Question

Prime Ltd. took over assets of ₹ 6,00,000 and liabilities of ₹ 1,00,000 of Rabi Ltd. for a purchase consideration of ₹ 3,60,000. Prime Ltd. issued 10% debentures of ₹ 100 each at a discount of 10% in full satisfaction of purchase consideration.
Pass necessary journal entries in the books of Prime Ltd.

Hint:

When debentures are issued at a discount, debit the discount to a separate account. Record the face value in the debenture account and add the discount to the cost of acquisition.

Answer 1

Step 1: Calculate Debenture Issue Price and Quantity
\[\text{Issue price of debenture} = ₹ 100 - 10\% \text{ of } ₹ 100 = ₹ 90
\text{Number of debentures} = \frac{₹ 3,60,000}{₹ 90} = 4,000 \text{ debentures}\]Step 2: Record Journal Entries1. To record the purchase of business assets and liabilities:\[\begin{aligned}\text{Assets A/c Dr.} & \hspace{5pt} ₹ 6,00,000
\text{To Liabilities A/c} & \hspace{5pt} ₹ 1,00,000
\text{To Vendor A/c} & \hspace{5pt} ₹ 5,00,000
\end{aligned}\]2. To record the issuance of debentures at a discount:\[\begin{aligned}\text{Vendor A/c Dr.} & \hspace{5pt} ₹ 3,60,000
\text{Discount on Issue of Debentures A/c Dr.} & \hspace{5pt} ₹ 40,000
\text{To 10% Debentures A/c} & \hspace{5pt} ₹ 4,00,000
\end{aligned}\]Narration: For the issuance of 4,000 debentures at a ₹ 10 discount per debenture, settling the purchase consideration.