Amalgamation II

MASTER MINDS
No.1 for CA/CWA & MEC/CEC
7. AMALGAMATION - II
SOLUTIONS TO ASSIGNMENT PROBLEMS
PROBLEM No. 1
st
Balance Sheet of Z Ltd. as at 1 April, 2012

Particulars
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
(Rs. in Crores)
Note No
Amount
1
2
82.00
116.50
7.50
43
249.00
104.00
16.00
9.00
Total
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
37.00
54.00
29.00
249.00
7
8
Total
Notes to Accounts:
(Rs. in crores)
Particulars
3.
4
5
8
6
7
Share Capital
Equity Share Capital
4,80,00,000 Equity shares of Rs.10 each
Preference Share Capital
34,00,000 15% Preference Shares of Rs.100 each
(all the above shares are allotted as fully paid up pursuant to
contracts without payment being received in cash)
Reserve and Surplus
Security Premium (60 + 36 + 4 + 2.8)
Capital Reserve (Working Note No: 4)
Investment Allowance Reserve
Long Term Borrowings
Secured Loans
18% of Debentures (Rs.100 each)
Trade Payables
Bills Payable
Sundry Creditors
Fixed assets
Tangible assets
Land and Buildings
Plant and Machinery
Cash and cash equivalents
Cash At Bank
Other non-current assets
Amalgamation Adjustment Account
Trade Receivables (Sundry Debtors 45 + Bills Receivables 9)
Amount
Amount
48.00
34.00
82.00
102.80
4.70
9.00
116.50
7.50
7.50
17
26
43
63.00
41.00
104.00
29.00
9.00
54
IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____1
Ph:
9885125025/26
www.mastermindsindia.com
Note: Since Investment Allowance Reserve is to be maintained for 4 years, it is carried forward by a
corresponding debit to Amalgamation Adjustment Account in accordance with AS-14.
Working Notes:
1. Calculation of Net assets taken over
(Rs. In crores)
Particulars
Assets taken over:
Land and Buildings
Plant and Machinery
Investments
Inventory
Trade Receivable (Sundry Debtors + Bills Receivables)
Cash at Bank
X 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
105.67
83.83
(i)
Liabilities taken over:
Debentures(WN:2)
Trade payable (Sundry Creditors + Bills Payable)
(ii)
(i) (ii)
Net assets taken over
Y Ltd.
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:
Particulars
1.
X Ltd.
Y Ltd.
Equity Shareholders
Rs.50 crores
Rs.10
2.
(Rs .In crores)
6
10
90
Rs.30
54
Rs.45 crores 2
Rs.30
Rs.10
5
Preference Shareholders
Rs.20 crores
Rs.100
24
120
16.8
Rs.14 crores
120
Rs.100
Total Purchase consideration
114
70.8
MASTER MINDS

4. Calculation of Goodwill/Capital Reserve
Particulars
Net Assets takeover (Working Note : 1)
Less: Purchase Consideration (Working Note : 3)
Goodwill
Capital Reserve
X Ltd.
105.67
(114.00)
Y Ltd.
83.83
(70.80)
8.33
---
---13.03
Note: Goodwill arising from amalgamation shall be adjusted against Capital Reserve arising from
amalgamation, and only balance of Rs.4.70 crores is to be shown in the Balance Sheet of Z Ltd as
capital reserve.
PROBLEM No. 2
(i) Calculation of Purchase Consideration: ( Net Assets Method)
Particulars
Assets taken over:
Sundry fixed assets
Investments
Inventory
Trade receivables
Cash & Bank
Gross Assets
Less : Sundry Liabilities
12% Debentures
Trade payables
Purchase Consideration
AX Ltd. (Rs.000)
Amount
Amount
BX Ltd. (Rs.000)
Amount
Amount
85,00
10,50
12,50
18,00
4,50
130,50
75,00
5,50
27,50
40,00
4,00
152,00
30,00
10,00
40,00
15,00
(40,00)
90,50
(55,00)
97,00
. Discharge of Purchase consideration:

Particulars
9,05,000 Equity Shares of Rs.10 each
AX Ltd.
Rs. 000
90,50
BX Ltd.
Rs. 000
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
01.01.2013
01.01.2013
Particulars
Business Purchase A/c
To Liquidator of AX Ltd.
(Being Business of AX Ltd. purchased)
Sundry fixed assets
Investment A/c
Inventory
Trade receivables
Cash and Bank
To 12% Debentures
To Trade payables
To Business Purchase A/c
(Being the purchase consideration of AX Ltd.
accounted for)
Dr.
Rs. 000
90,50
Rs. 000
90,50
Dr.
Dr.
Dr.
Dr.
Dr.
85,00
10,50
12,50
18,00
4,50
30,00
10,00
90,50
Ph:
9885125025/26
01.01.2013
Liquidator of AX Ltd.
To Equity share capital A/c
(Being shares issued to Liquidator of AX Ltd.)
90,50
Dr.
90,50
Part II
Journal Entries for taking over the business of BX Ltd
Date
01.01.2013
01.01.2013
01.01.2013
Particulars
Dr.
To Liquidator of BX Ltd.
(Being Business of AX Ltd. & BX Ltd. purchased)
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)
Liquidator of BX Ltd. A/c
Dr.
(Being shares issued to Liquidator of BX Ltd.)
Rs. 000
97,00
Rs. 000
97,00
75,00
5,50
27,50
40,00
4,00
40,00
15,00
97,00
97,00
97,00
Part III
Other Journal Entries
Date
01.01.2013
(iii)
Particulars
Amalgamation adjustment A/c
To statutory reserve A/c
(Being statutory reserve has maintained)
Dr.
Rs. 000
150
Rs. 000
150
Balance Sheet of ABX Ltd. as on 1.1.2013

