CS Executive · Corporate Accounting and Financial Management · Accounting for Debentures
Kaveri Ltd converts ₹6,00,000 of 9% debentures into equity shares of ₹10 each, issued at a premium of ₹2 per share, with the debentures being settled at par. What amount is credited to Securities Premium Account?
Each share is issued at ₹12, so ₹6,00,000 of debentures yields 50,000 shares. Share capital is ₹5,00,000 and the premium of ₹2 per share gives ₹1,00,000 credited to Securities Premium Account.
- A₹1,00,000Correct
- B₹6,00,000
- C₹1,20,000
- D₹50,000
Explanation
Issue price per share = ₹12. Number of shares = 6,00,000 / 12 = 50,000. Share capital = 50,000 x 10 = ₹5,00,000. Premium = 50,000 x 2 = ₹1,00,000. Total 6,00,000 reconciles. Dividing by ₹10 gives 60,000 shares and premium ₹1,20,000, which wrongly ignores the premium in the issue price.
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