Question

Kuber Ltd. (an unlisted company) on 1st April 2018 acquired assets of the value of ₹7,00,000 and liabilities worth ₹ 80,000 from Varun Ltd., at an agreed value of ₹ 6,30,000. Kuber Ltd. issued 10% Debentures of ₹ 100 each at a premium of 5% in full satisfaction of purchase consideration. The debentures were redeemable on 31st October, 2023 at a premium of 4%. Pass journal entries to record the above including redemption of debentures.

Answer 1

Journal Entries of Kuber Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2018
Apr 1	Assets A/c   ...Dr.		7,00,000	-
	Goodwill A/c   ...Dr.		10,000	-
	To Liabilities A/c		-	80,000
	To Varun Ltd. A/c		-	6,30,000
	(Being to record the purchase of assets and liabilities from Varun Ltd.)
Apr 1	Varun Ltd.   ...Dr.		6,30,000	-
	To 10% Debentures A/c		-	6,00,000
	To Securities Premium A/c		-	30,000
	(Being debentures issued at 5% premium in settlement)
2023
Oct 31	Profit and Loss A/c   ...Dr.		60,000	-
	To Debenture Redemption Reserve A/c		-	60,000
	(Being DRR created out of profits)
Apr 30	Debenture Redemption Investment A/c   ...Dr.		90,000	-
	To Bank A/c		-	90,000
	(Being DRI made as per Companies Act requirement)
Oct 31	10% Debentures A/c   ...Dr.		6,00,000	-
	Premium on Redemption of Debentures A/c     ...Dr.		24,000	-
	To Debentureholders A/c		-	6,24,000
	(Being debentures due for redemption with premium)
Oct 31	Debentureholders A/c   ...Dr.		6,24,000	-
	To Bank A/c		-	6,24,000
	(Being payment made to debentureholders)
Oct 31	Debenture Redemption Reserve A/c   ...Dr.		60,000	-
	To General Reserve A/c		-	60,000
	(Being DRR transferred after redemption)

Working Notes:

• Purchase consideration = ₹ 6,30,000
• Assets taken over = ₹ 7,00,000
• Liabilities taken over = ₹ 80,000
• Net assets = ₹ 7,00,000 − ₹ 80,000 = ₹ 6,20,000
• Goodwill = ₹ 6,30,000 − ₹ 6,20,000 = ₹ 10,000

Debenture Issue:

• Debentures issued at 5% premium → issue price = ₹ 105
• Debentures issued = ₹ 6,30,000 ÷ 105 = 6,000 debentures
• Face value of debentures = 6,000 × ₹100 = ₹ 6,00,000
• Securities premium = 6,000 × ₹ 5 = ₹ 30,000

Redemption:

• Redemption premium = 4% of ₹ 6,00,000 = ₹ 24,000
• DRR required (10%) = ₹ 60,000
• DRI required (15%) = ₹ 90,000