SEM 4

CR – Assignment

1) Following are the Balance sheet of Bold Limited and Beautiful

Limited as on 31st March, 2011.

Liabilities Bold Ltd Beautiful Ltd Assets Bold Ltd Beautiful

Rs Rs Rs Ltd Rs
Equity 5,50 ,000 2,00,000 Land & 2,00,000 -
Share building
capital (Rs
10 each)
General 4,00,000 2,50,000 Plant & 3,00,000 2,60,000
reserve machinery
Profit & 1,00,000 48,000 Furniture 50,000 30,000
Loss ac & fixture
Statutory 50,000 - Investment 1,00,000 -
reserve (Market
value – Rs
1,25,000)
12% - 1,00,000 Current 7,40,000 4,55,000
Debenture Assets
Current 3,00,000 1,52,00 Preliminar 10,000 5,000
liabilities y Expenses

14,00,000 7,50,000 14,00,000 7,50,000

The two companies agreed to amalgamate and form a new company called
"Bold and Beautiful Ltd." with an authorized capital of Rs. 20,00,000 consisting
of 2,00,000 equity shares of Rs. 10 each. The terms of agreement were as under
(a) All the assets and liabilities of both companies were takenover at their book
value except Land & Building at book value plus 10%, Plant & Machinery at
book value less 5%, and Investment at its Market value.
(b) Both the companies received 5% of the net valuation of their respective
business as Goodwill.
© The entire purchase consideration was paid in the form of equity shares of Rs.
10 each fully paid at a premium of Rs. 5 per share.
(d) 12% Debenture were redeemed at par by issue of equity shares of Rs. 10
each fully paid by the amalgamated company at par.
You are required to:
(i) Prepare a statement of computation of purchase consideration as per
AS-14.
(ii) Prepare a Balance Sheet of Bold and Beautiful Limited after
amalgamation in the nature of Purchase method.

Solution:
Calculation of Purchase Consideration
Particulars Bold Ltd Beautiful Total
Ltd
(A) Assets taken over at
agreed value:
Land & building 2,20,000 - 2,20,000
Plant & machinery 2,85,000 2,47,000 5,32,000
Furniture & fixtures 50,000 30,000 80,000
Investment 1,25,000 - 1,25,000
Current assets 7,40,000 4,55,000 11,95,000
( A) 14,20,000 7,32,000 21,52,000
(B) Less: External liabilities
12% Debenture - 1,00,000 1,00,000
Current liabilities 3,00,000 1,52,000 4,52,000
( B ) (3,00,000) (2,52,000) 5,52,000
( C) Net Assets 11,25,000 4,80,000 16,00,000
(D)Add: Goodwill @5% of net assets 56,000 24,000 80,000
(E) Purchase Consideration 11,76,000 5,04,000 16,80,000

= 78,400 = 33,600 = 1,12,000

Discharge of purchase consideration

Particulars Bold Ltd Beautiful Total
Ltd
(A) Equity share 11,20,000
= 78,400 shares of Rs. 10 each 7,84,000
= 33,600 shares of Rs. 10 each 3,36,000
 (B) Security premium 5,60,000
= 78,400 X 5 3,92,000
= 33,600 X 5 1,68,000
11,76,000 5,04,000

In the books of Bold and Beautiful Ltd.

Journal Entries

Date Particulars LF Debit Rs. Credit Rs.

