Naccounting for issue of shares and debentures pdf files

Business purchase and underwriting, profit prior and post incorporation. Deal with the forfeiture of shares issued with different conditions. Company why should issue debentures and shares, which one. 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. Issue of shares payable by installments play accounting.

This document is highly rated by class 12 students and has been viewed 1115 times. These debentures like any other pays coupon at stipulated time say one year or at 6 months as mentioned at time of issue. Nonconvertible debentures, which are simply regular debentures, cannot be converted into equity shares of the liable company. Maintenance of share certificate forms and related books and documents. 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. The procedure of issue of debentures by a company is similar to that of the issue of shares. The first public emission of debentures convertible into shares of the. Convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. Shares are a type of equity investment or financing and are a unit of financing. May 05, 2015 optionally convertible debentures ocd. The following are some of the differences between equity shares and debentures. When debentures are issued at premium, the amount of premium is credited to debenture premium account. If there was only one call, it will not be named as the first call. Explanation companies usually used to issue the shares payable by installments.

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. Debentures may be secured or unsecured and companies frequently issue both kinds of debentures. The companies share capital and debentures rules, 2014. This paper gives us a critical understanding and analysis of the concepts of shares and debentures as understood in the legal parlance.

The investor should consider the ratio in which debt is used to finance projects and capital compared to that used for. This chapter deals with the accounting for share capital of companies. The procedure of issuing debentures by a company is similar to the one followed while issuing equity stocks. Shares and debentures are common terms when it comes to investing in a business or a firm. Types of share capital, issue of shares, under and over subscription of shares, forfeiture of shares. Final accounts of companies including managerial remuneration, disposal of profits and issue of bonus shares. The company has debenture redemption reserve of rs. The certificate of incorporation of a company is issued by registrar of. Issue of ordinary shares is accounted for by allocating the proceeds between the following accounts. 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. Nature and types a company is an artificial person created by law, having separate entity with a perpetual succession and a common seal. The procedure for the issue of debentures is as follows.

The interested investors, then, apply for the same. The amount due on debentures may be paid in installments, such as, application, allotment and calls. May 26, 2010 10 prefrence share these are other type of shares. 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. Accounting entries for issue of debentures capital. The investor has the option to either convert these debentures into shares at price decided by the issueragreed upon at the time of issue. 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. Debenture an unsecured bond that can be convertible.

A company cannot issue shares at discount other than sweat equity 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. Accounting entries for issue of debentures capital accounting. By investing in a debenture, you are lending your money to a business, with all the risks that this involves. Pdf corporate accounting i kabir tahir hamid academia. The issue procedure with regard to debentures is the same as that of shares. A corporation can raise capital through debentures when it needs the money and pay it back when it has a fund surplus.

A legal appraisal of the concepts of shares and debentures as. 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. 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. Report, the financial statements, and the other documents to be. What are the guidelines and procedures for issue of. Need checklist on issue of compulsorily convertible debentures. These debentures do not carry a specific rate of interest. A limited company may raise finance either by issuing shares or by raising loans. Substituted by the companies share capital and debentures amendment rules, 2015. Half of the preference shares and onequarter of the ordinary shares were. A shareholder must find a buyer if he wants to dispose of his stake. 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. 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.

Journal entries for issue of debentures your article library. Sometimes on nonpayment of call money, we see forfeiture and reissue of shares. Convertible debentures usually have a lower interest rate compared to non. 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. The joint stock companyaccounting for shares and debentures. Private placement of shares implies issue and allotment of shares to a selected. Sep 01, 2016 one of the type of debentures are convertible debentures or just convertibles.

The company accepted his request and converted his debentures into shares. Difference between share and debenture share vs debenture. 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 ownership of a company is broken into units we know as shares. These debentures are redeemed after the redemption of first debentures. 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. Difference between shares and debentures with similarities. There are no restriction on issue of debentures at a discount, whereas shares at discount can be issued only after observing certain legal formalities. Debentures are issued for a limited time and repaid in full. These both are two different types of investment that a person can make or a company can issue in order to raise capital. Accountancy class 12 class 12 notes edurev is made by best teachers of class 12. Journalise the entry for re issue of shares whether at discount or at premium. A debenture is a longterm debt instrument issued by corporations and governments to secure fresh funds or capital. Issue of debentures different terms of issue record journal entries in following cases.

What are the guidelines and procedures for issue of debentures. Debenture premium account is a capital profit and is transferred. Here is a compilation of top six accounting problems on debentures with its relevant solutions. Coupons or interest rates are offered as compensation to the lender. Shares cannot be converted into debentures whereas debentures can be converted into shares. The interest that is paid to debenture holders is calculated as a charge against profit in the companys financial statements. When a company issues new shares, it shares the ownership with new shareholders forever. 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.

Accounting for share capit al share and share capital. Pdf this case was developed for learning the accounting concepts. Pass the necessary journal entries for the issue of these debentures. 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. Forfetire and reissue of shares 3 understand the concept and accounting treatment of callinarrears and callinadvance. Apr 02, 2020 issue of debentures important questions. The resulting proceeds will be utilized to finance investments in the companys. 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. These shares represent a part of the company, so the shareholder becomes a part owner.

This video is suitable for class 12, ca, cs, cma, bba, bcom. These installments were application, allotment, first call, second call and final call. A debenture is an unsecured debt or bonds that repay a specified amount of money plus interest to the bondholders at maturity. The preference shares are market instrument issued by the companies to raise the capital. Lets start a new topic in company accounts the issue of debentures along with its introduction, meaning and accounting in the books. Pass the necessary journal entry to record the conversion of debentures into shares. The company starts by releasing a prospectus declaring the debenture issuance. In this article we will discuss about the accounting entries for issue of debentures. Definition,type and issue of debentures caclubindia. The word first, second and final were only used when there was more than one call. Secured debentures bear charge on certain assets of the company viz. Preference shares have the characteristics of both equity shares and debentures. Cash loaned to a company is called a dividends b debentures c shares d reserves 3.