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(Q.1)

Shashi Ltd. Balance Sheet as on 30.09.10 (Rs. in Crore) Liabilities Rs. Assets Rs. Share Capital 40 Land and Building 50 Profit & Loss A/c 20 Plant and Machinery 20 30 Stock 10 Bank Loan Creditors 20 Debtor 20 10 Cash / Bank 110 110 Sunanda Ltd. Balance Sheet as on 30.09.10 (Rs. in Crore) Liabilities Rs. Assets Rs. Share Capital 30 Land and Building 30 Profit & Loss A/c 20 Plant and Machinery 20 10% Debentures 30 Furniture 10 Creditors 10 Stock 10 Debtor 10 Cash 10 90 90 Land & Building of Sunanda Ltd. is to be appreciated by 100%, & Plant and Machinery to be depreciated by 50% Calculate:1. Shashi Ltd. will issue shares to Sunanda Ltd. at premium of 60. Calculate:- (a) Purchase Consideration (b) B/s of Shashi Ltd. after Takeover. 2. Shashi Ltd. will Issue 1,50,000 Shares of Rs.10 each at a premium of Rs. 60 each. Calculate (a) Purchase Consideration (b) B/s of Shashi Ltd. after Takeover. 3. Shashi Ltd. & Sunanda Ltd. will merge to form a new company Taroor Pushkar Ltd., Prepare B/s after merger. Shares will be issued to both companies at a premium of Rs. 10 each Q.1 Solution:1 A) Calculation of Purchase Consideration:Net Asset Method Particulars Rs. Asset taken over at agreed value :Land & Building 60 Plant & Machinery 10 Furniture 10 Stock 10 Debtors 10 Cash 10 (i) 110 Less :- Liabilities T/o at agreed value:10% Debentures 30 Creditors 10 (ii) 40 70 Purchase Consideration (i ii)

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Discharge of Purchase consideration Issue Price = F.V + = 10 + = 70 No. of Shares of Shashi Ltd. to be issued

Premium 60
P.C Issue Pr ice 70 = 70 = 1 Crore Shares

1 B)

Balance Sheet of Shashi Ltd. after Takeover:Liabilities Rs. Asset Share Capital (4 + 1) x 10 50 Land and Building (50 + 60) Profit and Loss A/c 20 Plant & Machinery (20 + 10) 60 Furniture (0 + 10) Share Premium (1 x 60) 10% Debentures 30 Stock (10 + 10) Bank Loan 30 Debtor (20 + 10) 30 Cash / Bank (10 + 10) Creditors (20 + 10) 220

Rs. 110 30 10 20 30 20 220

2 A) Calculation of Purchase Consideration:Net Payment Method:1.5 crore shares issues at Rs.70 = I.P = F.V + Prem. = 10 + 60 = 70

105

Calculation of Goodwill / Capital Present Particulars Asset taken over at agreed value :Land & Building Plant & Machinery Furniture Stock Debtors Cash (i) Less :- Liabilities T/o at agreed value:10% Debentures Creditors (ii) (i ii) Net Turnover Asset Purchase Consideration Excess of P.C over Net asset T/o i.e. goodwill

Rs. 60 10 10 10 10 10 110 30 10 40 70 105 35

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2 B) Balance Sheet of Shashi Ltd. after T/o:Liabilities Share Capital (4 + 1.5) x 10 Profit and Loss A/c Share Premium (1.5 x 60) 10% Debentures (0 + 30) Bank Loan (30 + 0) Creditors (20 + 10) Rs. 55 20 90 30 30 30 255 Asset Goodwill Land and Building (50 + 60) Plant & Machinery (20 + 10) Furniture (0 + 10) Stock (0 + 10) Debtor (20 + 10) Cash / Bank (10 + 10) Rs. 35 110 30 10 20 30 20 255

3. Calculation of Purchase Consideration Net Asset Method Particulars Rs. Asset taken over at agreed value :Land & Building 50 Plant & Machinery 20 Furniture Stock 10 Debtors 20 Cash 10 (i) 110 Less :- Liabilities T/o at agreed value:10% Debentures Bank Loan 30 Creditors 20 (ii) 50 60 Purchase Consideration (i ii) Discharge by issue of Shares of TP P.C 60 Ltd. 20 Issue Pr ice = 3 Crore

