(a) Century Ltd. forfeited 5,000 shares of ₹ 100 each issued at 40% premium for non-payment of allotment money

Question

Q. (a) Century Ltd. forfeited 5,000 shares of ₹ 100 each issued at 40% premium for non-payment of allotment money of ₹ 35 per share and first call of ₹ 50 per share (including premium ₹ 25). The second and final call of ₹ 40 per share (including premium ₹ 15) has not yet been called. Out of these, 3,000 shares were reissued as fully paid-up for ₹ 90 per share. Pass necessary journal entries for forfeiture and reissue of forfeited shares in the books of Century Ltd.

(OR)

(b) Almond Ltd. purchased a running business of Cashew Ltd. comprising of land and building ₹ 85,00,000, machinery ₹ 50,00,000 and sundry liabilities ₹ 10,00,000 for a purchase consideration of ₹ 1,00,00,000. Payment of ₹ 10,00,000 was made through a cheque and the remaining amount by issue of 11% Debentures of ₹ 100 each at a premium of 20%. Pass necessary journal entries for the above transactions in the books of Almond Ltd.

CBSECBSE Class XII Board 2026Subjective· 3mImportance★★★★★

🔒 Locked · start free trial →

You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.

Start your 14-day free trial to unlock the full solution →

Part (a)Concept understanding — Share Capital Accounting

Let’s begin with something you already know from everyday life.

Imagine you and two friends decide to start a small business — say, a tiffin service. You each put in some money to buy utensils, a stove, and ingredients. That money you all contributed is the capital of the business. The business doesn’t own that money; it owes it back to you, the owners. In accounting, we call you the shareholders, and the money you put in is share capital.

Now scale that up to a company. A company needs huge amounts of money to build factories, buy machinery, or develop software. It raises this money by selling shares — small units of ownership. When you buy a share, you become a part-owner of that company. The total money collected from all shareholders is the company’s share capital.

Why does share capital matter in accounting?

Because the company is a separate legal person. It does not own the money — the shareholders do. So the company must record exactly how much it has collected from whom, and in what form. This affects the balance sheet (where share capital appears under Equity and Liabilities) and the cash flow (money coming in from shareholders is a financing activity).

The precise meaning (NCERT Class 12)

Share Capital is the money raised by a company by issuing shares to the public or to promoters. It is shown under the head Shareholders’ Funds in the Balance Sheet.

There are two main types of shares:

Equity shares – ordinary shares; owners get dividends only if the company makes profit.
Preference shares – owners get a fixed dividend before equity shareholders, but usually have no voting rights.

Accounting treatment — the journal entries

When a company issues shares, it follows a standard sequence. Let’s say a company issues 10,000 equity shares of ₹10 each at par (i.e., at face value). The money is received in two instalments: ₹4 on application, ₹6 on allotment.

Step 1: Application money received

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	40,000
	To Share Application A/c		40,000
(Being application money received on 10,000 shares @ ₹4 each)

Step 2: Transfer application money to Share Capital

Date	Particulars	Debit (₹)	Credit (₹)
	Share Application A/c Dr.	40,000
	To Share Capital A/c		40,000
(Being application money transferred to Share Capital)

Step 3: Allotment money due

Date	Particulars	Debit (₹)	Credit (₹)
	Share Allotment A/c Dr.	60,000
	To Share Capital A/c		60,000
(Being allotment money due on 10,000 shares @ ₹6 each)

Step 4: Allotment money received

Date	Particulars	Debit (₹)	Credit (₹)
	Bank A/c Dr.	60,000
	To Share Allotment A/c		60,000
(Being allotment money received)

Note

If shares are issued at a premium (e.g., ₹10 face value, issued at ₹12), the extra ₹2 goes to a separate account called Securities Premium Reserve A/c. It is not part of share capital.

The Balance Sheet format (as per NCERT)

Under Equity and Liabilities, share capital appears like this:

Particulars	Note No.	Amount (₹)
1. Shareholders’ Funds
(a) Share Capital	1	1,00,000
(b) Reserves and Surplus	2	20,000
2. Non-Current Liabilities	...	...
3. Current Liabilities	...	...

