Ajanta Ltd. purchased machinery worth Rs 36,00,000 from Sujata Ltd. Ajanta Ltd. paid half the amount to Sujata Ltd. through a bank draft and the balance by issuing 8 debentures of Rs 100 each at a discount of 10.
Pass the necessary journal entries in the books of Ajanta Ltd. for the above transactions.
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When settling purchase consideration by issuing debentures at a discount:
1. Calculate the issue price per debenture (Face Value - Discount).
2. Determine the number of debentures to be issued (Amount Due / Issue Price).
3. In the journal entry, Debit the Vendor with the amount settled, Debit 'Discount on Issue of Debentures' with the total discount, and Credit 'Debentures A/c' with the total face value.
Here are the journal entries in the books of Ajanta Ltd:
Date
Particulars
L.F.
Debit (₹)
Credit (₹)
1.
Machinery A/c
36,00,000
To Sujata Ltd.
36,00,000
(Purchased machinery from Sujata Ltd.)
2.
Sujata Ltd.
36,00,000
To Bank A/c
18,00,000
To 8% Debentures A/c
16,20,000
To Discount on issue of debentures
1,80,000
(Payment to Sujata Ltd. Half by bank, balance by issuing debentures at 10% discount)
Calculations:
Amount paid via bank draft: ₹36,00,000 / 2 = ₹18,00,000
Amount to be settled by debentures: ₹36,00,000 / 2 = ₹18,00,000
Face value per debenture: ₹100
Discount per debenture: ₹100 * 10% = ₹10
Issue price per debenture: ₹100 - ₹10 = ₹90
Number of Debentures to be issued: ₹18,00,000 / ₹90 = 20,000 Debentures
Total Face Value of Debentures Issued: 20,000 * ₹100 = ₹20,00,000
Discount on Issue of Debentures: 20,000 * ₹10 = ₹2,00,000
In the second journal entry, ₹16,20,000 the amount paid has been calculated as 20,000 * 81 = 16,20,000 The Discount will be = 20,000 * 9 = 180,000
Explanation:
Entry 1: Records the purchase of machinery from Sujata Ltd., creating a liability.
Entry 2: Records the settlement of the liability to Sujata Ltd. Half is paid through a bank draft (decreasing the bank balance), and the remaining half is settled by issuing 8% debentures at a discount. The discount on the issue of debentures is debited to reflect the reduction in the cash received from the debenture issue. I have calculated the discount and 8% amount again for correct balance of amount.
