12 Amalgamation notes

7/24/2019 12 Amalgamation notes

1/12

www.badlanionline.com No. 1 in CA / CS education

AMALGAMATION, ABSORPTION AND EXTERNAL RECONSTRUCTION

Page1

AMALGAMATION, ABSORPTION AND EXTERNAL

RECONSTRUCTION

Que. 1: -Following is the Balance Sheet of Assam Coal Co. Ltd., as on year ending 1996

Liabilities Rs. Assets Rs.

Share Capital:

20,000 shares of Rs. 10 each

Debentures

Sundry creditors

Reserve fund

Dividend Equalization fund

P/L Appropriation A/c

2,00,000

1,00,000

30,000

25,000

20,000

5,100

3,80,100

Land & Buildings

Plant & Machinery

Work in progress

Stock

Furniture & Fittings

Sundry Debtors

Cash at Bank

Cash in Hand

1,00,000

1,50,000

30,000

60,000

2,500

25,000

12,500

100

3,80,100

The company is absorbed by Janta Mining Co. Ltd. on the above date. The consideration for the absorption is the

discharge of the debentures at a premium of 5% taking over the liability in respect of sundry creditors and a payment of

Rs. 7 in cash and one share of Rs. 5 in Janta Mining Co. Ltd. at the market value of Rs. 8 per share in exchange for one

share in Assam Coal Co. Ltd. Compute the amount of purchase consideration.

Que. 2: -The following is the Balance Sheet of Govind Ltd.


Issued and Paid up Capital


Debentures

Creditors

5,00,000

1,00,000

50,000

6,50,000

Intangible assets

Fixed assets

Current Assets

Profit and Loss Account

50,000

4,20,000

1,10,000

70,000

6,50,000

Rama Ltd. agreed to absorb the above company on the following terms:

(a) The assets of Govind Ltd. are the be considered as worth Rs. 5,00,000

(b) The purchase price is to be paid one-quarter in cash and the balance in shares which are issued at market price.(c) Rama Ltd. agreed to take over all assets and all liabilities.(d) Liquidation expenses amounted to Rs. 300 agreed to be paid by Govind Ltd.(e) Market value of share of Rs. 10 each of Rama Ltd. is Rs. 12 per share.

(f) Debentures of Govind Ltd. were paid.You are required to show: (i) Purchase consideration, (i) Ledger accounts in the books of Govind Ltd. and (iii) Opening

entries in the books of Rama Ltd.

Que. 3: -B. Co. Ltd. had the following Balance sheet as on 31stMarch 2003:

B Co. Ltd.


Share Capital:


Capital Reserve

General Reserve

Unsecured Loans

Sundry Creditors

Provision for Taxation

50,00,000

10,00,000

36,00,000

22,00,000

42,00,000

11,00,000

1,71,00,000

Fixed Assets

Current Assets

Investments

Goodwill

83,00,000

69,00,000

17,00,000

2,00,000

1,71,00,000
http://www.badlanionline.com/http://www.badlanionline.com/http://www.badlanionline.com/


2/12



Page2

B. Co. Ltd. is amalgamated with Beesons Limited as on 31 st March, 2003. , on which date the Balance Sheet of

Beesons Limited is as follows: -

Beesons Limited


Share Capital:

8,00,000 shares of Rs. 10 each

General ReservesSecured Loans

Sundry Creditors

Provision for Tax

Provision for Dividend

80,00,000

1,00,00,00040,00,000

46,00,000

52,00,000

10,00,000

3,28,00,000

Fixed Assets

Current Assets

1,60,00,000

1,68,00,000

3,28,00,000

For the purpose of the amalgamation the goodwill of B Co. Ltd. is considered valueless. There are also arrears of

depreciation in B Co. Ltd. amounting to Rs. 4,00,000. The shareholders in B Co. Ltd. are allotted, in full satisfaction of

their claims, shares in Beesons Limited in the same proportion as the respective intrinsic values of the shares of the

two Companies bear to one another.

Pass Journal entries in the Books of both the Companies to give effect to the above.

Que. 4: -The Balance Sheets of X Co. Ltd. and Y Co. Ltd. as on 31 stOctober, 2002 are as follows:

Balance Sheet of X Co. Ltd.


Share Capital:

Authorised Capital:


Issued Capital:


fully paid 10,00,000

Reserves and Surplus:

Capital reserve 2,00,000

General reserve 70,000

Unsecured Loans:

Current Liabilities and provisions:

Sundry Creditors

10,00,000

2,70,000

2,00,000

3,10,000

17,80,000

Fixed Assets:

Goodwill 80,000

Other 8,00,000

Current Assets:

Loans and advances

8,80,000

9,00,000

17,80,000

Balance Sheet of Y Co. Ltd.


Share Capital:

Authorised Capital

2,00,000 share of Rs. 10 in each

Issued Capital:

80,000 share of Rs. 10 each fully paid

Reserve and Surplus:

General reserve

Secured Loans

Current liabilities and provisions:

Sundry creditors

20,00,000

8,00,000

8,00,000

5,00,000

3,60,000

24,60,000

Fixed Assets:

Current Assets,

Loans and Advances

Bank 2,00,000

Other 6,60,000

16,00,000

8,60,000

24,60,000

It was proposed that X Co. Ltd. should be taken over by Y Co. Ltd. The following arrangement was accepted by both

the companies:

(a) Goodwill of X Co. Ltd. is considered valueless.

