A company purchased assets of the value of Rs.1,90,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000, 10% debentures of Rs.100 each at a discount of 5%. Record necessary journal entries.
Working Notes:
- Calculation of Discount:
- Face Value of Debentures = 2,000 × Rs. 100 = Rs. 2,00,000
- Discount per Debenture = 5% of Rs. 100 = Rs. 5
- Total Discount = 2,000 × Rs. 5 = Rs. 10,000
Journal Entries in the Books of the Company
| Date | Particulars | L.F. | Debit Amount (Rs.) | Credit Amount (Rs.) |
|---|---|---|---|---|
| Sundry Assets A/c Dr. <br> To Vendors A/c <br> (Being assets purchased from another company) | 1,90,000 | 1,90,000 | ||
| Vendors A/c Dr. <br> Discount on Issue of Debentures A/c Dr. <br> To 10% Debentures A/c <br> (Being 2,000, 10% debentures of Rs. 100 each issued at a discount of 5% as purchase consideration) | 1,90,000 <br> 10,000 | 2,00,000 |
Explanation
The problem involves the issue of debentures for consideration other than cash at a discount. The purchase consideration is Rs. 1,90,000. The company issues 2,000 debentures of Rs. 100 each (Face Value = Rs. 2,00,000). Since the issue is at a 5% discount, the difference between the Face Value (Rs. 2,00,000) and the Purchase Consideration (Rs. 1,90,000) is treated as a discount on the issue of debentures (Rs. 10,000). The first entry records the asset acquisition, and the second entry settles the vendor's account by issuing debentures, debiting the discount account for the loss on issue.
Solution Steps
Step 1: Calculate Face Value of Debentures issued = 2,000 debentures × Rs. 100 = Rs. 2,00,000.
Step 2: Calculate Discount on Issue of Debentures = Face Value (Rs. 2,00,000) - Purchase Consideration (Rs. 1,90,000) = Rs. 10,000.
Step 3: Record the purchase of assets by debiting Sundry Assets and crediting Vendors.
Step 4: Record the settlement of Vendors by debiting Vendors (for the amount payable), debiting Discount on Issue of Debentures A/c (for the loss), and crediting 10% Debentures A/c (at face value).