7. Amalgamation II

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I P C C _ 3 4 e _ A c c o u n t s _ G r o u p . I I _ A m a l g a m a t i o n – I I _ A s s i g n m e n t S o l u t i o n s _ _ _ _ 1

No.1 for CA/CWA & MEC/CEC MASTER MINDS

7. AMALGAMATION - II

SOLUTIONS TO ASSIGNMENT PROBLEMS

PROBLEM No. 1Balance Sheet of Z Ltd. as at 1

st April, 2012 ( Rs. in Crores)

Particulars Note No Amount

82.00116.50

7.50

43

I. Equity and Liabilities(1) Shareholder's Funds

(a) Share Capital(b) Reserves and Surplus

(2) Non-Current Liabilities(a) Long-term borrowings

(3) Current Liabilities(a) Trade payables

Total

12

3

4 249.00

104.0016.00

9.00

37.0054.0029.00

II. Assets(1) Non-current assets

(a) Tangible assets(b) Non-current investments(c) Other non-current assets

(2) Current assets(a) Current investments(b) Inventories(c) Trade receivables(d) Cash and cash equivalents

Total

5

6

78

249.00

Notes to Accounts: (Rs. in crores)

Particulars Amount Amount

1

2

3.

4

5

8

6

7

Share CapitalEquity Share Capital4,80,00,000 Equity shares of Rs.10 eachPreference Share Capital34,00,000 15% Preference Shares of Rs.100 each(all the above shares are allotted as fully paid up pursuant tocontracts without payment being received in cash)Reserve and SurplusSecurity Premium (60 + 36 + 4 + 2.8)Capital Reserve (Working Note No: 4) Investment Allowance Reserve

Long Term BorrowingsSecured Loans

18% of Debentures (Rs.100 each)Trade PayablesBills PayableSundry CreditorsFixed assetsTangible assets

Land and BuildingsPlant and Machinery

Cash and cash equivalentsCash At BankOther non-current assets

Amalgamation Adjustment AccountTrade Receivables (Sundry Debtors 45 + Bills Receivables 9)

48.00

34.00

102.804.709.00

7.50

1726

63.0041.00

82.00

116.50

7.50

43

104.00

29.00

9.0054




P h : 9 8 8 5 1 2 5 0 2 5 / 2 6 w w w . m a s t e r m i n d s i n d i a . c o m

Note: Since Investment Allowance Reserve is to be maintained for 4 years, it is carried forward by acorresponding debit to Amalgamation Adjustment Account in accordance with AS-14.

Working Notes:

1. Calculation of Net assets taken over ( Rs. In crores)

Particulars X Ltd. Y Ltd.

38

24

10

22

30

16

140

25

17

6

15

24

13

100

3.33

31.00

34.33

4.17

12.00

16.17

Assets taken over:

Land and Buildings

Plant and Machinery

Investments

Inventory

Trade Receivable (Sundry Debtors + Bills Receivables)

Cash at Bank

Liabilities taken over:

Debentures(WN:2)

Trade payable (Sundry Creditors + Bills Payable)

Net assets taken over

(i)

(ii)

(i) – (ii) 105.67 83.83

2. Calculation of No. of Debentures to be issued in Z Ltd.

X Ltd.

Existing Debenture interest @ 15% = Rs.400 lakhs x 15/100 = Rs.60 lakhs

Debentures to be issued in Z Ltd. @ 18% to maintain the same amount of interest

= Rs.60 lakhs x 100/18 = Rs.333.33 lakhs

or Rs.3.33 crores

Y Ltd.

Existing Debenture interest @15% = Rs.500 lakhs x 15/100 = Rs.75 lakhs

Debentures to be issued in Z Ltd. @ 18% to maintain the same amount of interest

= Rs.75 x 100/18 = Rs.416.67 lakhs

or Rs.4.17 crores

3. Computation of Purchase Consideration: (Rs .In crores)


90

24

54

16.8

1.

2.

Equity Shareholders

Rs.3010

6

Rs.10

croresRs.50××

Rs.305

2

Rs.10

croresRs.45××

Preference Shareholders

120Rs.100

croresRs.20×

120Rs.100

croresRs.14×

Total Purchase consideration 114 70.8





4. Calculation of Goodwill/Capital Reserve


105.67

(114.00)

83.83

(70.80)

Net Assets takeover (Working Note : 1)

Less: Purchase Consideration (Working Note : 3)

Goodwill

Capital Reserve8.33

---

----

13.03

Note: Goodwill arising from amalgamation shall be adjusted against Capital Reserve arising fromamalgamation, and only balance of Rs.4.70 crores is to be shown in the Balance Sheet of Z Ltd ascapital reserve.

PROBLEM No. 2

(i) Calculation of Purchase Consideration: ( Net Assets Method)

AX Ltd. (Rs.’000) BX Ltd. (Rs.’000)Particulars

Amount Amount Amount Amount

85,0010,5012,5018,004,50

75,005,50

27,5040,00

4,00

30,0010,00

130,50

(40,00) 40,0015,00

152,00

(55,00)

Assets taken over:Sundry fixed assetsInvestmentsInventoryTrade receivablesCash & Bank Gross AssetsLess : Sundry Liabilities

12% DebenturesTrade payables

Purchase Consideration 90,50 97,00

. Discharge of Purchase consideration:

ParticularsAX Ltd.

Rs. ’000

BX Ltd.

Rs. ’000

9,05,000 Equity Shares of Rs.10 each


90,50

97,00

Assumption: Face value of each share assumed to be Rs.10

(ii) Journal entries in books of ABX Ltd.

Part – I

Journal Entries for taking over the business of AX Ltd

Date Particulars Rs. ’000 Rs. ’000

01.01.2013Business Purchase A/c Dr.

To Liquidator of AX Ltd.

(Being Business of AX Ltd. purchased)

90,50 90,50

01.01.2013

Sundry fixed assets Dr.

Investment A/c Dr.

Inventory Dr.

Trade receivables Dr.

Cash and Bank Dr.

To 12% Debentures

To Trade payables

To Business Purchase A/c

(Being the purchase consideration of AX Ltd.accounted for)

85,00

10,50

12,50

18,00

4,50

30,00

10,00

90,50





01.01.2013

Liquidator of AX Ltd. Dr.

To Equity share capital A/c

(Being shares issued to Liquidator of AX Ltd.)

