Orange Ltd. took over assets of ₹ 7,00,000 and liabilities of ₹ 60,000 of Purple Ltd. for a purchase consideration of ₹ 6,30,000 payable by the issue of 10% Debentures of ₹100 each at a premium - Accounts

MCQ

Orange Ltd. took over assets of ₹ 7,00,000 and liabilities of ₹ 60,000 of Purple Ltd. for a purchase consideration of ₹ 6,30,000 payable by the issue of 10% Debentures of ₹100 each at a premium of 10% and if need be, a part of the purchase consideration in cash. How will the company meet the purchase consideration?

Options

• By the issue of ₹ 5,72,727, 10% Debentures at a premium of ₹ 57,272 with no cash.

• By the issue of ₹ 5,72,000, 10% Debentures at a premium of ₹ 57,200 and cash of ₹ 800.

• By the issue of ₹ 5,72,720, 10% Debentures at a premium of ₹ 57,272 and cash of ₹ 8.

• By the issue of ₹ 5,72,700, 10% Debentures at a premium of ₹ 57,270 and cash of ₹ 30.

Solution

By the issue of ₹ 5,72,700, 10% Debentures at a premium of ₹ 57,270 and cash of ₹ 30.

Explanation:

The company will meet the purchase consideration, by the issue of ₹ 5,72,700, 10% Debentures at a premium of ₹ 57,270 and cash of ₹ 30.

Calculation of purchase consideration:

₹ 6,30,000 is the Net purchase consideration payable in 10% Debentures of ₹ 100 + ₹ 10 (premium)

therefore (₹ 6,30,000)/(₹ 110) = 5,727 debentures @ ₹ 100

∴ ₹ 5,727, 10% Debentures of ₹ 100 each at a premium of ₹  57,270 and balance in cash.

∴ ₹ 6,30,000 - 5,72,700 - 57,270 = ₹ 30 (in cash)

Concept: Redemption of Debentures for Immediate Cancellation - Draw of Lots, Lump Sum and Purchase in the Open Market
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