Question

B. Ltd. purchased assets of the book value of Rs. 4,00,000 and took over the liability of Rs. 50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs. 3,80,000, be paid by issuing debentures of Rs 100 each.

What Journal entries will be made in the following three cases, if debentures are issued: (a) at par; (b) at discount; (c) at a premium of 10%? It was agreed that any fraction of debentures be paid in cash.

(Note: Goodwill Rs. 30,000)

Answer 1

Case (a)

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Sundry Assets A/c   ...Dr.		4,00,000	-
	Goodwill A/c   ....Dr.		30,000	-
	To Sundry Liabilities A/c		-	50,000
	To Mohan Bros.		-	3,80,000
	(Assets and liabilities of Mohan Bros. taken over)
2.	Mohan Bros.   ...Dr.		3,80,000	-
	To Debenture A/c		-	3,80,000
	(3,800 debentures of 100 each issued to Mohan Bros. in consideration of assets and liabilities)

Case (b)

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Sundry Assets A/c   ...Dr.		4,00,000	-
	Goodwill A/c   ....Dr.		30,000	-
	To Sundry Liabilities A/c		-	50,000
	To Mohan Bros.		-	3,80,000
	(Assets and liabilities of Mohan Bros. taken over)
2.	Mohan Bros.   ...Dr.		3,80,000	-
	Discount on Issue of Debenture A/c   ...Dr.		42,220	-
	To Debenture A/c		-	4,22,200
	To Bank A/c		-	20
	(Issued 4,222 debentures of Rs 100 each at 10% discount and balance paid in cash)

Case (c)

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Sundry Assets A/c   ...Dr.		4,00,000	-
	Goodwill A/c   ....Dr.		30,000	-
	To Sundry Liabilities A/c		-	50,000
	To Mohan Bros.		-	3,80,000
	(Assets and liabilities of Mohan Bros. taken over)
2.	Mohan Bros.   ...Dr.		3,80,000	-
	To Debenture A/c		-	3,45,400
	To Securities Premium A/c		-	34,540
	To Bank A/c		-	60
	(Issue of 3,454 debentures at 10% premium and balance paid in cash)