Apoorv Ltd. acquired building worth Rs 15,50,000, Machinery worth Rs 11,40,000 and Furniture worth Rs 1,10,000 from Dhruv Ltd. and took over its liabilities of Rs 2,00,000 for a purchase consideration of Rs 25,00,000. Apoorv Ltd. paid the purchase consideration by issuing 12% debentures of Rs 100 each at a premium of 25%.
Pass the necessary journal entries in the books of Apoorv Ltd. for the above transactions.
Pass the necessary journal entries in the books of Apoorv Ltd. for the above transactions.
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Solution and Explanation
1. Acquisition of Assets and Liabilities from Dhruv Ltd.
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Building A/c | 15,50,000 | |||
| Machinery A/c | 11,40,000 | |||
| Furniture A/c | 1,10,000 | |||
| To Sundry Creditors A/c | 2,00,000 | |||
| To Dhruv Ltd. | 25,00,000 | |||
| To Capital Reserve A/c | 1,00,000 | |||
| (Assets and liabilities acquired from Dhruv Ltd.) | ||||
Calculation of Capital Reserve:
Total Value of Assets Taken = Building + Machinery + Furniture
= 15,50,000 + 11,40,000 + 1,10,000
= 28,00,000
Liabilities taken = 2,00,000
Net Assets Taken = 26,00,000
Purchase consideration = 25,00,000
Capital Reserve = Net Assets Taken – Purchase consideration
26,00,000 - 25,00,000 = 1,00,000
2. Issue of 12% Debentures to Dhruv Ltd.
Face Value per Debenture: ₹100
Premium: 25%
Issue Price per Debenture: ₹100 + (25% of ₹100) = ₹125
Number of Debentures to be issued = Purchase Consideration / Issue Price per Debenture
Number of Debentures to be issued = 25,00,000 / 125 = 20,000 Debentures
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Dhruv Ltd. A/c | 25,00,000 | |||
| To 12% Debentures A/c | 20,00,000 | |||
| To Securities Premium Reserve A/c | 5,00,000 | |||
| (Issue of 20,000; 12% Debentures of ₹100 each at a premium of 25% in satisfaction of purchase consideration) | ||||
Explanation:
- Entry 1: Records the assets acquired and liabilities taken over. A capital reserve arises if the net assets acquired exceed the purchase consideration.
- Entry 2: Records the issue of debentures to settle the purchase consideration. The debentures are issued at a premium, so the "Securities Premium Reserve" account is credited with the premium amount.
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