Khandelwal Ltd. took over assets of Sharma Ltd. of ₹ $\displaystyle 25,00,000$ and liabilities amounting to ₹ $\displaystyle 7,80,000$ for a purchase consideration of ₹ $\displaystyle 27,00$,000. The payment to Sharma Ltd. was made by issuing $\displaystyle 10$% Debentures of ₹ $\displaystyle 100$ each at a discount of $\displaystyle 10$%. Pass the necessary journal entries for the above transactions in the books of Khandelwal Ltd.

OR

Explain the meaning of issue of debentures as collateral security with the help of an example.

Khandelwal Ltd. Journal L.F Debit Credit Date Particulars Amount Amount (₹) (₹) Sundry assets A/c Dr. $\displaystyle 25,00,000$ Goodwill A/c Dr. $\displaystyle 9,80,000$ To Sundry liabilities A/c $\displaystyle 7,80,000$ To Sharma Ltd. $\displaystyle 27,00,000$ (Acquired Assets and Liabilities of Sharma Ltd.) $\displaystyle 27,00,000$ Sharma Ltd. ($\displaystyle 30,000$×$\displaystyle 90$) Dr. Loss /Discount on issue of $\displaystyle 3,00,000$ Debentures A/c ($\displaystyle 30,000$×$\displaystyle 10$) Dr. To $\displaystyle 10$% Debentures A/c $\displaystyle 30,00,000$ (Issued $\displaystyle 10$% debentures in favour of Sharma Ltd. and recorded loss/ discount on issue of debentures) $\displaystyle 27,00,000$ Number of debentures to be issued = $\displaystyle 100$ − $\displaystyle 10$ $\displaystyle 27,00,000$ = $\displaystyle 90$ = $\displaystyle 30,000$ debentures Q. (b) Explain the meaning of issue of debentures as collateral security… Ans. Collateral security may be defined as a secondary security besides the primary security when a company obtains loan from a bank or any other financial institution. Collateral security is to be realized only when the loan amount is not fully recovered from the sale proceeds of the primary security. The company may issue its own debentures to the lenders in addition to some other assets already pledged. Such issue of debentures is known as ‘debentures issued as collateral security’. Example : Ananda Ltd. took a loan of ₹ $\displaystyle 50$ lakhs from Sind Bank and issued $\displaystyle 9$% debenture of ₹ $\displaystyle 60$ lakhs (₹ $\displaystyle 100$ each) as a collateral security. Or any other correct example.