And Note 1 (Share Capital) is typically shown as:

Particulars	Amount (₹)
Authorised Capital
1,00,000 Equity Shares of ₹10 each	10,00,000
Issued Capital
80,000 Equity Shares of ₹10 each	8,00,000
Subscribed and Paid-up Capital
80,000 Equity Shares of ₹10 each fully paid	8,00,000

Part (b)Concept understanding — Purchase Consideration

What is Purchase Consideration? Start with an everyday intuition

Imagine you want to buy a small shop from its owner. You don't just pay for the goods on the shelves — you also pay for the shop's name, its customer base, the furniture, the pending bills, and maybe even the goodwill. The total amount you agree to pay the seller for everything — all assets, all liabilities, the whole business — is the purchase consideration.

In simple terms: when one business buys another business (not just its products), the lump sum paid is purchase consideration. It is the price of the entire business as a going concern.

The precise meaning (as per NCERT / Class 12)

Purchase Consideration is the agreed amount payable by the purchasing company to the vendor company (the one being sold) for the acquisition of its business.

It is not the same as the net assets (assets minus liabilities). It is a negotiated figure — often different from the book value of net assets. If the purchase consideration is higher than the net assets, the difference is goodwill. If lower, it is capital reserve.

Why does it matter?

Because the entire accounting entry for the purchase of a business hinges on this one number. You cannot record the acquisition without first determining:

How much to pay the old firm
Whether goodwill arises or capital reserve is created
How to settle the payment (cash, shares, debentures, or a mix)

In board exams, the most common mistake is confusing purchase consideration with net assets. They are not the same.

Methods of calculating Purchase Consideration

NCERT prescribes four methods. You need to know all, but the Net Assets Method is the most frequently tested.

Method	Basis
Net Assets Method	Purchase consideration = Agreed value of assets taken over – Agreed value of liabilities taken over
Net Payment Method	Purchase consideration = Total of all payments made by the purchasing company (cash, shares, debentures) to the vendor
Lump Sum Method	A single fixed amount agreed upon, no breakup
Intrinsic Value / Share Exchange Method	Based on the number of shares issued and their intrinsic value

Note

In the Net Assets Method, you use agreed values, not book values. If the vendor's machinery is worth ₹5,00,000 in the books but both parties agree it is worth ₹6,00,000, you take ₹6,00,000.

Accounting Treatment — The Journal Entry

When the purchasing company acquires the business, it records the following:

Step 1: Record the assets and liabilities taken over

The journal entry in the books of the purchasing company is:

Sundry Assets A/c                     Dr.   [Agreed value of assets taken over]
Goodwill A/c (if PC > Net Assets)     Dr.   [Difference]
    To Sundry Liabilities A/c                     [Agreed value of liabilities taken over]
    To Vendor (or Business Purchase) A/c          [Purchase Consideration]
    To Capital Reserve A/c (if PC < Net Assets)   [Difference]

Watch out

Goodwill and Capital Reserve cannot both appear in the same entry. Only one of them arises — the difference between purchase consideration and net assets.

Step 2: Discharge of purchase consideration

When the purchasing company pays the vendor:

Vendor (or Business Purchase) A/c     Dr.   [Purchase Consideration]
    To Bank A/c (if paid in cash)
    To Share Capital A/c (if shares issued)
    To Debentures A/c (if debentures issued)

The format / proforma for the Net Assets Method

In your exam, you will often be asked to compute purchase consideration using the Net Assets Method. Here is the standard working note format:

Net Assets Method - Computation of Purchase Consideration

Particulars	Amount (₹)
Assets taken over (at agreed values)
Goodwill	xx,xxx
Land & Building	xx,xxx
Plant & Machinery	xx,xxx
Stock	xx,xxx
Debtors	xx,xxx
Cash at Bank	xx,xxx
Total Assets (A)	X,XX,XXX
Less: Liabilities taken over (at agreed values)
Sundry Creditors	(xx,xxx)
Bills Payable	(xx,xxx)
Outstanding Expenses	(xx,xxx)
Total Liabilities (B)	(X,XX,XXX)

Start your 14-day free trial to unlock the full solution →

Part (a)

