Journalise the following: (i) A debenture issued at Rs. 95, repayable at Rs. 100; (ii) A debenture issued at R

Numerical Questions · Q13

Q. Journalise the following:

(i) A debenture issued at Rs. 95, repayable at Rs. 100;

(ii) A debenture issued at Rs. 95, repayable at Rs. 105; and

(iii) A debenture issued at Rs. 100, repayable at Rs. 105. The face value of debenture in each of the above cases is Rs. 100.

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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

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Here are the journal entries for each case. The face value is ₹100 in all three.

(i) Issued at ₹95, repayable at ₹100 (Issue at discount, redemption at par)

The discount of ₹5 (₹100 – ₹95) is a loss and is debited to a Discount on Issue of Debentures account. At redemption, the debenture holder receives the face value.

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	95
Discount on Issue of Debentures A/c Dr.	5
To Debentures A/c		100
(Being debenture of ₹100 issued at 95% and repayable at par)

(ii) Issued at ₹95, repayable at ₹105 (Issue at discount, redemption at premium)

The total loss to the company is ₹10 (₹5 discount on issue + ₹5 premium on redemption). This is debited to a Loss on Issue of Debentures account. The premium payable at redemption is credited to a Premium on Redemption of Debentures account.

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	95
Loss on Issue of Debentures A/c Dr.	10
To Debentures A/c		100
To Premium on Redemption of Debentures A/c		5
(Being debenture of ₹100 issued at 95% and repayable at 105%)

(iii) Issued at ₹100, repayable at ₹105 (Issue at par, redemption at premium) …

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The journal entries record the issue of debentures at a discount or premium, and the premium on redemption is accounted for separately as a loss (Debenture Redemption Premium) or a gain (Capital Reserve), depending on the terms.

In debenture accounting, the key is to separate the issue price from the redemption price. The face value (₹100) is the nominal value printed on the debenture. Any difference between the issue price and face value is either a discount (if issued below face value) or a premium (if issued above face value). Any difference between the redemption price and face value is a premium on redemption (if redeemed above face value) or a discount on redemption (if redeemed below face value, which is rare).

The rule: When a debenture is issued at a discount, the discount is a loss and is debited to "Discount on Issue of Debentures Account". When it is issued at a premium, the premium is a gain and is credited to "Securities Premium Reserve Account". However, when the redemption price is higher than the face value, the extra amount payable at redemption (the premium on redemption) is a loss that must be provided for at the time of issue. This is done by debiting "Loss on Issue of Debentures Account" (or "Debenture Redemption Premium Account") and crediting "Premium on Redemption of Debentures Account" (a liability). If the issue is at a discount and redemption is at a premium, both losses are combined.

Let's solve each case step by step.

Case (i): Issued at ₹95, repayable at ₹100

Face value = ₹100
Issue price = ₹95 → Discount on issue = ₹5 (100 - 95)
Redemption price = ₹100 → No premium on redemption (redemption at par)
Total loss = Discount on issue = ₹5

Journal Entry:

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	95
Discount on Issue of Debentures A/c Dr.	5
To Debentures A/c		100
(Being debentures issued at a discount of ₹5 per debenture, repayable at par)

Case (ii): Issued at ₹95, repayable at ₹105

Face value = ₹100
Issue price = ₹95 → Discount on issue = ₹5
Redemption price = ₹105 → Premium on redemption = ₹5 (105 - 100)
Total loss = Discount on issue + Premium on redemption = ₹5 + ₹5 = ₹10

The loss on issue is debited to "Loss on Issue of Debentures Account" (or sometimes "Debenture Redemption Premium Account" is used for the premium part, but the standard practice is to combine both in one account). The premium on redemption is credited to "Premium on Redemption of Debentures Account" (a liability).

Journal Entry:

Particulars	Debit (₹)	Credit (₹)
Bank A/c Dr.	95
Loss on Issue of Debentures A/c Dr.	10
To Debentures A/c		100
To Premium on Redemption of Debentures A/c		5
(Being debentures issued at a discount of ₹5 and redeemable at a premium of ₹5; total loss of ₹10 recorded)

Watch out

A common mistake is to only record the discount on issue (₹5) and forget the premium on redemption (₹5). The premium on redemption is a future obligation and must be provided for at the time of issue. If you only debit ₹5, the balance sheet will not show the liability for the extra ₹5 payable at redemption.

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Q.Journalise the following:

Case (i): Issued at ₹95, repayable at ₹100

Case (ii): Issued at ₹95, repayable at ₹105

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