Particulars
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)
(000)
1
2
187,50
7,50
70,00
25,00
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
Note No.
290,00
160,00
16,00
7,50
MASTER MINDS

(2) Current assets
(a) Inventories (12,50 + 27,50)
(b) Trade Receivables (18,00 + 40,00)
(c) Cash & Cash equivalents (4,50 + 4,00)
4
40,00
58,00
8,50
290,00
Total
Notes to Accounts:
Particulars
1.
2.
3.
4.
(Rs.000)
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 Borrowings
12% Debentures (Assumed that new debentures were issued in
exchange of the old series)
Amalgamation Adjustment Account
(Rs.000)
187,500
6,00
1,50
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
2,24,788 1,250 + 1,88,962
= 1,37,500
3
1,36,950 + 1,71,050 + 1,79,500
=
1,62,500
3
(ii) Equity share issued:
a. Ratio of distribution
Star
:
Moon
1,375 :
1,625
b. Number
Star
:
Moon :
Copy Rights Reserved
To
MASTER MINDS, Guntur
13,750
16,250
30,000
c. Amount:
13,750 shares of Rs. 5 each = 68,750
16,250 shares of Rs. 5 each =
81,250
WORKING NOTES:2
(i) Capital employed (after revaluation of assets):
Fixed Assets
3,55,000
Current Assets
1,49,750
5,04,750
1,95,000
78,875
2,73,875
Ph:
9885125025/26
Less: Current liabilities
(2,98,500)
2,06,250
(ii) Debenture issued:

8% Return of capital employed 16,500
15% Debentures to be issued
To provide equivalent income
Star
:
16,500 x 100 / 15
= 1,10,000
Moon :
14,700 x 100/15
= 98,000
(90,125)
1,83,750
14,700
Name of the Company: Neptune Ltd.

st
Balance Sheet as at 31 Dec. 2012

Particulars
Equity and liabilities
1. Share holders funds
a. Share capital
b. Reserves and Surplus
2. Non current liabilities
a. Long-term borrowings
3. Current liabilities
a. Other current liabilities
I.
Note No.
1
2
1,50,000
32,000
2,08,000
3,66,950
7,56,950
Total
Assets:
1. Non-Current Assets
a. Fixed Assets
2. Current assets
a. Other current assets
II.
Rs.
5,50,000
2,06,950
7,56,950
Total
Notes to Accounts:
Note No.
1.
2.
3.
Particulars
Share Capital:
Authorised
40,000 equity shares of Rs. 5 each
Issued and subscribed
30,000 equity shares of Rs. 5 each
(all the above shares are allotted as fully paid up pursuant to a contract
without payments being received in cash)
Reserves & Surplus:
Capital Reserve
Long term borrowings:
Secured loans
15% Debentures
Amount
2,00,000
1,50,000
32,000
2,08,000
Working Notes:
S.No.
1.
2.
3.
Particulars
Purchase Consideration
Equity shares issued
15% Debentures Issued
Total Purchase Consideration
Net Assets taken over
Fixed Assets
Current Assets
Less: Current Liabilities
Capital Reserve (1-2)
Star
Moon
Total
68,750
1,10,000
1,78,750
81,250
98,000
1,79,250
1,50,000
2,08,000
3,58,000
3,55,000
1,49,750
(2,98,500)
2,06,250
27,500
1,95,000
78,875
(90,125)
1,83,750
4,500
5,50,000
2,28,625
(3,88,625)
3,90,000
32,000
MASTER MINDS
PROBLEM No. 4
Calculation of Avg. annual profits for 3 years:
Particulars
Average annual profits for 3 years before
charging debenture interest
Less: Debenture interest
Average annual profits for 3 years after debenture interest
1,80,000
(20,000)
1,44,000
-
78,000
(10,000)
1,60,000
1,44,000
68,000
(20,000)
10,000
(10,000)
1,40,000
1,54,000
58,000
70
77
29
X
10,00,000
3,50,000
13,50,000
Y
5,00,000
1,40,000
6,40,000
Z
6,00,000
80,000
6,80,000
2,00,000
1,00,000
2,00,000
9,50,000
10%
95,000
1,50,000
4,90,000
10%
49,000
1,00,000
4,80,000
10%
48,000
X
1,40,000
95,000
45,000
3
1,35,000
Y
1,54,000
49,000
1,05,000
3
3,15,000
Z
58,000
48,000
10,000
3
30,000
Add / Less:
Depreciation adjustment on revaluation of tangible assets
Average annual profits for 3 years after depreciation
adjustments
Ratio of Average profit after adjustment of Depreciation
Calculation of Capital Employed and Normal profit

Particulars
Tangible block
Current Assets
Less:
10% Debentures
Less:
Trade payables
Capital Employed
Normal rate of return (10%)
Normal profit
Computation of Goodwill
Particulars
1. Average Profit
2. Normal profit
3. Super profit (1 - 2)
4. No. of years purchase
5. Goodwill (3 X 4)
Computation of Purchase consideration under net asset: (Value method)

