Question

Samprag Ltd. purchased business from India Bulls Ltd.for ₹ 6,00,000 payable 10% by a cheque and the balance by the issue of fully paid 10% Debentures of ₹ 100 each at a premium of 20%. The assets and liabilities consisted of the following:

Building - ₹ 3,00,000; Plant and Machinery - ₹ 1,00,000; Stock - ₹ 2,00,000; Sundry Debtors - ₹ 1,00,000; Sundry Creditors - ₹ 80,000.

Pass the necessary Journal entries in the books of Samprag Ltd.

Answer 1

Journal Entries in the Books of Samprag Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Business Purchase A/c   ...Dr.		6,00,000
	To India Bulls Ltd. A/c			6,00,000
	(Being purchase consideration due to India Bulls Ltd.)
2.	Building A/c   ...Dr.		3,00,000
	Plant and Machinery A/c   ...Dr.		1,00,000
	Stock A/c   ...Dr.		2,00,000
	Sundry Debtors A/c   ...Dr.		1,00,000
	To Sundry Creditors A/c			80,000
	To Business Purchase A/c			6,00,000
	To Capital Reserve A/c			20,000
	(Being assets and liabilities of India Bulls Ltd. taken over and excess of net assets over purchase consideration transferred to Capital Reserve)
3.	India Bulls Ltd. A/c   ...Dr.		6,00,000
	To Bank A/c			60,000
	To 10% Debentures A/c			4,50,000
	To Securities Premium A/c			90,000
	(Being purchase consideration discharged 10% by cheque and balance by issue of 10% Debentures at 20% premium)

Working Notes:

1. Net Assets:

Assets = ₹ 3,00,000 + ₹ 1,00,000 + ₹ 2,00,000 + ₹ 1,00,000
= ₹ 7,00,000

Less: Liabilities = ₹ 80,000

Net Assets = ₹ 6,20,000

Purchase Consideration = ₹ 6,00,000

Capital Reserve = ₹ 6,20,000 − ₹ 6,00,000 = ₹ 20,000

2. Payment by Cheque:

₹ 6,00,000 × 10% = ₹ 60,000

Balance payable by Debentures = ₹ 6,00,000 − ₹ 60,000 = ₹ 5,40,000

Issue price of each Debenture = ₹ 100 + 20% = ₹ 120

Number of Debentures = ₹ 5,40,000 ÷ ₹ 120 = 4,500 Debentures

Face value = 4,500 × ₹ 100 = ₹ 4,50,000

Securities Premium = 4,500 × ₹ 20 = ₹ 90,000