Question

XYZ Ltd. issues 1,000 8% Debentures of Rs.100 each at a premium of 20%. Sixty percent of the issue was undewritten by Mehata and Company for 2.5% commission. 
Applications· were received for 800 Debentures which were  accepted and payment for these was received in full. Pass the necessary Journal Entries.

Answer 1

Since Mehata and Co. underwrite 60% of the issue, the company must itself be treated as an underwriter of the remaining 40%. In the absent of any information, the application for 800 Debentures must be deemed to have been marked 60 per cent in favour of the underwriter, viz., 480 Debentures `(800xx60/100)`.The
underwriters are therefore, liable to take up the remaining 120 Debentures (600 - 480).

Journal Entries
Journal ofXYZ Ltd.

No	Particulars	L.F	Dr.	Cr.
1.	Bank A/C                           Dr.		9,60,000
	To 8% Debentures A/c			8,00,000
	To Premium on Debentures A/c			1,60,000
	(Allotment of 800 Debentures applied for payment being @ Rs.1,200 per debenture,as per Director's Resolution of ...)
2.	Mis Mehata and Co. A/c   Dr.		1,44,000
	To 8% Debentures A/c			1,20,000
	To Premium on Debentures			24,000
	(Allotment of 120 debentures to the underwriters in pursuance of their agreement, dated...)
3.	Commission on Issue of Debentures A/c               Dr.		18,000
	To Mehata and co.A/c			18,000
	[The Coffimission @/2.5 % is.% (maximum allowable bY law) ,on 600 debentures calculated at the issμe price· of Rs.1,200 per debentures `(600xxRs. 1,200 xx 2.5/100)`
4.	Bank A/c                      Dr.		1,26,000
	To Mehata & Co.A/c			1,26,000
	The amount Received from the underwriter in full settlement)