Particulars
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
To
85125025/26
Ph: 98
24,00,000
In the form of equity Shares

18,00,000 (24,00,000 x 3/4)
In the form of debenture

6,00,000 (24,00,000 x 1/4)
Statements showing no. of equity shares and debentures to be issued

Particulars
1. Purchase consideration
2. 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)
X
10,85,000
Y
8,05,000
Z
5,10,000
7,15,900
3,69,100
71,590
3,691
7,87,500
17,500
78,750
175
2,96,600
2,13,400
29,660
2,134

Date
31.03.2001
31.03.2001
31.03.2001
Particulars
Rs.
Cash A/c
To Equity share Capital A/c
Dr.
Preliminary Expenses A/c

To Cash A/c
10% Debentures A/c
To Cash A/c
Dr.
50,000
Dr.
3,00,000
Rs.
3,50,000
3,50,000
50,000
3,00,000
Balance Sheet of XYZ Ltd as on 01.04.2001

Note to
Accounts
Particulars
Amount
EQUITY AND LIABILITIES:

Shareholders funds
Share capital
21,50,000
Non-current Liabilities
Long term borrowings
6,00,000
Current Liabilities
Trade payables
4,50,000
32,00,000
4
5
21,00,000
4,80,000
5,70,000
50,000
2
3
Total
1
a
i
ii
2
a
b
c
ASSETS:
Non-current Assets
Fixed Assets
Tangible Assets
Intangible Assets
Current Assets
Stock
Trade receivables
Other current assets (Preliminary Expenses)
Total
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)
32,00,000
MASTER MINDS

2) Long term borrowings
10% debentures
3) Trade payable
Creditors (2,00,000 + 1,50,000 + 1,00,000)
4) Tangible assets
(10,00,000 + 5,00,000 + 6,00,000)
5) Intangible Assets
Goodwill
(1,35,000 + 3,15,000 + 30,000)
6) Current Assets
(3,50,000 + 1,40,000 + 80,000)
6,00,000
4,50,000
21,00,000
4,80,000
5,70,000
PROBLEM No. 5
Journal entries in books of A Ltd. (selling company)
Particulars
Dr. (Rs.)
Realisation A/c
To Patent rights A/c
To Land & Building A/c
To Plant & Machinery A/c
To Stock A/c
To Sundry debtors A/c
(Being assets taken over by Shakti Ltd.)
Dr.
Sundry Creditors A/c

To Realisation A/c
(Being creditors transferred to Realisation A/c)
Dr.
Shakti Ltd.
To Realisation A/c
(Being P.C. Due)
Dr.
Realisation A/c
To Cash & bank A/c
(Being cost of liquidation charged to Realisation A/c)
Dr.
Realisation A/c
To Cash & bank A/c
(Being creditors due paid)
Dr.
50,000
50,000
27,95,000
27,95,000
5,000
5,000
50,000
50,000
22,50,000
5,45,000
27,95,000
Preference share capital A/c

Dr.
To Preference share holders A/c
(Being transfer of preference share capital to preference shareholders
account)
Preference Share holder A/c

To Cash & bank A/c
(Being preference shareholder paid)
27,80,000
2,00,000
6,00,000
15,50,000
3,50,000
80,000
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)
Equity share capital A/c

General reserves A/c
Profits and Loss A/c
To Equity shareholder A/c
(Being equity Transferred to equity share holders A/c)
Cr. (Rs.)
Dr.
Dr.
Dr.
5,00,000
5,00,000
15,00,000
8,00,000
90,000
23,90,000
Dr.
5,00,000
5,00,000
Ph:
9885125025/26
Realisation A/c (W.N.1)

Dr.
To Equity shareholders A/c
(Being Transfer of profit on realization to equity share holders A/c)
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)
I.
II.
10,000
10,000
24,00,000
Name of the Company Shakti Ltd.

Balance Sheet as at 01.01.2012
Particulars
Note No.
Equity and liabilities:
Share holders funds
1
a. Share Capital
2
b. Reserves and Surplus
Total
Assets:
Fixed Assets
3
Tangible Assets
4
Intangible Assets
Current Assets
5
Trade receivables (Debtors)
6
Inventories (Stock)
Cash and Cash Equivalent (Bank) (WN 4)
Total
22,50,000
1,50,000
Rs.
29,00,000
5,58,250
34,58,250
22,15,000
2,30,000
1,42,000
5,89,000
2,82,250
34,58,250
Note to Accounts:
1. Authorised share capital:
50,000, 5% cumulative preference shares Rs. 10 each
2,50,000 equity shares of Rs. 10 each
Issued and Subscribed:
50,000, 5% cumulative preference shares of Rs. 10 each
2,40,000 equity shares of Rs. 10 each fully paid
(out of above 2,10,000 equity shares have been
issued for consideration other than cash)
2. Reserve and Surplus:
Securities premium (2,40,000 x 2.50)
Less: Preliminary expenses
Less: underwriting commission
5,00,000
25,00,000
30,00,000
5,00,000
24,00,000
29,00,000
6,00,000
18,000
23,750
5,58,250
NOTE: As per sec.52 of companies account, securities premium account can be used for written
off of preliminary expenses.
3. Tangible Assets:
Land Buildings
Plant & Machinery
Motor Vehicles
Furniture
Total
4. Intangible Assets:
Good will (see working note: 3)
Patent rights
Total
=
=
=
6,00,000
15,50,000
40,000
25,000
22,15,000
30,000
2,00,000
2,30,000
MASTER MINDS

