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 purchasing assets and paying partly in cash/bank and partly by issuing securities:
1. Record the asset purchase (Asset Dr, Vendor Cr).
2. Record the cash/bank payment (Vendor Dr, Bank Cr).
3. For the balance payment via securities issued at discount:
Calculate Issue Price (Face Value - Discount). Calculate No. of Securities (Balance PC / Issue Price). Entry: Vendor Dr (Balance PC), Discount on Issue Dr (Total Discount), To Debentures/Share Capital Cr (Total Face Value).

Answer 1

Working Note 1: Payment Details
Total Purchase Consideration (for Machinery) = Rs 36,00,000
Amount paid by Bank Draft = Half of PC = \( \frac{1}{2} \times 36,00,000 = Rs 18,00,000 \)
Balance PC payable by Debentures = Rs 36,00,000 - Rs 18,00,000 = Rs 18,00,000
Working Note 2: Calculation for Issue of Debentures
Balance PC Payable = Rs 18,00,000
Debentures issued at a discount of 10%.
Issue Price per Debenture = Face Value - Discount
Issue Price per Debenture = Rs 100 - (10% of Rs 100) = Rs 100 - Rs 10 = Rs 90.
Number of Debentures to be Issued = Balance PC Payable / Issue Price per Debenture
Number of Debentures = Rs 18,00,000 / Rs 90 = 20,000 debentures.
Total Face Value = 20,000 \( \times \) Rs 100 = Rs 20,00,000
Total Discount on Issue = 20,000 \( \times \) Rs 10 = Rs 2,00,000
Journal Entries in the books of Ajanta Ltd.
\begin{longtable}{|p{1.5cm}|p{8cm}|r|r|} \hline Date & Particulars & Dr. (Rs) & Cr. (Rs)
\hline \endfirsthead \hline \endfoot \hline \endlastfoot (i) & Machinery A/c \hspace{4.3cm} Dr. & 36,00,000 &
& \indent To Sujata Ltd. (Vendor) A/c & & 36,00,000
& \textit{(Being machinery purchased from Sujata Ltd.)} & &
\hline (ii) & Sujata Ltd. (Vendor) A/c \hspace{2.5cm} Dr. & 18,00,000 &
& \indent To Bank A/c & & 18,00,000
& \textit{(Being half the payment made by bank draft)} & &
\hline (iii) & Sujata Ltd. (Vendor) A/c \hspace{2.5cm} Dr. & 18,00,000 &
& Discount on Issue of Debentures A/c \hspace{0.8cm} Dr. & 2,00,000 &
& \indent To 8\% Debentures A/c & & 20,00,000
& \textit{(Being issue of 20,000, 8\% Debentures of Rs 100 each at a discount of 10\% to Sujata Ltd. in settlement of balance purchase consideration)} & &
\hline \end{longtable}