1. Discussion On Accountancy For 2017 Examination
CA. (Dr.) G.S. Grewal

2. Syllabus for Examination, 2017
CA. (Dr.) G.S. Grewal

3. Three Column Cash Book (in Class XI).
Deleted
Three Column Cash Book (in Class XI).
Purchase of Own Debentures for Investment Purposes (in Class XII).
Added
Redemption of Debentures by Conversion
CA. (Dr.) G.S. Grewal

4. Important Clarifications in Syllabus
Partnership Accounts
1. Interest on Partner’s Loan is a charge against profits.
Dissolution does not include Piecemeal Distribution, Sale to a Company and Insolvency.
3. The realised value of each asset must be given at the time of dissolution.
4. In case Realisation Expenses are borne by a partner, payment thereof should be clearly stated.
CA. (Dr.) G.S. Grewal

5. Important Clarifications in Syllabus
Accounting Ratios
Unless specified, Investments are to be taken as Trade Investments.
Cash Flow Statement
1. Only Indirect Method in Syllabus.
2. Bank Overdraft and Cash Credit are to be treated as Short term Borrowings.
3. Unless specified, Current Investments are to be taken as Marketable Securities.
CA. (Dr.) G.S. Grewal

6. Debentures
CA. (Dr.) G.S. Grewal

7. Definition of Debentures
“Debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on assets of the company or not.
Section 2(30) of the Companies Act, 2013
CA. (Dr.) G.S. Grewal

8. Debenture Redemption Reserve (DRR)
DRR is dealt in Companies Act, 2013 at two places:
Section 71(4) of the Companies Act, It prescribes that:
- a company shall create DRR;
- out of profits available for payment of dividend; and
- the amount credited to DRR will not be used for purposes other than redemption of debentures.
Rule 18(7)(b) of Companies (Share Capital and Debentures) Rules, 2014 prescribes the amount to be transferred to DRR.
CA. (Dr.) G.S. Grewal

9. Debenture Redemption Reserve (DRR)
Rule 18(7)(b) of the Companies (Share Capital and Debentures) Rules, 2014 has prescribed:
- that a company shall transfer an amount at least equal to 25% of the nominal (face) value of total redeemable debentures.
Rule 18(7)(c) of the Companies (Share Capital and Debentures) Rules, 2014 has prescribed:
- that a company shall invest an amount not less than15% of the nominal (face) value of the debentures to be redeemed (maturing) during the year ending (i.e.,by) 31st March of the next year in specified securities on or before 30th April of the year.
CA. (Dr.) G.S. Grewal

10. Amount to be transferred to DRR
If Question
is silent
If Redemption is out of Profit
If amount of DRR given
Create DRR of amount equal
to 25% of the Nominal (Face) Value of total Redeemable Debentures
Create DRR of amount equal to 100% of the Nominal (Face) Value of total Redeemable Debentures
Create DRR of amount as stated in the question
CA. (Dr.) G.S. Grewal

11. When Companies shall not create DRR
DRR is not created on Convertible Debentures or Convertible part of partly Convertible Debentures.
Besides some categories of Companies are exempt from creating DRR. These companies are:
All India Financial Institutions, regulated by Reserve Bank of India;
Other Financial Institutions (Like LIC)
Banking Companies; and
National Housing Bank.
CA. (Dr.) G.S. Grewal

12. Redemption of Debentures
Debentures can be redeemed
At the time of Maturity; or
By purchase from Open Market for Immediate Cancellation; or
By Draw of Lots
CA. (Dr.) G.S. Grewal

13. Redemption of Debentures by Issue of Shares
When the debentures are issued at discount and are to be converted into Shares, it should be kept in mind that:
discount on issue of debentures should be taken as completely written off. (Circular Acad./43)
It means debentures will be converted into shares at their nominal (face) value plus premium payable at the time of redemption.
CA. (Dr.) G.S. Grewal

14. Redemption of Debentures
On Maturity
At Par
At Premium
Cash
Conversion
Into Shares
Into Debentures
At Par
At Premium
At Discount
CA. (Dr.) G.S. Grewal