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.
Particulars
To Patent rights
To Land & building
To Plant & machinery
To Stock
To Debtors
To Cash
Creditors
Expenses
To Equity share holder A/c(profit)
W.N 2:
Dr.
Rs.
2,00,000
6,00,000
15,50,000
3,50,000
80,000
Particulars
By Sundry creditors
By Shakti Ltd.
50,000
5,000
10,000
28,45,000
Cr.
Rs.
50,000
27,95,000
28,45,000
Cash Account of A Ltd.
Particulars
To Balance b/d
To Shakti Ltd
Rs.
1,60,000
5,45,000
Cr.
Particulars
By Realisation A/c
(Liquidation exp)
By Realisation A/c(creditors)
By preference share holders
By equity share holders (Bal.fig)
7,05,000
Rs.
5,000
50,000
5,00,000
1,50,000
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)
15,000
Thus, total goodwill will be = 15,000 (A Ltd.) + Rs. 15,000 (B Ltd.)
30,000
Working note:4
Dr.
Particulars
To 5% cumulative preference
share application & allotment
To Equity share applications &
allotment account
Cash Account of Shakti Ltd.

Rs.
5,00,000
3,75,000
8,75,000
Particulars
By B Ltd.
By A Ltd.
By Preliminary expenses
By Underwriting commission
By Balance c/d (B/f)
Cr.
Rs.
6,000
5,45,000
18,000
23,750
2,82,250
8,75,000
Ph:
9885125025/26
PROBLEM No. 6
Computation of intrinsic value of shares of A Co. Ltd. and B Co. Ltd.

No.
1.
Particulars
Valuation of shares of A Co. Ltd.
Share capital
Capital Reserve
General Reserve
Less: Goodwill being valuables
Arrear of Depreciation
Value of Net Assets
No. of shares
Intrinsic value per share
2.
Rs.
10,00,000
2,00,000
70,000
12,70,000
80,000
40,000
1,20,000
11,50,000
10,000
115
Valuation of shares of B Co. Ltd.

Share Capital
General Reserve
8,00,000
8,00,000
16,00,000
80,000
Rs.20
No. of Shares
Value per share
Determination of composition of purchase consideration: The person holding every two shares in A
Co. Ltd., will receive 10 shares in B Co. Ltd. plus cash for the balance. The intrinsic value of two shares
in A Co. Ltd, is Rs. 230 and that of 10 shares B Co. Ltd., is Rs. 200. Therefore for each lot of two shares
of 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 crediting
Rs. 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 A
Co. Ltd.
Name of the Company: B Co. Ltd.
Balance Sheet Date: 31.10.2009 (After absorption)
Particulars
Note No.
EQUITY & LIABILITIES:

Share holder funds
Share capital
Reserves & Surplus
Non-Current liabilities
Amount
1
2
13,00,000
13,00,000
7,00,000
Current liabilities
Trade Payables
6,70,000
Total
39,70,000
ASSETS:
Non Current Assets
Fixed Assets
23,60,000
Current Assets
Cash & Cash equivalent
Other current assets
5
6
50,000
15,60,000
Total
39,70,000
MASTER MINDS

Note to Accounts:
No.
1.
2.
3.
4.
5.
6.
Particulars
Rs.
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 consideration
other than cash 50,000 shares of Rs. 10 each fully paid)
20,00,000
13,00,000
Reserves & Surplus:

Securities premium
General Reserve
5,00,000
8,00,000
Long term borrowings:

Secured loan
Un Secured loan
5,00,000
2,00,000
Fixed Assets:
Fixed assets
16,00,000
Addition on acquisition 7,60,000(8,00,000-40,000)
23,60,000
Cash & Cash equivalent:

Cash at Bank
(2,00,000 1,50,000)
50,000
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.)
Fixed assets A/c

Revaluation reserve A/c
(revaluation of fixed assets at 15% above book value)
Dr.
Reserves and surplus A/c

Equity dividend A/c
(Declaration of equity dividend @10%)
Dr.
Equity dividend A/c

Bank A/c
(Payment of equity dividend)
Dr.
Cr. (Rs.)
1,05,000
1,05,000
60,000
60,000
60,000
60,000
Business purchase A/c

Dr.
Liquidator of b ltd A/c
(Consideration payable for the business taken over from
B Ltd inclusive of liquidation expenses of Rs. 30,000)
5,20,000
Fixed assets (115% of Rs. 2,50,000) A/c

Stock (95% of Rs. 3,20,000) A/c
Debtors
Bills receivable
Cash at Bank
(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
Dr.
Dr.
Dr.
Dr.
Dr.
5,20,000
9,500
1,25,000
1,62,000
Ph:
9885125025/26
25,000
5,20,000
50,000
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)
Liquidator of B Ltd.
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)
Dr.
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)
Sundry Creditors
To Sundry Debtors
(Cancellation of mutual owing)
5,20,000
Dr.
1,62,000
18,000
1,80,000
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
Rs. =
1,00,000
x 90 = Rs. 90,000 (ii)
100
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
a)
b)
I.
II.
Name of the Company: Z Ltd.

