Question

B Ltd purchased assets of the book value of Rs.4,00,000 and took over the liability of Rs. 50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs.3,80,000, be paid by issuing debentures of Rs.100 each

What Journal entries will be made in the following three cases, if debentures are issued

(a) at par

(b) at discount

(c) at premium of 10%
It was agreed that any fraction of debentures be paid in cash

Answer 1

(a)

$\text{Journal Entries}$
$\begin{array}{cccccccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}& & & & \\ \text{(i)}& \text{Sundry Assets A/c}& \text{Dr}& & 4,00,000& & & & & \\ & \text{Goodwill A/c (Balancing figure)}& \text{Dr}& & 30,000& & & & & \\ & \text{To Sundry Liabilities A/c}& & & & 50,000& & & & \\ & \text{To Mohan Bros A/c}& & & & 3,80,000& & & & \\ & \text{(Assets and liabilities of Mohan Bros}& & & & & & & & \\ & \text{taken over.)}& & & & & & & & \\ & \underset{–}{}& & & & & & & & \\ \text{(ii)}& \text{Mohan Bros}& \text{Dr}& & 3,80,000& & & & & \\ & \text{To Debentures A/c}& & & & 3,80,000& & & & \\ & \text{(3,800 debentures of 100 each issued to}& & & & & & & & \\ & \text{Mohan Bros in consideration of assets and liabilities)}& & & & & & & & \end{array}$

Working Note :

Amount payable to Mohan Bros = Rs. 3,80,000

Number of Debentures to be issued at par = = $\frac{3,80,000}{100}$

= 3,800 Debentures

(b)

$\text{Journal Entries}$
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ \text{(i)}& \text{Sundry Assets A/c}& \text{Dr}& & 4,00,000& \\ & \text{Goodwill A/c}& \text{Dr}& & 30,000& \\ & \text{To Sundry Liabilities A/c}& & & & 50,000\\ & \text{To Mohan Bros A/c}& & & & 3,80,000\\ & \text{(Assets and liabilities of Mohan Bros}& & & & \\ & \text{taken over.)}& & & & \\ & \underset{–}{}& & & & \\ \text{(ii)}& \text{Mohan Bros A/c}& \text{Dr}& & 3,80,000& \\ & \text{Discount or issue of Debentures A/c}& \text{Dr}& & 20,000& \\ & \text{To Debentures A/c}& & & & 4,00,000\\ & \text{(Issued 4,000 debentures of Rs.100 each}& & & & \\ & \text{at 5\% discount.)}& & & & \end{array}$

Working Note :

Amount payable to Mohan Bros = Rs. 3,80,000

Number of debentures to be issued at discount of 5% (assume

5% as nothing is given in question) = $\frac{3,80,000}{95}$ = 4,000 Dentures

(c)

$\text{Journal Entries}$
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& \text{Amt.(Cr)}\\ \text{(i)}& \text{Sundry Assets A/c}& \text{Dr}& & 4,00,000& \\ & \text{Goodwill A/c}& \text{Dr}& & 30,000& \\ & \text{To Sundry Liabilities A/c}& & & & 50,000\\ & \text{To Mohan Bros A/c}& & & & 3,80,000\\ & \text{(Assets and liabilities of Mohan Bros}& & & & \\ & \text{taken over.)}& & & & \\ & \underset{–}{}& & & & \\ \text{(ii)}& \text{Mohan Bros}& \text{Dr}& & 3,80,000& \\ & \text{To Debentures A/c}& & & & 3,45,400\\ & \text{To Securities Premium}& & & & 34,540\\ & \text{To Cash A/c (Balance figure)}& & & & 60\\ & \text{(Issued of 3,454 debentures at 10\%}& & & & \\ & \text{premium and balance paid in cash.)}& & & & \end{array}$

Working Note :

Amount payble to Mohan Bros = Rs.3,80,000

Number of Debentures to be issued at premium of 10%

= $\frac{3,80,000}{110}$ = 3,454 Debentures