Question

Sony Ltd. acquired running business of Amrit Ltd.having assets of ₹ 10,00,000 and liabilities of ₹ 2,50,000. 9% Debentures of ₹ 100 each were issued for the acquisition of business at a premium of ₹ 20 per debenture. The company issued 10,000, 8% Debentures of ₹ 100 each redeemable at premium of ₹ 20 per debenture after 5 years.

You are required to pass the Journal entries for the above transactions.

Answer 1

Journal Entries in the Books of Sony Ltd.
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Business Purchase A/c   ...Dr.		7,50,000
	To Amrit Ltd. A/c			7,50,000
	(Being purchase consideration due to Amrit Ltd.)
2.	Sundry Assets A/c   ...Dr.		10,00,000
	To Sundry Liabilities A/c			2,50,000
	To Business Purchase A/c			7,50,000
	(Being assets and liabilities of Amrit Ltd. taken over)
3.	Amrit Ltd. A/c   ...Dr.		7,50,000
	To 9% Debentures A/c			6,25,000
	To Securities Premium A/c			1,25,000
	(Being purchase consideration discharged by issue of 6,250, 9% Debentures of ₹ 100 each at a premium of ₹ 20 per debenture)
4.	Bank A/c   ...Dr.		10,00,000
	Loss on Issue of Debentures A/c   ...Dr.		2,00,000
	To 8% Debentures A/c			10,00,000
	To Premium on Redemption of Debentures A/c			2,00,000
	(Being 10,000, 8% Debentures of ₹ 100 each issued at par and redeemable at a premium of ₹ 20 per debenture)
5.	Securities Premium A/c   ...Dr.		1,25,000
	Statement of Profit & Loss A/c (Finance Cost)   ...Dr.		75,000
	To Loss on Issue of Debentures A/c			2,00,000
	(Being loss on issue of debentures written off)

Working Notes:

Purchase Consideration:

₹ 10,00,000 − ₹ 2,50,000 = ₹ 7,50,000

Number of 9% Debentures issued:

Issue price = ₹ 100 + ₹ 20 = ₹ 120

₹ 7,50,000 ÷ ₹ 120 = 6,250 Debentures

Securities Premium:

6,250 × ₹ 20 = ₹ 1,25,000

Premium on Redemption of 8% Debentures:

10,000 × ₹ 20 = ₹ 2,00,000

Less: Securities Premium = ₹ 1,25,000

Balance charged to Statement of Profit & Loss = ₹ 75,000