Solution of Amalgamation - Home Assignment

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM
AMALGAMATION, ABSORPTION AND RECONSTRUCTION
ASSIGNMENTS FOR HOME

Solution 1 (Page no. 48)
Computation of Purchase Consideration:
NATO = Purchase Consideration :
`
50,00
20,00
10,00
5,00
(16,50)
(10,00)
_58,50
Sundry Fixed Asset

Stock
Debtors
Cash/ Bank
12% Debenture (15,00 + 1,50)
Sundry Creditors & Other Liabilities
Purchase Consideration
Value of shares to be paid to Preference share Holder = `950
No. of Preference share to be issued
,
.
= 100
Value of Consideration to be paid to Equity Share Holder = 58,50 950 = `49,00

No. of Equity share to be issued =
,

= 490

NATO = Purchase Consideration
ìn 000s
102,00
42,00
(25,00)
(15,00)
104,00
Sundry fixed assets

Sundry current assets
12% Debentures
Sundry Creditors
Discharge of Purchase Consideration
Equity Share Holders

Preference Share Holders
Preference
Shares
92,00
12,00
In
Cash
36,80
6,00
In
shares
55,20
6,00
Value/
Shares
12
10
ìn 000s
No. of
Shares
460
60

NATO
Sundry fixed assets
Sundry current assets
Less: Liabilities taken over:
(`
` in 000)
A Ltd.
B Ltd.
100,00
95,00
20,00
30,00
(15,00) ( 10,00)
105,00
115,00
Total Purchase Consideration = 105,00 + 115,00 = 220,00

Value/ Share = 11
Number of shares to be issued = 220,00/11 = 20,00
Page 1 of 32

NATO
North Ltd.
`
6,20,000
30,000
70,000
_80,000
5,00,000
Tangible Fixed assets

Other Assets
Less : 10% Debenture
Sundry Creditors
Net assets
South Ltd.
`
4,80,000
2,80,000
1,30,000
6,30,000
West Ltd.
`
3,60,000
85,000
40,000
_35,000
3,70,000
North Ltd.
`
90,000
_7,000
83,000
10%
8,30,000
5,00,000
3,30,000
South Ltd.
`
1,20,000
______1,20,000
10%
12,00,000
6,30,000
5,70,000
West Ltd.
`
50,000
_4,000
46,000
10%
4,60,000
3,70,000
_90,000
5,00,000
3,30,000
8,30,000
6,30,000
5,70,000
12,00,000
3,70,000
_90,000
4,60,000
Capital Average Profit
Profits before Debenture Interest

Less: Debenture Interest
Capitalization Rate
Capitalized average profits
Less: Net assets
Excess
In Debentures
In Equity shares

(1)
Average Profit =

= 45
Yield = 45 x 40% = 18

Value of Yield = . = 120

Value of Consideration = 120 x 54% = 64.80
(2)
(3)
Mode of Discharge
Selling Price
Cost
Profit
TDS on Above = 17.82 ( 30% x 54.40)
Purchase consideration to be Remitted = 64.8 17.82 = 46.98
To be discharged in cash immediately = (50% x 46.98) = 23.49
Balance to be discharged in Unsecured Loan = 23.49
64.80
5.40
59.40
Computation of Goodwill
NATO = 100 20 1.75 = 78.25
Purchase consideration = 64.8 + 15.64 (i.e. 2 x 46% x 17) = 80.44
Goodwill = 80.44 78.25 = 2.19
Page 2 of 32

Name
No. of
shares
174
114
108
42
12
p
Q
R
S
Other
Multiple
of 5
170
110
105
40
__425
Fractional
4
4
3
2
12
25
Share Holding in multiple of Five = 1,19,975

Fractional Shares = 25
`
7,19,850
2,39,950
5,99,875
____325
15,60,000
In Equity Share = 1,19,975 x 2/5 x 15 = 47,990 x 15 =
In Preference share = 1,19,975 x 1/5 x 10 = 23,995 x 10 =
In Cash = 1,19,975 x 5 =
In Fractional Cash = 25 x 13 =

(Assumption: Amalgamation is in the Nature of Merger)
NATO of AX & BX
Sundry Fixed Assets

Investments
Stock
Debtors
Cash & Bank
12% Debentures
Sundry Creditors
Net Assets taken over
Less: Reserve & Surplus:
General Reserve
Profit & Loss A/c
Investment allowance Reserve
Export Profit reserve
AX Ltd.
85,00
10,50
12,50
18,00
4,50
(30,00)
(10,00)
90,50
(`
` in 000)
BX Ltd.
75,00
5,50
27,50
40,00
4,00
(40,00)
(15,00)
97,00
(15,00)
(10,00)
(5,00)
_(50)
60,00
(20,00)
(5,00)
(1,00)
(1,00)
70,00
Discharge of Purchase Consideration

,
AX = 13,000 x , = 6274.67

BX = 13,000 x
,
,
= 6725.33
Page 3 of 32

Balance Sheet of ABX Ltd. as on 1.1.2007
I. EQUITY AND LIABILITIES
(1) Shareholders' funds
(a) Share capital
(b) Reserves and Surplus
(2) Non-current liabilities
(a) Long-term borrowings
(4) Current liabilities
(a) Trade payables
TOTAL
II. ASSETS
(1) Non-current assets
(a) Fixed assets
(b) Non-current investments
(2) Current assets
(a) Inventories
(b) Trade receivables
(c) Cash and cash equivalents
TOTAL
Amount
(`
` in 000)
Amount
130,00
_57,50
187,50
70,00
_25,00
282,50
160,00
_16,00
40,00
58,00
_8,50
176,00
106,50
282,50
13,000 shares must be issued to both the companies in 9050: 9700 and not in 6000: 7000.
(Assumption: Amalgamation is in the Nature of Purchase)
Balance Sheet of ABX Ltd. as on 1.1.2007
(a) Share capital
(a) Long-term borrowings
(a) Trade payables
TOTAL
II. ASSETS
(a) Fixed assets
(2) Current assets
(a) Inventories
TOTAL
(`
` in 000)
Amount Amount
187,50
70,00
_25,00
282,50
160,00
_16,00
40,00
58,00
_8,50
176,00
106,50
282,50
Page 4 of 32

To Provision for Doubtful Debts

To Stock
To Cash/Bank
(Reconstruction Expenses)
To Profit & Loss A/c.
To Capital Reserve
A Ltd. Reconstruction Account

`
40,000 By Land and Buildings A/c.
40,000 By 6% Pref. Share Capital A/c
20,000 By 9% Debenture A/c.
By Equity Share Capital A/c.
8,20,000
30,000
9,50,000
Balance Sheet of A Ltd. as on 1st April 1988(After reconstruction)

(a) Share capital
(b) Reserves and surplus
(a)Long-term borrowings
(a) Trade payables (3,20,000 + 40,000)
TOTAL
II. ASSETS
(a) Fixed assets
(i) Tangible assets
(2) Current assets
(a) Inventories
TOTAL
Cash/Bank A/c
To Balance b/d
30,000 By Reconstruction A/c.
To Equity Share Capital
1,00,000 By Trade Creditors
By Expense Creditors
_______ By Balance c/d
1,30,000
`
3,00,000
1,00,000
1,00,000
4,50,000
_______
9,50,000
Amount
3,50,000
30,000
2,00,000
3,60,000
9,40,000
6,00,000
1,60,000
1,60,000
20,000
9,40,000
20,000
80,000
10,000
20,000
1,30,000
External Reconstruction Scheme:

1. PC will be paid to equity share holders and preference shareholders.
2. Creditors, outstanding expenses and debentures will be taken over and whatever cash is required to be
paid will be paid by the purchasing company.
3. Cash will also be taken over.
4. Formation expenses will be paid by purchasing company.
Page 5 of 32

Books of A Ltd. (old)
Closure of books
Purchase Consideration:
Amount Payable to:
Equity Share Holders (6,00,000 x )
Preference Share Holders
1,50,000
1,00,000
2,50,000
Cash Account
30,000
30,000
To bal. b/d
To
To
To
To
To
To
Land & Building

Plant & Machinery
Stock
Sundry Debtors
Cash
Equity Share Holders A/c (Profit)
To Profit & Loss A/c

To Equity Shares in A(1988)Ltd.
By Realization.
30,000
30,000
Realization Account
1,00,000 By Trade Creditors
2,00,000 By Expense Creditors
2,00,000 By A (1988) Ltd.
2,00,000
(Purchase Consideration)
30,000 By Preference Shareholders (Profit)
3,70,000 By 9% Debentures
11,00,000
4,00,000
50,000
2,50,000
1,00,000
3,00,000
11,00,000
Equity Shareholders A/c

`
8,20,000 By Balance B/d.
1,50,000 By Realization A/c
9,70,000
`
6,00,000
3,70,000
9,70,000
Books of Purchasing Company A Ltd. (1988)

Balance Sheet as on 1st April 1988
(a) Share capital
(a) Trade payables (3,20,000 + 40,000)
TOTAL
II. ASSETS
(a) Fixed assets
(i) Tangible assets
(2) Current assets
(a) Inventories
(d) Other Current Assets
TOTAL
Amount
3,50,000
_50,000
4,00,000
2,00,000
3,60,000
9,60,000
6,00,000
1,60,000
1,60,000
20,000
_20,000
3,60,000
9,60,000
Closing cash balance = 30,000 + 1,00,000 80,000 10,000 20,000 = 20,000
Page 6 of 32

Journal Entries in the Books of Y Ltd.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
Equity Share Capital (`10 each) A/c

To Equity Share Capital (`5 each) A/c
To Reconstruction A/c
(Being conversion of 5,00,000 equity shares of `10 each fully paid into
same number of fully paid equity shares of `5 each as per scheme of
reconstruction.)
9% Preference Share Capital (`100 each) A/c
To 10% Preference Share Capital (`50 each) A/c
(Being conversion of 9% preference share of `100 each into same
number of 10% preference share of `50 each and claims of preference
dividends settled as per scheme of reconstruction.)
10% First Debentures A/c
10% Second Debentures A/c
Trade Creditors A/c
Interest on Debentures Outstanding A/c
Bank A/c
To 12% New Debentures A/c
(Being `6,00,000 due to A (including creditors) cancelled and 12% new
debentures allotted for balance amount as per scheme of
reconstruction.)
10% First Debentures A/c
10% Second Debentures A/c
Trade Creditors A/c
Interest on Debentures Outstanding A/c
To 12% New Debentures A/c
(Being `3,00,000 due to B (including creditors) cancelled and 12% new
debentures allotted for balance amount as per scheme of
reconstruction.)
Trade Creditors A/c
(Being remaining creditors sacrificed 50% of their claim.)
Directors' Loan A/c
To Equity Share Capital (`5) A/c
(Being Directors' loan claim settled by issuing 12,000 equity shares of
`5 each as per scheme of reconstruction.)
Reconstruction A/c
To Bank A/c
(Being payment made for cancellation of capital commitments.)
Bank A/c
(Being refund of fees by directors credited to Reconstruction Account)
Reconstruction A/c
To Bank A/c
Dr.
Dr.
`
50,00,000
Cr.
`
25,00,000
25,00,000
Dr.
20,00,000
10,00,000
10,00,000
Dr.
Dr.
Dr.
Dr.
Dr.
4,00,000
6,00,000
1,00,000
1,00,000
1,00,000
7,00,000
6,00,000
Dr.
Dr.
Dr.
Dr.
2,00,000
4,00,000
50,000
60,000
4,10,000
3,00,000
Dr.
1,75,000
1,75,000
Dr.
1,00,000
60,000
40,000
Dr.
15,000
15,000
Dr.
1,10,000
1,10,000
Dr.
10,000
10,000
Page 7 of 32

(x)
(xi)
(Being payment of reconstruction expenses.)

Provision for Tax A/c
To Bank A/c
(Being payment of tax for 80% of liability in full settlement.)
Reconstruction A/c
To Goodwill A/c
To Patent A/c
To Profit and Loss A/c
To Discount on issue of Debentures A/c
To Land and Building A/c
To Plant and Machinery A/c
To Furniture & Fixture A/c
To Computers A/c
To Trade Investment A/c
To Stock A/c
To Debtors A/c
(Being writing off of losses and reduction in the value of assets as per
scheme of reconstruction.)
Dr.
1,00,000
80,000
20,000
Dr.
47,20,000
10,00,000
5,00,000
15,00,000
1,00,000
2,00,000
6,00,000
1,00,000
1,20,000
1,00,000
3,00,000
2,00,000
Working Notes:
(1) Outstanding interest on debentures have been allocated between A and B as follows:
`
A's Share
10% First Debentures
10% Second Debentures
10% on `10,00,000 i.e. (A)
B's Share
10% First Debentures
10% Second Debentures
10% on `6,00,000 i.e. (B)
Total (A) + (B)
4,00,000
6,00,000
1,00,000
2,00,000
4,00,000
60,000
1,60,000
10,00,000
6,00,000
(2) Bank Account

To A (reconstruction)
(paid by directors)
`
1,00,000
1,10,000
______
2,10,000
By Balance b/d
By Reconstruction A/c
(capital commitment penalty paid)
By Reconstruction A/c (reconstruction exp. paid)
By Provision for tax A/c(tax paid)
By Balance c/d
`
1,00,000
15,000
10,000
80,000
__5,000
2,10,000
Page 8 of 32

Journal Entries
Preference Share Capital A/c.

Equity Share Capital A/c.
To Capital Reduction A/c
Capital Reduction A/c
To Equity Share Capital A/c.
Security Premium A/c
To Capital Reduction A/c.
Debenture holders A/c.
Bank A/c
To Freehold Property A/c.
To Capital Reduction A/c
Capital Reduction A/c.
To Plant & Machinery A/c.
Bank A/c
To Trade Investments A/c
To Goodwill A/c.
To Preliminary Expenses A/c.
To Profit & Loss A/c
To Sundry Debtors A/c.
To Stock A/c.
To Cash A/c.
Cash A/c.
To Capital Reduction A/c.
Overdraft A/c.
To Cash A/c.
To
To
To
To
To
To
To
To
To
To
To
To
Equity Share Capital

Plant & Machinery
Trade Investment
Cash
Goodwill A/c.
Preliminary Expenses A/c.
Profit & Loss A/c.
Debtors A/c.
Stock A/c.
Debenture Holders A/c.