(b) Arrears of depreciation in X Co. amounted to Rs. 40,000.


3/12



Page3

(c) The holder of every 2 shares in X Co. Ltd. was to receive: -(i) as fully paid at par, 10 shares in Y Co. Ltd., and(ii) so much cash as is necessary to adjust the rights of shareholders of both the companies in

accordance with the intrinsic value of the shares as per their balance sheets subject to necessaryadjustment with regard to goodwill and depreciation in X Co. Ltd.s Balance Sheet.

You are required to:

(a) Determine the composition of purchase consideration; and

(b)

Show the Balance Sheet after absorption.

Que. 5: -The Balance Sheet6 of Surya Ltd. and Chandra Ltd. as at 31stMarch 2001 were as under:

Liabilities Surya

Rs.

Chandra

Rs.

Share Capital Equity Shares of Rs. 10 each

Reserves

7% Debentures

Creditors

Provision for Taxation

3,75,000

2,25,000

--

1,40,000

60,000

8,00,000

3,00,000

25,000

1,00,000

1,25,000

25,000

5,75,000

Assets Surya

Rs.

Chandra

Rs.

Fixed Assets

Current Assets:

Stock

Debtors

Bank

4,75,000

1,25,000

1,50,000

50,000

8,00,000

2,75,000

75,000

1,00,000

1,25,000

5,75,000

It was agreed that Surya Ltd. should absorb Chandra Ltd. as at 31.3.2001 on the basis of the following information and

adjustments:

(i) The adjusted profits for the last three years are:

Surya Ltd.

(Rs.)

Chandra

Ltd. (Rs.)

Year ending

Year endingYear ending

31.3.2001

31.3.200031.3.1999

2,25,000

2,40,0002,35,000

1,50,000

1,35,00090,000

(ii) The shares of the companies were to be valued on net assets basis, subject to goodwill of Chandra Ltd. being

taken at one years purchase of average profits of three years and no goodwill to be taken for Surya Ltd.(iii) 7% Debenture holders are to be repaid on 31.3.2001 at par by Chandra Ltd.(iv) The fixed assets of Surya Ltd. are to be valued at Rs. 6,25,000.

(v) Costs of absorption of Rs. 5,000 are met by Surya Ltd.You are required to calculate the ratio of exchange of shares and draw up resulting Balance Sheet of Surya Ltd. after

absorption.

Que 6:- The summarized balance of G Limited as at 31stMarch 201 was as follows:


Share of Rs 10 fully paidGeneral Reserve

Profit and Loss Account12% DebenturesCreditors

6,00,0001,70,000

1,10,0001,00,000

20,000

GoodwillLand, Building and Plant

StockDebtorsCash

1,00,0006,40,000

1,68,00036,00056,000

10,00,000 10,00,000

K Limited agreed to absorb the business of G Limited with effect from 1 stApr. 201. The purchase consideration

payable by K Limited was agreed as follows:

(a) A cash payment equivalent to Rs 2.50 for every Rs 10 share in G Limited.

(b) The issue of 90,000 Equity Shares of Rs 10 each fully paid in K Limited having an agreed value of Rs 15 per share.

(c) The issue of such an amount of fully paid 14% Debentures in K Limited at 96 per cent as is sufficient to discharge 12%

Debentures in G Limited at a premium of 20 per cent.


4/12



Page4

While computing purchase consideration, K Limited valued Land, Building and Plant at Rs 12,00,000, Stock at Rs 1,42,000

and Debtors at their face value subject to a reserve of 5 per cent for doubtful debts. The cost of liquidation of G Limited was

Rs 5,000.

Required: (i) close the books of G Limited by preparing realization Account, K Limited Account, Shareholders Account

and Debentures Account; and (ii) Pass Journal entries in the books of K Ltd. regarding acquisition of business.

Que 7:- P Ltd. acquires the business of V Ltd. whose Balance Sheet as at 31

st

March 201 was as under:Liabilities Rs Assets Rs

6% Preference Share Capital (Rs 100)Equity Share Capital (Rs 100)General Reserve

Profit & Loss A/c6% DebenturesInterest outstanding on aboveWorkmens compensation Reserve

(Expected liability Rs 5,000)Trade CreditorsBills Payable

4,00,0008,00,000

78,400

71,6002,00,000

12,000

8,0001,00,000

20,000

GoodwillLand & BuidingsPlant and Machinery

PatentsStockBooks DebtsBills Receivable

Cash at BankUnderwriting Commission

2,00,0004,00,0006,00,000

50,0001,50,0001,55,000

25,000

70,00040,000

16,90,000 16,90,000

Prior to acquisition, V Ltd decided to declare and pay an equity dividend of 4% and preference dividend.

