Issue of Debentures — Part 2: Other than Cash, Collateral, Calls, Interest and Disclosure: visual lesson, ISC Class 12 Accounts

Lesson

Debentures other than for cash, interest and disclosure

Part 2 — promoters, underwriters and vendors, collateral security, calls in arrears and in advance, interest with TDS and the Balance Sheet.

In this lesson you will

Record debentures issued to promoters, underwriters and vendors of assets or a business
Show debentures issued as collateral security by both methods
Record calls in arrears and calls in advance with interest, and interest on debentures with tax deducted at source
Present debentures and related items in the Balance Sheet under Schedule III Part I

Part 2 at a glance

Concept

Debentures for consideration other than cash

The vendor is first credited with the price; the debentures then settle that credit.

Table of entries for debentures issued for consideration other than cash: to promoters through incorporation costs or goodwill; to underwriters through underwriting commission; to vendors of assets or a business through the vendor account, with goodwill or capital reserve; the number of debentures is the amount payable divided by the issue price
Debentures issued to	Entries
Promoters (for forming the company)	Incorporation Costs A/c (or Goodwill A/c) Dr. To Debentures A/c
Underwriters (for commission)	Underwriting Commission A/c Dr. To Underwriters A/c; Underwriters A/c Dr. To Debentures A/c
Vendor of assets	Asset A/c Dr. To Vendor's A/c; Vendor's A/c Dr. (+ Discount/Loss Dr.) To Debentures A/c (+ Securities Premium A/c)
Vendor of a business	Business Purchase A/c Dr. To Vendor; Assets Dr. (+ Goodwill) To Liabilities, Business Purchase (+ Capital Reserve); then allotment
Number to a vendor	Amount payable ÷ issue price per debenture

Worked example

Worked example 7: a press bought for debentures

Kalsubai buys a hydraulic forging press for ₹4,77,000 from Trimbak Press Makers (imagined) and pays with 9% debentures of ₹100 each at a premium of 6%.

Kalsubai Hydraulic Jacks Ltd (imagined): 4,77,000 ÷ 106 = 4,500 debentures.
Particulars	Dr (₹)	Cr (₹)
Machinery A/c Dr.	4,77,000
To Trimbak Press Makers A/c		4,77,000
(Being hydraulic forging press bought from Trimbak Press Makers)
Trimbak Press Makers A/c Dr.	4,77,000
To 9% Debentures A/c		4,50,000
To Securities Premium A/c		27,000
(Being 4,500 9% debentures issued to the vendor at a premium of 6%)

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