6 Amalgamation, Absorption and External Reconstruction With Solution

INTER C.A.
– ADVANCED ACCOUNTING
AMALGAMATION,
6 ABSORPTION AND EXTERNAL
RECONSTRUCTION
PART A : THEORY SECTION
There are two methods to calculate purchase consideration amount.

1) Net Assets Methods : Under this method purchase consideration will be
Revised value of Real Assets Takeover x
Less : Revised value of outside liabilities Takeover -x
Net Asset Takeover or Purchase Consideration x
Purchase consideration will be discharged in the form of shares, debentures and
cash by purchasing company. (Take Equity Shares if nothing is Prescribed)
2) Net Payment Methods : Under this method purchase consideration will be sum total
of all payment made by purchasing company to shareholders of Selling company.
(Always Calculate purchase consideration at net payment first).
As per Accounting Standard 14 issued by ICAI dealing with Accounting for Amalgamation.
Purchase consideration consists of shares, debentures and cash given by purchasing
company to shareholders of selling company. It means any payment made by purchasing
company to selling company’s debenture holders or creditors cannot be included in the
purchase consideration, even liquidation expenses of selling company paid by purchasing
company cannot be included in the purchasing consideration.
Accounting in the books of Selling Company (S Ltd.)

Following Accounts are to be opened in books of selling company.
1) Realisation A/c
2) Equity shareholders A/c
3) Preference shareholders A/c
4) Cash/ Bank A/c
5) Purchasing Company A/c (P Ltd.)
6) Share/ Debentures in P Ltd. A/c
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INTER C.A. – ADVANCED ACCOUNTING
Step 1 : Transfer of B/s items at B/s values (Empty B/s in Ans.)

Liabilities Where to write Assets Where to write
1. PSC PSH A/c 1. P / L or misc. exp. ESH A/c
2. ESC ESH A/c 2. Cash / Bank
3. R&S Not T/O C/B A/c
4. All Remaining Realization A/c T/O + All Realization A/c
Liabilities remaining Assets
Whether whether T/O
T/O or or not T/O
Not T/O
Step 2 : Demand PC from Buying Co.

Buying Co. A/c Dr.
To Realizations A/c
Step 3: Received PC
ES in Buying Co. A/c Dr.
PS in Buying Co. A/c Dr.
Deb. in Buying Co. A/c Dr.
Cash / Bank A/c Dr.
To Buying Co. A/c
Step 4: Sale of Assets not T/O

Cash / Bank A/c Dr.
To Realizations A/c
Step 5 : Payment of liability not T/O

Realization A/c Dr.
To Cash / Bank A/c
Step 6 : Payment of Realization Expenses

Case A: Seller pays & Bears
Realization A/c Dr.
To cash / Bank A/c
(Seller retains cash in B/S)
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Case B: Seller pays but buyer reimburse

1. Seller Pays Dr.
Realization A/c
To Cash / Bank A/c
2. Buyer reimburses Dr.
Cash / bank A/c
To realization A/c
Case C : Buyer pays & Bears

No Transactions for seller
Step 7: Payment to PSH

PSH Dr.
To ES in buying Co. A/c
Or To PS in buying Co. A/c
Or To Deb. in buying Co. A/c
Or To Cash / Bank A/c
Note: Close PSH A/c and transfer difference if any to realization A/c
Step 8: Close Realization A/c and transfer the difference if any to ESH A/c.
1. If Profit Dr.
Realization A/c
To ESH A/c
2. If Loss Dr.
ESH A/c
To Realization A/c
Step 9: Payment to ESH or close all remaining A/c’s and transfer difference to ESH A/c
ESH A/c Dr.
To Eq. Sh. in Buying Co. A/c
To Pref. Sh. in Buying Co. A/c
To Deb. in Buying Co. A/c
To cash / Book A/c
At the end ESH A/c must Tally
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Accounting for Buying Company
I Purchase Method II. Merger

Step 1: Record PC
Business Purchase A/c Dr. PC - Same
To liquidator of selling co. A/c - PC
Step 2: Discharge of PC Same
Liquidator of Selling Co. A/c Dr. PC -
Discount on new issue A/c Dr. -
To Eq. Sh. CAPITAL A/c - FV
To __% P. Sh. CAPITAL A/c - FV
To __% Debentures A/c - FV
To Cash / Bank A/c
To securities Premium A/c -
Step 3: Record Assets & Liabilities T/O Step 3 Record All
at revised figures (RF) Assets & Liab. except
share capital at Book
Individual assets T/O A/c Dr. RF - values
Goodwill A/c Dr. Loss - All Individual Assets B.
To individual liability T/O - RF Dr. V.
OR To business Purchase A/c - PC To All Reserves &
To Capital Reserve - Profit surplus -
To Individual -
liabilities - B.V.
To Business Purchase - P.C.
* Diff. in Journal
entry to be adjusted
in R & S.
Step 4: Payment of Debentures Same
Holder of Seller
Old debentures A/c Dr.
To New debentures A/c
Or To Cash / Bank A/c
Statutory Reserves : -
E.g.: Investment Allowance reserve, Development Reserve, Development rebate reserve,
Housing project reserve, foreign project reserve, export profit reserve.
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Step 5: carry forward of unexpired Not required

statutory reserve
Amalgamation Adj. Rese A/c Dr.
To Statutory Reserve A/c
Step 6: Payment / reimbursement of Step 6

selling co. exp. Case : b & c
Capital Reserve or Goodwill A/c Dr. ______ Reserve Dr.
To Cash / Book A/c To Cash / Bank
Step 7: Extra Transactions : Fresh Same
issue
Cash / Bank A/c Dr.
To ESC / PSC / Deb. A/c
To Securities Premium A/c
Step 8: Pay underwriting commission Same
Underwriting commission A/c Dr.
To Cash / Bank A/c
Step 9: Pay preliminary Exp. Same
Preliminary Exp. A/c Dr.
To Cash / Bank A/c
Step 10: Cancel common debts. Same
Crs / BP / loan taken Dr.
To Drs / BR / loan given A/c
Step11:Cancel unrealized profit on Step 11
stock _____ Reserve Dr.
Capital Reserve / Goodwill A/c Dr. To Stock
To Stock A/c
Merger Method (Pooling of interest method) :

According to accounting standard 14 the following conditions should be satisfied if
amalgamation is in the nature of merger :
1. All assets (including fictitious assets) & all liabilities (except equity share capital)
should be taken over.
2. All above assets and liabilities are taken over at book value except to maintain
uniform A/c policies.
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3. Payment to equity shareholders of selling co. should be in form of equity share of

purchasing Co. except for fractional shares.
4. Atleast 90% of equity shareholders of selling Co. in terms of face value should
become share holders of purchasing co.
5. Business of selling co. should be continued by purchasing Co.
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PART B: CLASSWORK SECTION
Question 1
Ajanta Limited agreed to acquire the business of Elora Limited as on 31st March, 2017.
The Balance Sheet of Elora Limited as on that date was as under :
Liabilities ` Assets `
Paid - up Capital : Fixed Assets :
10,000, 12% Preference Shares 1,00,000 Land & Building 2,00,000
of ` 10 each
20,000 Equity Shares of ` 10 2,00,000 Machineries 1,00,000
each
Current Assets :
Reserve 20,000 Stock 2,00,000
Profit & Loss A/c 30,000 Debtors 50,000
7% Debentures 1,00,000 Cash & Bank Balance 35,000
Sundry Creditors 1,50,000 Miscellaneous Expenditure:
Preliminary Expenses 10,000
Debenture Discount 5,000
6,00,000 6,00,000
The consideration payable by Ajanta Limited was agreed as under :

(i) The Preference Shareholders of Elora Limited were to be allotted 14% Preference
Shares of ` 1,10,000.
(ii) Equity Shareholders to be allotted six Equity Shares of ` 10 each issued at a premium
of 10% and ` 3 cash against every five shares held.
(iii) 7% Debentureholders of Elora Limited to be paid at 8% premium by issue of 9%
Debenture at 10% discount.
While arriving at the agreed consideration, the Directors of Ajanta Limited valued Land
& Building at ` 2,50,000, Stock ` 2,20,000 and Debtors at their book value subject to an
allowance of 5% Doubtful Debts. Liquidation expenses are ` 5,000.
Close the books of Elora Limited and show Journal of Ajanta Ltd.
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Question 2 Very important

Following is the Balance Sheet of Govind Limited as on 31st March, 2017
Share Capital: Goodwill 4,00,000
20,000 Equity Shares of 20,00,000 Land and Building 15,60,000
` 100 each fully paid Plant & Machinery 14,00,000
Reserve Fund 5,00,000 Patent Rights 3,50,000
Sinking Fund 1,00,000 Stock 2,00,000
Workmen's Accident Sundry Debtors 4,00,000
Compensation Fund Investment 1,00,000
(Estimated Liability ` 9,000) 50,000 Cash at Bank 1,30,000
Development Reserve 1,00,000
Staff Provident Fund 1,50,000
Sundry Creditors 1,40,000
'A' Debentures 4,00,000
'B' Debentures 10,00,000
Loan from Ramkrishna Ltd. 1,00,000
45,40,000 45,40,000
Ramakrishna Limited absorbed Govind Ltd. on the date of its above Balance Sheet. The
terms being :
1. The payment of cost of absorption not exceeding ` 8000/-.
2. The repayment of the 'B' Debentures at a premium of 5% in cash.
3. The discharge of 'A' Debentures at a premium of 10% by the issue of 6% debentures
in Ramakrishna Limited at 20% Discount.
4. A payment of ` 15 per share in cash.
5. Allotment of one 7% preference share of ` 100 each fully paid and five equity shares
of ` 10 each fully paid for every four equity shares in Govind Ltd.
6. The actual expenses of absorption came to ` 10,000/-.
7. Stock of Govind Limited includes goods valued at ` 56,000/- purchased from
Ramakrishna Limited which company invoices goods at cost plus 162/3%.
8. The directors of Ramakrishna Limited decided to create a provision of 5% on sundry
debtors against doubtful debts.
9. Contingent liabillity ` 1,00,000 of Govind Ltd. settled by Ramakrishna Ltd. At `20,000.
10. Debtors of Govind Limited includes `50,000 due from Ramakrishna Ltd.
Pass Journal Entries in the books of Ramakrishna Limited.
11. Statutory reserves
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12. Intercompany loans
Question 3
The All India Company Limited agrees to acquire, as a going concern, the business of the
Presidency Company Limited on the basis of the Vendor's balance sheet at 31st March,
2017, which is follows: Seller
Authorised Capital Freehold property 2,50,000
25,000 shares of ` 50 each 12,50,000 Plant and Machinery 50,000
Issued Capital Stock 3,00,000
20,000 Shares of ` 50 each 10,00,000 6% Government paper Securities10,000
Called -up Capital Debtors 2,30,000
20,000 Shares ` 30 each Less: Reserve 10,000 2,20,000
called up 6,00,000 Bank 30000-13500=16500 30,000
Reserve fund 1,25,000
Creditors 75,000
Profit and Loss Account 60,000
8,60,000 8,60,000
The All India Company Limited took over all the assets and liabilities of the vendor
company, subject to the retention out of such assets of ` 13,500 to provide for cost of
liquidation, Income tax, etc., and to satisfy dissenting shareholders.
The consideration for the sale is the allotment to the shareholders in the vendor
company of one share of ` 100 (` 50 paid-up) in the All India Company for every three
shares in the Presidency Company Limited.
The market value of the All India Company's shares, which are ` 50 paid-up, at the date
of sale is ` 60 each. The liquidator of the vendor company has paid out of ` 13,500
retained, costs of liquidation amounting to ` 2,500 ; income-tax ` 7,500 and dissenting
shareholders of 100 shares @ ` 35 per share.
The sale and purchase were carried through in terms of the agreement.
Prepare ledger accounts to close the books of selling company.
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Question 4
B. Co. Ltd. had the following Balance Sheet as on 31st March, 2011 :
Share Capital: Fixed Assets 83,00,000
50,000 shares of ` 100 each 50,00,000 Current Assets 69,00,000
Capital Reserve 10,00,000 Investments 17,00,000
General Reserve 36,00,000 Goodwill 2,00,000
Unsecured Loans 22,00,000
Provision for Taxation 11,00,000
1,71,00,000 1,71,00,000
B. Co. Ltd. is to be absorbed by Bessons Limited as on 31st March, 2011 on which date the
Balance Sheet of Bessons Limited is as follows.
Bessons Ltd. Balance Sheet
Share capital: Fixed Assets 1,60,00,000
8,00,000 Equity shares of `10 80,00,000 Current Assets 1,68,00,000
each fully paid
General Reserve 1,00,00,000
Secured Loans 40,00,000
Provision for Tax 52,00,000
Proposed Dividend 10,00,000
3,28,00,000 3,28,00,000
For the purpose of absorption the Goodwill of B Ltd. is considered valueless. There are
arrears of depreciation in B Ltd. amounting to ` 4,00,000. The shareholders in B Ltd.
are to be allotted in full satisfaction of the claims, shares in Bessons Ltd. in the same
proportion as the respective intrinsic values of the shares of the two companies bear to
one another.
Determine Exchange Ratio and Calculate PC.
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Question 5
The following are the summarized Balance Sheets of P Ltd. and Q Ltd. as on 31st March,
2011:
Liabilities P Ltd ` Q Ltd. ` Assets P Ltd. ` Q Ltd. `
Share Capital Fixed Assets 7,00,000 2,50,000
Equity Shares of ` Investment 80,000 80,000
10 each 6,00,000 3,00,000 Current Assets
10% Pref. Shares Inventory 2,40,000 3,20,000
of ` 10 each 2,00,000 1,00,000 Trade
Reserves and receivables 4,20,000 2,10,000
Surplus 3,00,000 2,00,000 Cash at Bank 1,10,000 40,000
Secured Loans
12% Debentures 2,00,000 1,50,000
Current Liabilities
Trade payables 2,50,000 1,50,000
15,50,000 9,00,000 15,50,000 9,00,000
Details of Trade receivables and trade payables are as under:

