Lee Ltd. agreed to absorb Bee Ltd. by paying Rs. 10,00,000 to the shareholders. In addition they agreed to settle 1,000 8% Debentures of Rs. 100 each in Bee Ltd. at 20% Premium by issuing their own debentures of Rs. 100 each at 96%. Ascertain the Face value and actual issue value of debentures to be issued.?

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Answer

Introduction
In the acquisition scenario between Lee Ltd. and Bee Ltd., understanding the financial implications of debenture settlements is crucial.
Face Value of Debentures
- Bee Ltd. has 1,000 debentures, each with a face value of Rs. 100.
- Total face value of debentures = 1,000 debentures * Rs. 100 = Rs. 1,00,000.
Premium on Debentures
- The premium for settlement is 20%.
- Premium amount = 20% of Rs. 1,00,000 = Rs. 20,000.
- Total amount to be paid for debentures = Face value + Premium = Rs. 1,00,000 + Rs. 20,000 = Rs. 1,20,000.
Actual Issue Value of Debentures
- Lee Ltd. will issue their own debentures at 96% of the face value.
- Face value of Lee Ltd. debentures to be issued = Rs. 1,20,000 (total amount required).
- Since the issue price is 96%, the number of debentures to be issued = Total amount / Issue price per debenture.
Calculation of Debentures Issued
- Issue price per debenture = 96% of Rs. 100 = Rs. 96.
- Number of debentures to be issued = Rs. 1,20,000 / Rs. 96 = 1,250 debentures (approximately).
Summary
- Face Value of Debentures: Rs. 1,00,000
- Total Amount including Premium: Rs. 1,20,000
- Debentures to be Issued: 1,250 debentures at Rs. 96 each.
This acquisition structure reflects how Lee Ltd. navigates the financial landscape while absorbing Bee Ltd.

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