Y. Ltd. issued 2,000, 6% debentures of Rs. 100 each, payable as follows: | Particulars | Amount (Rs.) | | --- | --- | | On Application | 25 | | On Allotment | 50 | | On First and Final Call | 25 | Record necessary entries in the books of the company.

> [!TLDR] > The journal entries record the issue of 2,000, 6% debentures of ₹100 each, with amounts received on application (₹25), allotment (₹50), and first and final call (₹25), totalling ₹2,00,000. ### Concept and Accounting Treatment When a company issues debentures, it is borrowing money from the public. The accounting treatment follows the same logic as the issue of shares, but with a key difference: debentures represent a liability (loan), not ownership. The company is the debtor, and the debenture holders are creditors. The entries are made in the **Journal Proper** of the company. The core rule is the **Golden Rule of Real and Personal Accounts**: - **Application, Allotment, and Call Accounts** are **Personal Accounts** (they represent the amount due from the debenture holders). When the company receives money, these accounts are credited. When the amount is due, they are debited. - **Bank Account** is a **Real Account** (asset). When money comes in, it is debited. - **Debentures Account** is a **Personal Account** (representing the liability to the debenture holders). When the liability is created (i.e., when the debentures are allotted), it is credited. The process is: 1. **On Application:** The company receives the application money. We debit Bank and credit the Debenture Application Account. 2. **On Allotment:** The company makes the allotment. The amount due on allotment is transferred from the Debenture Application Account (which is now closed) to the Debentures Account. Simultaneously, the allotment money is due: we debit Debenture Allotment Account and credit Debentures Account. When the money is received, we debit Bank and credit Debenture Allotment Account. 3. **On First and Final Call:** The company makes the call. The amount due is recorded by debiting Debenture First and Final Call Account and crediting Debentures Account. When the money is received, we debit Bank and credit Debenture First and Final Call Account. > [!WARNING] A common mis

Y. Ltd. issued 2,000, 6% debentures of Rs. 100 eac – Class 12 Accountancy

Numerical Questions · Q2

Y. Ltd. issued 2,000, 6% debentures of Rs. 100 each, payable as follows:

Particulars	Amount (Rs.)
On Application	25
On Allotment	50
On First and Final Call	25

Record necessary entries in the books of the company.

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Concept understanding — Share Capital Accounting

Let’s begin with something you already know from everyday life.

Imagine you and two friends decide to start a small business — say, a tiffin service. You each put in some money to buy utensils, a stove, and ingredients. That money you all contributed is the capital of the business. The business doesn’t own that money; it owes it back to you, the owners. In accounting, we call you the shareholders, and the money you put in is share capital.

Now scale that up to a company. A company needs huge amounts of money to build factories, buy machinery, or develop software. It raises this money by selling shares — small units of ownership. When you buy a share, you become a part-owner of that company. The total money collected from all shareholders is the company’s share capital.

Why does share capital matter in accounting?

Because the company is a separate legal person. It does not own the money — the shareholders do. So the company must record exactly how much it has collected from whom, and in what form. This affects the balance sheet (where share capital appears under Equity and Liabilities) and the cash flow (money coming in from shareholders is a financing activity).

The precise meaning (NCERT Class 12)

Share Capital is the money raised by a company by issuing shares to the public or to promoters. It is shown under the head Shareholders’ Funds in the Balance Sheet.

There are two main types of shares:

Equity shares – ordinary shares; owners get dividends only if the company makes profit.
Preference shares – owners get a fixed dividend before equity shareholders, but usually have no voting rights.

Accounting treatment — the journal entries

When a company issues shares, it follows a standard sequence. Let’s say a company issues 10,000 equity shares of ₹10 each at par (i.e., at face value). The money is received in two instalments: ₹4 on application, ₹6 on allotment.

Step 1: Application money received

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	40,000
	To Share Application A/c		40,000
(Being application money received on 10,000 shares @ ₹4 each)

Step 2: Transfer application money to Share Capital

Date	Particulars	Debit (₹)	Credit (₹)
	Share Application A/c Dr.	40,000
	To Share Capital A/c		40,000
(Being application money transferred to Share Capital)

Step 3: Allotment money due

Date	Particulars	Debit (₹)	Credit (₹)
	Share Allotment A/c Dr.	60,000
	To Share Capital A/c		60,000
(Being allotment money due on 10,000 shares @ ₹6 each)

Step 4: Allotment money received

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	60,000
	To Share Allotment A/c		60,000
(Being allotment money received)

Note

If shares are issued at a premium (e.g., ₹10 face value, issued at ₹12), the extra ₹2 goes to a separate account called Securities Premium Reserve A/c. It is not part of share capital.