P Ltd. (`) Q Ltd. (`)
Trade receivables
Debtors 3,60,000 1,90,000
Bills Receivable 60,000 20,000
Trade Payables
Sundry Creditors 2,20,000 1,25,000
Bills Payable 30,000 25,000
BeforeFixed Assets of both the companies are to be revalued at 15% above book value. In-
absorption
ventory in Trade and Debtors are taken over at 5% lesser than their book value. Both
the companies are to pay 10% Equity dividend, Preference dividend having been already
paid.
After the above transactions are given effect to, P Ltd. will absorb Q Ltd. on the follow-
ing terms:
(i) 8 Equity Shares of ` 10 each will be issued by P Ltd. at par against 6 shares of Q Ltd.
(ii) 10% Preference Shareholders of Q Ltd. will be paid at 10% discount by issue of 10%
Preference Shares of ` 100 each at par in P Ltd.
(iii) 12% Debenture holders of Q Ltd. are to be paid at 8% premium by 12%
Debentures in P Ltd. issued at a discount of 10%.
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(iv) ` 30,000 is to be paid by P Ltd. to Q Ltd. for Liquidation expenses. Sundry Creditors
of Q Ltd. include `` 10,000 due to P Ltd.
Prepare: Stock and debtors of q Ltd are taken over at 95% Book value
(a) Journal entries in the books of P Ltd.
(b) Statement of consideration payable by P Ltd.
Question 6
The financial position of two companies Hari Ltd. and Vayu Ltd. as on 31st March, 2011
was as under:
Assets Hari Ltd. (`) Vayu Ltd. (`)
Goodwill 50,000 25,000
Building 3,00,000 1,00,000
Machinery 5,00,000 1,50,000
Inventory 2,50,000 1,75,000
Trade receivables 2,00,000 1,00,000
Cash at Bank 50,000 20,000
Total 13,50,000 5,70,000
Liabilities Hari Ltd. (`) Vayu Ltd. (`)

Share Capital:
Equity Shares of ` 10 each 10,00,000 3,00,000
9% Preference Shares of ` 100 each 1,00,000 --
10% Preference Shares of ` 100 each -- 1,00,000
General Reserve 70,000 70,000
Retirement Gratuity fund Long term provision fund 50,000 20,000
Trade payables 1,30,000 80,000
Total 13,50,000 5,70,000
Hari Ltd. absorbs Vayu Ltd. on the following terms:

(a) 10% Preference Shareholders are to be paid at 10% premium by issue of 9% Preference
Shares of Hari Ltd.
(b) Goodwill of Vayu Ltd. is valued at ` 50,000, Buildings are valued at ` 1,50,000 and
the Machinery at ` 1,60,000.
(c) Inventory to be taken over at 10% less value and Provision for Doubtful Debts to be
created @ 7.5%.
(d) Equity Shareholders of Vayu Ltd. will be issued Equity Shares @ 5% premium.
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Prepare necessary Ledger Accounts to close the books of Vayu Ltd. and show the acquisition
entries in the books of Hari Ltd. Also draft the Balance Sheet after absorption as at 31st
March, 2011.
Question 7
The following draft Balance Sheets are given as on 31st March, 2011:
Liabilities (` in lakhs) Assets (` in lakhs)
Best Ltd. Better Ltd. Best Ltd. Better Ltd.
` ` ` `
Share Capital: Fixed Assets 25 15
Shares of ` 100,
each fully paid 20 10 Investments 5 ----
Reserve and 10 8 Current Assets 20 5
Surplus
Other Liabilities 20 2
50 20 50 20
The following further information is given —

(a) Better Limited issued bonus shares on 1st April, 2011, in the ratio of one share for
every two held, out of Reserves and Surplus.
(b) It was agreed that Best Ltd. will take over the business of Better Ltd., on the basis of
the latter’s Balance Sheet, the consideration taking the form of allotment of shares
in Best Ltd.
(c) The value of shares in Best Ltd. was considered to be ` 150 and the shares in Better
Ltd. were valued at ` 100 after the issue of the bonus shares. The allotment of
shares is to be made on the basis of these values.
(d) Liabilities of Better Ltd., included ` 1 lakh due to Best Ltd., for purchases from it, on
which Best Ltd., made profit of 25% of the cost. The goods of ` 50,000 out of the
said purchases, remained in stock on the date of the above Balance Sheet.
Make the closing ledger in the Books of Better Ltd. and the opening journal entries in the
Books of Best Ltd., and prepare the Balance Sheet as at 1st April, 2011 after the takeover.
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Question 8
Following is the Balance Sheet of Backward Ltd. as on 31st March, 2017:
40,000 7% preference shares of Land and Buildings 3,18,000
` 10 each fully paid 4,00,000 Plant & Machinery 1,65,000
60,000 Equity shares of ` 10 Motor Lorries 6,200
each 6,00,000 Trade Debtors 1,34,000
Capital Reserve 12,100 Less: Provision 3,000 1,31,000
Loans 5,000 Stock in trade 83,500
Trade Creditors 86,100 Cash in hand and at Bank 13,100
Bills Payable 4,200 Profit & Loss A/c 4,00,000
Bank overdraft 9,400
11,16,800 11,16,800
Note: There is a contingent liability in respect of a claim for royalties amounting to 15,000.
It was arranged that a new company Progressive Ltd. should be formed to acquire the
under mentioned assets at the values stated :
Land & Building ` 2,00,000
Plant & Machinery ` 1,20,000
Motor Lorries `10,000 Rest of the assets and liabilities
Stock ` 70,000 are not taken over
The total of ` 4,00,000 payable was satisfied by the allotment of 20,000 6% preference
shares of ` 10 each, fully paid and 20,000 equity shares of `10 each, fully paid. The new
company also satisfied the contingent liability in respect of the claim for royalties by
allotting to the claimant 400 Equity shares fully paid.
The book debts realised ` 1,30,000 and the amount of trade creditors proved to be
` 81,000. Loans and other liabilities were discharged and the costs of winding up
amounted to ` 1,400.
The preference shareholders in the old company accepted the preference shares in the
new company in full satisfaction whereas the equity shareholders took the equity shares
in the new company and the balance in cash as final settlement.
Close the books of Selling Co.
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Question 9
K Ltd. and L Ltd. amalgamate to form a new company LK Ltd. The financial position of
these two companies on the date of amalgamation was as under:
Liabilities K Ltd. L. Ltd. Assets K Ltd. L. Ltd.
Share Capital Goodwill 80,000 —
Equity shares of Land & Building 4,50,000 3,00,000
`100 each 8,00,000 3,00,000 Plant & Machinery 6,20,000 5,00,000
7% Preference shares Furniture & Fittings 60,000 20,000
of ` 100 each 4,00,000 3,00,000 Sundry Debtors 2,75,000 1,75,000
5% Debentures 2,00,000 Stores & Stock 2,25,000 1,40,000
General Reserve — 1,00,000 Cash at Bank 1,20,000 55,000
Profit & Loss A/c 3,71,375 97,175 Cash in hand 41,375 17,175
Secured Loan — 2,00,000
18,71,375 12,07,175 18,71,375 12,07,175
(A) The terms of amalgamation were as under :
1. The assumption of liabilities of both the Companies.
Takeover
Issue price2.= Issue of 5 equity shares of ` 20 each in LK Ltd. @ ` 18 paid up at a premium of
18+4= 22 ` 4 per share for each preference share held in both the Companies.
3. (a) Issue of 6 Equity shares of ` 20 each in LK Ltd. @ ` 18 paid up at a premium
of ` 4 per share for each equity share held in both the Companies.
(b) In addition, necessary cash should be paid to the Equity shareholders of
both the Companies as is required to adjust the rights of shareholders of
both the Companies in accordance with the intrinsic value of the shares of
both the Companies.
4. Issue of such an amount of fully paid 6% debenture in LK Ltd. as is sufficient to
discharge the 5% debentures in K. Ltd.
(B) You are further informed that :

1. The assets and liabilities are to be taken at Book values except stock and
debtors for which a provision at 2% and 21/2% respectively to be raised.
2. The sundry debtors of K Ltd. include ` 20,000 due from 'L' Ltd.
(C) The LK Ltd. is to issue 15,000 new equity shares of ` 20 each. ` 18 paid at premium
of ` 4 per share so as to have sufficient working capital.
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You are required to :

(1) Calculate Intrinsic value of both the companies shares.
(2) Calculate purchase consideration.
(3) Give opening entries in the Books of New Company.
Question 10
Given below are the summarised balance sheets of the two companies as on 31st March,
2017.
Liabilities A Ltd. B Ltd. Assets A Ltd. B Ltd.
` ` ` `
Equity shares of Goodwill 1,50,000 80,000
` 100 each 6,00,000 2,00,000
10% Preference Plant & Machinery 10,87,000 2,50,000
shares of ` 100 each 2,00,000 —
General reserve 75,000 — Stocks 3,20,000 95,000
Profit & Loss A/c 22,500 6,800 Sundry Debtors 1,90,000 47,000
6% Mortgage 4,00,000 — Cash & Bank
Debentures Balances 70,800 6,400
Sundry creditors 5,38,300 2,71,600 Discount on
debentures 18,000 —
18,35,800 4,78,400 18,35,800 4,78,400
Due to unfavourable financial position, both the companies decided to amalgamate and
form a new company. In substance the provision of the scheme were as under:
(a) A new company C Ltd. was to be formed to take over the net assets of A Ltd. and B
Ltd. The new company was to have an authorised capital of ` 25,00,000 divided into
20,000 equity shares of ` 100 each and 5,000 10% cumulative preference shares of
` 100 each. The preference shares are convertible into equity shares after 5 years
from the date of their issue.
(b) The preference shares of A Ltd. were to be exchanged for preference shares in the
new company on equal basis. Every two equity shares of A Ltd. were to be exchanged
for three equity shares in the new company.
(c) The remaining preference shares of the new company were to be issued for cash.
All the available equity shares of the new company after withholding a sufficient
number to meet the conversion privilege of the shareholders were to be offered for
cash subscription at par.
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(d) The sundry debtors of A Ltd. includes a sum of ` 24,000 due from B Ltd. for sale of
goods, whose cost to A Ltd. was ` 18,000. These goods remaining on hand with B
Ltd. are included in the company’s stock inventory.
(e) The cash proceeds realised from the sale of the shares were to be applied as follows
:
(i) The debentures were to be paid off in full.
(ii) The creditors were to be paid 30 percent of amount due to them.
You are required to pass journal entries in the books of C Ltd.
Question 11
A and B Ltd. agreed to amalgamate their business. The scheme envisaged the formation
of C Ltd. with a share capital equal to the combined capitals of A Ltd. and B Ltd. for the
purpose of acquiring the assets, liabilities and undertakings and the two companies in
exchange for shares in C Ltd. The Balance sheets of A Ltd. and B Ltd. as on 31-3-2011
(the date of amalgamation) are summarised below:
` ` ` `
Authorised & Issued Fixed Assets 1,20,000 1,80,000
Capitals 1,00,000 1,40,000
Reserves 1,70,000 1,00,000 Stock 60,000 1,10,000
Creditors 40,000 90,000 Debtors 80,000 1,30,000
Bank Overdraft ---- 90,000 Balance with
Bank 50,000 ----
3,10,000 4,20,000 3,10,000 4,20,000
The consideration was to be based on the net assets of companies as shown in their
books on March 31, 2011 but subject to an addition to compensate A Ltd. for its super
profits records. This addition was to be the weighted average of the net profits of A Ltd.
for three years ended March 31, 2011. The weights for this purpose for the year 2008-09,
2009-10 and 2010-11 were agreed as 1, 2 and 3 respectively.
The profits had been:
Year ended 31st March, 2009 20,000
Year ended 31st March, 2010 80,000
Year ended 31st March, 2011 1,20,000
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The shares in C Ltd. were to be issued to A Ltd. and B Ltd. at the premium and in proportion
of the agreed net assets value of those companies.
In order to raise working capital, C Ltd. increased its authorised share capital by
` 2,00,000 and proceeds to issue 12,000 shares of ` 10 each at a price of ` 15 per share.
(a) You are required to calculate the number of shares issued to A Ltd. and B Ltd.
(b) To show Journal entries in the books of A Ltd.
(c) To prepare the summarised balance sheet of C Ltd. after the issue of shares.
Question 12
White Ltd. and Blue Ltd. propose to sell their business to a new company being formed
for that purpose.
The summarised balance sheet as on 31st March, 2017 and profits of the companies for
the past three years are as follows:
Liabilities White Ltd. Blue Ltd. Assets White Ltd. Blue Ltd.
` ` ` `
Equity shares of ` 10 Freehold properly
each 6,00,000 2,50,000 (at cost) 3,60,000 1,20,000
Capital Reserve — 1,50,000 Plant &
General Reserve 3,90,000 1,20,000 machinery 3,20,000 1,80,000
(at cost)
Profit and Loss A/c 1,10,000 1,60,000 Investment (at
cost) — 1,00,000
Creditors 2,15,800 1,26,800 Stock - in – trade 1,10,000 89,500
Debtors 89,000 64,000
Balance at Bank 4,36,800 2,53,300
13,15,800 8,06,800 13,15,800 8,06,800
White Ltd. Blue Ltd.

