Skip to content
Do It Yourself · Q2

Q.Z Ltd. issued 15,00,000, 10% debentures of ₹50 each at premium of 10% payable as ₹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
Meghalaya MboseTextbookSubjectiveImportance★★★★★
28% · 33/117 Questions
✓ Free question

On 15,00,000 debentures of ₹50 issued at a 10% premium (₹5), the face value is ₹7,50,00,000 and the securities premium is ₹75,00,000. Whether the ₹5 premium is collected with application (₹20) or with allotment (₹35), the Securities Premium Reserve is credited with ₹75,00,000 — only the entry in which it appears differs.

Concept

When debentures are issued at a premium, the premium is credited to the Securities Premium Reserve. The premium may be collected either at the application stage or at the allotment stage; the account it is credited in shifts accordingly, but the total amounts credited to Debentures A/c (face value) and Securities Premium Reserve are unchanged.

Working Note

  • Number of debentures = 15,00,000; face value ₹50 each → total face value = ₹7,50,00,000
  • Premium @10% of ₹50 = ₹5 per debenture → total premium = ₹75,00,000
  • Application money = ₹20 per debenture → ₹3,00,00,000
  • Allotment money = ₹55 − ₹20 = ₹35 per debenture → ₹5,25,00,000
  • (i) Premium in application: application ₹20 = ₹15 (face value) + ₹5 (premium); allotment ₹35 all face value
  • (ii) Premium in allotment: application ₹20 all face value; allotment ₹35 = ₹30 (face value) + ₹5 (premium)

Solution — (i) Premium included in application money

DateParticularsL.F.Debit (₹)Credit (₹)
Bank A/c Dr.3,00,00,000
To Debenture Application A/c3,00,00,000
(Application money received on 15,00,000 debentures @ ₹20 each)
Debenture Application A/c Dr.3,00,00,000
To 10% Debentures A/c2,25,00,000
To Securities Premium Reserve A/c75,00,000
(Application money transferred; ₹15 to debentures and ₹5 premium per debenture)
Debenture Allotment A/c Dr.5,25,00,000
To 10% Debentures A/c5,25,00,000
(Allotment money due @ ₹35 per debenture)
Bank A/c Dr.5,25,00,000
To Debenture Allotment A/c5,25,00,000
(Allotment money received)

Solution — (ii) Premium included in allotment money

DateParticularsL.F.Debit (₹)Credit (₹)
Bank A/c Dr.3,00,00,000
To Debenture Application A/c3,00,00,000
(Application money received on 15,00,000 debentures @ ₹20 each)
Debenture Application A/c Dr.3,00,00,000
To 10% Debentures A/c3,00,00,000
(Application money transferred @ ₹20 per debenture, all towards face value)
Debenture Allotment A/c Dr.5,25,00,000
To 10% Debentures A/c4,50,00,000
To Securities Premium Reserve A/c75,00,000
(Allotment money due @ ₹35; ₹30 to debentures and ₹5 premium per debenture)
Bank A/c Dr.5,25,00,000
To Debenture Allotment A/c5,25,00,000
(Allotment money received)
✓Final answer

In both cases: 10% Debentures A/c is credited with ₹7,50,00,000 (face value) and Securities Premium Reserve with ₹75,00,000. In (i) the ₹75,00,000 premium is credited when application money is transferred; in (ii) it is credited when allotment money is transferred.

Unlock everything free for 14 days

  • Full step-by-step solutions
  • Concept-first explanations
  • Methods, shortcuts & mistakes
  • PYQ mapping + timed mock tests

Full access for 14 days. No credit card required.