Century Ltd. — Forfeiture and Reissue (5,000 shares of ₹100, 40% premium; called-up = ₹75, second call ₹40 not called)

Particulars	Debit (₹)	Credit (₹)
Share Capital A/c ... Dr.	3,75,000
Securities Premium A/c ... Dr.	1,25,000
To Share Allotment A/c		1,75,000
To Share First Call A/c		2,50,000
To Share Forfeiture A/c		75,000
(5,000 shares forfeited for non-payment of allotment & first call)
Bank A/c ... Dr.	2,70,000
Share Forfeiture A/c ... Dr.	30,000
To Share Capital A/c		3,00,000
(3,000 shares reissued as fully paid at ₹90)
Share Forfeiture A/c ... Dr.	15,000
To Capital Reserve A/c		15,000
(Gain on reissue transferred to Capital Reserve)

Start your 14-day free trial to unlock the full solution →

(a) Century Ltd. forfeits 5,000 shares (called-up ₹75) and reissues 3,000 at ₹90 fully paid ⇒ ₹15,000 to Capital Reserve.

(b) Almond Ltd. records Capital Reserve ₹25,00,000 (net assets ₹1,25,00,000 > PC ₹1,00,00,000) and issues 75,000, 11% Debentures at a 20% premium plus ₹10,00,000 cheque.

Part (a)

Shares issued at a premium are forfeited by debiting Share Capital with the called-up face value, debiting Securities Premium with premium called but not received, crediting the unpaid calls, and crediting Share Forfeiture with the amount received (capital portion).

Given: ₹100 share, 40% premium (₹40); called up ₹75 (second & final call ₹40 incl. ₹15 premium not yet called ⇒ uncalled FV ₹25). Allotment ₹35 (all FV) and first call ₹50 (incl. ₹25 premium) unpaid; application ₹15 received.

Share Capital = 75 × 5,000 = ₹3,75,000
Securities Premium (first-call premium called-not-received) = 25 × 5,000 = ₹1,25,000
Share Allotment (unpaid) = 35 × 5,000 = ₹1,75,000; Share First Call (unpaid) = 50 × 5,000 = ₹2,50,000
Share Forfeiture (application received) = 15 × 5,000 = ₹75,000

Reissue of 3,000 shares at ₹90 fully paid (face ₹100): loss = ₹10/share = ₹30,000; forfeiture on 3,000 = 3,000 × 15 = ₹45,000; Capital Reserve = 45,000 − 30,000 = ₹15,000.

Particulars	Debit (₹)	Credit (₹)
Share Capital A/c ... Dr.	3,75,000
Securities Premium A/c ... Dr.	1,25,000
To Share Allotment A/c		1,75,000
To Share First Call A/c		2,50,000
To Share Forfeiture A/c		75,000
Bank A/c ... Dr.	2,70,000
Share Forfeiture A/c ... Dr.	30,000
To Share Capital A/c		3,00,000
Share Forfeiture A/c ... Dr.	15,000

Start your 14-day free trial to unlock the full solution →

Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

Showing the 12 most recent of 68 on this concept.

CBSE 2026Set 67/3/11 markMCQ
$Q. (a) Paramount Ltd. forfeited 2,000 equity shares of ₹ 100 each, ₹ 80 called up, issued at a premium of 10%, for non-payment of first call of ₹ 20 per share. On forfeiture of these shares, Equity Share Capital Account will be ________ by ________. (A) debited, ₹ 1,60,000 (B) credited, ₹ 1,60,000 (C) debited, ₹ 2,00,000 (D) credited, ₹ 2,00,000$
(OR)
$(b) Rudali Ltd. invited applications for issuing 2,00,000 equity shares of ₹ 10 each at a premium of ₹ 2 per share. ₹ 5 per share (including premium) was payable on application. Applications for 2,60,000 shares were received. An applicant for 5,000 shares paid his entire share money along with application. The amount received on application was : (A) ₹ 10,00,000 (B) ₹ 12,00,000 (C) ₹ 12,35,000 (D) ₹ 13,35,000$
›Reveal solutionSolution
Part (a): Equity Share Capital A/c is debited by ₹1,60,000 — option (A).

