Z Ltd. issued 15,00,000, 10% debentures of Rs. 50 each at premium of 10% payable as Rs. 20 on application and balance on allotment. Debentures are redeemable at par after 6 years. All the amount due on allotment was called and duly received. Record necessary entries when premium money is included: (i) in application money (ii) in allotment money
premium money is included in application money
Working Notes: Face Value per Debenture = Rs. 50 Premium (10%) = Rs. 5 per debenture Issue Price = Rs. 55 per debenture Total Debentures = 15,00,000 Application Money = Rs. 20 (includes Rs. 5 premium) Allotment Money = Rs. 55 - Rs. 20 = Rs. 35
Journal Entries in the books of Z Ltd.:
1. Bank Account Dr. Rs. 3,00,00,000 To Debenture Application Account Rs. 3,00,00,000 (Being application money received on 15,00,000 debentures @ Rs. 20 each)
2. Debenture Application Account Dr. Rs. 3,00,00,000 To 10% Debentures Account Rs. 2,25,00,000 To Securities Premium Account Rs. 75,00,000 (Being application money adjusted: Rs. 15 per debenture to debentures and Rs. 5 premium)
3. Debenture Allotment Account Dr. Rs. 5,25,00,000 To 10% Debentures Account Rs. 5,25,00,000 (Being allotment money due @ Rs. 35 per debenture)
4. Bank Account Dr. Rs. 5,25,00,000 To Debenture Allotment Account Rs. 5,25,00,000 (Being allotment money received in full)
premium money is included in allotment money
Working Notes: Face Value per Debenture = Rs. 50 Premium (10%) = Rs. 5 per debenture Issue Price = Rs. 55 per debenture Total Debentures = 15,00,000 Application Money = Rs. 20 (no premium) Allotment Money = Rs. 35 (includes Rs. 5 premium)
Journal Entries in the books of Z Ltd.:
1. Bank Account Dr. Rs. 3,00,00,000 To Debenture Application Account Rs. 3,00,00,000 (Being application money received on 15,00,000 debentures @ Rs. 20 each)
2. Debenture Application Account Dr. Rs. 3,00,00,000 To 10% Debentures Account Rs. 3,00,00,000 (Being application money adjusted to debentures account)
3. Debenture Allotment Account Dr. Rs. 5,25,00,000 To 10% Debentures Account Rs. 4,50,00,000 To Securities Premium Account Rs. 75,00,000 (Being allotment money due: Rs. 30 per debenture to debentures and Rs. 5 premium)
4. Bank Account Dr. Rs. 5,25,00,000 To Debenture Allotment Account Rs. 5,25,00,000 (Being allotment money received in full)
Explanation
This question tests the student's understanding of recording debenture issue at premium. The key difference between the two cases is WHEN the premium amount is recorded. In Case (i), the premium is received with application money, so Securities Premium is credited at the application stage. In Case (ii), the premium is received with allotment money, so Securities Premium is credited at the allotment stage. The total amounts remain the same: Rs. 7,50,00,000 to 10% Debentures Account and Rs. 75,00,000 to Securities Premium Account in both cases.