Recently we provide various another accounting standards and we provide links for other accounting standard in recommended articles. The preference shares are market instrument issued by the companies to raise the capital. Accounting for share capit al share and share capital. The fixed value of a share, printed on the share certificate, is called nominal par face value of a share. Unsecured means that the debentures are only backed by the companys creditworthiness and reputation and not by physical assets or collateral. Issue of company debentures company debenture is one of the important sources of finance for large companies, in addition to equity stocks, bank loans, and bonds. Just as the share capital of a company is divided in a large number of a parts, each part being called a share, the loan may be divided into a number of parts called debentures. Preference shares also referred to as preferred shares are an equity instrument known for. Investment in shares and debentures is envisioned as one of the best options to invest your nest eggs for better returns.
Convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. Answer the following give adequate working notes in support of your answer. The word first, second and final were only used when there was more than one. These mcqs can help you to prepare for your exams, interviews and different tests. The company has debenture redemption reserve of rs. The procedure of issuing debentures by a company is similar to the one followed while issuing equity stocks. Definition,type and issue of debentures caclubindia. Accounting for share capital cbse notes for class 12. The ts grewal solutions to the questions after every unit of ts grewal textbooks aimed at helping students solving difficult questions. Like regular bonds, convertible debentures offer regular interest income through coupon payments and repayment of principal at maturity. Accounting for debenture 1 what do you meant by debentures.
Convertible debentures are redeemed by converting them into new debentures or into shares. A company issues a r100 million rand debenture and has r300 million assets in total. In the part 1 click here for part i accounting for amalgamation we learnt about nature of amalgamation and. Debentures get priority over shares, and so they are repaid before shares.
If the issuer of a debenture were to default, investors would be placed at the le. Issue of ordinary shares is accounted for by allocating the proceeds between the following accounts. Accounting treatment relating to underwriting of shares or debentures 59 lesson roundup 67 selftest questions 68 lesson 2 debentures introduction 74 issue of debentures 74 debentures issued for cash 74 issue of debentures at par 74 issue of debentures at premium 77 issue of debentures at discount 79 debentures issued for consideration other. For an amalgamation in the nature of merger, pooling of interest method. Pass the necessary journal entries for the issue of these debentures. The amount that is due on the debenture can be paid in installments, for instance, application, allotments, and calls. Ts grewal accountancy class 12 solutions chapter 9 issue of debentures. Issue of debentures different terms of issue record journal entries in following cases. The interested investors, then, apply for the same. As 20 earning per share accounting standard 20 eps. Accounting entries for issue of debentures capital. In case of shares 5% of the issue price of the shares in case of debentures 2 % of the issue price of the debentures underwriting commission is not payable on the amounts taken up by the promoters, employees, directors, their friends and business associates. If there was only one call, it will not be named as the first call.
The shares imply property rights to its owner and depending the type of share, have right to vote in actionists board. The company accepted his request and converted his debentures into shares. May 26, 2010 10 prefrence share these are other type of shares. Debentures are defined as a debt of the company and debenture holders are creditors to the company.
So company a here is going to create another 2,000,000 shares. It is an invitation to public for subscription of shares or debentures. Preference shares have the characteristics of both equity shares and debentures. Terms of issue of shares i issue of shares at par when shares are issued at their face value, the shares are said to have been issued at par. Commission is payable on the whole issue underwritten irrespective of the fact that. Iii understand different classes of debentures iv journal entries regarding issue of debentures for cash and for consideration other than cash. The company decided to redeem these preference shares at par by the issue of sufficient number of equity shares of. The interest that is paid to debenture holders is calculated as a charge against profit in the companys financial statements. Rate of return the dividend rate on shares fully depends upon the profits that are obtained by the company. Redemption of debentures methods of redemption of debentures. Chapter notes issue and redemption of debentures commerce. Although both of them are a kind of securities issued by companies to raise the funds, there is a substantial difference between the two terms. In business, debt and equity are the two significant methods by which they raise money for the companys expansion and growth whenever a firm chooses an equity to boost funds, the shares of the company are issued to the public, and whoever buys shares gets an opportunity to be part of the company.
The new debentures or shares can be issued either at par or at a premium or at a. Sometimes on nonpayment of call money, we see forfeiture and reissue of shares. Procedure of framing accounting standards and their relevance in accounting. A debenture is written acknowledgement of debt by a. Issuance of shares and debenture mcqs play accounting. Company a joint stock company is an artificial person, created by law, having separate entity distinct from its members with a perpetual succession and a common seal. The ownership of a company is broken into units we know as shares. The issue procedure with regard to debentures is the same as that of shares. The resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis.
