Question

Delight Ltd. purchased assets worth ₹ 4,00,000 and took over liabilities of ₹ 70,000 of Marvel Ltd. for a purchase consideration of ₹ 3,60,000. Delight Ltd. paid the purchase consideration by issuing 11% debentures of ₹ 100 each at a premium of 20%.
Pass necessary journal entries in the books of Delight Ltd.

Hint:

Always divide the total consideration by the issue price (including premium) to calculate number of debentures. Record the premium separately in Securities Premium Reserve.

Answer 1

Step 1: Calculation of number of debentures issued Debentures are issued at a premium of 20% i.e., at ₹ 120 per debenture. \[ \text{Number of debentures} = \frac{₹ 3,60,000}{₹ 120} = 3,000 \text{ debentures} \] Step 2: Journal Entries 1. For purchase of assets and liabilities: \[ \begin{aligned} \text{Assets A/c Dr.} & \hspace{5pt} ₹ 4,00,000
\text{To Liabilities A/c} & \hspace{5pt} ₹ 70,000
\text{To Vendor A/c} & \hspace{5pt} ₹ 3,30,000
\end{aligned} \] 2. For payment of purchase consideration by issuing debentures at a premium: \[ \begin{aligned} \text{Vendor A/c Dr.} & \hspace{5pt} ₹ 3,30,000
\text{To 11% Debentures A/c} & \hspace{5pt} ₹ 3,00,000
\text{To Securities Premium A/c} & \hspace{5pt} ₹ 30,000
\end{aligned} \] Narration: Being 3,000 debentures of ₹ 100 each issued at a premium of ₹ 20 to discharge purchase consideration of ₹ 3,60,000.