DEBENTURES ISSUED FOR CONSIDERATION OTHER THAN CASH

DEBENTURES ISSUED FOR CONSIDERATION OTHER THAN CASH :

It may so happen that the company acquires some assets from the vendor and instead of paying the vendor in cash, the company may allot debentures in payment of purchase consideration. The issue of debentures to vendors is known as issue of debentures for consideration other than cash. In such a case, the accounting entries will be as follows:

(1) For acquisition of assets:

Sundry Assets (Individually) A/c                                                                                 Dr.             (with the value of assets)
To Vendors                                                                                                        (with the purchase price)

Notes: (i) If the value of debentures allotted is more than the agreed purchase price, the difference is debited to Goodwill Account.

(ii) Similarly, if the value of debentures allotted is less than the agreed purchase price, credited to Capital
Reserve Account.
(2)

(a) On allotment of debentures (at par)
Vendors                                                                                                                            Dr.      (with the value of debentures)
To Debentures A/c

(b) On allotment of debentures (at premium)

Vendors A/c                                                                                                                     Dr. (with the purchase price)

To Debentures A/c                                                                                    (with the nominal value)
To Securities Premium A/c                                                                     (with the amount of premium)

 

(c) On allotment of debentures (at discount)

Vendors A/c                                                                                                                   Dr. (with the amount of purchase)
Discount on Issue of Debentures A/c                                                                     Dr. (with the amount of discount)
To Debentures A/c                                                                                  (with the nominal value)

 

Illustration 4

Optimist Ltd. purchased building worth ` 1,20,000 and plant and machinery worth ` 1,00,000 from Depressed Ltd. for an agreed purchase consideration of ` 2,00,000 to be satisfied by the issue of 2,000, 12% Debentures of ` 100 each.
Show the necessary journal entries in the books of Optimist Ltd.

Particulars	Dr.(Rs).	Cr.9Rs.)
Building A/c                                                                                                       Dr. Plant and Machinery A/c                                                                                   Dr. To Depressed Ltd. To Capital Reserve A/c   (Purchase of sundry assets and transfer of capital profits as per agreement with The vendor dated……………………………)	1,20,00
	1,00,000	2,00,000
		20,000
Depressed Ltd.                                                                                                   Dr.   To 12% Debentures A/c   (Being 2,000, 12% Debentures of ` 100 each allotted to vendors for consideration other than cash as per Board’s resolution dated………….)	2,00,000
		2,00,000