Module 3.

Recording Financial
Transation
Dr. Varadraj Bapat
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Index
Corporate Accounting
Share Capital and its types
Issue of share capital
Debentures issue and
redemption and purchase
of own debentures

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Index
Corporate Accounting
This file discusses various
entries which are peculiar
to companies.

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Corporate Accounting
Share Capital

Total capital of the company is

divided into a number of small
indivisible units of a fixed amount
and each such unit is called a
share.
As the total capital of the company
is divided into shares, the capital
of the company is called share
capital.
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 The fixed value of a share, printed on

the share certificate is called nominal/
par/ face value of a share.
A company can issue shares at a price
different from the face value of a
share; this is issue price of share.
Types of shares
Shares issued by a company are
divided into two categories:
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 Preference Shares:
The shares which are assured of
preferential dividend at a fixed rate
during the life of company and carry a
preferential
right
over
other
shareholders to be paid first in case of
winding up of company.
Equity Shares:
Equity shares are those shares, which
are not preference shares. It means
that they do not enjoy
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any preferential rights in the matter of

payment of dividend or repayment of
capital.
Issue of share capital
The shares can be issued by company
either for cash or for the consideration
other than cash.
A public company issues a prospectus
inviting general public to subscribe for
its shares. On the basis of prospectus,
application
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are deposited in a scheduled bank by

the interested parties along with the
amount payable at the time of
application in cash which is called as
application money.
Company reserves the right to reject or
accept an application fully or partially.
Successful
applicants
become
shareholders of the company and are
required to pay the second installment
which is known as allotment money.
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 Subsequent installments, if any, to be

called by the company are known as
calls.
Journal Entries for issues of
shares for cash
1.On the receipt of the application
money
Bank A/c Dr.
To Shares Application money
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2.On the allotment of share

Share Allotment A/c..Dr.
Share Application A/cDr.
To Share Capital A/c
To Securities Premium A/c
(if shares are issued at premium)
3.On the receipt of allotment money
Bank A/c..Dr.
To Share Allotment A/c
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4.On the call being made

Share call A/c..Dr.
To Share Capital A/c
5. On receipt of call money
Bank A/cDr.
To Share Call A/c
6. If call money is received from
shareholders even before making call
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Bank A/c.Dr.
To Calls in Advance A/c
7. If money is not received from
shareholders on any call
Calls in Arrears A/c.Dr.
To Share Allotment A/c
To Share Call A/c
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The Articles of Association of a

company usually empower the
director to charge interest at a
stipulated rate on calls in arrears.
According to Table A of Companies
Act 1956 interest at the rate of 5%
p.a. is to be charged on unpaid calls
from the due date of the call up to
the actual payment.
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JE for interest receivable on call in

arrears
Shareholders A/c.Dr.
To Interest on Calls in Arrears A/c
For receipt of interest
Interest on Calls in Arrears A/cDr.
Shareholders A/c
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According to Table A of Companies

Act 1956 interest at the rate of 6%
p.a. is to be paid on calls in advance
from the actual payment up to due
date of the call.
JE for Interest due
Interest on Calls in Arrears A/cDr.
To Shareholders A/c
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Payment of interest
Shareholders A/c Dr.
Interest on Calls in Advance A/c

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Debentures
Issuing debt instruments by offering
the same for public subscription is
one of the sources of financing the
business activities. Debt financing
does not only help in reducing the
cost of the capital but also helps in
designing
appropriate
capital
structure of the company.
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Debenture is one of the most

commonly used debt instrument
issued by the company to raise funds
for the business.
A debenture/ bond is the a security
issued by the company under its seal,
acknowledging a debt and containing
provisions as regards repayment of
the principal and interest.
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Issue of debentures
Issue of debentures can be
categorized into the following:
1.Debenture issued at par and
redeemable at par or at a discount
2.Debenture issued at discount and
redeemable at par or at a discount
3.Debenture issued at premium and
redeemable at par or at a discount
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4.Debenture issued at par and

redeemable at premium
5.Debenture issued at a discount
and redeemable at premium

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Journal Entries in each of the

above cases are discussed
below:
1. Debenture issued at par and
redeemable at par or at a
discount
For receipt of application money:
Bank A/cDr.
To Debenture ApplicationMoney A/c
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For transfer of application money to

debenture account:
Debenture Application A/c
To Debenture A/c
2.Debenture issued at discount and
redeemable at par or at a discount
For receipt of application money:
Bank A/cDr.
To Debenture Application Money A/c
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For transfer of application money

to debenture account:
Debenture Application A/c
To Debenture A/c
3.Debenture issued at discount and
redeemable at par or at a discount
For receipt of application money:
Bank A/cDr.
To Debenture Application Money
A/c
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For transfer of application money to

debenture account:
Debenture Application A/c
Discount on issue of debenture A/c
To Debenture A/c
4.Debenture issued at premium and
redeemable at par or at a discount
For receipt of application money:
Bank A/cDr.
To Debenture Application Money
A/c
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For transfer of application money to

