Shares issue for business purchased is also known as issue of shares other than cash or shares issued for non-cash consideration.
Generally, similar business is purchased.
When the company purchases business from other company, purchase consideration is fixed.
This purchase consideration can be paid by cash, equity shares and debentures.
While issuing shares, it may be at par, at discount or at premium.
Sometimes purchasing company purchases only assets from Vendor Company.
Sometimes, purchasing company purchases both assets and liabilities.
While purchasing business, there may be capital reserve or goodwill; it is calculated as balancing figure.
Purchasing company can issue some shares to public for cash.
Shares are issued on lump-sum basis.
Shares can be issued at par, at discount or at premium.
Net value or purchase consideration = Total assets – Total liabilities |
|
Purchase value = Net value Purchase value > Net value Purchase value < Net value |
neither goodwill nor capital reserve goodwill capital reserve |
Sometimes numbers of purchasing shares are given in the question and sometimes purchase consideration is given.
If numbers of shares are not given, following formula can be applied:
Number of shares (If shares are issued at par) = Purchase consideration ÷ Par value per share
Number of shares (If shares are issued at discount) = Purchase consideration ÷ (Par value per share – Discount)
Number of shares (If shares are issued at premium) = Purchase consideration ÷ (Par value per share + Premium)
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 31
Purchasing Company purchased following assets and liabilities from Vendor Company by issuing 10,000 equity shares of Rs 100 each:
Plant and machinery Stock Bills payable |
Rs 200,000 Rs 150,000 Rs 100,000 |
Land and building Sundry creditors Bills receivable |
Rs 500,000 Rs 250,000 Rs 200,000 |
Besides this, the company also issued 1,000 equity shares to public at 15% premium
Required: Journal entry in the book of Purchasing Company
[Answer: Goodwill = Rs 300,000]
SOLUTION:
Purchase consideration = 10,000 shares x Rs 100 = Rs 10,00,000
Journal Entries
In the book of Purchasing Company
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Business purchase |
|
|
|
|
|
Business purchase account To Vendor Company account (Being- business purchased) |
Dr
|
|
10,00,000
|
10,00,000
|
|
Assets and liabilities taken |
|
|
|
|
|
Plant and machinery account Land and building account Stock account Bills receivable account Goodwill account (b/f) To Bills payable account To Sundry creditors account To Business purchase account (Being- assets and liabilities taken, balance as goodwill |
Dr Dr Dr Dr Dr |
|
2,00,000 5,00,000 1,50,000 2,00,000 3,00,000 |
1,00,000 2,50,000 10,00,000
|
|
Purchase consideration paid |
|
|
|
|
|
Vendor Company account To Share capital account (Being- payment made by issuing 10,000 equity shares @ Rs 100 each at par) |
Dr
|
|
10,00,000 |
10,00,000 |
|
Shares issued to public |
|
|
|
|
|
Bank account To Share capital account To Share premium (security premium) (Being- 1,000 equity shares of Rs 100 each issued to Public @ 15% premium) |
Dr
|
|
1,15,000 |
1,00,000 15,000 |
#####
Click on link for YouTube videos
SHARE (ACCOUNTING FOR SHARE) http://tiny.cc/889jkz
SHARE IN Nepali http://tiny.cc/k99jkz
DEBENTURES http://tiny.cc/yeakkz
FINAL ACCOUNT: CLASS 12 http://tiny.cc/e89jkz
FINAL ACCOUNT IN NEPALI http://tiny.cc/w89jkz
WORK SHEET http://tiny.cc/579jkz
RATIO ANALYSIS (ACCOUNTING RATIO) http://tiny.cc/4fakkz
FUND FLOW STATEMENT http://tiny.cc/wiakkz
CASH FLOW STATEMENT http://tiny.cc/8gakkz
THEORY ACCOUNTING XII http://tiny.cc/nfakkz
THEORY: COST ACCOUNTING http://tiny.cc/tfakkz
COST ACCOUNTING http://tiny.cc/p29jkz
LIFO−FIFO http://tiny.cc/dgakkz
COST SHEET, UNIT COSTING http://tiny.cc/w49jkz
COST RECONCILIATION STATEMENT http://tiny.cc/829jkz
#####
***********
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 31
AM Company Ltd issued 12,000 equity shares of Rs 100 each to PM Company to purchase the following assets and liabilities:
Machinery Rs 8,00,000 Land Rs 3,00,000 Sundry debtors Rs 2,00,000 |
Sundry creditors Rs 2,00,000 Bank overdraft Rs 3,00,000 Stock Rs 3,00,000 |
The company also issued 5,000 shares issued to public subscription at 10% premium.
Required: Journal entries
[Answer: Goodwill = Rs 1,00,000)
***********
Thank you for investing your time.
Please comment on article.
You can help me by sharing this article at your social media platform.
Jay Google, Jay YouTube, Jay Social Media
जय गूगल, जय युट्युब, जय सोशल मीडिया
***********