Amalgamation and Final Accounts of Companies

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CA. Naresh Aggarwal’s
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Accounting • Costing • Taxation • Financial Management
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ACADEMY of ACCOUNTS
B.Com(P) 2nd Year
Amalgamation, Absorption
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Assignment - 6 ACADEMY of ACCOUNTS

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Practice in Accountancy 1

Amalgamation, Absorption
ACADEMY of & ACCOUNTS
Accounting External Reconstruction
• Costing • Taxation • Financial Management
Q-1: S Ltd. is absorbed by P Ltd. Calculate the purchase consideration from the
following information :
(a) The payment of cost of absorption as a part of purchase consideration not
exceeding Rs.25,000 (actual cost Rs.20,000).
(b) The payment of the existing 11% Debentures of Rs.3,00,000 at a premium of
10% by issue of 12% Debentures in new company issued at 96%
(c) Allotment of six equity shares of Rs.50 each fully paid for every four shares in
S Ltd. The number of shares of S Ltd. is eighty thousand of Rs.50 each fully
paid.
[Rs.60,00,000]
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Q-2: The A Company Ltd. and The B Company Ltd. have agreed to amalgamate.
A new company The AB Company Ltd. had been formed to take over the combined
concerns as on 31.03.2011. After negotiations, the assets of the companies have
been agreed at as shown in the following balance sheets :
The A Company Ltd.
Liabilities Amount Assets Amount

Issued Capital Land and Buildings 10,00,000
1,00,000 Ordinary Shares Machinery and Plant 4,00,000
of Rs.20 each fully paid 20,00,000 Patents 2,20,000
Sundry Creditors 1,60,000 Stock 3,00,000
Profit and Loss Account 1,00,000 Sundry Debtors 2,40,000
Cash at Bank 1,00,000
22,60,000 22,60,000
The B Company Ltd.

1,00,000 Ordinary Shares Land and Building 6,00,000
of Rs. 10 each 10,00,000 Machinery and Plant 5,00,000
Sundry Creditors 1,00,000 Goodwill 1,00,000
Reserve Fund 1,00,000 Stock 40,000
Profit and Loss Account 1,00,000 Sundry Debtors 40,000
(undistributed balance) Cash at Bank 20,000
13,00,000 13,00,000
2 Amalgamation and Final Accounts of Companies Practice in Accountancy 31
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become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity
Show how the amount payable to each company is arrived at and prepare the
(e) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are
shares already held therein by the transferee company or their nominees) become equity shareholders of the transferee
(b) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than equity
(c) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to
(a) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee
According to AS-14 of ICAI Amalgamation in the nature of merger is an amalgamation which satisfy all the following conditions :
amalgamated balance sheet of the new company. The Purchase Consideration is
(d) The business of the transferor company is intended to be carried on, after the amalgamation by the transferee company.
payable in equity shares.
ACADEMY of ACCOUNTS
For conversion of debentures of transferor company :

[Amount payable to The A Ltd.: Rs.21,00,000; The B Ltd.- Rs.12,00,000]
Debenture Holders of Transferor Co. A/c (Due Amount)
incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies
Q-3: Y Ltd., the transferor company agrees to receive four shares of Rs.50, Rs.45 West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
paid up for every three shares, in Z Ltd. the transferee company.
Discount on Issue of Debentures A/c (if any)

To Debentures A/c (Paid up nominal value)
Find out the number and amount of shares to be issued by the vendee company if
Amalgamation in the nature of Merger (Pooling of Interest Method)

the vendor company has Rs.15,00,000 paid up capital of Rs.100 each, Rs.50 paid
To Securities Premium A/c (if any)

up.
shares in the transferee company, except that cash may be paid in respect of any fractional share.
[Existing No. of Shares of Y Ltd:30,000;
No. of Shares to be issued by Z Ltd: 40,000; Purchase Consideration: Rs.18,00,000]
Q-4: Sun Ltd. agrees to issue two shares of Rs.50 each for every three shares held
in the Moon Ltd.
Find the number and amount of shares to be issued by the purchasing company if
the vendor company has Rs.5,00,000 paid up capital of Rs.100 each, Rs.80 paid
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up. The market value of shares of Sun Ltd. is Rs.60
[Total of Purchase Consideration: Rs.2,50,000;
Purchase consideration: 4,166 shares of Rs.50 each and Cash Rs.40]
Q-5: A Ltd. and B Ltd. propose to amalgamate. Goodwill is valued at Rs.3,00,000

for A Ltd. and Rs.1,20,000 for B Ltd. The stock of A Ltd. and B Ltd. is taken at
Rs.6,00,000 and Rs.4,50,000 respectively. Calculate the purchase consideration
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payable to both the companies on the basis of net assets method. Their balance
sheets as on 31.03.2011 were as follows :
For conversion of debentures of transferor company :

Liabilities A Ltd. B Ltd.
Debenture Holders of Transferor Co. A/c (Due Amount)

Rs. Rs.

Equity Share of Rs.10 each 15,00,000 6,00,000
General Reserve 6,00,000 60,000
To Statutory Reserves A/c (Given Amount)

Discount on Issue of Debentures A/c (if any)
Profit and Loss Account 3,00,000 90,000
For Incorporation of Statutory Reserves :

Creditors 2,40,000 1,20,000
Bills Payable 60,000 30,000
27,00,000 9,00,000
Amalgamation Adjustment A/c

Assets
Buildings 6,00,000 4,50,000
Investments 9,00,000 -
Debtors 4,80,000 1,50,000
Stock 6,00,000 2,40,000
company.
company.
Cash in hand 45,000 15,000
Cash at Bank 75,000 45,000
27,00,000 9,00,000
[A Ltd.: Rs.27,00,000; B Ltd.: Rs.10,80,000]
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ACADEMY of ACCOUNTS
To Preference Share Capital A/c (Paid up nominal value)

Amalgamation in the nature of Merger
Journal Entries in the books of Purchasing Company (Transferee Company)
To Reserves / Profit & Loss A/c (if any, upto extent)

For incorporation of Assets, Liabilities and Reserves :
Liquidators of Transferor Co. A/c (Purchase Consideration)

To Business Purchase A/c (Purchase Consideration)
To Equity Share Capital A/c (Paid up nominal value)

Discount on Issue of Shares/Debentures A/c (if any)
Capital Loss / P&L A/c etc. (Balancing Figure, if any)

Business Purchase A/c (Purchase Consideration)

For discharge of Purchase consideration :
To Sundry Liabilities A/c (Book Value)
To Liquidators of Transferor Co. A/c
Q-6: The following is the balance sheet of S Ltd. as on 31.03.2011 :
For Purchase Consideration Payable :

Balance Sheet
Sundry Assets A/c (Book Values) Liabilities Amount Assets Amount

Equity Shares of Rs.100 each 18,00,000 Plant and Machinery 10,00,000
10% Preference Shares Land and Building 9,00,000
To Bank A/c (if any)

of Rs.100 each 5,00,000 Furniture 1,00,000
General Reserve 3,00,000 Patents 2,50,000
12% Debentures 8,00,000 Investments 1,00,000
Creditors 4,00,000 Stock 7,00,000
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Debtors 5,70,000
Bank 1,80,000
38,00,000 38,00,000
Additional Information :
(a) P Ltd. to take over S Ltd. on 31.03.2011.
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(b) Debenture holders of S Ltd. are discharged by P Ltd. at 5% premium by issuing

Amalgamation in the nature of Purchase
15% Own Debentures of P Ltd.