Trade Investment A/c.
Dr.
Dr.
Dr.
`
50,000
1,20,000
Dr.
16,000
Dr.
5,000
Dr.
Dr.
62,700
12,300
Cr.
`
1,70,000
16,000
5,000
60,000
15,000
Dr.
Dr.
20,000
Dr.
Dr.
32,000
8,000
20,000
40,000
Dr.
1,45,300
55,000
2,500
69,200
8,600
10,000
Dr.
7,000
7,000
Dr.
6,300
Dr.
43,600
6,300
43,600
(b) Capital Reduction Account
`
16,000 By Preference Share capital
20,000 By Equity Share Capital
8,000 By Security Premium
7,000 By Bank
55,000 By Cash
2,500 By Debenture holders A/c.
69,200
8,600
_10,000
1,93,300
Cash Account
12,300 By Capital Reduction A/c.
32,000 By Overdraft
6,300
50,600
`
50,000
1,20,000
5,000
12,300
6,300
2,700
_______
1,93,300
7,000
43,600
______
50,600
Page 9 of 32

(c) Balance Sheet of A Ltd. as on 31st March, 1992
(a) Share capital
(a) Short-term borrowings
(b) Trade payables
TOTAL
II. ASSETS
(a) Fixed assets
(i) Tangible assets
(2) Current assets
(b) Inventories
(c) Trade receivables
TOTAL
Amount
1,96,000
_____Nil
1,96,000
52,400
_85,000
1,37,400
3,33,400
2,62,000
20,000
51,400
_71,400
3,33,400

Scheme of Reconstruction
1. A new company preferably to be named Sunlight (1976) Co. Ltd. should be formed to take over the
business of the existing company on the basis of tangible assets at their agreed valuation and liabilities as
reduced and revised. The authorized capital should be 12,5000 9% Preference shares of `80 each and
80,000 Equity shares of `30 each.
2. This company should take over the business of Sunlight Co. Ltd. The assets should be valued as stated
below:Works, Plants and Machineries
Stock
Sundry Debtors
Cash
The liabilities to be taken over shall be the following:
6% Debentures
Sundry Creditors
Bank Overdraft (of which `2,25,000 will be converted into Bank Loan)
`
15,00,000
3,00,000
4,00,000
1,50,000
23,50,000
3,00,000
3,50,000
3,00,000
9,50,000
The net worth of the business taken over thus will be `14,00,000, i.e. `23,50,000 less `9,50,000.
3. The purchase consideration of `14,00,000 should be discharged as follows:(i) By the issue of 10,000, 9% Cumulative Preference shares of `80 each full paid, to be distributed
among the Preference shareholders of Sunlight Co. Ltd. in full discharge of their claims against that
company, and
(ii) By the issue of 20,000 Equity shares of `30 each fully paid, to be distributed among the equity
shareholders of Sunlight Co. Ltd.
4. The present 6% Debentures of Sunlight Co. Ltd. should be exchanged for 6% Debentures in Sunlight
(1976) Co. Ltd. in full discharge of their claims against the Sunlight Co. Ltd. In actual practice, it will be
difficult to persuade the debenture-holders to accept the new debentures unless at least the rate of
interest is raised to the present levels-13.5%.
Page 10 of 32

Balance Sheet of Sunlight (1976) Co. Ltd. as on 1.1.1976
(a) Share capital
(a)Long-term borrowings (3,00,000 + 2,25,000)
(a) Trade payables
(b) Bank Overdraft
TOTAL
II. ASSETS
(a) Fixed assets
(i) Tangible assets
(2) Current assets
(a) Inventories
TOTAL
Amount
14,00,000
5,25,000
3,50,000
_75,000
23,50,000
15,00,000
3,00,000
4,00,000
1,50,000
23,50,000
Working Notes:
1. The total amount of loss to be written off is arrived at as under:
`
10,00,000
1,00,000
2,00,000
3,00,000
50,000
1,40,000
17,90,000
Debit Balance of Profit & Loss Account

Preliminary Expenses, Commission etc.
Goodwill
Works Plant & Machinery
Sundry Debtors
Arrears of Pref. Dividend
Less: Sacrifice by Sundry Creditors
Preference Dividend forgone by Preference Shareholders
Loss to be borne by Equity & Preference share holders
50,000
1,40,000
1,90,000
16,00,000
2. Proposed sacrifice by shareholders:

As the total amount of loss to be written off is more than 50% of the existing equity capital of `20,00,000,
preference shareholders will sacrifice 20% of their claims or `2,00,000. Also preference shareholders will
forego the arrears of Preference dividend of `1,40,000.
Equity shareholders shall sacrifice `14,00,00 of their capital invested in the company. In other words,
preference shares should be reduced to `80 each fully paid (the rate of dividend being revised to 9%) and
each equity share shall lose `70 and become a fully paid share of `30 each.
3. Working Capital of Sunlight (1976) Co. Ltd.
Stock in trade
Sundry Debtors
Cash
Sundry Creditors
Bank Overdraft
`
3,00,000
4,00,000
1,50,000
8,50,000
3,50,000
75,000*
4,25,000
Page 11 of 32

* Bank overdraft is the balancing figure [current ratio is given at 2:1. Therefore, total current liabilities is
`8,50,000 x =`4,25,000].
Therefore, it shall be only `75,000; the balance sum of `2,25,000 shall be converted into a term loan.
Journal of Maxi Mini Ltd.
Current liabilities A/c

Loan fund (secured) A/c
Provision for depreciation A/c
Loss on reconstruction (Balancing figure)
To Fixed assets A/c
To Current assets A/c
Dr.
Dr.
Dr.
Dr.
(`
` in crores)
Dr. Cr.
`
`
100
100
100
300
300
300
Journal of Mini Ltd.

(`
ìn crores)
Dr. Cr.
`
`
Dr. 200
Dr. 300
100
100
50
250
Fixed assets A/c (300 - 100)

Current assets A/c
To Current liabilities A/c
To Secured loan funds A/c
To Equity share capital A/c
To Capital reserve
Mini Ltd. Balance Sheet as at 1st November 1999
Particulars
(a) Share capital
TOTAL
II. ASSETS
(a) Fixed assets
(2) Current assets
TOTAL
After
reconstruction
(`
` in crore)
Before
Reconstruction
50
350
50
650
100
500
100
200
1,000
100
400
500
300
700
1,000
After
reconstruction
650
300
350
Before
Reconstruction
650
__650
Page 12 of 32
Note to Balance Sheet
A. Reserves and Surplus

Less: Loss on reconstruction

Note to Accounts: Consequent on reconstruction of the company and transfer of Mini division to newly
incorporated company Mini Ltd, the members of the company have been allotted 5 crores equity shares of
`10 each at par of Mini Ltd.
Maxi Ltd. Balance Sheet as at 1st November 1995
(`
` in crore)
(a) Share capital
(1) Current Liabilities
TOTAL
II. ASSETS
(a) Fixed assets
(b) Other non-current assets
TOTAL
50
250
300
100
100
500
200
300
500
500
Schedules to Balance Sheet

(ìn crores)
A. Share Capital:
Issued and paid up : 5 crores Equity shares of `10 each fully paid up
50
All the above shares have been issued for consideration other than cash, to the members of Maxi Mini Ltd, on
takeover of Mini division from Maxi Mini Ltd.
B. Net asset value of an equity share
Maxi Mini Ltd.:
Pre-demerger
`700/5
= `140
Mini Ltd.:
Post-demerger
`400/5
=`80
`300/5
`60
C. Demerger into two companies has had no impact on "net asset value" of shareholding. Pre-demerger, it
was `140 per share. After demerger, it is `80 plus `60 i.e. `140 per original share.
It is only yield valuation that is expected to change because of separate focusing on two distinct businesses
whereby profitability is likely to improve on account of demerger.

