Question

Gunjan Limited purchased a running business from Vrindavan Limited for a sum of ₹ 25,00,000, payable ₹ 4,00,000 by cheque and for the balance issued 8% Debentures of ₹ 100 each at 5% premium.

The assets and liabilities consisted of the following:

Particulars	Book Value (₹)	Agreed Value (₹)
Land and Buildings	5,00,000	9,00,000
Plant and Machinery	10,00,000	8,00,000
Patents	1,00,000	40,000
Sundry Debtors	8,00,000	Subject to 5% Provision
Stock	6,00,000	4,40,000
Sundry Creditors	1,20,000	1,20,000

Record necessary journal entries in the books of Gunjan Limited.

Answer 1

In the Books of Gunjan Limited
Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Land and Buildings A/c   ...Dr.		9,00,000	-
	Plant and Machinery A/c   ...Dr.		8,00,000	-
	Patents A/c   ...Dr.		40,000	-
	Sundry Debtors A/c   ...Dr.		8,00,000	-
	Stock A/c   ...Dr.		4,40,000	-
	To Provision for Doubtful Debts A/c		-	40,000
	To Sundry Creditors A/c		-	1,20,000
	To Vrindavan Ltd. A/c		-	25,00,000
	To Capital Reserve A/c		-	3,20,000
	(Being assets and liabilities taken over.)
2.	Vrindavan Ltd. A/c   ...Dr.		25,00,000	-
	To Bank A/c		-	4,00,000
	To 8% Debentures A/c		-	20,00,000
	To Securities Premium A/c		-	1,00,000
	(Being payment made by cheque and issue of 20,000 debentures at 5% premium.)

Working Note:

1. Debentures issued = `"₹ 21,00,000"/"₹ 105"` 
= 20,000 debentures of ₹ 100 each.

2. Provision on Debtors = 5% of ₹ 8,00,000 
= ₹ 40,000

3. Capital Reserve = Total agreed value – (Liabilities + Purchase consideration) 
= ₹ 29,40,000 – ₹ 1,20,000 – ₹ 25,00,000 
= ₹ 3,20,000