` `
Net profits for the year ended:
31st March, 2015 1,74,500 1,07,600
31st March, 2016 1,93,400 1,22,900
31st March, 2017 2,14,700 1,44,500
You are given the following relevant information.
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It is agreed:
(1) that the properties and plant and machinery be re-valued as follows :
` `
Freehold property 4,48,000 1,44,000
Plant and machinery 3,05,700 1,72,950
(2) that the value of stocks be reduced by 10% and a provision of 121/2% be made on
debtors for bad and doubtful debts.
(3) that goodwill be valued at two years purchase of the average annual trading profits
of the past three years after deducting a standard profit of 10% on the net trading
assets before revaluation or adjustment on 31st March, 2017. Blue Ltd. had earned
` 17,000 on an average on its investments.
You are required to prepare the opening balance sheet of the new company.
Question 13
Star and Moon had been carrying on business independently. They agreed to
amalgamate and form a new company Neptune Ltd. with an authorised share capital of
` 2,00,000 divided into 40,000 equity shares of ` 5 each.
On 31st March, 2008 the respective Balance Sheet of Star and Moon were as follows:
Star Moon
` `
Fixed Assets 3,17,500 1,82,500
Current Assets 1,63,500 83,875
4,81,000 2,66,375
Less : Current Liabilities 2,98,500 90,125
Representing Capital 1,82,500 1,76,250
Additional Information:
(a) Re-valued figures of Fixed and Current Assets were As follows:
` `
Fixed Assets 3,55,000 1,95,000
(b) The debtors and creditors include ` 21,675 owed by Star to Moon. The purchase
consideration is satisfied by issue of the following shares and debentures.
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(i) 30,000 equity shares of Neptune Ltd. to Star & Moon in the proportion to the
profitability of their respective business based on the average net profit during
the last three years which were as follows :
` `
2006 Profit 2,24,788 1,36,950
2007 (Loss) / Profit (1,250) 1,71,050
2008 Profit 1,88,962 1,79,500
(ii) 15% debentures in Neptune Ltd. at par to provide an income equivalent to 8%

return on capital employed in their respective business as on 31st March, 2008
after revaluation of assets.
Compute the amount of debentures and shares to be issued to Star & Moon.
Question 14
The following were the Balance Sheets of P Ltd and V Ltd as at 31st March, 2017:
(` in lakhs)
Liabilities P Ltd. V Ltd. Assets P Ltd. V Ltd.
Equity Share Capital Land & Building 6,000 ----
(fully paid shares of Plant &
` 10 each) 15,000 6,000 Machinery 14,000 5,000
Securities Premium 3,000 ---- Furniture &
Fixtures 2,304 1,700
Foreign Projects and Fittings
Reserve (Statutory) ---- 310 Stock 7,862 4,041
General Reserve 9,500 3,200 Debtors 2,120 1,020
Profit & Loss A/c 2,870 825 Cash at Bank 1,114 609
12% Debentures ---- 1,000 Bills Receivable ---- 80
Bills Payable 120 ---- Cost of Issue of ---- 50
Sundry Creditors 1,080 463 Debentures
Sundry Provisions 1,830 702
33,400 12,500 33,400 12,500
All the Bills Receivable held by V Ltd were P Ltd's acceptances. On 1st April, 2007, P
Ltd took over V Ltd in an amalgamation in the nature of merger. It was agreed that in
discharge of consideration for the business, P Ltd would allot three fully paid ordinary
shares of ` 10 each at par for every two shares held in V Ltd. It was also agreed that 12%
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Debentures in V Ltd would be converted into 13% Debentures in P Ltd of the same amount
and denomination. Expenses of amalgamation amounting to ` 1 lakh were borne by P Ltd
and profit in internal stock is ` 2 lakhs.
You are required to pass journal entries in the books of P Ltd
Question 15
The following are the Balance Sheets of M Ltd. and N Ltd. as at 31st March, 2017:
(` in lakhs)
Liabilities M Ltd. N Ltd.
Fully paid equity shares of ` 10 each 3,600 900
10% Preference Shares of ` 10 each fully paid up 1,200 ----
Capital Reserve 600 ----
General Reserve 2,100 ----
Profit and Loss Account 780 ----
8% Redeemable debentures of ` 1,000 each ---- 300
Trade Creditors 2,421 369
Provisions 870 93
11,571 1,662
Assets
Plant and Machinery 4,215 468
Furniture and Fixtures 2,400 183
Motor Vehicles ---- 51
Stock 2,370 444
Sundry Debtors 1,044 237
Cash at Bank 1,542 240
Preliminary Expenses ---- 33
Discount on Issue of Debentures ---- 6
11,571 1,662
A new Company MN Ltd was got incorporated with an authorised capital of ` 15,000
lakhs divided into shares of ` 10 each for the purpose of amalgamation in the nature of
merger. M Ltd and N Ltd were merged into MN Ltd on the following terms:
(i) Purchase consideration for M Ltd's business is to be discharged by issue of 120 lakhs
fully paid 11% preference shares and 720 lakhs fully paid equity shares of MN Ltd to
the preference and equity shareholders of M Ltd in full satisfaction of their claims.
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(ii) To discharge purchase consideration for N Ltd's business, MN Ltd to allot 90 lakhs
fully paid up equity shares to shareholders of N Ltd in full satisfaction of their claims.
(iii) Expenses on the liquidation of M Ltd and N Ltd amounting to ` 6 lakhs are to be
borne by MN Ltd
(iv) 8% redeemable debentures of N Ltd to be converted into 8.5% redeemable debentures
of MN Ltd
(v) Expenses on incorporation of MN Ltd were ` 15 lakhs.
You are requested to :
(a) Pass necessary Journal entries in the books of MN Ltd to record above transactions,
and
(b) Prepare Balance Sheet of MN Ltd after merger.
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PART C : HOMEWORK SECTION

Question 16
S. Ltd. is absorbed by P. Ltd. The draft balance sheet of S. Ltd. is as under:
Balance Sheet
` `
Share Capital: Sundry Assets 13, 00,000
2,000 7% Preference shares of `
100 each (fully paid-up) 2,00,000
5,000 Equity shares of ` 100 each
(fully paid-up) 5,00,000
Reserves 3, 00,000
6% Debentures 2,00,000
Trade payables 1,00,000
13, 00,000 13, 00,000
P. Ltd. has agreed:

(i) to issue 9% Preference shares of ` 100 each, in the ratio of 3 shares of P. Ltd. for 4
preference shares in S. Ltd.
(ii) to issue to the debenture-holders in S. Ltd. 8% Mortgage Debentures at ` 96 in lieu
of 6% Debentures in S. Ltd. which are to be redeemed at a premium of 20%;
(iii) to pay ` 20 per share in cash and to issue six equity shares of ` 100 each (market
value ` 125) in lieu of every five shares held in S. Ltd.; and
(iv) to assume the liability to trade payables.
You are required to calculate the purchase consideration.
Question 17
Neel Ltd. and Gagan Ltd. amalgamated to form a new company on 1.04.2011. Following
is the Draft Balance Sheet of Neel Ltd. and Gagan Ltd. as at 31.3.2011:
Liabilities Neel Mini Ltd. Assets Max Ltd. Mini Ltd.
` ` ` `
Capital 7,75,000 8,55,000 Plant &
Machinery 4,85,000 6,14,000
Current 6,23,500 5,57,600 Building 7,50,000 6,40,000
Liabilities Current assets 1,63,500 1,58,600
13,98,500 14,12,600 13,98,500 14,12,600
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Following are the additional information:

(i) The assets of Neel Ltd. and Gagan Ltd. are to be revalued as under:
Neel ` Gagan `
Plant and Machinery 5,25,000 6,75,000
Building 7,75,000 6,48,000
(ii) The purchase consideration is to be discharged as under:

(a) Issue 24,000 equity shares of ` 25 each fully paid up in the proportion of their
profitability in the preceding 2 years.
(b) Profits for the preceding 2 years are given below:
Neel ` Gagan `
1st year 2,62,800 2,75,125
2nd year 2,12,200 2,49,875
Total 4,75,000 5,25,000
(c) Issue 12% preference shares of ` 10 each fully paid up at par to provide income
equivalent to 8% return on net assets in the business as on 31.3.2011 after
revaluation of assets of Neel Ltd. and Gagan Ltd. respectively.
You are required to compute the
(i) Equity and preference shares issued to Neel Ltd. and Gagan Ltd.,
(ii) Purchase consideration.
Question 18
Consider the following summarized balance sheets of X Ltd. and Y Ltd.
Balance Sheet as on 31st March, 2011
Liabilities X Ltd. Y Ltd. Assets X Ltd. Y Ltd.
` ’000 ` ’000 ` ’000 ` ’000
Equity Share Capital Land & Building 25,00 15,50
(` 10 each) 50,00 30,00
14% Preference Share Plant & 32,50 17,00
Capital (` 100 each) 22,00 17,00 Machinery
General Reserve 5,00 2,50 Furniture & 5,75 3,50
Fittings
Export Profit Reserve 3,00 2,00 Investments 7,00 5,00
Investment Allowance Inventory 12,50 9,50
Reserve --- 1,00
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Profit & Loss A/c 7,50 5,00 Trade receivables 9,00 10,30
13% Debentures Cash & Bank 7,25 5,20
(` 100 each) 5,00 3,50
Trade payables 4,50 3,50
Other Current
Liabilities 2,00 1,50
99,00 66,00 99,00 66,00
X Ltd. takes over Y Ltd. on 1st April, 2011. X Ltd. discharges the purchase consideration
as below:
(i) Issued 3,50,000 equity shares of ` 10 each at par to the equity shareholders of Y Ltd.
(ii) Issued 15% preference shares of ` 100 each to discharge the preference
shareholders of Y Ltd. at 10% premium.
The debentures of Y Ltd. will be converted into equivalent number of debentures of X Ltd.
The statutory reserves of Y Ltd. are to be maintained for 2 more years.
Show the balance sheet of X Ltd. after amalgamation on the assumption that:
(a) the amalgamation is in the nature of merger.
(b) the amalgamation is in the nature of purchase.
Question 19
The summarized Balance Sheet of Srishti Ltd. as on 31st March, 2014 was as follows:
Liabilities Amount (`) Assets Amount (`)
Equity Shares of ` 10 fully Goodwill 5,00,000
Paid 30,00,000 Tangible Fixed Assets 30,00,000
Export Profit Reserves 8,50,000 Stock 10,40,000
General Reserves 50,000 Debtors 1,80,000
Profit and loss Account 5,50,000 Cash & Bank 2,80,000
9% Debentures 5,00,000 Preliminary Expenses 50,000
Trade Creditors 1,00,000
50,50,000 50,50,000
Anu Ltd. agreed to absorb the business of Srishti Ltd. with effect from 1st April, 2014.
(a) The purchase consideration settled by Anu Ltd. as agreed:
(i) 4,50,000 equity Shares of ` 10 each issued by Anu Ltd. by valuing its share @
` 15 per share.
(ii) Cash payment equivalent to ` 2.50 for every share in Srishti Ltd.
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(b) The issue of such an amount of fully paid 8% Debentures in Anu Ltd. at 96% as is
sufficient to discharge 9% Debentures in Srishti Ltd. at a premium of 20%.
(c) Anu Ltd. will take over the Tangible Fixed Assets at 100% more than the book value,
Stock at ` 7,10,000 and Debtors at their face value subject to a provision of 5% for
doubtful Debts.
(d) The actual cost of liquidation of Srishti Ltd. was ` 75,000. Liquidation cost of Srishti
Ltd. is to be reimbursed by Anu Ltd. to the extent of ` 50,000.
(e) Statutory Reserves are to be maintained for 1 more year.
You are required to:
(i) Close the books of Srishti Ltd. by preparing Realisation Account, Anu Ltd. Account,
Shareholders Account and Debenture Account, and
(ii) Pass Journal Entries in the books of Anu Ltd. regarding acquisition of business.
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Question 20
The summarised Balance Sheet of Mars Limited as on 31st March, 2015 was as follow:
Share Capital: Fixed Assets:
1,00,000 Equity shares of ` 10 Land and building 7,64,000
each fully paid up 10,00,000 Current Assets:
Reserve and Surplus: Inventory 7,75,000
Capital Reserve 42,000 Trade Receivables 1,82,000
Contingency Reserve 2,70,000 Cash at Bank 3,29,000
Profit and Loss A/c 2,52,000
Current Liabilities & Provisions:
Trade Payables 2,66,000
Provision for income Tax 2,20,000
20,50,000 20,50,000
On 1st April, 2015, Jupiter Limited agreed to absorb Mars Limited on the following terms
and conditions:
(1) Jupiter Limited will take over the assets at the following values:
`
Land and building 10,80,000
Inventory 7,70,000
Bills receivable 30,000
(2) Purchase consideration will be settled by Jupiter Ltd. as under:
4,100 fully paid 10% preference shares of ` 100 will be issued and the balance will
be settled by issuing equity shares of ` 10 each at ` 8 paid up.
(3) Liquidation expenses are to be reimbursed by Jupiter Ltd. to the extent of ` 5,000.
(4) trade receivables realized ` 1,50,000. Bills payable were settled for ` 38,000. Income
tax authorities fixed the taxation liability at ` 2,22,000 and the same was paid.
(5) Trade payables were finally settled with cash remaining after meeting liquidation
expenses amounting to ` 8,000.
(6) Details of trade receivables and trade payables as under:
Trade Receivables
Debtors 1,60,000
Less: Provision for doubtful debts (8,000) 1,52,000
Bill receivable 30,000
Trade Payables
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Bills Payable 40,000

