Question

Vifa Plus Ltd. launched its brand “VP” in 2015 by opening its first store in Sector 18, Noida, Uttar Pradesh. The brand was launched with a vision to provide affordable fashion for all genders. In consonance of the vision, it started by sourcing and selling quality products in modern retail environment. After making a presence in the retail space with 150+ stores across India, company decided to foray into customisation services for its premium customers. It was decided that a company with similar operations shall be acquired and hence Cotton Plus Ltd., which had outlets in premium areas of Delhi-NCR was acquired. Cotton Plus Ltd. has following assets and liabilities as at 1st April, 2025: Particulars Book Value (₹) Agreed Value (₹) Shops & Showrooms 28,00,000 30,00,000 Billboards & Hoardings 2,20,000 1,80,000 Furniture, Fixtures and Fittings 4,40,000 4,20,000 Design Patents 6,00,000 8,00,000 Inventories 1,60,000 2,00,000 Trade Receivables 90,000 80,000 Trade Payables 70,000 60,000 It was agreed that Cotton Plus Ltd. would be paid 20% purchase price by issuing bank draft of ₹ 9,45,000 and balance by issue of 9% Debentures of ₹ 100 each at a premium of 50%, to be redeemed at 100% premium at the end of five years. To make these shops and showrooms operational,Vifa Plus Ltd.would require ₹ 32,00,000 for which it took 9% Loan from HDFC Ltd. and issued 35,000, 10% Debentures of ₹ 100 each as collateral security on 1st May, 2025.

Based on the above information, you are required to answer the following questions:

1. The company has issued 35,000, 10% Debentures as Collateral Security to securitise Bank Loan for which entry has not been passed in the books of accounts. Whether Vifa Plus Ltd. is required to disclose it in the financial statements?
   1. Yes, in the Notes to Accounts.
   2. No, disclosure is not required since entry has not been passed in the books.
   3. Depends upon the management of the company.
   4. Debentures should be disclosed under Long-term Borrowings.
2. The purchase consideration payable to Cotton Plus Ltd. is
   1. ₹ 46,20,000.
   2. ₹ 46,50,000.
   3. ₹ 47,25,000.
   4. ₹ 37,80,000.
3. The number of 9% Debentures issued to Cotton Plus Ltd. is
   1. 25,000.
   2. 25,200.
   3. 24,200.
   4. 25,500.
4. On purchase of business of Cotton Plus Ltd., there will be a balance of ______ in the books of Vifa Plus Ltd.
   1. ₹ 1,05,000 in Goodwill Account
   2. ₹ 1,05,000 in Capital Reserve Account
   3. ₹ 75,000 in Goodwill Account
   4. ₹ 75,000 in Capital Reserve Account
5. The entry passed for writing off Loss on Issue of Debentures for the year ended 31st March, 2026 would bе:
   1. Statement of Profit & Loss   ...Dr.         ₹ 12,60,000
           To Loss on Issue of Debentures A/c             ₹ 12,60,000
   2. Statement of Profit & Loss   ...Dr.         ₹ 25,20,000
           To Loss on Issue of Debentures A/c             ₹ 25,20,000
   3. Securities Premium A/c   ...Dr.         ₹ 13,60,000
      Statement of Profit & Loss (Finance Cost)   ...Dr     ₹ 11,60,000
           To Loss on Issue of Debentures A/c             ₹ 25,20,000
   4. Securities Premium A/c   ...Dr.         ₹ 12,60,000
      Statement of Profit & Loss (Finance Cost)   ...Dr     ₹ 12,60,000
           To Loss on Issue of Debentures A/c             ₹ 25,20,000
6. The Finance Costs transferred to Statement of Profit & Loss of the company for the year ended 31st March, 2026 would be
   1. ₹ 18,92,000.
   2. ₹ 18,50,000.
   3. ₹ 17,60,800.
   4. ₹ 17,50,800.

Answer 1

(A) Yes, in the Notes to Accounts

Explanation:

Debentures issued as collateral security are given only as additional security against the bank loan. Even if no journal entry is passed, the collateral security is disclosed in the Notes to Accounts.

(B) ₹ 47,25,000

Explanation:

₹ 9,45,000 represents 20% of Purchase Consideration.

Purchase Consideration = `(9,45,000 xx 100)/20 = 47,25,000`

(C) 25,200 Debentures

Explanation:

Balance 80% of Purchase Consideration:

₹ 47,25,000 − ₹ 9,45,000 = ₹ 37,80,000

Issue price of each ₹100 debenture at 50% premium:

₹ 100 + ₹ 50 = ₹ 150

No. of Debentures = `(37,80,000)/150 = 25,200`

(D) ₹ 1,05,000 in Goodwill Account

Explanation:

Agreed value of assets:

₹ 30,00,000 + ₹ 1,80,000 + ₹ 4,20,000 + ₹ 8,00,000 + ₹ 2,00,000 + ₹ 80,000 = ₹ 46,80,000

Less: Liabilities:

₹ 46,80,000 − ₹ 60,000 = ₹ 46,20,000

Since Purchase Consideration is ₹ 47,25,000:

₹ 47,25,000 − ₹ 46,20,000 = ₹ 1,05,000​

Therefore, Goodwill = ₹ 1,05,000.

(E)

Securities Premium A/c   ...Dr.         ₹ 12,60,000
Statement of Profit & Loss (Finance Cost)   ...Dr     ₹ 12,60,000
     To Loss on Issue of Debentures A/c             ₹ 25,20,000

Explanation:

Face value of debentures:

25,200 × ₹ 100 = ₹ 25,20,000

Since they are redeemable at 100% premium, Loss on Issue of Debentures:

₹ 25,20,000 × 100% = ₹ 25,20,000

Securities Premium arising on issue:

25,200 × ₹ 50 = ₹ 12,60,000

Balance charged to Statement of Profit & Loss:

₹ 25,20,000 − ₹ 12,60,000 = ₹ 12,60,000

(F) ₹17,50,800

Explanation:

Loss on Issue charged to P&L:

₹ 12,60,000

Interest on 9% Debentures:

₹ 25,20,000 × 9% = ₹ 2,26,800

Interest on HDFC Loan for 11 months:

`32,00,000 xx 9% xx 11/12 = 2,64,000`

Therefore, total Finance Cost:

₹ 12,60,000 + ₹ 2,26,800 + ₹ 2,64,000

= ₹ 17,50,800