To Preference Share Capital A/c (Paid up nominal value)
(c) 10% Preference Shareholders are to be redeemed at a premium of 15% by

For incorporation of Assets, Liabilities and Reserves :
Liquidators of Transferor Co. A/c (Purchase Consideration)

To Business Purchase A/c (Purchase Consideration)
To Equity Share Capital A/c (Paid up nominal value)

Discount on Issue of Shares/Debentures A/c (if any)
issuing necessary number of 11% Preference Shares of P Ltd. (Nominal value

To Capital Reserve A/c (Balancing Figure, if any)
Rs.50)
(d) Intrinsic value per share of S Ltd. is Rs.200 and that of P Ltd. Rs.150 (Nominal
Business Purchase A/c (Purchase Consideration)

For discharge of Purchase consideration :
value Rs.50). P Ltd. will issue equity shares to satisfy the equity shareholders
To Liquidators of Transferor Co. A/c
To Sundry Liabilities A/c (Fair Value)
of S Ltd. on the basis of intrinsic value. However the entry is to be made at par
For Purchase Consideration Payable :
value only.
Goodwill A/c (Balancing Figure, if any)
(e) Cost of absorption amounted to Rs.1,00,000 met by P Ltd. Calculate the

Sundry Assets A/c (Fair Values)
purchase consideration.
[Purchase Consideration: Rs.17,75,000; Capital Reserve: Rs.7,85,000]
[Hint: Cost of absorption is not a part of purchase consideration as per AS-14]
To Bank A/c (if any)
Q-7: P Ltd takes over the business of S Ltd. You are required to :
(a) Calculate Purchase Consideration.
(b) Give Journal Entries to close the books of S Ltd.
(c) Give journal entries in the books of P Ltd.
Balance Sheet of S Ltd.

Less: in Sales in Revenue from Operation (Stat. of P&L)
Add: in Closing Stock (Current Assets in Balance Sheet)

Less: in Extraordinary Item in Statement of Profit and Loss
Add: in Discount Allowed in Other Expenses (Stat. of P&L)
Add: in Closing Stock (Change in Inventoris) in St. of P&L

ACADEMY of ACCOUNTS
Less: in Purchases (Trading A/c) or Trading A/c Cr.

Less: in Debtors (Current Assets in Balance Sheet)
Less: in Debtors (Current Assets in Balance Sheet)

Add: in Bad Debts in Other Expenses (Stat. of P&L)
Add: in Bad Debts in Other Expenses (Stat. of P&L)
Less: in Debtors (Curent Assets in Balance Sheet)

Extraordinary Item in Statement of Profit and Loss
8,000 equity shares of Goodwill 16,000
Show in Depreciation and amortization expense
Employee benefits expense in Statement of P&L

Other Expense in Statement of Profit and Loss
Rs.10 each fully paid 80,000 Fixed Assets 66,000 Accounting • Costing • Taxation • Financial Management
Less: in Other Current Assets in Balance Sheet)

Less: in Debtors (Assets in Balance Sheet)
Accumulated profit 28,000 Current assets 78,000 West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Other Current Liabilities in Balance Sheet
Other Current Liabilities in Balance Sheet

Other Current Assets in Balance Sheet
Debentures 40,000
Creditors 12,000
Less: in Assets (Balance Sheet)

1,60,000 1,60,000
The P Ltd. agreed to take over all the assets at 10% less than book value (excepting
goodwill, one fixed asset for Rs.16,000 and cash Rs.4,000 included in the current
assets as shown in the balance sheet). The P Ltd. agreed to pay Rs.24,000 for
goodwill and to discharge the trade creditors and debentures. The purchase
consideration was to be discharged by the issue of 2,000 shares of Rs.20 each,
Rs.16 paid up at a market value of Rs.40 per share and the balance in cash. Cost
Effects
of liquidation amounted to Rs.1,600.
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[Total Purchase Consideration: Rs.1,03,600; Cash Paid: Rs.23,600; Loss on Realisation: Rs.4,400]
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Q-8: The following is the balance sheet of S Ltd. as on 31.03.2011 :
To Prov. for Discount on Debtors
To Assets A/c (for other Assets)

To O/s Directors Remunaration
To Prov. for Doubtful Debts A/c
To Purchases A/c (for goods)
To Manager (O/s Comm.) A/c

To Trading A/c (cost amount)

To Debtors A/c (selling price)
To Expenditure (Name) A/c
Loss by Loss by Earthquake

Statement of Profit and Loss

Equity Shares of Rs.50 each 7,50,000 Land and Building 5,00,000
Directors Remunaration A/c
Manager’s Commission A/c

To Insurance Claim A/c
Insurance Company’s A/c
12% Preference Shares Plant and Machinery 4,50,000
Stock A/c (cost amount)

Sales A/c (selling price)
of Rs. 100 each 2,50,000 Furniture 1,05,000
To Debtors A/c
Securities Premium 50,000 Investments 50,000
Journal Entries
General Reserve 75,000 Stock 2,30,000
Bad Debts A/c

10% Debentures 4,00,000 Debtors 2,40,000
Sundry Creditors 2,00,000 Bank 1,50,000
17,25,000 17,25,000
P Ltd. takes over S Ltd. on 01.04.2011 on the following terms and conditions :
If not yet included in closing stock

(If wrongly recorded as sales)
(a) Debenture holders of S Ltd. are discharged by P Ltd. by issuing 11% Own
or question is silent about that

Bad Debts / Doubtful Debts
Debentures at a premium of Rs.30 each (nominal value of Debenture Rs.50)
(eg. Preliminary Exp. etc.)

S.N. Types of Adjustments
Directors Remunaration
Manager’s Commission
Provision / Reserve for
Provision / Reserve for

(b) 12% Preference Shareholders of S Ltd. are to be discharged at a premium of
Deferred Expenditure
Discount on Debtors
Loss by Earthquake
Insurance Claim for

Loss by Fire / Theft
20% by issuing necessary number of 13% Preference Shares of P Ltd. Further Bad Debts
Sales on Approval
(c) Intrinsic value per share of S Ltd. is Rs.75 and that of P Ltd. Rs.150. P Ltd. will
Bad Debts or
issue equity shares to satisfy the equity shareholders of S Ltd. on the basis of
intrinsic value. However the entry should be made at par value only. The
nominal value of each equity share of P Ltd. is Rs.100.
You are required to :
(a) Calculate Purchase Consideration.
11.
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16.
17.
18.
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(b) Show necessary accounts to close the books of S Ltd.
Employees Benefit Expense in Statement of Profit and Loss

Long Term Provisions (Non Current Liab.) in Balance Sheet
Less: in related Expense (Statement of Profit and Loss)
Add: in related Expense (Statement of Profit and Loss)
Less: in related Income (Statement of Profit and Loss)

Add: in related income (Statement of Profit and Loss)
Add: in related income (Statement of Profit and Loss)

ACADEMY of ACCOUNTS
Show as Other Current Liabilities in Balance sheet
Show as Other Current Liabilities in Balance sheet

Short Term Loan and Advances in Balance Sheet
Show in Depreciation and amortization expense
Other Expense in Statement of Profit and Loss

Less: in related Fixed Assets in Balance Sheet
Less: in related Fixed Asset (Balance Sheet)
Finance cost in Statement of Profit and Loss

Other Current Liabilities in Balance sheet


Less: From Change in Inventories
Current Assets in Balance Sheet
(c) Give journal entries in the books of P Ltd.

[Purchase consideration: Rs.10,50,000; Loss on Realisation: Rs.1,25000; Capital Reserve: Rs.75,000]
Q-9: The following are the balance sheets of P Ltd. and S Ltd. as on 31.03.2011 :
Liabilities P Ltd. S Ltd. Assets P Ltd. S Ltd.