90,50

90,50

Part – II

Journal Entries for taking over the business of BX Ltd


01.01.2013

Business Purchase A/c Dr.

To Liquidator of BX Ltd.

(Being Business of AX Ltd. & BX Ltd. purchased)

97,00

97,00

01.01.2013

Sundry fixed assets Dr.

Investment A/c Dr.

Inventory Dr.

Trade receivables Dr.

Cash and Bank Dr.To 12% Debentures

To Trade payables


(Being the purchase consideration of BX Ltd.

accounted for)

75,00

5,50

27,50

40,00

4,0040,00

15,00

97,00

01.01.2013

Liquidator of BX Ltd. A/c Dr.


(Being shares issued to Liquidator of BX Ltd.)

97,00

97,00

Part – III

Other Journal Entries


01.01.2013Amalgamation adjustment A/c Dr.

To statutory reserve A/c(Being statutory reserve has maintained)

150

150

(iii) Balance Sheet of ABX Ltd. as on 1.1.2013

Particulars Note No. (‘000)

187,50

7,50

70,00

25,00

290,00

I. EQUITY AND LIABILITIES

(1) Shareholder's Funds

(a) Share Capital

(b) Reserves and Surplus

(2) Non-Current Liabilities

Long-term borrowings

(3) Current Liabilities

(a) Trade payables (10,00 + 15,00)

Total

II. ASSETS

(1) Non-current assets

(a) Fixed assets

Tangible assets (85,00 + 75,00)

(b) Non-current Investments (10,50+ 5,50)(c) Other non-current asset

1

2

3

160,00

16,007,50





(2) Current assets

(a) Inventories (12,50 + 27,50)

(b) Trade Receivables (18,00 + 40,00)

(c) Cash & Cash equivalents (4,50 + 4,00)

Total

4

40,00

58,00

8,50

290,00

Notes to Accounts:

Particulars (Rs.000) (Rs.000)

1.

2.

3.

4.

Share Capital


(All these shares are issued for consideration other than in cash)

Reserves and surplus (Statutory Reserves)

Investment Allowance Reserve

Export Profit Reserve

Long Term Borrowings12% Debentures (Assumed that new debentures were issued in

exchange of the old series)

Other non-current assets

Amalgamation Adjustment Account

6,00

1,50

187,500

7,50

70,00

7,50

NOTES:1. Shares are issued by ABX Ltd. on the basis of net assets acquired of AX Ltd. and BX Ltd. Hence,

there is no goodwill.2. The statutory reserves of AX Ltd. and BX Ltd. are shown in the balance sheet of ABX Ltd. with a

corresponding debit in Amalgamation Adjustment Account.

PROBLEM No. 3 WORKING NOTES:1

(i) Computation of Amount of Debentures of shares to be issued:Star (Rs.) Moon (Rs.)

Average Net profit

3

962,88,1250,1788,24,2 +− = 1,37,500

3

500,79,1050,71,1950,36,1 ++ = 1,62,500

(ii) Equity share issued:a. Ratio of distribution

Star : Moon1,375 : 1,625

b. NumberStar : 13,750Moon : 16,250

30,000

c. Amount:13,750 shares of Rs. 5 each = 68,75016,250 shares of Rs. 5 each = 81,250

WORKING NOTES:2

(i) Capital employed (after revaluation of assets):Fixed Assets 3,55,000 1,95,000Current Assets 1,49,750 78,875

5,04,750 2,73,875

C o p y R i g h t s R e s e r v e d

T o M A S T E R M I N D S , G u n t u r





Less: Current liabilities (2,98,500) (90,125)2,06,250 1,83,750

(ii) Debenture issued:8% Return of capital employed 16,500 14,700

15% Debentures to be issuedTo provide equivalent incomeStar : 16,500 x 100 / 15 = 1,10,000Moon : 14,700 x 100/15 = 98,000

Name of the Company: Neptune Ltd.

Balance Sheet as at 31st

Dec. 2012

Particulars Note No. Rs.

I. Equity and liabilities1. Share holders funds

a. Share capitalb. Reserves and Surplus

2. Non – current liabilitiesa. Long-term borrowings

3. Current liabilitiesa. Other current liabilities

12

3

1,50,00032,000

2,08,000

3,66,950

Total 7,56,950

II. Assets:1. Non-Current Assets

a. Fixed Assets2. Current assets

a. Other current assets

5,50,000

2,06,950

Total 7,56,950

Notes to Accounts:

Note No. Particulars Amount

1. Share Capital:Authorised40,000 equity shares of Rs. 5 eachIssued and subscribed30,000 equity shares of Rs. 5 each(all the above shares are allotted as fully paid up pursuant to a contractwithout payments being received in cash)

2,00,000

1,50,000

2. Reserves & Surplus:Capital Reserve 32,000

3. Long – term borrowings:Secured loans

15% Debentures 2,08,000

Working Notes:

S.No. Particulars Star Moon Total

1. Purchase ConsiderationEquity shares issued15% Debentures Issued

Total Purchase Consideration

68,7501,10,0001,78,750

81,25098,000

1,79,250

1,50,0002,08,0003,58,000

2. Net Assets taken overFixed AssetsCurrent Assets

Less: Current Liabilities

Net assets taken over

3,55,0001,49,750

(2,98,500)

2,06,250

1,95,00078,875

(90,125)

1,83,750

5,50,0002,28,625

(3,88,625)

3,90,0003. Capital Reserve (1-2) 27,500 4,500 32,000





PROBLEM No. 4

Calculation of Avg. annual profits for 3 years:

Particulars X Y Z

Average annual profits for 3 years beforecharging debenture interestLess: Debenture interestAverage annual profits for 3 years after debenture interest

Add / Less:Depreciation adjustment on revaluation of tangible assets

Average annual profits for 3 years after depreciationadjustmentsRatio of Average profit after adjustment of Depreciation

1,80,000(20,000)

1,60,000

(20,000)

1,40,000

70

1,44,000-

1,44,000

10,000

1,54,000

77

78,000(10,000)

68,000

(10,000)

58,000

29

Calculation of Capital Employed and Normal profit

Particulars X Y Z

Tangible blockCurrent Assets

Less:10% DebenturesLess:Trade payablesCapital EmployedNormal rate of return (10%)Normal profit