Creditors 2,26,000
(i) Calculate the number of equity shares and preference shares to be allotted by Jupiter
Limited in discharge of purchase consideration
(ii) Prepare the Realisation account, Bank account, Equity shareholders account and
Jupiter Limited’s account in the books of Mars Ltd.
Question 21
The Balance Sheet of X Co. Ltd. and Y Ltd. on 31st March, 2017 are as follows :
Balance Sheet of X Co. Ltd.
Share Capital : Fixed Asset :
Authorised Capital of 10,000 10,00,000 Goodwill 80,000
shares of ` 100 each
Issued Capital Others 8,00,000 8,80,000
10,000 shares of ` 100 each 10,00,000 Current Assets,
fully paid
Reserves & Surplus Loans and Advances 9,00,000
Capital Reserve 2,00,000
General Reserve 70,000 2,70,000
Unsecured Loans 2,00,000
Current Liabilities & Provisions
Total 17,80,000 Total 17,80,000
Balance Sheet of Y Ltd.

Liabilities Amount Assets Amount
Share Capital Fixed Assets 16,00,000
Authorised Capital 2,00,000 Current Assets, Loans
shares of ` 10 each 20,00,000 and Advances
Issued Capital: Bank 2,00,000
80,000 shares of ` 10 each Others 6,60,000 8,60,000
fully paid 8,00,000
Reserves and Surplus:
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General Reserve 8,00,000

Secured Loans 5,00,000
Current Liabilities & Provisions
Total 24,60,000 Total 24,60,000
It was proposed that X Co. Ltd. should be taken over by Y Co. Ltd. The following
arrangements were accepted by both the companies.
(a) Goodwill of X Co. Ltd. is considered valueless.
(b) Arrears of depreciation in X Co. Ltd. amounted to ` 40,000
(c) The holder of every 2 shares in X Co. Ltd. was to receive.
(i) as fully paid 10 shares in Y Co. Ltd. and
(ii) so much cash as is necessary to adjust the right of shareholders of both the
companies in accordance with the intrinsic value of the shares as per their
Balance Sheet, subject to necessary adjustment with regard to Goodwill and
depreciation in X Co. Ltd.'s Balance Sheet.
1. Determine the composition of purchase consideration
2. Show the Balance Sheet after absorption.
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PART D : PAST EXAM QUESTIONS
Question 22
The summarised Balance Sheet of M/s. A Ltd. and M/s. B Ltd. as on 31.03.2014 were as
under:
` ` ` `
Share Capital: Freehold
40,000 Equity Shares of Property 3,00,000 2,40,000
` 10 each, Fully paid 4,00,000 ---- Plant &
30,000 Equity Shares of Machinery 60,000 40,000
` 10 each, Fully Paid ---- 3,00,000 Motor Vehicle 30,000 20,000
General Reserve 2,40,000 ---- Trade
Profit & Loss Account 50,000 50,000 Receivables 2,00,000 80,000
Trade Payables 2,10,000 1,30,000 Inventory 2,30,000 1,80,000
6% Debentures ---- 1,20,000 Cash at Bank 80,000 40,000
9,00,000 6,00,000 9,00,000 6,00,000
M/s. A Ltd. and M/s. B Ltd. carry on business of similar nature and they agreed to
amalgamate. A new Company, M/s. AB Ltd. is formed to take over the Assets and Liabilities
of M/s. A Ltd. and M/s. B Ltd. on the following basis:
Assets and Liabilities are to be taken at Book Value, with the following exceptions:
(a) Goodwill of M/s. A Ltd. and M/s. B Ltd. is to be valued at ` 1,40,000 and ` 40,000
respectively.
(b) Plant & Machinery of M/s. A Ltd. are to be valued at ` 1,00,000.
(c) The Debentures of M/s. B Ltd. are to be discharged by the issue of 6% Debentures of
M/s. AB Ltd. at a premium of 5%.
(i) Compute the basis on which shares in M/s. AB Ltd. will be issued to Shareholders of
the existing Companies assuming nominal value of each share of M/s. AB Ltd. is ` 10.
(ii) Draw up a Balance Sheet of M/s. AB Ltd. as on 1st April, 2014, when Amalgamation
is completed.
(iii) Pass Journal entries in the Books of M/s. AB Ltd. for acquisition of M/s. A Ltd. and
M/s. B Ltd. (May 2015 – Group 2)
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Question 23
Describe the conditions to be satisfied for Amalgamation in the nature of merger as per
AS – 14.
Question 24
Given below are the Balance Sheets of two companies as on 31st December, 2015.
A Limited
Share Capital: Patent 1,00,000
Issued and fully paid up: Building 5,40,000
50,000 8% Cumulative Preference Plant and Machinery 15,10,000
Shares of ` 10 each 5,00,000 Furniture 75,000
1,50,000 Equity shares of ` 10 Investment 1,55,000
Each 15,00,000 Stock 3,58,000
General Reserve 7,65,000 Sundry Debtors 72,000
Profit and Loss account 1,25,000 Cash and Bank 1,40,000
Sundry Creditors 60,000
29,50,000 29,50,000
B Limited
Share Capital: Goodwill 62,000
Issued and fully paid Motor Car 1,26,000
50,000 Shares of ` 10 each 5,00,000 Furniture 58,000
Profit and Loss Account 45,000 Stock 2,40,000
Sundry Creditors 31,000 Sundry Debtors 70,000
Cash and Bank 20,000
5,76,000 5,76,000
It has been agreed that both these companies should be wound up and a new company
AB Ltd. should be formed to acquire the assets of both the companies on the following
terms and conditions :
(i) AB Ltd. is to have an authorized capital of ` 36,00,000 divided into 60,000, 8%
cumulative preference shares of ` 10 each and 3,00,000 equity shares of ` 10 each.
(ii) AB Ltd. is to purchase the whole of the assets of A Ltd. (except cash and Bank
balances) for ` 28,25,000 to be settled as to ` 5,75,000 in cash and as to the balance
282
by issue of 1,80,000 equity shares, credited as fully paid, to be treated as valued at

` 12.50 each.
(iii) AB Ltd. is to purchase the whole of the assets of B Ltd. (except cash and Bank
balances) for ` 4,91,000. to be settled as to ` 16,000 in cash and as to the balance
by issue of 38,000 equity shares, credited as fully paid, to be treated as valued at
` 12.50 each.
(iv) A Ltd. and B Ltd. both are to be wound up, the two liquidators distributing the
shares in AB Ltd. in kind among the equity shareholders of the respective companies.
(v) The liquidator of A Ltd. is to pay the preference shareholders ` 12 in cash for every
share held in full satisfaction of their claims.
(vi) AB Ltd. is to make a public issue of 60,000, 8% cumulative preference shares at a
premium of 10% and 30,000 equity shares at the issue price of ` 12.50 per share, all
amount payable in full on application.
It is estimated that the cost of liquidation (including the liquidators' remuneration) will be
` 10,000 in case of A Ltd. and ` 5,000 in case of B Ltd. and that the preliminary expenses
of AB Ltd. will amount to ` 24,000 exclusive of the underwriting commission of ` 38,900
payable on the public issue.
You are required to prepare the initial Balance Sheet of AB Ltd. on the basis that all
assets other than goodwill are taken over at the book value.
(May 2016 – Group 1)
Question 25
P Ltd. and Q Ltd. agreed to amalgamate their business. The scheme envisaged a share
capital, equal to the combined capital of P Ltd. and Q Ltd. for the purpose of acquiring
the assets, liabilities and undertakings of the two companies in exchange for share in PQ
Ltd.
The Balance Sheets of P Ltd. and Q Ltd. as on 31st March, 2017 (the date of amalgamation)
are given below :
Summarised Balance sheet as at 31/03/2017
Liabilities P Ltd. Q Ltd. Assets P Ltd. Q Ltd.
` ` ` `
Equity & Liability: Assets:
1. Shareholders Non – current
Fund: Assets:
a. Share Capital 6,00,000 8,40,000 Fixed Assets 7,20,000 10,80,000
b. Reserves 10,20,000 6,00,000 (excluding
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2. Current Goodwill)
Liabilities: Current Assets
Bank Overdraft - 5,40,000 a. Inventories 3,60,000 6,60,000
Trade Payable 2,40,000 5,40,000 b. Trade
receivables 4,80,000 7,80,000
c. Cash at Bank 3,00,000 -
18,60,000 25,20,000 18,60,000 25,20,000
The consideration was to be based on the net assets of the companies as shown in the
above Balance Sheets, but subject to an additional payment to P. Ltd. for its goodwill to
be calculated as its weighted average of net profits for the three years ended 31st March,
2017. The weights for this purpose for the years 2014-15, 2015-16 and 2016-17 were
agreed as 1, 2 and 3 respectively.
The profit had been:
2014-15 ` 3,00,000 ; 2015-16 ` 5,25,000 and 2016-17 ` 6,30,000.
The shares of PQ Ltd. were to be issued to P Ltd. and Q Ltd. at a premium and in proportion
to the agreed net assets value of these companies.
In order to raise working capital, PQ Ltd. increased its authorized capital by `12,00,000
and proceeded to issue 72,000 shares of ` 10 each at the same rate of premium as issued
for discharging purchase considerations to P Ltd. and Q Ltd.
(i) Calculate the number of shares issued to P Ltd. and Q Ltd; and
(ii) Prepare the Balance Sheet of PQ Ltd. as per Schedule III after recording its journal
entries. (May 2017 – group 2)
Question 26
P Ltd. and Q Ltd. agreed to amalgamate and form a new company called PQ Ltd. The
balance sheets of both the companies on the date of amalgamation stood as below:
Liabilities P Ltd. Q Ltd. Assets P Ltd. Q Ltd.
` ` ` `
Equity Shares (` Goodwill 1,00,000 80,000
100 each) 8,20,000 3,20,000 Land& Building 4,50,000 3,40,000
9% Preference Furniture &
Shares (` 100 Fittings 1,00,000 50,000
each) 3,80,000 2,80,000 Plant &
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8% Debentures 2,00,000 1,00,000 Machinery 6,20,000 4,50,000

