DAYANANDA SAGAR

UNIVERSITY

CORPORATE ACCOUNTING
ASSIGNMENT -2

COURSE WITH CODE: 22SC3501

SUBMITED BY:
STUDENT NAME: SAI INCHARA
KARTHIK K B
RAJA
47
USN: CMS22BC0021
CLASS: BCOM (ACCA) 5TH SEMESTER

SUBMITED TO:
FACULTY NAME: DR LAXMANRAO
DESIGNATION: ASSOCIATE PROFESSOR
DATE: 3.11.2024
1) The Indo-Gulf Co. Ltd. sells its business to the
Continental Co. Ltd. as on December 31, 2023, on
which date its Balance Sheet was as under:

Liabilities Rs Assets Rs
Paid-up Capital 2,00,000 Freehold 1,50,000
2000 shares Of property
Rs.100 each
Debentures 1,00,000 Good Will 50,000
Trade Creditors 30,000 Plant and 83,000
Tools
Reserve Fund 50,000 Stock 35,000
Profit & Loss 20,000 Bills 4,500
Account Receivables
Sundry 27,100
Debtors
Cash at Bank 50,000
4,00,000 4,00,000
The Continental Co. Ltd. agreed to take over the Assets
(exclusive of cash at Bank and Goodwill) at 10 percent
less than the book value, to pay Rs. 75,000 for
Goodwill, and to take over the Debentures. The
purchase consideration was to be discharged by the
allotment to the Indo-Gulf Ltd. of 1,500 shares of
Rs.100 each at premium of Rs.10 per share and the
balance in cash. The cost of the liquidation amounted to
Rs. 3,000. Show the necessary journal entries recording
the transactions in the books of the Continental Co. Ltd
and Balance-sheet ignoring its existing figures. Show
the necessary Accounts in the books of the Indo-Gulf
Co. Ltd. and show the necessary journal entries
recording the transactions.

Solution :
Working Notes: 1) Purchase Consideration (Net Asset
Basis)
Freehold 1,35,000 Purchase 1,65,000
property Consideration
to be paid as
follows Equity
shares 1500 x
110
Plants 74,700 Cash (Balance) 80,000

Stock Bills 31,500 PC 2,45,000

Receivable
Debtors 4,050
Goodwill 24,750
Total Assets 3,45,000
Less 1,00,000
Debentures
Net Assets 2,45,000
Value/
Purchase
Consideration
In the Books of continental Co. Ltd (Purchase
Company) Accounting by Purchase Method

Business Purchase a/c Dr. 2,45,000

To Liquidator of Indo-Gulf 2,45,000
Ltd. a/c (Purchase
consideration due)

Freehold Property a/c Dr. 1,35,000

Plant a/c Dr. 74,700
Stock a/c Dr. 31.500
Bills Receivable a/c Dr. 4,050
Debtors a/c Dr. 24,750
Goodwill a/c Dr. 75,000
To Business Purchase a/c 2,45,000
To Debenture a/c 1,00,000
(Asset, Liabilities acquired
are recorded)
Liquidator of Indo-Gulf a/c 2,45,000
Dr.
 To Equity share Capital a/c 1,50,000
To Share Premium a/c 15,000
To Cash / Bank a/c 80,000
(Purchase consideration
paid)

Balance Sheet of M/S Continental Ltd. As On

31.12.2023

Particulars Rs.
I. EQUITY AND
LIABILITIES
Shareholders' funds Share 1,50,000
capital
Reserves and surplus: Share 15,000 1,65,000
Premium
Non-current 1,00,000
liabilities
Long-term
borrowings: Debenture
Current liabilities Short 80,000
term Borrowing:
Overdraft

Total 3,45,000
II. Assets
Non-current assets Fixed
assets
Tangible :

Freehold property 1,35,000

Plant & Tools 74,700
Intangible : Goodwill 75,000 2,84,700
Current assets
Stock in trade 31,500
Trade receivables 24,750
Bills Receivables 4,050 60,300
Total 3,45,000
In the Journal of Indo Gulf Ltd (Vendor Company)

