Question

Tagore Ltd. purchased a running business from Tulsi Bros. for a sum of ₹60,00,000 payable by the issue of fully paid equity shares of ₹20 each at a premium of 50%. The assets and liabilities consisted of the following:

	Book Value (₹)	Agreed Value (₹)
Plant and Machinery	40,00,000	30,00,000
Stock	15,00,000	19,70,000
Sundry Debtors	10,00,000	Subject to Provision for Doubtful Debts @ 5%
Sundry Creditors	3,00,000	3,00,000

Pass the necessary journal entries in the books of Tagore Ltd.

Answer 1

Journal entries In the books of Tagore Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Plant and Machinery A/c     ...Dr.		30,00,000
	Stock A/c     ...Dr.		19,70,000
	Sundry Debtors A/c     ...Dr.		10,00,000
	Goodwill A/c     ...Dr.		3,80,000
	To Provision for Doubtful Debts A/c			50,000
	To Sundry Creditors A/c			3,00,000
	To Tulsi Bros. A/c			60,00,000
	(Being business purchased from Tulsi Bros. for ₹60,00,000)
2.	Tulsi Bros. A/c     ...Dr.		60,00,000
	To Equity Share Capital A/c			40,00,000
	To Securities Premium Reserve A/c			20,00,000
	(Being purchase consideration discharged by issue of 2,00,000 equity shares of ₹20 each at a premium of 50%)

Working note:

Purchase Consideration = ₹60,00,000

Calculate Agreed Value of Assets:

Plant and Machinery = ₹30,00,000
Stock = ₹19,70,000
Sundry Debtors = ₹10,00,000 – 5% Provision = ₹9,50,000
Total Assets = ₹30,00,000 + ₹19,70,000 + ₹9,50,000 = ₹59,20,000

Deduct Liabilities:

Sundry Creditors = ₹3,00,000
Net Assets = ₹59,20,000 – ₹3,00,000 = ₹56,20,000

Calculate Goodwill:

Purchase Consideration = ₹60,00,000
Net Assets = ₹56,20,000
Goodwill = ₹3,80,000

Determine Number of Shares Issued:

Face value per share = ₹20
Premium = 50% of ₹20 = ₹10
Issue price = ₹30 per share
Shares issued = ₹60,00,000 ÷ ₹30 = 2,00,000 shares