P Ltd. was to take over all assets (except cash) and liabilities (except for interest due on debentures) and to pay the following

amounts.

(i) Rs 2,00,000 7% Debentures (Rs 100 each) in P Ltd. for the existing debentures in V Ltd.; for the purpose, each

debenture of P Ltd. is to be treated as worth Rs 105.

(ii) For Each preference share in V Ltd. Rs 10 in cash and one 9% preference share of Rs 100 each in P Ltd.

(iii) For Each equity share in V Ltd. Rs 20 in cash and one equity share in P Ltd. of Rs 100 each at Rs 140.

(iv) Expense of liquidation of V Ltd. are to be reimbursed by P Ltd. to the extent of Rs 10,000. Actual expenses

amounted to Rs 12,500.

P Ltd. valued land and building at Rs 5,50,000. Plant and Machinery at Rs 6,50,000 and patents at Rs 20,000.

P Ltd, owed V Ltd. Rs 60,000 for the purchases of stock from V Ltd. which made a profit of 20% on cost. Four fifth of such

stock were sold till 31.3.201. All Bills Receivables of V Ltd. were drawn upon P Ltd. The bills amounting to Rs 10,000

have already been discounted with the Bank.

Required: Prepare Journal of V Ltd. and P Ltd. Also show Realisation Account, Cash at Bank Account and Equity shareholders

Account. (Assume Corporate Dividend Tax @ 10%)

Que 8:- Ajanta Limited agreed to acquire the business of Elora Limited as on 31 March 201. The balance sheet of Elora

Limited as on that date was as under:

Liabilities Rs Assets Rs

Paid up Capital:

10,000, 12% Preference Shares of Rs 10each

20,000 Equity shares of Rs 10 eachReservesProfit and Loss Account12% Debentures

Sundry Creditors

1,00,0002,00,000

20,00030,000

1,00,0001,50,000

Fixed Assets:

Land and BuildingMachineries

Current Assets:

StockDebtorsCash and Bank Balances

Miscellaneous Expenditure:

Preliminary Expenses

2,00,0001,00,000

2,00,00050,00048,200

1,800

6,00,000 6,00,000

The consideration payable by Ajanta Limited was agreed as under:(a) The Preference Shareholders of Elora Limited were to be allotted 8% Preference Shares of Rs 1,10,000.

(b) Equity Shareholders to be allotted six Equity Shares of Rs 10 each issued at a premium of 10% and Rs 3 cash against

every five shares held.

(c) 12% Debenture holders of Elora Limited to be paid @ 8% premium by issue of 14% Debentures at 10% discount.

While arriving at the agreed consideration, the directors of Ajanta Limited valued Land and Building at Rs 2,50,000, Stock

Rs 2,20,000, and Debtors at their book value subject to an allowance of 5% to cover doubtful debts. Debtors of Elora

Limited included Rs 10,000 due from Ajanta Limited. The Machineries were valued at book value. It was agreed that before

acquisition, Elora Limited will pay dividend at 10% on Equity Shares. Liquidation expenses are Rs 5,000. Assume

Corporate Dividend Tax @ 10%.


5/12



Page5

Required: Draft Journal entries necessary to close the books of Elora Limited and to record acquisition in the books of

Ajanta Limited.

Que 9:- The following is the Balance Sheet of V Ltd. as at 31stMarch, 201


20,000 Shares of Rs 10 each

General Reserve10% Debentures

Loan from BankSundry Creditors

2,00,000

20,0001,00,000

40,00080,000

Goodwill

Land and BuildingPlant and Machinery

StockDebtors

Cash at BankPreliminary Expenses

25,000

1,00,0001,45,000

55,00065,000

34,00016,000

4,40,000 4,40,000

The business of V Ltd. is taken over by P Ltd. as on that date on the following terms:-

(i) All assets (except Cash at Bank) are taken over at book value less 10% subject to (ii) below.

(ii) Goodwill is to be valued at 4 years purchase of the excess of average of five years profits over 8% of the

combined amount of Share Capital and General Reserve.

(iii) Trade creditors are to be taken over subject to a discount of 5% and other liabilities to be discharged by P Ltd. at

book value.

(iv) The purchase consideration is to be discharged in cash to the extent of Rs 10,000 and the balance in fully paid

Equity Shares of Rs 10 each valued at Rs 12.50 per share.

The average of the five years profit is Rs 30,100. The expenses of liquidation amount to Rs 2,000. Prior to 31 stMarch 201

V Ltd. sold goods costing Rs 30,000 to P Ltd. for Rs 40,000. Debtors include Rs 20,000 still due from P Ltd. On the date of

absorption, Rs 25,000 worth of goods were still in stock of P Ltd.

Required: (a) Prepare Realisation Account, Bank Account, Sundry Shareholders Account and Shares in P Ltd. Account in

the books of V Ltd. (b) Give Journal entries in the books of P Ltd.

Que 12:- Given below are the Balance Sheets of X Ltd and Y Ltd. as on 31 stMarch 201 at which date Y Ltd was absorbed by X

Ltd:

Liabilities X Ltd. Y Ltd. Assets X Ltd. Y Ltd.

