Question

Mangla Cortubi Ltd. took over a unit of Mangla Tubes Ltd. consisting of Machinery - ₹ 40,00,000, Tools and Dies - ₹ 10,00,000 and Liabilities of ₹ 25,00,000 for a consideration of ₹ 20,00,000. The consideration was paid by issuing Equity Shares of ₹ 10 each at a premium of ₹ 5.

You are required to pass the Journal entries in the books of Mangla Cortubi Ltd.

Answer 1

Journal Entries in the Books of Mangla Cortubi Ltd.
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
1.	Machinery A/c   ...Dr.		40,00,000
	Tools and Dies A/c   ...Dr.		10,00,000
	To Sundry Liabilities A/c			25,00,000
	To Mangla Tubes Ltd. A/c			20,00,000
	To Capital Reserve A/c			5,00,000
	(Assets and liabilities taken over from Mangla Tubes Ltd.)
2.	Mangla Tubes Ltd. A/c   ...Dr.		20,00,000
	To Equity Share Capital A/c			13,33,330
	To Securities Premium A/c			6,66,665
	To Bank A/c			5
	(1,33,333 Equity Shares of ₹ 10 each issued at a premium of ₹ 5 per share and balance ₹ 5 paid by Bank)

Working Note:

Net Assets Taken Over:

₹ 40,00,000 + ₹ 10,00,000 − ₹ 25,00,000 = ₹ 25,00,000

Purchase Consideration: ₹ 20,00,000

Since Net Assets exceed Purchase Consideration:

₹ 25,00,000 − ₹ 20,00,000 = ₹ 5,00,000​

Therefore, Capital Reserve = ₹ 5,00,000.

Issue price per Equity Share:

₹ 10 + ₹ 5 = ₹ 15

Number of shares that can be issued:

₹ 20,00,000 ÷ ₹ 15 = 1,33,333.33

Since fractional shares cannot be issued, 1,33,333 shares are issued.

Value of shares issued:

1,33,333 × ₹ 15 = ₹ 19,99,995

Balance paid by Bank:

₹ 20,00,000 − ₹ 19,99,995 = ₹ 5