Question

Exe Ltd. purchased the assets of the book value ₹4,00,000 and took over the liabilities of ₹ 50,000 from Mohan Bros.It was agreed that the purchase consideration, settled at ₹ 3,80,000 be paid by issuing debentures of ₹ 100 each.
Pass journal entries if debenture are issued:
(a) at par
(b) at a discount of 10% and
(c) at a premium of 10%.
It was agreed that any fraction of debentures be paid in cash.

Answer 1

XYZ Ltd. issued 5,000, 10% Debentures of ₹ 100 each on 1st April, 2015 at a discount of 10% redeemable at a premium of 10% after 4 years. Give journal entries for the year ended 31st March, 2016, assuming that the interest was payable half-yearly on 30th September and 31st March. Tax is to be deducted @ 10%.

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Answer 2

Solution:

                                           Journal Entries  

Particulars                                                     Debit Rs.       Credit Rs.

Assets A/c                                         Dr.       4,00,00

Goodwill Aft                                       Dr.        30,00

      To Liabilities A/c                                                             50,000

       To Mohan Bros. A/c                                                      3,80,000

(Being business purchased of mohan bros.)  

a) When Debentures are issued at par  

                                           Journal Entries  

Particulars                                                      Debit Rs.       Credit Rs.

Mohan Bros A/c (WN 1)                  Dr.        3,80,000

          To Debenture A/c                                                     3,80,000

(Being issued 3.800 debenture at par)

(b) When D debentures are issued discount at 10%  

                                         Journal Entries  

Particulars                                                      Debit Rs.        Credit Rs.

Mohan Bros. A/c (WN 2)                      Dr.        3,80,000

Discount on issue of Debenture A/c   Dr.          42,22

         To Debenture A/c                                                         4,22,20

         To Bank A/c                                                                      20

(Being issued 4,222 debentures of Rs.100 each at 10% discount to Mohan Bros. and fraction of debentures is paid in cash)  

(c) When Debentures are issued premium at 10%  

                                            Journal Entries  

Particulars                                                           Debit Rs.      Credit Rs.

Mohan Bros. At (WN 3)                              Dr.     3,80,00

        To Debenture A/c                                                            3,45,400

        To Securities Premium A/c                                               34,540

          To Bank A/c                                                                          60

(Being issued 3.454 debentures of Rs.100 each at 10% premium to mohan bros. and fraction of debentures is paid in cash)  

Working Notes:

1)  Number of Debentures Issued = $\frac{Purchase Consideration}{Issue Pr ice}$= $\frac{3,80,000}{100}$

                                                        = 3800 debentures

(2) Number of Debentures Issued =  $\frac{Purchase Consideration}{Issue Pr ice}$ = $\frac{3,80,000}{100-10}$

                                                        = 4222 debentures

(3) Number of Debentures Issued =   $\frac{Purchase Consideration}{Issue Pr ice}$ = $\frac{3,80,000}{100+10}$

                                                        = 3, 454 debentures