15. Redemption of Debentures
By Purchase from Open Market
Redeemable At Par
Redeemable
At Premium
Cash / Bank
CA. (Dr.) G.S. Grewal

16. Redemption of Debentures
By Draw of Lots
Redeemable At Par
Redeemable
At Premium
Cash / Bank
CA. (Dr.) G.S. Grewal

17. Journal Entries for Redemption
Redeemable At Par (Conversion Method)
Amount being Due
…% Debentures A/c …Dr.
To Debenture-holders A/c
(Being the amount due to
debenture-holders on
redemption of debentures )
CA. (Dr.) G.S. Grewal

18. Journal Entries for Redemption
On Conversion into Shares Issued at Par /
Premium
Debenture-holders A/c …Dr.
To Share Capital A/c [Nominal Value]
To Securities Premium
Reserve A/c [Premium Amt.]
(Being the amount due to
debenture-holders settled by
conversion into … Equity Shares
of Rs. … each at a premium of Rs. …)
CA. (Dr.) G.S. Grewal

19. Journal Entries for Redemption
On Conversion into Debentures Issued at Par /
Premium
Debenture-holders A/c …Dr.
To …% Debentures A/c [Nominal Value]
To Securities Premium
Reserve A/c [Premium Amt.]
(Being the amount due to
debenture-holders settled by
conversion into …% Debentures
of Rs. … each at a premium of Rs. …)
CA. (Dr.) G.S. Grewal

20. To Debenture-holders A/c (Being the amount due to debenture-holders)
Conversion of Debentures Redeemable at
Premium into Shares Issued at Par /
Premium
…% Debentures A/c …Dr.
Premium on Redemption
Of Debentures A/c …Dr.
To Debenture-holders A/c
(Being the amount due to
debenture-holders)
CA. (Dr.) G.S. Grewal

21. Debenture-holders A/c …Dr. To Share Capital A/c [Nominal Value]
Conversion of Debentures Redeemable at
Premium into Shares Issued at Par /
Premium
Debenture-holders A/c …Dr.
To Share Capital A/c [Nominal Value]
To Securities Premium
Reserve A/c [Premium Amt.]
(Being the amount due to debenture-holders
settled by conversion into Shares of Rs. … each at a premium of Rs. …)
CA. (Dr.) G.S. Grewal

22. Pass the journal entries for the above.
Example on Conversion of Debentures Redeemable at Premium into Shares Issued at Premium
Office Systems Ltd. was to redeem 1,000, 8% Debentures of Rs. 100 each at a premium of Rs. 10 per debenture on 1st October, 2016 by converting them into 10,000 Equity Shares of Rs. 10 each at a premium of Rs. 1 each.
Pass the journal entries for the above.
CA. (Dr.) G.S. Grewal

23. Solution: JOURNAL ENTRIES
Date
Particulars LF
Debit (Rs.)
Credit (Rs.)
2016
Oct. 1
8% Debentures A/c Dr.
Premium on Red.
of Debentures A/c Dr.
To Debentureholders A/c
(Being the amount due on redemption of 1,000, 8% Debentures of Rs. 100 each at a premium of Rs. 10)
1,00,000
10,000
1,10,000
CA. (Dr.) G.S. Grewal

24. Solution: Date Particulars LF Debit (Rs.) Credit (Rs.) 2016 Oct. 1
Debentureholders A/c Dr.
To Share Capital A/c
To Securities Premium
Reserve A/c
(Being the amount due on redemption of 1,000, 8% Debentures converted into 10,000 Equity Shares of Rs. 10 each at a premium of Re. 1 per share)
1,10,000
1,00,000
10,000
CA. (Dr.) G.S. Grewal

25. To Debenture-holders A/c (Being the amount due to debenture-holders)
Conversion of Debentures Redeemable at
Premium into Debentures Issued at Par /
Premium
…% Debentures A/c …Dr.
Premium on Redemption
Of Debentures A/c …Dr.
To Debenture-holders A/c
(Being the amount due to
debenture-holders)
CA. (Dr.) G.S. Grewal

