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Amalgamation of Companies [AS 14]

The term Amalgamation refers to blending of two or more existing undertaking into
one undertaking. It contemplates not only blending two or more existing undertaking
into one undertaking, but also blending of one by another, which is called as

Absorption.
The ICAI has issued Accounting Standard 14 to deal with accounting for
amalgamation.
Amalgamation involves two types of company
i.

Transferee Company:
It means a company into which Transferor Company is amalgamated.

ii.

Transferor Company:
It means the company which is amalgamated into another company.

Amalgamation May Take Place in Any One of the Following Two Ways
i.

A new company is formed to take over the business of two or more existing

ii.

companies. It is called Pure Amalgamation.

One of the existing companies take over (absorbs) the business of another
existing company. It does not involve formation of a new company. This form of
amalgamation is known as Absorption.

TYPES OF AMALGAMATION
i. Amalgamation in the nature of merger:
Amalgamation is in the nature of merger provided following conditions are satisfieda) All

the

assets

&

liabilities

of

the

transferor

company

become,

after

amalgamation the assets & liabilities of the transferee company.

b) Shareholders holding 90% of the face value of the equity shares of the
transferor company (other than equity shares already held therein, immediately
before amalgamation by the transferee company or its subsidiaries or their
nominees) become equity shareholders of the transferee company by virtue of
the amalgamation.

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c) The consideration for the amalgamation receivable by those equity shareholders
of the transferor company who agree to become equity shareholder of the
transferee company is discharged by transferee company only by the issue of
equity shares in the transferee company except that cash may be paid in
respect of any fractional shares.
d) The business of the transferor company is intended to be carried on by the
transferee company after amalgamation.
e) No adjustment is intended to be made to the book values of assets & liabilities
of the transferor company. When they are incorporated in the financial
statement of the transferee company except to ensure uniformity of accounting
policies.

ii.

Amalgamation in the nature of purchase

It is a type of amalgamation, which does not satisfy any one or more of the five
conditions which are applicable to amalgamation in the nature of merger

Methods of accounting for amalgamation

1) The pulling of interest method in the books of Transferee Company.
2) The purchase method in the books of Transferee Company.

Pulling of interest

Purchase method

method
Applicability.

Recording of
Assets &
Liabilities &
Reserves.

It is applicable in the case

It is applicable in the

of an amalgamation in the

case of an

nature of merger.

amalgamation in nature

Assets & Liabilities &

of purchase.
Assets & Liabilities

Reserves of the transferor

which are taken over are

company are recorded by

recorded in the books of

the transferee company in

transferee company. The

the books of A/cs.

reserves except
statutory reserves of the
transferor company are
not aggregated with
those of the transferee

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Value at which
recorded
Adjustment of
difference

Statutory
Reserves

As per the book value in

company.
At the revised or agreed

the books of transferor.

value.

The difference between the

The difference between

consideration paid and the

the consideration paid

share capital of the

and the net assets taken

transferor company is

over is treated by the

adjusted in general

transferee company as

reserves or other reserves

goodwill or capital

of the transferee company.

reserves as the case

Statutory reserves of the

may be.
Statutory reserve of the

transferor company are

transferor company are

incorporated in the books

incorporated in the

of transferee company like

books of transferee

all other reserves. No

company under the A/c

amalgamation Adjustment

Amalgamation

A/c is required to be open.

Adjustment A/c.

Purchase Consideration
For

the purpose

of Accounting

for

Amalgamation,

AS-14

defines

the

term

consideration as The aggregate of shares and other securities issued and the payment
made in the form of cash or other assets by the transferee company to the
shareholders of the transferor company.
Thus, the consideration does not include payments made to or for creditors or any
other person. Consideration implies the value agreed upon for the net assets taken
over. The amount depends on the terms of the contract between Transferor Company
and Transferee Company.

Methods of computation of purchase consideration:

Following are different methods of computing purchase consideration.
1. Lump sum method.
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2. Net Assets method.
3. Total payment method.
4. Intrinsic worth method.

