Issue & Redemption of Debtures - Edu Rev

Accounting for Bonus Issue and Right Issue
Q-1 Following is the extract of the Balance Sheet of Xeta Ltd. as at 31st March, 2017
Rs.
Authorised capital:
50,000 12% Preference shares of Rs.10 each 5,00,000
4,00,000 Equity shares of Rs.10 each 40,00,000
45,00,000
Issued and Subscribed capital:
24,000 12% Preference shares of Rs.10 each fully paid 2,40,000
2,70,000 Equity shares of Rs.10 each, Rs.8 paid up 21,60,000
Reserves and surplus:
General Reserve 3,60,000
Securities premium 1,00,000
Profit and Loss Account 6,00,000
On 1st April, 2017, the Company has made final call@ ` 2 each on 2,70,000 equity shares. The call money was
received by 20th April, 2017. Thereafter, the company decided to capitalize its reserves by way of bonus at
the rate of one share for every four shares held.
Show necessary journal entries in the books of the company and prepare the extract of the balance sheet as
on 30th April, 2017 after bonus issue.
Ans. Journal Entries in the books of Xeta Ltd. Rs. Rs.
1-4-2017 Equity share final call A/c Dr. 5,40,000
To Equity share capital A/c 5,40,000
(For final calls of Rs.2 per share on 2,70,000 equity shares
due as per Board's Resolution dated....)
20-4-2017 Bank A/c Dr. 5,40,000
Dr. To Equity share final call A/c 5,40,000
(For final call money on 2,70,000 equity shares received)
Securities Premium A/c Dr. 1,00,000
General Reserve A/c Dr. 3,60,000
Profit and Loss A/c Dr. 2,15,000
To Bonus to shareholders A/c 6,75,000
(For making provision for bonus issue of one
share for every four shares held)
Bonus to shareholders A/c Dr. 6,75,000
(For issue of bonus shares)
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Extract of Balance Sheet as at 30th April, 2017 (after bous issue)
Rs.
Authorised Capital
Issued and subscribed capital
24,000 12% Preference shares of Rs.10 each, fully paid 2,40,000
3,37,500 Equity shares of Rs.10 each, fully paid 33,75,000
(Out of above, 67,500 equity shares @ ` 10 each were issued by wayof bonus)
Reserves and surplus
Q-2 Following is the extract of the Balance Sheet of Xeta Ltd. as at 31st March, 2017:
Rs.
Authorised capital:
45,00,000
Securities premium 1,00,000
On 1st April, 2017, the Company has made final call @ Rs.2 each on 2,70,000 equity shares. The call money
was received by 20th April, 2017. Thereafter, the company decided to capitalize its reserves by way of bonus
at the rate of one share for every four shares held.
You are required to give necessary journal entries in the books of the company and prepare the extract of
the balance sheet as on 30th April, 2017 after bonus issue.
Ans. Journal Entries in the books of Xeta Ltd.
Rs. Rs.
(For final calls of Rs.2 per share on 2,70,000
equity shares due as per Board's Resolution dated....)
20-4-2017 Bank A/c Dr. 5,40,000
To Equity share final call A/c 5,40,000
Profit and Loss A/c Dr. 2,15,000

To Equity share capital A/c (For issue of bonus shares) 6,75,000
Extract of Balance Sheet as at 30th April, 2017 (after bonus issue)
Rs.
Authorised Capital
3,37,500 Equity shares of Rs.10 each, fully paid 33,75,000
(Out of above, 67,500 equity shares @ Rs.10 each were issued by way of bonus)
Q-3 Following is the extract of the Balance Sheet of Manoj Ltd. as at 31st March, 20X1
Rs.
Authorized capital:
43,00,000
Capital Redemption Reserve 1,20,000
Securities premium (collected in cash) 75,000
On 1st April, 20X1, the Company has made final call @ Rs. 2 each on 2,70,000 equity shares. The call money
was received by 20th April, 20X1. Thereafter, the company decided to capitalize its reserves by way of bonus
at the rate of one share for every four shares held.
You are required to prepare necessary journal entries in the books of the company and prepare the relevant
extract of the balance sheet as on 30th April, 20X1 after bonus issue.
Ans. Journal Entries in the books of Manoj Ltd.
Rs. Rs.
1-4-20x1 Equity share final call A/c Dr. 5,40,000
(For final calls of Rs. 2 per share on 2,70,000
equity shares due as per Board's Resolution dated....)

20-4-20x1 Bank A/c Dr. 5,40,000
Securities Premium A/c Dr. 75,000
Capital redemption reserve A/c Dr. 1,20,000
Profit and Loss A/c (b.f.) Dr. 1,20,000
Extract of Balance Sheet as at 30th April, 20X1 (after bonus issue)
Rs.
Authorised Capital
30,000 12% Preference shares of Rs. 10 each 3,00,000
4,00,000 Equity shares of Rs. 10 each 40,00,000
3,37,500 Equity shares of Rs. 10 each, fully paid 33,75,000
(Out of the above, 67,500 equity shares @ Rs.10 each were issued by way of bonus shares)
Reserves and surplus Profit and Loss Account 4,80,000
Q-4 The following is the summarised Balance Sheet of Bumbum Limited as at 31st March, 2019:
`
Sources of funds
Authorized capital
50,000 Equity shares of ` 10 each 5,00,000
10,000 Preference shares of ‘ 100 each (8% redeemable) 10,00,000
15,00,000
Issued, subscribed and paid up
30,000 Equity shares of ` 10 each 3,00,000
5,000, 8%Redeemable Preference shares of ` 100 each 5,00,000
Reserves & Surplus x
Securities Premium 6,00,000
Profit & Loss A/c 40,000
Trade payables 4,20,000
25,10,000