Equity Shares of Rs 10 each

Profit & Loss A/c12% Debentures of Rs 100 eachCreditors for goods

Bills Payable

5.00

27.402.001.15

0.45

10.00

6.551.000.10

0.35

Fixed Assets

InvestmentsStockDebtors

Cash at BankBills ReceivableMiscellaneous Expenditure

20.00

3.455.004.00

0.760.252.54

8.00

5.201.000.75

1.400.351.30

36.00 18.00 36.00 18.00

Terms of absorption were as under:

(a) Prior to absorption, both the companies to declare and pay dividend @ 10%.

(b) Investments of X Ltd. include the cost of 200 12% Debentures of Y Ltd acquired at paid up value and Investments of Y

Ltd. include the cost of 200 12% Debentures of X Ltd. acquired at paid up value. Prior to absorption other investments

of X Ltd. & Y Ltd. are considered worth Rs 4,00,000 and Rs 6,10,000 respectively.

(c) The issue of such as amount of fully paid 14% Debentures in X Ltd. at 96% as is sufficient to discharge 12%

Debentures in Y Ltd. at a premium of 20%.

(d) The issue of one equity share of Rs 10 each at Intrinsic value for four shares held in Y Ltd.

(e) Expenses of liquidation of Y Ltd. are to be reimbursed by X Ltd. to the extent of Rs 10,000. The actual expenses

amounted to Rs 15,000.

X Ltd. owed Y Ltd. Rs 60,000 for the purchase of stock from Y Ltd. which made a profit of 20% on cost. Four Fifth of suchstock were sold till 31stMarch 201. All Bills Receivables of Y Ltd. were drawn upon X Ltd. The Bills amounting to Rs

10,000 have already been discounted with the bank by Y Ltd.

Required: Give journal entries in the books of X Ltd. and Y Ltd. and prepare the Balance Sheet of X Ltd. after absorption.

(Assume Corporate Dividend Tax Rate 10%).


6/12



Page6

Que 13:- CAMIB Limited is absorbed by Wye Limited. Given below are the Balance Sheets of the two Companies prepared

after revaluation prepared after revaluation of their assets on a uniform basis.

Balance Sheet of CAMIB Limited


Authorised Share Capital:9,000 Equity Shares of Rs 150 each

Paid up Share Capital:

9,000 Equity Shares of Rs 150 each Rs135 paid upGeneral Reserve

Profit and Loss A/cSundry Creditors

13,50,000

12,15,0004,03,500

15,00055,000

Sundry AssetsCash in hand

16,85,0003,500

16,88,500 16,88,500

Balance Sheet of Wye Limited


Authorised Share Capital:

60,000 Equity Shares of Rs 75 eachPaid up Share Capital:40,000 Equity Shares of Rs 75 paid upGeneral Reserve

Profit and Loss A/c

Sundry Creditors

45,00,000

30,00,00012,85,000

35,000

65,000

Sundry Assets

Cash in hand

43,57,500

27,500

43,85,000 43,85,000

The holder of every three Shares in CAMIB Limited was to receive five Shares in the Wye Limited plus as much cash

as is necessary to adjust the rights of shareholders of both the companies in accordance with the intrinsic values of the shares as

per the respective Balance Sheets.

Required: Pass necessary journal entries in the books of Wye Limited and prepare the Balance Sheet giving effect to the above

scheme of absorption. Entries are to be made at par value only.

Que 14:- The Balance Sheet of CANHA Ltd. and Krishna Ltd., as at 31 stMarch, 201 were as following:

Liabilities CANHA

Limited

Rs

Krishna

Limited

Rs

Assets CANHA

Limited

Rs

Krishna

Limited

Rs

Equity Shares of Rs 10each

ReservesProfit and Loss A/cSundry Creditors

6,00,0001,50,000

75,00037,500

4,00,0001,00,000

60,00030,000

Fixed Assets (other thangoodwill)

Stock-in-tradeDebtorsCash and BankPreliminary expense

5,00,000

95,0001,40,0001,17,500

10,000

3,50,000

75,0001,00,000

60,0005,000

8,62,500 5,90,000 8,62,500 5,90,000

CANHA Ltd., took over and absorbed Krishna ltd., as on 1 stOct. 201. No Balance Sheet of Krishna Ltd. was prepared on the

date of take-over. But the following information is made available to you:

(a) In the six months ended 30thSept. 201, Krishna Ltd., made net profits of Rs 64,000 after providing for depreciation at

10% per annum on fixed assets;

(b) CANHA Ltd. during that period had made net profit of Rs 1,51,000 after providing for depreciation at 10% per annum

on the fixed assets;

(c) Both the companies had distributed dividends @ 10% on 1 stJuly 201.

(d) Goodwill of Krishna Ltd. on the date of take-over was estimated at Rs 25,000 and it was agreed that the stock of

Krishna Ltd., would be appreciated by Rs 15,000 on the date of take-over.

(e)

CANHA Ltd. to issue shares to share-holders of Krishna Ltd., on the basis of the intrinsic value of shares on the date of

take-over.

