Question

Gundola Ltd. took over assets of ₹ 9,00,000 and liabilities of ₹ 3,00,000 from AK Ltd. for an agreed purchase consideration of ₹ 14,00,000. The payment was made by issuing a cheque of ₹ 4,60,000 and balance by issue of 8\% Debentures at a discount of 10\%. Record necessary journal entries in the books of Gundola Ltd. for the above transactions.

Hint:

When issuing debentures at a discount, the discount is recorded separately as it reduces the value of the capital raised through the debenture issue.

Answer 1

The following journal entries will be recorded in the books of Gundola Ltd.: \begin{center} \renewcommand{\arraystretch}{1.5} \begin{tabular}{|p{10cm}|r|r|} \hline Particulars & Dr Amount (₹) & Cr Amount (₹)
\hline Assets A/c & 9,00,000 & --
To Liabilities A/c & -- & 3,00,000
To AK Ltd. & -- & 14,00,000
(Being purchase of assets and assumption of liabilities) & &
\hline AK Ltd. A/c & 14,00,000 & --
To Bank A/c & -- & 5,00,000
To 8\% Debentures A/c & -- & 9,00,000
(Being payment made by bank draft and issue of debentures at a discount) & &
\hline Discount on Issue of Debentures A/c & 1,00,000 & --
To AK Ltd. & -- & 1,00,000
(Being discount on debentures adjusted) & &
\hline \end{tabular} \end{center} Explanation: - Gundola Ltd. acquired assets worth ₹ 9,00,000 and liabilities worth ₹ 3,00,000 for a total purchase consideration of ₹ 14,00,000. - The payment was made by: - ₹ 5,00,000 through a bank draft. - The remaining ₹ 9,00,000 by issuing 8\% debentures at a 10\% discount. The total face value of debentures issued = ₹ 9,00,000 / 0.90 = ₹ 10,00,000. The ₹ 1,00,000 discount is adjusted in the Discount on Issue of Debentures Account.