Features of Debentures

Debentures
Companies raise substantial amount of long term funds through the issue of debentures. The amount to he raised by way of loan from the public is, divided into small units called “Debentures”. Debenture may be defined as written instrument acknowledging a debt issued under the seal of company containing provisions regarding the payment of interest, repayment of principal sum. charge on the assets of the company etc. According to Sec. 2(12) of the companies Act ‘debenture includes debenture stock, bonds and any other securities whether constituting a charge on the assets of the company or not”.

Capital IQ Interview Questions

Features of Debentures:

1) It is a debt takes by the company from public and financial institutions.

2) Generally, debentures are issued for long period of time.

3) Debentureholders are entitled to receive periodical payment of interest (usually six months) at a fixed rate.

4) Interest on debentures has to he paid irrespective of profit.

5) Debenture holders arc entitled  the repayment of the amount lent as per the terms of contract
6) Debentureholders don't have voting rights.
7) Generally dehentureholders have fixed or floating charge on the assets of the company

Issue of Shares at Premium | Issue of shares at Discount

Issue of Shares at Premium

When shares are issued at a price higher than the face value, they are said to be issued at premium. Generally premium is included in the allotment money. In such a case the Journal entry is.

Share Allotment A/c Dr.
To Share Capital A/c To Share Premium A/c
(with the amount due one allotment
including Premium)
(with share money)
(with Premium money)

Capital IQ Interview Questions and Answers 

Share Premium Account appears in balance sheet under Reserves and Surplus

According to Sec.78 of the Companies Act. 1956, the Share Premium (or Securities Premium) may be applied for the following purposes:

(i) To issue fully paid bonus shares to the members.

ii) To write off preliminary expenses of the company.

(iii) To write off the expenses of or the commission paid or discount allowed on any issue of shares or debentures of the company.

(iv) To provide for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.

Issue of shares at Discount

When shares are issued at a price lower than the face value, they are said to be issued at a discount. The discount on issue of shares must be treated as a loss of capital nature and not of revenue nature. According to Sec. 79 of the Companies Act, 1956 a company may issue the shares at a discount only if the following conditions are fulfilled.

(i) The share must belong to a class already issued.

ii) The issue must be authorised by an ordinary resolution of the company.

iii) The sanction of the Company Law Board must be obtained.

iv) The resolution must specify the maximum rate of discount at which the shares are to be issued.

v) At least one year must have elapsed since the date on which the Company was entitled to commence business.

Calls in Arrears and Calls in Advance

Calls in Arrears and Calls in Advance

Calls in Arrears refers to that portion of the capital, which has been called up but not yet paid by shareholders. In other words the allotment or call money called by the company but not paid by the shareholder till the last day fixed for payment there of, is called Calls in Arrears. Share Allotment Account and call Accounts will show debit balances equal to the total unpaid amount. Generally, such amount is transferred to special account called Calls in Arrears Account. The main purpose is to close allotment and other call accounts. The entry is

Calls in Arrears Account Dr
To Share Allotment Account
“Share Call Account.

When the money is received from defaulting shareholder the following entry is passed:
Bank Account Dr
To Calls in Arrears Account:

The amount of Calls in Arrears is shown by a way of deduction from the called-up capital in the on Balance Sheet on the liabilities side under the head ‘share capital’. Interest calls in Arrears may be received from share holders, if the Articles of Associate so provide . If the company has adopted ‘Table A then it can charge interest @ 5% pa. from the due date to the date of actual payment.

Calls in Advance arises when there i an oversubscription of shares. The excess application money received is adjusted against the amount due on allotment or calls. Calls in Advance Account is shown separately from the paid-up capital. No dividend is payable on Calls in Advance.


Interest on calls on Advance: A company has to pay interest on calls in advance from the date of receipt of the amount till the date when call is due for payment. The rate of interest is determined by the Articles of Association.

If Articles of Association is silent then provision of Table A will apply which provides for payment of interest on calls in advance at the rate of 6 per cent pa. The entry for Payment on calls in advances is.

Interest on Calls in Advance A/c Dr.
To Bank Account

Interest on calls in advance appears account appears on the asset side of the balance sheet till it is written off.

Capital IQ Interview Questions - Share Capital Classification

Presentation of information relating to share capital in the Balance Sheet of a Company.

The prescribed form of the Balance Sheet of a company given in Schedule IV of the Companies Act 1956, requires the description of share capital under following categories.

1. Authorised or Nominal or Registered Capital: It refers to that amount which is stated in the Memorandum of Association as the share capital of the company. This is the maximum limit of capitgl which the company is authorised to issue and beyond which the company cannot issue shares unless the capital clause in the Memorandum is altered
.
2. Issued Capital: It refers to that part of the authorised capital of the company which has actually been offered to the public for subscription.

3. Subscribed Capital: It refers to that part of the issued capital which has actually been subscribed by the public and subsequently allotted to them by the directors of the company.

4. Called up Capital: It refers to that part of the subscribed capital which has been called up by the company for payment.

5. Paid Up Capital: That part of the called-up capital which is actually paid by the shareholders is known as paid-up capital. The sum which is still to be paid is known-as Calls in Arrears.

Capital IQ Interview Questions - Types of Preference Shares

Types of Preference Shares 

1) Cumulative and Non-cumulative Preference Shares: If a company does not earn sufficient profits during a particular year, dividends on preference shares may not be paid for that year. Bur if preference shares are cumulative, such unpaid dividends are treated as arrears and are carried forward to subsequent years. When the company wants to pay any dividend to equity share holders, it must first pay arrears of such dividend to cumulative preference shareholders. If the company goes into liquidation, arrears of dividend are not payable unless they are either declared or articles of association contain express provisions in this regard. A non-cumulative preference shares is that share where the arrears of dividends do not accumulate. If a dividend is not declared in any year then it lapses. Unless otherwise stated, in the AoA, preference shares are cumulative.

Capital IQ Interview Questions 

2) Participating and Non-Participating preference shares
A participating preference share is a share which carries the right of sharing profits left after paying equity and preference dividends at specified rates. A non-participating preference share is that share which does not carry the right of sharing in the surplus after paying specified dividend to equity shareholders, unless otherwise stated in the Articles Preference shares are deemed to be non-participating.

3) Convertible and Non-Convertible preference shares: A convertible preference share is one which can he converted into equity shares. When it cannot be so converted, it is called non-convertible preference shares.

4) Redeemable preference shares: Redeemable preference shares are those which are redeemable within a stipulated period in accordance with the terms of issue. After Amendment made in 1988 such shares must be redeemed within a period of ten years.

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