Question 20 Chapter 9 of +2-Part-1 – USHA Publication 12 Class Part – 1

Question 20 Chapter 9 of +2-Part-1 - USHA Publication 12 Class Part - 1

Question 20 Chapter 9 of +2-Part-1

20. (Purchase of Business/Goodwill/Issue at Par/Premium Discount) A company purchased assets of the book value of Rs. 4,00,000 and took over liabilities of Rs. 50,000 from Dalal Bros. It was agreed that the purchase consideration settled at Rs. 3,80,000 be paid by issuing debentures of 100 each. What journal entries will be made in all the three following cases if 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 the debentures be paid in cash.

The solution of Question 20 Chapter 9 of +2 Part-1: –

Journal
Date   Particulars
L.F. Debit Credit ₹
i Sundry Assets A/c Dr.   4,00,000  
  Goodwill A/c Dr.   30,000  
  To Sundry Liabilities A/ c       50,000
  To Dalal’s Bros.       3,80,000
  (Being th purchase of the business of Dalal Bros for a purchase consideration of Rs. 3,80,000)      
         

Case I. Issue of debentures at par

Journal
Date   Particulars
L.F. Debit ₹ Credit ₹
  Dalal Bros. Dr.   3,80,000  
  To Debenture A/c       3,80,000
  (Being issue of debentures at par in payment of purchase consideration)      
         

Case II. Issue of debentures at discount of 10%

Journal
Date   Particulars
L.F. Debit ₹ Credit ₹
  Dalal Bros. Dr.   3,80,000  
  Discount on issues of Debenture A/ c Dr.   42,220  
  To Debenture A/c       4,22,200
  To Bank A/c       20
  (Being issue of debentures at a discount of 10 % in part payment of purchase consideration , balance being paid in cash)      
         

Case III. Issue of Debentures at a premium of 10%

Journal
Date   Particulars
L.F. Debit ₹ Credit ₹
  Dalal Bros. Dr.   3,80,000  
  To Debenture A/c       3,45,400
  To Premium on issues of Debenture A/ c       34,540
  To Bank A/c       60
  (Being issue of debentures worth Rs. 3,45,400 at a premium of 10 % in part payment of purchase consideration , balance being paid in cash)      
         

Working Notes :

1. Since debentures at 10% discount , its one debentures of ₹ 100 is worth ₹ 90 .
For making a payment of ₹ 90, the company issue 1 debenture. For making payment of ₹ 3,80,000 the company issues = 3,80,000 / 90 = 4,222.22 debentures.
As it is not passible to issue debentures in fractions , the company issues only 4,222 debentures of ₹ 100 each At a discount of 10% . For the fractions of debentures the company pays cash.

2. since debentures are issued at 10% premium ,its one debentures of ₹ 100 is worth ₹ 110
Thus, for making payment of ₹ 110 , the company issues 1 debentures
For making payments of ₹ 380,000 the company issues 3,80,000/110 = 3,454.54 debentures.
Since it is not possible to debentures in fraction the company issues only 3,453 debentures of ₹ 100 each at 10% premium. For the fraction of debentures, the company pays cash.

It all about Question 20 Chapter 9 of +2-Part-1, If you have any problem please comment below.

Issue of Debentures from the point of view of Redemption

You can also Check out the solved question of other Chapters: –

Usha Publication – Accountancy PSEB (Class 12) – Volume I – Solution

Usha Publication – Accountancy PSEB (Class 12) – Volume II – Solution

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