Issue of shares payable by installments play accounting. In this article we will discuss about the accounting entries for issue of debentures. The company has debenture redemption reserve of rs. Explanation companies usually used to issue the shares payable by installments. The company starts by releasing a prospectus declaring the debenture issuance. Ordinary shares are also known as common stock and equity shares. 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. Need checklist on issue of compulsorily convertible debentures. Sep 21, 2017 lets start a new topic in company accounts the issue of debentures along with its introduction, meaning and accounting in the books. Shares cannot be converted into debentures whereas debentures can be converted into shares. Mar 31, 2014 provided that where the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall be approved by the shareholders through postal ballot. May 05, 2015 optionally convertible debentures ocd. When debentures are issued at premium, the amount of premium is credited to debenture premium account. It deals with the usefulness of shares and debentures as company securities in nigeria by highlighting their respective features and differences which really gives us a very clear and broader knowledge of the.
The interested investors, then, apply for the same. Issue and redemption of debentures 77 b zero coupon rate debentures. A corporation can raise capital through debentures when it needs the money and pay it back when it has a fund surplus. 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. A shareholder must find a buyer if he wants to dispose of his stake. Types of share capital, issue of shares, under and over subscription of shares, forfeiture of shares. The investor should consider the ratio in which debt is used to finance projects and capital compared to that used for. The company accepted his request and converted his debentures into shares. If there was only one call, it will not be named as the first call. The following are some of the differences between equity shares and debentures. A debenture is an unsecured debt or bonds that repay a specified amount of money plus interest to the bondholders at maturity. Shares are a type of equity investment or financing and are a unit of financing.
A legal appraisal of the concepts of shares and debentures as. Debenture premium account is a capital profit and is transferred. These debentures do not carry a specific rate of interest. The interest that is paid to debenture holders is calculated as a charge against profit in the companys financial statements. Company why should issue debentures and shares, which one. Pdf corporate accounting i kabir tahir hamid academia.
The procedure of issue of debentures by a company is similar to that of the issue of shares. The amount due on debentures may be paid in installments, such as, application, allotment and calls. The shares of the company proposing to issue the debentures must be listed in one or more stock exchanges and the market quotation of its equity shares must have been at or above par value during the six months prior to the date of application for issue of debentures. Sep 01, 2016 one of the type of debentures are convertible debentures or just convertibles. Nonconvertible debentures, which are simply regular debentures, cannot be converted into equity shares of the liable company. Dear professional experts, greetings of the day can anyone have checklist on issue of compulsorily convertible debentures as per the companies act 20, please kindly share i. Business purchase and underwriting, profit prior and post incorporation. Journalise the entry for re issue of shares whether at discount or at premium. Difference between shares and debentures with similarities. Shares and debentures are common terms when it comes to investing in a business or a firm.
The procedure for the issue of debentures is as follows. Debentures may be secured or unsecured and companies frequently issue both kinds of debentures. Issue of debentures different terms of issue record journal entries in following cases. Accounting entries for issue of debentures capital. The procedure of issuing debentures by a company is similar to the one followed while issuing equity stocks. These debentures are redeemed after the redemption of first debentures. Final accounts of companies including managerial remuneration, disposal of profits and issue of bonus shares. Accounting for share capit al share and share capital. When a company issues new shares, it shares the ownership with new shareholders forever.
The investor has the option to either convert these debentures into shares at price decided by the issueragreed upon at the time of issue. These debentures like any other pays coupon at stipulated time say one year or at 6 months as mentioned at time of issue. The joint stock companyaccounting for shares and debentures. What are the guidelines and procedures for issue of. Accounting entries for issue of debentures capital accounting. Nature and types a company is an artificial person created by law, having separate entity with a perpetual succession and a common seal.
Journal entries for issue of debentures your article library. This chapter deals with the accounting for share capital of companies. A debenture is a longterm debt instrument issued by corporations and governments to secure fresh funds or capital. Pass the necessary journal entry to record the conversion of debentures into shares. Cash loaned to a company is called a dividends b debentures c shares d reserves 3.
The issue procedure with regard to debentures is the same as that of shares. Ordinary share capital represents equity of a company and therefore its issuance is recorded as part of the equity reserves in the balance sheet. Preference shares have the characteristics of both equity shares and debentures. Forfetire and reissue of shares 3 understand the concept and accounting treatment of callinarrears and callinadvance. According to the terms of issue of the debentures, the debentureholders may be given the right to exercise the option to convert their debentures into equity shares or preference shares at a stipulated rate within a specified period. Assuming that no interest is due, record the necessary journal entries at the time of redemption of debentures. This document is highly rated by class 12 students and has been viewed 1115 times. Apr 02, 2020 issue of debentures important questions. 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. Report, the financial statements, and the other documents to be.
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. These installments were application, allotment, first call, second call and final call. Accountancy class 12 class 12 notes edurev is made by best teachers of class 12. Maintenance of share certificate forms and related books and documents. The ownership of a company is broken into units we know as shares. May 26, 2010 10 prefrence share these are other type of shares. A company cannot issue shares at discount other than sweat equity shares. Lets start a new topic in company accounts the issue of debentures along with its introduction, meaning and accounting in the books.
Private placement of shares implies issue and allotment of shares to a selected. Pdf this case was developed for learning the accounting concepts. Convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. 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. There are no restriction on issue of debentures at a discount, whereas shares at discount can be issued only after observing certain legal formalities. Debenture an unsecured bond that can be convertible. The first public emission of debentures convertible into shares of the. The companies share capital and debentures rules, 2014. By investing in a debenture, you are lending your money to a business, with all the risks that this involves. Here is a compilation of top six accounting problems on debentures with its relevant solutions.
This video is suitable for class 12, ca, cs, cma, bba, bcom. Definition,type and issue of debentures caclubindia. Convertible debentures usually have a lower interest rate compared to non. A limited company may raise finance either by issuing shares or by raising loans. Convertible debentures which can be converted into shares at the option of debenture holder can be issued whereas shares convertible into debentures cannot be issued. Sweat equity shares means easily shares issued by the company to its employees or whole time directors at a discount or for consideration other then cash. The resulting proceeds will be utilized to finance investments in the companys. 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. Secured debentures bear charge on certain assets of the company viz.
This paper gives us a critical understanding and analysis of the concepts of shares and debentures as understood in the legal parlance. These both are two different types of investment that a person can make or a company can issue in order to raise capital. Company why should issue debentures and shares, which one should issue better for company and why answer suman sharma the company raises capitalfinance using 2 methods. Coupons or interest rates are offered as compensation to the lender. Sometimes on nonpayment of call money, we see forfeiture and reissue of shares. The preference shares are market instrument issued by the companies to raise the capital. What are the guidelines and procedures for issue of debentures. Pass the necessary journal entries for the issue of these debentures. Some things to consider when investing in debentures credit risk of the issuer. Difference between share and debenture share vs debenture. Half of the preference shares and onequarter of the ordinary shares were. Issue of ordinary shares is accounted for by allocating the proceeds between the following accounts. The certificate of incorporation of a company is issued by registrar of.
1296 389 760 1108 578 139 1453 1067 1447 830 724 312 1073 1447 1370 275 922 291 165 68 769 987 370 1495 1217 938 996 1154 140 748