(1) Business purchase a/c 16,80,000
To Liquidator of bold ltd. 11,76,000
To liquidator of beautiful ltd. 5,04,000
(Being business purchased)
(2) Goodwill a/c 80,000
Land & building a/c 2,20,000
Plant & machinery a/c 5,32,000
Furniture & fixtures 80,000
Investment a/c 1,25,000
Current assets a/c 11,95,000
To 12% debenture a/c 1,00,000
To current liabilities a/c 4,52,000
To business purchase a/c 16,80,000
(Being assets and liabilities taken over)
(3) Liquidator of bold ltd. a/c 11,76,000
To equity share capital a/c 7,84,000
To security premium 3,92,000
(Being purchase consideration paid)
(4) Liquidator of beautiful ltd. a/c 5,04,000
To equity share capital a/c 3,36,000
To security premium a/c 1,68,000
(Being purchase consideration paid)
(5) 12% debenture a/c 1,00,000
To equity share capital a/c 1,00,000
(Being equity share issued)
(6) Amalgamation adjustment a/c 50,000
To statutory reserve a/c 50,000
(Being statutory reserve carried forward)
 In the books of Bold and Beautiful Ltd.
Opening balance sheet as on 01/04/2016
Particulars Amount (Rs) Amount (Rs)
(A) Equity and liabilities:
(1) Shareholders’ Funds:
(a) Share capital 12,20,000
(b)Reserve and surplus:
Statutory reserve 50,000
Security premium 5,60,000 6,10,000
(2) Non-current liabilities: -
(3) Current liabilities 4,52,000
Total (1+2+3) 22,82,000
(B) Assets:
(1) Non-current assets:
(a) Fixed assets:
(i) Tangible assets:
Land & building 2,20,000
Plant & machinery 5,32,000
Furniture & fixture 80,000 8,32,000
(ii) Intangible assets:
Goodwill 80,000
(b) Investment 1,25,000
(2) Current assets: 11,95,000
(3) Miscellaneous expenses:
Amalgamation adjustment a/c 50,000
Total (1+2+3) 22,82,000

2) Following are the balance sheet of M/s SMS and M/s MMS Ltd. As
on 31-03-2011:
Liabilities SMS Ltd. MMS Assets SMS Ltd. MMS
Rs. Ltd. Rs. Rs. Ltd Rs.
Share capital Land & 8,00,000 1,50,000
authorised: building
(Equity share 1,00,000 5,00,000 Plant & 3,00,000 2,30,000
of rs. 10 each) machinery
Equity share of 5,00,000 2,00,000 Vehicles 39,000 21,000
Rs. 10 each
filly paid up
Security 2,00,000 - Stock 3,10,000 1,50,000
premium
General 5,00,000 2,50,000 Sundry 1,00,000 50,000
reserve debtors
Profit & loss 1,00,000 60,000 Bills 45,000 22,000
a/c receivable
Term loan 2,00,000 - Prepaid 40,000 30,000
expenses
Sundry 1,50,000 1,50,000 Cash at bank 1,60,000 45,000
creditors
Bills payable 30,000 10,000 Cash on hand 6,000 2,000
Outstanding 20,000 10,000
expenses
Proposed 1,00,000 20,000
dividend

18,00,000 7,00,000 18,00,000 7,00,000

(1) SMS Ltd. absorbed MMS Ltd. on above date issuing 2 equity shares of Rs.
10 each fully paid at a premium of Rs. 5 per share for every one share in MMS
Ltd.
(2) Before merger, each company declared and paid the dividend to all its
respective shareholders as proposed by its respective Boards of Directors for the
year ending31-3-2005.
(3) SMS Ltd. paid Rs. 25,000 being the cost of absorption.
(4) SMS Ltd.'s Bills Receivable included Bill of Rs 10,000 being accepted by
MMS Ltd.
(5) Stock of MMS Ltd. included goods worth Rs 50,000 supplied by SMS Ltd.,
SMS Lid. sold goods on the basis of profit margin @ 25% on its cost.
You required to:
(1) Pass journal entries in the books of SMS Ltd. and
(2) Balance Sheet of SMS Ltd. after absorption under the amalgamation in the
nature of merger.

Solution:
Calculation of Purchase Consideration.
Particulars Amount (Rs)
20,000 X 2 (offer)
1 (held) = 40,000 Shares
40,000 Equity share @Rs. 10 each 4,00,000
Security premium (40,000X5) 2,00,000
Purchase consideration 6,00,000

In the books of SMS Ltd.

