Question

Mallark Ltd. purchased assets of book value \u20b9 40,00,000 and took over liabilities of \u20b9 5,00,000 from Naroha Ltd. It was agreed that the purchase consideration, \u20b9 36,00,000 be paid by issuing 7% debentures of \u20b9 100 each at a premium of 20%. Record the journal entries in the books of Mallark Ltd. for the above transactions.

Hint:

Always divide purchase consideration by issue price (including premium or discount) to find the number of debentures issued.

Answer 1

Calculation:

Purchase Consideration = ₹36,00,000

Debentures were issued at a 20% premium, resulting in an Issue Price of ₹100 + ₹20 = ₹120 per debenture.

Number of Debentures Issued = ₹36,00,000 / ₹120 = 30,000 debentures

Journal Entries:

1. For the acquisition of assets and liabilities:

Particulars	Dr (₹)	Cr (₹)
Sundry Assets A/c	40,00,000
To Sundry Liabilities A/c		5,00,000
To Naroha Ltd.		35,00,000
(Assets and liabilities taken over from Naroha Ltd.)

 

2. For settlement of purchase consideration via debenture issue:

Particulars	Dr (₹)	Cr (₹)
Naroha Ltd. A/c	36,00,000
To 7% Debentures A/c		30,00,000
To Securities Premium A/c		6,00,000
(Amount due to Naroha Ltd. settled by issuing 30,000 debentures at a 20% premium.)

 

Conclusion: 30,000 debentures were issued at ₹120 each to satisfy the purchase consideration.