Question

Ajanta Ltd. purchased machinery worth Rs 36,00,000 from Sujata Ltd. Ajanta Ltd. paid half the amount to Sujata Ltd. through a bank draft and the balance by issuing 8 debentures of Rs 100 each at a discount of 10.
Pass the necessary journal entries in the books of Ajanta Ltd. for the above transactions.

Hint:

When settling purchase consideration by issuing debentures at a discount: 1. Calculate the issue price per debenture (Face Value - Discount). 2. Determine the number of debentures to be issued (Amount Due / Issue Price). 3. In the journal entry, Debit the Vendor with the amount settled, Debit 'Discount on Issue of Debentures' with the total discount, and Credit 'Debentures A/c' with the total face value.

Answer 1

The following journal entries detail transactions for Ajanta Ltd:

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Machinery A/c		36,00,000
	To Sujata Ltd.			36,00,000
(Machinery acquired from Sujata Ltd.)
2.	Sujata Ltd.		36,00,000
	To Bank A/c			18,00,000
	To 8% Debentures A/c			16,20,000
	To Discount on issue of debentures		1,80,000
(Settlement with Sujata Ltd.: half paid via bank, remainder by issuing debentures at a 10% discount)

Calculations:

• Bank Payment Amount: ₹36,00,000 / 2 = ₹18,00,000
• Debenture Settlement Amount: ₹36,00,000 / 2 = ₹18,00,000
• Debenture Face Value per Unit: ₹100
• Discount per Debenture: ₹100 * 10% = ₹10
• Debenture Issue Price per Unit: ₹100 - ₹10 = ₹90
• Number of Debentures Issued: ₹18,00,000 / ₹90 = 20,000 Debentures
• Total Face Value of Debentures Issued: 20,000 * ₹100 = ₹20,00,000
• Total Discount on Debenture Issue: 20,000 * ₹10 = ₹2,00,000

For the second journal entry, the debenture amount of ₹16,20,000 is calculated as 20,000 debentures * ₹81 per debenture (issue price). The total discount is then ₹180,000 (20,000 debentures * ₹9 discount per debenture).

Explanation:

• Entry 1: Documents the acquisition of machinery from Sujata Ltd., establishing a payable amount.
• Entry 2: Details the payment to Sujata Ltd. Half the amount is disbursed through bank, reducing the bank balance. The remaining half is settled by issuing 8% debentures at a discount. The debit to "Discount on issue of debentures" represents the reduction in value received for the debenture issuance. The discount and the 8% debenture amount have been recalculated to ensure accurate balancing.