Journal Entries on Issue of Debentures at par, Premium, Discount (Class 12)

Looking for Journal Entries of Issue of debentures at par, premium, and discount as per the syllabus of class 12 CBSE, ISC, and state Board.

I have explained all journal entries related to the issue of debentures in detail.

Journal Entries on Issue of Debentures at par (Class 12)

Debentures issued at par means Debentures issued at their nominal (face) value. For example, Debenture of nominal (face) value of ₹ 100 issued at ₹ 100.

Journal entries of issue of Debentures for cash at par (Lumpsum)

Following are the cases

Journal entries of issue of debentures in Lump-sum in case of Full/Under Subscription

Issue of Debenture for cash in lump-sum in case of Over-subscription

On Receipt of Application Money	Bank A/c ..Dr. To Debentures Application and Allotment A/c	With the application money received
On Allotment of Debentures	Debentures Application and Allotment A/c ..Dr. To –% Debentures A/c	With the amount of application money on the allotted debentures
On Refund of Excess Application Money	Debentures Application and Allotment A/c ..Dr. To Bank A/c	With the application money refunded

Debentures are issued at par and issue price of Debentures is received in Instalments:

a) 1st Step

a) On Receipt of Application Money

Bank A/c ..Dr.
To Debentures Application A/c
(Being Application money on debentures received)

b) 2nd Step

i) On transfer of application money to Debenture account

Debentures Application A/c ..Dr.
To …% Debentures A/c
(with the amount of application money on the allotted debentures)

ii) On Adjustment of Excess Debentures Application Money

Debentures Application A/c ..Dr.
To Debentures Allotment A/c
(with the surplus application money on partially accepted applications)

iii) On Refund of Excess Debentures Application Money

Debentures Application A/c ..Dr.
To Bank A/c
(with the application money refunded on rejected applications)

iv) On Allotment Money due

Debentures Allotment A/c ..Dr.
To ..% Debentures A/c
(with the amount due on allotment of the debentures)

v) On Receipt of Allotment Money

Bank A/c ..Dr.
To Debentures Allotment A/c
(with the amount actually received on allotment)

c) Third Step

i) On first Calls Money due

Debentures first Call A/c ..Dr.
To …% Debentures A/c
(with the money due on a particular call)

ii) On Receipt of first Call Money

Bank A/c ..Dr.
To Debentures first Call A/c
(with the amount received on a particular call)

ii) On Second Calls Money due

Debentures second Call A/c ..Dr.
To …% Debentures A/c
(with the money due on a particular call)

ii) On Receipt of second Call Money

Bank A/c ..Dr.
To Debentures Second Call A/c
(with the amount received on a particular call)

i) On final Calls Money due

Debentures final Call A/c ..Dr.
To …% Debentures A/c
(with the money due on a particular call)

ii) On Receipt of final Call Money

Bank A/c ..Dr.
To Debentures final Call A/c
(with the amount received on a particular call)

Illustration on the issue of shares at par and Issue price payable in Lump Sum

Moon India Ltd. issued 10,000; 8% Debentures of ₹100 each at par payable on application by 1st April 2021. Applications were received for 10,000 debentures. Debentures were allotted on 5th April 2021.

Solution

1st April 2021

Bank A/c ..Dr. 10,00,000
To 8% Debentures Application and Allotment A/c 10,00,000
(Application money received on 10,000; 8% Debentures @ ₹100 each)

5th April 2021

Debentures Application and Allotment A/c ..Dr. 10,00,000
To 9% Debentures A/c 10,00,000
(Allotment of 10,000; 8% Debentures of ₹100 each at par )

Illustration 2 (Issue of Debentures at Par, Issue price payable in Lumpsum (Oversubsctiption)

Star India Ltd Issued ₹12,00,000, 10% Debentures of ₹ 100 each at par. Application is received for 15,000 debentures. the whole amount is called in lumpsum. Pass the necessary Journal Entries.

Solution:-

Bank A/c ..Dr. 15,00,000
To Debenture Application and Allotment A/c 15,00,000
(Being Application money received on debentures)

Debenture Application and Allotment A/c Dr. 15,00,000
To 10% Debentures A/c 12,00,000
To Bank A/c 3,00,000
(Being allotment of 12,000; 10% Debentures of ₹100 each at excess
money is refunded)

Journal Entries on Issue of Debentures at premium (Class 12)

Debentures are said to have been issued at a premium when the issue price of a debenture is more than the nominal (face) value of a debenture.

For example, a debenture of ₹100 is issued for ₹ 120, ₹20 is premium. Premium on Issue of Debentures is a capital receipt and is credited to Securities Premium Reserve Account.

Note:- If the question is silent when the premium is called to be paid, it is assumed to have been called along with the allotment money.