Balance Sheet date: 31-03-2003
Particulars
Note No.
Equity and Liabilities:
Share holders funds:
a. Share Capital
1
b. Reserves & Surplus
Current liabilities:
a. Trade payables (Creditors)
Total
Assets:
Non Current Assets:
a. Tangible Assets
b. Intangible Assets
2
Non Current Investment
3
Current Assets:
Inventories
4
Trade receivables
5
Cash & Cash equivalents
Total
Rs.
12,00,000
1,50,000
13,50,000
5,00,000
1,34,000
1,00,000
3,46,000
2,30,000
40,000
13,50,000
MASTER MINDS

Notes to Accounts:
No.
Particulars
Amount
1.
Share Capital
1,20,000 Equity Shares of Rs. 10 each (all the above share are
issued for consideration other than cash)
2.
In Tangible Assets
Goodwill (96,000 + 38,000)
3.
Non Current Investment

Investment 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
12,00,000
1,34,000
Capitalization of Z Ltd.
Particulars
Fixed Assets
Investments
Stock
Debtors
Cash & Bank Balance
Total
Goodwill
(-) Creditors
NAV / PC
No. of shares issued
No. of shares to be issued by Z Ltd. @ Rs. 10 each
Exchange Ratio
(X Ltd. 9 shares for every 5 shares held)
(Y Ltd. 3 shares for every 2 shares held)
X Ltd.
4,00,000
1,00,000
2,04,000
1,70,000
30,000
9,04,000
96,000
1,00,000
9,00,000
50,000
18
90,000
9:5
Y Ltd.
1,00,000
1,42,000
60,000
10,000
3,12,000
38,000
50,000
3,00,000
20,000
15
30,000
3:2
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:
Particulars
X Ltd.
Y Ltd.
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
9,500
Goodwill (Super profit x 4)
96,000
38,000
Ph:
9885125025/26
Working note: 2
Computation of Average Trading Profit:
Particulars
2001
2002
2003
Total
Average profit for 3 years
X Ltd. : 4,05,000 / 3
Y Ltd. : 1,41,000 / 3
Less: Income from Non Trade
Investments (6% on Rs. 1,00,000)
Average Trading Profit
X Ltd.
1,30,000
1,25,000
1,50,000
4,05,000
1,35,000
Y Ltd.
45,000
40,000
56,000
1,41,000
47,000
6,000
1,29,000
47,000
PROBLEM No. 9
Dr.
Particulars
To Fixed Assets A/c
To Stock A/c
To Debtors A/c
To Cash and Bank A/c
Dr.
Particulars
To Realization A/c
Dr.
Particulars
To AB Ltd. A/c
Dr.
Particulars
To Realization A/c (Loss)
To Equity Shares of AB Ltd.
In the books of A Ltd. Ledger accounts

Realiztion A/c
Rs.
1,50,000
70,000
80,000
80,000
3,80,000
Particulars
By Creditors
By AB Ltd.
By Equity Share holder A/c
(Loss)
Particulars
By Equity Shares of AB Ltd.
Equity Shares of AB Ltd. A/c

Rs.
3,00,000
3,00,000
Particulars
By Equity Shares holders
Equity Share holder A/c

Rs.
50,000
3,00,000
Particulars
By Equity Share Capital
By Reserves
By Profit & Loss A/c
3,50,000
Dr.
Particulars
To Fixed Assets
(1,20,000 + 10,000)
To Stock (80,000 5,000)
To Debtors
To Cash & Bank A/c
In the Books of B Ltd. Ledger accounts

Realization A/c
Rs.
1,30,000
75,000
40,000
30,000
2,75,000
Rs.
30,000
3,00,000
50,000
3,80,000
AB Ltd. A/c
Rs.
3,00,000
3,00,000
Cr.
Particulars
By Creditors
By AB Ltd. A/c
By Equity Share holders
(Loss)
Cr.
Rs.
3,00,000
3,00,000
Cr.
Rs.
3,00,000
3,00,000
Cr.
Rs.
2,50,000
60,000
40,000
3,50,000
Cr.
Rs.
20,000
2,00,000
55,000
2,75,000
MASTER MINDS

Dr.
AB Ltd. A/c
Particulars
To Realization A/c
Dr.
Rs.
2,00,000
2,00,000
Cr.
Particulars
By Equity Shares of AB Ltd.
Rs.
2,00,000
2,00,000
Equity Shares of AB Ltd. A/c

Particulars
To AB Ltd.
Dr.
Rs.
2,00,000
2,00,000
Cr.
Particulars
By Equity Share holders
Equity Share holders A/c
Particulars
To Realization A/c (Loss)
To Equity Share of AB Ltd.
Rs.
55,000
2,00,000
Rs.
2,00,000
2,00,000
Cr.
Particulars
By Equity Share Capital
By Reserves
(60,000+10,000-5,000)
2,55,000
Rs.
1,50,000
40,000
65,000
2,55,000
Journal Entries in the Books of AB Ltd.

