Question

ABC Ltd. invited applications for issuing 30,000, 10% debentures of ₹100 each at a premium of ₹50 per debenture. Applications were received for 50,000 debentures. The full amount was payable on application. Applications for 10,000 debentures were rejected and the application money was refunded. Debentures were allotted to the remaining applicants on a pro-rata basis.
Pass the necessary journal entries for the above transactions in the books of ABC Ltd.

Hint:

When debenture applications are received at a premium, the application money is received as part of the total debenture price. If applications are rejected, the amount must be refunded.

Answer 1

Step 1: Record the Application Money Received.
Applications for 50,000 debentures were received at ₹50 each, which includes ₹100 face value + ₹50 premium. The total amount received is: \[ \text{Application money received} = 50,000 \times 50 = 25,00,000 \] The journal entry for receiving the application money is: \[ \text{Bank A/c} \text{Dr.} 25,00,000
\text{To Debenture Application A/c} 25,00,000 \] Step 2: Rejection and Refund of Application Money for 10,000 Debentures.
Applications for 10,000 debentures were rejected, and the application money for these debentures needs to be refunded. The amount to be refunded is: \[ \text{Refund amount} = 10,000 \times 50 = 5,00,000 \] The journal entry for refunding the application money is: \[ \text{Debenture Application A/c} \text{Dr.} 5,00,000
\text{To Bank A/c} 5,00,000 \] Step 3: Allotment of Debentures.
The remaining applications are for 40,000 debentures (50,000 - 10,000), and the full amount of ₹50 per debenture will be received. The debentures are allotted to the remaining applicants on a pro-rata basis. The journal entry for the allotment is: \[ \text{Debenture Application A/c} \text{Dr.} 20,00,000 \text{(40,000 debentures @ ₹50 each)}
\text{To Debenture Allotment A/c} 20,00,000 \] Step 4: Conclusion.
These journal entries reflect the receipt, refund, and allotment of debenture applications in the books of ABC Ltd.