Rs. 60 10 10 10 10 10 110 30 10 40 70
70 20 = 3.5 Crore

Rs. 110 30 10 20 30 20 220 30 30 30 90 130

130 20 = 6.5 Crore

Balance Sheet of T.P. Ltd. Liabilities Rs. Assets 6.5 Crore Shares of Rs.10 each 65 Land & Building Share Premium (6.5 x 10) 65 Plant & Machinery 10% debentures 30 Furniture Bank Loan 30 Stock Creditors 30 Debtors Cash / Bank 220

Rs. 110 30 10 20 30 20 220

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(Q.2) Calculate the amount of purchase consideration payable by Mini Limited to Maxi Limited. The Balance Sheet of Maxi Limited as on March 31, 2010 is as follows : Liabilities Rs. Assets Rs. Equity Share Capital 1,50,000 Goodwill 30,000 (Shares of Rs.10) Land 35,000 60,000 Building 40,000 8% Pref. Share Capital (Shares of Rs.10) Machinery 1,00,000 8,000 Investment 25,000 Capital Reserve General Reserve 14,000 Stock 24,000 Profit & Loss A/c 3,000 Debtors 15,000 30,000 Cash & Bank 13,000 7.5% Debentures (Rs. 100 each) Sundry Creditors 12,000 Preliminary Expenses 3,000 8,000 Outstanding expenses 2,85,000 2,85,000 Mini Limited decided to take over Maxi Limited by issuing 6 Equity Shares of Rs. 10 each fully paid and Rs. 6.50 in cash for every 5 Equity Shares held in Maxi Ltd. The Preference Shareholder are to be paid at premium of 15% by issue of 10% Preference Share in Mini Ltd. Debentureholders of Maxi Ltd., will be paid 9.5% Debentures of Mini Ltd. for equal value. Realisation expenses of Rs. 7,500 are to be borne and paid by Mini Ltd. to Maxi Ltd. Q.2 Solution:Calculation of Purchase Consideration:Particulars Equity Shares in Mini Ltd. Home Get 5 Rs.6 15,000 ? = 18,000 Shares x 10 Cash Home Get 5 Rs.6.50 15,000 ? 10% Pref. Shares in Mini Ltd. (60,000 + 9,000) P.C I.P

Amount

1,80,000

19,500 69,000 2,68,500

= F.V + Prem. = 10 + 0 = 10 Payment x debentures holders and realisation expenses are not to be considered in calculation of purchase consideration (AS 14) (Q.3) Homer Ltd. and Illiad Ltd. propose to amalgamate. Goodwill may be taken at Rs. 96,000 for Homer Ltd. and Rs. 38,000 for Illiad Ltd. The Stock of Homer Ltd. and Illiad Ltd. to be taken at Rs. 2,04,000 and Rs. 1,42,000 respectively. You are required to find out the purchase consideration receivable by both the companies on the basis of the Net Assets Method.

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Their financial position as on December 31, 2009 were : Homer Illiad Liabilities Assets Rs. Rs. Share Capital Fixed Assets Equity Shares of Rs.10 each 5,00,000 2,00,000 (at cost less depreciation) Reserves & Surplus: Investment General Reserve 2,00,000 20,000 Current Assets : Profit & Loss A/c 1,00,000 30,000 Stock Debtors Current Liabilities : Creditors 1,00,000 50,000 Cash & Bank 9,00,000 3,00,000 Q.3) Solution:Net Asset Method:Particulars Asset taken over at agreed value :Fixed Assets Investments Stock Debtors Cash & Bank Goodwill (i) Less :- Liabilities T/o at agreed value:Creditors (ii) Purchase Consideration (i ii) Homer 4,00,000 4,00,000 2,04,000 1,70,000 30,000 96,000 10,00,000 1,00,000 1,00,000 9,00,000 Illiad 1,00,000 1,42,000 60,000 10,000 38,000 3,50,000 50,000 50,000 3,00,000

