T.S. Grewal Class 12 Vol 2 Chapter 2 Q.22 - Issue of Debentures

Question 22

Exe Ltd. purchased assets of book value ₹4,00,000 and took over 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 the debentures 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 a debenture be paid in cash.

Solution

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Assets A/c    Dr.		4,00,000
	Goodwill A/c (balancing figure)    Dr.		30,000
	To Liabilities A/c			50,000
	To Mohan Bros. A/c			3,80,000
	(Assets and liabilities purchased from Mohan Bros.)

Case 1: Debentures issued at par

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Mohan Bros. A/c    Dr.		3,80,000
	To Debentures A/c			3,80,000
	(Issued 3,800 debentures at par)

Working Note: Number of debentures to be issued = 3,80,000 ÷ 100 = 3,800 debentures.

Case 2: Debentures issued at a 10% discount

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Mohan Bros. A/c    Dr.		3,80,000
	Discount on Issue of Debentures A/c    Dr.		42,220
	To Debentures A/c			4,22,200
	To Bank A/c			20
	(Issued 4,222 debentures of ₹100 each at a 10% discount to Mohan Bros.; the fraction of a debenture paid in cash)

Working Note: Number of debentures to be issued = 3,80,000 ÷ 90 = 4,222.2, i.e. 4,222 whole debentures, with the balance (₹20) paid in cash.

Case 3: Debentures issued at a 10% premium

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Mohan Bros. A/c    Dr.		3,80,000
	To Debentures A/c			3,45,400
	To Securities Premium Reserve A/c			34,540
	To Bank A/c			60
	(Issued 3,454 debentures of ₹100 each at a 10% premium to Mohan Bros.; the fraction of a debenture paid in cash)

Working Note: Number of debentures to be issued = 3,80,000 ÷ 110 = 3,454.5, i.e. 3,454 whole debentures, with the balance (₹60) paid in cash.