Ncompany accounts issue of shares and debentures pdf

The companies share capital and debenture amendment rules, 2016 enable startups to offer more incentives in terms of sweat equity and esop issue by relaxing the rules to an extent. It describes the right of the holder to the specified amount of the share. Shares may be further subdivided into different types, as follows. An agreement to undertake the shares or debentures of a company are of the following types. Company accounts and analysis of financial statements it has certain special.

For example, power to close the register of debenture holders section 311, registration of transfer or refusal of registration section 321, duties of companies with respect to issue of debentures or certificates for debenture stock on transfer section 323 and the courts power to order such issue. 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. The issue of shares is done by the company to raise capital. Payment flow of convertible debenture remunerations. Equity share capital into 8% debentures, equity share application into debentures application and. The amount of premium on debentures should not be transferred to profit and loss account because it is not a profit arising from the normal oper. Shares of stock represent proportional ownership in a company.

Issue of shares at discount is prohibited except by issue of sweat equity shares. When bank lend money they generally place restriction on how that money can be used. Now a company cannot issue irredeemable preference shares. If the issuer of a debenture were to default, investors would be placed at the level of general creditors in terms of their ability to recover funds from the issuer. Shares profit represented in selling the assets and dividends paid, which are subject as occasional gain for owner and it incurs in taxes payment. Accounting for share capital transactions issue of shares at par, at premium and at discount. Here is a compilation of top six accounting problems on issue of shares with its relevant solutions. The premium is a capital gain for company so it is to be credited to securities premium reserve ac. Although companies can borrow money from bank many companies go to bank as a last resort of funding. As per thomas evelyn, a debenture is a document under the companys seal which. Rd sharma class 12 solutions rd sharma class 11 solutions free pdf download. Suppose in 2008 10,00,000 debentures were issued at a discount of 5% with a term of 6 years. No default in filing accounts and annual return in 5 immediate last fys. The best app for cbse students now provides accounting for partnership firms fundamentals class 12 notes latest chapter wise notes for quick preparation of cbse board exams and schoolbased annual examinations.

The upcoming discussion will update you about the difference between shares and debentures. Approval of draft debenture trustee agreement and appointment of a debenture trustee. The rate of conversion and the period after which the conversion will take effect are declared in the terms and conditions of the agreement of. In case, the entire issue of shares or debentures of a company is undertaken, it is said to be full or complete underwriting. A debenture is a medium to longterm debt format that is used by large companies to borrow money. The resulting proceeds will be utilized to finance investments in the companys. The income earned on shares is the dividend, but the income earned on debentures is interest. One of the type of debentures are convertible debentures or just convertibles. Business purchase and underwriting, profit prior and post incorporation. Holders of convertible debentures enjoy the option of having their debentures converted either into shares of new debentures according to the term and condition of the issue. Pass resolution to issue debentures, subject to approval of shareholders. To provide necessary funds for the discharge of debentures, the company may adopt any of the following courses. Convertible debenture holders have an option of converting their holdings into equity shares.

The company accepted his request and converted his debentures into shares. Intro to convertible debentures the cash payback period is the number of years it takes for the dollar premium to be recovered through the yield pickup of the debenture. Preference shares are shares of a companys stock issued to. A shareholder gets dividend, which shall be payable out of undistributed profits. While shares refers to the share capital of the company. Now debentures can be issued for cash or some other consideration. Debenture interest is payable whether or not a company makes profits. At times issue of debentures is also done as a collateral security. Generally equity shares are preferred by adventurous investors with risk bearing capacity dividend. Forfetire and reissue of shares 3 understand the concept and accounting treatment of callinarrears and callinadvance.

The procedure of issue of debentures by a company is similar to that of the issue of shares. Nonconvertible debentures, which are simply regular debentures, cannot be converted into equity shares of the liable company. Company debenture is one of the important sources of finance for large companies, in addition to equity stocks, bank loans, and bonds. Notes on accounting treatment for debenture ii grade. Thus, creditors and others cannot sue the shareholders of the company but must take. Convertible debentures usually have a lower interest rate compared to non. Debenture interest is payable on 1 april and 1 october each year. However, where a companys shares are listed on the stock. Final accounts of companies including managerial remuneration, disposal of profits and issue of bonus shares. What is the accounting treatment for premium on issue of. The payment of dividend can be made only out of current profits of the business and not otherwise. Amendments to the companies share capital and debenture. Such shares are transferable by its members except in case of a private limited company, which may have certain restrictions on such transferability.

Debentures are a companys unsecured debt obligations backed by the general credit of the issuer. Substituted by the companies share capital and debentures amendment rules, 2015. Issue of shares at a premium a company may issue shares at a price higher than face value. Approval of draft offer letter pas4 for issue of debentures. Difference between shares and debentures difference between. Depending upon its requirement, it may issue share capital but in any. As result of debentures is a passive for the firm and impact in balanced sheet as an expense, it reduce the total amount of taxes paid after discount debt, being a deduction for. Deal with the forfeiture of shares issued with different conditions. Convertible debentures are redeemed by converting them into new debentures or into shares. This document is highly rated by b com students and has been viewed 59 times. It has the qualities of both equity shares and debentures. Pass the necessary journal entry to record the conversion of debentures into shares. Share capital is the backbone of the company without it the company cannot achieve its goals. The new debentures or shares can be issued either at par or at a premium or at a.

