Question

Apoorv Ltd. acquired building worth ₹ 15,50,000, Machinery worth ₹ 11,40,000 and Furniture worth ₹ 1,10,000 from Dhruv Ltd. and took over its liabilities of ₹ 2,00,000 for a purchase consideration of ₹ 25,00,000. Apoorv Ltd. paid the purchase consideration by issuing 12% debentures of ₹ 100 each at a premium of 25%.
Pass the necessary journal entries in the books of Apoorv Ltd. for the above transactions.

Hint:

Purchase consideration settled by issuing debentures at premium requires credit to Securities Premium Account.

Answer 1

Step 1: Calculation of number of debentures issued
Issue price per debenture = ₹ 100 + 25% = ₹ 125
Number of debentures = ₹ 25,00,000 / ₹ 125 = 20,000 debentures
Journal Entries:
1. For assets and liabilities taken over:
Building A/c Dr. ₹ 15,50,000
Machinery A/c Dr. ₹ 11,40,000
Furniture A/c Dr. ₹ 1,10,000
To Liabilities A/c ₹ 2,00,000
To Dhruv Ltd. A/c ₹ 26,00,000
(Being assets and liabilities taken over)
2. For settlement of purchase consideration:
Dhruv Ltd. A/c Dr. ₹ 25,00,000
To 12% Debentures A/c ₹ 20,00,000
To Securities Premium A/c ₹ 5,00,000
(Being issue of debentures at premium in settlement)
Note: The difference of ₹ 1,00,000 is Purchase Consideration – Net Assets taken over (₹ 25,00,000 – ₹ 26,00,000) = ₹ -1,00,000 (thus credited to Capital Reserve if needed).
Final Answer: Journal entries passed showing asset acquisition and debenture issue at premium.