Q.(i) Vayee Ltd. purchased the following assets of E.X. Ltd. : Land and Building of ₹ 60,00,000 at ₹ 84,00,000; Plant and Machinery of ₹ 40,00,000 at ₹ 36,00,000. The purchase consideration was ₹ 1,10,00,000. Payment was made by accepting a Bill of Exchange in favour of E.X. Ltd. of ₹ 20,00,000 and remaining by issue of 8% debentures of ₹ 100 each at a premium of 20%. Record the necessary journal entries for the above transactions in the books of Vayee Ltd.

Showing the 12 most recent of 105 on this concept.

1. CBSE 2026Set 67/3/11 markMCQ
   Q.Mogra Ltd. purchased assets of ₹ 14,40,000 from DK Ltd. It issued 9% Debentures of ₹ 100 each at a discount of 4% in full satisfaction of the purchase consideration. The number of debentures issued to DK Ltd. were : (A) 14,400 (B) 15,000 (C) 3,60,000 (D) 1,500

   ›Reveal solutionSolution

   Mogra Ltd. issued 15,000 debentures of ₹100 each at a4% discount to settle a purchase consideration of ₹14,40,000. The correct answer is option (B).

   Concept First: Why This Entry Works

   When a company buys assets and pays by issuing debentures, the seller (DK Ltd.) is not paying cash — they are accepting debentures as full payment. The total value of what the seller gives up (the assets) must equal the total value of what they receive (the debentures). This is the purchase consideration.

   The tricky part here is the discount. Mogra Ltd. is issuing ₹100 face-value debentures but only receiving ₹96 per debenture in terms of settlement value (because of the 4% discount). So the company must issue more debentures than the face value would suggest, to make up the full ₹14,40,000.

   The journal entry follows the golden rule: Debit what comes in (assets), Credit what goes out (debentures and discount). The assets account is debited with the full value of assets acquired. The 9% Debentures account is credited with the face value of debentures issued. The difference — the discount — is debited to a Discount on Issue of Debentures account (a loss for the company).

   Watch out

   Common Mistake

   Many students calculate the number of debentures as ₹14,40,000 ÷ ₹100 = 14,400 debentures. This is wrong because it ignores the discount. The seller is not accepting debentures at face value — they are accepting them at the issue price of ₹96 each. Always divide the purchase consideration by the issue price, not the face value.

   Solution

   Step 1: Calculate the Issue Price per Debenture

   Face value of each debenture = ₹100

   Discount = 4% of ₹100 = ₹4

   Issue price = ₹100 − ₹4 = ₹96

   Step 2: Calculate the Number of Debentures Issued

   Number of debentures = Purchase Consideration ÷ Issue Price per Debenture

   = ₹14,40,000 ÷ ₹96

   = 15,000 debentures

   Tip

   Shortcut

   When the discount is given as a percentage, you can use: Number of debentures = Purchase Consideration ÷ (Face Value × (1 − Discount Rate)). Here: 14,40,000 ÷ (100 × 0.96) = 15,000. …

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2. CBSE 2026Set 67/4/11 markMCQ
   Q.White Ltd. purchased Plant and Machinery worth ₹ 3,96,000 from Nath Ltd. The purchase consideration was paid by issue of 9% Debentures of ₹ 100 each at 10% discount. The number of debentures issued were : (A) 3,960 (B) 4,000 (C) 4,400 (D) 3,600

   ›Reveal solutionSolution

   White Ltd. issues 4,400 debentures of ₹100 each at 10% discount to discharge a purchase consideration of ₹3,96,000; the answer is (C) 4,400.

   ---

   Concept: Purchase Consideration and Issue of Debentures at Discount

   When a company acquires an asset and pays for it by issuing debentures (rather than cash), the purchase consideration — the agreed price of the asset — must equal the amount credited to the vendor. If debentures are issued at a discount, the company must issue more debentures than the face value would suggest, because each debenture is accepted by the vendor at less than its nominal (face) value.

   Here the debentures have a face value of ₹100 each but are issued at 10% discount, meaning each debenture is issued at ₹90. The vendor (Nath Ltd.) receives debentures whose issue price totals ₹3,96,000, even though the face value (the liability recorded in the books) will be higher.

