Adjustment of Difference Amount in Purchase of Plant

When a company purchases a plant from another company, there may be a difference in the amount to be paid due to various reasons. In such cases, the difference amount can be adjusted in different ways. Let's take a look at how the difference amount will be adjusted in the given scenario where X Ltd. purchased a plant worth ₹5 lakh from Y Ltd. but agreed to issue 5,250, 10% Debentures of 100 each to the vendor.

1. Calculation of Difference Amount

The first step is to calculate the difference amount between the actual purchase price and the value of debentures issued. In this case, the value of the debentures issued is 5,250 x 100 = ₹5.25 lakh. Therefore, the difference amount is ₹5 lakh - ₹5.25 lakh = -₹25,000.

2. Adjusting the Difference Amount

The negative difference amount (-₹25,000) indicates that Y Ltd. has received more value than the plant's actual purchase price. Hence, X Ltd. needs to adjust this amount. The adjustment can be made in different ways, such as:

- Y Ltd. can refund the excess amount to X Ltd. in cash or by reducing the price of another transaction.
- X Ltd. can issue additional debentures to Y Ltd. to cover the difference amount.
- X Ltd. can adjust the difference amount against any outstanding dues or liabilities of Y Ltd.

3. Accounting Treatment

The accounting treatment of the adjustment depends on the method chosen. For example, if Y Ltd. refunds the excess amount in cash, X Ltd. will record it as a reduction in the cost of the plant. If X Ltd. issues additional debentures, it will record it as an increase in the liability of debentures. Similarly, if the adjustment is made against outstanding dues, X Ltd. will reduce the amount of the outstanding dues.

Conclusion

In conclusion, the adjustment of the difference amount in the purchase of a plant can be made in different ways, depending on the agreement between the parties. The accounting treatment of the adjustment also varies based on the method chosen. It is essential to understand the different methods of adjustment and their implications to make an informed decision.