ...Dr. 4,50,000

To Debentures Application A/c 4,50,000
(Being the receipt of application money)
Debenture Application A/c ...Dr. 4,50,000
Discount on Issue of Debentures A/c ...Dr. 50,000
To 12% Debentures A/c 5,00,000
(Being the Debentures issued at 10% discount)
31.12x2 Interest on Debentures A/c ...Dr. 60,000
To Interest on debentures accrued & due A/c
60,000
(Being the Interest due on debentures)
3.12x2 1 2% Debentures A/c ...Dr. 50,000
To 'Discount ci issue of Debentures A/c 5,000
To Debenture-holders' A/c 45,000
(Being the amount due to debenture-holders)
Debenture-holders' A/c ...Dr. 45,000
To Equity Share Capital A/c 30,000
To Securities Premium A/c 15,000
(Being the issue of 300 Equity Shares of Rs 100 each
at a premium of 50%)
31.12x2 Interest on Debentures accrued & due A/c ...Dr. 6,000
To Bank A/c 6,000
(Being the Interest paid to a holder of 100 Debentures)
*Note: It is assumed that no portion of the 'Discount on issue of debentures' has been
written off in the absence of any information regarding the original period of
redemption.