XYZ Industries Ltd., issued 2,000, 10% debentures of ₹100 each, at a premium of ₹10 per debenture payable as follows:
| Particulars | Amount (₹) |
|---|---|
| On application | 50 |
| On allotment | 60 |
The debentures were fully subscribed and all money was duly received. Record the journal entries in the books of a company. Show how the amounts will appear in the balance sheet.
XYZ Industries Ltd. issues 2,000, 10% debentures of ₹100 each at a ₹10 premium; the Debentures account is credited only at the ₹2,00,000 face value, while the ₹20,000 excess is credited to Securities Premium Reserve.
Concept
A debenture is issued at a premium when the issue price exceeds its face value. The premium is a capital receipt belonging to the shareholders, so it is credited to a separate Securities Premium Reserve Account, shown under "Reserves and Surplus" on the liabilities side of the balance sheet. The premium becomes due whenever the instalment that carries it (usually allotment) is recorded: that instalment account is debited with the full amount due, the Debentures account is credited only with the face-value portion, and Securities Premium Reserve is credited with the premium portion. The Debentures account itself is never credited with more than the face value, regardless of the issue price.
Working Note
- Total face value = 2,000 × ₹100 = ₹2,00,000
- Total premium = 2,000 × ₹10 = ₹20,000
- Application money = 2,000 × ₹50 = ₹1,00,000
- Allotment money due = 2,000 × ₹60 = ₹1,20,000, made up of ₹50 face value + ₹10 premium per debenture, i.e. ₹1,00,000 (face value) + ₹20,000 (premium)
Solution
Books of XYZ Industries Limited — Journal
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Bank A/c Dr. | 1,00,000 | |||
| To 10% Debenture Application A/c | 1,00,000 | |||
| (Application money ₹50 per debenture received) | ||||
| 10% Debenture Application A/c Dr. | 1,00,000 | |||
| To 10% Debentures A/c | 1,00,000 | |||
| (Transfer of application money to debenture account) | ||||
| 10% Debenture Allotment A/c Dr. | 1,20,000 | |||
| To 10% Debentures A/c | 1,00,000 | |||
| To Securities Premium Reserve A/c | 20,000 | |||
| (Allotment money due on debentures, including the premium) | ||||
| Bank A/c Dr. | 1,20,000 | |||
| To 10% Debenture Allotment A/c | 1,20,000 | |||
| (Allotment money received) |
Balance Sheet of XYZ Industries Limited as at ... (extract)
| Particulars | Note No. | Amount (₹) |
|---|---|---|
| I. Equity and Liabilities | ||
| 1. Shareholders' Funds — Reserve and Surplus | 1 | 20,000 |
| 2. Non-current Liabilities — Long-term borrowings | 2 | 2,00,000 |
| Total | 2,20,000 | |
| II. Assets | ||
| Current Assets — Cash and cash equivalents | 2,20,000 |
Notes to Accounts
| Particulars | Amount (₹) |
|---|---|
| 1. Reserve and Surplus — Securities Premium Reserve | 20,000 |
| 2. Long-term borrowings — 2,000, 10% debentures of ₹100 each | 2,00,000 |
| 3. Cash and cash equivalents — Cash at bank | 2,20,000 |
Never credit the Debentures Account with the issue price (face value + premium). It must always show only the face value; the premium is a separate credit to Securities Premium Reserve.
Debentures A/c is credited with ₹2,00,000; Securities Premium Reserve is credited with ₹20,000; cash at bank of ₹2,20,000 is received in full.
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