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Question
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Axiom Ltd. was established to deliver pure and hygienic ayurvedic products at reasonable rates. Currently, it produces more than 100 types of herbal and fruit juices as well as deals in skin care and many immunity boosters. It hired a marketing expert, Mr.Viraj, as an advisor to management with a mandate: to identify new markets and strengthen the company's presence across India. Soon after taking charge, he met the heads of every department, to get ideas on how to meet the company's growth targets. Once the discussions settled, the Finance Manager outlined the capital requirement, estimating that the company would need ₹ 55,00,000. After reviewing the proposal, the board approved a plan to raise funds through the issue of 50,000, 9% Debentures of ₹ 100 each. On 1st April, 2025, the said debentures were issued at a premium of 10% to be redeemed at a premium of 15% at the end of 5 years, issue price being payable on application. The response from investors was overwhelming, and application money received was ₹ 99,00,000. The company made pro rata allotment and refunded the surplus application money. On 1st July, 2025, it took over business from Swaras Ltd. for ₹ 32,00,000. The net assets taken over were valued at ₹ 32,00,000. The company paid 25% of the purchase consideration by cheque, while the remaining amount was paid by issue of 10% Debentures of ₹ 100 each, issued at a premium of 20% premium, redeemable at a premium of 20% after completion of 7 years. The company had balance in Capital Reserve Account of ₹ 2,00,000 and Surplus, i.e., Balance in Statement of Profit & Loss of ₹ 5,00,000. |
Based on the above information, you are required to answer the following questions:
- The entry passed in the books of Axiom Ltd. on allotment of 9% Debentures to raise funds is:
- Debentures Application and Allotment A/c ...Dr. ₹ 55,00,000
To 9% Debentures A/c ₹ 50,00,000
To Securities Premium A/с ₹ 5,00,000 - Debentures Application and Allotment A/c ...Dr. ₹90,00,000
Loss on Issue of Debentures A/c ...Dr. ₹ 7,50,000
To 9% Debentures A/c ₹ 50,00,000
To Securities Premium A/с ₹ 5,00,000
To Premium on Redemption of Debentures A/c ₹ 7,50,000
To Bank A/c ₹ 35,00,000 - Debentures Application and Allotment A/c ...Dr. ₹ 99,00,000
To 9% Debentures A/c ₹ 50,00,000
To Securities Premium A/c ₹ 5,00,000
To Bank A/c ₹ 44,00,000 - Debentures Application and Allotment A/c...Dr.
Loss on Issue of Debentures A/c ...Dr.
To 9% Debentures A/c ₹ 50,00,000
To Securities Premium A/c ₹ 5,00,000
To Premium on Redemption of Debentures A/c ₹ 7,50,000
To Bank A/c ₹ 44,00,000
- Debentures Application and Allotment A/c ...Dr. ₹ 55,00,000
- On purchase of business of Swaras Ltd., there will be
- ₹ 2,00,000 in Goodwill Account.
- ₹ 1,00,000 in Goodwill Account.
- ₹ 2,00,000 in Capital Reserve Account.
- No balance in Goodwill Account and Capital Reserve Account.
- The consideration to Swaras Ltd. would be settled by issuing
- 21,250; 10% Debentures of ₹ 100 each at 20% Premium and ₹ 8,50,000 by cheque.
- 20,000; 10% Debentures of ₹ 100 each at 20% Premium and ₹ 8,00,000 by cheque.
- 22,000; 10% Debentures of ₹ 100 each at 20% Premium and ₹ 7,60,000 by cheque.
- 20,250; 10% Debentures of ₹ 100 each at 20% Premium and ₹ 7,70,000 by cheque.
- The entry passed for settlement of Purchase Consideration to Swaras Ltd. would be:
- Swaras Ltd. ...Dr. ₹ 32,00,000
Loss on Issue of Debentures A/c ...Dr. ₹ 4,00,000
To 10% Debentures A/c ₹ 20,00,000
To Securities Premium A/c ₹ 4,00,000
To Premium on Redemption of Debentures A/c ₹ 4,00,000
To Bank A/c ₹ 8,00,000 - Swaras Ltd. ...Dr. ₹ 24,00,000
Loss on Issue of Debentures A/c ...Dr. ₹ 4,00,000
To 10% Debentures A/c ₹ 20,00,000
To Securities Premium A/c ₹ 4,00,000
To Premium on Redemption of Debentures A/c ₹ 4,00,000 - Swaras Ltd. ...Dr. ₹ 32,00,000
To 10% Debentures A/c ₹ 20,00,000
To Securities Premium A/c ₹ 4,00,000
To Bank A/c ₹ 8,00,000 - Swaras Ltd. ...Dr. ₹ 24,00,000
To 10% Debentures A/c ₹ 20,00,000
To Securities Premium A/c ₹ 4,00,000
- Swaras Ltd. ...Dr. ₹ 32,00,000
- Loss on Issue of Debentures Account is written off by debiting
- Securities Premium Account by ₹ 5,00,000 and Statement of Profit & Loss by ₹ 6,50,000.
