Naccounting for issue of shares and debentures pdf files

Business purchase and underwriting, profit prior and post incorporation. Issue of shares payable by installments play accounting. Shares and debentures are common terms when it comes to investing in a business or a firm. 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. 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. Sometimes on nonpayment of call money, we see forfeiture and reissue of shares. Convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. Types of share capital, issue of shares, under and over subscription of shares, forfeiture of shares. Debenture premium account is a capital profit and is transferred. Accounting entries for issue of debentures capital accounting.

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. The procedure of issue of debentures by a company is similar to that of the issue of shares. 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. A debenture is an unsecured debt or bonds that repay a specified amount of money plus interest to the bondholders at maturity. The ownership of a company is broken into units we know as shares. Debentures may be secured or unsecured and companies frequently issue both kinds of debentures. The companies share capital and debentures rules, 2014. This video is suitable for class 12, ca, cs, cma, bba, bcom. The amount due on debentures may be paid in installments, such as, application, allotment and calls. The certificate of incorporation of a company is issued by registrar of. These shares represent a part of the company, so the shareholder becomes a part owner. These debentures are redeemed after the redemption of first debentures.

This document is highly rated by class 12 students and has been viewed 1115 times. When debentures are issued at premium, the amount of premium is credited to debenture premium account. Lets start a new topic in company accounts the issue of debentures along with its introduction, meaning and accounting in the books. 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. 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. These debentures like any other pays coupon at stipulated time say one year or at 6 months as mentioned at time of issue. Maintenance of share certificate forms and related books and documents. Sep 01, 2016 one of the type of debentures are convertible debentures or just convertibles. Some things to consider when investing in debentures credit risk of the issuer. 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. These both are two different types of investment that a person can make or a company can issue in order to raise capital. The joint stock companyaccounting for shares and debentures. Cash loaned to a company is called a dividends b debentures c shares d reserves 3.

The investor should consider the ratio in which debt is used to finance projects and capital compared to that used for. A legal appraisal of the concepts of shares and debentures as. The following are some of the differences between equity shares and debentures. The preference shares are market instrument issued by the companies to raise the capital. A limited company may raise finance either by issuing shares or by raising loans. This chapter deals with the accounting for share capital of companies. Assuming that no interest is due, record the necessary journal entries at the time of redemption of debentures. Ordinary shares are also known as common stock and equity shares. Deal with the forfeiture of shares issued with different conditions. The procedure of issuing debentures by a company is similar to the one followed while issuing equity stocks. Debentures are issued for a limited time and repaid in full. What are the guidelines and procedures for issue of. Debenture an unsecured bond that can be convertible. Final accounts of companies including managerial remuneration, disposal of profits and issue of bonus shares.

The interested investors, then, apply for the same. The investor has the option to either convert these debentures into shares at price decided by the issueragreed upon at the time of issue. Forfetire and reissue of shares 3 understand the concept and accounting treatment of callinarrears and callinadvance. Pass the necessary journal entries for the issue of these debentures. Secured debentures bear charge on certain assets of the company viz.

A company cannot issue shares at discount other than sweat equity shares. The issue procedure with regard to debentures is the same as that of shares. Preference shares have the characteristics of both equity shares and debentures. 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. Convertible debentures usually have a lower interest rate compared to non. 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. Accountancy class 12 class 12 notes edurev is made by best teachers of class 12. The interest that is paid to debenture holders is calculated as a charge against profit in the companys financial statements. Difference between share and debenture share vs debenture. This paper gives us a critical understanding and analysis of the concepts of shares and debentures as understood in the legal parlance. Substituted by the companies share capital and debentures amendment rules, 2015.

The procedure for the issue of debentures is as follows. 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. The resulting proceeds will be utilized to finance investments in the companys. 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.

Journal entries for issue of debentures your article library. The first public emission of debentures convertible into shares of the. Shares cannot be converted into debentures whereas debentures can be converted into shares. In this article we will discuss about the accounting entries for issue of debentures.

Need checklist on issue of compulsorily convertible debentures. Explanation companies usually used to issue the shares payable by installments. The company starts by releasing a prospectus declaring the debenture issuance. Issue and redemption of debentures 77 b zero coupon rate debentures. Report, the financial statements, and the other documents to be. Pdf this case was developed for learning the accounting concepts.

The company accepted his request and converted his debentures into shares. The company has debenture redemption reserve of rs. A debenture is a longterm debt instrument issued by corporations and governments to secure fresh funds or capital. Here is a compilation of top six accounting problems on debentures with its relevant solutions. 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. The word first, second and final were only used when there was more than one call. A shareholder must find a buyer if he wants to dispose of his stake. 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. These installments were application, allotment, first call, second call and final call. Company why should issue debentures and shares, which one. 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. Issue of debentures different terms of issue record journal entries in following cases.

What are the guidelines and procedures for issue of debentures. Journalise the entry for re issue of shares whether at discount or at premium. When a company issues new shares, it shares the ownership with new shareholders forever. There are no restriction on issue of debentures at a discount, whereas shares at discount can be issued only after observing certain legal formalities. By investing in a debenture, you are lending your money to a business, with all the risks that this involves.

Private placement of shares implies issue and allotment of shares to a selected. 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. Pass the necessary journal entry to record the conversion of debentures into shares. Definition,type and issue of debentures caclubindia.

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. A corporation can raise capital through debentures when it needs the money and pay it back when it has a fund surplus. Nature and types a company is an artificial person created by law, having separate entity with a perpetual succession and a common seal. Half of the preference shares and onequarter of the ordinary shares were. Coupons or interest rates are offered as compensation to the lender. Issue of ordinary shares is accounted for by allocating the proceeds between the following accounts.

Accounting for share capit al share and share capital. These debentures do not carry a specific rate of interest. 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. Ordinary share capital represents equity of a company and therefore its issuance is recorded as part of the equity reserves in the balance sheet. May 26, 2010 10 prefrence share these are other type of shares.

If there was only one call, it will not be named as the first call. Difference between shares and debentures with similarities. Apr 02, 2020 issue of debentures important questions. Shares are a type of equity investment or financing and are a unit of financing.