- In the draw of lots method, debentures are redeemed yearly through a lottery system.
- Unlisted companies must transfer 10% of outstanding debentures to DRR before redemption.
- A part of DRR is shifted to General Reserve as debentures are redeemed.
- DRI is not realised if debentures will be redeemed in future years.
- If the current year's redemption is more than last year's, 15% of the new amount must be invested.
Definitions [1]
Definition: Share
As per Section 2(84) of the Companies Act 2013, “Share is the share in the capital of a company and includes stock as well.”
Formulae [1]
Number of Debentures Issued
\[\text{Number of Debentures Issued}=\frac{\text{Purchase Consideration}}{\text{Issue Price of Debenture}}\]
Key Points
Key Points: Share Capital of a Company
- Share Capital is the total money raised by issuing shares, representing ownership in the company.
- Authorised Capital is the maximum amount a company can issue, as stated in its Memorandum of Association.
- Issued Capital is the part of the authorised capital offered to the public for subscription.
- Subscribed Capital is the portion of issued capital that investors agree to take.
- Called-up Capital is the amount demanded by the company, and Paid-up Capital is what shareholders actually pay; the difference is called Calls-in-Arrears.
- Reserve Capital is the part of subscribed capital to be called only during winding up.
- A Prospectus invites the public to buy shares, and the company must receive at least 90% subscription before allotting shares.
Difference Between Authorised Capital and Issued Capital
| Basis | Authorised Capital | Issued Capital |
|---|---|---|
| Meaning | Maximum capital a company can issue | Part of authorised capital offered to public |
| Disclosure | Stated in the Memorandum of Association | Stated in the Articles of Association |
| Limit | It is equal to or more than the issued capital. | It is equal to or less than the authorised capital. |
Format: Notes to Accounts of Forfeiture of Shares
Note to Accounts
| Particulars | ₹ |
|---|---|
| Authorised Capital | |
| ... Equity Shares of ₹ 10 each | ... |
| Issued Capital | |
| ... Equity Shares of ₹ 10 each | ... |
| Subscribed Capital | |
| Subscribed and fully paid-up: | |
| ... Equity Shares of ₹ 10 each | ... |
| Subscribed but not fully paid-up: | |
| ... Equity Shares of ₹ 10 each | ... |
| Less: Calls-in-Arrears | ( ... ) |
| Forfeited Shares A/c | ... |
Journal Entries: Forfeiture of Shares
A. Forfeiture of Shares (Issued at Par):
Share Capital A/c ...Dr. [With called-up amount till the stage of forfeiture]
To Forfeited Shares A/c [With the amount received on forfeited shares]
To Calls-in-Arrears A/c [With the amount not received on forfeited shares]
(Being forfeiture of shares for non-payment of call money)
Journal Entries: Issue of Debentures for Cash
A. When amount is received in Lump Sum as Application Money
1. On receipt of application money:
Bank A/c ...Dr.
To Debentures Application and Allotment A/c
(Being application money received for debentures)
2. On allotment – i.e., acceptance of applications:
Debentures Application and Allotment A/c ...Dr.
To ...% Debentures A/c
(Being application money adjusted on allotted debentures)
3. On refund of money on totally rejected applications:
Debentures Application and Allotment A/c ...Dr.
To Bank A/c
(Being excess application money refunded for rejected applications)
B. When amount is received in More Than One instalment:
1. On receipt of application money:
Bank A/c ...Dr.
To Debentures Application A/c
(Being application money received on debentures)
2. On acceptance of applications or On Allotment of Debentures:
Debentures Application A/c ...Dr.
To ...% Debentures A/c
(Being application money adjusted on allotted debentures)
3. On adjustment of surplus application money (partially allotted):
Debentures Application A/c ...Dr.
To Debentures Allotment A/c
(Being surplus application money adjusted towards allotment)
4. On refund of excess application money (rejected applications):
Debentures Application A/c ...Dr.