Realisation A/c Dr. 3,50,000

To Freehold Property a/c 1,50,000
To Plant a/c 83,000
To Stock a/c 35,000
To Bills Receivable a/c 4,500
To Debtors a/c 27,500
To Goodwill a/c 50,000
(Asset transferred to
realisation a/c)
Debenture a/c Dr. 1,00,000
Creditor a/c Dr. 30,000
To Realisation a/c 1,30,000
(Liabilities transferred to
realisation a/c)
Equity Share Capital a/c Dr. 2,00,000
Reserves a/c Dr. 50,000
Profit & Loss a/c Dr. 20,000
To Equity Shareholder a/c 2,70,000
(Capital & Profit reserves
transferred to shareholders
a/c)
Continental Ltd a/c Dr. 2,45,000
To Realisation a/c 2,45,000
(Purchase consideration
due)
Equity shares in Continental 1,65,000
ltd a/c Dr.
Cash / Bank a/c Dr. 80,000
To Continental Ltd. a/c 2,45,000
(Purchase consideration
received)
Realisation a/c Dr. 3,000
To Cash/Bank a/c 3,000
(Realisation expense paid)
Realisation a/c Dr. 30,000
To Cash/Bank a/c 30,000
(Creditors paid)
Equity Shareholders a/c Dr. 8,000
To Realisation a/c 8,000
(Loss on realisation
transferred to shareholders)
 Equity Shareholders a/c Dr. 2,62,000
To Cash/Bank a/c 1,65,000
To Cash/Bank a/c 97,000
(Final dues paid to
shareholders)

2) The following are the Balance Sheet of A Co. Ltd.

and B Co. Ltd. as on 31th December, 2023

A Ltd B Ltd A Ltd B Ltd

Share Capital 5,00,000 3,00,000 Buildings 1,50,000 _
Equity Shares of
Rs.@10 each,
fully paid-up

General Reserve 1,70,000 _ Machinery 5,50,000 2,50,000

Profit and Loss 30,000 _ Stock 80,000 40,000

A/c.
12% Debentures 1,00,000 _ Debtors 70,000 45,000
of Rs.100 each
Trade Creditors 50,000 40,000 Cash 15,000 5,000

Provident Fund 15,000 _

8,65,000 3,40,000 8,65,0000 3,40,000

B Ltd has provision for bad debts of Rs 5,000

The two companies agree to amalgamate and form a
new company called C. Co. Ltd. which takes over all
the assets and liabilities of both the companies on 1st
January, 2024. The purchase consideration is agreed at
Rs. 6,61,500 and Rs. 3,15,000 for A Co. Ltd. and B Co.
Ltd. and show the opening entries in the books of C.
Co. Ltd. Also prepare the opening Balance Sheet in the
books of C. Co. Ltd. as on 1st January 2024. The
authorised capital of C Co. Ltd. is 2,00,000 equity
shares of Rs.10 each.

Solution

Amalgamation treated as Merger in the Books of C Co.

Ltd. (Purchaser Co.) (Accounted by Pooling of Interest
Method)
Business Purchase a/c Dr. 9,76,500
To Liquidator of A Co. Ltd a/c 6,61,500
To the Liquidator of B Co. Ltd. a/c 3,15,000
(Purchase consideration due)
Building a/c Dr. 1,50,000
Machine a/c Dr. (5,50,000 + 8,00,000
2,50,000
Stock a/c Dr. (80,000 + 40,000) 1,20,000
Debtors a/c Dr. (70,000 + 50,000) 1,20,000
Cash a/c Dr. (15,000 + 5,000) 20,000
To Business Purchaser a/c 9,76,500
To Creditors a/c (50,000 + 40,000) 90,000
To Debentures a/c 1,00,000
To Employee Provident Fund a/c 15,000
To Provision for Bad Debt a/c 5,000
To General Reserve a/c (Bal fig) 23,500
(Asset, Liabilities and Profit,
Reserves of vendor co. recorded)
Liquidator of A Co. Ltd a/c Dr. 6,61,500
 To Equity share capital a/c 6,61,500
(Purchase consideration paid)
Liquidator of B Co. Ltd a/c Dr. 3,15,000
To Equity Share Capital a/c 3,15,000
(Purchase consideration paid)

Balance Sheet of ‘C’ Co. Ltd. As On 01.10.2024

I. EQUITY AND LIABILITIES

Shareholders' funds Share capital 9,76,500
Reserves and surplus: General 23,500 10,00,000
Reserve
Non-current liabilities
Long-term borrowings:
12% Debenture 1,00,000
Current liabilities
Trade Payables 90,000
Provident Fund 15,000 1,05,000
Total 12,05,000
II Assets
Non-current assets Fixed assets:
Building 1,50,000
Machinery 8,00,000 9,50,000
Current assets
Stock in trade 1,20,000
Trade receivables 1,20,000
Less Provision 5,000 1,15,000
Cash and Equivalents 20,000 2,55,000
Total 12,05,000

3) What is the purchase consideration? Explain the

various methods for the calculating purchase
consideration.

