Question

A company purchased assets of the book value of Rs 99,000 from another Co. It was agreed that the purchase consideration be paid by issuing $11\%$ Debentures of Rs 100 each. Assume that the debentures have been issued (i) at par, (ii) at a discount of $10\%$, and (iii) at a premium of $10\%$.

Give necessary journal entries in the books of purchasing company.

Answer 1

Journal

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Dr (Rs)}& \text{Cr. (Rs)}\\ & \text{Sundry Assets A/c}& \text{Dr}& & 99,000& \\ & \text{To Vendors A/c}& & & & 99,000\\ & \text{(Assets purchased)}& & & & \\ \left(1\right)& \text{When Debentures are issued at par :}& & & & \\ & \text{Vendors' A/c}& \text{Dr}& & 99,000& \\ & \text{To}11\%\text{Debentures A/c}& & & & 99,000\\ & \text{(Issue of debentures at par)}& & & & \\ \left(2\right)& \text{When Debentures are issued at Discount:}& & & & \\ & \text{Vendors' A/c}& \text{Dr}& & 99,000& \\ & \text{Discount on Issue of Debentures A/c}& \text{Dr}& & 11,000& \\ & \text{To}11\%\text{Debentures A/c}& & & & 1,10,000\\ & \text{(Issue of 1,100 debentures of Rs 100 each at}10\%\text{discount}& & & & \\ & \text{calculated as follows :}\frac{99.000}{90}=1,100\text{debentures)}& & & & \\ \left(3\right)& \text{When Debentures are issued at premium:}& & & & \\ & \text{Vendors' A/c}& \text{Dr}& & 99,000& \\ & \text{To}11\%\text{Debentures A/c}& & & & 90,000\\ & \text{To Securities Premium Reserve A/c}& & & & 9,000\\ & \text{(Issue of 900 debentures of Rs 100 each at}10\%\text{premium}& & & & \\ & \text{calculated as follows :}\frac{99,000}{110}=900\text{debentures)}& & & & \end{array}$