Question

KM Ltd. acquired assets worth ₹ 7,20,000 and took over liabilities of ₹ 2,00,000 of LS Ltd. for a purchase consideration of ₹ 9,60,000. KM Ltd. issued 12% debentures of ₹ 100 each at a discount of 4% in favour of LS Ltd. for payment of purchase consideration. Pass necessary journal entries for the above transactions in the books of KM Ltd.

Hint:

When debentures are issued at discount, consider: \[ \text{Issue Price} = \text{Face Value} - \text{Discount} \]

Answer 1

Journal Entries in the books of KM Ltd.:

Particulars	Dr. (₹)	Cr. (₹)
Sundry Assets A/c     To Sundry Liabilities A/c     To LS Ltd. (To record purchase of assets and liabilities)	7,20,000	2,00,000 9,60,000
LS Ltd. A/c Discount on Issue of Debentures A/c     To 12% Debentures A/c (Issue of debentures at 4% discount)	9,60,000 40,000	10,00,000

Calculation:
Debentures issued = ₹ 9,60,000 / 96 × 100 = ₹ 10,00,000
= 10,000 debentures