Application of funds
PPE (net) 7,80,000
Investments (market value ` 5,80,000) 4,90,000
Deferred Tax Assets 3,40,000
Trade receivables 6,20,000
Cash & Bank balance 2,80,000
25,10,000
In Annual General Meeting held on 20th June, 2019 the company passed the following resolutions:
(i) To split equity share of ` 10 each into 5 equity shares of ` 2 each from 1st July, 2019.
(ii) To redeem 8% preference shares at a premium of 5%.
(iii) To issue fully paid bonus shares in the ratio of one equity share for every 3 shares held on record
date.
On 10th July, 2019 investments were sold for ` 5,55,000 and preference shares were redeemed.
The bonus issue was concluded by 12th September, 2019
You are required to journalize the above transactions including cash transactions and prepare Balance
Sheet as at 30th September, 2019. All working notes should form part of your answer.
Ans. Bumbum Limited
Journal Entries
2019 Dr. (`) Cr. (`)
July 1 Equity Share Capital A/c (` 10 each) Dr. 3,00,000
To Equity share capital A/c (` 2 each) 3,00,000
(Being equity share of ` 10 each splitted into 5 equity
shares of ` 2 each) {1,50,000 x 2}
July 10 Cash & Bank balance A/c Dr. 5,55,000
To Investment A/c 4,90,000
To Profit & Loss A/c 65,000
(Being investment sold out and profit on sale credited
to Profit & Loss A/c)
July 10 8% Redeemable preference share capital A/c Dr. 5,00,000
Premium on redemption of preference share A/c Dr. 25,000
To Preference shareholders A/c 5,25,000
(Being amount payable to preference share holders
on redemption)
July 10 Preference shareholders A/c Dr. 5,25,000
To Cash & bank A/c 5,25,000
(Being amount paid to preference shareholders)
July 10 General reserve A/c Dr. 5,00,000
To Capital redemption reserve A/c 5,00,000
(Being amount equal to nominal value of preference
shares transferred to Capital Redemption Reserve A/c
on its redemption as per the law)

Sept. 12 Capital Redemption Reserve A/c Dr. 1,00,000
(Being balance in capital redemption reserve
capitalized to issue bonus shares)
Sept. 12 Bonus to shareholders A/c Dr. 1,00,000
(Being 50,000 fully paid equity shares of ` 2 each
issued as bonus in ratio of 1 share for every 3 shares held)
Sept. 30 Securities Premium A/c Dr. 25,000
To Premium on redemption of preference shares A/c 25,000
(Being premium on preference shares adjusted from
securities premium account)
Balance Sheet as at 30th September, 2019
Particulars Notes `
Equity and Liabilities
1 Shareholders’ funds
a Share capital 1 4,00,000
b Reserves and Surplus 2 12,30,000
2 Current liabilities
a Trade Payables 4,20,000
Total 20,50,000
Assets
1 Non-current assets
a PPE 7,80,000
b Deferred tax asset 3,40,000
2 Current assets
Trade receivables 6,20,000
Cash and cash equivalents 3,10,000
Total 20,50,000
Notes to accounts
1 Share Capital ` `
Authorized share capital
2,50,000 Equity shares of ` 2 each 5,00,000
10,000 8% Preference shares of `100 each 10,00,000 15,00,000
Issued, subscribed and paid up

2 Reserves and Surplus
Securities Premium A/c
Balance as per balance sheet 6,00,000
Less: Adjustment for premium on preference Shares (25,000)
Balance 5,75,000
Capital Redemption Reserve (5,00,000-1,00,000) 4,00,000
General Reserve (6,50,000 – 5,00,000) 1,50,000
Profit & Loss A/c 40,000
Add: Profit on sale of investment 65,000 1,05,000
Total 12,30,000
Working Notes:
`
1. Redemption of preference shares
5,000 Preference shares of ` 100 each 5,00,000
Premium on redemption @ 5% 25,000
Amount Payable 5,25,000
2. Issue of Bonus Shares
Existing equity shares after split (30,000 x 5) 1,50,000 shares
Bonus shares (1 share for every 3 shares held) to be issued 50,000 shares
3. Cash and Bank Balance
Balance as per balance sheet 2,80,000
Add: Realization on sale of investment 5,55,000
8,35,000
Less: Paid to preference share holders (5,25,000)
Balance 3,10,000
Q-5 Following is the extract of Balance Sheet of Prem Ltd. as at 31 st March, 2018 :
Authorized capital `
3,00,000 equity shares of ` 10 each 30,00,000
25,000, 10% preference shares of ` 10 each 2,50,000
32,50,000
Issued and subscribed capital:

2,70,000 equity shares of ` 10 each fully paid up 27,00,000
24,000,10% preference shares of ` 10 each fully paid up 2,40,000
29,40,000
General reserve 3,60,000
Capital redemption reserve 1,20,000
Securities premium (in cash) 75,000
Profit and loss account 6,00,000
11,55,000

