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Question
Radhey Ltd. took over assets of ₹ 14,00,000 and liabilities of ₹ 6,00,000 of Krishna Ltd. Radhey Ltd. paid the purchase consideration by issuing 10,000, 8% Debentures of 100 each at a premium of 10%.
Pass necessary journal entries in the books of Radhey Ltd.
Journal Entry
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Solution
| In the books of Radhey Ltd. Journal Entries |
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| Date | Particular | L.F. | Amount Dr. (₹) |
Amount Cr (₹) |
| 1. | Assets A/c ...Dr. | 14,00,000 | - | |
| Goodwill A/c (Bal. fig.) ...Dr. | 3,00,000 | - | ||
| To Liabilities A/c | - | 6,00,000 | ||
| To Krishna Ltd. | - | 11,00,000 | ||
| (Being business of Krishna Ltd. taken over) | ||||
| 2. | Krishna Ltd. ...Dr. | 11,00,000 | - | |
| To 8% Debentures A/c | - | 10,00,000 | ||
| To Securities Premium Reserve A/c | - | 1,00,000 | ||
| (Being purchase consideration paid by issue of 8% debentures) |
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Working Note:
Calculation of amount of purchase consideration
= ₹ 10,00,000 (Nominal value of deb.) + 1,00,000 (Premium)
= ₹ 11,00,000
Amount of Goodwill = (Liabilities + Purchase consideration) − Assets
= (₹ 6,00,000 + ₹ 11,00,000) − ₹ 14,00,000
= ₹ 17,00,000 − ₹ 14,00,000
= ₹ 3,00,000
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