Required: Draft the Balance Sheet of CANHA Ltd., after absorption. (Assume Corporate Dividend Tax Rate 10%).

Que 15:- X Limited and Y Limited propose to amalgamate. Their Balance Sheets as on December 31 203 were:

Liabilities X LimitedRs

Y LimitedRs

Assets X LimitedRs

Y LimitedRs

Share Capital:

Equity Shares of Rs 10 each

Reserve and Surplus:

5,00,000 2,00,000Fixed Assets

(Less: Depreciation)

Investments

4,00,000

1,00,000

1,00,000

--


7/12



Page7

General ReserveProfit & Loss Account

Current Liabilities:

Creditors

2,00,0001,00,000

1,00,000

20,00030,000

50,000

(Face value Rs 1,00,000 6% taxfree G.P. Notes)

Current Assets:

StockDebtorsCash and Bank Balances

2,00,0001,70,000

30,000

1,30,00060,00010,000

9,00,000 3,00,000 9,00,000 3,00,000

Net profit (after taxation)201

202203

X Ltd. (Rs)1,30,000

1,25,0001,50,000

Y Ltd. (Rs)45,000

50,00056,000

Goodwill may be taken as 4 years purchase of average super profits trading on the basis of 15% normal trading profit

on closing Capital invested. The stock of X Ltd. and Y Ltd. to be taken at Rs 2,04,000 and Rs 1,42,000 respectively for the

purpose of amalgamation. Z Ltd. is formed for the purpose of amalgamation of both the companies.

Required: Advise on Capitalisation of Z Ltd. and suggest a scheme of exchange of shares for that purpose. Draft the Balance

Sheet of Z Ltd.

Que 16:- The abridged Balance Sheet of V Ltd. as at 31 stMarch, 201 is as under:


24,000 Equity Shares of Rs 10 each5,000 8% Cumulative Preference Shares of

Rs 10 each8% DebenturesInterest Accrued on DebenturesCreditors

2,40,000

50,0001,00,000

8,0001,00,000

GoodwillFixed Assets

StockDebtorsBankPreliminary Expenses

Profit & Loss A/c

5,0002,57,000

50,00060,0001,000

15,000

1,10,000

4,98,000 4,98,000

The following scheme is passed and sanctioned by the Court:

(i) A new Company P Ltd. is formed with Rs 3,00,000 divided into 30,000 Equity Shares of Rs 10 each.

(ii) The new company will acquire the assets and liabilities of V Ltd. on the following terms:

(a) Old Company Debentures are paid by similar Debentures in New Company and for outstanding accrued

interest, shares of equal amount are issued at par.

(b) The creditors are paid for every Rs 100Rs 16 in cash and 10 shares issued at par.

(c) Preferences shareholders are to get equal number of Equity Shares at par. For arrears of dividend amounting

to Rs 12,000, 5 shares are issued at par for each Rs 100 in full satisfaction.

(d)

Equity shareholders are issued one share at par for 3 shares held.(e) Expenses Rs 8,000 are to be borne by the New Company.

(iii) Current assets are to be taken at book value (except stock which is to be reduce by Rs 3,000). Goodwill to be

eliminated, balance of purchase consideration being attributed to Fixed Assets.

(iv) Remaining shares of the New Company are issued at par and are fully paid.

You are required to show:

(a) In the Old Companys books.

(i) New Companys books.

(ii) Realisation and Reconstruction (Combined) Account and Equity Shareholders Account

(b) In the New Companys books:

(i) Bank Account.

(ii) Summarised Balance Sheet.

Que 17:- The following are the Balance Sheets as at 31stMarch, 201 of X Ltd. and Y Ltd:

Liabilities X Ltd.Rs

Y Ltd.Rs

Assets X Ltd.Rs

Y Ltd.Rs

Share Capital:

Equity shares of Rs 10eachReserve & SurplusCreditors

4,00,00060,00040,000

3,00,00080,00030,000

Goodwill

MachineryStockDebtorsBank

Preliminary expenses

30,000

1,50,00040,000

2,10,00060,000

10,000

10,000

1,00,00072,000

1,20,00090,000

18,000

5,00,000 4,10,000 5,00,000 4,10,000


8/12



Page8

Goodwill of the companies is to be valued at Rs 50,000 and Rs 40,000 respectively. Machinery of X Ltd. is worth Rs

2,00,000 and of Y Ltd. Rs 90,000. Stock of Y Ltd. has bee shown at 90% of its cost.

It is decided that X Ltd. will acquire Y Ltd., without liquidating the latter, by taking over its entire business by issue of

shares at the intrinsic value.

Required: Draft the Balance Sheets of the two companies after putting through the scheme.