Journal Entries
Date Particulars LF Debit Rs Credit Rs
(1) Business purchase a/c 6,00,000
To liquidator of MMS Ltd. 6,00,000
(Being business purchased)
(2) Land &building a/c 1,50,000
Plant & machinery a/c 2,30,000
Vehicle a/c 21,000
Stock a/c 1,50,000
Sundry debtor a/c 50,000
Bills receivable a/c 22,000
Prepaid expenses a/c 30,000
Cash at bank 25,000
Cash on hand 2,000
Goodwill a/c 90,000
To sundry creditor a/c 1,50,000
To bills payable a/c 10,000
To outstanding expenses 10,000
To business purchased 6,00,000
(Being assets and liabilities taken over)
(3) Liquidator of MMS Ltd. a/c 6,00,000
To equity share capital a/c 4,00,000
To security premium 2,00,000
(Being purchase consideration paid)
(4) General reserve a/c 25,000
To bank a/c 25,000
(Being expenses paid)
(5) Bills payable a/c 10,000
To bills receivable a/c 10,000
(Being mutual dues settled)
(6) General reserve a/c 10,000
To stock a/c 10,000
 (Being profit in stock adjusted)

In the books of SMS Ltd.

Opening balance sheet as on 01/04/2017

Particulars Amount (Rs) Amount (Rs)

(A) Equity and
liabilities:
(1) Shareholders’ Funds:
(a) Share capital
90,000 Equity share @ Rs. 10 each
40,000 Share are issued for consideration other 9,00,000
than cash
(b)Reserve and Surplus:
Security premium 4,00,000
General reserve 4,65,000
Profit and Loss a/c 1,00,000 9,65,000
(2) Non-current liabilities:
Term loan 2,00,000
(3) Current liabilities:
(a) Trade payable:
(i) Creditors 3,00,000
(ii) Bills payable 30,000 3,30,000
(b)Other current liabilities:
Outstanding expenses 30,000
Total (1+2+3) 24,25,000
(B) Assets:
(1) Non-current assets:
(a) Fixed assets:
(i) Tangible assets:
Land & building 9,50,000
Plant & machinery 5,30,000
Vehicles 60,000 15,40,000
(ii) Intangible assets:
Goodwill 90,000
 (b) Investment 1,25,000
(2) Current assets:
(a) Inventories 4,50,000
(b)Trade receivable:
(i) Debtors 1,50,000
(ii) Bills receivable 57,000 2,07,000
(c) Other current liabilities:
Prepaid expenses 70,000
(d) Cash and cash equivalent
(i) Cash at bank 60,000
(ii) Cash on hand 8,000 68,000
Total (1+2+3) 24,25,000

3) Following are the balance sheet Rohan and Sohan Ltd. As on 31-3-
2005:

Liabilities Rohan Sohan Assets Rohan Sohan

Ltd. Rs. Ltd. Rs. Ltd. Rs. Ltd. Rs.
Share Capital: Fixed assets:
9% preference 6,00,000 9,00,000 Goodwill 1,50,000 1,50,000
share of Rs. 100
each
Equity share of 9,00,000 15,00,00 Land & 6,00,000 7,50,000
Rs. 100 each 0 building
Reserve and Plant & 4,50,000 6,00,000
Surplus: machinery
General reserves 75,000 90,000 Computer 3,00,000 4,50,000
Revaluation 45,000 60,000 Investments 1,50,000 1,50,000
reserves
Export profit 30,000 45,000 Current assets
reserves
Profit & Loss a/c 15,000 30,000 Loans &
advances:
Secured Loans: Stock 3,00,000 4,50,000
12% debenture 3,00,000 1,80,000 Sundry debtors 1,50,000 3,00,000
of Rs. 100 each
Term loans 1,50,000 75,000 Bills 75,000 1,50,000
receivables
Current Bank 1,95,000 3,75,000
liabilities and
provisions:
Sundry creditors 2,25,000 1,80,000
Bills payable 30,000 45,000