Lump sum methodIn Lump sum method the problem may state directly the amount of purchase
consideration (PC) and there will be no need of any calculation. For e.g.- Rajesh Ltd
take over the business of Rajan Ltd for a sum of Rs. 275000.Here P.C is Rs. 275000.

Net Assets MethodUnder the net assets method, P.C is arrived at by adding agreed value of assets taken
over by the purchasing company and deducting there from agreed value of liabilities
taken over by the purchasing company.
Only those Assets & Liabilities which are taken over are considered for calculation of
P.C.
It should be noted that fictitious assets such as preliminary expenses, under writing
commission, discount on issue of shares or debentures, expenses on issue of shares or
debentures and debit balance of P&L A/c are not taken over.

Illustration:
Given below are balance sheets of A Ltd & B Ltd as on 31 st December, at which date,
the companies were amalgamated & the new company C Ltd was form.
Balance sheet
Liability
Equity Share of

A Ltd
70000

B Ltd
60000

Assets
Fixed Assets

A Ltd
85000

B Ltd
70000

Rs.10 each
Reserves

20000

40000

Current

20000

30000

10000

Assets
Misc

Current Liability

15000

10000

expenditure
1,05,000

1,10,000

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1,05,000

1,10,000

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It was agreed that Fixed Assets of A Ltd would be valued at Rs. 100000 and that of
B Ltd at Rs. 95000. C Ltd would issue requisite no. of equity share of Rs.10 each at
10% premium. To discharge the claim of the equity shareholder of A ltd and B ltd. How
many shares of C ltd should be issued to take over the business of 2 merging
companies?
Solutions:

Calculate of purchase consideration:

Net Assets

A Ltd

B Ltd

Fixed assets
Current assets
Total assets
Less: liabilities taken over

1,00,000
20,000
1,20,000
15,000

95,000
30,000
1,25,000
10,000

P.C

1,05,000

1,15,000

Total purchase consideration= 105000+115000=220000

No. of Equity shares to be issued=220000/11=20000
Hence C ltd will be form where the paid up capital of Rs. 200000 and securities
premium of Rs. 20000.

Total Payment Method

Under this method consideration is ascertained by adding up the cash paid, agreed
value of assets given and agreed value of securities allotted by the transferee company
to the transferor company in discharge of consideration.
For e.g.: Ketan ltd takes over business of Abdul ltd and agrees to pay Rs. 70,000 in
cash and allot to Abdul ltd 50,000 equity shares of Rs.100 each fully paid at an agreed
value of Rs.150 per share .
Calculation of P.C.:
Particulars
Cash
50,000 equity share of Rs. 100 each at
agreed value of Rs. 150 per share

Rs
70,000
75,00,000

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P.C.

75,70,000

Intrinsic Worth Method.

In this method, the P.C. is to be ascertained on the basis of proportion in which the
shares of the transferee company are exchange for the shares of the transferor
company. The proportion or ratio of exchange is usually determined on the basis of
intrinsic value of share of the both companies.

Illustration:
Manoj Ltd is absorbed by Purvish Ltd. Given below are balance sheets of two
companies taken after revaluation of their assets on uniform basis
Manoj ltd

Purvish

Manoj ltd

Purvish

ltd
Authorized capital

Sundry

33,70,00

ltd
87,15,00

9000 shares of Rs. 300 each

assets
Cash at

0
7,000

0
55,000

40,000 shares of Rs. 180 each.

Paid up capital
9,000 shares of Rs. 270per
share paid up.
40,000 shares of Rs. 150 per
share paid up
Creditors
General reserves
P&L A/c

27,00,000

72,00,00
0

24,30,000

bank

60,00,00

1,10,000
8,07,000

0
1,30,000
25,70,00

30,000

0
70,000

33,77,000

87,70,00

33,77,00

87,70,00

The holders of every three shares in Manoj ltd were to receive 5 shares in Purvish ltd
plus as much cash as is necessary to adjust the rights of shareholders of both the

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companies in accordance with the intrinsic

value of the shares as per respective

balance sheets. Calculate purchase consideration.

