Web view...

Click here to load reader

  • date post

    03-Oct-2020
  • Category

    Documents

  • view

    0
  • download

    0

Embed Size (px)

Transcript of Web view...

UNIT – I

AMALGAMATION, ABSORBTION AND RECONSTRUCTION

What Is Amalgamation?

An amalgamation is a combination of two or more companies into a new entity. Amalgamation is distinct from a merger because neither company involved survives as a legal entity. Instead, a completely new entity is formed to house the combined assets and liabilities of both companies.

The term amalgamation has generally fallen out of popular use in countries like the United States, being replaced with the terms merger or consolidation. But it is still commonly used in countries like India.

Purchase Consideration:

Purchase Consideration refers to the consideration payable by the purchasing company to the vendor company for taking over the assets and liabilities of Vendor Company.

Accounting Standard – 14 defines the term purchase consideration as the “aggregate of the shares and other securities issued and the payment made in the form of ach or other assets by the transferee company to the shareholders of the transferor company”. Although, purchase consideration refers to total payment made by purchasing company to the shareholders of Vendor Company, its calculation could be in different methods, as explained below:

A. Lump sum method

B. Net Assets method

C. Net Payment Method

A. Lump sum Method:

Under this method purchase consideration will be paid in lump sum as per the valuation of purchasing companies valuation. E.g., if it is stated that A Ltd. takes over the business of B Ltd. for Rs.15, 00,000 here the sum of the Rs.15, 00,000 is the Purchase Consideration.

B. Net Assets Method:

Under this method P.C. shall be computed as follows:

Particulars

Rs.

Agreed value of assets taken over

Less: Agreed value of Liabilities taken over

XXX

XXX

Purchase Consideration

XXX

C. Net Payment Method:

Under this method P.C. should be calculated by aggregating total payments made by the purchasing company. E.g.: A Ltd. had taken over B Ltd. and for that it agreed to pay Rs.5, 00,000 in cash 4, 00,000 Equity Shares of Rs.10 each fully paid at an agreed value of Rs.15 per share then the P.C. will be ascertained as follows:

Particulars

Rs.

Cash

4,00,000 E. Shares of Rs.10 each fully paid, at Rs.15 per share

5,00,000

60,00,000

Purchase Consideration

65,00,000

1. Calculate purchase consideration from the following given Balance Sheet:

 

Solution:

2. The following information has been extracted from the balance sheets of P Ltd. and S Ltd. as on 31st March, 2012:

P Ltd. takes over S Ltd. on 1st April, 2012, and discharges consideration for the business as follows:

(i) Issued 35 lakh fully paid equity shares of Rs 10 each at par to the equity shareholders of S Ltd.

(ii) Issued fully paid 12% preference shares of Rs 10 each to discharge the preference shareholders of S Ltd. at a premium of 10%.

It is agreed that the debentures of S Ltd. will be converted into equal number and amount of 10% debentures of P Ltd.

You are required to show the balance sheet of P Ltd. assuming that:

(i) The amalgamation is in the nature of merger, and

(ii) The amalgamation is in the nature of purchase.

 

3) On 31st March, 2012, Thin Ltd. was absorbed by Thick Ltd., the latter taking over all the assets and liabilities of the former at book values. The consideration for the business was fixed at Rs 40 crore to be discharged by the transferee company in the form of its fully paid equity shares of Rs 10 each, to be distributed among the shareholders of the transferor company, each shareholder getting two shares for every share held in the transferor company.

The balance sheets of the two companies as on 31st March, 2012 stood as under:

Amalgamation expenses amounting to Rs 10 lakh were paid by Thick Ltd. 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 Ltd. after the amalgamation.

 

 

4) White Ltd. agreed to acquire the business of Green Ltd. as on March 31, 2012. The summarised balance sheet of Green Ltd. at that date was as follows:

5) The following are the summarised balance sheets of V Ltd and P Ltd as at 31st March, 2012:

You are required to:

(a) Prepare Realisation Account and Equity Shareholders Account in the books of V Ltd.

(b) Pass journal entries in the books of P Ltd. and redraft P Ltd.’s balance sheet immediately after amalgamation assuming (i) it is an amalgamation in the nature of purchase and (ii) it is an amalgamation in the nature of merger.

P Ltd. acquires the entire business of V Ltd. for Rs 14,00,000 to be satisfied by allotment of equity shares at par. All the acceptances of P Ltd. are in the favour of V Ltd. and which are included in the figure of Rs 40,000 in V Ltd.’s balance sheet. Trade Receivables appearing in the balance sheet of V Ltd. include Rs, 10,000 due from P Ltd.