Nature of Amalgamation: Amalgamation in nature of merger
Method of Accounting: Pooling Interest Method
Method of Purchase Consideration: Payment Method
Part I
Part - II
Particulars
For Take over of A Ltd.
Dr.
To liquidator of A Ltd. A/c
(Being purchase consideration due)
Fixed Assets A/c
Dr.
Stock A/c
Dr.
Debtors A/c
Dr.
Cash & Bank A/c
Dr.
To Creditors A/c
To General Reserve A/c
To P & L A/c
(Being incorporation of asset and liabilities at book value)
Liquidator of A Ltd. A/c
Dr.
To Equity Share Capital A/c
(Being P.C discharged)
For Take over of B Ltd.
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/c
To B.P A/c
To P & L (W.N-1)
To General Reserve (40,000 40,000)
(Being incorporation of assets & liabilities at book value)
Liquidator of B Ltd. A/c
Dr.
To Equity Share Capital A/c
Debit
Credit
3,00,000
3,00,000
1,50,000
70,000
80,000
80,000
30,000
3,00,000
10,000
40,000
3,00,000
3,00,000
2,00,000
2,00,000
1,30,000
75,000
40,000
30,000
20,000
2,00,000
55,000
Nil
2,00,000
2,00,000
Ph:
9885125025/26
Name of the Company: AB Ltd.
Balance Sheet date:
Particulars
Note No.
Amount (Rs.)
Equity & Liabilities:

Share holders funds
a. Share Capital
b. Reserve & Surplus
1
2
5,00,000
1,05,000
Current Liabilities:
Trade payables
50,000
Total
6,55,000
Assets:
Fixed Assets (1,50,000 + 1,30,000)
2,80,000
Current Assets:
Inventories
Trade Receivables
Cash & Cash Equivalent
4
5
6
1,45,000
1,20,000
1,10,000
Total
6,55,000
Note to Accounts:
Particulars
Amount
5,00,000
1. Share Capital
50,000 shares of Rs. 10 each
(all the above shares were issued for consideration other than cash)
2. Reserves & Surplus
a. General Reserve(60,000-50,000) loss on merger
b. Profit & Loss A/c (40,000 + 55,000)
10,000
95,000
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 Equivalent

Cash & 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
50,000
50,000
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
Loss on merger
Free reserves of Selling company
55,000
[(60,000+10,0005,000)10,000]
To
MASTER MINDS
PROBLEM No. 10
Journal Entries In the books of MN Ltd.
Nature of Amalgamation: Amalgamation in nature of merger
Method of Accounting: Pooling Interest Method
Method of Purchase Consideration: Payment Method
Part I
Journal Entries for taking over the business of M Ltd.
Particulars
(Rs. In lakhs)
Dr.

Dr.
To Liquidator of M Ltd.(1,200+7,200)
(Being Consideration payable to liquidator of M Ltd. taken over)
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 of
consideration over the share capital being adjusted against reverses and surplus)
4,125
2,400
2,370
1,044
1,542
120
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
Part II
Journal Entries for taking over the business of N Ltd
Particulars
Dr.
To Liquidator of N Ltd.(90x10)
(Being Consideration payable to liquidator of two companies taken over)
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.
Dr.
Discount on issue of Debenture A/c
Dr.
To 8% Redeemable Debenture of N Ltd. A/c
To Trade Creditor A/c
To Provision A/c
(Being incorporation of all the assets & liabilities & and the excess of
consideration over the share capital being adjusted against reverses and
surplus)
Liquidator of N Ltd. Account
Dr.
(Being allotment of fully paid shares in discharge of purchase consideration)
Cr.
8,400
2,421
870
8,400
7,200
1,200
(Rs. In lakhs)
Dr.
900
Cr.
900
468
183
51
444
237
240
33
6
300
369
93
900
900
900
Ph:
9885125025/26
Part III
(Rs. In lakhs)
Particulars
Dr.
Profit & Loss A/c

To Bank A/c
(Being Payment of liquidation expenses of M Ltd. And N Ltd.)
Dr.

To Bank A/c
(Being Expenses on incorporation of MN Ltd.)
Dr.
Cr.
6
6
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)
Amount
Note
No.
(Rs.)
Particulars
1.
2.
3.
Equity & Liabilities:

Share holders funds
a. Share Capital
b. Reserves & Surplus
Non Current liabilities
a. Long term borrowings
Current liabilities
a) Trade payables (creditors)
b) Short-term provisions
1
2
9,300
(126)
300
2,790
963
13,227
Total
1.
2.
Assets:
Non Current Assets:
a. Fixed Assets
i. Tangible Assets
ii. In Tangible Assets
Current Assets:
a) Inventories (Stock)
b) Trade receivables
c) Cash & Cash Equivalent
d) Other Current Assets
7,317
2,814
5
6
Total
1,281
1,761
54
13,227
Notes to Accounts:
Particulars
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 other
than cash)
2. Reserves & Surplus
Profit & Loss A/c (600 + 2,100 + 780 3,600 6)
3. Long term borrowing
8.5% Redeemable Debentures
Amount
15,000
8,100
1,200
(126)
300
MASTER MINDS

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
900
2. Paid up capital
4,800
900
3. 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
To Preference shareholders: 1,00,000 shares of Rs.11 each
Amount
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
Workmen profit sharing fund
(4,00,000)
(3,30,0000
37,60,000
WN: 3
Calculation of profit or loss on amalgamation:
Particulars
Amount
48,50,000
(37,60,000)
Loss on amalgamation
10,90,000
Ph:
9885125025/26
In the books of y ltd
Realisation 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
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

