Bansal Heavy Machine Ltd. purchased machine worth Rs.3,80,000 from Handa Trader. Payment was made as Rs.50,000 cash and remaining amount by issue of equity shares of the face value of Rs.100 each fully paid at an issue price of Rs.110 each.
Give journal entries to record the above transaction. (Answer: Numbers of shares issued = 3,000 shares)
Working Note: Calculation of Number of Shares Issued Total Purchase Price = Rs. 3,80,000 Less: Cash Paid = Rs. 50,000 Amount payable through Shares = Rs. 3,30,000
Number of Shares = Amount Payable / Issue Price = Rs. 3,30,000 / Rs. 110 = 3,000 Shares
Journal Entries in the Books of Bansal Heavy Machine Ltd.
| Date | Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|---|
| Machinery A/c Dr. | 3,80,000 | |||
| To Handa Trader | 3,80,000 | |||
| (Machine purchased from Handa Trader) | ||||
| Handa Trader Dr. | 50,000 | |||
| To Cash A/c | 50,000 | |||
| (Cash paid to Handa Trader) | ||||
| Handa Trader Dr. | 3,30,000 | |||
| To Share Capital A/c | 3,00,000 | |||
| To Securities Premium Reserve A/c | 30,000 | |||
| (3,000 shares issued at Rs.110 per share) |
Explanation
The question involves purchase of machinery with payment made partly in cash and partly through issue of shares at premium. The amount payable through shares is Rs.3,30,000 (3,80,000 - 50,000). Since shares are issued at Rs.110 (face value Rs.100 + premium Rs.10), number of shares = 3,30,000/110 = 3,000 shares. The share capital is credited with face value (3,000 × Rs.100 = Rs.3,00,000) and Securities Premium Reserve is credited with premium amount (3,000 × Rs.10 = Rs.30,000).
Solution Steps
Step 1: Calculate amount payable through shares = Rs.3,80,000 - Rs.50,000 = Rs.3,30,000
Step 2: Calculate number of shares = Rs.3,30,000 ÷ Rs.110 = 3,000 shares
Step 3: Calculate Share Capital = 3,000 × Rs.100 = Rs.3,00,000
Step 4: Calculate Securities Premium = 3,000 × Rs.10 = Rs.30,000
Step 5: Pass journal entries for purchase, cash payment, and share issue