23,70,000 33,75,00 23,70,00 33,75,000

0 0

Mohan Ltd. was formed to take over the business of Rohan Ltd. and Sohan Lid
authorised share capital of Rs. 30,00,000 consisting of 20,000, 13% Preference
Shares Rs. 100 each and 100.000 Equity Shares of Rs. 10 Each.
Terms of Amalgamation:
(1) 9% Preference shareholders of both the companies are issued equal
number of 13% Preference shares of Mohan Ltd. at a price of Rs. 125
each.
(2) Mohan Ltd. will issue four Equity shares for three Equity shares of
Rohan Ltd and four Equity shares for five Equity shares of Sohan Ltd.
The share are to be issued at Rs. 35 each.
(3) 12% Debenture holders of both the companies are discharged by Mohan
Ltd. by issuing such number of its 15% Debentures of Rs. 100 each so as
to maintain the same amount of interest.
(4) Mohan Ltd. agree to take over all assets and all liabilities at book values
except the following:
(i) Tangible fixed assets at 10% more than book-values.
(ii) Investments and Sundry Debtors at 90% of their book values.
(5) Export Profit Reserves are to be maintained for three more years. You are
required to:
(i) Compute purchase consideration of Rohan Ltd. and Sohan Ltd.
(ii) Pass Journal entries after amalgamation in the books of Mohan Lal
applying Purchase Method.
(iii) Prepare the Balance Sheet on Mohan Ltd. after amalgamation.

Solution:
Calculation of purchase consideration:
 Particulars Rohan Sohan Mohan
Ltd. Rs. Ltd. Rs. Ltd. Rs.
(A) Preference shareholders:
(i) 13% Preference share of Rs. 6,00,000 9,00,000 15,00,000
100 each
(ii) Security premium of Rs, 25 1,50,000 2,25,000 3,75,000
each
(A) 7,50,000 11,25,00 18,75,000
0
(B) Equity shareholders:
Rohan Ltd.
9,000 x 4/3 = 12,000 shares
12,000 Equity share of Rs. 10 each 1,20,000 - -
Security premium 3,00,000 - -
Sohan Ltd.
15,000 x 4/3 = 12,000 Shares
12,000 Equity share of Rs. 10 each - 1,20,000 -
Security premium - 3,00,000 -
Mohan Ltd.
24,000 Equity share @ Rs. 10 each 2,40,000
Security premium 6,00,000
(B) 4,20,000 4,20,000 8,40,000
Purchase Consideration 11,70,000 15,45,00 27,15,000
0

In the books of Mohan Ltd.

Journal Entries

Date Particulars LF Debit Rs Credit Rs

(1) Business purchase a/c 27,15,000
To liquidator of Rohan Ltd. a/c 11,70,000
To liquidator of Sohan Ltd. a/c 15,45,000
(Being business purchased)
(2) Land &building a/c 14,85,000
Plant & machinery a/c 11,55,000
Computer a/c 8,25,000
Investment a/c 2,70,000
Stock a/c 7,50,000
Debtor a/c 4,05,000
Bills receivable a/c 2,25,000
 Bank a/c 5,70,00
To 12% Debenture a/c 6,00,000
To Unsecured loan a/c 2,25,000
To Sundry creditors a/c 4,05,000
To Bills payable a/c 75,000
To Business purchase a/c 27,15,000
To Capital reserve a/c 16,65,000
(Being assets and liabilities taken over)
(3) Liquidator of Rohan a/c 11,70,000
To equity share capital a/c 1,20,000
To 13% preference capital a/c 6,00,00
To security premium 4,50,000
(Being purchase consideration paid)
(4) Liquidator of Sohan a/c 15,45,000
To equity share capital a/c 1,20,000
To 13% preference capital a/c 9,00,000
To security premium 5,25,000
(Being purchase consideration paid)
(5) 12% Debenture a/c 6,00,000
To 15% Debenture a/c 6,00,000
(Being issue of 15% debenture)
(6) Amalgamation Adjustment 75,000
To Export profit reserve a/c 75,000
(Being statutory reserve carried forward)

In the books of Mohan Ltd.

