Question

On 1st April, 2024, Varsha Ltd. purchased from Rama Ltd., furniture at 12,00,000 and machinery at 20,00,000. It also took over its liabilities amounting to 3,00,000. The purchase consideration of 35,00,000 was paid by issuing a bank draft of 2,00,000 and the balance by issue of 11% Debentures of 100 each, at a premium of 10%. 
Pass necessary journal entries for the above transactions in the books of Varsha Ltd.

Hint:

When debentures are issued at a premium, split the amount between Debenture A/c (face value) and Securities Premium A/c. Calculate number of debentures using issue price.

Answer 1

Step 1: Total purchase consideration = 35,00,000 
Step 2: Payment made: 
- By Bank Draft = 2,00,000 
- Balance = 33,00,000 to be paid via 11% Debentures at 10% premium. 
Face value per debenture = 100; Issue price = 110 \[ \text{Number of debentures} = \frac{33,00,000}{110} = 30,000 \text{ debentures} \] Step 3: Assets taken over: 
- Furniture = 12,00,000 
- Machinery = 20,00,000 
- Liabilities = 3,00,000 (to be credited) 
Journal Entries: 
1. For purchase of assets and liabilities: Furniture A/c Dr. & 12,00,000 
Machinery A/c Dr. & 20,00,000 
To Liabilities A/c & 3,00,000 
To Rama Ltd. & 29,00,000 
2. For payment of purchase consideration: Rama Ltd. A/c Dr. & 35,00,000 
To Bank A/c & 2,00,000 
To 11% Debentures A/c & 30,00,000 
To Securities Premium A/c & 3,00,000 
Note: \(30,000 \text{ debentures} \times 100 = 30,00,000\) (face value) 
Premium = \(30,000 \times 10 = 3,00,000\)