The Balance Sheet format (as per NCERT)

Under Equity and Liabilities, share capital appears like this:

Particulars	Note No.	Amount (₹)
1. Shareholders’ Funds
(a) Share Capital	1	1,00,000
(b) Reserves and Surplus	2	20,000
2. Non-Current Liabilities	...	...
3. Current Liabilities	...	...

And Note 1 (Share Capital) is typically shown as:

Particulars	Amount (₹)
Authorised Capital
1,00,000 Equity Shares of ₹10 each	10,00,000
Issued Capital
80,000 Equity Shares of ₹10 each	8,00,000
Subscribed and Paid-up Capital
80,000 Equity Shares of ₹10 each fully paid	8,00,000

Important

Authorised Capital is the maximum amount the company can raise (as per its Memorandum). Issued Capital is what it actually offers. Subscribed Capital is what the public accepts. Paid-up Capital is what the shareholders have actually paid.

A formula you must know (for interest on capital, if applicable)

In case of a partnership (not company), interest on capital is calculated as:

Interest on Capital = Capital × Rate of Interest × Time (in years)

For example, if a partner’s capital is ₹1,00,000 and the interest rate is 10% per annum for one year, the interest is ₹10,000.

But for a company, there is no “interest on share capital” — shareholders get dividends, not interest. Dividends are paid out of profit, not charged as an expense.

Common mistake to avoid

Watch out

Do not confuse Share Capital (money from owners) with Debentures (loans from the public). Share capital is ownership; debentures are debt. Share capital is shown under Shareholders’ Funds; debentures under Non-Current Liabilities.

Why this matters for your exam

NCERT Class 12 Accountancy (Part II, Chapter 1) expects you to:

Pass journal entries for issue of shares (at par, at premium, at discount — though discount is now prohibited).
Prepare the Share Capital note in the Balance Sheet.
Understand the difference between calls in arrear and calls in advance.
Handle pro-rata allotment (when shares are oversubscribed).

Start with the intuition: share capital is the money owners give the company to run its business. The accounting is just recording that transaction honestly — debit the bank, credit the shareholders’ account. Everything else is detail.

The question asks for the journal entries in the books of Y. Ltd. for the issue of 2,000, 6% debentures of ₹100 each. The payments are: ₹25 on application, ₹50 on allotment, and ₹25 on first and final call. All amounts are assumed to be received in full, as no default is mentioned.

First, calculate the total amounts:

Application: 2,000 × ₹25 = ₹50,000
Allotment: 2,000 × ₹50 = ₹1,00,000
First and final call: 2,000 × ₹25 = ₹50,000
Total debenture amount: 2,000 × ₹100 = ₹2,00,000

The journal entries are recorded as follows:

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	50,000
To Debenture Application A/c		50,000
(Being application money received on 2,000 debentures @ ₹25 each)
Debenture Application A/c Dr.	50,000
To 6% Debentures A/c		50,000
(Being application money transferred to debentures account)
Debenture Allotment A/c Dr.	1,00,000
To 6% Debentures A/c		1,00,000
(Being allotment money due on 2,000 debentures @ ₹50 each)
Bank A/c Dr.	1,00,000
To Debenture Allotment A/c		1,00,000
(Being allotment money received)
Debenture First and Final Call A/c Dr.	50,000
To 6% Debentures A/c		50,000
(Being first and final call money due on 2,000 debentures @ ₹25 each)
Bank A/c Dr.	50,000
To Debenture First and Final Call A/c		50,000
(Being first and final call money received)

Note

In the books of the company, the "Debentures Application A/c" is a temporary account. It is closed by transfer to the "6% Debentures A/c" once the application money is adjusted. The same treatment applies to allotment and call accounts — they are credited when the amount becomes due and debited when received.

✓Final answer

The total amount received from the issue of 2,000, 6% debentures of ₹100 each is ₹2,00,000, recorded through the above journal entries.