General Reserve 1,50,000 50,000 Debtors 3,25,000 1,50,000
Profit & loss a/c 3,52,000 2,05,000 Stock 2,33,000 1,05,000
Unsecured Loan - 1,75,000 Cash at bank 1,08,000 95,000
Creditors 88,000 1,60,000 Cash in hand 54,000 20,000
19,90,000 12,90,000 19,90,000 12,90,000
PQ Ltd. took over the assets and liabilities of both the companies at book value after
creating provision @ 5% on Stock and Debtors respectively and depreciating Furniture &
Fittings by @ 10%, Plant and Machinery by @ 10%.
The debtors of P Ltd. include ` 25,000 due from Q Ltd.
PQ Ltd., will issue
(i) 5 Pref. shares of ` 20 each @ ` 18 paid up at a premium of ` 4 per share for each
pref. share held in both the companies.
(ii) 6 Equity shares of ` 20 each @ ` 18 paid up at a premium of ` 4 per share for each
equity share held in both the companies.
(iii) 6% Debentures to discharge the 8% debentures of both the companies.
(iv) 20,000 new Equity shares of ` 20 each for cash @ ` 18 paid up at a premium of ` 4
per share.
PQ Ltd. will pay cash to equity shareholders of both the companies in order to adjust their
rights as per the intrinsic value of the shares of both the companies.
Prepare ledger accounts in the books of P Ltd. and Q Ltd. to close their books.
(May 2017 – group 1)
Question 27
Sun and Neptune had been carrying on business independently. They agreed to
amalgamate and form a new company Jupiter Ltd. with an authorised share capital of
` 4,00,000 divided into 80,000 equity shares of ` 5 each.
On 31st March, 2018 the respective Summarised Balance Sheets of Sun and Neptune
were as follow:
Sun (`) Neptune (`)
Fixed Assets 6,35,000 3,65,000
Current Assets 3,27,000 1,67,750
9,62,000 5,32,750
Less : Current Liabilities (5,97,000) (1,80,250)
Representing Capital 3,65,000 3,52,500
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(a) Revalued figures of Fixed and Current Assets were as follows:
Sun (`) Neptune (`)
Fixed Assets 7,10,000 3,90,000
(b) The debtors and creditors include ` 43,350 owed by Sun to Neptune.
The purchase consideration is satisfied by issue of the following shares and
debentures.
(i) 60,000 equity shares of Jupiter Ltd. to Sun and Neptune in the proportion to the
profitability of their respective business based on the average net profit during
the last three years which were as follows:
Sun (`) Neptune (`)
2016 Profit 4,49,576 2,73,900
2017(Loss)/Profit (2,500) 3,42,100
2018 Profit 3,77,924 3,59,000
(ii) 15% debentures in Jupiter Ltd. at par to provide an income equivalent to 8%
return on capital employed in their respective business as on 31st March, 2018
after revaluation of assets.
(1) Compute the amount of debentures and shares to be issued to Sun and Neptune.
(2) A Balance sheet of Jupiter Ltd. showing the position immediately after
amalgamation. (May 2018 – Group 2)
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Question 28
P Ltd. and Q Ltd. were carrying on the business of 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 ` 10,00,000 divided into 1,00,000 equity shares of ` 10
each. The Balance Sheet of the companies as on 31.03.2014 were as under:
Balance Sheet of P Limited as at 31.03.2014

Particulars Amount `
A. Equity and Liabilities
1. Shareholder's Fund
(a) Share Capital 1,40,000
(b) Reserve & Surplus
Profit & Loss A/c 30,000
2. Non-Current Liabilities
8% Secured Debentures 1,10,000
3. Current Liabilities
Trade Payables 54,000
Total 3,34,000
B. Assets
1. Noncurrent assets
(a) Fixed Assets
Building at cost less Depreciation 1,00,000
Plant & Machinery at cost less Depreciation 25,000
2. Current Assets
(a) Inventories 1,35,000
(b) Trade Receivables 44,000
(c) Cash at Bank 30,000
Total 3,34,000
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Balance Sheet of Q Limited as at 31.03.2014

Particulars Amount `
A. Equity and Liabilities
1. Shareholder's Fund
(a) Share Capital 2,50,000
(b) Reserve & Surplus
Profit & Loss A/c 35,000
Trade Payables 1,40,000
Total 5,45,000
B. Assets
1. Noncurrent assets
(a) Fixed Assets
Building at cost less Depreciation 1,90,000
Plant & Machinery at cost less Depreciation 80,000
Furniture & Fixture at cost less Depreciation 25,000
2. Current Assets
(a) Inventories 50,000
(b) Trade Receivables 1,42,000
Total 5,45,000
The assets and liabilities of the existing companies are to be transferred at book value
with the exception of some items detailed below:
(i) Goodwill of P Ltd. was worth ` 50,000 and of Q Ltd. was worth ` 1,50,000.
(ii) Furniture & Fixture of Q Ltd. was valued at ` 35,000.
(iii) 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.
(iv) The debentures of P Ltd. are to be discharged by issue of 8% debentures of PQ Ltd.
at a premium of 10%.

(i) Compute the basis on which shares in PQ Ltd. will be issued at par to the shareholders
of the existing companies.
288
(ii) Draw up a Balance Sheet of PQ Ltd. as at 1st April, 2014, the date of completion of
amalgamation,
(iii) Write up journal entries including bank entries for closing the books of P Ltd.
Question 29
The financial position of two companies M/s. Abhay Ltd. and M/s. Asha Ltd. as on
31/3/2015 is as follows :
Balance Sheet as on 31/03/2015
Abhay Ltd. Asha Ltd.
(`) (`)
Sources of Funds
Share Capital - Issued and Subscribed
15,000 equity shares @ ` 100, fully paid 15,00,000
10,000 equity shares @ ` 100, fully paid 10,00,000
General Reserve 2,75,000 1,25,000
Profit & Loss 75,000 25,000
Securities Premium 1,50,000 50,000
Contingency Reserve 45,000 30,000
12% Debentures, @ ` 100 fully paid 2,50,000
Sundry Creditors 55,000 35,000
Total 21,00,000 15,15,000
Application of Funds
Land and Buildings 8,50,000 5,75,000
Goodwill 1,45,000
Inventory 4,20,000 2,40,000
Sundry Debtors 3,05,000 2,85,000
Bank 1,80,000 45,000
Total 21,00,000 15,15,000
They decided to merge and form a new company M/s. Abhilasha Ltd, as on 1/4/2015 on
the following terms:
(1) Goodwill to be valued at 2 years purchase of the super profits. The normal rate of
return is 10% of the combined share capital and general reserve. All other reserves
are to be ignored for the purpose of goodwill. Average profits of M/s. Abhay Ltd. is
` 2,75,000 and M/s. Asha Ltd. is ` 1,75,000.
289
(2) Land and Buildings. Plant and machinery and Inventory of both companies to be
valued at 10% above book value and a provision of 10% to be provided on Sundry
Debtors.
(3) 12% debentures to be redeemed by the issue of 12% preference shares of M/s.
Abhilasha Ltd. (face value of ` 100) at a premium of 10%.
(4) Sundry creditors to be taken over at book value. There is an unrecorded liability of `
15,500 of M/s. Asha Ltd as on 1/4/2015.
(5) The bank balance of both companies to be taken over by M/s. Abhilasha Ltd. after
deducting liquidation expenses of ` 60,000 to be borne by M/s. Abhay Ltd. and M/s.
Asha Ltd. in the ratio of 2 : 1.
(i) Compute the basis on which shares of M/s. Abhilasha Ltd. are to be issued to the
shareholders of the existing company assuming that the nominal value of per share
of M/s. Abhilasha Ltd. is ` 100.
(ii) Draw Balance Sheet of M/s. Abhilasha Ltd. as on 1/4/2015 after the amalgamation.
Question 30
Anjana Ltd. is absorbed by Sanjana Ltd., the consideration being the takeover of liabilities,
the payment of cost of absorption not exceeding ` 10,000 (actual cost ` 9,000) the payment
of the 9% debentures of ` 50,000 at a premium of 20% in 8% debentures issued at a
premium of 25% at face value and the payment of ` 15 per share in cash and allotment
of three 11% preference share of ` 10 each at a discount of 10% and four equity share of
` 10 each at a premium of 20% fully paid for every five shares in Anjana Ltd. The number
of share of the vendor company are 1,50,000 of ` 10 each fully paid.
Calculate purchase consideration as per Accounting Standard - 14.
Question 31
The financial position of X Ltd. and Y Ltd. as on 31st March, 2018 was as under:
X Ltd. Y Ltd.
` `
Equity & Liabilities
9% Preference Shares of ` 100 each 3,00,000 -
10% Preference Shares of ` 100 each - 3,00,000
290

Retirement Gratuity Fund (long term) 1,50,000 60,000
Trade Payables 3,90,000 2,40,000
Total 40,50,000 17,10,000
Assets
Goodwill 1,50,000 75,000
Land & Buildings 9,00,000 3,00,000
Plant & Machinery 15,00,000 4,50,000
Inventories 7,50,000 5,25,000
Trade Receivables 6,00,000 3,00,000
Cash and Bank 1,50,000 60,000
Total 40,50,000 17,10,000
X Ltd. absorbs Y Ltd. on the following terms:

(i) 10% Preference Shareholders are to be paid at 10% premium by issue of 9% Preference
Shares of X Ltd.
(ii) Goodwill of Y Ltd. on absorption is to be computed based upon two times of average
profits of preceding three financial years (2016-17 ` 90,000; 2015-16 : ` 78,000 and
2014-15 : ` 72,000). The profits of 2014-15 included credit of an insurance claim
of ` 25,000 (fire occurred in 2013-14 and loss by fire ` 30,000 was booked in Profit
and Loss Account of that year). In the year 2015-16, there was an embezzlement of
cash by an employee amounting to 10,000.
(iii) Land & Buildings are valued at ` 5,00,000 and the Plant & Machinery at ` 4,00,000.
(iv) Inventories are to be taken over at 10% less value and Provision for Doubtful Debts
is to be created @ 2.5%.
(v) There was an unrecorded current asset in the books of Y Ltd. whose fair value
amounted to ` 15,000 and such asset was also taken over by X Ltd.
(vi) The trade payables of Y Ltd. included ` 20,000 payable to X Ltd.
(vii) Equity Shareholders of Y Ltd. will be issued Equity Shares @ 5% premium.
(i) Prepare Realisation A/c in the books of Y Ltd.
(ii) Show journal entries in the books of X Ltd.
(iii) Prepare the Balance Sheet of X Ltd. after absorption as at 31st March, 2018.
(May 2018 – group 2)
291
Question 32
The following was the Balance Sheet of Rashmi Limited as on 31st March, 2018:
Particulars Note No. Amount
(1) Shareholders' fund:
(a) Share capital 1 18,00,000
(b) Reserve and Surplus 2 8,40,000
(2) Non-current liabilities:
Long term Borrowings 3 2,85,000
(3) Current Liabilities:
Trade Payables 75,000
Total 30,00,000
Assets
(1) Non-Current Assets:
(a) Fixed Assets
- Tangible Assets 4 18,00,000
- Intangible Assets (Goodwill) 1,40,000
(b) Non-current Investments 5 1,60,000
(2) Current Assets:
Inventories 6,24,000
Trade Receivables 1,08,000
Cash & cash equivalents 1,68,000
Total 30,00,000
Notes:
1. Share Capital:
Issued, Subscribed and Paid up
1,80,000 share of ` 10 each fully paid up 18,00,000
18,00,000
2. Reserve and Surplus:
Profit & Loss A/c 1,30,000
Less: Preliminary Exp. 30,000 1,00,000
Export Profit Reserve 2,50,000
Investment Allowance Reserve 80,000
8,40,000
292
3. Long term Borrowing:

9% Secured Debenture of ` 100 each fully paid up 2,85,000
2,85,000
4. Tangible Assets:
Freehold Property 12,40,000
Plant & Machinery 5,60,000
18,00,000
5. Non-Current Investments:
Other Investments 1,60,000
(Current Market value ` 1,30,000)
1,60,000
On 1st April, 2018 Nitin Ltd. agreed to absorb the business of Rashmi Ltd. on the following
terms and conditions:
(i) The purchase consideration would be settled by Nitin Ltd. as under:
(1) 3,00,000 equity shares of ` 10 each issued by Nitin Ltd. by valuing its share at
` 12 per share.
(2) Cash payment equivalent to ` 5 for every share in Rashmi Ltd.
(ii) The issue of such an amount of fully paid 10% debentures in Nitin Ltd. at 95% as is
sufficient to discharge 9% debenture in Rashmi Ltd. at a premium of 25%.
(iii) Nitin Ltd. will take over the Freehold property at 120% more than the book value
and Plant & Machinery at 10% less than the book value. Inventories at `5,20,000
and Trade receivables at their book value subject to a provision of 8% for doubtful
debts. Investments will be taken over at current market value. Nitin Ltd. will take
over trade payables at book value.
(iv) Liquidation expenses are to be reimbursed by Nitin Ltd. to the extent of ` 30,000.
The cost of liquidation; ` 50,000.
(v) Statutory reserves are to be maintained for 2 more years.
(a) Prepare the Realisation Account, Nitin Ltd. Account, Shareholders Accounts and
Debenture Account in the book of Rashmi Ltd. and
(b) Write up journal entries in the books of Nitin Ltd. regarding acquisition of business.
(Nov. 2018 – IPCC – group 1)
293
Question 33
The summarized Balance Sheet of Srishti Lid. as on 31st March, 2014 was as follows:
Equity Shares of ` 10 fully paid 30,00,000 Goodwill 5,00,000
Export Profit Reserves 8,50,000 Tangible Fixed Assets 30,00,000
General Reserves 50,000 Stock 10,40,000
Profit and loss Account 5,50,000 Debtors 1,80,000
9% Debentures 5.00,000 Cash & Bank 2,80,000
Trade Creditors 1,00,000 Preliminary Expenses 50,000
50,50,000 50,50,000
ANU Ltd. agreed to absorb the business of SRISHTI Ltd. with effect from 1st April, 2014.
(a) The purchase consideration settled by ANU Ltd, as agreed:
(i) 4,50,000 equity Shares of ` 10 each issued by ANU Ltd. by valuing its share @
`15 per share.
(ii) Cash payment equivalent to ` 2,50 for every share in SRISHTI Ltd.
(b) The issue of such an amount of fully paid 8% Debentures in ANU Ltd. at 96% as is
sufficient to discharge 9% Debentures in SRISHTI Ltd. at a premium of 20%.
(c) ANU Ltd. will take over the Tangible Fixed Assets at 100% more than me book value.
Stock at ` 7,10,000 and Debtors at their face value subject to a provision of 5% for
doubtful Debts .
(d) The actual cost of liquidation of SRISHTI Ltd. was ` 75,000. Liquidation cost of
SRISHTI Ltd. is to be reimbursed by ANU Ltd. to the extent of ` 50,000.
(e) Statutory Reserves are to be maintained for 1 more year.
(i) Close the books of SRISHTI Ltd. by preparing Realisation Account, ANU Ltd. Account,
Shareholders Account and Debenture Account, and
(ii) Pass Journal Entries in the books of ANU Ltd. regarding acquisition of business.
294
Question 34
A Ltd. decides to absorb B Ltd. The draft Balance Sheet of B Limited is as follows:
`
Share Capital:
5,000 9% Preference shares of ` 100 each (Fully paid up) 5,00,000
12,500 Equity shares of ` 100 each (Fully paid up) 12,50,000
Reserves 7,50,000
Trade payables 2,50,000
Total 32,50,000
Assets:
Sundry Assets 32,50,000
Total 32,50,000
A Ltd. has agreed:
(i) To pay ` 20 per share in cash to equity shareholders of B Ltd. and will issue six equity
shares of ` 100 each (Market value ` 125) in lieu of every five equity shares held in
B Ltd.
(ii) To issue 9% Preference shares of ` 100 each, in the ratio of 3 shares of A Ltd for 4
Preference shares in B Ltd.
(iii) To issue 8% debentures at ` 96 in lieu of 6% debentures in B Ltd. which are to be
redeemed at a premium of 20%.
You are required to calculate the purchase consideration.
(Nov. 2017 – Group 1)
Question 35
Following is the Balance Sheet of Y Ltd., as at 31st March 2010:
Share Capital Fixed Assets
Issued & paid up: Goodwill 8,00,000
2,50,000 equity share of ` 10 each, ` Building 7,00,000
8 per share paid up 20,00,000 Plant and machinery 13,00,000
1,00,000, 10% pref. shares of ` 10 Current Assets
each fully paid up 10,00,000 Stock 7,00,000
Reserves & Surplus Sundry debtors 9,00,000
General reserve 6,00,000 Bank Balance 6,60,000
Profit & Loss A/c 8,00,000
295
Current Liabilities Misc. Exp.

Creditors 4,00,000 Preliminary Expenses 40,000
Workmen’s profit sharing fund 3,00,000
51,00,000 51,00,000
X Ltd. decided to absorb the business of Y Ltd., at the respective book value of assets and
trade liabilities except Building which was valued at ` 12,00,000 and Plant & Machinery
at ` 10,00,000.
The purchase consideration was payable as follows:
(i) Payment of liquidation expenses ` 5,000 and workmen's profit sharing fund at 10%
premium;
(ii) Issue of equity share of ` 10 each fully paid at ` 11 per share for every pref. share
and every equity share of Y Ltd. and a payment of ` 4 per equity share in cash
Calculate the purchase consideration; show the necessary ledger accounts in the books of
Y Ltd., and opening Journal Entries in the books of X Ltd.
(Nov. 2010 – group 2)
Question 36
X Ltd and Y Ltd were carrying on same business independently. The companies agreed to
amalgamate on and from 1/1/2011 and formed a new company Z Ltd. to take over the
assets and liabilities of the existing companies. The Balance Sheets of two companies as
on 31/3/2011 are as follows:
Liabilities X Ltd. Y Ltd.
` `
Share capital : Equity shares of ` each (fully paid up) 30,00,000 18,00,000
Securities Premium 6,00,000 -
Profit & Loss Account 5,40,000 4,80,000
10% Debentures 15,00,000 -
Secured Loan - 9,00,000
Total 73,20,000 44,40,000
Assets
Land & Building 27,00,000 13,50,000
Plant & Machinery 15,00,000 11,40,000
296
Investments (15,000 Shares of Y Ltd.) 2,40,000 -

Stock 15,60,000 10,50,000
Debtors 12,30,000 7,80,000
Cash at Bank 90,000 1,20,000
Total 73,20,000 44,40,000
Following are the additional information:

(i) For the purpose of amalgamation, the shares of the existing companies are to be
valued as under
X Ltd. ` 18 per share
Y Ltd ` 20 per share
(ii) A contingent liability of X Ltd. of ` 1,80,000 is to be treated as actual existing liability
(iii) The shareholders of X Ltd and Y Ltd. are to be paid by issuing sufficient number of
shares of Z Ltd. at a premium of ` 6 per share.
(iv) The face value of shares of Z Ltd. is to be of ` 10 each.
(i) Calculate the purchase consideration (i.e. the number of shares to be issued to X Ltd.
and Y Ltd.)
(ii) Prepare Realisation Account and Shareholders Account in the books of X Ltd and Y
Ltd.
(iii) Prepare the balance Sheet of Z Ltd. after amalgamation
(Nov. 2011)
Question 37
Given below balance sheet of Vasudha Ltd. and Vaishali Ltd. as at 31st March, 2012.
(Amount in `)
Liabilities Vasudha Vaishali Assets Vasudha Vaishali
Ltd. Ltd. Ltd. Ltd.
Issued Share Factory Building 2,10,000 1,60,000
Capital: Debtors 2,86,900 1,72,900
Equity Shares of Stock 91,500 82,500
`10 each 5,40,000 4,03,300 Goodwill 50,000 35,000
General Reserve 1,01,000 65,000 Cash at Bank 98,000 1,09,590
Profit & Loss A/c 66,000 43,500 Preliminary
Sundry Creditors 44,400 58,200 Expenses 15,000 10,010
Total 7,51,400 5,70,000 Total 7,51,400 5,70,000
297
Goodwill of the Companies Vasudha Ltd. and Vaishali Ltd. is to be valued at ` 75,000 and
` 50,000 respectively. Factory Building of Vasudha Ltd. is wort ` 1,95,000 and of Vaishali
Ltd. ` 1,75,000. Stock of Vaishali Ltd has been shown at 10% above of its cost.
It is decided that Vasudha Ltd. will absorb Vaishali Ltd. without liquidating later, by
taking over its entire business by issue of shares at the Intrinsic Value.
You are required to draft the balance sheet of the two companies after putting through
the scheme. (May 2012)
Question 38
The Balance Sheet of Reckless Ltd. as on 31st March, 2008 is as follows:
`
Assets
Freehold Premises 2,20,000
Machinery 1,77,000
Furniture & Fittings 90,800
Stock 3,87,400
Sundry Debtors 80,000
Less : Provision for Bad Debt 4,000 76,000
Cash in Hand 2,300
Cash at Bank 1,56,500
Bills Receivable 15,000
Total 11,25,000
Liabilities
60,000 Equity shares of ` 10 each 6,00,000
Pre Incorporation profit 21,000
Contingency Reserve 1,35,000
Profit & Loss Appropriation Account 1,26,000
Acceptances 20,000
Creditors 1,13,000
Provision for Income-tax 1,10,000
Total 11,25,000
298
Careful Ltd. decided to take over Reckless Ltd. from 31st March, 2008 with the following
assets at value noted against them:
`
Furniture and Fittings 80,000
Machinery 1,60,000
Stock 3,45,000
1/4 of the consideration was satisfied by the allotment of fully paid preference share of `
100 each at par which carried 13% dividend on cumulative basis. The balance was paid
in the form of Careful Ltd. Equity shares of ` 10 each, ` 8 paid up.
Sundry Debtors realised ` 79,500. Acceptances were settled for ` 19,000. Income-tax
authorities fixed, the taxation liability at ` 1,11,600. Creditors were finally settled with
the cash remaining after meeting liquidation expense amounting to ` 4,000.
(i) Calculate the number of equity shares and preference shares to be allotted by Careful
Ltd. in discharge of consideration.
(ii) Prepare the important ledger accounts in the books of Reckless Ltd.; and
(iii) Pass Journal entries in the books of Careful Ltd. with narration. (May 2010 – IPCC)
Question 39
The abstract of the Balance Sheet of the AXE Ltd. as at 31st March 2011, are as follows:
Liabilities `
Equity spare capital (` 100 each) 15,00,000
12% preference share capital (` 100 each) 8,00,000
On 31st March, 2011 BXE Ltd. agreed to take over AXE Ltd. on the following terms:
(1) For each preference share in AXE Ltd., ` 10 in cash and one 9% preference share of
` 100 in BXE Ltd.
(2) For each equity share in AXE Ltd., ` 20 in cash and one equity share in BXE Ltd. of
` 100 each. It was decided that the share in BXE Ltd. will be issued at market price
` 140 per share.
(3) Liquidation expenses of AXE Ltd. are to be reimbursed by BXE Ltd. to the extent of
` 10,000. Actual expenses amounted to ` 12,500.
You are required to compute the amount of purchase consideration.
(May 2011 – Accounting)
299
Question 40
The Balance Sheet of Mars Limited as on 31st March, 2011 was as follows:
Liabilities ` Assets ` `
Share Capital: Fixed Assets
1,00,000 Equity Shares of Land and building 7,64,000
` 10 each fully paid up 10,00,000 Current Assets
Reserve and Surplus Stock 7,75,000
Capital Reserve 42,000 Sundry Debtors 1,60,000
Contingency Reserve 2,70,000 Less: Provision for
Profit and Loss A/c 2,52,000 Doubtful debts 8,000 1,52,000
Current Liabilities & Bills receivable 30,000
Provisions Cash at Bank 3,29,000
Bills payable 40,000
Provision for income Tax 2,20,000
20,50,000 20,50,000
On 1st April, 2011 Jupiter Limited agreed to absorb Mars Limited on the following terms
and conditions:
(1) Jupiter Limited will take over the assets at the following values:
Land and building ` 10,80,000
Stock ` 7,70,000
Bills receivable ` 30,000
(2) Purchase consideration will be settled by Jupiter Ltd. as under:
4,100 fully paid 10% preference shares of ` 100 will be issued and the balance will
be settled by issuing equity shares of ` 10 each at ` 8 paid up.
(3) Liquidation expenses are to be reimbursed by Jupiter Ltd. to the extent of ` 5,000.
(4) Sundry debtors realised ` 1,50,000. Bills payable were settled for ` 38,000. Income
Tax authorities fixed the taxation liability at ` 2,22,000 and the same was paid.
(5) Creditors were finally settled with the cash remaining after meeting liquidation
expenses amounting to ` 8,000.
(i) Calculate the number of equity shares and preference shares to be allotted by
Jupiter limited in discharge of purchase consideration.
(ii) Prepare the Realisation A/c, Bank Account, Equity Shareholders Account and
Jupiter Limited’s account in the books of Mars Ltd. (May 2011 – Accounting)
300
Question 41
The following was the Balance Sheet of V Ltd. as on 31st March, 2012: (`in Lakhs)
Particulars Note No. Amount
(1) Shareholders' fund:
(a) Share capital 1 1,150
(b) Reserve and Surplus 2 (87)
(2) Non-current liabilities:
(a) Long term Borrowings 3 630
Trade Payables 170
Total 1,863
Assets
(1) Non-Current Assets:
Tangible Assets 4 1,152
(2) Current Assets:
Inventories 380
Trade Receivables 256
Cash & cash equivalents 5 75
Total 1,863
Notes:
1. Share Capital
Authorised:
Issued, Subscribed and Paid up: ?
80 lakh Equity Shares of ` 10 each, fully paid up 800
35 lakh 12% Cumulative Preference Shares of ` 10
each, fully paid up 350
1,150
2. Reserve and Surplus:
Debit Balance of Profit & Loss Account (87)
(87)
301
3. Long term Borrowing:

10% Secured Cumulative Debentures of ` 100 each,
fully paid up 600
Outstanding Debenture Interest 30
630
4. Tangible Assets:
Land and Building 445
Plant & Machinery 593
Furniture, Fixtures & Fittings 114
1,152
5. Cash & cash equivalents:
Balance at Bank 69
Cash in Hand 6
75
On 1st April, 2012 P Ltd. took over the entire business of V Ltd. on the following terms:
V Ltd. s equity shareholders would receive 4 fully paid equity shares of P Ltd. of ` 10 each
issued at a premium of ` 2.50 each for every five shares held by them in V Ltd.
Preference shareholders of V Ltd. would get 35 lakh 13% Cumulative Preference Shares
of ` 10 each fully paid up in P Ltd., in lieu of their present holding.
All the debentures of V Ltd. would be converted into equal number of 10.5% Secured
Cumulative Debentures of ` 100 each, fully paid up after the takeover by P Ltd., which
would also pay outstanding debenture interest in cash.
Expenses of amalgamation would be borne by P Ltd. Expenses came to be ` 2 lakh.
P Ltd. discovered that its creditors included ` 7 lakh due to V Ltd. for goods purchased.
Also P Ltd.’s stock included goods of the invoice price of ` 5 lakh earlier purchased from
V Ltd., which had charged profit @ 20% of the invoice price.
(i) Prepare Realisation A/c in the books of V Ltd.
(ii) Pass journal entries in the books of P Ltd. assuming it to be an amalgamation in the
nature of merger.
(Nov. 2012 – Accounting)
302
Question 42
A Limited and B Limited amalgamate to form a new company AB Limited. The financial
position of these companies as on the date of amalgamation was as under:
Particulars Amount Amount
A Ltd. B Ltd.
Equity and Liabilities
Shareholders' Fund:
(a) Equity share capital of ` 100 each 5,00,000 2,50,000
(b) 9% Preference Share Capital of ` 100 each 3,00,000 2,00,000
(c) General Reserve 1,50,000 1,40,000
(d) Profit & Loss Account 1,36,800 80,500
Non-Current Liabilities:
12% Debentures 2,00,000 -
Secured Loan. - 2,00,000
Current Liabilities:
16,04,300 10,71,300
Assets
Non-Current Assets
Fixed Assets
Land and Building 2,50,000 1,90,000
Furniture 75,000 50,000
Intangible Assets (Goodwill) 2,00,000
Current Assets:
Inventories 1,20,000 1,00,000
Bank Balance 3,40,000 1,80,000
Cash in hand 23,300 51,300
16,04,300 10,71,300
The terms of Amalgamation are as under :

(1) All assets and liabilities are to be taken at book value except inventory and trade
receivables for which provision of 5% and 7.5% respectively is required.
(2) Issue of 5 preference shares of ` 20 each in AB Limited @ ` 18 paid up at a premium
of ` 4 per share for each preference share held in both the companies.
303
(3) Issue of 6 equity shares of ` 20 each in AB limited @ ` 18 paid up at a premium of `

4 per share for each equity share held in both the companies.
(4) In addition cash should be paid to the equity shareholders of both the companies as
is required to adjust the rights of the shareholders in accordance with the intrinsic
value of shares of both the companies.
(5) Issue of such amount of fully paid 15% debentures in AB limited as is sufficient to
discharge the 12% debentures in A Limited.
(6) Trade receivable of A Limited include ` 25,000 due from B Ltd.
(i) Prepare necessary ledger accounts in the books of A limited to close their book.
(ii) Show necessary Journal entries in the books of AB Ltd. to give effect to the
above transactions. 16 Marks – Nov 2019 – IPCC - Accounting)
Question 43
The following are the summarized Balance Sheet of VT Ltd. and MG Ltd. as on 31st
March, 2018:
Particulars VT Ltd. MG Ltd.
(`) (`)
10% Pref. Shares of ` 100 each 4,00,000 2,00,000
Reserve and Surplus 6,00,000 4,00,000
12% Debentures 4,00,000 3,00,000
Total 31,00,000 18,00,000
Assets
Fixed Assets 14,00,000 5,00,000
Investment 1,60,000 1,60,000
Inventory 4,80,000 6,40,000
Cash at Bank 2,20,000 80,000
Total 31,00,000 18,00,000
304
Details of Trade receivables and trade payables are as under:

VT Ltd. MG Ltd.
(`) (`)
Trade Receivable
Debtors 7,20,000 3,80,000
Bills Receivable 1,20,000 40,000
8,40,000 4,20,000
Trade Payables
Bills Payable 60,000 50,000
5,00,000 3,00,000
Fixed Assets of both the companies are to be revalued at 15% above book value. Inventory
in Trade and Debtors are taken over at 5% lesser than their book value. Both the companies
are to pay 10% equity dividend, Preference dividend having been already paid.
After the above transactions are given effect to, VT Ltd. will absorb MG Ltd. on the
following terms:
(i) VT Ltd. will issue 16 Equity Shares of ` 10 each at par against 12 Shares of MG Ltd.
(ii) 10% Preference Shareholders of MG Ltd. will be paid at 10% discount by issue of
10% Preference Shares of ` 100 each, at par, in VT. Ltd.
(iii) 12% Debenture holders of MG Ltd. are to be paid at 8% premium, by 12% Debentures
in VT Ltd., issued at a discount of 10%.
(iv) ` 60,000 is to be paid by VT Ltd. to MG Ltd. for Liquidation expenses.
(v) Sundry Debtors of MG Ltd. includes ` 20,000 due from VT Ltd. You are required to
prepare:
(1) Journal entries in the books of VT Ltd.
(2) Statement of consideration payable by VT Ltd.
(10 Marks – May 2019 – Inter)
Question 44
Distinguish between Amalgamation, Absorption and External Reconstruction of Company.
(5 Marks – May 2019 – Inter)
Question 45
The following were summarized Balance sheet of Namo Ltd. and Raga Ltd. as at
31.03.2011:
305
Namo Ltd. Raga Ltd.

(` in lakhs) (` in lakhs)
Liabilities
Equity Share Capital (Fully paid shares of ` 10 each) 22,500 9,000
Securities Premium 4,500 -
Foreign Project Reserve - 465
General Reserve 14,250 4,800
Profit and Loss Account 4,305 1,237.5
12% Debentures - 1,500
Trade payables 1,800 694.5
Provisions 2,745 1,053
50,100 18,750
Assets
Land and Buildings 9,000
Plant and Machinery 21,000 7,500
Furniture, Fixtures and Fittings 3,456 2,550
Inventory 11,793 6,061.5
Trade receivables 3,180 1,650
Cash at Bank 1,671 913.5
Cost of Issue of Debentures - 75
. 50,100 18,750
All the bills receivable held by Raga Ltd. were Namo Ltd.'s acceptances.
On 1st April 2011, Namo Ltd. took over Raga Ltd. in an amalgamation in the nature
of merger. It was agreed that in discharge of consideration for the business, Namo Ltd.
would allot three fully paid equity shares of ` 10 each at par for every two shares held in
Raga Ltd. It was also agreed that 12% debentures in Raga Ltd. would be converted into
13% debentures in Namo Ltd. of the same amount and denomination.
Details of trade receivables and trade payables are as under:
Particulars Namo Ltd. Raga Ltd.
(` in lakhs)
Trade Payables
Creditors 1,620 694.5
Bills Payable 180 -
1,800 694.5
Trade receivables
Debtors 3,180 1,530
Bills Receivables - 120
3,180 1,650
306
Expenses of amalgamation amounting to ` 1.5 lakhs were borne by Namo Ltd. You are
required to:
(a) Pass journal entries in the books of Namo Ltd. and
(b) Prepare Namo Ltd.'s Balance Sheet immediately after the merger considering that the
cost of issue of debentures shown in the balance sheet of Raga Ltd. is not transferred
to Namo Ltd. (16 Marks – May 2019 – IPCC)
Question 46
The financial position of two companies Orange Ltd. and Yellow Ltd. as on 31st March,
2019 was as under:
Assets Orange Ltd. Yellow Ltd.
(`) (`)
Goodwill 2,10,000 90,000
Building 7,90,000 2,50,000
Machinery 12,50,000 3,80,000
Inventory 6,60,000 3,30,000
Cash at Bank 2,40,000 85,000
36,30,000 14,95,000
Liabilities Orange Ltd. Yellow Ltd.
(`) (`)
Share Capital:
Equity shares of `10 each 25,00,000 9,00,000
8% Preference Shares of ` 100 each 2,50,000 -
10% Preference Shares of `100 each - 3,00,000
Retirement Gratuity fund 1,50,000 35,000
Trade• Payables 4,25,000 1,45,000
36,30,000 14,95,000
Yellow Ltd. is absorbed by Orange Ltd. on the following terms:
(a) 10% Preference Shareholders are to be paid, at 10% premium, by issue of 9%
Preference Shares of Orange Ltd.
(b) Goodwill of Yellow Ltd. is valued at ` 1,50,000, Buildings is worth ` 3,50,000, and
Machinery ` 4,25,000.
(c) Inventory of Yellow Ltd. has been shown at 10% above its cost and expected
realization from Trade Receivables is ` 3,33,000.
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(d) Equity Shareholders of Yellow Ltd. will be issued Equity Shares of Orange Ltd., at
10% premium.
You are required to
(1) Prepare necessary Ledger Accounts to close the books of Yellow Ltd.
(2) Show the acquisition entries in the books of Orange Ltd.
(3) Also draft the Balance Sheet of Orange Ltd. after putting through the scheme
assuming that the assets and liabilities of Yellow Ltd. are incorporated at fair
value and assets and liabilities of Orange Ltd. are incorporated at carrying
values only as at 31st March, 2019. (16 Marks – Nov 2019 – IPCC)
Question 47
Black Limited and White Limited have been carrying their business independently from
01/04/2018. Because of synergy in business, they amalgamated on and from 1st April,
2020 and formed a new company Grey Limited to take over the business of Black Limited
and White Limited. The summarized Balance Sheets of Black Limited and White Limited
as on 31st March, 2020 are as follows :
Liabilities Black Ltd. (`) White Ltd.
(`)
Share Capital
Equity share of ` 10 each 15,00,000 14,50,000
10% Preference shares of ` 100 each 2,00,000 1,40,000
Revaluation Reserve 1,00,000 2,00,000
General Reserve 1,65,000 85,000
Profit & Loss Account
Opening Balance 1,50,000 1,20,000
Profit for the Year 2,00,000 1,30,000
15% Debentures of ` 100 each (Secured) 4,00,000 5,00,000
Trade payable 3,10,000 1,20,000
30,25,000 27,45,000
Assets Black Ltd. (`) White Ltd.
(`)
Investments 1,00,000 60,000
Inventory 2,20,000 1,50,000
Trade Receivable 4,25,000 2,65,000
Cash at Bank 1,60,000 1,30,000
30,25,000 27,45,000
308
Additional Information :
(i) The authorised capital of the new company will be ` 50,00,000 divided into 2,00,000
equity shares of ` 25 each.
(ii) Trade payable of Black Limited includes ` 15,000 due to White Limited and trade
receivable of White Limited shows ` 15,000 receivable from Black Limited.
(iii) Land & Buildings and inventory of Black Limited and White Limited are to be revalued
as under:
Black Ltd. (`) White Ltd.
(`)
1. Land And Building 5,20,000 10,40,000
2. Inventory 1,80,000 1,25,000
(iv) The purchase consideration is to be discharged as under:
(a) Issue 1,80,000 equity shares of ` 25 each fully paid up in proportion of their
profitability in the preceding two financial years.
(b) Preference shareholders of two companies are issued equivalent number of
12% preference shares of Grey Limited at a price of ` 120 per share (face value
` 100).
(c) 15% Debenture holders of Black Limited and White Limited are discharged by
Grey Limited issuing such number of its 18% Debentures of ` 100 each so as to
maintain the same amount of interest.
You are required to prepare the Balance Sheet of Grey Limited after amalgamation.
The amalgamation took place in the nature of purchase.
(16 Marks – Nov 2020 – IPCC)
309
Question 48
High Ltd. and Low Ltd. were amalgamated on and from 1st April, 2020. A new company
Little Ltd. was formed to take over the business of the existing Companies. The Balance
sheets of High Ltd. and Low Ltd. as on 31st March, 2020 are as under:
( ` in lakhs)
Liabilities High Ltd. Low Ltd. Assets High Ltd. Low Ltd.
Share Capital : Plant, Property

