AMALGAMATION OF COMPANIES

ENTRIES IN BOOKS OF VENDOR COMPANY

(1) Transfer of Real Assets
Realisation A/c Dr [Total of Assets]
To Various Asset Accounts [Balances as per B/S}
Notes :
a. Assets account appearing in the Balance Sheet under ‘Fixed Assets’, ‘Investment’, Current Assets,
Loans and Advances’ are transferred to ‘Realisation A/c Debit Side. These assets are transferred
whether taken over or not by the purchasing company. If Goodwill A/c appears in the books, it
too is transferred along with other assets.
b. However, if Cash/Bank A/c is not taken over by the new company, it should not be transferred
to the Realisation A/c. Cash/Bank A/c is opened to record subsequent receipts and payments,
and the closing balance is transferred to the Equity Shareholders in the last stage.
c. An asset against which there is a provision or reserve should be transferred at its gross value.
Thus, Gross value of Debtors is transferred to the debit of the Realisation A/c. Reserve/provision
for doubtful debts are transferred separately to the credit of the Realisation A/c.
d. The value agreed for the purpose of take-over are to be ignored for transfer entry.
(2) Accumulated losses/Fictitious Assets
Equity Shareholders A/c Dr. [Total]
To Profit & Loss A/c [Balance as per B/S]
To Fictitious Assets A/c [Balance as per B/S]
(3) Liabilities transferred
Various Outside Liabilities Accounts Dr. [Balance as per B/S]
To Realisation A/c [Total]
Notes:
a. The external liability accounts shown under ‘Secured Loans’, ‘Unsecured Loans’, and ‘Current
Liabilities & Provision’ in the Balance Sheet are transferred to ‘Realisation A/c” Credit side.
b. All the items under the above heads (including debentures) are transferred to the ‘Realisation A/c’,
whether taken over or not by the new company.
c. Workmen’s Profit Sharing Fund’, ‘Workmen’s Savings Bank Account’, ‘Pension Fund’, ‘Provident
Fund’, ‘Superannuation Fund’, ‘Unclaimed Dividends’ are external liabilities and should be
transferred to the Realisation A/c. Though some of these accounts contain the word-‘Fund’, these
are not ‘Reserves’ but represent external liabilities.
d. The value agreed by the new company for takeover are ignored for this transfer entry.
(4) Amount due to preference shareholders
Preference Share Capital A/c Dr. [As Per Balance Sheet]
To Pref. Shareholders A/c [Amount Payable]
(5) Transfer equity share capital
Equity Share Capital A/c Dr. [Credit Balance]
To Equity Shareholders A/c
(6) Accumulated profit/reserve
Profit & Loss (Cr.) Dr. [Balance as per B/S]
General Reserve A/c Dr. [Balance as per B/S]
To Equity Shareholders A/c
Notes : Capital Reserve, Capital Redemption Reserve, Security Premium Account, Dividend
Equalisation Reserve, Contingency Reserve, Plant Replacement Reserve, are clearly in the nature of
Reserves and are to be transferred to the Equity Shareholders’ A/c. Account such as ‘Insurance Fund’,
‘Building Fund’, Workmen’s Compensation Fund’ or ‘Accident Fund’ are examples of internal
insurance. If there is no liability on these funds the balances in these Funds are to be transferred to
the Equity Shareholders A/c. However, if there is any liability, it should be paid first out of the
relevant Fund, and the balance should be transferred to the Equity Shareholders’ A/c. Alternatively,
the Funds may be transferred to the Equity Shareholders at books value, and the liability when paid
may be debited to the Realisation A/c.
(7) Record Purchase Consideration
Purchasing Company’s A/c Dr. [Purchase Consideration]
To Realisation A/c
Notes : Purchase consideration means the total payments to the Equity/ Preference shareholders, in
the form of shares and cash (As 14). Under AS 14, PC would not include payment made by the
purchasing company to discharge the debentures or other liabilities (including liquidation expenses) of
the vender company.
(8) Receive purchase consideration
Bank A/c [Amount received]
Preference Share in Purchasing Co. A/c [Pref. Sh. Received]
Equity Share in Purchasing Co. A/c [Equity Sh. Received]
To Purchasing Company’s A/c [Total P.C.]
(9) Sale of an asset not taken over (recorded / unrecorded)
Bank A/c [Sale Price]
To Realisation A/c
(10) Payment of a liability not taken over (recorded / unrecorded)
Realisation A/c [Amount paid]
To Bank A/c
(11a) Dissolution expenses paid & born by vendor company
Realisation A/c Dr. [Amount Received]
To Bank A/c
(11b) Dissolution expenses paid by vendor company but re-imbursed by purchasing company
i On payment expenses paid by vendor company
Purchasing Company’s A/c Dr.
To Bank A/c [Expenses Paid]
ii On re-imbursement by purchasing company
Bank A/c Dr. [Amount Received]
To Purchasing Company’s A/c
Note: Difference between the actual expenses paid and the re-imbursement is adjusted (debited or
credited) in the Realisation a/c.
(11c) Dissolution expenses paid as well as born by the purchasing company
If the expenses are paid as well as born by the purchasing company, no entry is passed in the
books of the vendor company.
(12a) Profit on realization
Realisation A/c Dr. [Amount of Profit]
To Equity Shareholders A/c
(12b) Loss on realization
Equity Shareholders A/c Dr. [Amount of Loss]
To Realisation A/c
(13) Settle Pref. shareholders’ accounts
Pref. Shareholders A/c [Due]
To Bank A/c [Paid in cash]
To Pref. Shares in Purchasing Co. A/c [Pref. Sh. Received]
(14) Settle Equity shareholders accounts
Equity Shareholders A/c [Due]
To Bank A/c [Paid in cash]
To Equity Shares in Purchasing Co. A/c