Nov 19, 2018 difference between shares and debentures last updated on november 19, 2018 by surbhi s nowadays, investment in shares and debentures has taken a dominant position in the society, as people of different ages, religion, sex, and race invest their hard earned money, with an aim of getting better returns. If fresh issue of shares or debentures is made to raise further capital. Thus, a share is a fractional part of the share capital and forms the basis of ownership interest in a company. Redemption of debentures out of accumulated profits and sinking fund. Companies usually used to issue the shares payable by installments. If you find difficulty in answering these questions, read issuance of shares and. The procedure of issue of debentures by a company is similar to that of the issue of shares. It means the capital raised by the company by the issue of shares.
View notes 320el26 from b50 2610 at washington university in st. A holder of 120 debentures, informed the company in the beginning of the third year that he wanted to exercise the option of conversion of debentures into equity shares. Debentures in the general course of business are issued for cash. According to section 744 of the companys act, 20 and rule 187 of the companies share capital and debentures rules, 2014, a company is required to transfer an amount equal to at least 25% of the value of debentures to the debenture redemption reserve ac before redemption of debentures. The company can issue debentures at par, premium, or discount at the time of their issue. These shares represent a part of the company, so the shareholder becomes a part owner. Debentures is an instrument of debt owned by a company as an acknowledgement of debt, such measurements are issued under the seal of company and duly signed by authorized signatory. Pass the necessary journal entry to record the conversion of debentures into shares.
The amount of capital that a company can issue at par value is called a authorised capital b share premium c issued capital d fixed capital 2. Amalgamation means the liquidation of one or more companies and transfer of business of liquidated entities to another entity. Shares, refer to the units into which the total share capital of a company is divided. Accounting for shares and debentures teaching resources.
The intending investors apply for debentures on the basis of the prospectus issued by the company. The current rules relating to share capital require companies having a share. Issue of debentures at par, premium and discount 6. Underwriting of shares by cacma santosh kumar download pdf from description. There may be amalgamation either transfer of two or more undertakings to an existing company or new company. Cash loaned to a company is called a dividends b debentures c shares d reserves 3. Some important terms used in accounting for share capital note 1. Notes on accounting treatment for debenture ii grade 12. Take a quick multiple choice questions mcqs test about issuance of shares and debenture. However, due to their conversion option, convertible bonds typically have lower coupons. These debentures like any other pays coupon at stipulated time say one year or at 6 months as mentioned at time of issue. The certificate of incorporation of a company is issued by registrar of.
Nature and types a company is an artificial person created by law, having separate entity with a perpetual succession and a common seal. By issuing debentures means issue of a certificate by the company under its seal which is an acknowledgment of debt taken by the compan y. Ts grewal accountancy class 12 solutions chapter 9 issue. Redumption of preference shares 15 illustration 1 hinduja company ltd. Accounting entries for issue of debentures capital accounting. Mar 19, 2018 different types of shares and debentures by lawfarm team march 19, 2018 capital is needed by the companies, both private and public to increase their productivity or market reach or to purchase latest modern equipment and machines. Assuming that no interest is due, record the necessary journal entries at the time of redemption of debentures. Difference between shares and debentures with infographics. Company accounts part ii accounting for debentures 11 company accounts partii accounting for debentures solution to practice q.
Record the journal entries for the issue of debentures at par, at a discount and at premium explain the concept of debentures issued for consideration other than cash and the accounting thereof explain the concept of issue of debentures as a collateral security and the accounting thereof. Equity share capital into 8% debentures, equity share application into debentures application and. In order to compensate the investors, such debentures are issued at substantial discount and the difference between the nominal value and the issue price is treated as the amount of interest. First debentures these debentures are redeemed before other debentures. Accounting for debentures learning objectives i understand the meaning and features of debentures. Just click the start quiz button and start issuance of shares and debenture mcqs quiz. Guru, you can access to ts grewal book solutions in free pdf for accountancy for class 12 so that you can refer them as and when required. Issue of shares payable by installments play accounting. Where shares signify the share capital of the company, debentures represents the. Dabur also demerged its pharmaceutical business to come out as a pure fmcg player.
Instead, investors rely upon the general creditworthiness and reputation of the issuing entity to obtain a return of their investment plus interest income. A debenture is a written acknowledgment of a debt taken by the company as these are issues under the seal of the company. Ordinary shares are also known as common stock and equity shares. According to section 230 of the companies act 20 debentures includes debenture stock, bonds and any other securities of the company whether. Accounting for share capital cbse notes for class 12 accountancy. Companies need to follow certain procedures for issue of debentures to raise money. This issue of debentures that happens can be of three kinds, just like an issue of shares, at par, at a discount, and at a premium. In this case accounting entries will be same as at the time of issue of shares in instalments with small change in the name of term likethe share capital word replaced with the x% debentures ac, and share word replaced with debentures e.