Purchase Consideration is the amount which is paid by

the transferee company for the purchase of the business
of the transferor company.

Here are some methods for calculating purchase

consideration:
1) Lump sum Payment Method: When the transferee
company agrees to pay a fixed sum to the transferor
company, it is called a lump sum payment of purchase
consideration. For example, if A Ltd. purchases the
business of B Ltd. and agrees to pay Rs. 25,00,000 in
all, it is an example of lump sum payment.

(2) Net Assets Method: According to this method, the

purchase consideration is calculated by calculating the
net worth of the assets taken over by the Transferee
Company. The net worth is calculated by adding the
agreed value of assets taken over by the transferee
company.

(3) Net Payment Method: Under this method, purchase

consideration is calculated by adding the various
payments in the form of shares, securities, cash, etc.
made by the transferee company. No amount of
liabilities is deducted even if these are assumed by the
purchasing company. Thus, purchase consideration is
the total of all the payments whether in shares,
securities, or cash.
(4) Intrinsic worth/value Method:
This method is just an extension of net assets methods.
Under method, purchase consideration is required to be
calculated on the basis of intrinsic value of shares. The
intrinsic value of a share is calculated by dividing the
net assets available for equity shareholders by the
number of equity shares. This value determines the ratio
of exchange of shares between the transferor and
transferee company.

4) How would you treat Goodwill at the time of

amalgamation of companies?

Goodwill arising on amalgamation represents a

payment made in anticipation of future income and it is
appropriate to treat it as an asset to be amortised to
income on a systematic basis over its useful life. Due to
the nature of goodwill, it is frequently difficult to
estimate its useful life with reasonable certainty. Such
estimation is, therefore, made on a prudent basis.
Accordingly, it is considered appropriate to amortise
goodwill over a period not exceeding five years unless a
somewhat longer period can be justified.
5) Which is the Holding Company as per companies Act
1956?

According to the Companies Act, 1956, a "holding

company" is a company that holds more than half of the
equity share capital of another company, or has control
over the composition of the board of directors of that
other company, essentially giving it the power to control
the management of the other company, which is then
considered a subsidiary company.

*A company is considered a holding company if it

owns more than 50% of the equity shares of another
company.

*Even if the shareholding is less than 50%, a company

can be considered a holding company if it has the power
to control the composition of the board of directors of
another company.

*A holding company is essentially the parent company

of one or more subsidiary companies.
6) What are the components of consolidated financial
statements?

Consolidated financial statements combine the financial

statements of a parent company and its subsidiaries.
They provide a comprehensive view of the group's
financial performance and position.

Components of consolidated financial statements are ;

Balance sheet :
This statement shows the company's assets, liabilities,
and equity.

Income statement :
This statement shows the company's revenues,
expenses, and profits or losses.

Cash flow statement :

This statement shows the company's cash inflows and
outflows over a specific period of time.

Notes, other statements, and explanatory material :

These are also part of consolidated financial statements.
7) What do you mean by the pooling of interest method?

Under the pooling of interests method, the assets,

liabilities and reserves of the transferor company are
recorded by the transferee company at their existing
carrying amounts (after making the adjustments
required).

The pooling of interest method was the preferred

technique for accounting for mergers and acquisitions
because it usually resulted in higher earnings for the
surviving company. It was phased out by the Financial
Accounting Standards Board (FASB) in 2001.

8) How would you treat the Reserves at the time of

amalgamation of companies?

If the amalgamation is an ‘amalgamation in the nature

of merger', the identity of the reserves is preserved and
they appear in the financial statements of the transferee
company in the same form in which they appeared in
the financial statements of the transferor company.
Thus, for example, the General Reserve of the
transferor company becomes the General Reserve of the
transferee company; the Capital Reserve of the
transferor company becomes the Capital Reserve of the
transferee company and the Revaluation Reserve of the
transferor company becomes the Revaluation Reserve
of the transferee company. As a result of preserving the
identity, reserves which are available for distribution as
dividend before the amalgamation would also be
available for distribution as dividend after the
amalgamation. The difference between the amount
recorded as share capital issued (plus any additional
consideration in the form of cash or other - assets) and
the amount of share capital of the transferor company is
adjusted.