Solutions:
Particulars
Total assets

Manoj ltd
33,77,000

Purvish ltd
87,70,000

Less: Liabilities
Net assets
Intrinsic value= Net assets/no. of

1,10,000
32,67,000
32,67,000/900

1,30,000
86,40,000
86,40,000/4000

equity shares

0
363

0
216

Value of 3 shares in Manoj ltd

1089

(363*3)

Value of 5 shares in Purvish

1080

ltd(216*5)
Difference in value (1089-

1080=9)

Particulars
1. Shares: Old
:
New
3
5
9000
? (15,000)
Hence 15,000 shares * Rs. 216
2. Cash : 9000 * Rs. 9 per share
3
Purchase consideration

Rs.

32,40,000
27,000

32,67,000

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Accounting in the books of Transferor Company:
Necessary accounts to be open:

1. Realisation A/c.
2. Equity shareholders A/c.
3. Preference Shareholders A/c.
4. Cash at bank A/c.
5. Transferee Companys A/c.
6. Equity shares in Transferee Companys A/c.
7. Preference shares in Transferee Companys A/c.

Entry in books of Transferor Company

1. Transfer all assets to Realisation A/c at book value
Realisation A/c-------Dr
To Assets

2. Provision and accumulated reserves transfer to Realisation

A/c:
Provision/reserves A/c-------Dr
To Realisation

3. Transfer all liabilities to Realisation A/c.

Liabilities A/c-------Dr
To Realisation

4. Transferring equity share capital:

Equity share capital A/c---------Dr
To equity share holders A/c

5. Transferring accumulated profits:

Accumulated profits A/c---------Dr
To equity shareholders

6. Transferring accumulated losses:

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Equity shareholders a/c---------Dr
To accumulated losses.

7. Recording claim of pref. shareholders.

a. At Par:
Pref. share Capital A/c---------Dr
To pref. shareholders A/c

b. If payable at premium

Pref. share capital A/c---------Dr (face Value)

Realisation A/c------------------Dr (Premium)
To pref. shareholders A/c

c. If at discount

Pref. share capital A/c--------Dr (Face value)

To pref. shareholders A/c (net amt)
To Realisation A/c (Discount)

8. Record Realisation Expense:a. If paid by transferor company:Realisation A/c-----------Dr

To Bank A/c

b. Transferor company pays for expenses to be reimburse by the

transferee company.

1. Transferee Co. A/c--------Dr

To Bank A/c
2. Bank A/c--------------------Dr
To transferee co A/c

9. Record purchase consideration:Transferee Co A/c-------------Dr

To Realisation A/c

10.

Record of receipt of P.C:-

Cash/Bank A/c---------------------------Dr
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Equity share in new co A/c---------Dr
Pref. share in new co A/c------------Dr
To Transferee co A/c

11.

Record sale on Realisation of Assets not taken over

by transferee co:Bank A/c------------------Dr

To Realisation A/c

12.

Payment of settlement of liabilities not taken over by

transferee co:Realisation A/c------------Dr

To Bank A/c

13.

Settle the claim of pref. shareholders:-

Pref. shareholders A/c----------------Dr

To Cash A/c
To equity share in transferee co
To pref. share in transferee co
To debentures in transferee co

14.

Record profit or loss on Realisation:-

1. If there is profit:-

Realisation A/c---------------Dr
To equity share holders A/c

2. If it is loss

Equity shareholders A/c------------Dr

To Realisation A/c

15.