10,00,0003,50,000

13,50,000

2,00,000

2,00,0009,50,000

10%95,000

5,00,0001,40,000

6,40,000

-

1,50,0004,90,000

10%49,000

6,00,00080,000

6,80,000

1,00,000

1,00,0004,80,000

10%48,000

Computation of Goodwill

Particulars X Y Z

1. Average Profit2. Normal profit3. Super profit (1 - 2) 4. No. of years purchase5. Goodwill (3 X 4)

1,40,00095,00045,000

31,35,000

1,54,00049,000

1,05,0003

3,15,000

58,00048,00010,000

330,000

Computation of Purchase consideration under net asset: (Value method)

Particulars X Y Z

Goodwill

Tangible assets

Current assets

Total

Less: 10% debentures

Trade payable

Purchase consideration

1,35,000

10,00,000

3,50,000

14,85,000

(2,00,000)

(2,00,000)

10,85,000

3,15,000

5,00,000

1,40,000

9,55,000

-

(1,50,000)

8,05,000

30,000

6,00,000

80,000

7,10,000

(1,00,000)

(1,00,000)

5,10,000

Total purchase consideration = 10,85,000 + 8,05,000 + 5,10,000 = 24,00,000







Statements showing no. of equity shares and debentures to be issued

Particulars X Y Z

1. Purchase consideration2. Value of Equity shares to be issued

(18,00,000 x (70 : 77 : 29)3. Values of debentures to be issued (1- 2)4. No. of equity shares to be issued (2/10)5. No. of debentures to be issued (3/100)

10,85,000

7,15,9003,69,100

71,5903,691

8,05,000

7,87,50017,500

78,750175

5,10,000

2,96,6002,13,400

29,6602,134

Other Journal Entries

Date Particulars Rs. Rs.

31.03.2001 Cash A/c Dr.To Equity share Capital A/c

3,50,0003,50,000

31.03.2001 Preliminary Expenses A/c Dr .To Cash A/c

50,00050,000

31.03.2001 10% Debentures A/c Dr.To Cash A/c

3,00,0003,00,000

Balance Sheet of XYZ Ltd as on 01.04.2001

Notes to Accounts:1) Equity share capital

2,15,000 equity shares of Rs.10 each(1,80,000 + 35,000) 21,50,000(Of the above 1,80,000 shares are issued for consideration other than cash)

Particulars Note toAccounts

Amount

1

a

EQUITY AND LIABILITIES:Shareholder’s fundsShare capital 1 21,50,000

2a

Non-current LiabilitiesLong term borrowings 2 6,00,000

3a

Current LiabilitiesTrade payables

Total3 4,50,000

32,00,000

1

aiii

ASSETS:

Non-current AssetsFixed AssetsTangible AssetsIntangible Assets

45

21,00,0004,80,000

2abc

Current AssetsStockTrade receivablesOther current assets (Preliminary Expenses)

Total

6 5,70,00050,000

32,00,000

24,00,000

In the form of equity

Shares18,00,000

(24,00,000 x 3/4)

In the form of debenture

6,00,000

(24,00,000 x 1/4)





2) Long term borrowings10% debentures 6,00,000

3) Trade payableCreditors (2,00,000 + 1,50,000 + 1,00,000) 4,50,000

4) Tangible assets(10,00,000 + 5,00,000 + 6,00,000) 21,00,000

5) Intangible AssetsGoodwill(1,35,000 + 3,15,000 + 30,000) 4,80,000

6) Current Assets(3,50,000 + 1,40,000 + 80,000) 5,70,000

PROBLEM No. 5

Journal entries in books of A Ltd. (selling company)

Particulars Dr. (Rs.) Cr. (Rs.)

Realisation A/c Dr.To Patent rights A/cTo Land & Building A/cTo Plant & Machinery A/cTo Stock A/cTo Sundry debtors A/c

(Being assets taken over by Shakti Ltd.)

27,80,0002,00,0006,00,000

15,50,0003,50,000

80,000

Sundry Creditors A/c Dr.To Realisation A/c

(Being creditors transferred to Realisation A/c)

50,00050,000

Shakti Ltd. Dr.To Realisation A/c

(Being P.C. Due)

27,95,00027,95,000

Realisation A/c Dr.To Cash & bank A/c

(Being cost of liquidation charged to Realisation A/c)

5,0005,000

Realisation A/c Dr.To Cash & bank A/c

(Being creditors due paid)

50,00050,000

Shares in Shakti Ltd. A/c Dr. (1,80,000 x Rs. 12.50)Cash & Bank A/c

To Shakti Ltd.(Being shares received in payment of purchase consideration &balance in cash)

22,50,0005,45,000

27,95,000

Preference share capital A/c Dr.To Preference share holders A/c

(Being transfer of preference share capital to preference shareholdersaccount)

5,00,0005,00,000

Equity share capital A/c Dr.General reserves A/c Dr.Profits and Loss A/c Dr.

To Equity shareholder A/c(Being equity Transferred to equity share holders A/c)

15,00,0008,00,000

90,00023,90,000

Preference Share holder A/c Dr.To Cash & bank A/c

(Being preference shareholder paid)

5,00,0005,00,000



I P C C _ 3 4 e _ A c c o u n t s _ G r o u p . I I _ A m a l g a m a t i o n – I I _ A s s i g n m e n t S o l u t i o n s _ _ _ _ 1 0


Realisation A/c (W.N.1) Dr.To Equity shareholders A/c

(Being Transfer of profit on realization to equity share holders A/c)

10,00010,000

Equity shareholders A/c Dr.

To Shares in Shakti Ltd.To Cash & bank (W.N.2)(Being distribution of shares & cash among the equity share holders)

24,00,000

22,50,0001,50,000

Name of the Company Shakti Ltd.Balance Sheet as at 01.01.2012


I. Equity and liabilities:Share holders fundsa. Share Capitalb. Reserves and Surplus

12

29,00,0005,58,250

Total 34,58,250

II. Assets:Fixed AssetsTangible AssetsIntangible AssetsCurrent AssetsTrade receivables (Debtors)Inventories (Stock)Cash and Cash Equivalent (Bank) (WN 4)

34

56

22,15,0002,30,000

1,42,0005,89,0002,82,250

Total 34,58,250

Note to Accounts:

1. Authorised share capital:

50,000, 5% cumulative preference shares Rs. 10 each 5,00,0002,50,000 equity shares of Rs. 10 each 25,00,000

30,00,000

Issued and Subscribed:

50,000, 5% cumulative preference shares of Rs. 10 each 5,00,000

2,40,000 equity shares of Rs. 10 each fully paid 24,00,000

(out of above 2,10,000 equity shares have been 29,00,000

issued for consideration other than cash)

2. Reserve and Surplus:

Securities premium (2,40,000 x 2.50) = 6,00,000

Less: Preliminary expenses = 18,000

Less: underwriting commission = 23,750

5,58,250

NOTE: As per sec.52 of companies account, securities premium account can be used for writtenoff of preliminary expenses.