Computation of Purchase consideration
Preference shareholders @ `150 per share (3 x 150) , (2 x 150)

Equity shareholders 5 for every 1 @ 30, 4 for every 1 @ 30, (40 x 30), (30 x 30)
(`
` in lakhs)
A Ltd. B Ltd.
450
300
1,200 _900
1,650 1,200
Page 13 of 32

Value of Debenture to be issued
Present Interest on Debenture @ 10%

Proposed value of Debenture (6/.15), (3/.15)
(`
` in lakhs)
A Ltd. B Ltd.
6
3
40
20
Goodwill on Capital Reserve Computation
NATO (2,000 270 150 40), (1,500 120 70 20)

Purchase consideration
Goodwill, Capital Reserve
Goodwill = 110 90 = 20 (i.e. Goodwill Capital reserve)
(`
` in lakhs)
A Ltd. B Ltd.
1,540 1,290
1,650 1,200
110
90
Balance Sheet of C Ltd. as at 1st April, 1995

(`
` in lakhs)
(a) Share capital (500 + 700)
(b) Reserves and surplus (250 + 1,400)
(a) Trade payables
TOTAL
II. ASSETS
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(2) Current assets
(a) Inventories
(b) Trade Receivables
TOTAL
1,200
1,650
2,850
60
_610
3,520
1550
20
200
600
650
500
1,770
1,750
3,520

(1)
(`
` in lakhs)
Average Profit =

= 18
Yield = 50% of 18 = 9

Value of Yield = . = 60
Value of Consideration = 60 x 40% = 24
(2)
Mode of Discharge
Selling Price
Cost
Profit
TDS on Above = 3.92 (20% of 19.6)
24.0
_4.4
19.6
Page 14 of 32

Purchase consideration to be Remitted to Foreign Co. = 24.0 3.92 = 20.08
To be paid in cash = of 20.08 = 10.04
To be paid via Shares of X = `10.04
(3)
Intrinsic Value per Share of X

Fixed Assets
Investment in Y (60 x 60%)
Debtors
Inventory
Cash
Secured Loan
Current Liabilities
60.00
36.00
35.00
30.00
39.00
(20.00)
(30.00)
150.00
No. of Equity Shares = 5

Intrinsic Value per Share = 30
Value of Consideration to be issued in Shares = 10,04,000
Intrinsic Value per Share = 30
No. of Shares to be issued =
,,

= 33,466
Value issued in Shares = 33,466 x 30 = 10,03,980

Value issued in Cash = 20
TDS Paid = 3,92,000
X Ltd.
Balance Sheets as on 1st April 2005
(a) Share capital
(b) Reserves and surplus (50,00 + 12,95 + 20,00 + 6,69.320)
TOTAL
II. ASSETS
(a) Fixed assets
(2) Current assets
(a) Inventories
TOTAL
NATO = 50,00,000 1,80,000 5,00,000 =
Purchase consideration = 24,00,000 + Investment (i.e. 6,00,000) =
Capital Reserve =
(-) Goodwill i.e. Un-realized Profit in Stock =
Amount
Amount
53,34,660
89,64,320
142,98,980
22,50,000
_31,50,000
196,98,980
76,20,000
54,75,000
39,00,000
27,03,980
120,78,980
196,98,980
43,20,000
30,00,000
13,20,000
__25,000
12,95,000
Page 15 of 32

1. Calculation of consideration:
(i)
(ii)
(iii)
`
3,00,000
5,00,000
25,00,000
33,00,000
Cash = 20,000 shares x `15

14%Preference shares = (20,000 shares / 4) x `100
Equity shares = (20,000 shares / 4) x 5 x `100
In the books of Laxman Ltd.

Realization Account
Dr.
`
16,00,000
14,00,000
3,50,000
To Land and Buildings

To Plant and Machinery
To Patents Rights
To Investment against
Sinking Fund
To Staff Provident
Fund Investment
To Stock
To Debtors
To Cash at Bank
To Bank (expenses)
1,00,000
1,50,000
2,00,000
4,00,000
30,000
__10,000
42,40,000
By Provisions for Bad Debts

By Sinking Fund
By 12% Loan
By Sundry Creditors
By Employees Profit
sharing Reserve
By Staff Provident
Fund
By Ram Ltd. (consideration)
By Ram Ltd. (expenses)
By Equity Shareholders A/c (loss)
Cr.
`
40,000
1,00,000
4,00,000
1,40,000
1,00,000
1,50,000
33,00,000
8,000
___2,000
42,40,000
Ram Ltd.
Dr.
`
33,00,000 By Bank
8,000 By 14% Preference
Shares in Ram Ltd.
By Equity Shares in Ram Ltd.
________ By Bank (for expenses)
33,08,000
To Realization A/c (consideration)

To Realization A/c (for expenses)
Cr.
`
3,00,000
5,00,000
25,00,000
__8,000
33,08,000
Cash Book (Bank Columns)

Dr.
To Balance b/d
To Ram Ltd.
To Ram Ltd. (for expenses)
`
30,000 By Realization A/c (transfer)
3,00,000 By Realization A/c (expenses)
__8,000 By Equity Shareholders A/c (distribution)
3,38,000
Cr.
`
30,000
10,000
2,98,000
3,38,000
Equity Shareholders Account

Dr.
To Realization (loss)
To Equity Shares in Ram Ltd.
To 14% Preference Shares in Ram Ltd.
To Bank
`
2,000 By Equity Share Capital A/c
25,00,000 By General Reserve
5,00,000
2,98,000
33,00,000
Cr.
`
20,00,000
13,00,000
________
33,00,000
Page 16 of 32

