Question

Sargam Limited issued 2,000, 9 debentures of Rs 500 each at a premium of 10. The amount was payable as follows:
On Application - Rs 200 per debenture
On Allotment - Balance (including premium)
The debentures were fully subscribed and all amounts were duly received.
Pass the necessary journal entries for issue of debentures in the books of Sargam Limited.

Hint:

When debentures are issued at a premium, the premium amount is credited to the 'Securities Premium' account, usually at the allotment stage unless specified otherwise. Ensure the Debenture account is credited only with the face value portion of the instalments.

Answer 1

Calculations:

• Number of Debentures: 2,000
• Face Value per Debenture: ₹500
• Premium: 10% of ₹500 = ₹50
• Application Money per Debenture: ₹200
• Allotment Money per Debenture (including premium): ₹500 (Face Value) + ₹50 (Premium) - ₹200 (Application Money) = ₹350

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1. Application Money Received
	Bank A/c		4,00,000
	To 9% Debenture Application A/c			4,00,000
(Application money received on 2,000 debentures at ₹200 per debenture)
2. Transfer of Application Money
	9% Debenture Application A/c		4,00,000
	To 9% Debentures A/c			4,00,000
(Application money transferred to debentures account)
3. Allotment Money Due
	9% Debenture Allotment A/c		7,00,000
	To 9% Debentures A/c			6,00,000
	To Securities Premium Reserve A/c			1,00,000
(Allotment money due on 2,000 debentures at ₹350 per debenture, including premium)
4. Allotment Money Received
	Bank A/c		7,00,000
	To 9% Debenture Allotment A/c			7,00,000
(Allotment money received on 2,000 debentures)

Explanation:

• Entries 1 & 2: Account for the receipt of application money and its transfer to the debenture account.
• Entry 3: Records the allotment money becoming due on the debentures. The debenture account is credited with the face value of the allotted debentures (2,000 × ₹300 = ₹6,00,000). The Securities Premium Reserve is credited with the premium amount (2,000 × ₹50 = ₹1,00,000).
• Entry 4: Records the receipt of the allotment money into the bank account.

Total receipt: Application (2,000 × 200) + Allotment (2,000 × 350) = 4,00,000 + 7,00,000 = 11,00,000