On 1st April, 2018, the company decided to capitalize its reserves by way of bonus at the rate of two
shares for every five shares held.. Show necessary journal entries in the books of the company and
prepare the extract of the balance sheet after bonus issue.
Ans. Prem Ltd.
Journal Entries
April 1 Capital Redemption Reserve A/c Dr. 1,20,000
To Bonus to Equity Shareholders A/c 10,80,000
(Bonus issue @ two shares for every five
shares held by utilizing various reserves as per
Board’s Resolution dated...)
Bonus to Shareholders A/c Dr. 10,80,000
To Equity Share Capital A/c 10,80,000
(Issue of bonus shares)
Balance Sheet (Extract) as on 1st April, 2018 (after bonus issue)
Particulars Notes Amount (`)
Equity and Liabilities
1 Shareholders’ funds
a Share capital 1 40,20,000
b Reserves and Surplus 2 75,000
Notes to Accounts
1 Share Capital (` )
Authorized share capital:
3,78,000* Equity shares of ` 10 each 37,80,000*
25,000 10% Preference shares of ` 10 each 2,50,000
Total 40,30,000
Issued, subscribed and fully paid share capital: 3,78,000
Equity shares of ` 10 each, fully paid
(Out of above, 1,08,000 equity shares @ ` 10 each
were issued by way of bonus) 37,80,000
Total 40,20,000
2 Reserves and Surplus
Capital Redemption Reserve 1,20,000 Nil
Less: Utilized 1,20,000
Securities Premium 75,000
Less: Utilised for bonus issue (75,000) Nil
General reserve 3,60,000
Less: Utilised for bonus issue (3,60,000) Nil
Profit & Loss Account 6,00,000
Less: Utilised for bonus issue (5,25,000) 75,000
Total 75,000

Note: *Authorized capital has been increased by the minimum required amount i.e. ` 7,80,000 (37,80,000
– 30,00,000) in the above solution.
Q-6 Following are the balances appear in the trial balance of Arya Ltd. as at 31st March. 2018.
Issued and Subscribed Capital:
Rs.
10,000; 10% Preference Shares of Rs.10 each fully paid 1,00,000
1,00,00, Equity Shares of Rs.10 each Rs 8 paid up 8,00,000
Reserves and Surplus :
Security Premium (collected in cash) 25,000
On 1st April, 2018 the company has made final call @ ` 2 each on 1,00,000 Equity Shares. The call money
was received by 15th April, 2018. Thereafter the company decided to issue bonus shares to equity
shareholders at the rate of 1 share for every 5 shares held and for this purpose, it decided that there
should be minimum reduction in free reserves. Pass Journal entries.
Ans. Arya Ltd.

Journal Entries
2018 Dr. Cr.
Rs. Rs.
April 1 Equity Share Final Call A/c Dr. 2,00,000
(Final call of Rs.2 per share on 1,00,000 equity
shares due as per Board’s Resolution dated....)
April 15 Bank A/c Dr. 2,00,000
To Equity Share final Call A/c 2,00,000
(Final Call money on 1,00,000 eqity shares received)
General Reserve A/c* Dr. 1,75,000
To Bonus to Shareholder A/c 2,00,000
(Bonus issue @ one share for every 5 shares held by utilizing
various reserves as per Board’s resolution dated...)
April 15 Bonus to Shareholders A/c Dr. 2,00,000
To Equity Share Capital A/c (Capitalization of profit) 2,00,000
Note: Profit and Loss Account balance may also be utilized along with General Reserve for the purpose of
issue of Bonus shares.
Q-7 Following items appear in the Trial Balance of Beta Ltd. as on 31st March, 2017:
Particulars Amount
3,000 Equity Shares of Rs. 100 each 3,00,000
Securities Premium (collected in cash) 40,000
Capital Redemption Reserve 30,000

The company decided to issue to equity shareholders bonus shares at the rate of 1 share for every 3
shares held. Company decided that there should be the minimum reduction in free reserves. Pass
necessary Journal Entries in the books of Beta Ltd.
Ans. Capital Redemption Reserve A/c Dr. 30,000
General Reserve A/c Dr. 30,000
To Bonus to Shareholders 1,00,000
(Being issue of bonus shares by utilization of various
Reserves, as per resolution dated .....)
To Equity Share Capital 1,00,000
(Being capitalization of Profit)
Q-8 Omega company offers new shares of Rs. 100 each at 25% premium to existing shareholders on the basis
one for five shares. The cum-right market price of a share is Rs. 200.
You are required to calculate the (i) Ex-right value of a share; (ii) Value of a right share?
Ans. Ex-right value of the shares

= (Gum-right value of the existing shares + Rights shares x Issue Price) / (Existing No. of shares + N o.
of right shares) = (Rs. 200 x 5 Shares + Rs. 125 x 1 Share) / (5 + 1) Shares
= Rs. 1,125 / 6 shares = Rs. 187.50 per share.
Value of right = Gum-right value of the share - Ex-right value of the share
= Rs. 200-Rs. 187.50 = Rs. 12.50 per share.
Q-9 The following notes pertain to Brite Ltd.'s Balance Sheet as on 31st March, 20X1:
Notes Rs. in Lakhs
(1) Share Capital
Authorised :
20 crore shares of Rs. 10 each 20,000
Issued and Subscribed :
10 crore Equity Shares of Rs. 10 each 10,000
2 crore 11% Cumulative Preference Shares of Rs. 10 each 2,000
Total 12,000
Called and paid up:
10 crore Equity Shares of Rs. 10 each, Rs. 8 per share called and paid up 2 crore 8,000
11% Cumulative Preference Shares of Rs. 10 each, fully called and paid up 2,000
Total 10,000
(2) Reserves and Surplus:
General Reserve 1,040
Surplus i.e. credit balance of Profit & Loss Account 273
Total 4,798
On 2nd April 20X1, the company made the final call on equity shares @ Rs. 2 per share. The entire money
was received in the month of April, 20X1.

