Question

Star Textiles Ltd. purchased assets of Modem Textiles Ltd. as under:

Land and Buildings of ₹ 25,00,000 at ₹ 40,00,000; Plant and Machinery of ₹ 10,00,000 for ₹ 7,50,000 and Furniture of ₹ 3,00,000 for ₹ 1,00,000 for purchase consideration of ₹ 45,00,000. Star Textiles Ltd. paid ₹ 3,00,000 in cash and remaining by issue of 9% Debentures of ₹ 500 each at a premium of 5%. Record necessary entries in the books of Star Textiles Ltd.

Answer 1

In the Books of Star Textiles Ltd.
Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Land & Building A/c   ...Dr.		40,00,000	-
	Plant & Machinery A/c   ...Dr.		7,50,000	-
	Furniture A/c   ...Dr.		1,00,000	-
	To Capital Reserve A/c		-	3,50,000
	To Modern Textiles Ltd. A/c		-	45,00,000
	(Being assets taken over and excess credited to Capital Reserve.)
2.	Modern Textiles Ltd. A/c   ...Dr.		45,00,000	-
	To Bank A/c		-	3,00,000
	To 9% Debentures A/c (8,000 × ₹500)		-	40,00,000
	To Securities Premium A/c (8,000 × ₹25)		-	2,00,000
	(Being payment of purchase consideration partly in cash and partly by issue of debentures at 5% premium.)

Working Note:

• Issue price per debenture = ₹ 500 + 5% of ₹ 500 = ₹ 525
• Balance to be settled by debentures = ₹ 45,00,000 − ₹ 3,00,000 = ₹ 42,00,000
• Number of debentures = ₹ 42,00,000 ÷ ₹ 525 = 8,000 debentures
• Face value credited = 8,000 × ₹ 500 = ₹ 40,00,000
• Securities premium = 8,000 × ₹ 25 = ₹ 2,00,000