Question

Madhur Ltd. took over the assets of ₹5,00,000 and Liabilities of ₹40,000 of Rasova Ltd. for a consideration of ₹4,00,000. 20% was paid by a cheque and the balance by issue of fully paid equity shares of ₹100 each at a premium of 60%. Show necessary journal entries for these transactions in the books of Madhur Ltd.

Answer 1

Journal entries in the books of Madhur Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Assets A/c     ...Dr.		5,00,000
	To Liabilities A/c			40,000
	To Rasova Ltd. A/c			4,00,000
	To Capital Reserve A/c			60,000
	(Being assets and liabilities taken over and balance treated as capital reserve)
2.	Rasova Ltd. A/c     ...Dr.		4,00,000
	To Bank A/c			80,000
	To Equity Share Capital A/c			2,00,000
	To Securities Premium Reserve A/c			1,20,000
	(Being payment of consideration, 20% by cheque and 2,000 equity shares of ₹100 each at 60% premium)

Working Note:

1) Net Assets = ₹5,00,000 – ₹40,000 = ₹4,60,000

2) Capital Reserve = ₹4,60,000 – ₹4,00,000 = ₹60,000

3) Payment Split:

• 20% by cheque = ₹80,000

• Balance 80% = ₹3,20,000 paid by issue of shares

• Issue Price per Share = ₹100 + 60% premium = ₹160

• No. of Shares Issued = ₹3,20,000 ÷ ₹160 = 2,000 shares