To Bank A/c
(Being refunded of application money on rejected applications)
5. On allotment money becoming due:
Debentures Allotment A/c ...Dr.
To ...% Debentures A/c
(Being allotment money due on debentures)
6. On receipt of allotment money:
Bank A/c ...Dr.
To Debentures Allotment A/c
(Being allotment money received)
7. On making a call (e.g., First Call) due:
Debentures Call A/c ...Dr.
To ...% Debentures A/c
(Being call money due on debentures)
8. On receipt of call money:
Bank A/c ...Dr.
To Debentures Call A/c
(Being call money received)
Note: Repeat call entries for Second Call, Third Call, etc., using separate accounts as needed.
Journal Entries: Issue of Debentures For Consideration Other than Cash
A. Issue of Debentures to Promoters
1. When recording incorporation cost or preliminary expenses:
Incorporation Cost A/c or Preliminary Expenses A/c ...Dr.
To Promoters’ A/c
(Being cost of company incorporation payable to promoters)
2. When debentures are issued to promoters:
Promoters’ A/c ...Dr.
To...% Debentures A/c
(Being debentures issued to promoters)
B. Issue of Debentures to Underwriters
1. When underwriting commission becomes due:
Underwriting Commission A/c ...Dr.
To Underwriter’s A/c
(Being underwriting commission due)
2. When debentures are issued to settle the dues:
Underwriter’s A/c ...Dr.
To ...% Debentures A/c
(Being debentures issued to underwriters)
C. Issue of Debentures to Vendors
1. On Purchase of Business or Assets:
(i) When Purchase Consideration = Net Assets:
Sundry Assets A/c ...Dr.
To Sundry Liabilities A/c
To Vendor’s A/c
(Being assets and liabilities taken over and balance payable to vendor)
(ii) When Purchase Consideration > Net Assets - (Excess debited to Goodwill A/c)
Sundry Assets A/c ...Dr.
Goodwill A/c ...Dr.
To Sundry Liabilities A/c
To Vendor’s A/c
(Being the excess purchase price over net assets treated as goodwill)
(iii) When Purchase Consideration < Net Assets - (Excess credited to Capital Reserve A/c)
Sundry Assets A/c ...Dr.
To Sundry Liabilities A/c
To Capital Reserve A/c
To Vendor’s A/c
(Being purchase consideration less than net assets; balance credited to capital reserve)
2. On Issue of Debentures to Vendors:
(i) When Debentures are issued at Par:
Vendor’s A/c ...Dr.
To ...% Debentures A/c
(Being debentures issued at par to vendor)
(ii) When Debentures are issued at Premium:
Vendor’s A/c ...Dr.
To ...% Debentures A/c
To Securities Premium A/c
(Being debentures issued at premium)
(iii) When Debentures are issued at Discount:
Vendor's A/c ...Dr.
Discount on Issue of Debentures A/c ...Dr.
To ...% Debentures A/c
(Being debentures issued at discount)
Key Points: Redemption of Debentures in Instalments by Draw of Lots
Journal Entries: Redemption by Payment in Instalments by Draw of Lots
1. When debentures are due for redemption:
Debentures A/c ...Dr.
To Debentureholders A/c
2. When payment is made to debentureholders:
Debentureholders A/c ...Dr.
To Bank A/c
Concepts [11]
- Concept of Shares
- Share Capital - Issue and Allotment of Preference Shares
- Shareholder's Fund> Share Capital of a Company
- Forfeiture of Shares
- Disclosure of Debentures in the Company’s Balance Sheet
- Issue of Debentures for Cash
- Issue of Debentures for Consideration Other than Cash
- Methods of Redemption of Debentures> Redemption by Payment in Instalments by Draw of Lots
- Out of Proceeds of Fresh Issue
- Accumulated Profits in Redemption of the Debenture
- Concept of Sinking Fund in Redemption of the Debenture