9) What are the advantages of Holding Company?

Protection from liability :

A holding company protects its assets and individual
shareholders from liability. If a subsidiary company
goes bankrupt, the holding company's creditors cannot
pursue it for compensation.

Tax benefits :
Holding companies can offer tax benefits by
consolidating taxable income and losses across
subsidiaries. Shareholders can also defer paying income
tax until they withdraw earnings at a later date.

Risk management :
Holding companies can help spread risk by separating
different business activities into subsidiaries. If one
company fails, the others can help offset the losses.

Centralised management :
Holding companies can centralise decision-making
power in the parent company, which can lead to more
efficient decision-making.

Asset protection :
Holding companies can be used as an asset protection
strategy.

Geographical differences in taxation :

Holding companies can relocate to more
business-friendly environments while continuing
operations in their original location.

Support for subsidiaries :

Holding companies can use their resources to lower the
cost of operating capital for their subsidiaries.
10) What do you mean by consolidated financial
statements?

Consolidated financial statements combine the financial

statements of a parent company and its subsidiaries.
They provide a comprehensive view of the group's
financial performance and position.

Components of consolidated financial statements are ;

Balance sheet :
This statement shows the company's assets, liabilities,
and equity.

Income statement :
This statement shows the company's revenues,
expenses, and profits or losses.

Cash flow statement :

This statement shows the company's cash inflows and
outflows over a specific period of time.

Notes, other statements, and explanatory material :

These are also part of consolidated financial statements.
 11) Following is the balance sheet of Sandhya Ltd. as on
31.03.2024

Liabilities Rs. Assets Rs.

Share capital 3,75,000 Fixed Assets 16,25,000
8% Preference shares
Of Rs. 100 each.

Equity shares of Rs. 7,50,000 investments 3,00,000

10 each
General Reserve 4,50,000 Current Assets 2,50,000
7% Debentures 3,50,000
Current Liabilities 2,50,000
21,75,000 21,75,000

Radha Ltd. agreed to take over the business of Sandhya

Ltd. Calculate purchase consideration under Net assets
method on the basis of the following:
Radha Ltd. agreed to discharge 7% debentures at a
premium of 10% by issuing 9% debentures of Romy
Ltd.
Fixed assets are to be valued at 10% above book value,
the investments at par, and current assets at 10%
discount and current liabilities at book value.

Solution:
Net Assets Method:
Value of Assets taken over:
Fixed Assets (16,25,000 + 1,62,500) 17,87,500
Investment 3,00,000
Current Assets (2,50,000 - 25,000) 2,25,000
Total assets: 23,12,500
Less: Current liability (2,50, 000)
Less: 7% debentures (3,85,000)
Total purchase consideration 16,77,500

12) The balance sheet of H Ltd and S Ltd as

on31/03/2024 are as follows. Prepare a consolidated
balance sheet as on 31/03/2024.
 H Ltd S Ltd H Ltd S Ltd
Share 6,00,000 2,00,000 Sundry 5,55,000 2,48,000
Capital Assets
@Rs 100
P&L 80,000 _ Investments
A/C

Creditors 75,000 48,000 Shares in S 2,00,000

Ltd
7,55,000 2,48,000 7,55,000 2,48,00

Solution:
Consolidated Balance sheet of H ltd and its subsidiary S
ltd as on 31st march, 2011

Liabilities Rs. Assets Rs.

Share 6,00,000 Sundry
Capital assets
Shares of H Ltd
100 each 5,55,000
 Reserves & $ Ltd 8,03,000
surplus 2,48,000

P& La/c 80,000

Sundry 1,23,000
Creditors
H Ltd
75,000
S Ltd
48,000

8,03,000 8,03,000

13) The balance sheet of H Ltd and S Ltd as

on31/03/2024 are as follows.

H Ltd S Ltd H Ltd S Ltd

Share Capital 6,00,000 2,00,000 Sundry 5,91,000 3,18,000
Shares of 100 Assets
each

General 60,000 40,000 Investment

Reserve
P& La/c 80,000 30,000 1,600
Shares of 2,24,000
Rs 100
Each in S
Ltd
Creditors 75,000 48,000
8,15,000 3,18,000 8,15,000 3,18,000

H Ltd acquired shares in S Ltd on 31/03/2024. The

plant worth Rs 60,000 included in
sundry assets of S ltd have revalued at Rs 50,000 on
that date. Calculate Minority
interest and Cost of control.