The journal entries record the issue of 2,000, 6% debentures of ₹100 each, with amounts received on application (₹25), allotment (₹50), and first and final call (₹25), totalling ₹2,00,000.

Concept and Accounting Treatment

When a company issues debentures, it is borrowing money from the public. The accounting treatment follows the same logic as the issue of shares, but with a key difference: debentures represent a liability (loan), not ownership. The company is the debtor, and the debenture holders are creditors.

The entries are made in the Journal Proper of the company. The core rule is the Golden Rule of Real and Personal Accounts:

Application, Allotment, and Call Accounts are Personal Accounts (they represent the amount due from the debenture holders). When the company receives money, these accounts are credited. When the amount is due, they are debited.
Bank Account is a Real Account (asset). When money comes in, it is debited.
Debentures Account is a Personal Account (representing the liability to the debenture holders). When the liability is created (i.e., when the debentures are allotted), it is credited.

The process is:

On Application: The company receives the application money. We debit Bank and credit the Debenture Application Account.
On Allotment: The company makes the allotment. The amount due on allotment is transferred from the Debenture Application Account (which is now closed) to the Debentures Account. Simultaneously, the allotment money is due: we debit Debenture Allotment Account and credit Debentures Account. When the money is received, we debit Bank and credit Debenture Allotment Account.
On First and Final Call: The company makes the call. The amount due is recorded by debiting Debenture First and Final Call Account and crediting Debentures Account. When the money is received, we debit Bank and credit Debenture First and Final Call Account.

Watch out

A common mistake is to directly credit the Debentures Account with the application money. This is incorrect. The application money is held in a separate account until the allotment is made. Only after allotment is the total liability (face value of debentures) credited to the Debentures Account.

Solution: Journal Entries in the Books of Y. Ltd.

Particulars	Debit (₹)	Credit (₹)
1. For application money received
Bank A/c Dr.	50,000
To Debenture Application A/c		50,000
(Being application money received on 2,000 debentures @ ₹25 each)

2. For transfer of application money to Debentures A/c
Debenture Application A/c Dr.	50,000
To 6% Debentures A/c		50,000
(Being application money transferred to Debentures Account on allotment)

3. For allotment money due
Debenture Allotment A/c Dr.	1,00,000
To 6% Debentures A/c		1,00,000
(Being allotment money due on 2,000 debentures @ ₹50 each)

4. For allotment money received
Bank A/c Dr.	1,00,000
To Debenture Allotment A/c		1,00,000
(Being allotment money received)

5. For first and final call money due
Debenture First & Final Call A/c Dr.	50,000
To 6% Debentures A/c		50,000
(Being first and final call money due on 2,000 debentures @ ₹25 each)

6. For first and final call money received
Bank A/c Dr.	50,000
To Debenture First & Final Call A/c		50,000
(Being first and final call money received)

Working Notes

WN1: Calculation of Total Amounts

Total Face Value of Debentures Issued = 2,000 debentures x ₹100 = ₹2,00,000
Application Money Received = 2,000 x ₹25 = ₹50,000
Allotment Money Due = 2,000 x ₹50 = ₹1,00,000
First and Final Call Money Due = 2,000 x ₹25 = ₹50,000

WN2: Ledger Posting (Illustrative)

The journal entries are posted to the respective ledger accounts. The key account is the 6% Debentures Account, which will show the total liability created.

6% Debentures Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance c/d	2,00,000	By Debenture Application A/c	50,000
		By Debenture Allotment A/c	1,00,000
		By Debenture First & Final Call A/c	50,000
	2,00,000		2,00,000

Tip

A shortcut to remember: The total credit to the Debentures Account will always equal the total face value of the debentures issued (₹2,00,000 in this case). The individual call accounts (Application, Allotment, Call) are temporary accounts that are eventually closed by transferring their balances to the Debentures Account (for the amount due) and to Bank (for the amount received).

✓Final answer

The journal entries record the issue of 2,000, 6% debentures of ₹100 each, with the total proceeds of ₹2,00,000 received in three instalments: ₹50,000 on application, ₹1,00,000 on allotment, and ₹50,000 on first and final call. The 6% Debentures Account is credited with the total face value of ₹2,00,000.

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Concept and Accounting Treatment

Solution: Journal Entries in the Books of Y. Ltd.

Working Notes

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