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Illustrations · Illustration 10

Q.Romi Ltd. acquired assets of ₹20,00,000 and took over creditors of ₹2,00,000 from Kapil Enterprises. Romi Ltd., issued 8% debentures of ₹100 each at par as purchase consideration. Record necessary journal entries in the books of Romi Ltd.

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Romi Ltd. takes over Kapil Enterprises' assets of ₹20,00,000 and creditors of ₹2,00,000, so the vendor's claim is the net assets of ₹18,00,000, settled by 18,000, 8% debentures of ₹100 each issued at par.

Concept

When a whole business is taken over — assets as well as liabilities — the purchase consideration is not the full value of the assets acquired, but the net assets (Assets − Liabilities taken over). The purchase entry therefore credits the liabilities taken over directly, and credits the vendor's account with only the net amount actually owed; the debentures issued to discharge that vendor's account are then based on this net figure.

Working Note

Net assets (= purchase consideration) = Assets ₹20,00,000 − Creditors taken over ₹2,00,000 = ₹18,00,000. Since debentures are issued at par, number of debentures = ₹18,00,000 ÷ ₹100 = 18,000.

Solution

Books of Romi Ltd.

Journal

DateParticularsL.F.Debit (₹)Credit (₹)
Sundry Assets A/c Dr.20,00,000
To Kapil Enterprises A/c18,00,000

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