Books of Ram Ltd.
Journal
Business Purchase A/c

To Liquidator of Laxman Ltd.
(Being the purchase price agreed to be paid for the business of
Laxman Ltd.)
Land and Buildings
Plant and Machinery
Patent Rights
Stock
Sundry Debtors
Investments against Sinking Fund
Investments against Staff Provident Fund
Cash at Bank
To Provision for Doubtful Debts
To Sinking Fund Account
To 12% Loan
To Sundry Creditors
To Employees Profit Sharing Reserve
To Staff Provident Fund
To Business Purchase Account
(Being assets and liabilities taken over by Ram Ltd. for purchase
consideration)
Liquidator of Laxman Ltd.
To 14% Preference Share Capital Account
To Equity Share Capital Account
To Bank
(Being an allotment of 14% preference shares and equity shares
and payment of cash in satisfaction of the consideration for
business)
Goodwill
To Bank
(Being reimbursement of expenses of Laxman Ltd. to the extent
of `8,000)
Goodwill
To Stock
(Being elimination of unrealized profit from the stock sold to
Laxman Ltd.)
Sundry Creditors Account
To Sundry Debtors Account
(Being elimination of `80,000 included in creditors of
Laxman Ltd. and in debtors of Ram Ltd. being the sum
owed by the former to the latter)
Dr.
Dr.
`
33,00,000
Cr.
`
33,00,000
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
16,00,000
14,00,000
3,50,000
2,00,000
4,00,000
1,00,000
1,50,000
30,000
40,000
1,00,000
4,00,000
1,40,000
1,00,000
1,50,000
33,00,000
Dr.
33,00,000
5,00,000
25,00,000
3,00,000
Dr.
8,000
8,000
Dr.
8,000
8,000
Dr.
80,000
80,000
Note:
Whereas the market price of the equity shares in Ram Ltd. is `140, making entries at par does not really make
a difference. Had the entries been made at `140, purchase consideration will increase by `10,00,000 and
accordingly the amount of goodwill would have been increased but, then, `40 per share would have been
credited to Securities Premium Account. Shareholders of Laxman Ltd. have also not suffered at all because,
although in the books the equity shares in Ram Ltd. have been recorded at `100, they have in fact received
shares worth `140.
Page 17 of 32

This shows that if a transferee company does not want to show both goodwill and premium on shares
resulting from the acquisition of another company, it should record the issue of its shares at par. One should
remember that once an amount is credited to Securities Premium Account, it cannot be used to write off
assets like Goodwill.

(1) No. of Equity shares to be issued
P = 24,000 x 475/1,000 = 11,400
Q = 24,000 x 525/1,000 = 12,600
(2) Value of Preference Shares to be issued
Plant and machinery

Building
Current Assets
Current liabilities
Capital Employed
8% of above
Value of Preference Shares to be issued =
,
%
,
,
%
P
`
5,25,000
7,75,000
1,63,500
(6,23,500)
8,40,000
67,200
5,60,000
Q
`
6,75,000
6,48,000
1,58,600
(5,57,600)
9,24,000
73,920
6,16,000
P
`
5,60,000
2,85,000
8,45,000
Q
`
6,16,000
3,15,000
9,31,000
3. Computation of Purchase Consideration
Preference shares to be issued

Equity Shares to be issued (11,400 x 25), (12,600 x 25)
Total
4. Computation of Goodwill
Net assets taken over
Goodwill on Amalgamation
8,40,000
8,45,000
_5,000
9,24,000
9,31,000
_7,000
5. Un-realized Profit in Stock

Goodwill
To Stock
Dr.
2,000
2,000
Balance Sheets of PQ Ltd. (after amalgamation)

(a) Share capital
TOTAL
II. ASSETS
(a) Fixed assets
(i) Tangible assets (12,00,000 + 14,23,000)
(2) Current assets
TOTAL
Amount
17,76,000
11,31,100
29,07,100
26,23,000
14,000
2,70,100
29,07,100
Page 18 of 32

Computation of Purchase Consideration :
`
1,50,000
1,60,000
1,57,500
92,500
20,000
(20,000)
(80,000)
4,80,000
50,000
5,30,000
Building
Machinery
Stock
Debtors
Cash
Gratuity Fund
Sundry Creditors
Goodwill
Dr.
Business Purchase
To Liquidators of Varun
Building
Machinery
Stock
Debtors
Cash
Goodwill
To Gratuity Fund
To Sundry Creditors
To Business Purchase
Liquidators of Varun
To Preference Share Capital A/c
To Equity Share Capital A/c
To Security Premium
To
To
To
To
To
To
To
To
To
To
Goodwill
Building
Machinery
Stock
Debtors
Cash
Preference Share Capital
Profit on Realization
Preliminary Expenses
Equity Shares of Hans Ltd.
5,30,000
5,30,000
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
1,50,000
1,60,000
1,57,500
92,500
20,000
50,000
20,000
80,000
5,30,000
Dr.
5,30,000
1,10,000
4,00,000
20,000
In the books of Varun Ltd.

Realization Account
`
25,000 By Gratuity
1,00,000 By Creditors
1,50,000 By Hans Ltd.
1,75,000
1,00,000
20,000
10,000
50,000
6,30,000
Equity Shareholders Account
`
10,000 By Equity Share Capital
4,20,000 By General Reserve
_______ By Profit on Realization
4,30,000
`
20,000
80,000
5,30,000
_______
6,30,000
`
3,00,000
80,000
_50,000
4,30,000
Page 19 of 32
To
Preference Shareholders Account

`
Preference Shares Capital of Hans
1,10,000 By Preference Shares Capital
_______ By Realization
1,10,000
`
1,00,000
_10,000
1,10,000
To
Hans Ltd. Account

`
5,30,000 By Preference Shares Capital
_______ By Equity Share Capital
5,30,000
`
1,10,000
4,20,000
5,30,000
Realization
Balance Sheets of Hans Ltd. (after amalgamation) as at 31st March 2005

(a) Share capital
16,10,000
(b) Reserves and surplus (1,00,000 + 20,000)
_1,20,000
(2) Non-Current liabilities
(a) Long term provisions
TOTAL
II. ASSETS
(a) Fixed assets
(i) Tangible assets (4,50,000 + 6,60,000)
11,10,000
_1,00,000
(b) Other non-current assets/ Preliminary Exp.
(2) Current assets
(a) Inventories
4,07,500
2,92,500
__70,000
TOTAL
Amount
17,30,000
70,000
__2,10,000
20,10,000
12,10,000
30,000
7,70,000
20,10,000

Computation of Purchase Consideration
Amount payable to Preference shareholders (50,000 + 15,000 x
Amount payable to Equity share holders

59,000
)=
1,00,000
1,59,000
Journal
Business Purchase
To Liquidator of X
Machinery
Furniture
Stock
Debtors
Bank
Dr.
Dr.
Dr.
Dr.
Dr.
Dr.
`
1,59,000
1,59,000
2,09,000
10,000
1,22,000
40,000
10,000
Page 20 of 32

To 12% Debentures
To Creditors
Liquidator of X
Goodwill
To Cash
Creditors
To Equity Share Capital (500 159 100 12)
To Cash
Debentures Holders
To 12% Debentures
Bank A/c
Bank Account
To X
10,000 By Realization Exp.
2,29,000 By Creditors
_______ By Balance c/d
2,39,000
1,12,000
1,20,000
1,59,000
Dr.
1,59,000
1,59,000
Dr.
10,000
Dr.
1,20,000
10,000
1,00,000
20,000
Dr.
1,12,000
1,00,000
12,000
Dr.
2,29,000
2,29,000
10,000
20,000
2,09,000
2,39,000
Balance Sheets
(a) Share capital
TOTAL
II. ASSETS
(a) Fixed assets
(i) Tangible assets
(ii) In-Tangible assets
(2) Current assets
(a) Inventories
TOTAL
To
To
To
To
To
To
To
Goodwill
Machinery
Furniture
Stock
Debtors
Bank
Preference Shares holders
Amount
Amount
5,00,000
1,00,000
6,00,000
2,19,000
_10,000
1,22,000
40,000
2,09,000
Realization Account
`
10,000 By 12% Debenture
2,50,000 By Interest Outstanding
10,000 By Creditors
1,32,000 By XY
40,000 By Equity Share Holders
10,000
(Realization Loss)
_ 9,000
4,61,000
Equity Shareholders A/c.
`
2,29,000
3,71,000
6,00,000
`
1,00,000
12,000
1,00,000
1,59,000
90,000
_______
4,61,000
Page 21 of 32