On 1st June 20X1, the company decided to issue to equity shareholders bonus shares at the rate of 2
shares for every 5 shares held .
Youa re required to prepare journal entries for all the above mentioned transactions. Also prepare the
notes on Share Capital and Reserves and Surplus relevant to the Balance Sheet of the company
immediately after the issue of bonus shares.
Ans. Journal Entries in the books of Brite Ltd.
20x1 Dr. Cr.
Rs.in lakhs Rs. in lakhs
April 2 Equity Share Final Call A/c Dr. 2,000
To Equity Share Capital A/c 2,000
(Final call of Rs. 2 per share on 10 crore equity shares made due)
Bank A/c Dr. 2,000
To Equity Share Final Call A/c 2,000
(Final call money on 10 crore equity shares received)
June 1 Capital Redemption Reserve A/c Dr. 1,485
General Reserve A/c (b.f.) Dr. 515
To Bonus to Shareholders A/c 4,000
(Bonus issue of two shares for every five shares held, by utilising
various reserves as per Board's resolution dated.......)
Bonus to Shareholders A/c Dr. 4,000
(Capitalisation of profit)
Notes to Accounts
1 Share Capital
Authorised share capital
20 crores shares of Rs.10 each 20,000
Issued, subscribed and fully paid up share capital
14 crore Equity shares of Rs. 10 each, fully paid up 14,000
(Out of the above, 4 crore equity shares @ Rs.10 each
were issued by way of bonus)
2 crore, 11% Cumulative Preference share capital of Rs. 10 each, fully paid up 2,000
16,000
2. Reserves and Surplus
Capital Redemption reserve 1,485
Less: Utilised for bonus issue 1,485
Less: Utilised for bonus issue (2,000)
Less: Utilised for bonus issue 515 515
Surplus (Profit and Loss Account) 273
Total 798

Q-10 The following notes pertain to Brite Ltd.'s Balance Sheet as on 31st March, 20X1:
Notes Rs. in Lakhs
(1) Share Capital
Authorised :
20 crore shares of Rs. 10 each 20,000
Issued and Subscribed :
10 crore Equity Shares of Rs. 10 each 10,000
2 crore 11% Cumulative Preference Shares of Rs. 10 each 2,000
Total 12,000
Called and paid up:
10 crore Equity Shares of Rs. 10 each, Rs. 8 per share called and paid up 2 crore 8,000
11% Cumulative Preference Shares of Rs. 10 each, fully called and paid up 2,000
Total 10,000
(2) Reserves and Surplus:
Surplus i.e. credit balance of Profit & Loss Account 273
Total 4,798
On 2nd April 20X1, the company made the final call on equity shares @ Rs. 2 per share. The entire money
was received in the month of April, 20X1.
On 1st June 20X1, the company decided to issue to equity shareholders bonus shares at the rate of 2
shares for every 5 shares held .
Youa re required to prepare journal entries for all the above mentioned transactions. Also prepare the
notes on Share Capital and Reserves and Surplus relevant to the Balance Sheet of the company
immediately after the issue of bonus shares.
Ans. Journal Entries in the books of Brite Ltd.
20x1 Dr. Cr.
Rs.in lakhs Rs. in lakhs
April 2 Equity Share Final Call A/c Dr. 2,000
(Final call of Rs. 2 per share on 10 crore equity shares made due)
Bank A/c Dr. 2,000
To Equity Share Final Call A/c 2,000
(Final call money on 10 crore equity shares received)
General Reserve A/c (b.f.) Dr. 515
To Bonus to Shareholders A/c 4,000

(Bonus issue of two shares for every five shares held, by utilising
various reserves as per Board's resolution dated.......)
Bonus to Shareholders A/c Dr. 4,000
(Capitalisation of profit)
Notes to Accounts
1 Share Capital
Authorised share capital
20 crores shares of Rs.10 each 20,000
Issued, subscribed and fully paid up share capital
14 crore Equity shares of Rs. 10 each, fully paid up 14,000
(Out of the above, 4 crore equity shares @ Rs.10 each
were issued by way of bonus)
2 crore, 11% Cumulative Preference share capital of Rs. 10 each, fully paid up 2,000
16,000
Capital Redemption reserve 1,485
Less: Utilised for bonus issue 1,485
Less: Utilised for bonus issue (2,000)
Less: Utilised for bonus issue 515 515
Surplus (Profit and Loss Account) 273
Total 798
Q-11 Following items appear in the Trial Balance of Hello Ltd. as on 31st March, 2017:
Particulars Amount
9,000 Equity Shares of Rs.100 each 9,00,000
Profit and Loss Account (Cr. Balance) 90,000
shares held. Company decided that there should be the minimum reduction in free reserves.
You are required to give the necessary Journal Entries in the books Hello Ltd.
Ans. Journal Entries in the books of Hello Ltd.
Capital Redemption Reserve A/c Dr. 1,40,000
General Reserve A/c (balancing figure) Dr. 80,000

Reserves, as per resolution dated .......)
Bonus to Shareholders A/c Dr.3,00,000
(Being capitalization of profit)
Q-12 Omega company offers new shares of Rs. 100 each at 25% premium to existing shareholders on the
basis one for five shares. The cum -right market price of a share is Rs. 200.
You are required to calculate the (i) Ex -right value of a share; (ii) Value of a right share?

= (Cum-right value of the existing shares + Rights shares x Issue Price) / (Existing No. of shares + No.
of right shares)
= (Rs. 200 x 5 Shares + Rs. 125 x 1 Share) / (5 + 1) Shares
= Rs. 1,125 / 6 shares = Rs. 187.50 per share.
Value of right = Cum-right value of the share – Ex-right value of the share
= Rs. 200 – Rs. 187.50 = Rs. 12.50 per share.
Authorised capital: Rs.
30,000 12% Preference shares of Rs. 10 each 3,00,000
3,00,000 Equity shares of Rs. 10 each 30,00,000
33,00,000
24,000 12% Preference shares of Rs. 10 each fully paid 2,40,000
2,70,000 Equity shares of Rs. 10 each, Rs. 8 paid up 21,60,000
On 1st April, 20X1, the Company has made final call @ Rs. 2 each on 2,70,000 equity shares.
The call money was received by 20th April, 20X1. Thereafter, the company decided to capitalise its
reserves by way of bonus at the rate of one share for every four shares held.
Prepare necessary journal entries in the books of the company .
Rs. Rs.
1-4-20X1 Equity share final call A/c Dr. 5,40,000
(For final calls of Rs. 2 per share on 2,70,000 equity
shares due as per Board’s Resolution dated….)