Equity Share Capital Land and Building 5,00,000 3,10,000
(Rs.20 per share) 10,00,000 6,00,000 Plant and Machinery 6,50,000 3,40,000
Effects
11% Preference Share Furniture and Fittings 1,15,000 70,000
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Capital (Rs.100 each) 4,40,000 3,40,000 Investments 1,40,000 1,00,000
Adjustments
General Reserve 1,00,000 50,000 Stock 2,50,000 1,90,000

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Export Profit Reserve 60,000 40,000 Debtors 1,80,000 2,06,000
To Employees Provident Fund A/c
To Advance Income (Name) A/c
Investment Allowance Bank 1,65,000 1,04,000

To Statement of Profit and Loss
Prepaid / Unexpired Expense A/c
Loss on Sale of Fixed Assets A/c
Interest on Loan/Debentures A/c

To O/s Expense (Name) A/c
To Fixed Assets (Name) A/c
Reserve - 20,000
To Outstanding Interest A/c

Profit and Loss A/c 1,50,000 1,00,000
To Expense (Name) A/c
To Interest on Loan A/c

To Income (Name) A/c
To Assets (Name) A/c
13% Debentures
Contribution to E.P.F. A/c
Outstanding Interest A/c

O/s Income (Name) A/c
(Rs.100 each) 1,00,000 70,000

Expense (Name) A/c
Income (Name) A/c
Trade Creditors 90,000 70,000

Depreciation A/c
Journal Entries
Other Current Liabilities 60,000 30,000

20,00,00013,20,000 20,00,000 13,20,000
Stock A/c
P Ltd. takes over S Ltd. on 01.04.2011. The purchase consideration is discharged

as follows :
(a) Issued 35,000 equity shares of Rs.20 each at par to the equity shareholders of
S Ltd.
Loss on Sale of Fixed Assets
Interest on Loan/Debentures
(Employees Provident Fund)
Income due but not received
Interest on Loan/Investment
Accrude or Outstanding or
(b) Issued 12% preference shares of Rs.50 each to discharge the preference
Accrude or O/s Income or
(If Loan has Cr. Balance)
(If Loan has Dr. Balance)

Prepaid/Advance Exp. or
S.N. Types of Adjustments
Due / Unpaid Expenses
Depreciation on Assets
shareholders of S Ltd. at 10% premium.

Unexpired Expenses
(c) The debenture holders of S Ltd. will be converted into equivalent number of
Advance Income or
Provision for E.P.F.

Unearned Income
Closing Stock or
15% Debentures of P Ltd of Rs.100 each.

Stock at the end
(d) The statutory reserves of S Ltd. are to be maintained for two more years.
Show the opening entries and the opening balance sheet of P Ltd. after
amalgamation on the assumption that :
(i) The amalgamation is in the nature of the merger
(ii) The amalgamation is in the nature of purchase
10.
[Purchase consideration: Rs.10,74,000; Loss on Realisation: Rs.1,10,000;

1.
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6.
7.
8.
9.
Balance Sheet Totals : (i) - Rs.33,20,000; (ii) - Rs.33,80,000; Capital Reserve: Rs.76,000]
Q-10: Following are the Balance Sheets of P Ltd. and S Ltd.:

Balance Sheets as on 30.06.2011 CA. Naresh Aggarwal’s
Liabilities
Equity Share Capital (Rs. 10 each)
P Ltd. (Rs.)
25,00,000
S Ltd. (Rs.)
15,00,000
ACADEMY of ACCOUNTS
12% Preference Share Capital (Rs. 100 each) 11,00,000 8,50,000 Accounting • Costing • Taxation • Financial Management
General Reserve 2,50,000 1,25,000 West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Export Profit Reserve 1,50,000 1,50,000
Profit and Loss Account 3,75,000 2,50,000
10% Debentures (Rs. 100 each) 2,50,000 1,75,000
• Sundry Expenses
Trade Creditors 2,25,000 1,70,000
• Payment to Auditors
Other Current Liabilities 1,00,000 80,000
• Certification and Consulation Fees
49,50,000 33,00,000 • Lease Rent
Assets • Loss on Foreign Exchange Transactions
Land and Building 12,50,000 7,50,000 • Excise Duty paid
Plant and Machinery 16,00,000 8,50,000 • Charity and donations
Furniture and Fittings 3,00,000 2,00,000 • Prior period expenses
Investments 3,50,000 2,50,000
8. Exceptional Items
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Stock 6,25,000 4,75,000
Debtors 4,50,000 5,15,000 • Cost of restructuring
Cash & Bank 3,75,000 2,60,000 • Disposals of Fixed Assets
• Disposal of Long term investments
49,50,000 33,00,000
• Effect of retrospective legislation
• Legal settlements
P Ltd. takes over S Ltd. on 01.07.2011. P Ltd. discharges the purchase consideration • Reversal of Provisions
and other term are as bellow : • Write down of inventories to Net Realizable Value
(a) Issued 3,50,000 equity shares of Rs.10 each at par to the equity shareholders
of S Ltd. 9. Extra-ordinary Items
(b) Issued 13% Preference Shares of Rs.100 each to discharge the preference • Loss from Attachment of Property
shareholders of S Ltd. at 10% premium. • Loss from Earthquakes
(c) The debentures of S Ltd. will be converted into equivalent number of debentures • Profit from Insurance claim
of P Ltd.
(d) The Export Profit Reserve of S Ltd. to be maintained for three more years.
You are required to : 10. Contingent Liabilities (Shown as Foot Note only)
(i) Make necessary accounts to close books of S Ltd. • Claims against the company / disputed liabilities not acknowledge as debts.
(ii) Make Journal Entries and Prepare Balance Sheet in the books of P Ltd., if : • Guarantees (e.g. to banks against credit facilities extended to third parties)
(a) The amalgamation is in the nature of the merger • Other money for which the company is contingently liable
(b) The amalgamation is in the nature of purchase (e.g. Bills discounted with banks)
[Profit on Realisation: Rs.14,75,000; Purchase Consideration: Rs.44,35,000; • Amount of contracts remaining to be executed
Balance Sheet Totals: (a) Merger: Rs.82,50,000; (b) Purchase: Rs.99,60,000]
• Uncalled liability on Shares and other Investments which are partly paid
Q-11: S Ltd. is absorbed by P Ltd. Given below are the balance sheets of the two
companies prepared after revaluation of their assets on a uniform basis :
5. Finance Costs
• Interest on Borrowing / Loans / Debentures CA. Naresh Aggarwal’s
• Interest on Bank Overdraft
• Finance charges on Lease Financing ACADEMY of ACCOUNTS
• Other Borrowing costs : Accounting • Costing • Taxation • Financial Management
(a) Loan processing charges
(b) Gurantee charges. West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
(c) Loan facilitation charges
(d) Discount/premium on borrowings
(e) Amortization of borrowing costs Liabilities Amount Assets Amount
• Amortization of Discount / Premium /Expenses on Debentures and Shares
Authorised Share Capital: Sundry Assets 16,85,000
6. Depreciation and Amortization Expenses 9,000 Equity Shares of Cash in hand 3,500
• Depreciation on All Fixed Assets Rs.150 each 13,50,000
• Goodwill written off Paid up Share Capital
• Preliminary Expenses written off 9,000 Equity Shares of
• Discount on Issue of Shares / Debentures written off Rs.150 each, Rs.135
• Underwritting Commission written off paid up 12,15,000
• Expense on Issue of Shares / Debentures written off
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General Reserve 4,03,500
Profit and Loss Account 15,000
7. Other Expenses
• Consumption of spare parts Sundry Creditors 55,000
• Power and Fuel 16,88,500 16,88,500
• Rent
• Dicount Allowed Balance Sheet of P Ltd.
• Repairs
• Insurance
• Administration Expenses Authorised Share Capital Sundry Assets 43,57,500
• Telephone Expenses 60,000 Equity Shares of Cash in hand 27,500
• Delivery Expenses Rs.75 each 45,00,000
• Freight
Paid up Share Capital :
• Rates and Taxes
40,000 Equity Shares of
• Bad Debts written off
• Duty, Octroi and Cess Rs.75 paid up 30,00,000
• Commission Paid General Reserve 12,85,000
• Advertisement Profit and Loss Account 35,000
• Legal charges Sundry Creditors 65,000
• Trade Expenses
43,85,000 43,85,000
• Office Expenses
• Provision for bad debts The holder of every three shares in S Ltd. was to receive five shares in P Ltd. plus
• Carriage Inwards / Carriage Outwards as much cash as is necessary to adjust the rights of the shareholders of both the
• Printing and stationery companies in accordance with the intrinsic values of the shares as per respective
• Directors Fees / Remunaration
balance sheets. Pass necessary journal entries in the books of P Ltd. assuming it
• General Expenses
to be an amalgamation in the nature of merger and prepare the balance sheet
• Establishment expenses
• Loss on sale of Assets giving effect to the above scheme of absorption. Entries are to be made at par
• Selling Expenses value only.
[Purchase consideration: Rs.11,38,500; Intrinsic value of share S Ltd.: Rs.181.50; P Ltd.: Rs.108]
Q-12: On 31 March, 2011, S Ltd. was absorbed by P Ltd., the later taking over all
the assets and liabilities of the former at book values. The consideration for the CA. Naresh Aggarwal’s
business was fixed at Rs.8,00,000 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
ACADEMY of ACCOUNTS
shareholders of the transferor company, each shareholder getting two shares for Accounting • Costing • Taxation • Financial Management
every share held in the transferor company. The balance sheets of the two West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
companies as on 31 March, 2011 stood as under :
Liabilities P Ltd. (Rs.) S Ltd. (Rs.)
Share Capital: PROFARMA NOTES TO ACCOUNTS
Authorised 30,00,000 10,00,000
1. Revenue From Operation
Issued and Subscribed
(a) Sale of Products (Gross)
Equity Shares of Rs.10 each fully paid 18,00,000 4,00,000 Less: Returns
General Reserve 3,60,000 1,00,000 (b) Sale of Services (Net)
Profit and Loss Account 40,000 25,000 (c) Other Operating Revenues (eg. Sale of Manufacturing scrap)
Workmen Compensation Fund 24,000 18,000 Note : If Gross Profit is given in the trial balance, assume it as Revenue from Operations
Sundry Creditors 1,20,000 60,000
Staff Provident Fund 20,000 7,000 2. Other Income
• All types of Interest Income
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Provision for Taxation 26,000 10,000
23,90,000 6,20,000 • Dividend Income (Gross)
Assets • Rent Received
• Discount Received
Building 8,00,000 1,80,000
• Transfer Fees
Plant and Machinery 4,20,000 1,20,000
• Sundry Creditors written back
Furniture 1,60,000 60,000 • Profit on sale of investments
Stock in trade 5,50,000 90,000 Less: Loss on sale of investments (if any)
Sundry Debtors 4,00,000 80,000 • Profit on sale of fixed assets
Prepaid insurance - 5,000 • Excess provision for bad debts written back
Income Tax Refund Claim - 8,000 • Prior period income
Cash in hand 25,000 27,000
Cash at Bank 35,000 50,000 3. Expenses
23,90,000 6,20,000 • Cost of materials consumed (Opening Stock of Raw Material + Purchases
of Raw Material - Closing Stock of Raw Material)
• Purchase of components
Amalgamation expenses amounting to Rs.10,000 were paid by P Ltd. You are
• Purchase of Stock in Trade
required to :
Less : Returns
(i) Show the necessary ledger accounts in the books of S Ltd. • Changes in Inventories :
(ii) Show the necessary journal entries in the books of P Ltd. (a) Finished Goods (Opening Stock - Closing Stock)
(iii) Prepare the balance sheet of P Ltd. after the amalgamation assuming it to be (b) Work in Progress (Opening Stock - Closing Stock)
on merger basis. (c) Stock in Trade (Opening Stock - Closing Stock)
[Purchase Consideration: Rs.8,00,000; Balance Sheet Total: Rs.30,00,000
Profit in Realisation A/c: Rs.2,57,000 4. Employees Benefit Expenses
• Salaries
Q-13: The following is the Balance Sheet of S Ltd. as on 31.03.2011, the day on • Wages
which PLtd. takes over the business of S Ltd. and you are required to show : • Staff Welfare Expenses
• Contribution to Provident Fund, Gratuity Fund etc.
(i) Ledger accounts in the books of S Ltd.
• Expenses on Employees Stock Option Scheme / Purchase Plan
(ii) Opening entries in the books of P Ltd.
PART II – Form of STATEMENT OF PROFIT AND LOSS CA. Naresh Aggarwal’s