To
To
To
To
Miscellaneous Exp.
Profit & Loss A/c.
Equity Shares Capital
Realization account
To
To
10,000
1,00,000
1,00,000
_90,000
3,00,000
By
Equity share capital A/c.
3,00,000
_______
3,00,000
Preference Share Capital Account

59,000 By Preference Share Capital
_______ By Realization
59,000
X Y Ltd.
1,59,000 By
1,59,000
Realization
50,000
9,000
59,000
Preference Share Capital
1,59,000
1,59,000

Balance Sheets of Big Ltd. as at 30th September, 1995

(a) Share capital
(b) Reserves and surplus = (1,000 + 1,48,000 + 3,00,000+ 1,91,500)
(a) Trade Payables
TOTAL
II. ASSETS
(a) Fixed assets (3,02,500 + 7,70,000 + 1,58,000)
(2) Current assets
(a) Inventories
(d) Preliminary expenses
TOTAL
Amount
(`
`)
Amount
(`
`)
12,96,000
_6,40,500
19,36,500
3,90,000
23,26,500
12,30,500
2,70,000
6,30,000
1,46,000
__50,000
10,96,000
23,26,500
Working Notes:
1. Ascertainment of Cash and Bank Balances as on 30th September, 1995
Balance Sheets as at 30th September, 1995
Liabilities
Big Ltd. Small Ltd. Assets
Big Ltd.
(`)
(`)
(`)
8,00,000
3,00,000 Building
1,95,000
10% Preference
Machinery
4,62,500
Share Capital
2,00,000 Furniture
95,000
General reserve
3,00,000
1,00,000 Investment
60,000
Profit & Loss A/c*
1,91,500
89,000 Stock
1,20,000
Creditors
1,80,000
2,10,000 Debtors
3,80,000
Cash & Bank(Balancing figure)
1,09,000
________ ________ Preliminary Expenses
_50,000
14,71,500
8,99,000
14,71,500
Small Ltd.
(`)
97,500
2,77,500
57,000
1,50,000
2,50,000
37,000
30,000
8,99,000
Page 22 of 32

Balance of Profit and Loss Account on 30th September, 1995
Net profit (for the first half)

Balance brought forward
Less: Dividend on Equity Share Capital Paid
Less: Dividend on Preference Share Capital Paid
Add: Dividend received (1/5 X 45,000)
Big Ltd.
(`)
1,02,500
2,00,000
3,02,500
1,20,000
1,82,500
____Nil
1,82,500
9,000
1,91,500
Small Ltd.
(`)
54,000
1,00,000
1,54,000
_45,000
1,09,000
_20,000
89,000
___Nil
89,000
Fixed Assets on 30th September, 1995 (Before absorption)
(1)
Building As on 1.4.1995
Less: Depreciation (5% p.a.)
(2)
Machinery As on 1.4.1995
Less; Depreciation (15% p.a.)
(3)
Furniture As on 1.4.1995
Less: Depreciation (10% p.a.)
Big Ltd.
(`)
2,00,000
5,000
1,95,000
5,00,000
_37,500
4,62,500
1,00,000
_5,000
95,000
Small Ltd.
(`)
1,00,000
2,500
_97,500
3,00,000
_22,500
2,77,500
60,000
_3,000
57,000
2. Calculation of Shares Allotted

Assets taken over:
Goodwill
Building
Add: 10%
Less: Depreciation
Machinery
Add: 10%
Less: Depreciation
Furniture
Add: 10%
Less: Depreciation
Stock
Debtors
Cash and Bank
Less: Liabilities taken over:
Creditors
Net assets taken over
Less: Allotment of 10% Preference Shares to preference
Shareholders of Small Ltd.
`
50,000
1,00,000
10,000
1,10,000
2,500
3,00,000
30,000
3,30,000
22,500
60,000
6,000
66,000
3,000
1,07,500
3,07,500
63,000
1,50,000
2,50,000
_37,000
9,65,000
2,10,000
7,55,000
2,00,000
Page 23 of 32

Less: Belonging to Big Ltd. (1/5 x 5,55,000) *
Payable to other Equity Shareholders
Number of equity shares of `10 each to be Issued (valued at `15 each) =
,,
[* 6,000 shares out of 30,000 shares of Small Ltd, are already with Big Ltd.]
5,55,000
1,11,000
4,44,000
= 29,600
3. Ascertainment of Goodwill / Capital Reserve

(A)
(B)
(C)
(D)
(E)

Preference shares allotted
Payable to other equity shareholders
Cost of investments
Capital Reserve [(A) - (B)]
Goodwill taken over
Final figure of Capital Reserve [(C) - (D)]
`
7,55,000
2,00,000
4,44,000
_60,000
7,04,000
51,000
50,000
1,000

Calculation of intrinsic value per shares
Fixed assets
Current Assets
Secured Loans
Goodwill
Amount payable to Preference share Holders
Less: Preference share capital
Number of Equity shares
Intrinsic value per equity share
(`
` in crores)
Big Small
Ltd.
Ltd.
200
429
200
200
(100) (100)
300
529
_40
_ 75
340
604
___60
340
544
__5
__4
68
136
Exchange Ratio = 1 for every 2 shares.

number of shares to be issued =

= 2.5 crores
Purchase Consideration = 2.5 x 10 = 25 crores

Fixed Assets
Current Assets
Secured Loans
Capital Reserve
(`
` in crores)
150
200
(100)
250
_25
225
Page 24 of 32

(a) Small Ltd.
Balance Sheets as at 1st April, 1998
(`
` in crore)
(a) Share capital
TOTAL
II. ASSETS
(a) Fixed assets
(2) Current assets
TOTAL
125
375
500
200
700
300
400
700
700
Calculation of intrinsic value per shares Post Amalgamation

Fixed assets
Current Assets
Secured Loans
Goodwill
Preference share capital
Number of equity shares
Intrinsic value per share = (884/6.5)
629
400
(200)
829
115
(60)
884
_6.5
136
Hence accuracy is checked.