20-4- 20X1 Bank A/c Dr. 5,40,000
Capital redemption Reserve A/c Dr. 1,20,000
(For making provision for bonus issue of one share for
every four shares held)
Q-14 Following items appear in the Trial Balance of Beta Ltd. as on 31st March, 2017:
Particulars Amount
3,000 Equity Shares of Rs. 100 each 3,00,000
shares held. Company decided that there should be the minimum reduction in free reserves. Pass
necessary Journal Entries in the books of Beta Ltd.
Ans. Capital Redemption Reserve A/c Dr. 30,000
General Reserve A/c Dr. 30,000
Reserves, as per resolution dated …….)
(Being capitalization of Profit)
`
Authorised capital:
43,00,000

24,000 12% Preference shares of ` 10 each fully paid 2,40,000
2,70,000 Equity shares of ` 10 each, ` 8 paid up 21,60,000
On 1st April, 20X1, the Company has made final call @ ` 2 each on 2,70,000 equity shares. The call
money was received by 20th April, 20X1. Thereafter, the company decided to capitalize its reserves by
way of bonus at the rate of one share for every four shares held.
Show necessary journal entries in the books of the company and prepare the relevant extract of the
balance sheet as on 30th April, 20X1 after bonus issue.
` `
1-4-20X1 Equity share final call A/c Dr. 5,40,000
(For final calls of ` 2 per share on 2,70,000
equity shares due as per Board’s Resolution dated....)
20-4-20X1 Bank A/c Dr. 5,40,000
(For making provision for bonus issue of one share for
every four shares held)
Extract of Balance Sheet as at 30th April, 20X1 (after bonus issue)
`
Authorized Capital
24,000 12% Preference shares of `10 each, fully paid 2,40,000
3,37,500 Equity shares of ` 10 each, fully paid 33,75,000
(Out of the above, 67,500 equity shares @ ` 10 each were issued by way of bonus shares)

Q-16 Aman Ltd. has issued 2,000, 12% convertible debentures of ` 100 each redeemable after a period of fi ve
years. According to the terms & conditions of the issue, these debentures were redeemabl e at a
premium of 5%. The debenture holders also had the option at the time of redemption to convert 20%
of their holdings into equity shares of ` 10 each at a price of ` 20 per share and balance in cash. Debenture
holders amounting ‘ 40,000 opted to get their debentures converted into equity shares as per terms of
the issue.
You are required to calculate the number of shares issued and cash paid for redemption of ` 40,000
debenture holders and also pass journal entry for conversion and redemption of debentures.
OR
Following is the extract of the Balance Sheet of ABC Ltd. as at 31st March, 2021:
`
Authorised capital:
64,50,000
Securities premium (collected in cash) 1,12,500
On 1st April, 2021, the Company has made final call @ ` 2 each on 4,05,000 equity shares. The call money
was received by 20th April, 2021. Thereafter, the company decided to capitalize its reserves by way of
bonus at the rate of one share for every four shares held.
You are required to give necessary journal entries in the books of the ABC Ltd. and prepare the rele vant
extract of the balance sheet as on 30th April, 2021 after bonus issue.
Ans. Calculation of number of shares issued
Number of
debentures
Debenture holders opted for conversion (40,000 /100) 400
Option for conversion 20%
Number of debentures to be converted (20% of 400) 80
Redemption value of 80 debentures at a premium of 5% [80 x (100+5)] ` 8,400
Equity shares of ` 10 each issued on conversion
[` 8,400/ ` 20 ] 420 shares
Calculation of cash to be paid : `
Number of debentures 400
Less: number of debentures to be converted into equity shares (80)
320
Redemption value of 320 debentures (320 × ` 105) ` 33,600

Journal Entry
Debentures A/c Dr. 40,000
Premium on redemption A/c Dr. 2,000
To Debenture holders A/c 42,000
(Being amount due to debenture holders at redemption)
Debenture holders A/c Dr. 42,000
To Equity Share capital A/c 4,200
To Securities premium A/c Dr. 4,200
To Cash A/c 33,600
(Discharge of amount due to Debenture holders)
OR
Journal Entries in the books of ABC Ltd.
` `
(For final calls of ` 2 per share on 4,05,000 equity
shares due as per Board’s Resolution dated….)
20-4-2021 Bank A/c Dr. 8,10,000
(For final call money on 4,05,000 equity shares
received)
`
Authorized Capital
(Out of the above, 1,01,250 equity shares @ ` 10 each were issued by
way of bonus shares)

Q-17 Following items appear in the Trail Balance of Star Ltd. as on 31st March, 2019:
Particulars `
80,000 Equity shares of `10 each, ` 8 paid-up 6,40,000
Capital Reserve (including `45,000 being profit on sale of Machinery) 1,10,000
Revaluation Reserve 80,000
Profit & Loss Account (Cr. Balance) 1,00,000
On 1st April,2019, the Company has made final call on Equity shares @` 2 per share.
The entire money was received in the month of April, 2019.
On 1st June, 2019, the Company decided to issue to Equity shareholders bonus shares at the rate of
2 shares for every 5 shares held and for this purpose, it was decided that there should be minimum
reduction in free reserves.
Pass necessary journal entries in the Books of Star Ltd.
Ans. Journal Entries in the books of Star Ltd.
2019 Dr. Cr.
` `
April 1 Equity Share Final Call A/c Dr. 1,60,000
(Final call of ` 2 per share on 80,000
equity shares made due)
Bank A/c Dr. 1,60,000
To Equity Share Final Call A/c 1,60,000
(Final call money on 80,000 equity
shares received)
Capital Reserve Dr. 45,000*
General Reserve A/c (b.f.) Dr. 1,40,000**
To Bonus to Shareholders A/c 3,20,000
(Bonus issue of two shares for every
five shares held, by utilizing various
reserves as per Board’s resolution
dated…….)
(Capitalization of profit)
* considering it as free reserve as it has been realized.
** Alternatively, different combination of profit and loss balance and general reserve may also be
used.

