Mallark Ltd. purchased assets of book value \u20b9 40,00,000 and took over liabilities of \u20b9 5,00,000 from Naroha Ltd. It was agreed that the purchase consideration, \u20b9 36,00,000 be paid by issuing 7% debentures of \u20b9 100 each at a premium of 20%.
Record the journal entries in the books of Mallark Ltd. for the above transactions.
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Solution and Explanation
Working:
Purchase Consideration = ₹36,00,000
Debentures issued at 20% premium, so Issue Price = 100 + 20 = ₹120 per debenture
Number of Debentures = ₹36,00,000 ÷ ₹120 = 30,000 debentures
Journal Entries:
1. For purchase of assets and liabilities:
| Particulars | Dr (₹) | Cr (₹) |
|---|---|---|
| Sundry Assets A/c | 40,00,000 | |
| To Sundry Liabilities A/c | 5,00,000 | |
| To Naroha Ltd. | 35,00,000 | |
| (Being assets and liabilities taken over from Naroha Ltd.) | ||
2. For discharge of consideration by issue of debentures:
| Particulars | Dr (₹) | Cr (₹) |
|---|---|---|
| Naroha Ltd. A/c | 36,00,000 | |
| To 7% Debentures A/c | 30,00,000 | |
| To Securities Premium A/c | 6,00,000 | |
| (Being amount due to Naroha Ltd. discharged by issue of 30,000 debentures at 20% premium) | ||
Final Answer: 30,000 debentures issued at ₹120 to discharge purchase consideration.
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