T.S. Grewal Class 12 Vol 2 Chapter 2 Q.29 - Issue of Debentures

Question 29

Bright Ltd. took over the assets of ₹6,60,000 and liabilities of ₹80,000 of Star Ltd. for an agreed purchase consideration of ₹6,00,000, payable 10% in cash and the balance by the issue of 12% Debentures of ₹100 each. Give the necessary Journal entries in the books of Bright Ltd., assuming: Case (a) the debentures are issued at par; Case (b) the debentures are issued at a 20% premium; Case (c) the debentures are issued at a 10% discount.

Solution

JOURNAL (Books of Bright Ltd.)

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Assets A/c    Dr.		6,60,000
	Goodwill A/c (balancing figure)    Dr.		20,000
	To Liabilities A/c			80,000
	To Star Ltd. A/c			6,00,000
	(Business of Star Ltd. taken over)
	Star Ltd. A/c    Dr.		60,000
	To Cash A/c			60,000
	(10% of the purchase consideration paid in cash)
Case (a): Debentures issued at par
	Star Ltd. A/c    Dr.		5,40,000
	To 12% Debentures A/c			5,40,000
	(Balance of purchase consideration discharged by issue of 5,400; 12% Debentures at par)
Case (b): Debentures issued at a 20% premium
	Star Ltd. A/c    Dr.		5,40,000
	To 12% Debentures A/c			4,50,000
	To Securities Premium Reserve A/c			90,000
	(Balance of purchase consideration discharged by issue of 4,500; 12% Debentures at a 20% premium)
Case (c): Debentures issued at a 10% discount
	Star Ltd. A/c    Dr.		5,40,000
	Discount on Issue of Debentures A/c    Dr.		60,000
	To 12% Debentures A/c			6,00,000
	(Balance of purchase consideration discharged by issue of 6,000; 12% Debentures at a 10% discount)

Working Notes: Net assets acquired = 6,60,000 − 80,000 = ₹5,80,000. Goodwill = 6,00,000 − 5,80,000 = ₹20,000. Number of debentures: Case (b) = 5,40,000 ÷ 120 = 4,500; Case (c) = 5,40,000 ÷ 90 = 6,000.