Q-18 Raman Ltd. gives the following information as at 31st March, 2021:
`
Authorised capital:
64,50,000
Show necessary journal entries in the books of the company.
Ans. Journal Entries in the books of Raman Ltd.
` `
equity shares due as per Board’s Resolution
dated….)
20-4-2021 Bank A/c Dr. 8,10,000
(For final call money on 4,05,000 equity
shares received)
(For making provision for bonus issue of
one share for every four shares held)

Q-19 Following is the information of Umesh Ltd. as at 31st March, 2021:
`
Authorized capital:
43,00,000
You are required to prepare necessary journal entries in the books of the company.
Ans. Journal Entries in the books of Umesh Ltd.
` `
(For final calls of ‘ 2 per share on 3,00,000
dated….)
20-4-2021 Bank A/c Dr. 6,00,000
shares received)

Q-20 Alpha Ltd. furnishes the following information as at 31st March, 2021:
` In lakhs ` In lakhs
Shareholders’ Funds
Equity share capital (fully paid up shares of ‘ 10 each) 2,400
Reserves and Surplus
Securities Premium 350
General Reserve 530
Capital Redemption Reserve 400
Profit & Loss Account 340 1,620
Non-current Liabilities
12% Debentures 1,500
Current Liabilities
Trade PayabIes 1,490
Other Current Liabilities 390 1,880
Non-current Assets
Property, plant and equipment 4,052
Current Assets
Current Investments 148
Inventories 1,200
Trade Receivables 520
Cash and Bank 1,480 3,348
(i) On 1st April, 2021, the company announced buy-back of 25% of its equity shares @ ` 15 per share. For
this purpose, it sold all its investment for ` 150 lakhs.
(ii) On 10th April, 2021 the company achieved the target of buy-back.
(iii) On 30th April, 2021, the company issued one fully paid up equity share of ` 10 each by way of bonus for
every four equity shares held by the equity shareholders by capitalization of Capital Redemption
Reserve. Premium (excess of buy-back price over the par value) paid on buy-back should be adjusted
against securities premium account.
You are required to pass necessary journal entries and prepare the Balance Sheet of Alpha Ltd. after
bonus issue.
Ans. In the books of Alpha Limited
Journal Entries
Date Particulars Dr. Cr.
2021 (` in lakhs)
April 1 Bank A/c Dr. 150
To Investment A/c 148
To Profit on sale of investment 2
(Being investment sold on profit)
April 10 Equity share capital A/c Dr. 600
Securities premium A/c Dr. 300
To Equity shares buy back A/c 900

(Being the amount due to equity shareholders on buy
back)
Equity shares buy back A/c Dr. 900
To Bank A/c 900
(Being the payment made on account of buy back of ` 60
Lakh Equity Shares)
April 10 General reserve A/c Dr. 530
Profit and Loss A/c Dr. 70
To Capital redemption reserve (CRR) A/c 600
(Being amount equal to nominal value of buy back shares
from free reserves transferred to capital redemption reserve
account as per the law)
April 30 Capital redemption reserve A/c Dr. 450
To Bonus shares A/c (W.N.1) 450
(Being the utilization of capital redemption reserve to
issue bonus shares)
Bonus shares A/c Dr. 450
To Equity share capital A/c 450
(Being issue of one bonus equity share for every four
equity shares held)
Profit on sale of Investment Dr. 2
To Profit and Loss A/c 2
(Profit on sale transfer to Profit and Loss A/c)
Note: For transferring amount equal to nominal value of buy back shares from free reserves to capital
redemption reserve account, the amount of ` 340 lakhs from P & L A/c and the balance from general
reserve may also be utilized. The combination of different set of amounts (from General Reserve and
Profit and Loss Account) aggregating ` 600 lakhs may also be considered for the purpose of transfer to
CRR.
Balance Sheet (After buy back and issue of bonus shares)
Particulars Note No Amount
(` in Lakhs)
I. Equity and Liabilities
(1) Shareholder’s Funds
(a) Share Capital 1 2,250
(b) Reserves and Surplus 2 872
(2) Non-Current Liabilities
(a) Long-term borrowings - 12% Debentures 1,500

(3) Current Liabilities
(a) Trade payables 1,490
(b) Other current liabilities 390
Total 6,502
II. Assets
(1) Non-current assets
(a) Property, plant and equipment 4,052
(2) Current assets
(a) Current investments
(b) Inventory 1,200
(c) Trade receivables 520
(d) Cash and cash equivalents (W.N. 2) 730
Total 6,502
Notes to Accounts
` In lakhs
1. Share Capital
Equity share capital (225 lakh fully paid up shares of
` 10 each) 2,250
General Reserve 530
Less: Transfer to CRR (530) -
Capital Redemption Reserve 400
Add: Transfer due to buy-back of shares from P/L 70
Add: Transfer due to buy-back of shares from Gen. res. 530
Less: Utilisation for issue of bonus shares (450) 550
Securities premium 350
Less: Adjustment for premium paid on buy back (300) 50
Profit & Loss A/c 340
Add: Profit on sale of investment 2
Less: Transfer to CRR (70) 272 872
Working Notes:
1. Amount of equity share capital = 2,400 - 600 (buyback) + 450 (Bonus shares)
= 2,250
2. Cash at bank after issue of bonus shares
` in lakhs
Cash balance as on 1st April, 2021 1480
Add: Sale of investments 150
1630
Less: Payment for buy back of shares (900)
730