26. Debenture-holders A/c …Dr. To …% Debentures A/c [Nominal Value]
Conversion of Debentures Redeemable at
Premium into Debentures Issued at Par /
Premium
Debenture-holders A/c …Dr.
To …% Debentures A/c [Nominal Value]
To Securities Premium
Reserve A/c [Premium Amt.]
(Being the amount due to debenture-holders
settled by conversion into …% Debentures of Rs. … each at a premium of Rs. …)
CA. (Dr.) G.S. Grewal

27. Pass the journal entries for the above.
Example on Conversion of Debentures Redeemable at Premium into Debentures (New) at Premium
Ultimate Systems Ltd. was to redeem 10,000, 8% Debentures of Rs. 50 each at a premium of Rs. 5 per debenture on 1st December, 2016 by converting them into 5,000, 9% Debentures of Rs. 100 each at a premium of Rs. 10 each.
Pass the journal entries for the above.
CA. (Dr.) G.S. Grewal

28. Solution: JOURNAL ENTRIES
Date
Particulars LF
Debit (Rs.)
Credit (Rs.)
2016
Dec 1
8% Debentures A/c Dr.
Premium on Red.
of Debentures A/c Dr.
To Debentureholders A/c
(Being the amount due on redemption of 10,000, 8% Debentures of Rs. 50 each at a premium of Rs. 50)
5,00,000
50,000
5,50,000
CA. (Dr.) G.S. Grewal

29. Debentureholders A/c Dr. To 9% Debentures A/c To Securities Premium
Date
Particulars LF
Debit (Rs.)
Credit (Rs.)
2016
Dec 1
Debentureholders A/c Dr.
To 9% Debentures A/c
To Securities Premium
Reserve A/c
(Being the amount due on redemption of 10,000, 8% Debentures converted into 5,000, 9% Debentures of Rs. 100 each at a premium of Rs. 10 per Debenture)
5,50,000
5,00,000
50,000
CA. (Dr.) G.S. Grewal

30. Pass journal entry for the above.
Example on Debentures Redeemable at Premium, Conversion into Debentures (New) Issued at Discount
Premium Energy Ltd. was to redeem 10,000, 8% Debentures of Rs. 50 each at a premium of Rs. 4 per debenture on 1st December, 2016 by converting them into 9% Debentures of Rs. 100 each issued at a discount of Rs. 10 each.
Pass journal entry for the above.
CA. (Dr.) G.S. Grewal

31. Date Particulars LF Debit (Rs.) Credit (Rs.) 2016 Dec 1
8% Debentures A/c Dr.
Premium on Redemtion
Of Debentures A/c Dr.
Discount on Issue of
Debentures A/c Dr.
To 9% Debentures A/c
(Being the 8% Debentures redeemed at premium of Rs. 4, by issuing 10,000, 9% Debentures of Rs. 100 each at a discount of Rs. 10 per Debenture)
5,00,000
40,000
60,000
6,00,000
CA. (Dr.) G.S. Grewal

32. Pass journal entry for the above.
Example on Debentures Redeemable at Premium, Conversion into Debentures (New) Issued at Premium
Quality Products Ltd. was to redeem 5,000, 9% Debentures of Rs. 100 each at a premium of Rs. 10 per debenture on 1st December, 2016 by converting them into 10% Debentures of Rs. 50 each issued at a premium of Rs. 5 each.
Pass journal entry for the above.
CA. (Dr.) G.S. Grewal

33. Date Particulars LF Debit (Rs.) Credit (Rs.) 9% Debentures A/c Dr.
2016
Dec 1
9% Debentures A/c Dr.
Premium on Redemption
of Debentures A/c Dr.
To 10% Debentures A/c
To Securities Premium
Reserve A/c
(Being the 5,000, 9% Debentures of Rs. 100 each redeemable at premium of Rs. 10 redeemed by converting into 10,000, 10% Debentures of Rs. 50 each at a premium of Rs. 5)
5,00,000
50,000
CA. (Dr.) G.S. Grewal

34. Journal Entries for Redemption
By Purchase from Open Market for Immediate cancellation
On Purchase
…% Own Debentures A/c …Dr.
To Bank A/c
(Being the …number … own debentures purchased for immediate cancellation)
CA. (Dr.) G.S. Grewal