3. Tangible Assets:

Land Buildings 6,00,000

Plant & Machinery 15,50,000

Motor Vehicles 40,000

Furniture 25,000

Total 22,15,000

4. Intangible Assets:

Good will (see working note: 3) 30,000

Patent rights 2,00,000Total 2,30,000





5. Trade receivables:

(Sundry debtors (80,000 + 62,000) 1,42,000

6. Inventories: Stock (3,50,000 + 2,39,000) 5,89,000

Working Notes:W.N 1:Dr. Realisation A/c of A Ltd. Cr.

Particulars Rs. Particulars Rs.

2,00,0006,00,000

15,50,0003,50,000

80,000

50,0005,000

10,000

50,00027,95,000

To Patent rightsTo Land & buildingTo Plant & machineryTo StockTo DebtorsTo Cash

CreditorsExpenses

To Equity share holder A/c(profit)28,45,000

By Sundry creditorsBy Shakti Ltd.

28,45,000

W.N 2:Dr. Cash Account of A Ltd. Cr.


1,60,0005,45,000

5,000

50,0005,00,0001,50,000

To Balance b/dTo Shakti Ltd

7,05,000

By Realisation A/c(Liquidation exp)

By Realisation A/c(creditors)By preference share holdersBy equity share holders (Bal.fig)

7,05,000

W.N 3:Calculation of Goodwill / Capital Reserve

Particulars Amount

Purchase Consideration of A Ltd. 27,95,000

Less: Net assets of A Ltd. (Rs. 29,40,000 – Rs. 1,60,000) (27,80,000)

Goodwill (A) 15,000

Purchase consideration of B ltd. 3,81,000

Less: Net assets of B Ltd (Rs. 4,53,000 – Rs. 70,000 – Rs. 17,000) (3,66,000)

Goodwill (B) 15,000Thus, total goodwill will be = 15,000 (A Ltd.) + Rs. 15,000 (B Ltd.) 30,000

Working note:4 Dr. Cash Account of Shakti Ltd. Cr.


5,00,000

3,75,000

6,0005,45,000

18,00023,750

2,82,250

To 5% cumulative preferenceshare application & allotment

To Equity share applications &allotment account

8,75,000

By B Ltd.By A Ltd.By Preliminary expensesBy Underwriting commissionBy Balance c/d (B/f)

8,75,000





PROBLEM No. 6

Computation of intrinsic value of shares of A Co. Ltd. and B Co. Ltd.

No. Particulars Rs.

1. Valuation of shares of A Co. Ltd.Share capitalCapital ReserveGeneral Reserve

Less: Goodwill being valuables 80,000Arrear of Depreciation 40,000Value of Net AssetsNo. of sharesIntrinsic value per share

10,00,0002,00,000

70,00012,70,000

1,20,00011,50,000

10,000115

2. Valuation of shares of B Co. Ltd.Share Capital

General Reserve

No. of SharesValue per share

8,00,000

8,00,00016,00,000

80,000Rs.20

Determination of composition of purchase consideration: The person holding every two shares in ACo. Ltd., will receive 10 shares in B Co. Ltd. plus cash for the balance. The intrinsic value of two sharesin A Co. Ltd, is Rs. 230 and that of 10 shares B Co. Ltd., is Rs. 200. Therefore for each lot of two sharesof A Co. Ltd., A shareholder will receive Rs. 30 in cash (Rs. 230-200).

B Co. Ltd, will therefore issue 50,000 share of Rs. 10 each at the agreed value of Rs. 20 each creditingRs. 5,00,000 to Capital Account and Rs. 5,00,000 to Securities premium Account.

Further, B Co. Ltd. will pay cash Rs. 1,50,000 (i.e. 5,000 x 30) for distribution amount share holders of ACo. Ltd.

Name of the Company: B Co. Ltd.Balance Sheet Date: 31.10.2009 (After absorption)

Particulars Note No. Amount

EQUITY & LIABILITIES:Share holder fundsShare capitalReserves & SurplusNon-Current liabilitiesLong term borrowings

12

3

13,00,00013,00,000

7,00,000

Current liabilitiesTrade Payables 6,70,000

Total 39,70,000

ASSETS:Non – Current Assets Fixed Assets 4 23,60,000

Current AssetsCash & Cash equivalentOther current assets

56

50,00015,60,000

Total 39,70,000





Note to Accounts:

No. Particulars Rs.

1. Share Capital

Authorised:2,00,000 shares of Rs. 10 each

Issued & Subscribed:

1,30,000 shares of Rs. 10 each fully paid (Issued for considerationother than cash 50,000 shares of Rs. 10 each fully paid)

20,00,000

13,00,000

2. Reserves & Surplus:

Securities premium

General Reserve

5,00,000

8,00,000

3. Long term borrowings:

Secured loan

Un Secured loan

5,00,000

2,00,000

4. Fixed Assets:Fixed assets 16,00,000

Addition on acquisition – 7,60,000(8,00,000-40,000) 23,60,000

5. Cash & Cash equivalent:

Cash at Bank

(2,00,000 – 1,50,000)

50,000

6. Other Current Assets:

(9,00,000 + 6,60,000)

15,60,000

PROBLEM No. 7

a. Absorption entries in the Books of A Ltd.

Particulars Dr. (Rs.) Cr. (Rs.)

Fixed assets A/c Dr.

Revaluation reserve A/c

(revaluation of fixed assets at 15% above book value)

1,05,000

1,05,000

Reserves and surplus A/c Dr.

Equity dividend A/c

(Declaration of equity dividend @10%)

60,000

60,000

Equity dividend A/c Dr.

