debenture as consideration otherthan cash

debenture as consideration other than cash

1. ISSUE OF DEBENTURES FOR
CONSIDERATION OTHER THAN CASH
MRK

2. Sometimesacompanypurchasesassetsfromvendorsandinstead
ofmakingpaymentincashissuesdebenturesforconsiderationthereof.
Suchissueofdebenturesiscalleddebenturesissuedforconsideration
otherthancash.
JournalEntries
On purchase of assets
Sundry Assets A/c Dr.
To Vendor’s
Or
On Purchase of Business
Asset A/c Dr(Value of asset taken over)
To Liabilities(Value of liabilities taken over)
To Vendors 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
VendorsDr.
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
ArunLtdtookoverassetworthofRs.250000andliabilitiesofRs.67000orPrakash
LtdforanagreedpurchaseconsiderationofRs.198000.Itisagreedtopaythe
purchaseconsiderationbyissuing10%DebenturesofRs.100each.Showthejournal
entriesifthedebenturesareissuedat
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
ArunLtdtookoverassetworthofRs.250000andliabilitiesofRs.67000orPrakash
LtdforanagreedpurchaseconsiderationofRs.198000.Itisagreedtopaythe
purchaseconsiderationbyissuing10%DebenturesofRs.100each.Showthejournal
entriesifthedebenturesareissuedat
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
ArunLtdtookoverassetworthofRs.250000andliabilitiesofRs.67000orPrakash
LtdforanagreedpurchaseconsiderationofRs.198000.Itisagreedtopaythe
purchaseconsiderationbyissuing10%DebenturesofRs.100each.Showthejournal
entriesifthedebenturesareissuedat
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

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