Settle the account of equity shareholder :-

Equity shareholders A/c--------------Dr

To Cash
To Employee share in transferee co A/c
To Pref. share in transferee co A/c
To debenture in transferee co A/c
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Accounting

procedure

in

the

books

of

transferee

company:(In case of Amalgamation is in the nature of purchase & hence

the purchase methods are as follows)

1. Record P.C.:Business Purchase A/c-------------Dr

To liquidators of transferor A/c

2. Record Asset & Liabilities taken over

Assets A/c--------------------Dr
To Liabilities A/c
To Business Purchase A/c

a. If in above mention entry total of credit exceeds total of

debit such excess is considered as G/W
Assets A/c-----------------Dr
G/W A/c-------------------Dr
To Liabilities A/c
To Business purchase A/c

b. On the other hand if total debit exceeds total credit such

excess is credited to Capital Reserves A/c
Assets A/c------------------Dr
To Liabilities A/c
To Capital Reserves A/c
To Business Purchase A/c

3. Record statutory reserve of the transferor company

Amalgamation Adjustment A/c---------------Dr
To Statutory Reserve A/c
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4. If Business purchase A/c is not to be open the following
entry is passed:i.

Assets taken over A/c-------------Dr

To Liabilities taken over A/c
To Liquidators of transferor company A/c

5. Discharge of P.C.:a. Issue of Securities at par :Liquidator

To
To
To
To

of transferor company A/c-------------Dr

Cash/Bank A/c
Equity share capital A/c
Pref. share capital A/c
Debenture A/c

b. Issue of Securities at discount :Liquidator of transferor A/c-----------Dr

To Cash/Bank A/c
To Equity share capital A/c
To Pref. share capital
To Debentures

c. Issue of Securities at premium

Liquidator
To
To
To
To
To

of Transferor Company A/c-----------Dr

Equity share capital A/c
Pref. share capital A/c
Debenture A/c
Sec. Premium A/c
Cash/Bank A/c

6. Record expenses of liquidation to be borne.

Goodwill A/c---------------Dr
To Cash A/c

7. Payment of preliminary Expenses

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Preliminary Expenses A/c------------------Dr
To Cash/Bank A/c

8. Discharge of debenture of transferor company

Debenture in transferor company A/c--------------Dr (take over value)
Discount on issue of transferee company A/c---------Dr (discount if any)
To Debenture in transferee company A/c (face value)
To Sec. Premium A/c (premium if any)
To Bank A/c (paid if any)

In case the Amalgamation is in the nature of merger & hence

pulling of interest method is as follows:-

1. Record the P.C.

Business Purchase A/c-------------Dr
To Liquidators of transferor company A/c

2. Records Assets & Liabilities taken over

Assets A/c--------------------Dr
Miscellaneous A/c------------Dr
To Reserves A/c
To Business Purchase A/c
To Liabilities A/c

3. Discharge of P.C.
a. Issue of shares at par:Liquidator
To
To
To

of transferor company A/c-------------Dr

Cash/Bank A/c
Equity share capital A/c
Pref. share capital A/c

b. Issue of Share at discount :-

Liquidator of transferor company A/c-----------Dr

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Discount on issue A/c-------------------------Dr
To Equity share capital A/c
To Pref. share capital
To Cash/Bank A/c

c. Issue of Share at premium

Liquidator
To
To
To
To

of Transferor Company A/c-----------Dr

Equity share capital A/c
Pref. share capital A/c
Cash/Bank A/c
Sec. Premium A/c

4. Discharge the Liability of Transferor Company:a. Issue of Debenture at par :Debenture of transferor A/c--------Dr
To Debenture A/c

b. Issue of Debenture at premium :Debenture of transferor A/c--------Dr

To Debenture A/c
To Sec. Premium A/c

c. Issue of Debenture at discount :Debenture of transferor A/c--------Dr

Discount on issue A/c----------------Dr
To Debenture A/c

5. Record the liquidation expenses

If the transferee company bearers the expenses of liquidation of
transferor company.
The cost of business taken over, positives by the amount of
expenses, hence it is adjusted in the G/R A/c.
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General Reserves A/c----------Dr
To Cash/Bank A/c

6. Record the expenses incurred by the transferee company

for its own formation:Preliminary expenses A/c---------------------Dr
To Bank A/c

Problem no -01
Following are the balance sheets of Rahul Ltd. and Mehul Ltd. as on 31st March, 2010.
Liabilities

Rahul Ltd
Rs

Mehul

Assets

Rahul Ltd

Ltd

Rs

Mehul
Ltd

Equity shares of Rs. 10 each,

5,00,000

Rs
3,00,000

Goodwill

Rs
50,000

fully paid
10% preference shares of Rs.