Bank A/c

(Payment of equity dividend)

60,000

60,000

Business purchase A/c Dr.Liquidator of b ltd A/c

(Consideration payable for the business taken over fromB Ltd inclusive of liquidation expenses of Rs. 30,000)

5,20,0005,20,000

Fixed assets (115% of Rs. 2,50,000) A/c Dr.

Stock (95% of Rs. 3,20,000) A/c Dr.

Debtors Dr.

Bills receivable Dr.

Cash at Bank Dr.

(Rs. 40,000 – Rs. 30,000 dividend paid)

To Provision for bad debts (5% of Rs. 1,90,000)

To Sundry Creditors

To 12% Debentures in B Ltd.

2,87,500

3,04,000

1,90,000

1,00,000

10,000

9,500

1,25,000

1,62,000





To Bills Payable

To Business purchase A/c

To Capital reserve A/c (Balancing figure)

(Incorporation of various assets and liabilities taken over from B

Ltd. at agreed values, profit being credited to capital reserve)

25,000

5,20,000

50,000

Liquidator of B Ltd. Dr.

To Equity Share Capital

To 10% Preference Share Capital

To Bank A/c

(Discharge of consideration for B Ltd.’s business and

liquidation expenses of Rs. 30,000)

5,20,000

4,00,000

90,000

30,000

12% Debentures in B Ltd.(Rs. 1,50,000 × 108%) Dr.

Discount on Issue of Debentures Dr.

To 12% Debentures

(Allotment of 12% Debentures to debenture holders at a

discount of 10% to discharge the liability on B Ltd. debentures)

1,62,000

18,000

1,80,000

Sundry Creditors Dr.

To Sundry Debtors

(Cancellation of mutual owing)

10,000

10,000

b. Statement of Consideration Payable by A Ltd.

Shares to be allotted = 30,000 /6 x 8 = 40,000

i.e. A Ltd. will issue 40,000 shares of Rs. 10each = Rs. 4,00,000 (i)

For 10% preference shares to be paid at 10% discount

90x100

000,00,1.Rs = = Rs. 90,000 (ii)

Consideration amount (I + ii) = Rs. 4,90,000

Note: It has been assumed that dividend on equity shares have been paid by both the companies.

PROBLEM No. 8

Name of the Company: Z Ltd.Balance Sheet date: 31-03-2003


Equity and Liabilities:

a) Share holders funds:a. Share Capitalb. Reserves & Surplus

1 12,00,000-

b) Current liabilities:a. Trade payables (Creditors) 1,50,000

Total 13,50,000

Assets:

I. Non – Current Assets:a. Tangible Assetsb. Intangible AssetsNon – Current Investment

23

5,00,0001,34,0001,00,000

II. Current Assets:InventoriesTrade receivables

Cash & Cash equivalents

45

3,46,0002,30,000

40,000Total 13,50,000





Notes to Accounts:

No. Particulars Amount

1. Share Capital

1,20,000 Equity Shares of Rs. 10 each (all the above share areissued for consideration other than cash)

12,00,000

2. In Tangible AssetsGoodwill (96,000 + 38,000)

1,34,000

3. Non Current InvestmentInvestment in 6% tax free G.P Notes 1,00,000

4. Inventories(2,04,000 + 1,42,000) 3,46,000

5. Trade receivables(1,70,000 + 60,000) 2,30,000

Capitalization of Z Ltd.

Particulars X Ltd. Y Ltd.Fixed Assets 4,00,000 1,00,000

Investments 1,00,000 -

Stock 2,04,000 1,42,000

Debtors 1,70,000 60,000

Cash & Bank Balance 30,000 10,000

Total 9,04,000 3,12,000

Goodwill 96,000 38,000

(-) Creditors 1,00,000 50,000

NAV / PC 9,00,000 3,00,000

No. of shares issued 50,000 20,000

Intrinsic value per share 18 15

No. of shares to be issued by Z Ltd. @ Rs. 10 each 90,000 30,000

Exchange Ratio(X Ltd. 9 shares for every 5 shares held)(Y Ltd. 3 shares for every 2 shares held)

9:5 3:2

Purchase consideration 9,00,000 3,00,000

Assumption: It is assumed that Face value of each share of Z Ltd. is Rs.10

Working Note:

Calculation of Goodwill:


Share Capital 5,00,000 2,00,000

General reserve 2,00,000 20,000

Profit & Loss A/c 1,00,000 30,000

8,00,000 2,50,000

Less: Non – Trade investments 1,00,000 -

1. Trading Capital employed 7,00,000 2,50,000

2. Normal Profits (Capital Employed x 15%) 1,05,000 37,500

3. Average profit (Trading) (W.N-2) 1,29,000 47,000

Less: Normal Profit 1,05,000 37,500

Super Profit(3 – 2) 24,000 9,500Goodwill (Super profit x 4) 96,000 38,000





Working note: 2Computation of Average Trading Profit:


2001 1,30,000 45,000

2002 1,25,000 40,0002003 1,50,000 56,000

Total 4,05,000 1,41,000

Average profit for 3 years 1,35,000 47,000

X Ltd. : 4,05,000 / 3Y Ltd. : 1,41,000 / 3

Less: Income from Non Trade 6,000 -

Investments (6% on Rs. 1,00,000)

Average Trading Profit 1,29,000 47,000

PROBLEM No. 9

In the books of A Ltd. Ledger accountsDr. Realiztion A/c Cr.


1,50,00070,00080,00080,000

30,0003,00,000

50,000

To Fixed Assets A/cTo Stock A/cTo Debtors A/cTo Cash and Bank A/c

3,80,000

By CreditorsBy AB Ltd.By Equity Share holder A/c

(Loss)

3,80,000

Dr. AB Ltd. A/c Cr.

Particulars Rs. Particulars Rs.3,00,000 3,00,000To Realization A/c

3,00,000

By Equity Shares of AB Ltd.

3,00,000

Dr. Equity Shares of AB Ltd. A/c Cr.


3,00,000 3,00,000To AB Ltd. A/c

3,00,000

By Equity Shares holders

3,00,000

Dr. Equity Share holder A/c Cr.


50,0003,00,000

2,50,00060,00040,000

To Realization A/c (Loss)To Equity Shares of AB Ltd.

3,50,000

By Equity Share CapitalBy ReservesBy Profit & Loss A/c

3,50,000

In the Books of B Ltd. Ledger accountsDr. Realization A/c Cr.