The terms and conditions of conversion are generally announced at the time of issue of debentures. In case the amalgamation is in the nature of merger. Difference between shares and debentures with similarities. The word first, second and final were only used when there was more than one call. Sep 01, 2016 one of the type of debentures are convertible debentures or just convertibles. Accounting for companies issue of debentures udemy. The procedure for the issue of debentures is the same as that for the issue of shares. So let us take a look at all three and their respective accounting entries as well. The amount due on debentures may be paid in installments, such as, application, allotment and calls. Ordinary share capital represents equity of a company and therefore its issuance is recorded as part of the equity reserves in the balance sheet.
This document is highly rated by ca foundation students and has been viewed 625 times. This chapter deals with the accounting for share capital of companies. Nonconvertible debentures the holders of such debentures can not convert their debentures into the shares of the company. The interest rate on debentures is fixed at the beginning of the issue of the debentures. Share capital means the money paid into the company or legally promised as being available on call by members for shares in the company. Forfetire and reissue of shares 4 share capital total capital of the company is divided into a number of small indivisible units of a fixed amount and each such unit is called a share. The companies share capital and debentures rules, 2014 hereinafter referred to as rules provide that no company whether it is unlisted, listed or a public company limited by shares shall issue equity shares with differential rights as to dividend, voting or otherwise, unless it complies with the following conditions. Convertible debentures represent a loan to the issuing company which is paid back at maturity. Shares issued for consideration other than cash sometimes a company purchases some assets from the vendor and instead of paying the vendor in cash, the company may decide to issue shares to vendors is known as issue of shares for consideration other than cash shares can be issued to vendors at par, premium.
Double account system including accounting of assets accounting for price. Accounting treatment reissue of forfeited shares 5. Can debentures be converted into shares and viceversa. Preference shares and debentures are two different types of financial instruments. In this article we will discuss about the accounting entries for issue of debentures. The company starts by releasing a prospectus declaring the debenture issuance. These debentures are redeemed after the redemption of first debentures. The companies share capital and debentures rules, 2014. Types of share capital, issue of shares, under and over subscription of shares, forfeiture of shares. As 20 earning per share accounting standard 20 eps with all illustration. These debentures do not carry a specific rate of interest. Drr is a reserve created out of profits for redeeming debentures.
The debenture holders holding 5,000 debentures of rs. Pdf corporate accounting i kabir tahir hamid academia. Half of the preference shareholders and onethird of the debenture holders agreed to do this. In this blog post, pritishree dash, a student of national university of advanced legal studies, kochi, who is currently pursuing a diploma in entrepreneurship administration and business laws from nujs, kolkata, discusses if debentures can be converted into shares and vice versa. The persons who contribute money through shares are called shareholders. When debentures are issued at premium, the amount of premium is credited to debenture premium account. Holders of convertible debentures enjoy the option of having their debentures converted either into shares of new debentures according to the term and condition of the issue. The key difference between shares vs debentures is that shares are the capital that is owned by the shareholders in the company that gives the right to vote in the matters of the company and the right to claim their share in the profits of the company, whereas, debentures are the debt instruments secured in nature issued by the company for raising funds having fixed rate of interest with. Minimum subscription section 39 it is the minimum amount stated in the prospectus that must be subscribed by the public before an allotment of any security is made. Half of the preference shares and onequarter of the ordinary shares were. Now you can scroll down below and check complete details for as 20 earning per share. Module 5 issue of debentures accounting for shares and debentures 26 notes issue of debentures you have learnt that share. These installments were application, allotment, first call, second call and final call. Here is the video about company accounts issue of shares calls in advance and forfeiture and reissue of shares allotted on prorata basis in case of over subscription.
Accounting for share capital important questions for cbse class 12 accountancy accounting treatment of issue shares 1. The investment of debentures does not imply a property right, only an obligation for issuer to pay interest and whole lending in defined periods. Cumulative preference shares are similar to preference shares, but if in any one year, because of the circumstances described above, the dividend is not paid it accumulates and is carried forward until such time as there are sufficient profits to cover both current dividends on the shares and the arrears. The companies share capital and debentures rules, 2014 hereinafter referred to as rules provide that no company whether it is unlisted, listed or a public company limited by shares shall issue equity shares with differential rights as to dividend, voting or otherwise, unless.
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