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 premium of 10%? It was agreed that any fraction of debentures be paid in cash.

Answer 1

Case (a)

Book of B. Ltd.

Journal

Date	Particulars				L.F.	Debit Amount Rs	Credit Amount Rs
	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)
	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)

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)
	Mohan Bros.			Dr.		3,80,000
	Discount on Issue of Debenture A/c			Dr.		42,222
		To Debenture A/c					4,22,200
		To Bank A/c					22
	(Issued 4,222 debentures of Rs 100 each at 10% discount and balance paid in cash)

Case (c)

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)
	Mohan Bros			Dr.		3,80,000
		To Debentures A/c					3,45,400
		To Securities Premium A/c					34,540
		To Bank A/c					60
	(Issued of 3,454 debentures at 10% premium and balance paid in cash)