Question

Raunak Cotton Ltd. purchased machinery of ₹ 6,80,000 from Heavy Machines Ltd. The payment to Heavy Machines Ltd. was made by issuing 10,500 equity shares of ₹ 50 each at a premium of 20% and the balance through a cheque.

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

Answer 1

Journal Entries in the books of Raunak Cotton Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Machinery A/c   ...Dr.		6,80,000
	To Heavy Machines Ltd.			6,80,000
	(Being machinery purchased from Heavy Machines Ltd.)
2.	Heavy Machines Ltd. ...Dr.		6,80,000
	To Equity Share Capital A/c			5,25,000
	To Securities Premium A/c			1,05,000
	To Bank A/c (Balance)			50,000
	(Being payment made by the issue of shares and a cheque)

Working Notes:

1. Calculate Share Values:

Face Value = ₹ 50

Premium (20% of 50) = ₹ 10

Issue Price = 50 + 10

= 60

2. Total Value of Shares Issued:

= 10,500 shares × 60

= 6,30,000

3. Calculate Bank Payment:

Total Purchase Price = ₹ 6,80,000

Less: Share Payment = ₹ 6,30,000

Balance paid by Cheque = ₹ 50,000