Homer Rs. 4,00,000 1,00,000 2,00,000 1,70,000 30,000 9,00,000

Illiad Rs. 1,00,000 1,30,000 60,000 10,000 3,00,000

Total 5,00,000 1,00,000 3,46,000 2,30,000 40,000 1,34,000 13,50,000 1,50,000 1,50,000 12,00,000

EXTRA PRACTISE PROBLEMS:(Q.4) Chaitanya Limited is absorbed by New Wave limited. Following re the Balance Sheets of the (Mum, Apr. 96, adapted) above two companies as on 31st March, 2010. Chaitanya New Wave Chaitanya New Wave Capital & Liabilities Assets Ltd. Rs. Ltd. Rs. Ltd. Rs. Ltd. Rs. Sundry Assets 20,30,000 98,10,000 Share Capital : Paid up Shares Capital Cash in hand 20,000 2,70,000 10,000 Equity Shares of Rs. 100 each Rs. 70 paid up 7,00,000 1,00,000 Equity Shares of Rs.100 each Rs. 75 per Share paid up 75,00,000 Reserves Fund 8,50,000 22,00,000 Profit & Loss A/c 3,00,000 2,00,000 Sundry Creditors 2,00,000 1,80,000 20,50,000 1,00,80,000 20,50,000 1,00,80,000

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It was decided that the holder of every three shares in Chaitanya Limited was to receive five shares in New Wave Limited, plus as much cash as is necessary to adjust the rights of Shareholders of both the companies in accordance with the intrinsic value of shares as per respective balance sheets. Calculate amount of purchase consideration and show how it will be discharged. (Q.5) (A) X Ltd., the purchasing company agrees to issue two shares of Rs. 100 each, Rs. 80 paid up for every 3 shares in the Y Ltd., the vendor company. Find out the number and amount of shares to be issued by the purchasing company if the vendor company has Rs. 3,00,000 paid-up Capital Rs. 100 each, Rs. 50 paid up. (B) A purchasing company agrees to issue two shares of Rs. 100 each, Rs. 75 paid up (quoted in the market at Rs. 120) for every three shares held in the vendor company. Find the number and amount of shares to be issued by the purchasing company if the vendor company has Rs. 3,00,000 paid-up capital of Rs. 100 each, Rs. 50 paid up (quoted in the market at Rs. 50). (Q.6) B Co. Ltd had the following Balance Sheet as on 31st March 2010 : B CO. LTD Rs. Rs. Liabilities Assets Fixed Assets 83,00,000 Share Capital : 50,000 Shares of Rs.100 each 50,00,000 Current Assets 69,00,000 Capital Reserve 10,00,000 Investment 17,00,000 General Reserve 36,00,000 Goodwill 2,00,000 22,00,000 Unsecured Loans Sundry Creditors 42,00,000 Provisions for Taxation 11,00,000 1,71,00,000 1,71,00,000 B Co. Ltd. is absorbed by Beesons Limited as on 31st March 2004, on which date the Balance Sheet of Beesons Limited is as follows : BEESONS LIMITED Rs. Rs. Liabilities Assets Fixed Assets 1,60,00,000 Share Capital : 8,00,000 Shares of Rs.10 each 80,00,000 Current Assets 1,68,00,000 1,00,00,000 General Reserve secured Loans 40,00,000 Sundry Creditors 46,00,000 Provisions for Taxation 52,00,000 Provisions for Dividend 10,00,000 3,28,00,000 3,28,00,000 For the purpose of the absorption the goodwill of B Co. Ltd. is considered valueless. There are also arrears of depreciation in B Co. Ltd. amounting to Rs. 4,00,000. The shareholders in B Co. Ltd. are allotted, in full satisfaction of their claims, shares in Beesons Limited in the same proportion as the respective intrinsic values of the shares of the two Companies bear to one another. Calculate Purchase Consideration and Prepare the opening Balance Sheet of Beesons Limited after absorption.

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