- Securities Premium Account by ₹ 9,00,000; Capital Reserve Account by ₹ 2,00,000 and Statement of Profit & Loss by ₹ 50,000.
- Capital Reserve Account by ₹ 2,00,000 and Statement of Profit & Loss by ₹ 9,50,000.
- Securities Premium Account by ₹ 9,00,000 and Statement of Profit & Loss by ₹ 2,50,000.
- Finance Costs as per Statement of Profit & Loss of the company for the year ended 31st March, 2026 would bе
- ₹ 10,50,000.
- ₹ 11,50,000.
- ₹ 8,50,000.
- ₹ 9,50,000.
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Solution
(A)
Debentures Application and Allotment A/c ...Dr. ₹ 99,00,000
Loss on Issue of Debentures A/c ...Dr. ₹ 7,50,000
To 9% Debentures A/c ₹ 50,00,000
To Securities Premium A/c ₹ 5,00,000
To Premium on Redemption of Debentures A/c ₹ 7,50,000
To Bank A/c ₹ 44,00,000
Explanation:
Amount received on applications = ₹ 99,00,000.
Face value of debentures issued:
50,000 × ₹ 100 = ₹ 50,00,000
Securities Premium @ 10%:
₹ 50,00,000 × 10% = ₹ 5,00,000
Premium on Redemption @ 15%:
₹ 50,00,000 × 15% = ₹ 7,50,000
Amount required for issue:
₹ 50,00,000 + ₹ 5,00,000 = ₹ 55,00,000
Surplus application money refunded:
₹ 99,00,000 − ₹ 55,00,000 = ₹ 44,00,000
(B) ₹ 2,00,000 in Capital Reserve Account
Explanation:
Purchase Consideration = ₹ 32,00,000
Net Assets taken over = ₹ 32,00,000
Therefore:
₹ 32,00,000 − ₹ 32,00,000 = Nil
So, no Goodwill or Capital Reserve arises from purchase of business.
(C) 20,000 Debentures and ₹ 8,00,000 by cheque
Explanation:
Purchase Consideration:
₹ 32,00,000
25% paid by cheque:
₹ 32,00,000 × 25% = ₹ 8,00,000
Balance payable by debentures:
₹ 32,00,000 − ₹ 8,00,000 = ₹ 24,00,000
Issue price of each ₹ 100 debenture at 20% premium:
₹ 100 + ₹ 20 = ₹ 120
Number of debentures:
`(24,00,000)/120 = 20,000`
(D)
Swaras Ltd. A/c ...Dr. ₹ 32,00,000
Loss on Issue of Debentures A/c ...Dr. ₹ 4,00,000
To 10% Debentures A/c ₹ 20,00,000
To Securities Premium A/c ₹ 4,00,000
To Premium on Redemption of Debentures A/c ₹ 4,00,000
To Bank A/c ₹ 8,00,000
Explanation:
Face value of 20,000 debentures:
20,000 × ₹ 100 = ₹ 20,00,000
Securities Premium @ 20%:
₹ 20,00,000 × 20% = ₹ 4,00,000
Premium on Redemption @ 20%:
₹ 20,00,000 × 20% = ₹ 4,00,000
(E) Securities Premium ₹ 9,00,000 and Statement of Profit & Loss ₹ 2,50,000
Explanation:
Total Loss on Issue of Debentures:
First issue:
₹ 50,00,000 × 15% = ₹ 7,50,000
Second issue:
₹ 20,00,000 × 20% = ₹ 4,00,000
Total:
₹ 7,50,000 + ₹ 4,00,000 = ₹ 11,50,000
Total Securities Premium:
₹ 5,00,000 + ₹ 4,00,000 = ₹ 9,00,000
Balance charged to Statement of Profit & Loss:
₹ 11,50,000 − ₹ 9,00,000 = ₹ 2,50,000
(F) ₹ 8,50,000
Explanation:
Interest on 9% Debentures for full year:
₹ 50,00,000 × 9% = ₹ 4,50,000
Interest on 10% Debentures from 1 July 2025 to 31 March 2026 (9 months):
₹ 20,00,000 × 10% × `9/12` = ₹ 1,50,000
Loss on Issue charged to Statement of Profit & Loss:
₹ 2,50,000
Total Finance Cost:
₹ 4,50,000 + ₹ 1,50,000 + ₹ 2,50,000 = ₹ 8,50,000