35. On Cancellation of Own Debentures Redeemable at Par
…% Debentures A/c …Dr.
Loss on cancellation of
Own Debentures A/c …Dr [Amount of Loss]
To Own Debentures A/c [Amt. of purchase]
To Gain (Profit) on Cancellation
of Own Debentures A/c [Diff. Between
Nominal (Face)
Value and Purchase
Cost]
(Being the Own Debentures purchased
now cancelled resulting in loss / gain)
CA. (Dr.) G.S. Grewal

36. On Cancellation of Own Debentures Redeemable at Premium
…% Debentures A/c …Dr.
Premium on Redemption
of Debentures A/c …Dr.
Loss on Cancellation of
Own Debentures A/c …Dr [Amt. of Loss]
To Own Debentures A/c [Amt. of purchase]
To Gain (Profit) on Cancellation
of Own Debentures A/c
(Being the Own Debentures purchased
now cancelled, gain (profit) of Rs. …. recorded)
CA. (Dr.) G.S. Grewal

37. Journal Entries for Redemption
Transfer of Gain (Profit)
Gain (Profit) on Cancellation
of Own Debentures A/c …Dr.
To Capital Reserve A/c
(Being the gain (profit) on cancellation transferred to Capital Reserve)
CA. (Dr.) G.S. Grewal

38. Journal Entries for Redemption
Transfer of Loss
Statement of Profit and Loss A/c …Dr.
To Loss on Cancellation of
Own Debentures A/c
(Being the gain (profit) on cancellation transferred to Capital Reserve)
CA. (Dr.) G.S. Grewal

39. Pass the journal entries for the above.
Example on Cancellation of Own Debentures which were Redeemable at Premium
Good Systems Ltd. purchased 1,000, Own 8% Debentures of Rs. 50 each at Rs. 52 per debenture for immediate cancellation. The debentures were redeemable at a premium of Rs. 5 per debenture on 1st December, 2016.
Pass the journal entries for the above.
CA. (Dr.) G.S. Grewal

40. Solution: JOURNAL ENTRIES
Date
Particulars LF
Debit (Rs.)
Credit (Rs.)
2016
Dec 1
Own Debentures A/c Dr.
To Bank A/c
(Being own 1,000, 8% Debentures purchased for immediate cancellation from open Rs. 52 per debenture)
52,000
CA. (Dr.) G.S. Grewal

41. (Being the Own 1,000, 8% Debentures cancelled) 50,000 5,000 52,000
Date
Particulars LF
Debit (Rs.)
Credit (Rs.)
2016
Dec 1
8% Debentures A/c Dr.
Premium on Redemption
Of Debentures A/c Dr.
To Own Debentures A/c
To Gain (Profit) on
Cancellation of Own
Debentures A/c
(Being the Own 1,000, 8% Debentures cancelled)
50,000
5,000
52,000
3,000
CA. (Dr.) G.S. Grewal

42. Date Particulars LF Debit (Rs.) Credit (Rs.) 2016 Dec 1
Gain (Profit) on
Cancellation of Own
Debentures A/c Dr.
To Capital Reserve A/c
(Being the gain on cancellation of 1,000, 8% Own Debentures transferred to Capital Reserve)
3,000
CA. (Dr.) G.S. Grewal

43. Pass the journal entries for the above.
Example on Cancellation of Own Debentures which were Redeemable at Premium
Woodworth Ltd. purchased 1,000, Own 9% Debentures of Rs. 50 each at Rs. 57 per debenture for immediate cancellation. The debentures were redeemable at a premium of Rs. 5 per debenture on 1st December, 2016.
Pass the journal entries for the above.
CA. (Dr.) G.S. Grewal

44. Solution: JOURNAL ENTRIES
Date
Particulars LF
Debit (Rs.)
Credit (Rs.)
2016
Dec 1
Own Debentures A/c Dr.
To Bank A/c
(Being own 1,000, 9% Debentures purchased for immediate cancellation from open Rs. 57 per debenture)
57,000
CA. (Dr.) G.S. Grewal