Opening balance sheet as on 01/04/2017

Particulars Amount (Rs) Amount (Rs)

(A) Equity and
liabilities:
(1) Shareholders’ Funds:
(a) Share capital
(i) 24,000 Equity share @ Rs. 10 each 2,40,000
(ii) 15,000 13% preference share of Rs. 15,00,000 17,40,000
100 each
(b)Reserve and Surplus:
Security premium 9,75,000
Capital reserve 16,65,000
Export profit reserve 75,000 27,15,000
(2) Non-current liabilities:
15% Debenture 6,00,000
Unsecured loan (long term) 2,25,000 8,25, 000
(3) Current liabilities:
(a) Trade payable:
(i) Creditors 4,05,000
(iii) Bills payable 75,000 4,80,000
Total (1+2+3) 57,60,000
(B) Assets:
(1) Non-current assets:
(a) Fixed assets:
(i) Tangible assets:
Land & building 14,85,000
Plant & machinery 11,55,000
Computer 8,25,000 34,65,000
(iii) Intangible assets:
(b) Investment 2,70,000
(2) Current assets:
(a) Inventories 7,50,000
(b)Trade receivable:
(i) Debtors 4,05,000
(ii)Bills receivable 2,25,000 6,30,000
( c) Cash and cash equivalent 5,70,000
(3) Miscellaneous Expenses:
Amalgamation Adjustment 75,000
Total (1+2+3) 57,60,000

- Calida Soares, SYBMS, 72

1. P ltd and Q ltd were carrying on the business manufacturing of auto

components. Both the companies decided to amalgamate and a new
company PQ ltd. Is to be formed with an authorized capital of Rs. 10,00,000
 divided into 1,00,000 equity shares of Rs.10 each. The balance sheet of the
companies as on 31.3.2015 were as under:

LIABILITIES P Q ASSETS P Q
1) Shareholders fund: 1) Fixed assets:
Share capital 1,40,000 2,50,000 Building 1,00,000 1,90,000
Profit and loss a/c 30,000 35,000 Plant and
General reserve - 1,20,000 machinery 25,000 80,000
2) Non-current liabilities: Furniture and
8% debentures 1,10,000 - fixtures - 25,000
3) Current liabilities: 2) Currents assets:
Trade payables 54,000 1,40,000 Inventories 1,35,000 50,000
Trade
receivables 44,000 1,42,000
Cash at bank 30,000 58,000
TOTAL 3,34,000 5,45,000 TOTAL 3,34,000 5,45,000

The assets and liabilities of the existing companies are to be transferred to the book
value with the exception of some items detailed below:

a) Goodwill of P ltd was worth Rs. 50,000 and of Q ltd was worth Rs. 1,50,000
b) Furniture and fixtures of Q ltd was valued at Rs. 35,000
c) The debtors of P ltd are realized fully and bank balance of P ltd is to be
retained by the liquidator and the sundry creditors are to be paid out of the
proceeds thereof.
d) The debentures of P ltd are to be discharged by issue of 8% debentures of
PQ ltd at a premium of 10%
 You are required to :
 Compute the basis on which shares in PQ ltd. Will be issued at par to
the shareholders of the existing companies
 Draw up a balance sheet of PQ ltd as at 1 st April 2015 the date of
completion of amalgamation
 Right up the journal entries in the book of P ltd

SOLUTION :
 Purchase consideration

PARTICULARS P Q
Goodwill 50000 150000
Building 100000 190000
Plant and machinery 25000 80000
Furniture - 35000
Inventories 135000 50000
Trade receivables - 142000
Cash at bank -_________ 58000
____
Less : 310000 705000
8% secured debentures 121000 -
Trade payable - 140000
_____________ ____________
Net asset taken over 189000 565000
No of shares issued @10 18900 56500

BALANCE SHEET

LIABILITIES AMT ASSETS AMT

Share capital 754000 Tangible assets 430000
Reserves 11000 Intangible assets 200000
Long term borrowings 110000 Inventories 185000
Trade payable 140000 Trade receivable 142000
Cash 58000
TOTAL 1015000 TOTAL 1015000

(journal entries) In the books of P ltd.