2,00,000

Building

3,00,000

4,00,000

100 each fully paid

12% preference shares of Rs.

3,00,000

Machinery

1,00,000

90,000

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100 each fully paid
General Reserve
Profit & Loss A/c
Statutory Reserve
9% debentures of Rs. 100 each
Sundry creditors

1,00,000
50,000
20,000
1,50,000
1,00,000

1,21,000
40,000
10,000
1,50,000
59,000

Furniture
Investments
Debtors
Stocks
Other current

20,000
2,00,000
3,00,000
1,00,000
2,30,000

10,000
50,000
1,50,000
1,00,000
50,000

30,000

20,000

12,80,000

9,20,000

Other Liabilities

60,000

40,000

assets
Bank

Total

12,80,000

9,20,000

Total

On the above date Rahul ltd. takes over the business of Mehul ltd. on the following
terms and conditions:
1. All fixed assets (other than goodwill) are to be taken over at 20% above book
values and current assets (other than cash & bank balance) are valued at 15%
below book values.
2. Goodwill to be consider as worth Rs. 1,50,000.
3. Equity shares holders of Mehul ltd are to be issued, 8 equity shares of Rs. 10
each in Rahul ltd at Rs. 12 each, for every 5 equity shares in Mehul ltd. Balance
of purchase consideration to be paid in cash.
4. 10% preference share holders of Mehul ltd are to be paid at 10% premium by
issue of 12% preference shares of Rahul ltd at par.
5. Investments of Mehul ltd represent investments in own debentures of face value
Rs. 50,000 purchased at par, which are to be cancelled before the company is
taken over by Rahul ltd.
6. Investments of Rahul ltd include investments in 9% debentures of Mehul ltd of
face value Rs. 1, 00,000 purchased at Rs. 95,000.
7. Sundry debtors of Rahul ltd include Rs. 5,000 due from Mehul ltd.

You are required to:

1. Compute Purchase Consideration.
2. Pass necessary Journal Entries in the books of Rahul Ltd.
3. Prepare Balance Sheet of Rahul Ltd. after amalgamation

Problem no -02
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Josh ltd and Ashish ltd were amalgamated on & from 1 st April, 2009. A new company
namely Shilpa ltd was formed to take over the business of Josh ltd & Ashish ltd.
Balance sheets as on 31st march, 2009
Liabilities

Josh Ltd
Rs

Ashish

Assets

Josh Ltd

Ltd

Rs

Ashish
Ltd

Equity shares of Rs. 100 each,

4,00,000

Rs
3,75,000

Land & Building

3,00,000

Rs
1,50,000

fully paid
12% preference shares of Rs.

1,50,000

1,00,000

Plant &

1,50,000

1,80,000

machinery
Computers
Stocks
Debtors
Bills receivable

75,000
2,00,000
1,25,000
90,000

20,000
1,00,000
2,00,000
20,000

100 each fully paid

General Reserve
Profit & Loss A/c
Statutory Reserve
10% debentures of Rs. 100

85,000
25,000
1,00,000
30,000

75,000
15,000
75,000
15,000

each
Sundry creditors
Bills payable

1,10,000
1,00,000

70,000
25,000

Bank

60,000

80,000

Total

10,00,000

7,50,000

Total

10,00,000

7,50,000

Additional information:
a) Shilpa ltd issued five equity shares, for each equity share of Josh ltd and four
equity shares, for each equity shares of Ashish ltd. The shares are of Rs. 10
each, issued at Rs. 30.
b) Preference shareholders of both the companies are issued equivalent number of
15% preference shares of new company at Rs. 150 per share (face value Rs.
100)
c) 10% debentures holders of Josh ltd and Ashish ltd are discharged by Shilpa ltd
issuing such number of its 15% debenture of Rs. 100 each so as to maintain
the same amount of interest.
d) Shilpa ltd revalued following assets taken over from Josh ltd and Ashish ltd.

