Amalgamation

This query is : Resolved

Deepika Agarwal (Querist)
Follow

20 September 2016 Vendor company has 6% debentures of ₹ 50000 and accrued interest of ₹ 1500. The new company discharge the debenture and accrued interest in vendor company by the issue of 7% debenture at ₹103. What will be the journal entry in the purchaser's company books of account????????

Deepika Agarwal

Deepika Agarwal (Querist)
Follow

20 September 2016 by how much amount Enfield should be passed

Deepika Agarwal

Deepika Agarwal (Querist)
Follow

20 September 2016 how much amount entry should be passed. please explain each and every aspect of this question

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

14 July 2024 To address the transaction where a new company discharges the debentures and accrued interest of a vendor company by issuing its own debentures, let's break down the journal entry and calculations step by step.

### Given Information:
- Vendor company has 6% debentures of ₹ 50,000.
- Accrued interest on these debentures is ₹ 1,500.
- New company discharges these debentures and accrued interest by issuing its own 7% debentures at ₹ 103.

### Step-by-Step Solution:

1. **Calculate Total Amount to be Discharged:**

- **Principal Amount of Debentures**: ₹ 50,000
- **Accrued Interest**: ₹ 1,500
- **Total Amount**: ₹ 51,500

2. **Determine Number of New Debentures to be Issued:**

- Since the new company issues its own 7% debentures at ₹ 103, calculate the number of debentures needed to cover ₹ 51,500.

Therefore, the new company will issue 500 debentures of ₹ 103 each.

3. **Journal Entry in the Purchaser's Company (New Company's Books):**

The journal entry in the new company's books to discharge the debentures and accrued interest of the vendor company would be as follows:

**Debit**:
- Debentures Payable Account: ₹ 51,500
\[
\text{Debit} \quad \text{Debentures Payable} \quad ₹ 51,500
\]

**Credit**:
- Vendor Company's Debentures Account: ₹ 50,000
\[
\text{Credit} \quad \text{Vendor Company's Debentures} \quad ₹ 50,000
\]
- Accrued Interest Payable Account: ₹ 1,500
\[
\text{Credit} \quad \text{Accrued Interest Payable} \quad ₹ 1,500
\]
- New Company's 7% Debentures Account: ₹ 51,500
\[
\text{Credit} \quad \text{New Company's 7% Debentures} \quad ₹ 51,500
\]

### Explanation:

- **Debit to Debentures Payable**: Represents the liability incurred by the new company for discharging the vendor company's debentures and accrued interest.
- **Credit to Vendor Company's Debentures**: Reduces the liability of the vendor company's debentures on the new company's books.
- **Credit to Accrued Interest Payable**: Reduces the liability of accrued interest payable to the vendor company.
- **Credit to New Company's 7% Debentures**: Represents the issuance of new debentures by the new company to the vendor company in exchange for discharging the old debentures and accrued interest.

### Summary:

This journal entry captures the transaction where the new company issues its own debentures to discharge the liabilities (debentures and accrued interest) of the vendor company. Each aspect of the transaction is recorded to accurately reflect the exchange and ensure proper accounting treatment in the new company's books.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now