Name of the Company…………………….
Profit and loss statement for the year ended ……………………… ACADEMY of ACCOUNTS
Particulars Note Figures as Figures as West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
No. at the end of at the end of
current year previous year
I. Revenue from operations xx xx
II. Other income xx xx
III. Total Revenue (I + II) xxx xxx Equity Share Capital 8,00,000 Intangible Assets 1,00,000
General Reserve 2,00,000 Fixed Assets 8,40,000
IV. Expenses:
Statutory Reserve 40,000 Current Assets 2,20,000
Cost of materials consumed [For Manufacturing] xx xx
Purchases of Stock-in-Trade xx xx Bank Loan 60,000 Profit & Loss Account 1,60,000
Changes in inventories xx xx Debentures 1,20,000
Employee benefits expense xx xx Creditors 1,00,000
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Finance costs xx xx 13,20,000 13,20,000
Depreciation and amortization expense xx xx
Other expenses xx xx P Ltd. agreed to absorb S Ltd. on the following terms :
Total expenses xxx xxx (a) P Ltd. agreed to take over all the assets and liabilities.
V. Profit before exceptional and extraordinary items and tax (III-IV) xxx xxx (b) The assets of S Ltd. are to be considered to be worth Rs.10,00,000.
VI. Exceptional items xx xx (c) The purchase price is to be paid one-quarter in cash and the balance in
shares which are issued at the market price.
VII. Profit before extraordinary items and tax (V - VI) xxx xxx
(d) Liquidation expenses amounted to Rs.5,000 agreed to be paid by S Ltd.
VIII. Extraordinary Items xx xx (e) Market value of share of Rs.10 each of P Ltd. is taken as Rs.12 per share.
IX. Profit before tax (VII- VIII) xxx xxx (f) Debentures of S Ltd. were paid.
X. Tax expense: [Purchase consideration: Rs.7,20,000; Loss on Realisation: Rs.1,65,000; Capital Reserve: Rs.60,000]
(1) Current tax xx xx
(2) Deferred tax xx xx Q-14: P Ltd. agreed to acquire the business of S Ltd. as on 31.03.2011. The
XI. Profit (Loss) for the period from continuing operations (VII-VIII) xxx xxx Balance Sheet of S Ltd. as on that date was as under:
XII. Profit/(loss) from discontinuing operations xx xx
XIII. Tax expense of discontinuing operations xx xx Liabilities Amount Assets Amount
XIV. Profit/(loss) from Discontinuing operations (after tax) (XII-XIII) xxx xxx Share Capital: Goodwill 20,000
XV. Profit (Loss) for the period (XI + XIV) xxx xxx 6,000 Equity Shares of Building 60,000
XVI. Earnings per equity share: Rs.20 each fully paid 1,20,000 Machinery 68,000
(1) Basic xx xx General Reserve 30,000 Stock 33,600
(2) Diluted xx xx Profit and Loss Account 26,000 Book Debts 7,200
6% Debentures 20,000 ICICI Bank A/c 11,200
Sundry Creditors 4,000
2,00,000 2,00,000
The considerations payable by P Ltd. was agreed at as follows : PART I – Form of BALANCE SHEET
(a) Cash payment equal to Rs.5 per share in S Ltd. CA. Naresh Aggarwal’s
Name of the Company …………………….
(b) Issue of 18,000 Equity Shares of Rs.10 each of P Ltd. having an agreed value
of Rs.15 per share.
ACADEMY of ACCOUNTS
Balance Sheet as at ………………………
(c) Issue of such an amount of fully paid 5% Debentures of P Ltd. at Rs.96 each as
Particulars
Accounting • Costing • Taxation Note• Figures as at the
Financial Figures as at the
Management
No. end of current end of previous
is sufficient to discharge 6% Debentures of S Ltd. at 20% premium. West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
reporting period reporting period
(d) While computing purchase consideration, P Ltd. valued building and machinery
at Rs.1,20,000 each, stock at Rs.28,400 and Book Debts subject to 5% provision (I) EQUITY AND LIABILITIES
for doubtful debts. (1) Shareholders funds
(e) The cost of liquidation of S Ltd. was Rs.4,000 met by dissolving co. (a) Share capital xxx xxx
(f) Issue of 5,000 Equity Shares of Rs.10 each to the public at Rs.15 per share. (b) Reserves and surplus xxx xxx
You are required to show : (c) Money received against share warrants xxx xxx
(i) Ledger accounts in the books of S Ltd. (2) Share application money pending allotment xxx xxx
(ii) Opening entries in the books of P Ltd. (3) Non-current liabilities
[Purchase Consideration: Rs.3,00,000; Profit on Realisation: Rs.1,20,000; Goodwill: Rs.41,560] (a) Long-term borrowings xxx xxx
(b) Deferred tax liabilities (Net) xxx xxx
(c) Other Long term liabilities xxx xxx
Q-15: On 31.06.2011, S. Ltd. was absorbed by P Ltd. the latter taking over all the
(d) Long-term provisions xxx xxx
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assets and liabilities of the former at book values. The consideration for the business (4) Current liabilities
was fixed at Rs.2,80,000 to be discharged by P Ltd. in the form of its fully paid (a) Short-term borrowings xxx xxx
equity shares of Rs.10 each, to be distributed among the shareholders of S Ltd. (b) Trade payables xxx xxx
The Balance Sheets of the two companies as at 31.06.2009 were as under: (c) Other current liabilities xxx xxx
Liabilities : P Ltd. (Rs.) S Ltd. (Rs.) (d) Short-term provisions xxx . xxx .
Share Capital:
TOTAL xxxx . xxxx .
Authorised 15,00,000 5,00,000
Issued & Subscribed : (II) ASSETS
Equity Shares of Rs.10 each fully paid up 9,00,000 2,00,000 (1) Non-current assets
General Reserve 1,80,000 1,00,000
(a) Fixed assets xxx xxx
(i) Tangible assets xxx xxx
Profit & Loss Account 20,500 12,900
(ii) Intangible assets xxx xxx
Sundry Creditors 70,570 39,450 (iii) Capital work-in-progress xxx xxx
Bills Payable 10,200 4,000 (iv) Intangible assets under development xxx xxx
Provision for Taxation 12,300 5,000 (b) Non-current investments xxx xxx
11,93,570 3,61,350 (c) Deferred tax assets (Net) xxx xxx
(d) Long-term loans and advances xxx xxx
Assets : (e) Other non-current assets xxx xxx
Goodwill 2,00,000 60,000 (2) Current assets
Plant and Machinery 4,12,000 1,00,000 (a) Current investments xxx xxx
Furniture 80,000 30,000 (b) Inventories xxx xxx
Stock in Trade 2,65,500 60,000
(c) Trade receivables xxx xxx
(d) Cash and cash equivalents xxx xxx
Sundry Debtors 2,21,200 46,000
(e) Short-term loans and advances xxx xxx
Prepaid Insurance - 700 (f) Other current assets xxx . xxx .
Income Tax Refund Claim - 6,000
Cash in Hand 870 350 TOTAL xxxx . xxxx .
Cash at Bank 14,000 58,300
11,93,570 3,61,350
Creditors 40,000 Goodwill 25,000