(a) Computation of Purchase Consideration:
Goodwill
Fixed Assets
Stock
Cash and Bank (Balancing Figure Refer to Note 1)
Less: Liabilities taken over
NATO
Liabilities
Capital Reserve
Less: Goodwill
(b) Extraction of Balance Sheet of M Ltd. as at 31st September, 1997

` Assets
93,250
80,000
13,250
`
80,000
6,60,000
4,00,000
1,33,000
12,73,000
2,00,000
10,73,000
`
***
____
Page 25 of 32

Working Note:
(i) Balance Sheet of H Ltd. as at 30.09.1997 (Before absorption)
`
4,00,000 Block Assets
6,00,000
10% Pref. Sh. Capital
3,00,000 Less: Depreciation
32,500
Stock
General Reserve
1,00,000 Cash and Bank
Profit and Loss A/c
1,00,000
(Balancing figure)
Add: Profit for the first half
_70,500
1,70,500
Less: Dividend
Preference 30,000
Equity
40,000
_70,000
1,00,500
Creditors
2,00,000
11,00,500
`
5,67,500
4,00,000
1,33,000
________
11,00,500
(ii) Calculation of number of equity shares to be issued

Less: 10% preference shares
Less; 25% held my M Ltd.
Issue of shares by M Ltd. to outside shareholders of H Ltd.
So Number of shares to be issued to outside shareholders =
,,

`
10,73,000
3,00,000
7,73,000
1,93,250
5,79,750
57,975 shares
(iii) Calculation of Capital Reserve:

`
10,73,000

Less: Preference shares to be allotted
Equity shares to be allotted
Cost of investments
Capital Reserve
3,00,000
5,79,750
1,00,000
9,79,750
93,250
Note: In this question Balance Sheet as on 31.03.1997 is given. Profit for six months is given. Value of assets
as on 30.09.1997 is given. Dividend has been declared and paid. It should be kept in view that first 10%
preference shares will be paid dividend and then equity shareholders will be paid. For this reason, it is
necessary to prepare, balance sheet of H Ltd. as on 30.09.1997 (before absorption) to find out the balance of
cash and bank.

NAFESH W/o Investment
Fixed Assets
Current Assets
15% Debentures (3,00,000 x 12/15), (1,00,000 x 12/15)
Sundry Creditors
Net Asset
AB Ltd. MB Ltd.
`
`
7,00,000 3,00,000
4,00,000 1,00,000
(2,40,000) (80,000)
_(60,000) (20,000)
8,00,000 3,00,000
Page 26 of 32

(ii) Value of Shares of AB Ltd. and MB Ltd.
AB = `8,00,000 + 25% of MB
MB = `3,00,000 + 40% of AB
MB = `3,00,000 + 40% (`8,00,000 + 25% of MB)
= `3,00,000 + 3,20,000 + 10% of MB
90% MB = 6,20,000
MB = 6,88,889
AB = 9,72,222
So, amount payable to outside shareholders of AB 9,72,222 x 60% = 5,83,333
Amount payable to outside shareholders of MB 6,88,889 x 75% = 5,16,667
Fraction of `100 i.e. 33 + 67 is to be paid in cash.
Balance Sheets of AM Ltd.
as at 31st March, 1998
Amount (`
`)
(a) Share capital (5,83,300 + 5,16,600)
(a) Trade payables
TOTAL
II. ASSETS
(a) Fixed assets
(i) Tangible assets
(2) Current assets
TOTAL
10,99,900
3,20,000
__80,000
14,99,900
10,00,000
4,99,900
14,99,900

Computation of Purchase Consideration
Equity shares to be issued = (30,000 - 6,000) x 8/6 5,000 = 27,000
Value = 27,000 x 10 =
preference shares, to be issued =
2,70,000
_90,000
3,60,000
Journal
1.
Fixed Assets
To Revaluation Reserve
Reserve and Surplus
To Proposed Dividend
Dividend Received
To Reserves and Surplus
Proposed Dividend
To Cash
Cash
To Dividend Received
Dr.
Dr.
`
1,05,000
Dr.
60,000
Dr.
6,000
Dr.
60,000
Dr.
6,000
Cr.
`
1,05,000
60,000
6,000
60,000
6,000
Page 27 of 32

2.
Business Purchase
To Liquidator of B
Fixed Assets (2,50,000 x 115%)
Stock (3,20,000 x 95%)
Debtors (1,90,000 x 95%)
Cash
Bills Receivable
To Capital Reserve
To Debentures Holders
To Sundry Creditors
To Bills Payable
To Investments
Liquidator of B
To Preference Share Capital
Debentures Holders (1,50,000 x 108%)
To 12% Debentures
Discount on Issue of Debentures
To 12% Debentures
Goodwill /Capital Reserve
To Cash
Sundry Creditors
To Sundry Debtors
Dr.
3,60,000
Dr.
Dr.
Dr.
Dr.
Dr.
2,87,500
3,04,000
1,80,500
15,000
20,000
3,60,000
55,000
1,62,000
1,25,000
25,000
3,60,000
80,000
Dr.
3,60,000
2,70,000
90,000
Dr.
1,62,000
Dr.
18,000
Dr.
30,000
Dr.
10,000
1,62,000
18,000
30,000
10,000
Balance Sheets

(a) Share capital
(2) Non-Current liabilities
(a) Long term Borrowings
(a) Trade Payable
TOTAL
II. ASSETS
(a) Fixed assets
(2) Current assets
(a) Inventories
(d) Other
TOTAL
Amount
Amount
11,60,000
3,76,000
15,36,000
3,80,000
3,90,000
23,06,000
10,92,500
5,44,000
6,10,500
41,000
_18,000
12,13,500
23,06,000
Page 28 of 32

(i)Balance Sheets of Medium Ltd. as on 31st March, 2006
(a) Share capital
(a) Trade Payables
TOTAL
II. ASSETS
(a) Fixed assets
(i) Tangible assets
TOTAL
Amount
45,50,000
25,00,000
70,50,000
66,50,000
4,00,000
70,50,000
(ii) Statement of Shareholding in Medium Ltd.
Total value of Assets

Less: Pertaining to shares held by the other company
Rounded off to
Shares of new company (at `25 per share)
Total purchase consideration to be paid to Big Ltd and Small Ltd.
(`38,67,950 + `6,82,050)
Number of shares in Big Ltd. (40,00,000/100)
Number of shares in Small Ltd. (15,00,000/30)
Holding of Small Ltd. in Big Ltd. (5,000/40,000)
Holding of Big Ltd. in Small Ltd. (10,000/50,000)
Number of shares held by outsiders in Big Ltd. (40,000 5,000) =
Number of shares held by outsiders in Small Ltd. (50,000 10,000)
Big Ltd.
`
44,20,513
5,52,564
38,67,949
38,67,950
1,54,718
Small Ltd.
`
8,52,564
1,70,513
6,82,051
6,82,050
27,282
` 45,50,000
40,000 shares
50,000 shares
1/8
1/5
35,000
40,000
Workings Note:
Calculation of Book Value of Shares
Goodwill
Sundry Assets other than shares in other company
(56,00,000 2,50,000)
(20,00,000 7,00,000)
Less: Sundry Creditors
Big Ltd
`
1,50,000
Small Ltd.
`
2,50,000
53,50,000
________
55,00,000
12,50,000
42,50,000
13,00,000
15,50,000
12,50,000
3,00,000
If x is the Book Value of Assets of Big Ltd and y of Small Ltd.

x = 42,50,000 + 1/5 y
y = 3,00,000 + 1/8 X
x = 42,50,000 + 1/5 (3,00,000 + 1/8 X )
= 42,50,000 + 60,000 + 1/40 X
39/ 40x = 43,10,000
Page 29 of 32

x = 43,10,000 40/39
x = 44,20,513 (approx.)
y = 3,00,000 + 1/8 (44,20,513)
= 3,00,000 + 5,52,564
= `8,52,564 (approx.)
Book Value of one share of Big Ltd. = 44,20,513/ 40,000 = `110.513 (approx.)
Book Value of one share of Small Ltd. = 8,52,564/ 50,000= `17.05 (approx.)

