Question

M Ltd. issued 10,000, 8% debentures of Rs. 100 each at a premium of 10% on 1.1.2019. It purchased sundry assets of the value of Rs. 2,50,000 and took over the liabilities of Rs. 60,000 and issued 8% debentures at a discount of 5% to the vendor. On the same date, it took a loan from the Bank for Rs. 1,00,000 and issued 8% debentures as Collateral Security. Record the necessary journal entries in the books of M Ltd. and prepare the extract of the balance sheet on 31.03.2020. Ignore interest.

Answer 1

Journal of M Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2019
Jan 01	Bank A/c   ...Dr.		11,00,000	-
	To Debenture Application & Allotment A/c		-	11,00,000
	(Being application money received on cash issue)
Jan 01	Debenture Application & Allotment A/c   ...Dr.		11,00,000	-
	To 8% Debentures A/c		-	10,00,000
	To Securities Premium Reserve A/c		-	1,00,000
	(Being debentures allotted at 10% premium)
Jan 01	Sundry Assets A/c   ...Dr.		2,50,000	-
	To Sundry Liabilities A/c		-	60,000
	To Vendor A/c		-	1,90,000
	(Being business assets and liabilities taken over)
Jan 01	Vendor A/c   ...Dr.		1,90,000	-
	Discount on Issue of Debentures A/c   ...Dr.		10,000	-
	To 8% Debentures A/c		-	2,00,000
	(Being 2,000 debentures issued at a 5% discount)
Jan 01	Bank A/c   ...Dr.		1,00,000	-
	To Bank Loan A/c		-	1,00,000
	(Being a bank loan raised)
Jan 01	Debenture Suspense A/c   ...Dr.		1,00,000	-
	To 8% Debentures A/c		-	1,00,000
	(Being debentures deposited as collateral security)
2019 Mar 31	Securities Premium Reserve A/c   ...Dr.		10,000	-
	To Discount on Issue of Debentures A/c		-	10,000
	(Being discount written off from the existing premium balance)

 

Balance Sheet of M Ltd. (Extract as on March 31, 2020)
Particulars	Note No.	Amount (₹)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Reserves and Surplus	1	90,000
2. Non-Current Liabilities
(a) Long-term borrowings	2	13,00,000
Total		13,90,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets	3	2,50,000
2. Current Assets
(a) Cash and cash equivalents	4	12,00,000
Total		14,50,000

Notes to Accounts

Note No.	Particulars	Amount (₹)	Amount (₹)
1	Reserves and Surplus
	Securities Premium Reserve (1,00,000 −10,000)		90,000
2	Long-term Borrowings		13,00,000
	8% Debentures (10,00,000 cash + 2,00,000 Vendor)	12,00,000
	Bank Loan	1,00,000
	Collateral 8% Debentures	1,00,000
	Less: Debenture Suspense A/c	(1,00,000)
3	Property, Plant and Equipment
	Sundry Assets		2,50,000
4	Cash and Cash Equivalents
	Cash at Bank (11,00,000 issue + 1,00,000)		12,00,000