1,30,000

75,00040,000

30,000

20,0002,00,000

55,000

To Fixed Assets(1,20,000 + 10,000)To Stock (80,000 – 5,000)To Debtors

To Cash & Bank A/c2,75,000

By CreditorsBy AB Ltd. A/cBy Equity Share holders

(Loss)

2,75,000





Dr. AB Ltd. A/c Cr.


2,00,000 2,00,000To Realization A/c

2,00,000

By Equity Shares of AB Ltd.

2,00,000

Dr. Equity Shares of AB Ltd. A/c Cr.


2,00,000 2,00,000To AB Ltd.

2,00,000

By Equity Share holders

2,00,000

Dr. Equity Share holders A/c Cr.


55,0002,00,000

1,50,00040,00065,000

To Realization A/c (Loss)To Equity Share of AB Ltd.

2,55,000

By Equity Share CapitalBy ReservesBy Profit & Loss A/c

(60,000+10,000-5,000)2,55,000

Journal Entries in the Books of AB Ltd.Nature of Amalgamation: Amalgamation in nature of merger

Method of Accounting: Pooling Interest MethodMethod of Purchase Consideration: Payment Method

Particulars Debit Credit

For Take over of A Ltd.Business Purchase A/c Dr.

To liquidator of A Ltd. A/c(Being purchase consideration due)

3,00,0003,00,000

Fixed Assets A/c Dr.Stock A/c Dr.Debtors A/c Dr.Cash & Bank A/c Dr.

To Creditors A/cTo Business purchase A/cTo General Reserve A/cTo P & L A/c

(Being incorporation of asset and liabilities at book value)

1,50,00070,00080,00080,000

30,0003,00,000

10,00040,000

Part – I

Liquidator of A Ltd. A/c Dr.To Equity Share Capital A/c

(Being P.C discharged)

3,00,0003,00,000

Part - II For Take over of B Ltd.Business Purchase A/c Dr.To liquidator of ‘B’ Ltd. A/c

(Being P.C due)Fixed Assets A/c (1,20,000 + 10,000) Dr.Stock A/c (80,000 – 5,000) Dr.Debtors A/c Dr.Cash & Bank A/c Dr.

To Creditors A/cTo B.P A/cTo P & L (W.N-1)To General Reserve (40,000 – 40,000)

(Being incorporation of assets & liabilities at book value)

2,00,000

1,30,00075,00040,00030,000

2,00,000

20,0002,00,000

55,000Nil

Liquidator of B Ltd. A/c Dr.To Equity Share Capital A/c

2,00,0002,00,000





Name of the Company: AB Ltd.Balance Sheet date:

Particulars Note No. Amount (Rs.)

Equity & Liabilities:Share holders fundsa. Share Capitalb. Reserve & Surplus

12

5,00,0001,05,000

Current Liabilities:Trade payables 3 50,000

Total 6,55,000

Assets:Fixed Assets (1,50,000 + 1,30,000) 2,80,000

Current Assets:InventoriesTrade Receivables

Cash & Cash Equivalent

45

6

1,45,0001,20,000

1,10,000Total 6,55,000

Note to Accounts:

Particulars Amount

1. Share Capital50,000 shares of Rs. 10 each(all the above shares were issued for consideration other than cash)

5,00,000

2. Reserves & Surplusa. General Reserve(60,000-50,000) loss on mergerb. Profit & Loss A/c (40,000 + 55,000)

10,00095,000

3. Trade Payables (30,000 + 20,000) 50,000

4. Inventories (70,000 + 75,000) 1,45,000

5. Trade receivables (80,000 + 40,000) 1,20,000

6. Cash & Cash EquivalentCash & Bank (80,000 + 30,000)

1,10,000

Working note 1: Calculation of Profit & Loss on Merger

Particulars A LTd. B LTd.

Paid up share capital 2,50,000 1,50,000

Where as agreed PC 3,00,000 2,00,000

Loss on merger 50,000 50,000

Free reserves of Selling company

General reserve (50,000) (40,000)

Profit & loss A/c - (10,000)

Balance of General Reserve A/c(60,000-50,000) 10,000 -

Balance of Profit & Loss A/c 40,000 55,000[(60,000+10,000–5,000)–10,000]







PROBLEM No. 10

Journal Entries In the books of MN Ltd.Nature of Amalgamation: Amalgamation in nature of merger

Method of Accounting: Pooling Interest MethodMethod of Purchase Consideration: Payment Method

Part – I

Journal Entries for taking over the business of M Ltd. (Rs. In lakhs)

Particulars Dr. Cr.

Business purchase A/c Dr.

To Liquidator of M Ltd.(1,200+7,200)

(Being Consideration payable to liquidator of M Ltd. taken over)

8,400

8,400

Plant & Machinery Account Dr.

Furniture & Fixture A/c Dr.

Stock Account Dr.

Sundry Debtor A/c Dr.

Cash at Bank A/c Dr.

Profit & Loss A/c (Refer. W.N) Dr.

To Trade Creditor A/c

To Provision A/c


(Being incorporation of all the assets & liabilities & and the excess ofconsideration over the share capital being adjusted against reverses and surplus)

4,125

2,400

2,370

1,044

1,542

120

2,421

870

8,400

Liquidator of M Ltd. Account Dr.


To 11% preference share capital A/c

(Being allotment of fully paid shares in discharge of purchase consideration)

8,400

7,200

1,200

Part – II

Journal Entries for taking over the business of N Ltd (Rs. In lakhs)

Particulars Dr. Cr.

Business purchase A/c Dr.To Liquidator of N Ltd.(90x10)

(Being Consideration payable to liquidator of two companies taken over)

900900

Plant & Machinery Account Dr.Furniture & Fixture A/c Dr.Motor Vehicles Account Dr.Stock Account Dr.

Sundry Debtor A/c Dr.Cash at Bank A/c Dr.Preliminary Expenses A/c Dr.Discount on issue of Debenture A/c Dr.

To 8% Redeemable Debenture of N Ltd. A/cTo Trade Creditor A/cTo Provision A/cTo Business Purchase A/c

(Being incorporation of all the assets & liabilities & and the excess ofconsideration over the share capital being adjusted against reverses andsurplus)

46818351

444

237240336

30036993

900

Liquidator of N Ltd. Account Dr.To Equity share capital A/c

(Being allotment of fully paid shares in discharge of purchase consideration)

900900





Part – III

Other Journal Entries (Rs. In lakhs)

Particulars Dr. Cr.

