2. Sometimes a company purchases assets from vendors and instead
of making payment in cash issues debentures for consideration thereof.
Such issue of debentures is called debentures issued for consideration
other than cash.
Journal Entries
On purchase of assets
Sundry Assets A/c Dr.
ToVendor’s
Or
On Purchase of Business
Asset A/c Dr (Value of asset taken over)
To Liabilities (Value of liabilities taken over)
ToVendors A/c (Purchase consideration)
If there is excess of
purchase consideration
over the net asset, the
difference being capital
loss is debited to
“Goodwill A/c”. On the
other hand if the net asset
exceed the purchase
consideration, the
difference being capital
profit is credited to
“Capital Reserve A/c”
3. 2. On issue of debentures
(a) At Par
Vendors Dr.
To Debentures A/c
(b)At premium
Vendors Dr.
To Debentures A/c
To Securities Premium A/c
(c) At a discount
Vendors Dr.
Discount on Issue of Debenture A/c Dr.
To Debentures A/c
4. EXAMPLE
Arun Ltd took over asset worth of Rs. 250000 and liabilities of Rs. 67000 or Prakash
Ltd for an agreed purchase consideration of Rs. 198000. It is agreed to pay the
purchase consideration by issuing 10% Debentures of Rs.100 each. Show the journal
entries if the debentures are issued at
a) At Par
Sundry Asset A/c Dr
Goodwill A/c Dr
To Liabilities
To Prakash Ltd
250000
15000
67000
198000 Prakash Ltd A/c Dr.
To 10% Debentures A/c
198000
198000
Purchase Consideration= 198000
Net Asset= Asset – Liabilities
= 250000 – 67000= 183000
Goodwill = Purchase consideration – Net Asset
= 198000 – 183000= 15000
a) At Par
5. EXAMPLE
Arun Ltd took over asset worth of Rs. 250000 and liabilities of Rs. 67000 or Prakash
Ltd for an agreed purchase consideration of Rs. 198000. It is agreed to pay the
purchase consideration by issuing 10% Debentures of Rs.100 each. Show the journal
entries if the debentures are issued at
a) 10% Premium
Sundry Asset A/c Dr
Goodwill A/c Dr
To Liabilities
To Prakash Ltd
250000
15000
67000
198000
Prakash Ltd A/c Dr.
To 10% Debentures A/c
To Security Premium A/c
(1800 debentures of Rs.100
issued at a premium of Rs.10)
198000
180000
18000
No. Of debentures to be issued
= Amount Payable / Face value+ Premium
= 198000 / 110 = 1800 Debentures
6. EXAMPLE
Arun Ltd took over asset worth of Rs. 250000 and liabilities of Rs. 67000 or Prakash
Ltd for an agreed purchase consideration of Rs. 198000. It is agreed to pay the
purchase consideration by issuing 10% Debentures of Rs.100 each. Show the journal
entries if the debentures are issued at
a) 10% Discount
Sundry Asset A/c Dr
Goodwill A/c Dr
To Liabilities
To Prakash Ltd
250000
15000
67000
198000
Prakash Ltd A/c Dr.
Discount on issue of Deb.A/c Dr.
To 10% Debentures A/c
(2200 Debentures of Rs.100 each issued
at a discount of Rs.10)
198000
22000
220000
No. Of debentures to be issued
= Amount Payable / Face value - Discount
= 198000 / 90 = 2200 Debentures