Que 18:- A Ltd. and B Ltd. were amalgamated on and from 1

st

April, 201. A new company C Ltd. was formed to take over thebusiness of the existing companies. The Balance Sheets of A Ltd. and B Ltd. as at 31stMarch, 201 are given below:

Liabilities A Ltd.Rs

B Ltd.Rs

Assets A Ltd.Rs

B Ltd.Rs

Share Capital:

Equity Shares of Rs 100 each12% Preference Shares of Rs100 each

Reserves and Surplus:

Revaluation Reserve

General ReserveInvestment AllowanceReserveP&L Account

Secured Loans:

10% Debentures(Rs 100 each)

Current Liabilities and

Provisions:

Sundry CreditorsBills Payable

800

300

150

1705050

60

270150

750

200

100

1505030

30

12070

Fixed Assets:

Land & BuildingPlant & Machinery

Investments:

Current Assets, Loans and

Advances:

StockSundry DebtorsBills ReceivableCash and Bank

550350150

35025050

300

40025050

25030050

200

2,000 1,500 2,000 1,500

Additional Information:

(a) 10% Debentures holders of A Ltd. and B Ltd. are discharged by C Ltd. issuing such number of its 15% Debentures of

Rs 100 each so as to maintain the same amount of interest.

(b) Preference shareholders of the two companies are issued equivalent number of 15% preferences shares of C Ltd. at a

price of Rs 150 per share (face value Rs 100).

(c) C Ltd. will issue 5 equity shares for each equity share of A Ltd. and 4 equity shares for each equity share of B Ltd. The

shares are to be issued @ Rs 30 each, having a face value of Rs 10 per share.

(d)

Investment allowance reserve is to be maintained for 4 more years.Required: Prepare the Balance Sheet of C Ltd. as at 1stApril, 201 after the amalgamation has been carried out on the basis of

Amalgamation in the nature of purchase.

Que. 19-M Ltd. agreed to acquire the goodwill and assets other than cash of N Ltd. as on 31stMarch 1998. The summarized

balance sheet as on the date was as follows:

Balance Sheet of N Ltd


Share Capital:30,000 shares of Rs. 10 each

General ReservesProfit and Loss Account

12% DebenturesCreditors

3,00,0001,00,000

40,00050,000

20,000

GoodwillLand and BuildingsPlant and MachineryStock in Trade

Sundry DebtorsCash

50,0001,00,0002,20,000

80,000

30,00030,000

5,10,000 5,10,000

The consideration payable by M Ltd. was agreed as follows:

(i) A cash payment equal to Rs. 3.50 for each share of Rs. 10 each in N Ltd.

(ii) The issue of 45,000 Rs. 10 fully paid shares of M Ltd. Having an agreed value of Rs. 12.50 per share

(iii) The issue of such an amount of 14% Debentures of M Ltd. at 4% discount as is sufficient to discharge the

12% Debentures of N Ltd. at a premium of 20%. The liabilities of N Ltd. other than the Debentures were

discharged by that company. When computing the agreed consideration, the management of MaryBula Ltd.


9/12



Page9

valued the Land and Buildings at Rs. 1,68,000. Plant and Machinery at Rs. 4,50,000, Stock in Trade Rs.

70,000 and Debtors at their face value subject to an allowance of 4% to cover doubtful debts.

Show the necessary ledger accounts in the books of N Ltd. and draft opening journal entries in the books of Mary

Bula Ltd. Show details of purchase consideration.

Que. 21-X Limited agreed to acquire the business of Y Limited as on 31 March 10X1: The balance sheet of Y Limited as on that

date was as under:


Paid up Capital:10,000, 12% Preference Shares of

Rs. 10 each20,000 Equity shares of Rs. 10eachReservesProfit and Loss Account

12% DebenturesSundry Creditors

1,00,000

2,00,00020,00030,000

1,00,0001,50,000

Fixed Assets:Land and Building

MachineryCurrent Assets:StockDebtorsCash and Bank Balances

Miscellaneous Exp.:Preliminary Exp.

2,00,000

1,00,000

2,00,00050,00048,200

1,800

6,00,000 6,00,000

The consideration payable by X Limited was agreed as under:

(a) The Preference Shareholders of Y Limited were to be allotted 14% Preference Shares of Rs. 1,10,000.

(b) Equity Shareholders to be allotted six Equity Shares of Rs. 10 each issued at a premium of 10% and Rs. 3 cash against

every five shares held.

(c) 12% Debentures holders of Y Limited to be paid @ 8% premium by issue of 14% Debentures at 10% discount.

While arriving at the agreed consideration, the directors of X Limited valued Land and Building at Rs.

23,50,000, Stock Rs. 2,20,000 and Debt5ors at their book value subject to an allowance of 4% to cover doubtful

debts. Debtors of Y Limited included Rs. 10,000 due from X Limited. The Machineries were valued at book value; It

was agreed that before acquisition, Y Limited will pay dividend at 10% on Equity Shares. Liquidation expenses are

Rs. 5,000. CDT is @ 10%.

Required:Draft journal entries necessary to close the books of Y Limited and to record acquisition in the books of

X Limited.