ENTRIES [PURCHASING COMPANY – PURCHASE METHOD]

No. Transaction / Entry Amount

(1) Acquisition of business of vendor company
Business Purchase A/c [Purchase Consideration]
To Liquidator of vendor company
(2) Incorporating assets/liabilities of vendor company taken over
Various Asset Accounts Dr. [Agreed Values]
Goodwill A/c (Note 1) Dr. [PC Less Net Assets]
To Various Liabilities or Provisions [Agreed Values]
To Debentures in Vendor Co. [Take-over Value]
To Business Purchase A/c [PC]
To Capital Reserve A/c (Note 1) [Net Assets Less PC]
Notes:
1) If PC is ascertained under the Net Assets method, the Net Assets will be equal to the PC and this
will not give rise to any Goodwill or Capital Reserve. However, if PC is ascertained under the Net
Payment method, above entry may not tally directly; i.e. there may be some difference between
the PC and Net Assets. If so, the excess (PC – Net assets) is debited to goodwill A/c or the deficit
(Net assets – PC) is credited to capital Reserve A/c.
(3) Discharge Purchase Consideration
Liquidator of Vendor Co. [Purchase Consideration]
Discount on Issue of Shares [Discount, it any, on issue]
To Equity Share Capital A/c [Paid-up value of Sh.
Issued]
To Pref. Share Capital A/c [Paid-up Value of Pref. Sh.]
To Security Premium A/c [Premium, if any, on issue]
To Cash/Bank A/c [Paid , if any]
(4) Discharge Debentures of Vendor Co.
Debentures in Vendor Co. Dr. [Take-over Value]
Discount on Issue of Deb. In Purchasing Co. Dr. [Discount, if any, on issue]
To Debentures in purchasing Co. A/c [Normal value issued]
To Security Premium A/c [Premium, if any, on issue]
To Cash/Bank A/c [Paid, if any]
Note : Debentures in Vendor Co. are recorded at the value at which they are to be settled, in entry (2)
above. Thus, if debentures of Rs. 50,00,000 are agreed to be settled for Rs. 60,000, entries in (2) and (5)
will be for Rs. 60,000.
(5) Preliminary Expenses paid
Preliminary Expenses [Amount of expenses]
To Bank
(6) Dissolution expenses paid & borne by purchasing company
Goodwill A/c [Amount of expenses]
To Cash/Bank A/c
(7) Set off goodwill and Capital Reserve
Capital Reserve A/c
To Goodwill A/c
(8) Create Statutory Reserve
Amalgamation Adjustment Account Dr. [Required Amount]
To [Statutory Reserve Name] Account