   The accounting treatment is:

   Account	Debit	Credit	Rule
   Plant and Machinery A/c	₹3,96,000		Asset acquired (debit the receiver / what comes in)
   Discount on Issue of Debentures A/c	(to be found)		Loss/expense (debit; it is a capital loss, written off over the life of debentures or against Securities Premium)
   9% Debentures A/c		Face value	Liability created (credit)
   Nath Ltd. (Vendor) A/c		₹3,96,000	Liability to vendor discharged by issue of debentures

   The key relationship:

   $\text{Issue Price per Debenture} = \text{Face Value} - \text{Discount} = 100 - 10 = ₹90$

   $\text{Number of Debentures} = \frac{\text{Purchase Consideration}}{\text{Issue Price per Debenture}} = \frac{3{,}96{,}000}{90}$

   ---

   Solution

   Working Note 1: Calculation of Number of Debentures Issued

   Particulars	Amount (₹)
   Purchase Consideration (Plant and Machinery)	3,96,000
   Face Value per Debenture	100
   Discount per Debenture (10% of ₹100)	10
   Issue Price per Debenture	90
   Number of Debentures = ₹3,96,000 ÷ ₹90	4,400

   The vendor Nath Ltd. is paid by issuing 4,400 debentures, each accepted at ₹90 (the discounted price), which exactly equals the purchase consideration of ₹3,96,000.

   Working Note 2: Face Value and Discount (for completeness)

   Particulars	Amount (₹)
   Number of Debentures issued	4,400
   Face Value per Debenture	100
   Total Face Value of Debentures (Liability)	4,40,000
   Total Issue Price (Purchase Consideration)	3,96,000
   Discount on Issue of Debentures	44,000

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3. CBSE 2026Set 67/5/11 markMCQ
   Q.(a) Reserve capital is that portion of the ________ capital that can be called only in the event of winding up of the company. (A) called-up (B) uncalled (C) paid-up (D) subscribed

   (OR)

   (b) The debentures which do not carry a specific rate of interest are known as : (A) Irredeemable debentures (B) Bearer debentures (C) Specific coupon rate debentures (D) Zero coupon rate debentures

   ›Reveal solutionSolution

   Part (a): Reserve capital is a part of uncalled capital — option (B).

   Part (b): Debentures with no specific interest rate are Zero coupon rate debentures — option (D).

   Part (a)

   Under Section 65 of the Companies Act, 2013, a company may by special resolution decide that a portion of its uncalled share capital shall not be called except on winding up. This ring-fenced portion is Reserve Capital — extra security for creditors. …

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4. CBSE 2026Set 67/5/11 markMCQ
   Q.Universal Ltd. took over machinery of ₹ 3,30,000, furniture of ₹ 1,60,000 and liabilities of ₹ 80,000 from Amol Ltd. for a purchase consideration of ₹ 4,50,000. The payment to Amol Ltd. was made by issue of 10% Debentures of ₹ 50 each at a discount of 10%. The number of debentures issued to Amol Ltd. was : (A) 1,000 (B) 4,500 (C) 45,000 (D) 10,000

   ›Reveal solutionSolution

   The number of 10% debentures issued is 10,000 (Option D). The purchase consideration of ₹4,50,000 is settled by issuing debentures of face value ₹50 each at a 10% discount, meaning each debenture is issued at ₹45.

   Concept First: Purchase Consideration and Settlement

   When one company (Universal Ltd.) takes over the business of another (Amol Ltd.), the buying company must pay a purchase consideration — the agreed price for the net assets acquired. This consideration can be paid in cash, or by issuing shares or debentures of the buying company.

   The key accounting principle here is that the purchase consideration is the total amount payable to the selling company, regardless of the form of payment. It is not the same as the net assets taken over (assets minus liabilities). The purchase consideration is a negotiated figure — in this case, ₹4,50,000 — while the net assets acquired are ₹3,30,000 (machinery) + ₹1,60,000 (furniture) - ₹80,000 (liabilities) = ₹4,10,000. The difference of ₹40,000 is capital reserve or goodwill, depending on the agreement.

   Now, the question focuses on how Universal Ltd. settles this ₹4,50,000 consideration. They issue 10% Debentures of ₹50 each at a discount of 10%. This means:

   • Face value of each debenture = ₹50
   • Discount = 10% of ₹50 = ₹5
   • Issue price per debenture = ₹50 - ₹5 = ₹45

   The selling company (Amol Ltd.) receives debentures worth the purchase consideration amount. So, the number of debentures issued is simply:

   Number of debentures = Purchase Consideration / Issue Price per Debenture

   Watch out

   Common Pitfall

   Students often mistakenly divide the purchase consideration by the face value (₹50) instead of the issue price (₹45). Remember: when debentures are issued at a discount, the company receives less than the face value per debenture. The selling company gets debentures whose total issue price equals the purchase consideration, not whose total face value equals it.