Part (b): Amount received on application = ₹13,35,000 — option (D).

Part (a)

Forfeiture reverses Share Capital only to the extent called up, at the called-up value per share.

Called-up per share = ₹80; shares forfeited = 2,000

Equity Share Capital A/c debit = 2,000 × ₹80 = ₹1,60,000 …
Start your 14-day free trial to see the full solution →
CBSE 2026Set 67/3/11 markMCQ
$Q. (a) On 1st April, 2024, Mobi Ltd. issued 3,000, 9% Debentures of ₹ 1,000 each at a premium of 5%. The total amount of interest due on debentures for the year ended 31st March, 2025 will be : (A) ₹ 2,70,000 (B) ₹ 1,50,000 (C) ₹ 27,000 (D) ₹ 15,000$
(OR)
$(b) A company may reserve a portion of its uncalled capital to be called only in the event of winding up of the company. Such uncalled amount is called : (A) Uncalled capital (B) Paid-up capital (C) Called-up capital (D) Reserve capital$
›Reveal solutionSolution
Part (a): Annual debenture interest = ₹2,70,000 — option (A).

Part (b): The reserved uncalled amount is Reserve Capital — option (D).

Part (a)

Debenture interest is computed on the nominal (face) value, unaffected by the issue premium.

Total face value = 3,000 × ₹1,000 = ₹30,00,000

Interest = 9% × ₹30,00,000 × 1 year = ₹2,70,000 …
Start your 14-day free trial to see the full solution →
CBSE 2026Set 67/3/11 markMCQ
$Q. Deep Ltd. issued 6,000, 9% Debentures of ₹ 500 each at ₹ 490 per debenture. 9% Debentures Account will be credited by : (A) ₹ 2,70,000 (B) ₹ 6,00,000 (C) ₹ 29,40,000 (D) ₹ 30,00,000$
›Reveal solutionSolution
The 9% Debentures Account is credited by ₹30,00,000 (face value of 6,000 debentures @ ₹500 each), irrespective of the issue price of ₹490.

Concept: Accounting Treatment for Issue of Debentures at a Discount

When a company issues debentures, the Debentures Account (a liability) is always credited with the face value (nominal value) of the debentures, not the issue price. This is because the company's liability to debenture-holders is to repay the face value at maturity, regardless of what they paid at the time of issue.

The accounting entries follow the fundamental rule:

Debit what comes in (Bank receives cash at issue price)

Credit the liability at face value (Debentures Account)

Any difference between face value and issue price is treated separately:

Discount on Issue of Debentures (when issue price < face value) is debited as a capital loss

Premium on Issue of Debentures (when issue price > face value) is credited

In this case, Deep Ltd. issued debentures at a discount of ₹10 per debenture (₹500 − ₹490).

Solution

Working Note 1: Calculation of Face Value

Number of debentures issued = 6,000

Face value per debenture = ₹500

Total Face Value = 6,000 × ₹500 = ₹30,00,000

Working Note 2: Calculation of Issue Price

Issue price per debenture = ₹490

Total Cash Received = 6,000 × ₹490 = ₹29,40,000

Working Note 3: Discount on Issue

Discount per debenture = ₹500 − ₹490 = ₹10

Total Discount = 6,000 × ₹10 = ₹60,000

Journal Entry

Date Particulars L.F. Debit (₹) Credit (₹)
Bank A/c 29,40,000
Start your 14-day free trial to see the full solution →
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. …

Start your 14-day free trial to see the full solution →
CBSE 2026Set 67/4/11 markMCQ
$Q. (a) 6,000 shares of ₹ 25 each were forfeited for non-payment of final call money of ₹ 5 per share. The maximum discount that the company can allow on reissue of these shares will be : (A) ₹ 30,000 (B) ₹ 90,000 (C) ₹ 1,20,000 (D) ₹ 1,50,000$
(OR)
$(b) 5,000 shares of ₹ 20 each were forfeited for non-payment of second and final call of ₹ 4 per share. The minimum amount that the company must collect at the time of reissue of these shares will be : (A) ₹ 20,000 (B) ₹ 80,000 (C) ₹ 1,00,000 (D) ₹ 1,20,000$
›Reveal solutionSolution

Part (a): Maximum discount on reissue = Rs.1,20,000 -> (C). Part (b): Minimum amount to collect on reissue = Rs.20,000 -> (A).