PARTICULARS LF DEBIT AMT CREDIT AMT

Realization a/c DR. 304000
To building a/c 100000
To plant and machinery a/c 25000
To inventories a/c 135000
To trade receivables a/c 44000
8% debentures a/c DR. 104000
 Trade payables a/c DR. 54000
To realization a/c 154000
Equity share capital a/c DR. 140000
Profit and loss a/c DR. 30000
To equity shareholders a/c 170000
PQ ltd a/c DR. 189000
To realization a/c 189000
Bank a/c DR. 44000
To realization a/c 44000
Realization a/c DR. 54000
To bank a/c 54000
Shares in PQ a/c DR. 189000
To PQ ltd 189000
Realization a/c DR. 39000
To equity shareholders a/c 39000
Equity shareholders a/c DR. 209000
To shares in PQ ltd a/c 189000
To bank a/c 20000

2. The following are the balance sheet of A ltd. And B ltd. As on 31 st march 2017.
Balance sheet of A ltd. As on 31st march 2017

LIABILITIES AMT ASSETS AMT

6000 equity shares of Rs.100 each 600000 Land and building 200000
6% preference shares of Rs.100 each 100000 Plant and machinery 300000
Contingent reserve 20000 Furniture 20000
Creditors 70000 Stock 70000
Unclaimed dividend (contingent liability Debtors 90000
of bills discounted Rs. 4000) 5000 Cash at bank 15000
Prelimnary expenses 20000
Discount on issue of shares 5000
Profit and loss 75000
795000 795000
Balance sheet of B ltd as on 31st march 2017

LIABILITIES AMT ASSETS AMT

7000 Equity shares of Rs.100 each 700000 Freehold premises 400000
General reserve 18000 Plant and machinery 210000
Profit and loss 40000 Stock 29000
Workmen’s compensation fund 10000 Debtors 190000
Creditors 72000 Cash at bank 11000
840000 840000
A ltd and B ltd, amalgamated as on 31 st march 2017 and a new company C ltd was
formed with an authorized capital of 20000 equity shares of Rs.100 each. The
amalgamation was agreed on the following terms:

a) C ltd took all the assets of A ltd at book values and creditors of A ltd. The
purchase consideration was discharged by issuing 3000 equity shares of
Rs.100 each at Rs. 120 per share and the balance in cash.
b) C ltd took all assets of B ltd at book values except cash and also took the
creditors. The purchase consideration was discharged by issuing 6000 equity
shares of Rs.100 each at Rs.120 per share and the balance in cash.
c) A ltd paid its preference share capital back with arrears of preference dividend
for last two years.
d) Liability for bills discounted was settled at Rs2500
e) Out of unclaimed dividend Rs 2000 was paid to the rightful shareholders. The
remaining unclaimed dividend was time barred and transferred to the
shareholder a/c.
f) Liability of workmen’s compensation of B ltd amounted to Rs7500.
g) The cost of liquidation of A ltd was Rs 5000 and that of B ltd was Rs 6000 was
paid by the respected companies.
 You are required to:
 Necessary ledger account in the books of A ltd
 Opening entries in the books of C ltd
 Opening balance sheet in the books of C ltd

SOLUTION:

PARTICULARS A ltd B ltd C ltd

A. Assets taken over at agreed rate
Freehold premises - 400000 400000
Land and building 200000 - 200000
 Plant and machinery 300000 210000 510000
Furniture 20000 - 20000
Stock 70000 29000 99000
Debtors 90000 190000 280000
Cash at bank 15000 - 15000
695000 829000 1524000
B. Less : creditors 70000 72000 142000
C. Purchase consideration (A-B) 625000 757000 1382000

Discharge of purchase consideration

Particulars A ltd B ltd C ltd

A ltd :-
3000 equity share of Rs100 each 300000 - -
Security premium (3000 x 20) 60000
B ltd :-
6000 equity share of Rs100 each - 600000 -
Security premium (6000 x 20) 120000

C ltd :-
9000 equity share of Rs100 each
- 900000
Security premium (9000 x 20) -
180000

Cash balance 265000

37000 302000
Purchase consideration 625000 757000 1382000

In the books of A ltd (Realization a/c)