Que. 22-(Question based on dissenting shareholders and fractional shares)

Balance Sheet of V. Co. as on 31.3.02Particulars Rs Particulars Rs

Equity Share Capital(15,000 equity shares of 10 each)

15% Pref. Share CapitalCapital Redemption ReserveDividend Equilisation fundInsurance fund

Workmen compensation fund10% debentureCreditorsOutstanding wagesProposed dividend

Provision for tax

1,50,000

50,00030,00010,00040,000

30,0001,00,000

60,00010,00015,000

25,000

GoodwillLand & Building

PatentsMotor carInvestmentsStock

Insurance policyDebtorsCashDiscount on shares

20,0002,20,000

15,00025,00030,00075,000

50,00045,00035,0005,000

5,20,000 5,20,000

Contingent liability Rs. 10,000. It was agreed by P Co. to take over V Co. as on 31.3.02.

1. P Co. took over V. Co. and it was agreed to pay Rs. 2 in cash per share and issued 4 shares for every 6 held valued at

12 each.

2. Preference Shareholders are issued 10% new preference shares in such quantity so as to maintain their dividend.

3. Patents are valued 25% lesser while investments are valued at 80%.

4. Insurance policy was taken over by P Ltd. at its surrender value of 30,000.

5. Contingent liabilities was agreed to be taken over by P. Ltd. which is estimated to Rs. 7,000.

6. Liability against workman compensation fund is 10,000.


10/12



Page10

7. Shareholders holding 600 shares dissented and its was agreed to pay them Rs. 13 in cash while 30 shares are found

fractional which was discharged @ Rs. 10.

8. Liquidation expenses amounting to Rs. 5,000.

Close the books of V. Co. Journalise in P co. and now form the balance sheet of P. Co.

Que. 23-The Balance Sheet of G Ltd. as on 31.3.2003

Rs. Rs.Equity Share Capital (Rs. 10 each)

10% Preference Share Capital (Rs. 100each)Exim Reserve

General ReserveProfit & LossProvident FundWorkmen Compensation Fund

Workers Profit Sharing Fund12% Debenture10% BondCreditors

Bills PayableProvision for Depreciation

Land & BuildingPlant & Machinery

Provision for TaxProposed dividendUnclaimed dividend

5,00,000

2,00,000

40,00050,00030,00060,000

50,00020,000

1,00,0001,50,000

70,00020,000

1,50,000

70,00045,00050,0005,000

Goodwill

Land & BuildingPlant & MachineryPatents

VehiclesStockDebtorsCash

Sundry AssetsUnderwriting Commission

1,40,000

3,70,0002,00,000

60,000

40,0001,10,0001,35,0001,55,000

3,60,00040,000

16,10,000 16,10,000

1. On 1stApril the directors of NG Ltd. agreed to take over G Ltd. except workmen compensation liabilities of G Ltd.

which actually amounted to Rs. 40,000 and Cash.

2. The debenture holders were to be redeemed at 20% premium by issue of Equity shares of Rs. 10 each at 4%

discount.

3. 4 Equity shares are to be issued for every 5 shares held in G Ltd. Each share of NG Ltd. is of Rs. 10 valued at Rs.

12 each.

4. The purchasing co. will also reimburse expenses upto Rs. 10,000. Actual expenses being Rs. 15,000.

5. 10 share holders holding 5,000 equity shares dissented to the scheme of amalgamation. In a separate meeting with

directors of G Ltd. the dissenting Shareholders agreed to be discharged through a cash of Rs. 12 each (per share)

6. The directors of NG Ltd. also agreed to pay a cash of Rs. 2 per share as a part of consideration.

7. The holders of 10% bonds were agreed to be discharged by issue of 15% Debentures in such a way so as to maintain

their annual amount of interest.

8. G Ltd. owes Rs. 20,000 to NG Ltd. for the goods purchases on which NG Ltd. made a profit of Rs. 4,000. 30% of

the Goods are still unsold with G Ltd.

9. Land & Building revalued at Rs. 5,00,000 but plant and Machinery at 60% of its Net Book Value Debtors were

taken over at 80% while Sundry Assets include a fictitious asset of Rs. 10,000.

10. Half of the shares received from NG Ltd. was sold by G Ltd. in the market at Rs. 18 per share.

11. Patents were found value less.

12. Preference share holder to be redeemed by Purchasing Company upto 50% at 10% premi8um & for the balance,

they will issue new 12% preference shares of Rs. 100 each at par.

13. Tax liabilities are to be taken over at Rs 60,000 & discharged by NG Ltd. soon after the Absorption.

Prepare the ledgers of G Ltd. and the journal entries in the books of NG Ltd.

Que. 24-Thin Ltd. was absorbed by Thick Ltd. as on 31 March 1997. All the assets and liabilities of Thin Ltd. were taken by

thick Ltd. The purchase consideration was agreed at Rs. 3,36,600 and was paid in so many fully paid equity sharesof Thick Ltd. to be distributed to the equity shareholders of Thin Ltd. The following are the balance Sheets of boththe companies as on 31 March 1997.


11/12



Page11

Liabilities

Authorised Capital:Equity Share of Rs. 10eachIssued and Subscribed

Capital;

Equity Shares of Rs. 10each fully paidupGeneral Reserve

Profit and Loss A/cWorkmanCompensation FundSundry Creditors

Staff Provident FundProvision for Taxation

Thick Ltd.Rs.

15,00,000

7,50,0001,50,000

20,502

12,00058,567

10,00012,000

10,13,069

Thin Ltd.Rs.