Part (a)

Maximum discount on reissue cannot exceed the amount forfeited. Amount received before forfeiture = 25 - 5 = Rs.20 per share -> 20 x 6,000 = Rs.1,20,000. …
Start your 14-day free trial to see the full solution →

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Bank A/c		29,40,000

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 solution

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

Start your 14-day free trial to see the full solution →

CBSE 2026Set 67/5/11 markMCQ
$Q. (a) Merak Ltd. forfeited 6,000 equity shares of ₹ 10 each for non-payment of final call of ₹ 3 per share. The minimum amount per share at which these shares can be reissued will be : (A) ₹ 3 (B) ₹ 7 (C) ₹ 10 (D) ₹ 6$
(OR)
$(b) Nori Ltd. issued 20,000, 11% debentures of ₹ 100 each at a premium of 10%, redeemable at a premium of 5%. Loss on issue of debentures account will be debited by : (A) ₹ 20,00,000 (B) ₹ 1,00,000 (C) ₹ 3,00,000 (D) ₹ 2,00,000$
›Reveal solutionSolution
Part (a): Minimum reissue price = ₹3 — option (A).

Part (b): Loss on Issue of Debentures = ₹1,00,000 — option (B).

Part (a)

On forfeiture, the amount already received is credited to the Share Forfeiture Account, and on reissue the discount allowed cannot exceed this balance.

Face value = ₹10; final call unpaid = ₹3

Amount forfeited per share = ₹10 − ₹3 = ₹7 (maximum permissible discount) …
Start your 14-day free trial to see the full solution →
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
Start your 14-day free trial to see the full solution →
CBSE 2026Set ANNUAL1 markMCQ
$Q. Purchase of own equity shares by a company is called A) Buy-back of share B) Repayment C) Redemption D) Capitalisation$
›Reveal solutionSolution
A company purchasing its own equity shares is doing a buy-back - option (A).

'Buy-back' means a company repurchasing its own equity shares from its shareholders, usually to return surplus cash, improve earnings per share, or support the share price. It is distinct from:

Redemption (option C) - applies to preference shares and debentures that are repaid on maturity. …
Start your 14-day free trial to see the full solution →
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.

…

Start your 14-day free trial to see the full solution →
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)

…

Start your 14-day free trial to see the full solution →
CBSE 2026Set ANNUAL1 markMCQ
$Q. Sweekar Ltd. purchased assets worth ₹ 16,20,000 from Rajashree Ltd. By issuing 8% Debentures of ₹ 150 per debenture at a premium of 20%. What is the total number of debentures issued by the company to settle this purchase consideration ?$
(a) 16,200 Debentures
(b) 13,500 Debentures
(c) 10,800 Debentures
(d) 9,000 Debentures
›Reveal solutionSolution

Number of debentures issued = Purchase Consideration ÷ Issue price per debenture = 16,20,000 ÷ 180 = 9,000 debentures.

Step 1 — Find the issue price per debenture:

Face value per debenture = ₹150

Premium on issue = 20% of ₹150 = ₹30

Issue price per debenture = ₹150 + ₹30 = ₹180

Step 2 — Find the number of debentures to be issued:

When a company purchases assets from a vendor and settles the purchase consideration by issuing debentures (instead of cash), the number of debentures issued is calculated as:

Number of Debentures = Purchase Consideration ÷ Issue Price per Debenture

= ₹16,20,000 ÷ ₹180

= 9,000 Debentures

Check: 9,000 debentures × ₹180 = ₹16,20,000, which exactly equals the purchase consideration — confirming the figure is correct.

The journal entries for this transaction (in Sweekar Ltd.'s books) would be:

Sundry Assets A/c Dr. 16,20,000 …

Start your 14-day free trial to see the full solution →

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

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

Part (a)

🎓Unlock everything free for 14 days

Unlock everything free for 14 days