Q-21 Mobile Limited has authorized share capital of 1,00,000 equity shares @ ` 10 each. The company has
already issued 60% of its capital for cash. Now the company wishes to issue bonus shares in the ratio 1:5
to its existing shareholders. The following is the status of Reserve and Surplus of the company:
General Reserve ` 1,60,000
Plant Revaluation Reserve ` 25,000
Securities Premium Account (Realised in cash) ` 60,000
Capital Redemption Reserve ` 80,000
Answer the following questions:
(a) What is the number of Bonus shares to be issued?
(b) Can company issue Bonus out of General Reserve only?
(c) Give Journal Entries and also give the extracts of the balance-sheet after such Bonus issue.
(d) Is it possible for the company to issue partly paid-up bonus shares?
Ans.(a) Number of Bonus shares to be issued:
Existing paid up Capital = 60,000 Shares
Number of Bonus Shares = (60,000 × 1) ÷ 5 = 12,000 Shares (i.e. for ` 1,20,000)
(b) Bonus out of General Reserve:
It is a usual practice to utilize specific reserve (available for specific purpose).
Therefore, if CRR and Securities Premium are available, then company should utilize these reserves i n
priority over other free reserves. It is clear that company should not use General Reserve, in the g iven
example, as Capital Redemption Reserve and Securities Premium are sufficiently available
(c) Journal Entries in the Books of Mobile Ltd.
Particulars Dr. (`) Cr. (`)
Capital Redemption Reserve A/c Dr. 80,000
To Bonus to Shareholders A/c 1,20,000
(Being issue of 1 Share for every 5 Shares held, by utilizing
various reserves as per Board’s Resolution dated …..)
(Capitalization of profits)
Extracts of the Balance-Sheet after Bonus issue
Particulars Note No. Amount (`)
EQUITY AND LIABILITIES
1. Shareholder’s funds
(a) Share Capital 1 7,20,000
(b) Reserves and Surplus 2 2,05,000
Notes to Accounts
1. Share capital
Authorised Capital
1,00,000 Equity Shares @ ` 10 each 10,00,000
Issued, Called up & Paid up Capital
72,000 Equity Shares @ ` 10 each 7,20,000

(Out of above, 12,000 shares have been
issued as bonus shares).
2. Reserve and Surplus
Plant Revaluation Reserve 25,000
Securities Premium A/c 20,000
General Reserve 1,60,000 2,05,000
(d) Fully Paid up bonus shares only
As per section 63 of the Companies Act, 2013, only fully paid up bonus shares can be issued. Therefore,
it is not possible for the company to issue partly paid-up bonus shares.
Q-22 Manu Ltd. gives the following information as at 31st March, 2021:
`
bonus at the rate of one share for every four shares held. You are required to prepare necessary jou rnal
entries in the books of the company on 30th April, 2021 for these transactions.
Ans. Journal Entries
` `
(For final calls of ` 2 per share on 2,70,000 equity shares
due as per Board’s Resolution dated….)
20-4-2021 Bank A/c Dr. 5,40,000
(For making provision for bonus issue of one share
for every four shares held)

RIGHT ISSUE
Q-1 Omega company offers new shares of ` 100 each at 20% premium to existing shareholders on the basis
of one for four shares. The cum-right market price of a share is ` 190.
You are required to calculate the Value of a right share.
Ans. Value of right share = Cum-right value of the share - Ex-right value of the share (as computed in Working
Note)
= ` 190 - ` 176 = ` 14 per share.
Working Note:
Ex-right value of the shares
= (Cum-right value of the existing shares + Rights shares x Issue Price) / (Existing No. of shares + No. of
right shares) = (` 190 x 4 Shares + ` 120 x 1 Share) / (4 + 1) Shares
= ` 880 / 5 shares = ` 176 per share.
Q-2 State under which head these accounts should be classified in Balance Sheet, as per Schedule III of the
Companies Act, 2013:
(i) Share application money received in excess of issued share capital.
(ii) Share option outstanding account.
(iii) Unpaid matured debenture and interest accrued thereon.
(iv) Uncalled liability on shares and other partly paid investments.
(v) Calls unpaid.
Ans. (i) Current Liabilities/ Other Current Liabilities
(ii) Shareholders' Fund/Reserve & Surplus
(iii) Current liabilities/Other Current Liabilities
(iv) Contingent Liabilities and Commitments
(v) Shareholders' Fund / Share Capital
Q-3 A company offers new shares of Rs.100 each at 25% premium to existing shareholders on one for four
basis. Thecum-right market price of a share is ` 150. Calculate the value of a right.
Ans. Ex-right value of the shares = (Gum-right value of the existing shares + Rights shares Issue Price) /
(Existing Number of shares + Rights Number of shares)
= (Rs. 150 x 4 Shares + Rs.125 x 1 Share) / (4 + 1) Shares
= Rs. 725 / 5 shares = Rs.145 per share.
Value of right = Gum-right value of the share - Ex-right value of the share
= Rs.150-Rs.145 = Rs.5 per share.
Q-4 Zeta Ltd. has decided to increase its existing share capital by making rights issue to its existing
shareholders. Zeta Ltd. is offering one new share for every two shares held by the shareholder. The
market value (cum-right) of the share is Rs.360 and the company is offering one right share of Rs.180
each to its existing shareholders. You are required to calculate the value of a right. What should be the
ex-right value of a share?

