Apoorv Ltd. acquired building worth Rs 15,50,000, Machinery worth Rs 11,40,000 and Furniture worth Rs 1,10,000 from Dhruv Ltd. and took over its liabilities of Rs 2,00,000 for a purchase consideration of Rs 25,00,000. Apoorv Ltd. paid the purchase consideration by issuing 12\% debentures of Rs 100 each at a premium of 25\%. Pass the necessary journal entries in the books of Apoorv Ltd. for the above transactions.
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1. Record Assets Dr. and Liabilities Cr.
2. Credit Vendor with Purchase Consideration (PC).
3. If Assets Dr. $>$ (Liabilities Cr. + PC Cr.), the difference is Capital Reserve Cr. (Gain).
4. If (Liabilities Cr. + PC Cr.) $>$ Assets Dr., the difference is Goodwill Dr. (Cost).
5. When paying PC with securities issued at premium/discount, calculate the number of securities = PC / Issue Price per security.
Solution and Explanation
Working Note 1: Net Assets Calculation
Total Assets = Building (₹15,50,000) + Machinery (₹11,40,000) + Furniture (₹1,10,000)
Total Assets = ₹28,00,000
Total Liabilities = ₹2,00,000
Net Assets = ₹28,00,000 − ₹2,00,000 = ₹26,00,000
Working Note 2: Capital Reserve Calculation
Purchase Consideration (PC) = ₹25,00,000
Net Assets = ₹26,00,000
Since Net Assets > Purchase Consideration, the surplus represents Capital Reserve.
Capital Reserve = ₹26,00,000 − ₹25,00,000 = ₹1,00,000
Working Note 3: Debenture Issue Calculation
Purchase Consideration payable = ₹25,00,000
Debentures issued at 25% premium.
Issue price per debenture = ₹100 + 25% of ₹100 = ₹125
Number of debentures = ₹25,00,000 ÷ ₹125 = 20,000 debentures
Total face value = 20,000 × ₹100 = ₹20,00,000
Securities premium = 20,000 × ₹25 = ₹5,00,000
Journal Entries in the Books of Apoorv Ltd.
| Date | Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|---|
| Building A/c Dr. | 15,50,000 | ||
| Machinery A/c Dr. | 11,40,000 | ||
| Furniture A/c Dr. | 1,10,000 | ||
| To Sundry Liabilities A/c | 2,00,000 | ||
| To Dhruv Ltd. (Vendor) A/c | 25,00,000 | ||
| To Capital Reserve A/c | 1,00,000 | ||
| (Being assets and liabilities of Dhruv Ltd. taken over for a purchase consideration of ₹25,00,000 and surplus credited to Capital Reserve) | |||
| (i) | Dhruv Ltd. (Vendor) A/c Dr. | 25,00,000 | |
| To 12% Debentures A/c | 20,00,000 | ||
| To Securities Premium A/c | 5,00,000 | ||
| (Being issue of 20,000, 12% debentures of ₹100 each at 25% premium to Dhruv Ltd. in settlement of purchase consideration) |
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