(i) Statement of adjusted net profits of B Ltd
`
minus
12,000
60,000
40,000
_______
1,12,000
Reported net profit

Reduction in stock in trade
Sundry Debtors
Advertising
Directors Remuneration
Depreciation
Appreciation in investments
Adjusted
2005
`
plus
5,96,100
6,000
16,000
______
6,18,100
5,06,100
`
minus
34,000
60,000
______
94,000
(ii) Issue of Equity Shares equal to two years purchase of average profits:
A Ltd.
B Ltd.
` Weight
`
`
Year
Weight
2005
5,46,000
1
5,46,000
5,06,100
1
2006
6,12,000
2
12,24,000
9,21,000
2
17,70,000
Average
5,90,000
Two years purchase
11,80,000
Net Assets as adjusted
10,28,000
Total Purchase Consideration
22,08,000
2006
`
plus
8,58,000
12,000
9,000
30,000
16,000
90,000
10,15,000
9,21,000
`
5,06,100
18,42,000
23,48,100
7,82,700
15,65,400
11,81,000
27,46,400
Working Notes:
(i)
Shares will be issued for goodwill and 12% debentures for net assets.
(ii) Adjustment to net assets of B Ltd.
Furniture & Fixtures

Less: Depreciation @10% for 2 years
Quoted investments
Stock (7,42,000 34,000)
Debtors (8,91,000 + 9,000)
Prepaid exp. (48,000 30,000)
Cash at Bank
Less: Current Liabilities
Liability for directors remuneration
`
3,20,000
64,000
10,94,000
1,00,000
`
2,56,000
4,90,000
7,08,000
9,00,000
18,000
___3,000
23,75,000
11,94,000
11,81,000
Page 30 of 32

Balance Sheets of C Ltd as on ..
(a) Share capital (11,80,000 + 15,65,400)
(a)Long-term borrowings (10,28,000 + 11,81,000)
TOTAL
II. ASSETS
(a) Fixed assets
(b) Long Term Investments
(22,08,000 + 27,46,400)
TOTAL
Amount
27,45,400
22,09,000
49,54,400
49,54,400
49,54,400
(1)
(2)
(3)
Valuation of shares in subsidiaries:

Future maintainable EBIT
Less: Debenture interest
Less: Income tax @50%
Profit after tax
Less: Preference Dividend
Profit to Equity Shareholders
PE Ratio
Capitalized earning
Number of shares to be exchanged in EF Ltd. @ `12
(including pre. of `2 each)
Issued share Capital 1,19,500 Shares of `10 each
Share Premium (1,19,500 x 2)
Gross
Proceeds of new issue and cash flow:
37,500 shares @ `10 each
Share Premium @ 30%
Gross Proceeds
Less: Preliminary Expense
Administrative Expenses
Advance to AB Ltd.
Advance to CD Ltd.
Bank Interest
Add: Interest Receivable
Dividend Receivable AB Ltd.
Dividend Receivable CD Ltd.
Less: Dividend Payable (on `11,95,000 @ 4%)
AB Ltd.
`
CD Ltd.
`
2,30,000
20,000
2,10,000
1,05,000
1,05,000
___NIL
1,05,000
10
10,50,000
87,500
1,12,000
___NIL
1,12,000
56,000
56,000
8,000
48,000
8
3,84,000
32,000
11,95,000
2,39,000
14,34,000
`
3,75,000
1,12,500
4,87,500
8,000
16,000
2,50,000
2,00,000
1,600
50,000
17,600
4,75,600
11,900
11,250
67,600
90,750
47,800
42,950
Page 31 of 32

Statement of Profit & Loss
Dividend Income
Interest Income
Total
Bank Interest
Administration Expenses
Directors Fees
Total
Profit Before Tax
Dividend
Retained Earning
67,600
11,250
76,850
1,600
16,000
_7,500
25,100
53,750
47,800
5,950
Balance Sheet
(`
`)

(a) Share capital
(b) Reserves and surplus (3,51,500 + 5,950)
(a) Short-term Provisions
TOTAL
II. ASSETS
(a) Non Current Investments
(b) Long-term Loans & Advances
(2) Current assets
(a) Cash and cash equivalents
(b) Other Current assets
TOTAL
15,70,000
_3,57,450
19,27,450
___7,500
19,34,950
14,34,000
_4,50,000
42,950
_8,000
18,84,000
__50,950
19,34,950
Page 32 of 32

Solution of Amalgamation - Home Assignment

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Solution of Amalgamation - Home Assignment

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CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

AMALGAMATION, ABSORPTION AND RECONSTRUCTION

ASSIGNMENTS FOR HOME

Sundry Fixed Asset

Value of Consideration to be paid to Equity Share Holder = 58,50 950 = `49,00

Solution 2 (Page no. 48)

Sundry fixed assets

Discharge of Purchase Consideration

Equity Share Holders

Solution 3 (Page no. 49)

Total Purchase Consideration = 105,00 + 115,00 = 220,00

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

Tangible Fixed assets

Capital Average Profit

Profits before Debenture Interest

Solution 5 (Page no. 50)

Value of Yield = .  = 120

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

Share Holding in multiple of Five = 1,19,975

Solution 7 (Page no. 52)

Sundry Fixed Assets

Discharge of Purchase Consideration

AX = 13,000 x , = 6274.67

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

To Provision for Doubtful Debts

A Ltd. Reconstruction Account

Balance Sheet of A Ltd. as on 1st April 1988(After reconstruction)

External Reconstruction Scheme:

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

Land & Building

To Profit & Loss A/c

Equity Shareholders A/c

Books of Purchasing Company A Ltd. (1988)

Closing cash balance = 30,000 + 1,00,000 80,000 10,000 20,000 = 20,000

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

Equity Share Capital (`10 each) A/c

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

(Being payment of reconstruction expenses.)

(2) Bank Account

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

Preference Share Capital A/c.

Equity Share Capital

Debenture Holders A/c.

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

Solution 11 (Page no. 56)

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

Debit Balance of Profit & Loss Account

2. Proposed sacrifice by shareholders:

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

Current liabilities A/c

Journal of Mini Ltd.

Fixed assets A/c (300 - 100)

Note to Balance Sheet

A. Reserves and Surplus

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

Schedules to Balance Sheet

Solution 13 (Page no. 58)

Preference shareholders @ `150 per share (3 x 150) , (2 x 150)

CA FINAL FINANCIAL REPORTING NOVEMBER 2014 EXAM

Present Interest on Debenture @ 10%

Goodwill on Capital Reserve Computation

NATO (2,000 270 150 40), (1,500 120 70 20)

Value of Yield = . = 120

AX = 13,000 x , = 6274.67