Ans. Ex-right value of the shares = (Cum-right value of the existing shares + Rights shares x
Issue Price) / (Existing Number of shares + Number of Right shares)
= (Rs. 360 x 2 Shares+ Rs.180 x 1 Share)/(2 + 1) Shares
= Rs.900/3 shares = Rs.300 per share.
Value of right = Cum-right value of the share - Ex-right value of the share
= Rs.360- Rs.300 = Rs.60 per share.
Hence, any one desirous of having a confirmed allotment of one share from the company at Rs. 180 will have
to pay Rs. 120 (2 shares x Rs. 60) to an existing shareholder holding 2 shares and willing to renounce his right
of buying one share in favour of that person.
Q-5 Omega company offers new shares of Rs. 100 each at 25% premium to existing shareholders on the
basis one for five shares. The cum-right market price of a share is Rs.200.
You are required to calculate the (I) Ex-right value of a share; (II) Value of a right share?

= (Gum-right value of the existing shares + Rights shares x Issue Price) / (Existing No. of
shares + No. of right shares)
= (Rs.200 x 5 Shares + Rs.125 x 1 Share) / (5 + 1) Shares
= Rs.1,125 / 6 shares = Rs.187.50 per share.
Value of right = Gum-right value of the share-Ex-right value of the share
= Rs.200-Rs.187.50 =Rs.12.50 per share.
Q-6 Following is the extract of the Balance Sheet of Madhu Ltd.as at 31st March, 2020
`
Authorized capital:
64,50,000
bonus at the rate of one share for every four shares held by utilizing the balance of profit and los s
account to the minimum extent.
You are required to prepare necessary journal entries in the books of the company and prepare the
relevant extract of the balance sheet as on 30th April, 2020 after bonus issue.

Ans. Journal Entries in the books of Madhu Ltd.
` `
dated….)
20-4-2020 Bank A/c Dr. 8,10,000
shares received)
(For making provision for bonus issue of
one share for every four shares held)
`
Authorized Capital
(Out of the above, 1,01,250 equity shares @ ` 10 each were issued by way of
bonus shares)
Q-7 Omega company offers new shares of ` 100 each at 25% premium to existing shareholders on the basis
one for five shares. The cum-right market price of a share is ` 200.
You are required to calculate the (i) Ex-right value of a share; (ii) Value of a right share?

= (Cum-right value of the existing shares + Rights shares x Issue Price) / (Existing No.
of shares + No. of right shares) = (` 200 x 5 Shares + ` 125 x 1 Share) / (5 + 1) Shares =
` 1,125 / 6 shares = ` 187.50 per share.
Value of right = Cum-right value of the share – Ex-right value of the share
= ` 200 – ` 187.50 = ` 12.50 per share.

Q-8 Beta Ltd. having share capital of 20,000 equity shares of `10 each decides to issue rights share at the
ratio of 1 for every 8 shares held at par value. Assuming all the share holders accepted the rights issue
and all money was duly received, pass journal entry in the books of the company.
Ans.
` `
Bank A/c Dr. 25,000
To Equity share capital A/c 25,000
(For rights share issued at par value in the ratio of 1:8
equity shares due as per Board’s Resolution dated….)
Working Note:
Number of Rights shares to be issued- 20,000/8x1= 2,500 shares
Q-9 Omega Ltd. offers new shares of ` 100 each at 25% premium to existing shareholders on the basis one
for five shares. The cum-right market price of a share is ‘ 200. You are required to calculate the (i) Ex-
right value of a share; (ii) Value of a right share?
right shares) = (` 200 x 5 Shares + ` 125 x 1 Share)/(5+1)
Shares
= ` 1,125 / 6 shares = ` 187.50 per share.
Value of right = Cum-right value of the share – Ex-right value of the share = ` 200 – ` 187.50 = ` 12.50
per share.
Q-10 Super company offers new shares of ` 100 each at 20% premium to existing shareholders on the basis
one for four shares. The cum-right market price of a share is ` 190.
You are required to calculate the value of a right share.
Ans. Value of right = Cum-right value of the share – Ex-right value of the share (as computed in Working
Note)
= ` 190 – ` 176 = ` 14 per share.
Working Note:
Ex-right value of the shares
right shares) = (` 190 x 4 Shares + ` 120 x 1 Share) / (4 + 1) Shares
= ` 880 / 5 shares = ` 176 per share.
Q-11 A company offers new right shares of ` 100 each at 20% premium to existing shareholders on one for
four shares. The cum-right market price of a share is ` 140.
You are required to calculate (i) Ex-right value of a share; (ii) Value of a right.
Ans.(a) (i) Ex-right value of the shares = (Cum-right value of the existing shares + Rights
shares X Issue Price) / (Existing Number of shares + No. of right shares)
= (` 140 x 4 Shares + ` 120 X 1 Share) / (1 + 4) Shares
= ` 680 / 5 shares = ` 136 per share.
(ii) Value of right = Cum-right value of the share – Ex-right value of the share
= ` 140 – ` 136 = ` 4 per share.

Q-12 A company having 1,00,000 shares of ` 10 each as its issued share capital, and having a market value of
` 45 issues rights shares in the ratio of 1:5 at an issue price of 25. Pass journal entry for issue of right
shares.
Ans.
(b) The entry at the time of subscription of right shares by the existing shareholders will be:
Bank A/c Dr. 5,00,000
To Securities Premium A/c 3,00,000
(Being issue of 20,000 right shares @ ` 25 offered)

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Accounting for Bonus Issue and Right Issue

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Ans. Arya Ltd.

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Ans. Ex-right value of the shares

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