Sales 4,15,000 Cash at Bank 40,650 CA. Naresh Aggarwal’s
General Reserve
Bad Debts Provision
25,000
3,500
Calls-in-arears
Interim Dividend Paid
7,500
39,250
ACADEMY of ACCOUNTS
Purchases 1,85,000 Accounting • Costing • Taxation • Financial Management
Preliminary Expenses 5,000 West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Wages 97,980
General Expenses 6,835
Salaries 20,225 Amalgamation expenses amounting to Rs.200 were paid by P Ltd. You are required
Bad Debts 2,110 to show:
Debenture Interest Paid 18,000 (i) The necessary ledger accounts in the books of S Ltd.
12,46,750 12,46,750 (i) The necessary journal entries in the books of P Ltd. assuming amalgamation
in the nature of merger.
Additional Information : (ii) The Balance Sheet of P Ltd. after the amalgamation.
(a) Depreciate plant by 15%. [Purchase consideration: Rs.2,80,000; Adjustment in General Reserve: Rs. 32,900;
(b) Write off Rs.500 from preliminary expenses. Total of Balance Sheet: Rs.15,54,720]
(c) Half-year debenture interest is due.
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(d) Create 5% provision on debtors for doubtful debts. Q-16: The following was the Balance Sheet of Star Ltd. as on 31.12.2011 :
(e) Provide for income tax at 35%.
(f) Stock on 31.03.2011 was Rs.95,000. Liabilities Amount Assets Amount
(g) A claim of Rs.2,500 for workman compensation is being disputed by the 12,000 Equity Shares of Goodwill 12,500
company. Rs.100 each 6,00,000 Fixed Assets 6,42,500
Prepare Trading and Profit and Loss Account for the year ended 31.12.2011 and 2,500 8% Cumulative Pref. Stock 1,51,500
the Balance sheet as on that date. Shares of Rs.50 each 1,25,000 Debtors 1,25,000
[Net Profit: Rs.23,400; Balance Sheet: Rs.8,35,500] 9% Debentures 2,50,000 Bank Balance 3,500
Interest Accrued thereon 90,000 Preliminary Expenses 80,000
Q-12: Pass Journal Entries of the following adjustments in Final Accounts: Creditors 2,50,000 Profit and Loss Account 3,00,000
1. A new Machine purchased was not recorded as no payment is made.
2. Goods worth Rs.15,000 dispatched and sold but not recorded. 13,15,000 13,15,000
3. A bill of Rs.7,500 is dishonored. Contingent Liability: Preference dividend Arrears Rs.40,000
4. A bill of Rs.4,500 endorced to creditors is dishonored. A new company Super Star Ltd. is formed with Rs.15,00,000 as authorised share
5. A bill of Rs.2,500 discounted from Bank is dishonored. capital divided into 1,50,000 Equity Shares of Rs.10 each and the following scheme
6. Debtors of Rs.5,000 are proved to be bad debts. Make 5% Provision for doubtful of Reconstruction is duly sanctioned to acquire Star Ltd. :
debts. [Balance in debtors A/c is Rs.85,000 out of which debtors of Rs.20,000 (a) Debentures will be paid by similar debentures in the new company. For the
cosidered certainly good] arrears of interest, equivalent amount of equity shares will be issued.
7. Annual Insurance premium of Rs.6000 paid on 01.07.2014 [Financial year (b) The creditors will be paid for every Rs.100 of their claim, Rs.16 cash and ten
ends on 31.03.2015] equity shares in the new company.
8. One fifth of stationery remain unused at the end of the year. [During the year (c) Preference shareholders are paid ten equity shares in the new company for
stationery were purchased for Rs.10,000] each shares held by them in the old company. They will not get anything for
their dividend arrears
(d) Equity shareholders will be given ten equity shares in the new company for
••••••••••••••••••••••••• three shares held in the old company.
(e) Expenses of Rs.20,000 will be borne by the new company.
(f) The new company will take the current assets at their book value, except stock
which will be reduced by Rs.15,000. Intangible assets are not to appear in the CA. Naresh Aggarwal’s
new balance sheet.
(g) Remaining equity shares in the new company are issued to the public and are
ACADEMY of ACCOUNTS
fully paid. Accounting • Costing • Taxation • Financial Management
You are required to show : West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
(a) The necessary ledger accounts in the books of S Ltd.
(b) The necessary journal entries in the books of P Ltd.
Machinery 2,40,000 -
(c) The Balance Sheet of P Ltd. after the amalgamation.
Rent and Taxes 5,700 -
[Purchase Consideration: 6,50,000; Goodwill: Rs.3,92,500; Balance Sheet: 17,50,000;
Purchases 5,38,200 -
No. of Shares issued to Public: 51,000; Profit on Realisation: 1,80,000;]
Director’s Fees 9,390 -
Office Expenses 10,170 -
Q-17: Following are the Balance Sheets of S Ltd. and P Ltd. as on 31.03.2011 :
Bad Debts 1,830 -
Liabilities S Ltd. P Ltd.
Bad Debts Reserve - 4,200
Rs. Rs.
Bills Payable - 46,000
Share Capital (Rs. 10 each) 1,50,000 3,00,000
Discount - 8,510
Reserve Fund 60,000 90,000
Furniture and Fixtures 8,760 -
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Foreign Projects Reserve 15,000 -
Goodwill 90,000 -
Creditors 45,000 60,000
Opening Stock 1,05,000 -
Loan from S Ltd. - 15,000
Wages 4,56,900 -
2,70,000 4,65,000
Interest on Debentures 4,500 -
Assets
Cash at Bank 1,02,390 -
Fixed Assets 180,000 3,75,000
Sundry Debtors 57,000 -
Loan to P Ltd. 15,000 -
Debtors 45,000 30,000 18,86,730 18,86,730
Stock 30,000 45,000
Adjustments :
Cash at Bank - 15,000
(a) Provide interest on debentures for half year.
2,70,000 4,65,000
(b) Maintain bad debts reserve at 5% on debtors.
P Ltd. agreed to absorb S Ltd. on the following terms : (c) Unexpired insurance amounted to Rs. 500.
(a) P Ltd. shall give one share of Rs.10 each at Rs.35 per share for every three (d) Depreciate leasehold by 5% machinery by 10% and motor lorry by 20%.
shares held in S Ltd. the amount for the fraction of shares shall be paid in cash (e) Out of profit, transfer Rs.50,000 to reserve fund and a dividend of 15% to be
calculated as per the market price of the share of P Ltd. which is Rs.45. declared on ordinary share capital.
(b) Stock of S Ltd. includes goods worth Rs.22,500 purchased from P Ltd. which (f) The closing stock is valued at Rs.1,05,810.
has a profit margin of 20% on cost. (g) Corporate Dividend Tax is 10%
(c) Debtors of P Ltd, includes Rs.7,500 being amount due from S Ltd. but the [Net Profit: Rs.1,21,690; Balance Sheet: Rs. 7,46,510]
Creditors of S Ltd. include Rs.6,000 only being the amount due to P Ltd. The
difference between the Debtors and Creditors is due to cash in transit. Q-11: The following is the trial balance of Best Ltd. as on 31.03.2011 :
You are requested to pass the journal entries in the books of P Ltd. and the Balance
Sheet after the absorption, assuming that the Foreign Projects Reserve is still to be Credit Balance Rs. Debit Balance Rs.
maintained for three years. Assume that the amalgamation is in the nature of Share Capital 4,00,000 Premises 3,07,200
Purchase. 12% Debentures 3,00,000 Plant 3,30,000
[Purchase Consideration: Rs. 1,75,000; Loss on Realisation: Rs.50,000; Balance Sheet : Rs. 7,25,250 Profit and Loss A/c 26,250 Stock 75,000
Capital Reserve: Rs.46250; Fair Value of Stock: Rs.26250] Bills Payable 37,000 Debtors 87,000
••••••••••••••••••••••
Share capital - 1,00,000

