Page 151 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes (iii) If Debentures are issued at discount to the vendor:
Vendors’ account Dr.
To Discount on issue of debentures Account Dr.
To Debentures Account

Example 5: Issue of Debentures to Vendor
Sunder Mills Limited acquired the business of Sohan Brothers. This business consists of building
of 10,00,000, Plant and Machinery of 4,00,000 and Patents of 2,00,000 and Sundry Liabilities
2,00,000. The purchase price was of 16,00,000, which will be paid by the issue of 12% debentures
of 100 each. Pass necessary journal entries if these debentures are issued (i) at par (ii) at 25%
premium.
Solution:
Journal Entries

Date Particular L.F. ( ) ( )
Building Account Dr. 10,00,000
Plant & Machinery Account Dr. 4,00,000
Patents Account Dr. 2,00,000
Goodwill Account Dr. 2,00,000
To Sohan Brothers 16,00,000
To Sundry Liabilities Account 2,00,000
(Being acquisition of assets and liabilities of Sohan Brothers)
Sohan Brothers Dr. 16,00,000
To 12% Debentures Account 16,00,000
(Being debentures issued at par for consideration of purchase price)
Sohan Brothers Dr. 16,00,000
To 12% Debentures Account 12,80,000
To Debentures Premium Account 3,20,000
(Being debentures issued at 25% premium to Sohan Brothers)

Working Note:
Purchase price
No of debentures Issued =
Issue price of debenture
16,00,000
= = 12,800
125
Face value of 12,800 debentures = 12800 100 = 12,80,000

Example 6: Issue of Debentures to Vendor with part payment in cash
AK Limited Company acquired the buildings of 25,00,000 and liabilities of 4,00,000 of G.K.
& Sons. There was an agreement to pay the purchase consideration 20,00,000 by issuing the
10% Debentures of 100 each at a premium of 10%. The debentures of AK Limited are quoted in
the market at 145.
You are required to give journal entries for recording the transactions in the book of AK Limited.

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