Solution:
Working Notes:
Note: out of 2000 shares in S Ltd, 1600 shares are
acquired by H Ltd. So the % = 1600 /2000
x 100 = 80% and minority % = 20%

* Pre - acquisition profits and reserves:

General Reserves as on 31-03-11 40,000
P&L a/c 30,000
Total accumulated profits 70,000
Shares of holding co
H Ltd (80% x 70,000) = 56,000
S Ltd (20% x 70,000) = 14,000

* Loss on revaluation of plant as on 31/03/11

Loss on revaluation of plant (60,000- 50,000) 10,000
H Ltd (80% x 10,000) = 8000
S Ltd (20% x 10,000) = 2000

* Minority Interest:
Paid up value of 400 shares 40,000
+ 20% share of pre - acquisition 14,000
54,000
Less: 20% shares of loss on revaluation 2,000
Net amount 32,000

* Goodwill / cost of control

Intrinsic value of shares held in S Ltd
Paid up value of 1,600 shares 1,60,000
Add: 80% shares of pre - acquisition 56,000
2,16,000
Less: 80% shares loss on revaluation 8,000
Intrinsic value of 1,600 shares 2,08,000
Price paid for 1,600 shares 2,24,000
Cost of control (16,000)
14) Balance sheet of Shashi Ltd. as on 31st March 2020
(Liabilities only) Rs.

Share capital 40,000 Equity shares of Rs. 10/- each

4,00,000
Reserves and surpluses 2,50,000
Secured loan 2,50,000
Other Liabilities 1,00,000
10,00,000
On the above date H Ltd. acquired 30,000 Equity shares
in Shashi Ltd. on the above date
for Rs. 7,50,000 fixed assets of S Ltd. were appreciated
by Rs. 1,50,000. find out cost of
control / Goodwill.

Solution
Note: 30,000 / 40,000 x 100 = 75%
H Ltd shares = 75%
S Ltd shares = 25%

Particulars Amount Amount

Cost of investments 7,50,000
in S Ltd
 Less: Intrinsic value 3,00,000
of shares in Equity
capital (4,00,000 ×
75%)
Reserves and Surplus 1,87,500
(2,50,000x 75%)
Appreciation in fixed 1,12,500 60,00,000
assets
(1,50,000 x 75%)

GOODWILL 15,00,000

15) The balance sheet of H Ltd and S Ltd as

on31/03/2024 are as follows.

H Ltd S Ltd H Ltd S Ltd

Share Capital 6,00,000 2,00,000 Sundry 5,91,000 3,18,000
Shares of 100 Assets
each

General 60,000 40,000 Investment

Reserve s
P&L a/c 80,000 30,000 1,600
Shares of
Rs 100
Each in S 2,24,000
 Ltd
Creditors 75,000 48,000
8,15,000 3,18,000 8,15,000 3,18,000

H Ltd acquired shares in S Ltd on 31/03/2024. The

plant worth Rs 60,000 included in
sundry assets of S ltd have revalued at Rs 50,000 on
that date. Calculate Minority
interest and Cost of control.

Solution:
Working Notes:
Note: out of 2000 shares in S Ltd, 1600 shares are
acquired by H Ltd. So the % = 1600 /2000
x 100 = 80% and minority % = 20%

* Pre - acquisition profits and reserves:

General Reserves as on 31-03-11 40,000
P&L a/c 30,000
Total accumulated profits 70,000
Shares of holding co
H Ltd (80% x 70,000) = 56,000
S Ltd (20% x 70,000) = 14,000
* Loss on revaluation of plant as on 31/03/11
Loss on revaluation of plant (60,000- 50,000) 10,000
H Ltd (80% x 10,000) = 8000
S Ltd (20% x 10,000) = 2000

* Minority Interest:
Paid up value of 400 shares 40,000
+ 20% share of pre - acquisition 14,000
54,000
Less: 20% shares of loss on revaluation 2,000
Net amount 32,000

* Goodwill / cost of control

Intrinsic value of shares held in S Ltd
Paid up value of 1,600 shares 1,60,000
Add: 80% shares of pre - acquisition 56,000
2,16,000
Less: 80% shares loss on revaluation 8,000
Intrinsic value of 1,600 shares 2,08,000
Price paid for 1,600 shares 2,24,000
Cost of control (16,000)