Question

A Company purchased Assets of the book value of ₹ 12,00,000 and Liabilities of ₹ 2,20,000 of another Company for a purchase consideration of  ₹9,40,000. The purchase consideration was discharged by the issue of debentures of ₹ 500 each at a discount of 6%. Pass journal entries in the books of purchasing company. It is the policy of the Company to write off all capital losses in the first year itself.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Sundry Assets A/c   ...Dr.		12,00,000	-
	To Sundry Liabilities A/c		-	2,20,000
	To Capital Reserve A/c		-	40,000
	To Vendor’s A/c		-	9,40,000
	(Being business purchased.)
2.	Vendor’s A/c   ...Dr.		9,40,000	-
	Discount on Issue of Debentures A/c   ...Dr.		60,000	-
	To Debentures A/c (2,000 × ₹ 500)		-	10,00,000
	(Being issue of 2,000 Debentures of ₹ 500 each at 6% discount.)
3.	Capital Reserve A/c   ...Dr.		40,000	-
	Statement of Profit & Loss A/c   ...Dr.		20,000	-
	To Discount on Issue of Debentures A/c		-	60,000
	(Being discount on issue of Debentures written off.)

Working Note:

1. Total discount = 6% of ₹ 10,00,000 = ₹ 60,000
2. Number of debentures = ₹ 9,40,000 ÷ ₹ 470 = 2,000
3. ₹ 40,000 of the discount is adjusted against Capital Reserve and ₹ 20,000 against Profit & Loss A/c.