UNIT – II

HOLDING COMPANY ACCOUNTS

Meaning:

A holding company is a type of business that deals specifically with assets, investments and management, rather than providing goods and services with a view to making a profit from production and sales. It will usually be limited by shares and its main activities will involve owning assets in another company or many companies. Assets could be in the form of shares, intellectual property and real property.

Holding companies may also be responsible for the supervision and management of other companies, in addition to or instead of holding shares and receiving dividends from their shareholdings. Aside from these functions, a holding company will normally conduct no other type of business activity.

The other companies in which assets are held are known as ‘subsidiaries’. Holding companies in the UK that own more than 50% of another company’s shares are known as ‘parent’ companies of these subsidiaries.

The legal requirements of a holding company

In order to qualify as a holding company, the Companies Act 2006 (sec. 1159) states that it will be considered the subsidiary of a holding company in the following circumstances:

· The parent company holds greater than 50% of the voting rights in the subsidiary.

· The parent company is a member of the subsidiary and has the right to appoint or remove a majority of its board of directors.

· The parent company is a member of the subsidiary and, in accordance with an agreement with other shareholders, it alone controls a majority of the voting rights in the subsidiary.

Problem 1 (Wholly Owned Subsidiary):

2. From the balance sheets and information given below, prepare a Consolidated Balance Sheet:

(a) All the profits of S Ltd. have been earned since the shares were acquired by H Ltd. but there was already the Reserve of Rs. 6, 00,000 on that date.

(b) The bills accepted by S Ltd. are all in favour of H Ltd. which has discounted Rs. 2,000 of them.

(c) Sundry assets of S Ltd. are undervalued by Rs. 2,000.

{d) The stock H Ltd. includes Rs. 5,000 bought from S Ltd. at a profit to the latter of 25% on cost.

3) From the balance sheets and information given below, prepare a Consolidated Balance Sheet:

(a) All the profits of S Ltd. have been earned since the shares were acquired by H Ltd. but there was already the Reserve of Rs. 6, 00,000 on that date.

(b) The bills accepted by S Ltd. are all in favour of H Ltd. which has discounted Rs. 2,000 of them.

(c) Sundry assets of S Ltd. are undervalued by Rs. 2,000.

{d) The stock H Ltd. includes Rs. 5,000 bought from S Ltd. at a profit to the latter of 25% on cost.

Problem 4 (Cash-in-Transit & Mutual Obligation):

X Ltd. purchased 750 shares in Y Ltd. on 1.7.2006. The following were their Balance Sheets on 31.12.2006.

Further:

1. Bills Receivable of X Ltd. include Rs. 10,000 accepted by Y Ltd.

2. Debtors of X Ltd. include Rs. 20,000 payable by Y Ltd.

3. A cheque of Rs. 5,000 sent by Y Ltd. on 20th December was not yet received by X Ltd. till 31st December 2006.

4. Profit and Loss Account of Y Ltd. showed a balance of Rs. 20,000 on 1st January 2006.

You are required to prepare a consolidated Balance sheet of X Ltd. and Y Ltd. as on 31st December 2006.

5. The summarised Balance Sheet of H Ltd. and its S Ltd. on 31st December 2004 are as follows:

S Ltd. had the credit balance of Rs 30,000 in the Reserves when H Ltd. acquired shares in S Ltd. decided to make a bonus issue out of post-acquisition profits of two shares of Rs 10 each fully paid for every five shares held. Calculate the cost of control before the issue of bonus shares and after the issue of bonus shares. Also make the consolidated Balance Sheet after the issue of bonus shares. 

Problem 6: The Sun Co. Ltd. acquired 6,000 shares in the Moon Co. Ltd. on 31.12.2006.

The summarised Balance Sheets of the two companies on that date were:

On 31st December, 2002 the Sun Co. Ltd. remitted cash Rs. 1,000 on current account to Moon Co. Ltd. On 1st January, 2007, Moon Co. Ltd., utilised a part of its capital reserve to make a bonus issue of one share for every four shares held. There is a contingent liability for bills discounted Rs. 1,200.

7.H Ltd. acquired 12,000 shares of S Ltd. For Rs 1,70,000 on April 1, 2011 on which date S Ltd’s Profit & Loss Account showed a credit balance of Rs 53,400. In Augus