Accounting for Amalgamation

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Accounting for Amalgamation Sums for Accounting of Amalgamation AS – 14

Sum 1. The Balance Sheets of X Ltd. and Y Ltd. as on 31st March, 2010 are as follows: Liabilities Equity Share Capital (Rs. 10 per share) 15% Preference Share Capital (Rs. 100 each) General Reserve Export Profit Reserve Investment Allowance Reserve Profit and Loss Account 14% Debentures (Rs. 100 each) Trade Creditors Other Current Liabilities A Ltd. B Ltd. Assets 370 225 Land and Buildings Plant and Machinery 160 130 Furniture and Fittings Investments 40 20 Stock 24 15 Debtors 8 Cash & Bank 28 10 90 60 26 22 12 10 A Ltd. B Ltd. 190 120 230 130 45 25 50 95 90 50 40 70 80 35

750

500

750

500

X Ltd. takes over Y Ltd. on 1st April, 2010. The purchase consideration is discharged as follows: 1. Issued 25,00,000 equity shares of Rs. 10 each at par to the equity shareholders of Y Ltd. 2. Issued 18% Preference Shares of Rs. 100 each to discharge the preference shareholders of Y Ltd. at 10% premium. 3. The debentures of Y Ltd. will be converted into equivalent number of debentures in X Ltd. 4. The Investment Allowance Reserve of Y Ltd. is to be maintained for 4 more years. Prepare the opening Balance Sheet of X Ltd. after amalgamation on the assumption that amalgamation in the nature of merger.

Sum 2. PR Ltd. and QR Ltd. Were amalgamated on and from 1st April, 2010. A new company PQR Ltd. was formed to take over the business of the existing companies. Balance Sheet as on 31 – 12 – 2009 Nisarg A Joshi Page 1

Accounting for Amalgamation
Rs. (‘000) Liabilities Equity Shares of Rs. 10 each General Reserve P & L A/c Investment Allowance Reserve Export Profit Reserve 12% Debentures Sundry Creditors PR Ltd. 9,000 2,250 1,500 7,50 75 4,500 1,500 195,75 QR Ltd. PR Ltd. Sundry Fixed Assets 127,50 Investment 1,575 Stock 1,875 Debtors 2,700 Cash & Bank 6,75 Assets QR Ltd. 112,50 8,25 4,125 6,000 6,00

105,00 3,000 7,50 1,50 1,50 6,000 2,250 228,00

195,75

228,00

PQR Ltd. Issued requisite number of shares to discharge the claims of the equity shareholders of the transfer companies. Prepare a note showing purchase consideration and discharge thereof and draft the Balance Sheet of PQR presuming that 1. Amalgamation is in the nature of Merger 2. Amalgamation is in the nature of purchase

Sum 3. Given below are the Balance Sheets of two companies as on 31st December, 2010. X LTD. Liabilities 8% Cumulative Pref. Shares of Rs. 10 each 1,50,000 Equity Shares of Rs. 10 each General Reserve P & L A/c Sundry Creditors Amount 5,00,000 15,00,000 8,00,000 90,000 50,000 29,40,000 Assets Patent Rights Land and Buildings Plant and Machinery Stock Debtors Cash & Bank Amount 2,00,000 6,00,000 15,50,000 3,50,000 80,000 1,60,000 29,40,000

Nisarg A Joshi

Page 2

Accounting for Amalgamation
Y LTD. Liabilities Amount 40,000 Equity Shares of Rs. 10 each 4,00,000 P & L A/c 32,000 Sundry Creditors 21,000 Assets Goodwill Motor Vehicles Furniture Stock Debtors Cash & Bank Amount 70,000 40,000 25,000 2,39,000 62,000 17,000 29,40,000

29,40,000

It has been agreed that both companies should be wound up and a new company Z Ltd. Should be formed to acquire the assets of both companies on the following terms: 1. Z Ltd. Is to have an authorized capital of Rs. 30,00,000 divided into 50,000, 13% cumulative preference shares of Rs. 10 each and 2,50,000 equity shares of Rs. 10 each. 2. Z Ltd. Is to purchase the whole of the assets of X Ltd. (except cash and bank balances) for Rs. 27,95,000 be settled as to Rs. 5,45,000 in cash and as to the balance by issue of 1,80,000 equity shares, credited as fully paid, to be treated as valued at Rs. 12.5 each. 3. Z Ltd. Is to purchase the whole of the assets of Y Ltd. (except cash and bank balances) for Rs. 3,81,000 to be settled as to Rs. 6,000 in cash and as to the balance by the issue of 30,000 equity shares, credited as fully paid, to be treated as valued at Rs. 12.5 each. 4. Z Ltd. Is to make public issue of 50,000, 13%...
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