   Solution

   Calculation of Number of Debentures

   Particulars	Amount (₹)
   Purchase Consideration	4,50,000
   Face Value of each Debenture	50
   Discount @ 10%	5
   Issue Price per Debenture (₹50 - ₹5)	45
   Number of Debentures Issued (₹4,50,000 / ₹45)	10,000

   Tip

   Shortcut

   If the issue price is ₹45 per debenture, then for every ₹45 of consideration, 1 debenture is issued. For ₹4,50,000, the number is simply 4,50,000 ÷ 45 = 10,000.

   Journal Entry in the Books of Universal Ltd.

   Date	Particulars	L.F.	Debit (₹)	Credit (₹)
   	Machinery A/c Dr.		3,30,000
   	Furniture A/c Dr.		1,60,000
   	To Liabilities A/c			80,000

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5. CBSE 2026Set MARCH1 mark
   Q.Who is called debenture holder?

   ›Reveal solutionSolution

   A debenture holder is a creditor (lender) of the company who owns its debentures.

   A debenture is a written acknowledgement of a debt taken by a company, usually carrying a fixed rate of interest. The person who buys/holds such debentures is called a debenture holder.

   Key points:

   • He is a creditor of the company, not a shareholder/owner.
   • He receives a fixed rate of interest whether or not the company earns profit.
   • He has the right to get his principal back on redemption. …

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6. CBSE 2026Set ANNUAL1 markMCQ
   Q.Read the following and give answers (Q. No. xi to xiv): "Vishakha Limited had purchased a plant of ₹ 2,97,000 from Snehlata Limited. It was agreed that purchase consideration is to be paid by issuing 8% debentures of ₹ 1,000 each at discount of 10%." How many numbers of 8% debentures will be issued in above question? A) 330 B) 297 C) 270 D) 275

   ›Reveal solutionSolution

   330 debentures must be issued to settle the ₹2,97,000 purchase consideration - option (A).

   Issue price per debenture = Face value - Discount = ₹1,000 - 10% of ₹1,000 = ₹1,000 - ₹100 = ₹900.

   …

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7. CBSE 2026Set ANNUAL1 markMCQ
   Q.(Based on the passage: "Vishakha Limited had purchased a plant of ₹ 2,97,000 from Snehlata Limited. It was agreed that purchase consideration is to be paid by issuing 8% debentures of ₹ 1,000 each at discount of 10%.") Which account will be credited on purchase of the plant? A) Snehlata Ltd.'s A/c B) Vishakha Ltd.'s A/c C) Plant A/c D) 8% Debenture A/c

   ›Reveal solutionSolution

   The vendor Snehlata Ltd.'s Account is credited on purchase of the plant - option (A).

   When assets are bought from a vendor, the entry is:

   Plant A/c ... Dr (asset acquired)

   To Vendor's (Snehlata Ltd.'s) A/c (amount payable)

   …

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8. CBSE 2026Set ANNUAL1 mark
   Q.Fill in the blank: The rate of return on debentures is called __________. (Dividend/Interest)

   ›Reveal solutionSolution

   The rate of return on debentures is called interest.

   Debentures represent borrowed capital (debt) of the company, not ownership. Therefore debenture-holders are creditors who receive a fixed, pre-agreed rate of return called interest, which is a charge against profit and payable irrespective of profits. 'Dividend' …

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9. CBSE 2026Set ANNUAL1 mark
   Q.Write the difference between share and debenture on the basis of voting right.

   ›Reveal solutionSolution

   On the basis of voting right: shareholders have it, debenture-holders do not.

   Basis	Share	Debenture
   Nature	Ownership capital	Borrowed capital (loan)
   Voting right	An equity shareholder has the right to vote in the company's general meetings	A debenture-holder, being only a creditor, has no voting right in company affairs
   …

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10. CBSE 2026Set ANNUAL1 markMCQ
    Q.Debenture holders are the

    (a) Customers of the company

    (b) Owners of the company

    (c) Creditors of the company

    (d) All of them

    ›Reveal solutionSolution

    Debenture-holders are creditors of the company - option (c).

    A debenture is part of a company's borrowed capital. The debenture-holders have lent money to the company and are therefore its creditors; they are entitled to interest at a fixed rate (whether or not the company earns a profit) …

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11. CBSE 2026Set ANNUAL1 mark
    Q.Fill in the blank: Debentures represents a ________ term loan taken by the company.

    ›Reveal solutionSolution

    Answer: Long (long-term loan).

    A debenture is a written acknowledgement of a loan raised by a company, usually repayable after a long period. It forms part of the company's borrowed (long-term) capital. Henc …

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12. CBSE 2026Set ANNUAL1 mark
    Q.State whether True or False: Debentureholders are owners of the company.

    ›Reveal solutionSolution

    The statement is False.

    A debenture is an acknowledgement of a loan given to the company, so debentureholders are creditors who get fixed interest. The owners of the com …

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