Particulars Rs Particulars Rs
To land and building 200000 By creditors 70000
To plant and machinery 300000 By C ltd (purchase 625000
To furniture 20000 consideration)
To stock 70000 By equity shareholders (loss 17000
To debtors 90000 on realization)
To cash at bank 15000
To cash/bank (cost of liquidation) 5000
To preference shareholders (arrears of 12000
dividend)
712000 712000

Preference shareholders a/c

Particulars Amt Particulars Amt

To cash/bank 112000 By 6% preference share 100000
capital 12000
By realization
112000 112000

Equity shareholders a/c

Particulars Amt Particulars Amt

To profit and loss 75000 By equity share capital 600000
To prelimnary expense 20000 By contingent reserves 17500
To discount on issue of shares 5000 By unclaimed dividend 3000
To realization (loss on realization) 17000
To equity share in C ltd (3000 equity 360000
shares of Rs120 each) 143500
To cash/bank

620500 620500

Cash/bank a/c

Particulars Amt Particulars Amt

To C ltd 265000 By realization (cost of 5000
liquidation)
By contingent liability 2500
By unclaimed dividend 2000
By preference shareholders 112000
By equity shareholders 143500

265000 265000
 C ltd a/c (purchasing co.)

Particulars Amt Particulars Amt

To realization (purchase consideration) 625000 By equity shares in C ltd. 360000
By cash/bank 265000
625000 625000

In the books of B ltd. (realization a/c)

Particulars Amt Particulars Amt

To freehold property 400000 By creditors 72000
To plant and machinery 210000 By C ltd (purchase 757000
To stock 29000 consideration)
To debtors 190000 By equity shareholders (loss
To cash/bank 6000 on realization) 6000
835000 835000

Cash/bank a/c

Particulars Amt Particulars Amt

To balance b/d 11000 By realization (cost of 6000
To C ltd 37000 liquidation)
By liability for workmen’s 7500
compensation
By equity shareholders 34500
48000 48000

C ltd a/c (purchasing co.)

Particulars Amt Particulars Amt

To realization (purchase consideration) 757000 By equity shares in C ltd 720000
By cash/bank 37000

757000 757000

Equity shareholders a/c

Particulars Amt Particulars Amt

To realization (loss on realization) 6000 By equity share capital 700000
To equity shares in C ltd (6000equity 720000 By general reserve 18000
shares of Rs120 each) By profit and loss 40000
To cash/bank 34500 By workmen’s compensation 2500
760500 760500

Opening journal entries in the books of C ltd.

Particulars LF Debit amt Credit amt

1. Business purchase a/c DR. 625000
To liquidator of A ltd a/c 625000
(being business purchased)
2. Business purchase a/c DR. 757000
To liquidator of B ltd a/c 757000
(being business purchased)
3. Land and building a/c DR. 200000
Plant and machinery a/c DR. 300000
Furniture a/c DR. 20000
Stock a/c DR. 70000
Debtors a/c DR. 90000
Cash at bank a/c DR. 15000
To creditors a/c 70000
To business purchase a/c 625000
(being assets and liabilities taken over)
4. Freehold premises a/c DR. 400000
Plant and machinery a/c DR. 210000
Stock a/c DR. 29000
Debtors a/c DR. 190000
To creditors a/c 72000
To business purchase a/c 757000
(being assets and liabilities taken over)
5. Liquidator of A ltd a/c DR. 625000
To equity shares capital a/c 300000
To share premium a/c 60000
 To cash/bank a/c 265000
(being purchase consideration purchased)

6. Liquidator of B ltd a/c DR. 757000

To equity shares capital a/c 600000
To share premium a/c 120000
To cash/bank a/c 37000
(being purchase consideration paid)

In the books of AB ltd (opening balance sheet)

Particulars Amt
A) Equity and liabilities
1. Shareholders fund :-
Share capital 900000
Security premium 180000
2. Non current liabilities:-
3. Current liabilities:-
Trade payable (creditors) 142000
Bank overdraft 287000

