Question

Surya Ltd. took over assets of ₹ 40,00,000 and liabilities of ₹ 7,50,000 of Moon Ltd. Surya Ltd. paid the purchase consideration by issuing 17,600; 10% Preference Shares of ₹ 100 each at a premium of 25% and ₹ 12,00,000 by Bank Draft. Calculate purchase consideration and pass the necessary Journal entries in the book of Surya Ltd.

Answer 1

Journal Entries in the Books of Surya Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Business Purchase A/c   ...Dr.		34,00,000
	To Moon Ltd. A/c			34,00,000
	(Purchase consideration due to Moon Ltd.)
2.	Sundry Assets A/c   ...Dr.		40,00,000
	Goodwill A/c   ...Dr.		1,50,000
	To Sundry Liabilities A/c			7,50,000
	To Business Purchase A/c			34,00,000
	(Assets and liabilities of Moon Ltd. taken over and goodwill recorded)
3.	Moon Ltd. A/c   ...Dr.		34,00,000
	To 10% Preference Share Capital A/c			17,60,000
	To Securities Premium A/c			4,40,000
	To Bank A/c			12,00,000
	(Purchase consideration discharged by issue of 17,600 10% Preference Shares of ₹ 100 each at 25% premium and Bank Draft)

Working Note:

1. Value of 10% Preference Shares issued:

Face value per share = ₹ 100

Premium = 25% of ₹100 = ₹ 25

Issue price per share:

₹ 100 + ₹ 25 = ₹ 125

17,600 × ₹ 125 = ₹ 22,00,000

2. Purchase Consideration:

₹ 22,00,000 + ₹ 12,00,000 = ₹ 34,00,000

3. Net Assets Taken Over:

₹ 40,00,000 − ₹ 7,50,000 = ₹ 32,50,000

Since Purchase Consideration exceeds Net Assets:

₹ 34,00,000 − ₹ 32,50,000 = ₹ 1,50,000

Therefore, Goodwill = ₹ 1,50,000.