Q.1. Following are the Balance Sheet of Bold Limited and Beautiful Limited as on 31st March 2018.
Liabilities Bold Beautiful Assets Bold Beautiful
Ltd. ₹ Ltd. ₹ Ltd. ₹ Ltd. ₹
Equity share capital 5,50,000 2,00,000 Land and building 2,00,000
(₹ 10 each) Plant and Machinery 3,00,000 2,60,000
General reserve 4,00,000 2,50,000 Furniture and Fixture 50,000 30,000
Profit and loss A/c 1,00,000 48,000 Investment
Statutory Reserve 50,000 - (Market Value – ₹ 1,00,000
12% Debenture - 1,00,000 125,000)
Current liabilities 3,00,000 1,52,000 Current Assets 7,40,000 4,55,000
Preliminary Expenses 10,000 5,000
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 ₹ 20,00,000 consisting of 2,00,000 equity shares of ₹10 each. The terms
of agreement were as under:
a) All the assets and liabilities of both companies were taken over at their book value except Land and
Building at book value plus 10%, Plant and 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.
c) The entire purchase consideration was paid in the form of equity shares of ₹10 each fully paid at a
premium of ₹5 per share.
d) 12% Debentures were redeemed at par by issue of equity shares of ₹ 10 each fully paid by the
amalgamated company at par.
You are required to:
i) Prepare a statement of computation of purchase consideration.
ii) Prepare a Balance Sheet of Bold and Beautiful Limited after amalgamation in the nature of
Purchase method.
Q.2. The balance sheets of Siddhi Ltd. and VinayakLtd. As on 31 st March 2018 were as follows:
Liabilities Siddhi Vinayak Assets Siddhi Vinayak
Ltd. ₹ Ltd. ₹ Ltd. ₹ Ltd. ₹
Share Capital : Goodwill - 1050
75,000 Preference Patents 5,000 -
shares of ₹ 100 each 7,500 Land and building 8,000 -
Plant and machinery 22,250 -
22,50,000 Equity Motor vehicles - 800
Shares of ₹ 10 each 22,500 Furniture - 175
Computers 2,000 -
6,00,000 Equity Stock 5,000 3500
Shares of ₹10 each 6,000 Debtors 1200 1000
Cash ate bank 650 270
General Reserve 12,000 -
Profit and Loss A/c 480 -
Investment Allowance 870 480
Reserve
Creditors 750 315
44100 6795 44100 6795
1. A new company Siddhivinayak Ltd. was formed to acquire the assets and liabilities of Siddhi Ltd.
and Vinayak Ltd. The terms of acquisition of business were as under:
2. Siddhivinayak Ltd. to have a authorized capital of ₹ 5,25,00,000, divided into 75,000 13%
Preference Shares of ₹ 100 each and 45,00,000 Equity Shares of ₹ 10 each.
3. Business of Siddhi Ltd. valued at ₹ 4,50,00,000 settlement being ₹ 90,00,000 cash and balance by
issue of fully-paid Equity Shares at ₹ 12.
4. Business of Vinayak Ltd. valued at ₹72,00,000 to be satisfied by issue of fully paid Equity Shares at
₹ 12.
5. Siddhivinayak Ltd. Made a public issue of 45,000 Preference shares at per and 4,50,000 Equity
Shares at ₹ 12. The issue was under written at the commission of 5% on issue price.
Make journal entries in the books of Siddhivinayak Ltd. and prepare the Balance Sheet of
Siddhivinayak Ltd.