Debtors and creditors 27,500 17,500 CA. Naresh Aggarwal’s
Plant and machinery
Cash at bank
29,000
46,200
-
-
ACADEMY of ACCOUNTS
General reserve - 15,500 Accounting • Costing • Taxation • Financial Management
Patents and trade marks 4,800 - West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Bills receivable and Bills payable 5,000 7,000
5,08,000 5,08,000
Prepare trading account, profit and loss account, and profit and loss appropriation
Final Accounts of Companies
account for the year ended 31.03.2010 and a Balance Sheet at that date, take into
consideration the following adjustments: Maintenance of General Reserve
(a) Closing Stock was valued at Rs.88,000.
(b) Make a provision for income tax @ 50%. Rate of Dividend declared : Minimum transfer to Reserve required
(c) Depreciate plant and machinery @ 15% furniture and fittings @ 10% and Exceeds 10% but not 12.5% : 2.5% of Current Year’s Net Profit
patents and trade marks @ 5%.
(d) Outstanding rent amounted to Rs.800 while outstanding salaries totalled Exceeds 12.5% but not 15% : 5% of Current Year’s Net Profit
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Rs.900. Exceeds 15% but not 20% : 7.5% of Current Year’s Net Profit
(e) The Directors propose a dividend @ 15% per annurn for the year ended
31.03.2010 after the minimum transfer to general reserve as required by law. Exceeds 20% : 10% of Current Year’s Net Profit
(f) Make a provision for doubtful debts amounting to Rs. 510
(g) Provide for managerial remuneration @ 10% of the net profits before tax.
(h) Corporate Dividend Tax is 10%.
[Net profit: Rs.28,350; General Reserve: Rs.1,418; Balance Sheet: Rs.2,10,700; Presentation of Surplus / (Deficit) in Notes of Balance Sheet
Balance in Surplus: Rs.25,432; Corporate Dividend Tax: Rs.1,500;
Manager’s Commission: Rs.6,300; Provision for Taxation: Rs.28,350] Particulars Figures as Figures as
at the end of at the end of
Q-10: The following is the Trial Balance of XYZ Company Ltd. as on 31.12.2011. current year previous year
Prepare Trading and Profit and Loss Account for the year ended 31.12.2011 and
the Balance sheet as on that date : Opening balance of Surplus / (Deficit) xxxx xxxx
Add: Profit / (Loss) for the year xx xx
Particulars Dr. (Rs.) Cr. (Rs.) Amounts transferred from:
Ordinary Share Capital - 3,60,000 General reserve xx xx
6% Debentures - 1,50,000 Other reserves (give details) xx xx
Leasehold Premises 1,50,000 - Less: Interim dividend xx xx
Salaries 56,700 - Dividends proposed to Equity shareholders xx xx
Carriage Inwards 9,300 - Dividends proposed to Preference shareholders xx xx
Insurance 1,560 - Tax on dividend xx xx
Motor Lorry 33,000 - Transferred to:
Sales - 12,53,700 General reserve xx xx
Sundry Creditors - 60,360 Capital redemption reserve xx xx
Profit and Loss Appropriation Account - 3,960 Debenture redemption reserve xx xx
Postage and Telegram 6,330 - Other reserves (give details) xx xx
Closing balance xxxx xxxx
Q-1: A limited company has an authorised capital of Rs.30,00,000 divided into
40,000 Equity Shares of Rs.50 each and 10,000, 12% Preference Shares of Rs.100 CA. Naresh Aggarwal’s
each out of which 30,000 Equity Shares and 6,000 Preference Shares were issued
as fully paid up. The profit for the year amounted to Rs.5,00,000 after income tax.
ACADEMY of ACCOUNTS
The directors decided to declare a dividend of 18% on the equity share capital Accounting • Costing • Taxation • Financial Management
after Statutory minimum transfer to general reserve. Corporate Dividend Tax is West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
15% plus 2% education cess plus 1% education cess for higher education.
Prepare Profit and Loss Appropriation Account.
[General Reserve: Rs.37,500; Preference Dividend: Rs.72,000; Equity Dividend: Rs.2,70,000;
Corporate Dividend Tax: Rs.52,839; Balance of profit: Rs.67,661] Plant and machinery 7,50,000 Engineering tools 1,50,000
Bank overdraft 7,57,000 Sundry creditors 2,40,500
Q-2: For the year ending 31 March, 2007, the profit of A Ltd. before charging Goodwill 3,75,000 Sundry debtors 2,66,000
depreciation on fixed assets and managerial remuneration amounted to Bills receivables 1,34,500 Sales 36,17,000
Rs.30,00,000. Depreciation for the year amounted to Rs.2,50,000 and a commission Advertisement 15,000 Rent (Cr.) 30,000
of 10% of the profit, before charging such commission, was payable to the manager. Commission and brokerage 67,500 Transfer fees 6,500
The paid up capital of the company consisted of Rs.1,00,00,000 divided into 50,000, Profit and loss Account (Cr.) 67,000 Bad debts 25,500
8% preference shares of Rs.100 each and 1,00,000 equity shares of Rs.50 each. Business expenses 56,000 Repairs 46,500
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Interim dividend of Rs.3 per share was paid during the year. There was a credit Additional Information :
balance of Rs.3,20,000 in the profit and loss account brought from the previous Closing stock was Rs.7,08,000. Outstanding liabilities for wages Rs.25,000 and
year. The following appropriations were proposed by the Board and subsequently for business expenses Rs.25,000. Dividend declared @ 10% on paid up capital.
passed at the annual general meeting of the company Charge depreciation on plant and machinery @ 5%; engineering tools @ 20%;
(i) Pay yearly dividend on preference shares patterns @ 10%; furniture and fixtures @ 10%. Provide 2% on debtors as doubtful
(ii) Pay a final dividend on equity shares at Rs.7 per share to make total dividend debts after writing off Rs. 21,500 as bad debts. Create debentures redemption
of Rs. 10 per share for the year. reserve 50,000. Provide Rs.2,40,000 for income tax. Write off preliminary expenses.
(iii) Provide taxation at 30% of the net profit Ignore Corporate Dividend Tax.
(iv) Transfer to General Reserve as per the statutory obligation. Prepare : Profit and Loss Account and a Balance Sheet as on that date.
(v) Carry forward the balance to the balance sheet [Net Profit Rs.1,85,610; Surplus Balance: Rs.3,610; Balance Sheet: Rs.40,40,110]
(vi) Dividend distribution tax is 10% plus 2% education cess plus 1% education
cess for higher education. Q-9: The following is the trial balance of Apex Ltd. as at 31.03.2010 :
Show the profit and loss appropriation account.
Particulars Debit Credit
[Managerial Remuneration: Rs.2,75,000; Provision for Tax: Rs.7,42,500; Net Profit: Rs.17,32,500;
General Reserve: Rs.1,29,938; Preference Dividend: Rs.4,00,000; Final Equity Dividend: Rs.7,00,000; Opening Stock 75,000 -
Interim Dividend: Rs.3,00,000; Corporate Dividend Tax: Rs.1,44,200; Balance of profit: Rs.3,78,362] Purchases returns - 10,000
Purchases and sales 2,45,000 3,40,000
Q-3: For the year ending 31 March, 2007, the profit of XYZ Ltd. before charging Wages 30,000 -