Land & Building

Josh ltd

Ashish ltd

4,00,000

2,00,000

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Plant & machinery

1,20,000

1,50,000

Computers

70,000

10,000

Stocks

1,50,000

80,000

Debtors

1,10,000

1,90,000

You are required to:

1. Compute Purchase Consideration.
2. Pass Journal Entries in the books of Shilpa Ltd. under Purchase Method.
3. Prepare Balance Sheet of Shilpa Ltd. after amalgamation.

Problem no -03
Following are the balance sheets of Alpha Ltd. and Beeta Ltd. as on 31 st March, 2008.
Balance sheets as on 31st march, 2008
Liabilities

Alpha Ltd

Beeta Ltd

Rs

Assets

Alpha Ltd

Beeta Ltd

Rs
60,000
6,50,000

Rs
1,00,000
7,00,000

Rs

Share capital:
7% preference shares of Rs.

4,50,000

6,00,000

Goodwill
Premise

100 each
Equity shares of Rs. 100 each

8,00,000

12,00,00

Plant &

4,80,000

6,20,000

General Reserve
Profit & Loss A/c
Statutory Reserve

70,000
45,000
27,000

0
80,000
62,000
48,000

machinery
Computers
Stocks
Sundry

1,20,000
1,80,000
1,10,000

2,00,000
2,50,000
3,15,000

10% debentures

1,50,000

84,000

Debtors
Bills

30,000

20,000

Sundry creditors
Bills payable

75,000
25,000

1,20,000
35,000

receivable
Bank

12,000

24,000

Total

16,42,000

22,29,00

Total

16,42,000

22,29,00

Beeta ltd takes over Alpha ltd on 1st April, 2008on the following terms:
1. Beeta ltd discharged purchase consideration as under:
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a. Issued 10,000 equity shares of Rs. 100 each at a premium of 5% for the equity
shareholders of Alpha ltd.
b. Issued 8% preference shares of Rs. 100 each at a par to discharge the
preference shareholders of Alpha ltd at 10% premium.
2. The debentures of Alpha ltd to be converted into equivalent number of
debentures of Beeta ltd.
3. Sundry debtors of Beeta ltd include Rs. 25,000 being amount due from Alpha
ltd.
4. Bills payable of Alpha ltd includes Rs. 7,000 being the amount of bills accepted
in favour of Beeta ltd but the bills receivable of Beeta ltd includes Rs. 5,000 only
being the amount of bills due from Alpha ltd.
5. The stock of Beeta ltd includes Rs. 30,000 worth of goods purchased from
Alpha ltd on which Alpha ltd made a profit of 25% on cost.
You are required to:
1. Calculate Purchase Consideration.
2. Pass Journal Entries in the books

of

Beeta

Ltd.

assuming

that

amalgamation is in the nature of purchase.

3. Prepare Balance Sheet of Beeta Ltd. after amalgamation.

Problem no -04
Following are the balance sheets of X Ltd. and Y Ltd.
Balance sheets as on 31st march, 2006
Liabilities

