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CMA Intermediate · Financial Accounting · Conversion of Partnership Firm into a Company and Sale of Partnership Firm to a Company

On taking over a firm, Anand Ltd. issues 30,000 equity shares of ₹10 each fully paid at a premium of ₹2 per share as the whole of the purchase consideration. The correct journal entry credits:

The shares carry a face value of ₹3,00,000 and a premium of ₹60,000, totalling the ₹3,60,000 consideration. The vendor's account is debited, with Equity Share Capital credited ₹3,00,000 and Securities Premium credited ₹60,000.

  1. AEquity Share Capital ₹3,00,000 and Securities Premium ₹60,000Correct
  2. BEquity Share Capital ₹3,60,000 only
  3. CVendor ₹3,00,000 and Securities Premium ₹60,000
  4. DEquity Share Capital ₹3,00,000 and Capital Reserve ₹60,000

Explanation

Purchase consideration = 30,000 × 12 = ₹3,60,000. On issuing shares, Vendors' account is debited ₹3,60,000, Equity Share Capital credited ₹3,00,000 (30,000 × 10) and Securities Premium credited ₹60,000 (30,000 × 2).

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