Page 16 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 1: Acquisition of Business

Cash 85,000 notes
Patents 15,000
11, 00,000 11, 00,000
The business of Rohan & Sons is taken over by a Khajura Limited as on that date on the following
terms:
(a) Khajura Limited to take over all assets except cash to value the assets at book value less
10% except goodwill, which is to be valued at 4 years’ purchase of the excess of average
(3 years) profits over 8% of the combined capital and revenue reserve.
(b) The company to take over trade liabilities subject to a discount of 5%.
(c) The purchase consideration was to be discharged as follows:

(i) Issue of 30,000 equity shares of ` 10 each valued at ` 12.50 per share.
(ii) Issue of 2,500 10% Debentures of ` 100 each at a discount of 10%.
(iii) The balance in cash.
(d) The average of three years profits was ` 75,250.
(e) The cost of realisation amounting to ` 5,000 was paid by the purchasing company.

Show the necessary journal entries in the books of Khajura Limited and prepare the opening
balance sheet of the company.
Solution

khajura limited
Journal
Date particulars l.f. ` `

Business Purchase Account Dr. 6,74,750
To Rohan & Sons 6,74,750
[Being record of purchase (Consideration payable
to Rohan & Sons)]
Goodwill Account Dr. 1,25,000
Building Account Dr. 1,91,250
Plant & Machinery Account Dr. 3,60,000
Stock Account Dr. 1,23,750
Sundry Debtors Account Dr. 1,46,250
Patents Account Dr. 13,500
To Bills Payable Account 95,000
To Creditors’ Account 1,90,000
To Business Purchase Account 6,74,750
(Being above assets and liabilities taken over)
Rohan & Sons Dr. 6,74,750
Discount on Issue of Debentures A/c Dr. 25,000
To Equity Share Capital Account 3,00,000
To Share Premium Account 75,000

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