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ISSUE OF DEBENTURES

ISSUE OF DEBENTURES AT PAR & PAYBACK AT PAR The company has issued 15,000 7% debentures of Rs.100 each at par and agreed to pay back after 3 years at par. General Journal Entry: Bank (15,000 x 100) 1,500,000 (Dr.) 7% Debentures payable (15,000 x 100) 1,500,000 (Cr.) (To record the issue of 7% debentures at par and payback after 3 years at par). Explanation: When company issued debentures, it received cash from public. It increases the bank account of the company recorded as debit with 1,500,000. This cash has to be returned after 3 years so it also increases the liability of company recorded as credit titled debentures payable with 1,500,000. ISSUE OF DEBENTURES AT PREMIUM & PAYBACK AT PAR The company has issued 23,000 10% debentures of Rs.100 each at Rs.105 and agreed to pay back after 5 years at Rs.100 each. GENERAL JOURNAL ENTRY: Bank (23,000 x 105) 2,415,000 (Dr.) 10% Debentures payable (23,000 x 100) 2,300,000 (Cr.) Premium on debentures (23,000 x 5) 115,000 (Cr.) (To reco
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ISSUE OF SHARES AGAINST PURCHASE OF FIXED ASSET EXAMPLE WITH SOLUTION

EXAMPLE: * Company purchased an equipment costing Rs.100,000 and issued suitable number of shares of Rs.10 each. Market price of each share was Rs.12.50. * Company acquired a building by allotting 50,000 ordinary shares of Rs.10 each. At the time of acquisition, the market price was Rs.15 per share. * Company purchased a land costing Rs.450,000 and issued 50,000 ordinary shares of Rs.10 each. * Company issued 2,000 ordinary shares of Rs.10 each in settlement of bonds payable of Rs.20,000. SOLUTION: (a) Number of shares = Cost price of asset / Market price per share Number of shares = 100,000 / 12.50 Number of shares = 8,000. GENERAL ENTRY: Equipment 100,000 Dr. Ordinary shares capital (8,000 x 10) 80,000 Cr. Ordinary shares premium (8,000 x 2.5) 20,000 Cr. (b) Cost of asset = Number of shares x Market price of each share Cost of asset = 50,000 x 15 Cost of asset = 750,000 GENERAL ENTRY: Building 750,000 Dr. Ordinary shares capital (50,000 x 10) 500,000 Cr. Ordinary shares premium (50,0
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ISSUE OF SHARES

ISSUE OF SHARES AT PAR (EQUAL SUBSCRIPTION) Paramount Co. Ltd. has an authorised capital of Rs.250,000 divided into 25,000 ordinary shares of Rs.10 each. The company invites application for 3,000 ordinary shares at par from public along with money. The last day, the banker of the company has informed that only 3,000 ordinary shares applications were received. The management of the company then decided to issue the same to the public. SOLUTION # 1: 1 Bank (3,000 x 10 30,000 (Dr.) Ordinary shares applications 30,000 (Cr.) 2 Ordinary shares application 30,000 (Dr.) Ordinary shares capital (3,000 x 10) 30,000 (Cr.) EXPLANATION: when company received application along with money, it increases the bank account of company and increases the liability as well. increase in bank recorded as debit and increase in liability recorded as credit (ordinary share application). When company allot the shares to the public, it reduces the liability of the company and increases the capital of the company. d
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ADJUSTING ENTRIES EXAMPLE WITH SOLUTION

Solved Example of Adjusting Entries DEBIT BALACNES: Cash Rs.26,000; Supplies Rs.14,000; Accounts receivable Rs.24,000; Equipment Rs.36,000; Salaries expense Rs.20,000; Advertising expense Rs.16,000. CREDIT BALANCES: Accounts payable Rs.5,000; Accumulated depreciation Rs.5,000; Mobeen Capital Rs.56,000; Commission income Rs.70,000. BALANCE DAY DATA (31.12.08) Unearned commission Rs.5,000. Depreciation expense was estimated at Rs.6,000. Unpaid utility expense for the period Rs.7,000. Supplies expense Rs.8,000. Commission accrued Rs.9,000. Advertising expense for the period is 20%. SOLUTION (a) Trial balance shows commission income Rs.70,000 while adjustment data shows unearned commission Rs.5,000. It means out of Rs.70,000, only Rs.65,000 is earned. Actual income is less than the trial balance amount. It the identification of Unearned income initially recorded as income. Entry will be: Commission income               5,000 (Dr.)     Unearned commission                              5,000
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ADJUSTING ENTRIES

ADJUSTING ENTRY FOR BAD DEBTS EXPENSE The adjusting entry for bad debts expense is: Bad debts expense Dr. Allowance for bad debts Cr. The amount of bad debts is depend on the data given in the question. Example # 1: Trial balance: Allowance for bad debts = No balance. Adjustment data: Allowance for bad debts Rs.3,000. Adjusting entry: Bad debts expense 3,000 Dr. Allowance for bad debts 3,000 Cr. Example # 2: Trial balance: Allowance for bad debts = 2,000 Cr. Adjustment data: Allowance for bad debts Rs.3,000. Adjusting entry: Bad debts expense 1,000 Dr. Allowance for bad debts 1,000 Cr. Example # 3: Trial balance: Allowance for bad debts = Rs.2,000 Dr. Adjustment data: Allowance for bad debts Rs.2,000. Adjusting entry: No entry. Example # 4: Trial balance: Allowance for bad debts = 1,000 Dr. Adjustment data: Allowance for bad debts Rs.2,000. Adjusting entry: Bad debts expense 3,000 Dr. Allowance for bad debts 3,000 Cr. Example # 5: Trial balance: Allowance for bad debts = Rs.4,000 Cr. A
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