X Ltd

Y Ltd

Assets

X Ltd

Y Ltd

Equity shares capital of Rs. 10

Rs
75,00,000

Rs
45,00,00

Building

Rs
25,00,000

Rs
15,50,00

each
Export Profit Reserves

3,00,000

0
3,00,000

Machinery

32,50,000

0
17,00,00

Profit & Loss A/c

7,00,000

6,00,000

Stocks

25,50,000

0
18,00,00

General Reserve

2,00,000

4,50,000

Debtors

9,00,000

0
10,00,00

12% debentures of Rs. 100

5,00,000

3,00,000

Bank

7,00,000

0
5,50,000

each
Sundry creditors

7,00,000

5,50,000

Preliminary

1,00,000

Expenses
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Total

99,00,000

67,00,00

Total

99,00,000

67,00,00
0

Z ltd was formed to acquire all assets and liabilities of X ltd & Y ltd on the following
terms:
1. Z ltd to have an authorized share capital of Rs. 5 crores divided into 5, 00,000
equity shares of Rs. 100 each.
2. The business of both companies were taken over for a total price of Rs. 1.20
crores to be discharged by Z ltd by issue of equity shares of Rs. 100 each at a
premium of 20% .
3. The shareholders of X ltd & Y ltd to get shares in Z ltd in the ratio of net assets
values of their respective shares.
4. The debentures of both the companies to be converted into equivalent number
of 14% debentures of Rs. 100 each in Z ltd at a discount of 10%.
5. All the tangible assets of both the companies are taken over by Z ltd at book
values except the following:
Assets

X Ltd

Y Ltd

Rs
Rs
Building
28,00,000
18,20,000
Machinery 31,50,000
16,00,000
6. Sundry creditors of X ltd and Y ltd are taken over at Rs. 650000 and
Rs. 500000 respectively.
7. Statutory reserves are to be maintained for 3 years more.
You are required to:
1. Compute Purchase Consideration of X Ltd. and Y Ltd.
2. Pass Journal Entries in the books of Z Ltd.
3. Prepare Balance Sheet after amalgamation.
Apply Purchase Method

Problem no -05
BK ltd is formed to take over Bunty ltd and Kuber ltd. Their balance sheets on the date
of amalgamation are as follows:
Balance sheets as on 31st march, 2006
Liabilities

Bunty Ltd
Rs

Kuber Ltd

Assets

Rs

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Bunty Ltd

Kuber Ltd

Rs

Rs
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Share capital of Rs. 10 each:
Equity shares
11% preference shares
General Reserve
Profit & Loss A/c
9% debentures
Sundry creditors
Other Liabilities

2,40,000
1,50,000
45,000
30,000
1,00,000
60,000
40,000

1,60,000
1,00,000
40,000
21,000
1,00,000
40,000
24,000

Goodwill
Buildings
Machinery
Furniture
Investments
Debtors
Stocks
Cash & Bank
Other current

1,50,000
80,000
10,000
1,40,000
1,65,000
75,000
13,000
20,000

25,000
1,40,000
60,000
5,000
80,000
60,000
90,000
8,000
10,000

assets
Preliminary

12,000

7,000

6,65,000

4,85,000

Expenses
Total

6,65,000

4,85,000

Total

BK ltd issued 10,000 equity shares of Rs. 10 each to the public at a premium of 10%.
Bunty ltd & Kuber ltd were taken over by BK ltd on the following terms:
Re: Bunty ltd.
1. Equity shareholders are to be issued 7 equity shares of Rs. 10 at par in BK ltd
and are to be paid Rs. 5 in cash for surrender of each 6 shares.
2. Preference shareholders are to be paid at 10% premium by 12.5% preference
shares in BK ltd issued at par.
3. All assets and liabilities are valued at book value except machinery which is
valued at 10% below book value and debtors are worth Rs. 1, 60,000.
4. Liquidation expenses of Rs. 12,500 are to be borne by BK ltd.
5. Discharge the debentures of Bunty ltd at a discount of 10% by the issue of 13%
debentures of Rs. 100 each in BK ltd.
Re: Kuber ltd
1. Cash Rs. 3,000 is to be retained for liquidation expenses.
2. Debtors and investments are valued at 90% of cost.
3. Machinery and stock are valued at 10% above cost and other assets and
liabilities are valued at book value except fictitious assets.
4. Preference shareholders are to be paid at 10% premium by 12.5% preference
shares in BK ltd issued at par.
5. Balance of purchase consideration is payable in equity shares at par.
6. Discharge the debentures of Kuber ltd at par by the issue of 13% debentures of
Rs. 100 each in BK ltd.
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The face value of equity shares and preference shares in BK Ltd. is Rs. 10 each.
Show the necessary ledger accounts in the books of Bunty Ltd. and Kuber Ltd. Also
calculate purchase considerations.

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