Total (1+2+3) 1509000

B) Assets
1. Fixed assets 1130000
2. Current assets :-
Inventories 99000
Debtors 280000
1509000
Total (1+2)

3. The balance sheet of marson ltd. As on 31 st march 2017

Liabilities Amt Assets Amt

6000 shares of Rs100 each 600000 Land and building 210000
6% debentures 20000 Plant and machinery 160000
Creditors 60000 Vehicles 100000
Outstanding expense 4000 Stock 80000
Debtors 60000
Cash 64000
Underwriting commission 10000
684000 684000
Nicholas ltd absorbed Marson ltd on the following terms-

a) Nicholas Ltd acquired only the Assets of Marson Ltd except cash balance.
b) The Purchase consideration was fixed as 5 equity share of Rs 100 each at Rs
140 Per share for every 7 equity share of Marson Limited and 700, 6%
preference share of Rs100 each
c) Realisation expenses amounted to Rs 12000 and were paid by Marson ltd
d) The liquidator of marson Ltd transfer the preference share to creditors in full
satisfaction of their claim
e) Debentures were paid at a premium of 10%
f) Outstanding expenses were paid in full and in addition marson Ltd had to pay
rupees 4200 as compensation to the worker
g) Nicholas Ltd value of land and building, plant and machinery at 10%
appreciation, vehicles at 10% depreciation, stock was reduced to its market
value which was rupees 64000, debtors were taken subject to 5% reserve for
doubtful debts

 You are required :

 Prepare the necessary ledger accounts in the books of Marson ltd
 Pass the opening entries in the books of Nicholas ltd

SOLUTION :

Calculation of purchase consideration

Particulars Amt Amt

a. Equity share
6000 x 5/7 = 4285.7143
4285 equity share of Rs 100 each
 Security premium (4285 x 40) 428500
Cash (0.7143 x Rs140) 171400
(fraction amt x market price) 100 600000
b. 700, 6% preference share of Rs 100 each 70000

Purchase consideration 670000

In the books of Marson ltd (realization a/c)

Particulars Amt Particulars Amt

To land and building 210000 By Nicholas ltd (PC) 670000
To plant and machinery 160000
To vehicles 100000
To stock 80000
To debtors 60000
To cash/bank (realization 12000
expense)
To 6% debentures holders 2000
To creditors 10000
To bank (workmen’s 4200
compensation)
To equity shareholders (profit on 31800
realization)
670000 670000

Equity shareholders a/c

Particulars Amt Particulars Amt

To underwriting commission 10000 By equity share capital (6000 shares 600000
To equity shares of Nicholas ltd x Rs 100)
(4285 shares of Rs 100 each at By realization (profit on realization) 31800
Rs 140 per share) 599900
To cash/bank 21900
631800 631800

Nicholas ltd a/c

Particulars Amt Particulars Amt
To realization (purchase 670000 By equity shares in Nicholas ltd 599900
consideration) (shares 4285 x Rs 140)
By cash (for fraction share) 100
By preference share in Nicholas ltd 70000
(shares 700 x Rs100)
670000 670000

Cash/ bank a/c

Particulars Amt Particulars Amt

To balance b/d 64000 By realization (realization expense) 12000
To Nicholas ltd (part of purchase 100 By realization (workmen’s
consideration) compensation) 4200
By debentures holders 22000
By outstanding expenses 4000
By equity shareholders 21900
64100 64100

Journal entries in the books of Nicholas ltd.

Particulars LF Debit amt Credit amt

1. Business purchase a/c DR. 670000
To liquidator of Marson ltd a/c 670000
(being business purchased)
2. Land and building a/c DR. 231000
Plant and machinery a/c DR. 176000
Vehicles a/c DR. 90000
Stock a/c DR. 64000
Debtors a/c DR. 57000
Goodwill a/c DR. 52000
To business purchase a/c 670000
(being assets taken over)
3. Liquidator of Marson ltd a/c DR. 670000
To equity share capital a/c 428500
 To share premium a/c 171400
To preference share capital a/c 70000
To cash/bank a/c 100
(being purchase consideration paid)

- Clevina Monteira, SYBMS, 36