Consideration Other Than Cash:
Case 1. When assets are purchased
Assets a/c
To vendor a/c
Case 2. When assets are liabilities both are purchased (running business is purchased)
Assets a/c
To liabilities a/c
To vendor a/c (difference amount)
Case 3. When assets and liabilities both are purchased and the amount of vendor is also given and there is a difference in the debit side (cr. Side > dr. side)-for the difference amount goodwill be raised in dr. side
Assets a/c
Goodwill a/c (difference amount)
To liabilities a/c
To vendor a/c
Case 4. When assets and liabilities both are purchased and the amount of vendor is also given and there is a difference in the credit side (Dr. Side > Cr. side)-for the difference amount capital reserve be raised in cr. side
Assets a/c
To liabilities a/c
To vendor a/c
To capital reserve a/c (difference amount)
Settlement of vendor’s account:
Amount of vendor is also known as Purchase consideration, agreed sum, agreed value, business price, purchased sum, supplier or creditor of a capital expenditure (fixed assets)
Case 1. vendor is paid by cheque or a bank draft
Vendor a/c
To bank a/c
Case 2. vendor is paid in cash
Vendor a/c
To cash a/c
Case 3. vendor is paid by issuing bills of exchange, promissory note and bills payable
Vendor a/c
To B/P a/c
Case 4. vendor is paid by issuing debentures
• At par (Fv=Mv)
Vendor a/c
To 10% debentures
• At a premium (Fv + Premium= Mv)
Vendor a/c
To 10% debentures
To S.premium (difference amount)
• At a discount (Fv-discount = Mv)
Vendor a/c
Discount on issue (difference amount)
To 10% debentures
Amount of 10% debentures = vendor x FV
MV
number of 10% debentures = vendor
MV
As A Colleteral Security:
• For bank loan
Bank a/c
To Bank Loan a/c
• For issuing debentures as a collateral security:
10 % Debenture suspense a/c
To 10 % Debenture
Disclosure in the balance sheet:
Alfa Ltd. obtained Loan of 1, 00,000 from Indian Bank and issued 1200, 10% Debentures of 100 each as Collateral security. (or any other example) Treatment:
An extract of Balance sheet of Alfa Ltd.
as at ----------------
Particulars | Note No. | Rs. |
Equity And Liabilities Non- current liabilities Long Term Borrowings | 1 | 1,00,000 |
Note to Accounts:
Note No. | Particulars | Rs. |
1 | Long Term Borrowings Loan from Indian Bank 1,200. 10% Debentures of Rs. 1,00 each issued as collateral security 1,20,000 less: debenture suspense (1,20,000) | 1,00,000 ______ |
1,00,000 |
• Treatment of Interest:
Interest is a nominal account and is an expense for the business so it is always debited. When interest is paid:
Interest on debentures a/c
To bank a/c
When interest is not paid:
Interest on debentures a/c
To O/S Interest on debentures a/c
When Interest is Transferred to Statement of P&L A/c at the end of year:
Statement of P&L a/c
To Interest on debentures a/c
Treatment of Interest with income tax (T.D.S.):
1) Interest on debentures a/c
To debenture holders a/c
To income tax payable a/c
2) debenture holders a/c
income tax payable a/c
To Bank a/c
Debentures are issued in cash:
Case | Issue | Redemption(repayment) |
1 | At par(issued at 100) Bank a/c 100 To 10% debenture application& allotment a/c 100 10% debenture application& allotment a/c 100 To 10% debenture a/c 100 | At par(repayable at 100) 10% debenture a/c 100 To debenture holder a/c 100 debenture holder a/c 100 To bank a/c 100 |
2 | At premium(issued at 110) Bank a/c 110 To 10% debenture application& allotment a/c 110 10% debenture application& allotment a/c 110 To 10% debenture a/c 100 To security premium a/c 10 | At par(repayable at 100) 10% debenture a/c 100 To debenture holder a/c 100 debenture holder a/c 100 To bank a/c 100 |
3 | At discount (issued at 90) Bank a/c 90 To 10% debenture application& allotment a/c 90 10% debenture application & allotment a/c 90 discount on issue a/c 10 To 10% debenture a/c 100 | At par(repayable at 100) 10% debenture a/c 100 To debenture holder a/c 100 debenture holder a/c To bank a/c 100 |
4 | At par(issued at 100) Bank a/c 100 To 10% debenture application& allotment a/c 100 10% debenture application& allotment a/c 100 loss on issue a/c 10 To 10% debenture a/c 100 To premium on redemption a/c 10 | At premium(repayable at 110) 10% debenture a/c 100 premium on redemption a/c 10 To debenture holder a/c 110 debenture holder a/c 110 To bank a/c 110 |
5 | At premium(issued at 105) Bank a/c 105 To 10% debenture application& allotment a/c 105 10% debenture application& allotment a/c 105 loss on issue a/c 10 To 10% debenture a/c 100 To security premium a/c 5 To premium on redemption a/c 10 | At premium(repayable at 110) 10% debenture a/c 100 premium on redemption a/c 10 To debenture holder a/c 110 debenture holder a/c 110 To bank a/c 110 |
6 | At discount (issued at 90) Bank a/c 90 To 10% debenture application& allotment a/c 90 10% debenture application& allotment a/c 90 discount on issue a/c 10 loss on issue a/c 10 To 10% debenture a/c 100 To premium on redemption a/c 10 | At premium(repayable at 110) 10% debenture a/c 100 premium on redemption a/c 10 To debenture holder a/c 110 debenture holder a/c 110 To bank a/c 110 |
Writing-off Discount/Loss on Issue of Debentures:
• The discount/loss on issue of debentures is a capital loss or a fictitious asset and, therefore, must be written-off during the life time of debentures.
• The amount of discount/loss on issue of debentures should normally not be written-off in the year of issue itself since the benefit of the debentures would accrue to the company till their redemption.
• The discount/loss on it is, therefore, treated as capital loss. The discount may be charged to securities premium A/c or may be written-of fover 3 to 5 years through statement of profit and loss as per guidelines issued by ICAI. On the asset side of Balance Sheet.
79 docs|41 tests
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1. What are debentures in commerce? |
2. What is the difference between debentures and shares? |
3. What are the advantages of issuing debentures for a company? |
4. What are the risks associated with investing in debentures? |
5. Can debentures be converted into shares? |
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