Accounting for Debentures Test - 2

Debenture holders are the creditors of a company because they are paid first at the time liquidation. Their payment (Principal amount and interest) is fixed, which has to be paid either firm is in profit or loss.

Debenture Application Account is a personal account. It is Representative Personal Account.

Company has refunded Rs.44,00,000. Excess money received from all the applicants will be refunded.

Total 10,000 Applications were rejected by the company.

Applications received = 10,000 x 3 times = 30,000

Full allotment made to only 2000 (30,000 – 2,000) remaining 28,000

Pro-rata allotment made to only 18,000 (28,000 – 18,000)

Amount to be credited to the Securities Premium Account Rs.2,00,000. i.e. Applications issued 20,000 x Premium Rate 10 = 2,00,000

Debenture holders do not have dividend right. They can’t claim for dividend because dividend is only for the shareholders. Debenture holders get a fixed interest annually.

Amount Received on Allotment Rs.42,00,000 i.e. 7,000 × 600 = 42,00,000

At the time of liquidation the payment to debenture holders is made on the priority bases and then to the shareholders.

Nonconvertible debentures are those which cannot be converted into shares. These debentures are entitled for interest and can be redeemed normally at the time of maturity.

When a company purchased assets form an outsider and payment is not made in cash and it is settled by issue of debentures in such a case Vendor’s Account is to be credited.