Journal entries of issue of Debentures at premium Lump sum

Journal entries of issue of debentures in Lump-sum in case of premium Full/Under Subscription

Journal Entries of Issue of Debenture for cash in Premium lump-sum in case of Over-subscription

On Receipt of Application Money	Bank A/c ..Dr. To Debentures Application and Allotment A/c	With the application money received
On Allotment of Debentures	Debentures Application and Allotment A/c ..Dr. To –% Debentures A/c To Securities Premium Reserve A/c	With the amount of application money on the allotted debentures
On Refund of Excess Application Money	Debentures Application and Allotment A/c ..Dr. To Bank A/c	With the application money refunded

Journal entries of issue of Debentures at premium and issue price of Debentures is received in Instalments:

a) 1st Step

a) On Receipt of Application Money

Bank A/c ..Dr.
To Debentures Application A/c
(Being Application money on debentures received)

b) 2nd Step

i) On Transfer of application money to Debenture Account

Debentures Application A/c ..Dr.
To …% Debentures A/c
(with the amount of application money transferred to debentures account)

ii) On Adjustment of Excess Debentures Application Money

Debentures Application A/c ..Dr.
To Debentures Allotment A/c
(with the surplus application money on partially accepted applications)

iii) On Refund of Excess Debentures Application Money

Debentures Application A/c ..Dr.
To Bank A/c
(with the application money refunded on rejected applications)

iv) On Allotment Money being called

Debentures Allotment A/c ..Dr.
To ..% Debentures A/c
To Securities Premium Reserve A/c
(with the amount due on allotment of the debentures)

v) On Receipt of Allotment Money

Bank A/c ..Dr.
To Debentures Allotment A/c
(with the amount actually received on allotment)

c) Third Step

i) On first Calls Money being called

Debentures first Call A/c ..Dr.
To …% Debentures A/c
(with the money due on a particular call)

ii) On Receipt of first Call Money

Bank A/c ..Dr.
To Debentures first Call A/c
(with the amount received on a particular call)

ii) On Second Calls Money being called

Debentures second Call A/c ..Dr.
To …% Debentures A/c
(with the money due on a particular call)

ii) On Receipt of second Call Money

Bank A/c ..Dr.
To Debentures Second Call A/c
(with the amount received on a particular call)

i) On final Calls Money being called

Debentures final Call A/c ..Dr.
To …% Debentures A/c
(with the money due on a particular call)

ii) On Receipt of final Call Money

Bank A/c ..Dr.
To Debentures final Call A/c
(with the amount received on a particular call)

Journal Entries on Issue of Debentures at Discount (Class 12)

Debentures are said to have been issued at a discount when the issue price is less than its nominal (face) value.

For example, if a debenture of ₹100 is issued for ₹90. it means debentures are issued at a discount of ₹10.

Debentures Account is credited with the nominal (face) value of the debentures and discount is debited to an account titled ‘discount on Issue of debentures Account’.

What is the Maximum Limit of Discount on the issue of Debentures?

The Companies Act, 2013 has not specified the maximum discount that can be allowed on debentures. Thus, a company may decide the discount to be allowed on debentures.

Note:- Discount is presumed to have been allowed on the allotment, i.e., Allotment money is taken as net of discount unless stated otherwise.

Journal Entries of Issue of Debentures at Discount and Issue price of Debentures is received in Lump sum

Following are the Journa entries

Journal entries of issue of debentures in Lump-sum in case of Discount Full/Under Subscription

Journal entries of issue of debentures in Lump-sum in case of premium Over Subscription

On Receipt of Application Money	Bank A/c ..Dr. To Debentures Application and Allotment A/c	With the application money received
On Allotment of Debentures	Debentures Application and Allotment A/c ..Dr. Discount on Issue of Debentures A/c To –% Debentures A/c	With the amount of application money on the allotted debentures
On Refund of Excess Application Money	Debentures Application and Allotment A/c ..Dr. To Bank A/c	With the application money refunded

Journal Entries of Issue of Debentures at Discount and issue price of Debentures is received in Instalments:

a) 1st Step

a) On Receipt of Application Money

Bank A/c ..Dr.
To Debentures Application A/c
(Being Application money on debentures received)

b) 2nd Step

i) On transfer of application money to debenture account

Debentures Application A/c ..Dr.
To …% Debentures A/c
(with the amount of application money on the allotted debentures)

ii) On Adjustment of Excess Debentures Application Money

Debentures Application A/c ..Dr.
To Debentures Allotment A/c
(with the surplus application money on partially accepted applications)

iii) On Refund of Excess Debentures Application Money

Debentures Application A/c ..Dr.
To Bank A/c
(with the application money refunded on rejected applications)

iv) On Allotment Money being called

Debentures Allotment A/c ..Dr.
Discount on Issue of Debenture A/c
To ..% Debentures A/c
(with the amount due on allotment of the debentures)

v) On Receipt of Allotment Money

Bank A/c ..Dr.
To Debentures Allotment A/c
(with the amount actually received on allotment)

c) Third Step

i) On first Calls Money being called

Debentures first Call A/c ..Dr.
To …% Debentures A/c
(with the money due on a particular call)

ii) On Receipt of first Call Money

Bank A/c ..Dr.
To Debentures first Call A/c
(with the amount received on a particular call)

ii) On Second Calls Money being called

Debentures second Call A/c ..Dr.
To …% Debentures A/c
(with the money due on a particular call)

ii) On Receipt of second Call Money

Bank A/c ..Dr.
To Debentures Second Call A/c
(with the amount received on a particular call)

i) On final Calls Money being called

Debentures final Call A/c ..Dr.
To …% Debentures A/c
(with the money due on a particular call)

ii) On Receipt of final Call Money

Bank A/c ..Dr.
To Debentures final Call A/c
(with the amount received on a particular call)