Question

Sandhya Ltd. took over the assets of ₹50,00,000 and liabilities of ₹7,00,000 of Guman Ltd. for purchase consideration of ₹40,00,000. The payment of purchase consideration was made by issue of 9% debentures of ₹100 each at a premium of 25% to Guman Ltd.
Pass necessary journal entries for the above transactions in the books of Sandhya Ltd.

Hint:

When debentures are issued at premium, use the total consideration ÷ issue price to calculate number of debentures.

Answer 1

Step 1: Calculate net assets
Assets taken over = ₹50,00,000
Liabilities taken over = ₹7,00,000
Purchase consideration = ₹40,00,000
Step 2: Calculate issue price of debentures
Face value per debenture = ₹100
Issued at a premium of 25% $\Rightarrow$ Issue price = ₹125
Number of debentures issued = ₹40,00,000 ÷ ₹125 = 32,000 debentures
Journal Entries:
\begin{verbatim} 1. Business Purchase A/c Dr. 40,00,000 To Guman Ltd. 40,00,000 (Being business purchased for consideration) 2. Assets A/c Dr. 50,00,000 To Liabilities A/c 7,00,000 To Business Purchase A/c 40,00,000 To Capital Reserve A/c 3,00,000 (Being assets and liabilities taken over and balancing capital reserve created) 3. Guman Ltd. A/c Dr. 40,00,000 To 9% Debentures A/c 32,00,000 To Securities Premium A/c 8,00,000 (Being issue of 32,000 9% debentures of ₹100 each at 25% premium) \end{verbatim}