A limited company may raise finance either by issuing shares or by raising loans. By creation of debenture redemption fund or sinking fund. Any share issued by the company at a discounted price shall be void. Instead, investors rely upon the general creditworthiness and reputation of the issuing entity to obtain a return of their investment plus interest income. Issue of shares to the promoters a company may allot fully paid shares to the promoters or any other person for providing technical. Company why should issue debentures and shares, which one. Traditionally, the government issued bonds, but these days, bonds are also being issued by semigovernment and nongovernmental organisations. Dividend are preferred by cautious investors who are reluctant. By issuing debentures means issue of a certificate by the company under its seal which is an acknowledgment of debt taken by the compan y.

Issue of debentures accounting treatment and procedures. The word debenture has been derived from a latin word debere which means to borrow. The accounting treatment of the two is also quite similar. The amount of premium collected is to be credited to. The capital is contributed by the shareholders through the subscription of shares. Journalise the entry for re issue of shares whether at discount or at premium. Dividend are issued to meet long term and medium term financial requirements 2. State with what amount the share capital account will be debited. On the other hand, debentures represent indebtedness of the company. Bond is also an instrument of acknowledgement of debt.

Such an underwriting may be done by one underwriter or by a number of underwriters. Companies need to follow certain procedures for issue of debentures to raise money. Company accounts redemption of debentures class 12 notes. In this case accounting entries will be same as at the time of issue of shares in instalments with small change in the name of term likethe share capital word replaced with the x% debentures ac, and share word replaced with debentures e.

No default in payment of dividend, debentures, deposit, preference shares, loan from. As in case of debentures, fixed rate of dividends is paid to the preference shareholder, despite the profits earned by the company it is liable to pay interest to the preference shareholders. With household savings having a high share in total savings, this boosted the growth of nim in the 1990s, both indirectly and directly. Thus, opening up of the capital market in the 1990s brought a large section of investors into the nim and triggered an equity boom. At a time of private limited company registration or public limited company registration, each company has to decide about its equity and debt structure. Here to the money can be collected lump sum or in installments. Online invoicing and accounting software makes it easy to stay on top of your companys cash flow. A debenture is a debt security issued by a corporation or government entity that. The ideal method is to set aside every year a certain sum. If in 20, when the redemption is due, debentureholders are allowed to convert the debentures into shares, the relevant amount will be. This chapter deals with the accounting for share capital of companies. Debenture is a written instrument acknowledging a debt under the common seal of the company. What are the guidelines and procedures for issue of. Its a presentation i made for my class in iipm on shares, capital and debentures, as a part of the subject company law.

Company accounts section 284 of the companies act, 20 defines share as a share in the. Equity shares are issued to meet long term financial requirements dividend. The companies share capital and debentures rules, 2014. The issue of debentures is very similar to the issue of shares by a company. The shares represent ownership of the shareholders in the company. A company may acquire long term finance through public borrowings. Assuming that no interest is due, record the necessary journal entries at the time of redemption of debentures. Issue the notice of general meeting along with explanatory statement.

What conditions must a company comply with before the issue of such shares. Discount on issue of debentures will appear under the heading miscellaneous expenditure. The company has debenture redemption reserve of rs. Company accounts redemption of debentures class 12 notes accountancy in pdf are available for free download in mycbseguide mobile app. Whether debentures were issued at discount or at premium becomes irrelevant if conversion into shares takes place at the time of redemption of debenture is due.

These debentures are redeemed after the redemption of first debentures. The procedure for the issue of debentures is as follows. Types of debentures basis redemption, convertibility. A limited company issued 25,000 ordinary shares of rs. The advantages of issuing debentures over shares sapling. These debentures like any other pays coupon at stipulated time say one year or at 6 months as mentioned at time of issue. Ncert solutions for class 12 accountancy part ii chapter 1. By creation of debenture redemption fund or sinking fund 2. In such a case, it is known as issue of shares at a premium. Definition,type and issue of debentures caclubindia. The investor has the option to either convert these debentures into shares at price decided by the issueragreed upon at the time of issue. 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. Problem 1 issue of shares at parjournal, cash book and balance sheet.

These typically carry higher interest rates than their convertible counterparts. The terms debentures and bonds ar e now being used inter changeably. In other words, a debenture is a bond without a lien on specific assets owned by the issuing corporation. How companies raises their capital through issuing shares. Shares can be either equity share capital or preference share capital whereas, under debt, one of the option company has to issue debentures. Also prepare discount on issue of debentures account.