Question

EF Ltd. invited applications for issuing 4000, 10% debentures of \u20b9 100 each at a premium of \u20b9 10 per debenture. The amount was payable as follows :
On application \hspace{1.5cm} -- \u20b9 40 per debenture
On allotment \hspace{2cm} -- \u20b9 70 per debenture (including premium) The debentures were fully subscribed and all money was duly received. Pass necessary journal entries for the above transactions in the books of EF Ltd.

Hint:

Break the debenture amount into face value and premium. Record money received and amounts due separately in the journal.

Answer 1

Working Calculations:

Total Debentures Issued = 4,000

Nominal Value per Debenture = ₹100

Premium per Debenture = ₹10

Total Issue Price per Debenture = ₹110

Amount Payable per Debenture: Application Money = ₹40, Allotment (including premium) = ₹70

Journal Entries:

1. Recording receipt of application money:

Particulars	Dr (₹)	Cr (₹)
Bank Account	1,60,000
To Debenture Application Account		1,60,000
(Application money received for 4,000 debentures at ₹40 each)

 

2. Transferring application money to Debenture Account:

Particulars	Dr (₹)	Cr (₹)
Debenture Application Account	1,60,000
To 10% Debentures Account		1,60,000
(Application money transferred to Debenture Account)

 

3. Recording amount due on allotment (face value + premium):

Particulars	Dr (₹)	Cr (₹)
Debenture Allotment Account	2,80,000
To 10% Debentures Account		2,40,000
To Securities Premium Account		40,000
(Allotment due including premium of ₹10 per debenture)

 

4. Recording receipt of allotment money:

Particulars	Dr (₹)	Cr (₹)
Bank Account	2,80,000
To Debenture Allotment Account		2,80,000
(Allotment money received in full)

 

Conclusion: EF Ltd. executed four journal entries to account for the full subscription and the premium received.