Q.3. Apurva Ltd. and Pari Ltd. were amalgamated on and from 1st April, 2019. A new company Ujala
Ltd. was formed to take over the business of the existing companies. The Balance Sheets of Apurva Ltd.
And Pari Ltd. as on 31st March, 2019 are given below :
Liabilities Apurva Pari Ltd. Assets Apurva Pari Ltd.
Ltd. ₹ ₹ Ltd. ₹ ₹
Shares Capital Fixed Assets
Equity shares of ₹ 100 Land and Building 3000 1500
each 4000 3750 Plant and Machinery 1500 1800
12% Preference share Computers 750 200
of ₹ 100 each 1500 1000 Current Assets,
Reserves and Surplus Loan and Advances
Revaluation Reserves 750 500 Stock 2000 1000
General Reserve 850 750 Sundry debtors 1250 2000
Foreign Project Reserve 250 250 Cash and bank 600 800
Profit and Loss A/c 250 150 Advance Tax 900 200
Secured Loans
10% Debentures (₹ 100
each) 300 150
Current Liabilities
and Provisions
Sundry Creditors 1100 700
Provision for Tax 1000 250
10000 7500 10000 7500
Ujala Ltd. will issue 5 equity shares for each equity share of Apurva Ltd. and 4 equity shares for each
equity share of Pari Ltd. The shares are to be issued @ ₹ 30 each, having a face value of ₹ 10 per share.
Preference shareholders of the two companies are issued equivalent number of 15% preference shares
of Ujala Ltd. at a price of ₹ 150 per share (face value ₹ 100)
10% Debenture holders of Apurva Ltd. and Pari Ltd are discharged by Ujala Ltd. by issuing such
number of its 15% debentures of ₹ 100 each so as to maintain the same amount of interest
Foreign Project Reserve is Statutory Reserve.
Prepare the Balance Sheet of Ujala ltd. As on 1st April, 2019 after the amalgamation has been carried
out on the basis of amalgamation in the nature of purchase.
Q.4. Following are the Balance sheet of Rohan Ltd. and Sohan Ltd. As on 31 st March 2018.
Liabilities Rohan Sohan Assets Rohan Sohan
Ltd. ₹ Ltd. ₹ Ltd. ₹ Ltd. ₹
Share Capital: Fixed assets
9% Preference Shares Goodwill 150000 150000
of ₹ 100 each 600000 900000 Land and Building 600000 750000
Equity Shares of ₹ 100 Plant and Machinery 450000 600000
each 900000 1500000 Computer 300000 450000
Reserve and Surplus Investment 150000
General Reseve 75000 90000 Current Assets,
Profit and Loss A/c 15000 30000 Loans & Advance
Revaluation Reserve 45000 60000 Stock 300000 450000
Export Profit Reserve 30000 45000 Sundry Debtors 150000 300000
Secured Loans Bills Receivables 75000 150000
12% Debentures of ₹ 300000 450000 Bank 195000 375000
100 each
Unsecured Loans 150000 75000
Current Liabilities
and Provisions
Sundry Creditors 225000 180000
Bills Payable 30000 45000
2370000 3375000 2370000 3375000
Mohan Ltd was formed to take over the business of Rohan Ltd. and Sohan Ltd. with an authorized capital of
₹ 300,00,000 consisting of 20,000, 13% Preference Shares of ₹ 100 each and 1,00,000 Equity Shares of ₹ 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 ₹ 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 shares are to be issued at ₹ 35 each.
3. 12% debenture holders of both the companies are discharged by Mohan Ltd. By issuing such number of
its 15% Debentures of ₹ 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:
1. Tangible fixed assets at 10% more than book-values.
2. 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: a) Compute purchase consideration of Rohan Ltd. and Sohan Ltd.
b) Pass Journal entries and Prepare Balance Sheet after amalgamation in the books of Mohan Ltd. applying
Purchase Method.

Q.5. The following are the balances of Lav Limited and Kush Ltd. as on 31st March 2004 :
Liabilities Lav Kush Ltd. Assets Lav Kush
Ltd. ₹ ₹ Ltd. ₹ Ltd. ₹
Shares Capital Fixed Assets at W.D.V. 4,00,000 5,00,000
Shares of ₹ 100 each 8,00,000 5,00,000 Investment 50,000 1,40,000
Stock 3,00,000 2,50,000
Reserves 36,000 2,04,000 Debtors 2,40,000 3,20,000
Trade Creditors 1,94,000 5,76,000 Cash & Bank 40,000 70,000
10,30,000 12,80,000 10,30,000 12,80,000
A new company viz., Ram Limited was formed to take over the assets (including cash but excluding
investments) and liabilities of both the companies effective from 1-4-2004. It was agreed that Ram
Limited will take over fixed assets of both the companies @ 25% above the written down value and the
debtors of both the companies subject to a provision for bad debts at 5%. In the case of Lav Limited, it
was further agreed that the stock shall be taken over at 90% of the stated value and the creditors at
book value subject to an additional provision for sales tax liability of Rs. 24,000.
In the case of Kush Limited, the stock was agreed to be taken over at 110% of the stated value and the
creditors at book value except a liability of Rs. 12,000 which was considered no longer required.
Investment of both the companies were sold at book value.
Ram Limited issued 8,000 equity Shares of Rs. 100 each fully paid up to the liquidator of Lav Limited
and 7,000 equity shares of Rs. 100 each fully paid up to the liquidator of Kush Limited. Balance
consideration was paid by cash. Registration expenses of Ram Limited came to Rs. 20,000.
Show Ledger Accounts in the books of the vendor companies.
Journalise the above transaction (including for cash) in the books of Ram Limited and prepare its
summarised Balance Sheet after the amalgamation is put through.