45. of Own Debentures A/c Dr. To Own Debentures A/c
Date
Particulars LF
Debit (Rs.)
Credit (Rs.)
2016
Dec 1
8% Debentures A/c Dr.
Premium on Rdemption
Of Debentures A/c Dr.
Loss on Cancellation
of Own Debentures A/c Dr.
To Own Debentures A/c
(Being the Own 1,000, 8% Debentures cancelled at a loss of Rs. 2,000)
50,000
5,000
2,000
57,000
CA. (Dr.) G.S. Grewal

46. To Loss on Cancellation of Own Debentures A/c
Date
Particulars LF
Debit (Rs.)
Credit (Rs.)
2016
Dec 1
Statement of Profit
and Loss Dr.
To Loss on Cancellation
of Own
Debentures A/c
(Being the loss on cancellation of 1,000, 9% Own Debentures transferred)
3,000
CA. (Dr.) G.S. Grewal

47. Employees Stock Option Plan (ESOP)
CA. (Dr.) G.S. Grewal

48. Employees Stock Option Plan (ESOP)
What is Employees Stock Option Plan (ESOP)?
Employees Stock Option Plan is a plan drawn to issue securities (Shares etc.) to employees (including whole time directors) at a discount i.e., at a price which is lower than its market value.
The Companies Act, 2013 (Section 53) prohibits issue of shares at a discount. But, through Section 54, it permits issue of ESOPs at a discount.
CA. (Dr.) G.S. Grewal

49. Important Terms in ESOP
Meaning
Grant Date
Date on which agreement is entered into between the Enterprise and Employees for grant of ESOPs.
Vesting Period
Period between the Grant Date and the date on which all the specified conditions of Employees Stock Option Plan (ESOP) should be satisfied.
Vesting Date
Date on which conditions of granting ESOPs are met.
Exercise
It means exercising the right to subscribe the options granted to him / her.
Exercise Period
Period after vesting date given to an employee to exercise the options given under the Plan.
Exercise Price
Price payable by the employee for exercising the right for option granted.
CA. (Dr.) G.S. Grewal

50. Accounting in the Books of Account
The difference between Market Value and Issue Price is cost to the company. It is an expense for the company. The entry passed is:
Employees Compensation Expense A/c Dr.
To Shares Options Outstanding A/c
Employees Compensation Expense A/c is shown under ‘Employees Benefit Expenses’ in the Statement of Profit and Loss.
Shares Options Outstanding Account is shown as Reserves and Surplus under Shareholders’ Funds.
CA. (Dr.) G.S. Grewal

51. When the Vesting Period has Elapsed
When all Options are Exercised by the Employees
Bank A/c Dr.
To Share Capital A/c
To Securities Premium Reserve A/c
(Being the shares allotted against ESOP)
(Amount Received)
(Nominal Value Per Share X No. of Shares)
(Amount of Securities Premium Received) (Difference between Issue Price and Nominal (Face Value)
Shares Options Outstanding A/c Dr.
(Being the amount of Shares Options Outstanding A/c transferred to Securities Premium Reserve)
(Amount credited to Shares Options Outstanding A/c)
CA. (Dr.) G.S. Grewal

52. When the Vesting Period has Elapsed
When all Option is Exercised by the Employees
Alternate Entries
Bank A/c Dr.
Shares Options Outstanding A/c Dr.
To Share Capital A/c
To Securities Premium Reserve A/c
(Being the shares allotted against ESOP)
(Amount Received)
(Amount Credited to Shares Options Outstanding A/c)
(Nominal Value Per Share X No. of Shares)
(Amount Received in Excess of Nominal Value + Amount Credited to Shares Options Outstanding A/c)
CA. (Dr.) G.S. Grewal

53. When the Vesting Period has Elapsed
When All Options are not Exercised
Bank A/c Dr.
To Share Capital A/c
To Securities Premium Reserve A/c
(Being the shares allotted against ESOP)
(Amount Received)
(Nominal Value Per Share X No. of Shares)
(Amount of premium Received i.e., difference between Issue Price – Nominal Value of shares)
CA. (Dr.) G.S. Grewal