debenture account:
Debenture Application A/c
To Debenture A/c
To Securities premium A/c
5.Debenture issued at par and
redeemable at premium
For receipt of application money:
Bank A/cDr.
To Debenture Application Money
A/c
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For transfer of application money

to debenture account:
Debenture Application A/c
To Debenture A/c
Call made consequent upon
allotment:
Debenture Allotment A/c
Loss on issue of Debenture A/c
To Debenture A/c
To Debenture redemption
Premium A/c
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6.Debenture issued at a discount

and redeemable at premium
For receipt of application money:
Bank A/cDr.
To Debenture Application Money
A/c
For transfer of application money to
debenture account:
Debenture Application A/c
To Debenture A/c
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Call made consequent upon

allotment:
Debenture Allotment A/c
Discount /Loss on
issue of Debenture A/c
(Discount + premium on
redemption)
To Debenture A/c
To Debenture redemption
Premium A/c
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7.Debenture issued at a premium

and redeemable at premium
For receipt of application money:
Bank A/cDr.
To Debenture Application
Money A/c
For transfer of application money to
debenture account:
Debenture Application A/c
To Debenture A/c
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Call made consequent upon

allotment:
Debenture Allotment A/c
Loss on issue of Debenture A/c
(amount equal to premium on
redemption)
To Debenture A/c
To Debenture redemption
Premium A/c
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Redemption of debentures
Redemption of debentures can
be
categorized
into
the
following:
1. Debenture issued at par and
redeemable at par
2. Debenture issued at discount
and redeemable at par
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3. Debenture issued at premium

and redeemable at par
4. Debenture issued at par and
redeemable at premium
5. Debenture issued at a discount
and redeemable at premium
6. Debenture issued at a premium
and redeemable at premium
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Journal Entries in each of the

above cases are discussed
below:
1. Debenture issued at par and
redeemable at par
-Closing debenture account
Debenture A/cDr.
To Debenture holders A/c

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-For payment of
debenture holders:
Debenture holders A/c
To Bank A/c

money

to

2.Debenture issued at discount and

redeemable at par
-For transfer of loss of discount
to profit & loss account:
Profit & Loss A/cDr.
To Discount on issue of
debenture A/c
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the
above
entry
may
be
repeated during the tenure of
the debenture for writing off
proportionate discount every
year.
-Closing debenture account
Debenture A/cDr.
To Debenture holders A/c
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-For payment of
debenture holders:
Debenture holders A/c
To Bank A/c

money

to

3. Debenture issued at premium

and redeemable at par
-Closing debenture account
Debenture A/cDr.
To Debenture holders A/c
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-For payment of
debenture holders:
Debenture holders A/c
To Bank A/c

money

to

4. Debenture issued at par and

redeemable at premium
-For transfer of loss of premium
to profit & loss account:
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Profit & Loss A/cDr.

To Loss on issue of debenture A/c
the above entry may be repeated
during
the
tenure
of
the
debenture
for
writing
off
proportionate premium to be paid
on redemption every year.

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-Closing
debenture
and
premium account
Debenture A/cDr.
Debenture redemption Premium
A/cDr.
To Debenture holders A/c
-For payment of money to
debenture holders:
Debenture holders A/c
To Bank A/c
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5. Debenture issued at a
discount and redeemable at
premium
-For transfer of loss of discount
and premium to profit & loss
account:
Profit & Loss A/cDr.
To Discount / Loss on issue of
debenture A/c
(Discount + Premium)
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-Closing
debenture
and
premium account
Debenture A/cDr.
Debenture redemption Premium
A/cDr.
To Debenture holders A/c
-For payment of money to
debenture holders:
Debenture holders A/c
To Bank A/c
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6. Debenture
issued
at
a
premium and redeemable at
premium
-For transfer of loss of discount
to profit & loss account:
Profit & Loss A/cDr.
To Loss on issue of debenture A/c
(Premium on redemption)
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-Closing
debenture
and
premium account
Debenture A/cDr.
Debenture redemption Premium
A/cDr.
To Debenture holders A/c
-For payment of money to
debenture holders:
Debenture holders A/c
To Bank A/c
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Purchase of debenture
Debentures
sometime
are
purchased in an open market
and then cancelled on due date.
Example,
Company has issued 1000 9 %
debentures
for Rs. 100000.
interest being payable half
yearly. The company purchases
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100 debentures at Rs. 98 per

debenture cum interest (interest
for 6 months).
Journal Entries:
Own Debenture A/c.Dr. 9350
Interest A/c.Dr.
450
To Bank
9800

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Suppose out of these debentures

40 debentures sold at Rs. 102 ex
interest
and
remaining
are
cancelled at the end of 6 months
from date of purchase.
Journal Entries
Bank A/cDR. 4080
To Own Debentures 4080
To Interest A/c
60
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Own Debentures A/cDR. 340

To Profit & Loss
340
(Profit on sale transferred to
P & L A/c)
At the end of 6 months
9% debentures A/c.Dr.
6000
To Own Debenture
5610
To Capital Reserve
390
(Profit on cancellation transferred)
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