depreciation on fixed assets and managerial remuneration amounted to Discount - 3,000
Rs.25,20,000. Depreciation for the year amounted to Rs.4,00,000 and a commission Carriage inwards 950 -
of 6% of the profit, after charging such commission, was payable to the manager. Furniture and fittings 17,000 -
The paid up capital of the company consisted of Rs.50,00,000 divided into 20,000, Salaries 7,500 -
10% preference shares of Rs.100 each and 3,00,000 equity shares of Rs.10 each. Rent 4,000 -
Interim dividend of Rs.1 per share was paid during the year. There was a credit Sundry expenses 7,050 -
balance of Rs.2,70,000 in the profit and loss account brought from the previous Profit and loss appropriation account, - 15,000
year. The following appropriations were proposed by the Board and subsequently Dividend paid 9,000 -
passed at the annual general meeting of the company
Prepare Trading and Profit and Loss Account and Balance Sheet.
[Net Profit: Rs.19,770; Balance Sheet: Rs.5,61,770] CA. Naresh Aggarwal’s
Q-7: Sun Ltd. is a company with an authorised capital of Rs.5,00,000 divided into
ACADEMY of ACCOUNTS
10,000 shares of Rs.50 each. On 31.12.2010, 5,000 shares were fully called up. Accounting • Costing • Taxation • Financial Management
The following are the balances extracted from the ledger of the company on West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
31.12.2010 :
Particulars Amount Particulars Amount
Stock 50,000 Advertising 14,300 (i) Pay yearly dividend on preference shares
Sales 4,25,000 Printing and Stationery 2,400 (ii) Pay a final dividend on equity shares at Rs.1.50 per share to make total dividend
Purchase 3,00,000 Debtors 38,700 of Rs.2.50 per share for the year.
Wages 70,000 Creditors 35,200 (iii) Provide taxation at 35% of the net profit
Discount allowed 4,200 Plant and Machinery 80,500 (iv) Transfer to General Reserve as per the statutory obligation.
Discount received 3,150 Furniture 17,100 (v) Carry forward the balance to the balance sheet
Annual Insurance (upto 31.03.2011) 6,720 Cash at Bank 1,34,700 (vi) Dividend distribution tax is 15% plus 10% surcharge plus 2% education cess.
Office Expenses 6,500 General Reserve 25,000 Show the profit and loss appropriation account.
Salaries 12,000 Loan from Managing [Managerial Remuneration: Rs.1,20,000; Provision for Tax: Rs.7,00,000; Net Profit: Rs.13,00,000;
AoA
Rent 6,000 Director 15,700 General Reserve: Rs.1,30,000; Preference Dividend: Rs.2,00,000; Final Equity Dividend: Rs.4,50,000;
General Expenses 8,950 Bad Debts 3,200 Interim Dividend: Rs.3,00,000; Corporate Dividend Tax: Rs.1,59,885; Balance of profit: Rs.3,30,115]
Calls in arrear 5,000 Profit and Loss Account 6,220
Q-4: The following is the trial balance of India Ltd. as on 31.03.2010 :
You are required to prepare Trading and Profit and Loss Account for the year
Particulars Debit (Rs.) Credit (Rs.)
ended 31.12.2010 and the Balance Sheet as on that date. The following further
information is supplied to you Opening Stock 1,50,000
(i) Closing stock is Rs.91,500 Sales 7,00,000
(ii) Depreciation to be charged on plant and furniture at 15% and 10% respectively. Purchases 4,90,000
(iii) Outstanding Liabilities were Wages Rs.5,200; Salaries Rs.1,200; Rent Rs.600 Wages 1,00,000
(iv) Tax rate is 50% Discount 10,000
[Net profit: Rs. 8,137; Balance in Surplus: Rs.14,357; Balance Sheet: Rs.3,50,395] Furniture and Fittings 34,000
Salaries 15,000
Q-8: ABC Ltd. have authorised capital of Rs.50,00,000; divided into 2,50,000 Rent 9,900
equity shares of Rs.20 each. Their books show the following balances as on Sundry Expenses 14,100
31.03.2010 : Profit and Loss App. Account 30,000
Particulars Amount Particulars Amount Dividends Paid 18,000
Opening Stock 6,65,000 Bank Current Account 20,000 Share Capital 2,00,000
Discounts and rebates 30,000 Cash in hand 8,000 Debtors and Creditors 75,000 35,000
Carriage inwards 57,500 Debenture interest (Half year) 10,000 Plant and Machinery 58,000
Patterns 3,75,000 Bank Interest 91,000 Cash at Bank 33,000
Rates, taxes and insurance 55,000 Preliminary expenses 10,000 Reserve 31,000
Furniture an fixtures 1,50,000 Calls-in-arrears 10,000 Patents and Trade Marks 9,000
Materials purchased 12,32,500 Equity share capital 20,00,000
10,06,000 10,06,000
Wages 13,05,000 4% Debentures 5,00,000
Coal and coke 63,000 Freehold land 12,50,000 Prepare Trading Account, Profit and Loss Account, Profit and Loss Appropriation
Account and Balance Sheet at that date. Take into consideration the following
adjustments CA. Naresh Aggarwal’s
(a) Closing stock was valued at Rs.1,64,000
(b) Depreciation on fixed assets at the rate of 10%
ACADEMY of ACCOUNTS
(c) Make a provision for Income Tax at the rate of 50%. Accounting • Costing • Taxation • Financial Management
(d) Corporate Dividend tax at 10% West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
[Provision for Taxation: Rs.42,450; Net Profit: Rs.42,450;
Balance in Surplus: Rs.52,650; Total of Balance Sheet: Rs.3,62,900]
[Hint: Since the amount of dividend is less than 10% there is no need to transfer any profit to reserve]
(f) Company proposed 11% dividend on Shares.
(g) Corporate Dividend Tax is 10%.
Q-5: From the following Trial Balance, prepare the Trading & Profit and Loss
[Net Profit: Rs.73,657; Balance Sheet: Rs.7,88,297;
Account and Balance Sheet of Best Ltd. as on 31.03.2010 :
General Reserve: Rs.1841; Balance in Surplus: Rs.44,116]
Particulars Amount Particulars Amount
Q-6: The following is the Trial Balance of XYZ Ltd. as on 31.12.2010 :
Discount 6,000 40,000 Ordinary Shares
Carriage 11,500 of Rs.20 each, Rs.10 Particulars Amount Particulars Amount
Patterns 75,000 per share called up 4,00,000
Opening Stock 1,00,000 Pref. Share Capital
AoA
Rates and Taxes 11,000 9% 1,000 Debentures of
Buildings 1,20,000 of Rs. 100 each 1,20,000
Patents and Trade Rs.100 each (Issued in 2008) 1,00,000
Purchases 1,97,000 Equity shares (Rs.100 each) 2,80,000
Marks 30,000 Bank Overdraft 1,41,340
Wages 60,000 Discount 280
Stock on 01.04.2009 1,33,000 Creditors 48,100
Salaries 22,000 6% Debentures 1,00,000
Purchases 2,46,500 Sales 7,23,400
Taxes and Insurance 14,800 Transfer fees 3,400
Wages 2,61,000 Profit and Loss A/c 20,700
Interest on Debentures 3,000 Rent 3,120
Fuel 12,600
Goodwill 50,000 Sales 3,57,000
Land and Building 1,50,000
Commission 20,000 Sundry Creditors 39,000
Plant and Macinery 2,50,000
Carriage 8,900 Bad Debts Reserve 1,500
Goodwill 1,05,000
Bad Debts 1,000
Debtors 80,100
General Expenses 11,200
Advertising 16,500
Repairs 3,000
Trade Expenses 20,500
Cash 4,400
Bad Debts 5,100
Machinery 1,60,000
Cash 3,600
Preliminary Expenses 8,000
Debenture Interest (half year) 4,500
Sundry Debtors 1,21,000
Bank Charges 1,640
Directors Fees 10,000 9,04,300 9,04,300
14,33,540 14,33,540 Adjustments :

