Question

Prime Ltd. took over assets of ₹ 6,00,000 and liabilities of ₹ 1,00,000 of Rabi Ltd. for a purchase consideration of ₹ 3,60,000. Prime Ltd. issued 10% debentures of ₹ 100 each at a discount of 10% in full satisfaction of purchase consideration.
Pass necessary journal entries in the books of Prime Ltd.

Hint:

When debentures are issued at a discount, debit the discount to a separate account. Record the face value in the debenture account and add the discount to the cost of acquisition.

Answer 1

Step 1: Issue price of debenture = ₹ 100 – 10% = ₹ 90
\[ \text{Number of debentures} = \frac{₹ 3,60,000}{₹ 90} = 4,000 \text{ debentures} \] Step 2: Journal Entries 1. For taking over business: \[ \begin{aligned} \text{Assets A/c Dr.} & \hspace{5pt} ₹ 6,00,000
\text{To Liabilities A/c} & \hspace{5pt} ₹ 1,00,000
\text{To Vendor A/c} & \hspace{5pt} ₹ 5,00,000
\end{aligned} \] 2. For issue of debentures at discount: \[ \begin{aligned} \text{Vendor A/c Dr.} & \hspace{5pt} ₹ 3,60,000
\text{Discount on Issue of Debentures A/c Dr.} & \hspace{5pt} ₹ 40,000
\text{To 10% Debentures A/c} & \hspace{5pt} ₹ 4,00,000
\end{aligned} \] Narration: Being 4,000 debentures issued at a discount of ₹ 10 per debenture in settlement of purchase consideration.