D Ltd. purchased machinery worth Rs. 2,00,000 from E Ltd. on 1.4.2016. Rs. 50,000 were paid immediately and the balance was paid by issue of Rs. 1,60,000, 12% Debentures in D Ltd. Record the necessary journal entries for recording the transactions in the books of D Ltd.
Books of D Ltd. Journal
| Date | Particulars | L.F. | Debit Amount (Rs.) | Credit Amount (Rs.) |
|---|---|---|---|---|
| 2016 | ||||
| April 1 | Machinery A/c | Dr. | 2,00,000 | |
| To E Ltd. | 2,00,000 | |||
| (Being machinery purchased from E Ltd.) | ||||
| April 1 | E Ltd. | Dr. | 50,000 | |
| To Bank A/c | 50,000 | |||
| (Being payment made to E Ltd.) | ||||
| April 1 | E Ltd. | Dr. | 1,50,000 | |
| Discount on Issue of Debentures A/c | Dr. | 10,000 | ||
| To 12% Debentures A/c | 1,60,000 | |||
| (Being balance paid by issue of 12% Debentures at a discount) |
Explanation
The question involves recording the purchase of machinery and the settlement of the purchase consideration. First, the machinery purchase is recorded by debiting Machinery and crediting the vendor (E Ltd.). The immediate cash payment is recorded by debiting E Ltd. and crediting Bank. The balance due is calculated as Rs. 1,50,000. Since the company issues debentures with a face value of Rs. 1,60,000 to settle this balance, the debentures are issued at a discount (Face Value > Amount Payable). The difference of Rs. 10,000 is debited to 'Discount on Issue of Debentures A/c'.
Solution Steps
Step 1: Calculate the balance payable to E Ltd. Total Purchase Price (Rs. 2,00,000) - Immediate Payment (Rs. 50,000) = Rs. 1,50,000.
Step 2: Compare the balance payable with the face value of debentures issued. Face Value of Debentures = Rs. 1,60,000.
Step 3: Determine the status of issue. Since Face Value (Rs. 1,60,000) is greater than the amount payable (Rs. 1,50,000), the debentures are issued at a discount. Discount Amount = Rs. 1,60,000 - Rs. 1,50,000 = Rs. 10,000.
Step 4: Pass the journal entry for the issue of debentures: Debit E Ltd. (with the balance amount), Debit Discount on Issue of Debentures A/c (with the difference), and Credit 12% Debentures A/c (with the face value).