Question

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

Hint:

When purchasing assets/business: 1. Debit individual assets, Credit individual liabilities, Credit Vendor with Purchase Consideration (PC). 2. If Assets $>$ (Liabilities + PC), credit difference to Capital Reserve. 3. If (Liabilities + PC) $>$ Assets, debit difference to Goodwill. 4. When issuing shares/debentures for PC at premium/discount, calculate issue price per security and number of securities. Credit Share/Debenture Capital with Face Value and Securities Premium/Debit Discount on Issue accordingly.

Answer 1

1. Acquisition of Assets and Liabilities from Dhruv Ltd.

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Building A/c		15,50,000
	Machinery A/c		11,40,000
	Furniture A/c		1,10,000
	To Sundry Creditors A/c			2,00,000
	To Dhruv Ltd.			25,00,000
	To Capital Reserve A/c			1,00,000
(Assets and liabilities acquired from Dhruv Ltd.)

Calculation of Capital Reserve:

Total Value of Assets Taken = Building + Machinery + Furniture
= 15,50,000 + 11,40,000 + 1,10,000
= 28,00,000

Liabilities taken = 2,00,000
Net Assets Taken = 26,00,000

Purchase consideration = 25,00,000

Capital Reserve = Net Assets Taken – Purchase consideration
26,00,000 - 25,00,000 = 1,00,000

2. Issue of 12% Debentures to Dhruv Ltd.

Face Value per Debenture: ₹100
Premium: 25%
Issue Price per Debenture: ₹100 + (25% of ₹100) = ₹125

Number of Debentures to be issued = Purchase Consideration / Issue Price per Debenture
Number of Debentures to be issued = 25,00,000 / 125 = 20,000 Debentures

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Dhruv Ltd. A/c		25,00,000
	To 12% Debentures A/c			20,00,000
	To Securities Premium Reserve A/c			5,00,000
(Issue of 20,000; 12% Debentures of ₹100 each at a premium of 25% in satisfaction of purchase consideration)

Explanation:

• Entry 1: Records the assets acquired and liabilities taken over. A capital reserve arises if the net assets acquired exceed the purchase consideration.
• Entry 2: Records the issue of debentures to settle the purchase consideration. The debentures are issued at a premium, so the "Securities Premium Reserve" account is credited with the premium amount.