Profit & Loss A/c Dr.To Bank A/c

(Being Payment of liquidation expenses of M Ltd. And N Ltd.)

6 6

Preliminary Expenses A/c Dr.

To Bank A/c

(Being Expenses on incorporation of MN Ltd.)

15

15

8% Redeemable Debenture of N Ltd. A/c Dr.

To 8.5% Redeemable Debenture A/c

(Being Conversion of 8% Debentures of N Ltd. in to 8.5% Debentures)

300

300

Name of Company: MN Ltd.

Balance Sheet (Rs. In lakhs)Particulars

NoteNo.

Amount(Rs.)

1.

2.

3.

Equity & Liabilities:

Share holders fundsa. Share Capitalb. Reserves & SurplusNon – Current liabilities

a. Long term borrowingsCurrent liabilities

a) Trade payables (creditors)b) Short-term provisions

Total

12

3

9,300(126)

300

2,790963

13,227

1.

2.

Assets:Non – Current Assets:

a. Fixed Assetsi. Tangible Assetsii. In Tangible Assets

Current Assets:

a) Inventories (Stock)b) Trade receivablesc) Cash & Cash Equivalentd) Other Current Assets

Total

4

56

7,317

2,814

1,2811,761

5413,227

Notes to Accounts:

Particulars Amount

1. Share Capital

Authorised shares of Rs. 10 each issued, subscribed & paid up:

810 lakhs equity shares of Rs. 10 each fully paid

120 Lakhs 11%, preference shares of Rs. 10 each fully paid

(All the above mentioned shares have been issued for consideration otherthan cash)

15,000

8,100

1,200

2. Reserves & Surplus

Profit & Loss A/c (600 + 2,100 + 780 – 3,600 – 6) (126)

3. Long term borrowing

8.5% Redeemable Debentures 300





4. Tangible Assets

Plant & Machinery (4,215 + 468)

Furniture & Fixtures (2,400 + 183)

Motor Vehicles

4,683

2,583

51

5. Cash & Cash Equivalent

Cash at Bank (1,782 – 6 - 15) 1,761

6. Other Current Assets

i. Discount on issue of Debentures

ii. Preliminary expenses (33 +15)

6

48

Working Note: Computation of Profit or Loss on merger M Ltd. N Ltd.1. PC Agreed 8,400 9002. Paid up capital 4,800 9003. Loss on merger 3,600 -

The above loss on merger is completely adjusted against free reserves of M Ltd. of Rs.3,480

PROBLEM No. 11

WN: 1

Calculation of purchase consideration:

Particulars Amount

To Preference shareholders: 1,00,000 shares of Rs.11 each 11,00,000

To Equity shareholders:

In the form of shares (2,50,000x11) 27,50,000

In the form of cash (2,50,000x4) 10,00,000 37,50,000

Total purchase consideration 48,50,000

WN: 2


Particulars Amount

Building 12,00,000

Plant & Machinery 10,00,000

Stock 7,00,000

Sundry Debtors 9,00,000

Bank 6,60,000

Less:

Creditors (4,00,000)

Workmen profit sharing fund (3,30,0000

Net assets taken over 37,60,000

WN: 3

Calculation of profit or loss on amalgamation:

Particulars Amount

Purchase consideration 48,50,000

Net assets taken over (37,60,000)

Loss on amalgamation 10,90,000





In the books of y ltdRealisation A/c

Particulars Amount Rs. Particulars Amount Rs.

To Good will 8,00,000 By Creditors 4,00,000

To Building 7,00,000 By Workmen Profit sharing fund 3,00,000

To Plant & Machinery 13,00,000 By X Ltd. A/c (PC) 48,50,000

To Stock 7,00,000

To Sundry Debtors 9,00,000

To Bank 6,60,000

To Preference shareholders 1,00,000

To (Profit) Eq. share holders A/c 3,90,000

Total 55,50,000 Total 55,50,000

Dr. X ltd A/c Cr.


48,50,000 10,00,000

38,50,000

To Realisation A/c

48,50,000

By cash

By Equity shares in x ltd

48,50,000

Dr. Bank A/c Cr.


10,00,000 10,00,000To X ltd

10,00,000

By Equity shareholders

10,00,000

Dr. Preference shareholders A/c Cr.


11,00,000 10,00,000

1,00,000

To Equity shares in x ltd

11,00,000

By Preference share capital

By Realisation A/c(bal. fig)

11,00,000

Dr. Equity shareholders A/c Cr.


40,00010,00,00027,50,000

20,00,0006,00,0008,00,0003,90,000

To Preliminary expensesTo cashTo Equity shares in Y Ltd

37,90,000

By Equity share capitalBy General reserveBy Profit & Loss A/cBy Profit on Realisation a/c

(bal. fig)

37,90,000

Dr. Equity shares in x ltd A/c Cr.


38,50,000 11,00,000

27,50,000

To X ltd

38,50,000

By Preference share holders

By Equity share holders

38,50,000





In the books of x ltdJournal entries

Date Particulars Debit Rs. Credit Rs.

Business purchase A/c Dr.To Liquidator of y ltd A/c(Being purchase of business)

48,50,000 48,50,000

Building A/c Dr.Plant & Machinery A/c Dr.Stock A/c Dr.Debtors A/c Dr.Bank A/c Dr.Goodwill (bal. fig) A/c Dr.

To Creditors A/cTo workmen Profit sharing fundTo Business purchase A/c

(Being assets and liabilities take over and purchase

consideration due)

12,00,00010,00,000

7,00,0009,00,0006,60,000

10.90,0004,00,0003,00,000

48,50,000

Liquidator of y Ltd A/c Dr.To Bank A/cTo Equity share capital A/cTo Securities premium A/c

(Being payment purchase. consideration)

51,85,00010,00,00035,00,000

3,50,000

Goodwill A/c Dr.To cash a/c

(Being liquidation expenses paid)

5,0005,000

Workmen Profit sharing fund A/c Dr.Goodwill A/c Dr.

