Question

Neeraj Ltd. took over business of Ajay Enterprises on 1–04–2020. The details of the agreement regarding the assets and liabilities to be taken over are:

Particulars	Book Value (₹)	Agreed Value (₹)
Building	20,00,000	35,00,000
Plant and Machinery	12,00,000	8,00,000
Stock	4,00,000	4,00,000
Trade receivables	5,00,000	4,00,000
Creditors	2,00,000	3,00,000
Outstanding Expenses	50,000	1,00,000

It was decided to pay for purchase consideration as ₹ 7, 00,000 through Cheque and balance by issue of 2,00,000, 9% Debentures of ₹ 20 each at a premium of 25%. Journalise.

Answer 1

Journal Entries in the Books of Neeraj Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
01-04-2020	Business Purchase A/c   ...Dr.		57,00,000
	To Ajay Enterprises A/c			57,00,000
	(Being business of Ajay Enterprises purchased for ₹ 57,00,000)
01-04-2020	Building A/c   ...Dr.		35,00,000
	Plant and Machinery A/c   ...Dr.		8,00,000
	Stock A/c   ...Dr.		4,00,000
	Trade Receivables A/c   ...Dr.		4,00,000
	Goodwill A/c  ...Dr.		10,00,000
	To Creditors A/c			3,00,000
	To Outstanding Expenses A/c			1,00,000
	To Business Purchase A/c			57,00,000
	(Being assets and liabilities taken over at agreed values and goodwill recorded)
01-04-2020	Ajay Enterprises A/c   ...Dr.		57,00,000
	To Bank A/c			7,00,000
	To 9% Debentures A/c			40,00,000
	To Securities Premium Reserve A/c			10,00,000
	(Being purchase consideration discharged by cheque and issue of 2,00,000 debentures of ₹ 20 each at 25% premium)

Working note:

1. Purchase Consideration:

Issue price of each debenture:

₹ 20 + (25% of ₹ 20) = ₹ 25

Value of 2,00,000 debentures:

2,00,000 × ₹ 25 = ₹ 50,00,000

Therefore,

Purchase Consideration = ₹ 7,00,000 + ₹ 50,00,000 = ₹ 57,00,000

2. Goodwill:

Agreed value of assets:

35,00,000 + 8,00,000 + 4,00,000 + 4,00,000 = ₹ 51,00,000

Agreed value of liabilities:

₹ 3,00,000 + ₹ 1,00,000 = ₹ 4,00,000

Net Assets:

₹ 51,00,000 − ₹ 4,00,000 = ₹ 47,00,000

Goodwill = ₹ 57,00,000 − ₹ 47,00,000 = ₹ 10,00,000