Question

Zee Ltd. purchased a running business from Rainbow Ltd. for a sum of ₹ 6,60,000. Zee Ltd. paid 5% of the purchase consideration by drawing a Promissory Note in favour of Rainbow Ltd. and the balance by the issue of fully paid 7% Debentures of ₹ 100 each at a premium of 10%. The assets and liabilities of Rainbow Ltd. consisted of:

	(₹)
Fixed Assets	6,50,000
Sundry Creditors	80,000

You are required to pass the necessary journal entries in the books of Zee Ltd.

Answer 1

Journal In the Books of Zee Ltd.
Date	Particulars	L.F.	Amount (Dr.)	Amount (Cr.)
	Fixed Assets A/c    ...Dr.		6,50,000	-
	Goodwill A/c    ...Dr.		90,000	-
	To Creditors A/c		-	80,000
	To Rainbow Ltd. A/c		-	6,60,000
	(Being business purchased from Rainbow Ltd.)
	Rainbow Ltd.    ...Dr.		6,60,000	-
	To Bills Payable A/c		-	33,000
	To 7% Debentures A/c		-	5,70,000
	To Securities Premium Reserve A/c		-	57,000
	(Being Rainbow A/c settled)

Working Notes:

Number of Debentures issued = `(6,27,000)/(100+10)`

= `(6,27,000)/110`

= 5,700 Debentures