54. When the Vesting Period has Elapsed
When All Options are not Exercised
Shares Options Outstanding A/c Dr.
To Securities Premium Reserve A/c
To General Reserve A/c
(Being the amount credited to Shares Options Outstanding Account and relating to Options not exercised transferred to General Reserve)
(Amount credited to Shares Options Outstanding Account)
(Amount credited to Shares Options Outstanding Account and relating to Options Exercised)
(Amount credited to Shares Options Outstanding Account and relating to Options not Exercised)
CA. (Dr.) G.S. Grewal

55. When the Vesting Period has Elapsed
When All Options are not Exercised (Alternate Entries)
Bank A/c Dr.
Shares Options Outstanding A/c Dr.
To Share Capital A/c
To Securities Premium Reserve A/c
To General Reserve A/c
(Being the shares allotted against ESOP)
(Amount Received)
(Amount Credited to Shares Options Outstanding A/c)
(Nominal Value Per Share X No. of Shares)
(Amount Credited to Shares Options Outstanding A/c relating to Options Exercised + amount received as premium)
(Amount Credited to Shares Options Outstanding A/c relating to Options not Exercised)
CA. (Dr.) G.S. Grewal

56. Illustration
Keys Hotels Ltd. granted option to subscribe 3 shares of Rs. 10 each at a price of Rs. 60 per share to each of its 100 employees on completion of service for 30 months. Fair (Market) price of each share as on the grant date was Rs. 90. The employees were to exercise the option within three months of the Vesting Date. All the employees exercised the option by the exercise date.
Pass the necessary journal entries.
CA. (Dr.) G.S. Grewal

57. Solution Date Particulars Debit (Rs.) Credit (Rs.)
Year 1
Employees Compensation Exp. A/c Dr.
To Shares Options Outstanding A/c
(Being the amount equal to one year expense for the difference between Fair (Market) Value and Issue Price recognised as expense)
3,600
Year 2
Year 3
Employees Compensation Exp. A/c Dr.
(Being the remaining amount of difference between Fair (Market) Value and Issue Price recognised as expense)
1,800
CA. (Dr.) G.S. Grewal

58. Solution Date Particulars Debit (Rs.) Credit (Rs.) Year 4
Bank A/c (3 X 100 X Rs. 60) Dr.
Shares Options Outstanding A/c Dr.
To Share Capital A/c
(3 X 100 x Rs. 10)
To Securities Premium Res. A/c
3 x (100 x Rs. 50) + 3 X (100 x Rs. 30)
(Being 3 shares each allotted to 100 employees, related amount transferred from Shares Options Outstanding Account to Securities Premium Account .
18,000
9,000
3,000
24,000
CA. (Dr.) G.S. Grewal

59. Illustration
Keys Hotels Ltd. granted option to subscribe 3 shares of Rs. 10 each at a price of Rs. 60 per share to each of its 100 employees on completion of service for 30 months. Fair (Market) price of each share as on the grant date was Rs. 90. The employees were to exercise the option within three months of the Vesting Date. All the employees except 20 employees exercised the option by the exercise date.
Pass the necessary journal entries.
CA. (Dr.) G.S. Grewal

60. Solution Date Particulars Debit (Rs.) Credit (Rs.)
Year 1
Employees Compensation Exp. A/c Dr.
To Shares Options Outstanding A/c
(Being the amount equal to one year expense for the difference between Fair (Market) Value and Issue Price recognised as expense)
3,600
Year 2
Year 3
Employees Compensation Exp. A/c Dr.
(Being the remaining amount of difference between Fair (Market) Value and Issue Price recognised as expense)
1,800
CA. (Dr.) G.S. Grewal

61. Solution Date Particulars Debit (Rs.) Credit (Rs.) Year 4
Bank A/c (3 X 80 X Rs. 60) Dr.
Shares Options Outstanding A/c Dr.
To Share Capital A/c
(3 X 80 x Rs. 10)
To Securities Premium Res. A/c
3 x (80 x Rs. 50) + 3 X (80 x Rs. 30)
To General Reserve A/c
(20 x 3 x Rs. 30)
(Being 3 shares each allotted to 80 employees exercising options, related amount transferred from Shares Options Outstanding Account to Securities Premium Account . Balance amount i.e., amount relating to 20 employees who did not exercise option transferred to General Reserve)
14,400
9,000
2,400
19,200
1,800
CA. (Dr.) G.S. Grewal

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