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Question
Green Ltd. purchased the assets of Strong Ltd. for ₹ 40,00,000 and took over liabilities of ₹ 7,00,000 for ₹ 32,40,000. Payment was made by issuing 10% Debentures of ₹ 100 each at a discount of 10%. Pass the necessary Journal entries in the books of Green Ltd.
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Solution
| Journal Entries In the Books of Green Ltd. |
||||
|---|---|---|---|---|
| Date | Particulars | L.F. | Dr. (₹) | Cr. (₹) |
| 1. | Sundry Assets A/c ...Dr. | 40,00,000 | ||
| To Sundry Liabilities A/c | 7,00,000 | |||
| To Strong Ltd. A/c | 32,40,000 | |||
| To Capital Reserve A/c | 60,000 | |||
| (Assets and liabilities of Strong Ltd. taken over for a purchase consideration of ₹ 32,40,000) | ||||
| 2. | Strong Ltd. A/c ...Dr. | 32,40,000 | ||
| Discount on Issue of Debentures A/c ...Dr. | 3,60,000 | |||
| To 10% Debentures A/c | 36,00,000 | |||
| (36,000, 10% Debentures of ₹ 100 each issued at 10% discount in payment of purchase consideration) | ||||
Working note:
Net Assets taken over:
₹ 40,00,000 − ₹ 7,00,000 = ₹ 33,00,000
Purchase Consideration:
₹ 32,40,000
Therefore, Capital Reserve:
₹ 33,00,000 − ₹ 32,40,000 = ₹ 60,000
Issue price of each ₹ 100 Debenture at 10% discount:
₹ 100 − ₹ 10 = ₹ 90
Number of Debentures issued:
`(32,40,000)/90 = 36,000` Debentures
Face value of Debentures:
36,000 × ₹ 100 = ₹ 36,00,000
Discount on Issue of Debentures:
₹ 36,00,000 − ₹ 32,40,000 = ₹ 3,60,000
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