(a) Provide depreciation on machinery at 10% and maintain a reserve of 3% on
(a) The Authorised Capital of the Company is Rs.10,00,000.
Debtors for doubtful debts.
(b) Stock on 31.03.2010 was Rs.1,41,600.
(b) Unexpired insurance is Rs.1,200 and an amount of Rs.800 is receivable on
(c) Write off depreciation on Plant and Machinery at 10% and on Patterns and
account of Rent.
Patents and Trade Marks at 20%.
(c) Write off 50% of preliminary expenses.
(d) Provide for doubtful debts at 2.5%.on Debtors.
(d) Closing Stock is Rs.1,20,000.
(e) Rates and Taxes are prepaid to the extent of Rs.1,000.
(e) Ignore Corporate Dividend tax.

Amalgamation and Final Accounts of Companies

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Print Instructions CA.

B.Com(P) 2nd Year

CA. Naresh Aggarwal’s

Assignment - 6 ACADEMY of ACCOUNTS

CA. Naresh Aggarwal’s

Liabilities Amount Assets Amount

The B Company Ltd.

Liabilities Amount Assets Amount

For conversion of debentures of transferor company :

Debenture Holders of Transferor Co. A/c (Due Amount)

Discount on Issue of Debentures A/c (if any)

Amalgamation in the nature of Merger (Pooling of Interest Method)

To Securities Premium A/c (if any)

Q-5: A Ltd. and B Ltd. propose to amalgamate. Goodwill is valued at Rs.3,00,000

For conversion of debentures of transferor company :

Debenture Holders of Transferor Co. A/c (Due Amount)

To Debentures A/c (Paid up nominal value)

To Statutory Reserves A/c (Given Amount)

For Incorporation of Statutory Reserves :

Amalgamation Adjustment A/c

To Preference Share Capital A/c (Paid up nominal value)

To Reserves / Profit & Loss A/c (if any, upto extent)

Liquidators of Transferor Co. A/c (Purchase Consideration)

To Equity Share Capital A/c (Paid up nominal value)

Capital Loss / P&L A/c etc. (Balancing Figure, if any)

To Debentures A/c (Paid up nominal value)

To Securities Premium A/c (if any)

Sundry Assets A/c (Book Values) Liabilities Amount Assets Amount

To Bank A/c (if any)

(b) Debenture holders of S Ltd. are discharged by P Ltd. at 5% premium by issuing

15% Own Debentures of P Ltd.

(c) 10% Preference Shareholders are to be redeemed at a premium of 15% by

Liquidators of Transferor Co. A/c (Purchase Consideration)

To Equity Share Capital A/c (Paid up nominal value)

issuing necessary number of 11% Preference Shares of P Ltd. (Nominal value

To Debentures A/c (Paid up nominal value)

To Sundry Liabilities A/c (Fair Value)

To Securities Premium A/c (if any)

(e) Cost of absorption amounted to Rs.1,00,000 met by P Ltd. Calculate the

Balance Sheet of S Ltd.

Less: in Sales in Revenue from Operation (Stat. of P&L)

Add: in Closing Stock (Current Assets in Balance Sheet)

Add: in Closing Stock (Change in Inventoris) in St. of P&L

Less: in Purchases (Trading A/c) or Trading A/c Cr.

Less: in Debtors (Current Assets in Balance Sheet)

Add: in Bad Debts in Other Expenses (Stat. of P&L)

Less: in Debtors (Curent Assets in Balance Sheet)

Show in Depreciation and amortization expense

Employee benefits expense in Statement of P&L

Less: in Other Current Assets in Balance Sheet)

Other Current Liabilities in Balance Sheet

Other Current Liabilities in Balance Sheet

Less: in Assets (Balance Sheet)

To Prov. for Discount on Debtors

To Assets A/c (for other Assets)

To Purchases A/c (for goods)

To Manager (O/s Comm.) A/c

To Trading A/c (cost amount)

Loss by Loss by Earthquake

Statement of Profit and Loss

Statement of Profit and Loss

Directors Remunaration A/c

Manager’s Commission A/c