5,00,000

2,00,00050,000

12,000

9,00030,456

4,0005,000

3,11,356

Assets

GoodwillPlant and MachineryStock in tradeSundry Debtors

Prepaid insurance

Income-tax RefundClaimCash in hand

Cash at Bank

Thick Ltd.Rs.

2,00,0003,12,0002,65,0002,21,200

869

14,000

Thin Ltd.Rs

60,0001,00,000

80,00056,000

700

6,000356

8,300.

10,13,069 3,11,356

You are required to:(i) Show the necessary ledger accounts in the books of Thin Ltd.;(ii) Show the necessary journal entries in the books of Thick Ltd. and(iii) Prepare the balance sheet of Thick & Co. after the amalgamation.

Que. 25-The following are the Balance Sheets of P Ltd. and S Ltd. as on 31 March. 2001:

P Ltd. (Rs.) S Ltd. (Rs.)

Liabilities:Equity share capital (Rs. 10 each) 5,00,000 3,00,00014% Preference share capital (Rs. 100 each) 2,20,000 1,70,000General Reserve 50,000 25,000

Export Profit Reserve 30,000 20,000

Investment Allowance Reserve 10,000

Profit and Loss A/c 75,000 50,00013% Debentures (Rs. 100 each0 50,000 35,000Current Liabilities 65,000 50,000

9,90,000 6,60,000

P. Ltd.(Rs.) S Ltd. (Rs.)

Assets:Land & Buildings 2,50,000 1,55,000Plant & Machinery 3,25,000 1,70,000

Furniture & Fittings 57,500 35,000Investments 1,25,000 95,000Stock 90,000 1,03,000Debtors 72,500 52,000

Cash and Bank 70,000 50,0009,90,000 6,60,000

P Ltd. takes over S Ltd. on 1stApril, P Ltd. discharges the purchase consideration as below;

(i) Issued 35,000 equity shares of Rs. 10 each to the equity shareholders of S Ltd.(ii) Issued 15% preference shares of Rs. 100 each to discharge the preference shareholders of S Ltd. at 10% premium.(iii) The debentures of S Ltd. will be converted into equivalent number of Debentures of P Ltd. of Rs. 100 each.(iv) The Statutory Reserve of S Ltd. (Export Profit Reserve and Investment Allowance Reserve) are to be maintained

for five more years.

You are required to show the Balance Sheet of P Ltd. assuming that:(a) The amalgamation is in the nature of merger, and(b) The amalgamation is in the nature of purchase.

Que. 26-The following are the balance sheets of P Ltd. and N Ltd. as on 31stMarch 2000.


12/12



Page12

Balance Sheet of P Ltd. (as on 31stMarch 2000)


Share Capital:20,000 shares of Rs. 10 eachGeneral reserve

P/L A/cDebentures

Current Liabilities

2,00,0002,50,000

1,50,0001,75,000

1,25,000

Fixed AssetsInvestmentsCurrent assets

3,50,0002,50,0003,00,000

9,00,000 9,00,000

Balance Sheet of N Ltd. (as on 31stMarch 2000)


Share Capital:9,000 shares of Rs. 10 eachGeneral reserve

P/L A/cCurrent Liabilities:CreditorsBills Payable

90,00050,000

40,000

50,00020,000

Fixed assetsCurrent assets

1,50,0001,00,000

2,50,000 2,50,000

P Ltd. agrees to take over N Ltd. Find out the ratio of exchange of shares on the basis of the books values.

Que. 27-The Balance Sheets of A and B as at 31stMarch were as following:

Liabilities

Equity shares of Rs. 10eachReservesP/L A/c

Sundry Creditors

A L td. Rs.

6,00,000

1,50,00075,000

37,500

B L td. Rs.

4,00,000

1,00,00060,000

30,000

Assets

Fixed Assets (other thangoodwill)Stock in-tradeDebtors

Cash and BankPreliminary Exp.

A L td. Rs.

5,00,000

95,0001,40,000

1,17,50010,000

B L td. Rs.

3,50,000

75,0001,00,000

60,0005,000

8,62,500 5,90,000 8,62,500 5,90,000

A Ltd. took over and absorbed B Ltd. as on 1stOct. 20X1. No Balance Sheet of B was prepared on the date oftakeover. But the following information is made available to you:

(a) In the six months ended 30thSeptember 20X1. B made net profits of Rs. 64,000 after providing for depreciation at10% per annum on fixed assets:

(b) A during that period had made net profit of Rs. 1,51,000 after providing for depreciation at 10% per annum on thefixed assets:(c) Both the companies had distributed dividends @ 10% on 1stJuly 20X1.(d) Goodwill of B on the date of takeover was estimated at Rs. 25,000 and it was agreed that the stock of B. , would be

appreciated by Rs. 15,000 on the intrinsic value of shares on the date of takeover.Required:Draft the Balance Sheet of A Ltd. after absorption. (Assume Corporate Dividend Tax Rate 10%)

12 Amalgamation notes

Documents

Transcript of 12 Amalgamation notes