To cash A/c(Being payment made for workmen’s profit sharing fundat 10% premium)

3,00,00030,000

3,30,000

PROBLEM No. 12

Particulars(Rs. In crores)(CAMIH Ltd)

(Rs. In crores)(Small Ltd)

40200200

75429200

GoodwillFixed AssetsWorking Capital

Less: Secured Loans

Intrinsic worth available for both equity and preferenceshareholders

Less:

Preference share capital

Intrinsic worth available to equity shareholders

No. of equity shares issued intrinsic value per share

Intrinsic value per share

440(100)

340

-

340

5

68

704(100)

604

(60)

544

4

136

No. of equity shares to be issued = 340 CroresRs.136

= 2.5 CroresIt is given that entries to be recorded at par value.

2.5 crores x 10 = 25,00,00,000





Balance Sheet

Particulars Note No. Amount

EQUITY AND LIABILITIES:Share capital

Reserves and surplus (200 + 150 + 25 (capital reserve)

Non-current LiabilitiesLong term borrowings (100 + 100)

Current LiabilitiesTrade payables

Total

125

375

200

700

ASSETS:Non-current assetsFixed assets (150 + 150)Tangible assetsIntangible assets

Current assetsInventoriesTrade receivablesCash and cash equivalentsOther currents assets

Total

300

400

700

Notes to AccountsRs. inCrores

6065

(1) Share capital10% preference shares of 100 each6.5 crores of equity shares of Rs.10 each fully paid up

(Of the above 2.5 crores of equity shares are issued other than cash)125

Computation of profit or loss on Merger:

ParticularsRs. inCrores

Paid up capitalPurchased considerationProfit on merger

5025

25

PROBLEM – 13

Name of the Company : Huge Ltd (After Merger)

ParticularsNotes

No.Rs.

1 2 3

1 ab

EQUITY AND LIABILITIES:Shareholder’s fundsShare capitalReserves and Surplus

12

9,24,00014,80,960

2a

Non-current liabilitiesLong term borrowings 3 2,00,000

3a

b

Current liabilitiesTrade Payable (Creditors)

Short term provisions TOTAL 4

85,000

1,60,00028,49,960





1 a

bc

(i)

(ii)

ASSETS:Non current assetsFixed assetsTangible assets

Intangible assets (Good will)Non-current investmentsOther non-current assets

5

6

13,50,000

3,80,0002,50,000

40,000

2

abcd

Current AssetsInventories (Stock)Trade receivables (Debtors)Cash & Cash equivalents (4,05,000 - 40)Short term loans and advancesTOTAL

7

1,70,0001,55,0004,04,9601,00,000

28,49,960

Note to Accounts:

Particulars Rs. 1. Share capital

92,400 equity shares of Rs.10 each(Of which 22,400 shares were issued forconsideration other than cash)

2. Reserves and surplus Security premiumGeneral reserveProfit and loss A/c 2,00,000Add: Proposed dividend cancelled 1,40,000Export profit reserve (70,000 + 40,000)

3. Long term borrowingsSecured 12% debentures (1,00,000 + 1,00,000)

4. Short term provisionProvision for tax ( 1,00,000 + 60,000)

5. Intangible assetsGood will (W. No)

6. Other non- current assetAmalgamation adjustment A/c

7. Short term loans and advances(Advance tax 80,000 + 20,000)

9,24,000

6,80,9603,50,000

3,40,0001,10,000

2,00,000

1,60,000

3,80,000

40,000

1,00,000

WORKING NOTES:


Equity shares of Big Ltd. 25,000 shares

Intrinsic value per share of Big Ltd. (W.N.2) Rs. 36.2 Value of shares Rs. 9,05,000

Intrinsic value per share of Huge Ltd. (W.N.2) Rs. 40.4

No. of shares to be issued by Huge Ltd. Rs.9,05,000 / Rs.40.4 = 22,400.99 shares i.e. 22,400 sharesand cash for fraction i.e. 0.99 x Rs.40.4= Rs. 40

PURCHASE CONSIDERATION:

i. 22,400 shares @ Rs.40.4

Capital [Rs.10 / Share] 2,24,000

Premium [Rs.30.4 / Share] 6,80,960 9,04,960

ii. Cash for fraction 40

iii. Total purchase consideration payable 9,05,000




Intrinsic Value Per Share:

Huge Ltd. ( Rs. ) Big Ltd. ( Rs. )Particulars

Rs. Rs. Rs. Rs.

ASSETS:i. Goodwill (W.N.3)ii. Sundry fixed assetsiii. Investmentsiv. Inventoryv. Trade receivablesvi. Advance taxvii. Cash and bank balanceLIABILITIES:i. 12% Debenturesii. Trade payablesiii. Provision for taxNet assetsNo. of sharesIntrinsic value per share (upto one decimal)

13,65,0009,50,0002,00,0001,20,000

75,00080,000

2,75,000

1,00,00040,000

1,00,000

30,65,000

(2,40,000)28,25,000

70,00040.4

3,80,0004,00,000

50,00050,00080,00020,000

1,30,000

1,00,00045,00060,000

11,10,000

(2,05,000)9,05,000

25,00036.2

Valuation of Goodwill

a. Capital Employed:

Huge Ltd. ( Rs. ) Big Ltd. ( Rs. )Particulars

Rs. Rs. Rs. Rs.ASSETS:i. Sundry fixed assetsii. Investment (Non-trade)iii. Inventoryiv. Trade receivablesv. Advance taxvi. Cash and bank balanceLIABILITIES:i. 12% Debenturesii. Sundry creditorsiii. Provision for taxCapital employed

9,50,000-

1,20,00075,00080,000

2,75,000

1,00,00040,000

1,00,000

15,00,000

(2,40,000)12,60,000

4,00,000-

50,00080,00020,000

1,30,000

1,00,00045,00060,000

6,80,000

(2,05,000)4,75,000

Average Pre-Tax Profit:

ParticularsHuge Ltd.

( Rs. )

Big Ltd.

( Rs. )

20102011

2012Total (a + b + c)Simple Average [Total / 3]Less: Non-trading income(2,00,000 @ 25%)(50,000 @ 18%)Average profit

5,00,0006,50,000

5,75,00017,25,0005,75,000

(50,000)

5,25,000

1,50,0002,10,000

1,80,0005,40,0001,80,000

(9,000)1,71,000

ParticularsHuge Ltd.

( Rs. )

Big Ltd.

( Rs. )

Capitalized value of average profits(average profit / NRR)Capital employedGoodwill

26,25,00012,60,00013,65,000

8,55,0004,75,0003,80,000

THE END

7. Amalgamation II

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