Total
Dr.
By X Ltd. A/c (PC)
48,50,000
3,90,000
55,50,000
Total
X ltd A/c
Particulars
To Realisation A/c
Cr.
Amount Rs.
48,50,000
Particulars
By cash
By Equity shares in x ltd
48,50,000
Dr.
To X ltd
Amount Rs.
10,00,000
Particulars
By Equity shareholders
To Equity shares in x ltd
Particulars
Amount Rs.
11,00,000
By Preference share capital

By Realisation A/c(bal. fig)
11,00,000
Dr.
To Preliminary expenses
To cash
To Equity shares in Y Ltd
Amount Rs.
40,000
10,00,000
27,50,000
Particulars
By Equity share capital
By General reserve
By Profit on Realisation a/c
(bal. fig)
To X ltd
Amount Rs.
38,50,000
38,50,000
Amount Rs.
10,00,000
1,00,000
Amount Rs.
20,00,000
6,00,000
8,00,000
3,90,000
37,90,000
Equity shares in x ltd A/c

Particulars
Cr.
Cr.
37,90,000
Dr.
10,00,000
11,00,000
Equity shareholders A/c

Particulars
Amount Rs.
10,00,000
Preference shareholders A/c

Particulars
10,00,000
38,50,000
Cr.
10,00,000
Dr.
Amount Rs.
48,50,000
Bank A/c
Particulars
55,50,000
Cr.
Particulars
By Preference share holders

By Equity share holders
Amount Rs.
11,00,000
27,50,000
38,50,000
MASTER MINDS

In the books of x ltd
Journal entries
Date
Particulars
Debit Rs.

To Liquidator of y ltd A/c
(Being purchase of business)
Dr.
Building A/c
Plant & Machinery A/c
Stock A/c
Debtors A/c
Bank A/c
Goodwill (bal. fig) A/c
To Creditors A/c
To workmen Profit sharing fund
(Being assets and liabilities take over and purchase
consideration due)
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Liquidator of y Ltd A/c

To Bank A/c
To Securities premium A/c
(Being payment purchase. consideration)
Dr.
Goodwill A/c
To cash a/c
(Being liquidation expenses paid)
Dr.
Credit Rs.
48,50,000
48,50,000
12,00,000
10,00,000
7,00,000
9,00,000
6,60,000
10.90,000
4,00,000
3,00,000
48,50,000
51,85,000
10,00,000
35,00,000
3,50,000
5,000
5,000
3,00,000
30,000
Workmen Profit sharing fund A/c

Dr.
Goodwill A/c
Dr.
To cash A/c
(Being payment made for workmens profit sharing fund
at 10% premium)
3,30,000
PROBLEM No. 12
Particulars
Goodwill
Fixed Assets
Working Capital
Less: Secured Loans
Intrinsic worth available for both equity and preference
shareholders
Less:
Preference share capital
Intrinsic worth available to equity shareholders
No. of equity shares issued intrinsic value per share
(Rs. In crores)
(CAMIH Ltd)
40
200
200
440
(100)
340
(Rs. In crores)
(Small Ltd)
75
429
200
704
(100)
604
(60)
340
5
68
544
4
136
No. of equity shares to be issued = 340 Crores

Rs.136
= 2.5 Crores
It is given that entries to be recorded at par value.
2.5 crores x 10 = 25,00,00,000
Ph:
9885125025/26
Balance Sheet
Particulars
Share capital
Reserves and surplus (200 + 150 + 25 (capital reserve)
Note No.
Amount
125
375
Non-current Liabilities
Long term borrowings (100 + 100)
200
Current Liabilities
Trade payables
Total
700
ASSETS:
Non-current assets
Fixed assets (150 + 150)
Tangible assets
Intangible assets
300
Current assets
Inventories
Trade receivables
Cash and cash equivalents
Other currents assets
400
Total
700
Rs. in
Crores
Notes to Accounts
(1) Share capital
10% preference shares of 100 each
6.5 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)
60
65
125
Computation of profit or loss on Merger:

Rs. in
Crores
Particulars
50
25
25
Paid up capital
Purchased consideration
Profit on merger
PROBLEM 13
Name of the Company : Huge Ltd
(After Merger)
Notes
No.
2
Particulars
1
1
2
a
b
a
a
b

Shareholders funds
Share capital
Reserves and Surplus
Non-current liabilities
Current liabilities
Trade Payable (Creditors)
Short term provisions
TOTAL
Rs.
3
1
2
9,24,000
14,80,960
2,00,000
85,000
1,60,000
28,49,960
MASTER MINDS
a
b
c
a
b
c
d
(i)
(ii)
ASSETS:
Non current assets
Fixed assets
Tangible assets
Intangible assets (Good will)
Non-current investments
Current Assets
Inventories (Stock)
Trade receivables (Debtors)
Cash & Cash equivalents (4,05,000 - 40)
Short term loans and advances
TOTAL
13,50,000
3,80,000
2,50,000
40,000
1,70,000
1,55,000
4,04,960
1,00,000
28,49,960
Note to Accounts:
Rs.
Particulars
1. Share capital
92,400 equity shares of Rs.10 each
(Of which 22,400 shares were issued for
consideration other than cash)
2. Reserves and surplus
Security premium
General reserve
Profit and loss A/c
2,00,000
Add: Proposed dividend cancelled
1,40,000
Export profit reserve (70,000 + 40,000)
3. Long term borrowings
Secured 12% debentures (1,00,000 + 1,00,000)
4. Short term provision
Provision for tax ( 1,00,000 + 60,000)
5. Intangible assets
Good will (W. No)
6. Other non- current asset
Amalgamation adjustment A/c
7. Short term loans and advances
(Advance tax 80,000 + 20,000)
9,24,000
6,80,960
3,50,000
3,40,000
1,10,000
2,00,000
1,60,000
3,80,000
40,000
1,00,000
WORKING NOTES:
Equity shares of Big Ltd.
Intrinsic value per share of Big Ltd. (W.N.2)
Value of shares
Intrinsic value per share of Huge Ltd. (W.N.2)
25,000 shares
Rs. 36.2
Rs. 9,05,000
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 shares
and 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]
Premium [Rs.30.4 / Share]
ii. Cash for fraction
iii. Total purchase consideration payable
2,24,000
6,80,960
9,04,960
40
9,05,000
85125025/26
Ph: 98
Intrinsic Value Per Share:

Huge Ltd. (Rs.)
Rs.
Rs.
Particulars
ASSETS:
i. Goodwill (W.N.3)
ii. Sundry fixed assets
iii. Investments
iv. Inventory
v. Trade receivables
vi. Advance tax
vii. Cash and bank balance
LIABILITIES:
i. 12% Debentures
ii. Trade payables
iii. Provision for tax
Net assets
No. of shares
Intrinsic value per share (upto one decimal)
13,65,000
9,50,000
2,00,000
1,20,000
75,000
80,000
2,75,000
1,00,000
40,000
1,00,000
Big Ltd. (Rs.)

Rs.
Rs.
3,80,000
4,00,000
50,000
50,000
80,000
20,000
1,30,000
30,65,000
1,00,000
45,000
60,000
(2,40,000)
28,25,000
70,000
40.4
11,10,000
(2,05,000)
9,05,000
25,000
36.2
Valuation of Goodwill
a. Capital Employed:
Particulars
ASSETS:
i. Sundry fixed assets
ii. Investment (Non-trade)
iii. Inventory
iv. Trade receivables
v. Advance tax
vi. Cash and bank balance
LIABILITIES:
i. 12% Debentures
ii. Sundry creditors
iii. Provision for tax
Capital employed
Huge Ltd. (Rs.)

Rs.
Rs.
9,50,000
1,20,000
75,000
80,000
2,75,000
1,00,000
40,000
1,00,000
Big Ltd. (Rs.)

Rs.
Rs.
15,00,000
(2,40,000)
12,60,000
4,00,000
50,000
80,000
20,000
1,30,000
1,00,000
45,000
60,000
6,80,000
(2,05,000)
4,75,000
Average Pre-Tax Profit:

Huge Ltd.
(Rs.)
Particulars
5,00,000
6,50,000
5,75,000
17,25,000
5,75,000
2010
2011
2012
Total (a + b + c)
Simple Average [Total / 3]
Less: Non-trading income
(2,00,000 @ 25%)
(50,000 @ 18%)
Average profit
Big Ltd.
(Rs.)
1,50,000
2,10,000
1,80,000
5,40,000
1,80,000
(50,000)
5,25,000
Particulars
Capitalized value of average profits(average profit / NRR)

Capital employed
Goodwill
THE END
Huge Ltd.
(Rs.)
26,25,000
12,60,000
13,65,000
(9,000)
1,71,000
Big Ltd.
(Rs.)
8,55,000
4,75,000
3,80,000

Amalgamation II

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Amalgamation II

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MASTER MINDS

No.1 for CA/CWA & MEC/CEC

Balance Sheet of Z Ltd. as at 1 April, 2012

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____1

Net assets taken over

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

(Rs .In crores)

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____2

No.1 for CA/CWA & MEC/CEC

. Discharge of Purchase consideration:

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

Journal entries in books of ABX Ltd.

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____3

Balance Sheet of ABX Ltd. as on 1.1.2013

I. EQUITY AND LIABILITIES

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____4

No.1 for CA/CWA & MEC/CEC

Copy Rights Reserved

MASTER MINDS, Guntur

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____5

Less: Current liabilities

(ii) Debenture issued:

Name of the Company: Neptune Ltd.

Balance Sheet as at 31 Dec. 2012

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____6

No.1 for CA/CWA & MEC/CEC

Calculation of Capital Employed and Normal profit

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

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

Copy Rights Reserved

MASTER MINDS, Guntur

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____7

In the form of equity Shares

In the form of debenture

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

Other Journal Entries

Preliminary Expenses A/c

Balance Sheet of XYZ Ltd as on 01.04.2001

EQUITY AND LIABILITIES:

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____8

No.1 for CA/CWA & MEC/CEC

Sundry Creditors A/c

Preference share capital A/c

Preference Share holder A/c

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

Equity share capital A/c

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____9

Realisation A/c (W.N.1)

Name of the Company Shakti Ltd.

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____10

No.1 for CA/CWA & MEC/CEC

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

Realisation A/c of A Ltd.

Cash Account of A Ltd.

Purchase Consideration of A Ltd.

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

Purchase consideration of B ltd.

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

Cash Account of Shakti Ltd.

IPCC_34e_Accounts_Group.II_Amalgamation II_Assignment Solutions____11

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

Valuation of shares of B Co. Ltd.

EQUITY & LIABILITIES: