Issue of equity shares- debentures against purchase of an asset-Journal entry-Asset a-c nbsp- nbsp- nbsp- nbsp- nbsp- nbsp- nbsp- nbsp-dr- nbsp- nbsp- nbsp- nbsp- nbsp-To Equity share cap- a-c or debentures a-c-Here why is equity share cap- a-c credited -

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Standard XII

Accountancy

Cash Settlement with Retiring Partner

Issue of equi...

Question

Issue of equity shares/ debentures against purchase of an asset:
Journal entry:
Asset a/c dr.
To Equity share cap. a/c or debentures a/c
Here why is equity share cap. a/c credited ?

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Solution

Dear Student,

When an asset is purchased against the issue of Equity shares that means company instead of making payment in cash have made payment in kind by issuing shares & the supplier of that asset now becomes the shareholder of the company. This issue of shares results in increase in share capital of the company & since equity shares are issued so equity share capital increases & increase in capital is credited.

Therefore, in the above scenario, equity share capital is credited.

Regards,

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Assuming that the Debt-Equity Ratio is 2 : I, state, giving reasons, which of the following transactions would (I) Increase; (ii) Decrease; (ii.) Not alter the Debt-Equity Ratio :

(i) Issue of new shares (Preference/Equity) for Cash.

(ii) Issue of new shares (Preference/Equity) against purchase of fixed asset.

(iii) Buy-back of its own shares by a Company.

(iv) Issue of Debentures for Cash.

(v) Issue of Debentures against purchase of fixed asset.

(vi) Repayment of Long-term Borrowings.

(vii) Conversion of Debentures into Equity Shares/Preference Shares.

(viii) Sale of a fixed asset at par.

(ix) Sale of a fixed asset at profit.

(x) Sale of a fixed asset at loss.

(xi) Purchase of a fixed asset on a credit of 2 months.

(xii) Purchase of a fixed asset on long-term deferred payment basis.

(xiii) Issue of Bonus Shares.

Assuming that Proprietary Ratio is 0.6 : 1, state giving reasons, whether the ratio will increase, decrease or will not change in each one of the following cases:

(i) Issue of new equity shares for cash.

(ii) Issue of equity shares against purchase of machinery.

(iii) Issue of debentures against purchase of machiney.

(iv) Redemption of debentures for cash.

(v) Conversion of debentures into preference shares.

(vi) Buy-back of its own shares by a company.

(vii) Purchase of a fixed asset for cash.

(viii) Purchase of a fixed asset on long-term deferred payment basis.

(ix) Sale of a fixed asset costing Rs. 1,00,000 for Rs. 80,000.

(x) Sale of a fixed asset costing Rs. 2,00,000 for Rs. 2,50,000.

(xi) Issue of Bonus Shares.

Q. On April 01, 2014, a company made an issue of 5,000, 8% debentures of Rs 100 each at Rs 94 per debentures. The terms of issue provided for the redemption of 1,000 debenture every year starting from March 31, 2016 either by purchase from open market or by converting them into Equity shares of Rs 10 each at a premium of Rs 2.50 per share. On March 31, 2016, the company redeemed 1,000 debentures by converting them into equity shares. Give the necessary journal entries.