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(a) If premium is received on application: The debenture premium may be called by the company on application or on allotment. or alternatively it may be credited to Debenture redemption fund (if any). The amount of debenture premium may be used for writing off debenture issue expenses discount on issue of shares etc. Impliedly, Section 78 shall apply in this case also. Nowhere in the Companies Act have been provided the conditions regarding the utilisation of amount of premium on debentures. Since it is a gain, it is shown on the liabilities side of balance sheet under the head ‘Reserves and Surplus’. The amount of premium on debentures should not be transferred to profit and loss account because it is not a profit arising from the normal operations of the company. The premium is a capital gain for company so it is to be credited to ‘Securities Premium Reserve A/c’. The excess of issue price over face value is premium. 1000 is offered at 1,050, it is a case of issue of debentures at premium.
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If debentures are issued at a price more than its nominal value (face value) such an issue is called issue at a premium. Give journal entries ledger accounts and balance sheet (extract only). The issue was fully subscribed and all money was received in full. 30 on allotment (discount to be adjusted with allotment) and Rs. 100 each at a discount of 10% on Appayable as follows: (Issue of debentures at discount) Samsung Ltd issued 6,000 14% debentures of Rs.
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The working of issue of debentures at a discount is well explained by the following Illustration: The requisite entries to be passed are as follows: Discount on issue of debentures account is supposed to be allowed on allotment, unless, otherwise, mentioned. It is a capital loss and until it is written off-completely, it is shown on the asset side of balance sheet, under the heading ‘Miscellaneous Expenditure’, as a fictitious asset. As a principle of equity, it is desirable to write off this loss.ĭisclosure of Discount in Balance Sheet : 50 on each debenture is loss to the company. It is important to note that the Companies Act has not put any restriction on the maximum limit of discount. When debentures are issued by company at a price less than its nominal value (face value) it is said to be issued at discount.
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Full amount is payable on application, Pass journal entries. Delhi Computers Company issued 3000, 10% Debentures of Rs.