Question

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.

Hint:

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.

Answer 1

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.