X Ltd. purchased assets of the book value of ₹ 5,00,000 and took over the liabilities of ₹ 50,000 from Z Ltd. It was agreed that the purchase consideration, settled at ₹ 4,80,000, be paid by issuing debentures of ₹ 100 each by X Ltd.
Show the Journal entries in the following case

Question

X Ltd. purchased assets of the book value of ₹ 5,00,000 and took over the liabilities of ₹ 50,000 from Z Ltd. It was agreed that the purchase consideration, settled at ₹ 4,80,000, be paid by issuing debentures of ₹ 100 each by X Ltd.
Show the Journal entries in the following cases if debentures are issued:
(a) at par;
(b) at a premium of 10%.
It was agreed that any fraction of debentures be paid in cash.

Accepted Answer

>

> [!TLDR]
> X Ltd. records Goodwill ₹30,000 on purchase; it then issues debentures of ₹4,80,000 — (a) at par: 4,800 debentures; (b) at 10% premium: 4,363 debentures (₹4,79,930) plus ₹70 in cash for the fraction.
>
> **Workings:** Net assets taken over = Assets ₹5,00,000 − Liabilities ₹50,000 = ₹4,50,000. Purchase consideration = ₹4,80,000. Since consideration > net assets by ₹30,000 → Goodwill ₹30,000.
> - (a) At par: 4,80,000 ÷ 100 = 4,800 debentures.
> - (b) At 10% premium (issue price ₹110): 4,80,000 ÷ 110 = 4,363.6 → 4,363 debentures = ₹4,79,930; balance ₹70 paid in cash.
>
> **Journal Entries — X Ltd.**
>
> | Particulars | Dr (₹) | Cr (₹) |
> |---|---|---|
> | Sundry Assets A/c ....... Dr. | 5,00,000 | |
> | Goodwill A/c ....... Dr. | 30,000 | |
> |  To Sundry Liabilities A/c | | 50,000 |
> |  To Z Ltd. (Vendor) A/c | | 4,80,000 |
> | (Being assets and liabilities taken over from Z Ltd.) | | |
>
> *(a) Debentures issued at par:*
>
> | Particulars | Dr (₹) | Cr (₹) |
> |---|---|---|
> | Z Ltd. A/c ....... Dr. | 4,80,000 | |
> |  To Debentures A/c (4,800×100) | | 4,80,000 |
> | (Being 4,800 debentures of ₹100 each issued at par in settlement) | | |
>
> *(b) Debentures issued at 10% premium:*
> …

Particulars	Dr (₹)	Cr (₹)
Sundry Assets A/c ....... Dr.	5,00,000
Goodwill A/c ....... Dr.	30,000
To Sundry Liabilities A/c		50,000
To Z Ltd. (Vendor) A/c		4,80,000
(Being assets and liabilities taken over from Z Ltd.)

Particulars	Dr (₹)	Cr (₹)
Z Ltd. A/c ....... Dr.	4,80,000
To Debentures A/c (4,800×100)		4,80,000
(Being 4,800 debentures of ₹100 each issued at par in settlement)

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