Question

Neo Ltd. took over the assets of ₹ 25,00,000 and liabilities of ₹ 12,00,000 of Madura Ltd. for a purchase consideration of ₹ 18,00,000. Neo Ltd. issued 11% debentures of ₹ 100 each at a discount of 10% in full satisfaction of the purchase consideration.

Pass the necessary journal entries for the above transactions in the books of Neo Ltd.

Answer 1

Journal Entries in the books of Neo Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Sundry Assets A/c ...Dr.		25,00,000	-
	Goodwill A/c (Balancing figure) ...Dr.		5,00,000	-
	To Sundry Liabilities A/c		-	12,00,000
	To Madura Ltd. (Purchase Consideration)		-	18,00,000
	(Being assets and liabilities taken over)
2.	Madura Ltd. ...Dr.		18,00,000	-
	Discount on Issue of Debentures A/c ...Dr.		2,00,000	-
	To 11% Debentures A/c		-	20,00,000
	(Being 20,000 debentures issued at 10% discount)

Working Notes:

1. Calculation of Goodwill/Capital Reserve:

Net Assets = Assets − Liabilities

= 25,00,000 − 12,00,000

= 13,00,000

Since the purchase consideration (18,00,000) is higher than the net assets (13,00,000), the difference is goodwill.

Goodwill = 18,00,000 − 13,00,000

= 5,00,000

2. Calculation of the number of debentures to be issued:

Purchase consideration = 18,00,000

Issue price per debenture = 100 − 10

= 90

No. of debentures = `(18,00,000)/90`

= 20,000 debentures

3. Value of debentures and discount:

Face Value = 20,000 × 100

= ₹ 20,00,000

Discount = 20,00,000 − 18,00,000

2,00,000