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 through a bank draft of ₹ 5,00,000 and the remaining by issue of 8% Debentures at a discount of 10%.

Record necessary Journal entries in the books of Gundola Ltd. for the above transactions.

Answer 1

Journal Entries In the Books of Gundola Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Sundry Assets A/c   ...Dr.		9,00,000
	Goodwill A/c   ...Dr.		8,00,000
	To Sundry Liabilities A/c			3,00,000
	To AK Ltd. A/c			14,00,000
	(Assets and liabilities of AK Ltd. taken over for an agreed purchase consideration of ₹ 14,00,000)
2.	AK Ltd. A/c   ...Dr.		14,00,000
	Discount on Issue of Debentures A/c   ...Dr.		1,00,000
	To Bank A/c			5,00,000
	To 8% Debentures A/c			10,00,000
	(Purchase consideration paid by bank draft of ₹ 5,00,000 and balance by issue of 10,000, 8% Debentures of ₹ 100 each at 10% discount)

Working note:

Net Assets taken over:

₹ 9,00,000 − ₹ 3,00,000 = ₹ 6,00,000

Purchase Consideration:

₹ 14,00,000

Therefore, Goodwill:

₹ 14,00,000 − ₹ 6,00,000 = ₹ 8,00,000

Amount paid by Bank Draft:

₹ 5,00,000

Balance payable by Debentures:

₹ 14,00,000 − ₹ 5,00,000 = ₹ 9,00,000

Issue price of each ₹ 100 Debenture at 10% discount:

₹ 100 − ₹ 10 = ₹ 90

Number of Debentures issued:

`(9,00,000)/90 = 10,000` Debentures

Discount on Issue:

10,000 × ₹ 10 = ₹ 1,00,000