Question

Geetika Ltd. purchased running business from Sanchar Ltd. for ₹ 15,00,000 payable 10% by cheque and the balance by the issue of fully paid Equity Shares of ₹ 100 each at a premium of 20%. The assets and liabilities consisted of the following:

Particulars	Book Value (₹)	Agreed Value (₹)
Building	5,00,000	6,50,000
Plant and Machinery	3,00,000	2,50,000
Stock	6,00,000	5,00,000
Trade Receivables	2,80,000	2,50,000
Trade Payables	1,80,000	2,00,000

Pass the necessary Journal entries in the books of Geetika Ltd.

Answer 1

Journal Entries in the Books of Geetika Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Business Purchase A/c   ...Dr.		15,00,000
	To Sanchar Ltd. A/c			15,00,000
	(Purchase consideration due to Sanchar Ltd.)
2.	Building A/c   ...Dr.		6,50,000
	Plant and Machinery A/c   ...Dr.		2,50,000
	Stock A/c   ...Dr.		5,00,000
	Trade Receivables A/c   ...Dr.		2,50,000
	Goodwill A/c   ...Dr.		50,000
	To Trade Payables A/c			2,00,000
	To Business Purchase A/c			15,00,000
	(Assets and liabilities taken over at agreed values and goodwill recorded)
3.	Sanchar Ltd. A/c   ...Dr.		15,00,000
	To Bank A/c			1,50,000
	To Equity Share Capital A/c			11,25,000
	To Securities Premium A/c			2,25,000
	(Purchase consideration discharged by cheque and issue of 11,250 Equity Shares of ₹ 100 each at a premium of 20%)

Working Note:

Purchase Consideration: ₹ 15,00,000

Amount payable by cheque:

₹ 15,00,000 × 10% = ₹ 1,50,000

Amount payable by issue of shares:

₹ 15,00,000 − ₹ 1,50,000 = ₹ 13,50,000

Issue price per share:

₹ 100 + 20% of ₹ 100 = ₹ 120

Number of shares issued:

`(13,50,000)/120 = 11,250` shares

Calculation of Goodwill:

Assets taken over at agreed values:

₹ 6,50,000 + ₹ 2,50,000 + ₹ 5,00,000 + ₹ 2,50,000 = ₹ 16,50,000

Less: Trade Payables:

₹ 16,50,000 − ₹ 2,00,000 = ₹ 14,50,000

Since Purchase Consideration exceeds Net Assets:

₹ 15,00,000 − ₹ 14,50,000 = ₹ 50,000

Therefore, Goodwill = ₹ 50,000.