Equity Shares of ` and
100 each 1000 850 Equipment :
14% Pref Shares of ` Land & Building 670 385
100 each 320 175 Plant & Machinery 475 355
Reserves & Surplus : Investments 95 80
Revaluation Reserve 225 110 Current Assets :
General Reserve 360 240 Stock 415 389
Investment Sundry Debtors 322 213
Allowance Reserve 80 40 Bills Receivable 35 ----
P & L Account 85 82 Cash & Bank 303 166
Non – Current
Liabilities :
Secured Loans:
13% Debentures 100 56
(` 100 each)
Unsecured Loans 50 ----
(Public Deposits)
Current Liabilities &
Provisions :
Sundry Creditors 65 35
Bills Payable 30 ----
Total 2315 1588 Total 2315 1588
Other Information:
(1) 13% Debenture holders of High Ltd. & Low Ltd. are discharged by little Ltd. by issuing
such number of its 15% Debentures of ` 100 each so as to maintain the same amount
of interest.
310
(2) Preference Shareholders of the two companies are issued equivalent number of 15%
Preference shares of Little Ltd. at a price of ` 125 per share (Face Value ` 100)
(3) Little Ltd. will issue 4 Equity Shares for each Equity Share of High Ltd. & 3 equity
shares for each Equity Share of Low Ltd. The shares are to be issued at ` 35 each
having a face value of ` 10 per share.
(4) Investment allowance reserve is to be maintained for two more years.
Prepare the balance sheet of Little Ltd. As on 1st April, 2020 after the amalgamation
has been carried out in basis of in the nature of purchase.
(15 Marks – Nov 2020 – Inter)
Question 49
Dark Ltd. and Fair Ltd. were amalgamated on and from 1st April, 2021. A new company
Bright Ltd. was formed to take over the business of the existing companies. The balance
Sheets of Dark Ltd. and Fair Ltd. as at 31st March, 2021 are given below:
Particulars Note No. Dark Ltd. Fair Ltd.

I Equity and Liabilities
(1) Shareholders’ Funds
(a) Share Capital 1 1,650 1,425
(b) Reserves and Surplus 2 630 495
(2) Non-Current Liabilities
Long Term Borrowings:
10% Debentures of 100 ` each 90 45
(3) Current Liabilities
Trade Payables 630 285
Total 3,000 2,250
II Assets
(1) Non Current Assets
(a) Property, Plant and Equipment 1,350 975
(b) Non Current Investments 225 75
(2) Current Assets
(a) Inventories 525 375
(b) Trade Receivables 450 525
(c) Cash and Cash Equivalents 450 300
Total 3,000 2,250
311
Notes to Accounts
Dark Ltd. (` in Fair Ltd. (` in

Lakh) Lakh)
1 Share Capital
Equity Shares of ` 100 each 1, 200 1,125
14% Preference Shares of ` 100 each 450 300
1,650 1,425
2 Reserves and Surplus
Revaluation Reserve 225 150
General Reserve 255 225
Investment Allowance Reserve 75 75
Profit and Loss Account 75 45
630 495
(i) Bright Limited will issue 5 equity shares for each equity share of Dark Limited and 4
equity shares for each equity share of Fair Limited. The shares are to be issued @ `
35 each having a face value of ` 10 per share.
(ii) Preference shareholders of the two companies are issued equivalent number of 16%
preference shares of Bright Limited at a price of ` 160 per share (face value ` 100).
(iii) 10% Debenture holders of Dark Limited and Fair Limited are discharged by Bright
Limited, issuing such number of its 16% Debentures of ` 100 each so as to maintain
the same amount of interest.
(iv) Investment allowance reserve is to be maintained for 4 more years.
(v) Liquidation expenses are for Dark Limited ` 6,00,000 and for Fair Limited ` 3,00,000.
It is decided that these expenses would be borne by Bright Limited.
(vi) All the assets and liabilities of Dark Limited and Fair Limited are taken over at book
value.
(vii) Authorized equity share capital of Bright Limited is ` 15,00,00,000 divided into equity
share of ` 10 each. After issuing required number of shares to the liquidators of Dark
Limited and Fair Limited, Bright Limited issued balance shares to public. The issue
was fully subscribed.
You are required to prepare Balance Sheet of Bright Limited as at 1st April, 2021 after
amalgamation has been carried out on the basis of Amalgamation in the nature of
purchase. (Dec' 2021)
312
Question 50
Galaxy Ltd. and Glory Ltd., are two companies engaged in the same business of chemicals.
To mitigate competition, a new company Glorious Ltd, is to be formed to which the assets
and liabilities of the existing companies, with certain exception, are to be transferred. The
summarized Balance Sheet of Galaxy Ltd. and Glory Ltd. as at 31st March, 2020 are as
follows:
Galaxy Ltd. Glory Ltd.

` `
(I) Equity & Liabilities
(1) Shareholders' fund
Share Capital
Equity shares of ` 10 each 8,40,000 4,55,000
Reserves & Surplus
General Reserve 4,48,000 40,000
Profit & Loss A/c 1,12,000 72,000
(2) Non-current Liabilities
Secured Loan
6% Debentures - 3,30,000
Total 18,20,000 10,80,000
(II) Assets
(1) Non-current assets
Property, Plant &
Equipment 5,88,000 3,36,000
Freehold property, at cost
Plant & Machinery, at cost less depreciation 1,40,000 84,000
Motor vehicles, at cost less depreciation 56,000 -
(2) Current Assets
Inventories 3,36,000 4,38,000
Cash at Bank 2,38,000 1,04,000
Total 18,20,000 10,80,000
313
Assets and Liabilities are to be taken at book value, with the following exceptions:
(i) The Debentures of Glory Ltd. are to be discharged, by the issue of 8% Debentures of
Glorious Ltd. at a premium of 10%.
(ii) Plant and Machinery of Galaxy Ltd. are to be valued at ` 2,52,000.
(iii) Goodwill is to be valued at : Galaxy Ltd. ` 4,48,000 Glory Ltd. ` 1,68,000
(iv) Liquidator of Glory Ltd. is appointed for collection from trade debtors and payment
to trade creditors. He retained the cash balance and collected ` 1,10,000 from
debtors and paid ` 1,80,000 to trade creditors. Liquidator is entitled to receive 5%
commission for collection and 2.5% for payments. The balance cash will be taken
over by new company.
(1) Compute the number of shares to be issued to the shareholders of Galaxy Ltd. and
Glory Ltd, assuming the nominal value of each share in Glorious Ltd. is ` 10.
(2) Prepare Balance Sheet of Glorious Ltd., as on 1st April, 2020 and also prepare notes
to the accounts as per Schedule III of the Companies Act, 2013. (Jan' 21)
Question 51
The summarized Balance Sheets of Black Limited and White Limited as on 31st March,
2020 is as follows:
Particulars Notes Black Limited White Limited
(` In 000) (` In 000)
Shareholders' Funds 1 6,000 3,600
(a) Share Capital 2 1,080 660
(b) Reserves and Surplus
Current Liabilities
Trade payables 600 360
Total 7,680 4,620
Assets
Non-current assets
Property, Plant and Equipment 3,600 2,400
Current assets
(b) Trade receivables 1,680 1,080
(c) Cash and Cash Equivalents 1,440 420
Total 7,680 4,620
314
Note Particulars Black Limited White Limited

No. (` In 000) (` In 000)
1. Share Capital 6,000 3,600
Equity Shares of ` 100 each
2. Reserves and Surplus
General Reserve 360 180
Profit and Loss Account 720 480
Total 1,080 660
Black Limited takes over White Limited on 1st July, 2020.

No Balance Sheet of White Limited is available as on that date. It is, however estimated
that White Limited earned profit of ` 2,40,000 after charging proportionate depreciation
@ 10% p.a. on Property Plant and Equipment, during April-June, 2020.
Estimated profit of Black Limited during these 3 months was ` 4,80,000 after charging
proportionate depreciation @ 10% p.a. on Property Plant and Equipment.
Both the companies have declared and paid 10% dividend within this 3 months' period.
Goodwill of White Limited is valued at ` 2,40,000 and Property Plant and Equipment are
valued at ` 1,20,000 above the depreciated book value on the date of takeover.
Purchase consideration is to be satisfied by Black Limited by issuing shares at par. Ignore
income tax. You are required to:
(i) Compute No. of shares to be issued by Black Limited to White Limited against
purchase consideration.
(ii) Calculate the balance of Net Current Assets of Black Limited and White Limited as
on 1st July, 2020.
(iii) Give balance of Profit or Loss of Black Limited as on 1st July, 2020
(iv) Give balance of Property Plant and Equipment as on 1st July, 2020 after takeover.
(Jul' 21)
315
Question 52
The summarized Balance Sheet of A Ltd. and B Ltd. as at 31st March, 2022 are as under:
Particulars A Ltd. (in `) B Ltd. (in `)
Equity shares of ` 10 each, fully paid up 30,00,000 24,00,000
Share Premium Account 4,00,000 -
Profit and Loss Account 3,60,000 3,20,000
Retirement Gratuity Fund Account 1,00,000 -
10% Debenture 20,00,000 -
Unsecured Loan
(Including loan from A Ltd.) 6,00,000 8,20,000
71,80,000 43,80,000
Long term advance to B Ltd. 2,20,000 -
Inventories 10,40,000 7,00,000
Cash and Bank 3,00,000 3,00,000
71,80,000 43,80,000
B Ltd. is to declare and pay ` 1 per equity share as dividend, before the following
amalgamation takes place with Z Ltd.
Z Ltd. was incorporated to take over the business of both A Ltd. and B Ltd.
(a) The authorised share capital of Z Ltd. is ` 60 lakhs divided into 6 lakhs equity
shares of ` 10 each.
(b) As per Registered Valuer the value of equity shares of A Ltd. is ` 18 per
share and of B Ltd. is ` 12 per share respectively and agreed by respective
shareholders of the companies.
(c) 10% Debentures of A Ltd. to be issued 12% Debentures of Z Ltd. at par in
consideration of their holdings.
(d) A contingent liability of A Ltd. of ` 2,00,000 is to be treated as actual liability
(e) Liquidation expenses including Registered Valuer fees of A Ltd. ` 50,000 and B
Ltd. ` 30,000 respectively to be borne by Z Ltd.
(f) The shareholders of A Ltd. and B Ltd. is to be paid by issuing sufficient number
of fully paid up equity shares of ` 10 each at a premium of ` 10 per share.
316
Assuming amalgamation in the nature of purchase, you are required to pass the necessary
journal entries (narrations not required) in the books of Z Ltd. and Prepare Balance Sheet
of Z Ltd. immediately after amalgamation of both the companies. (May' 22)
Question 53
Moon Limited is absorbed by Sun Limited; the consideration, being the takeover of
liabilities, the payment of cost of absorption not exceeding ` 10,000 (actual cost ` 9000);
the payment of 9% Debentures of ` 50,000 at a premium of 20% through 8% debentures
issued at a premium of 25% of face value; the payment of ` 18 per share in cash; allotment
of two 11% preference shares of ` 10/- each and one equity share of ` 10/- each at a
premium of 30% fully paid for every three shares in Moon Limited respectively.
The number of shares of the vendor company is 1,50,000 of ` 10/- each fully paid.
Calculate purchase consideration as per AS-14. (Dec' 21)
Question 54
List the conditions to be fulfilled as per AS-14 (Revised) for an amalgamation to be in
the nature of merger. (Jan' 21)
Question 55
Star Limited agreed to take over Moon Limited on 1st April, 2022. The terms and conditions
of takeover were as follows:
(i) Star Limited issued 70,000 Equity shares of ` 100 each at a premium of ` 10 per
share to the equity shareholders of Moon Limited.
(ii) Cash payment of ` 1,25,000 was made to the equity shareholders of Moon Limited.
(iii) 25,000 fully paid Preference shares of ` 70 each issued at par to discharged the
preference shareholders of Moon Limited.
You are required:
(i) to give the meaning of “consideration for the amalgamation’ as per AS – 14, and
(ii) Calculate the amount of purchase consideration. (Nov'22 - 5 Marks)
317
MULTIPLE CHOICE QUESTIONS
1. Companies may combine in following ways

(i) absorption (ii) amalgamation
(iii) external reconstruction (iv) internal reconstruction
(v) merger
(a) any of above (b) none of above
(c) any except (iv) (d) any except (v)
2. If the ABC Limited and DEF Limited are taken over by a new company XYZ Limited
(a) it is called absorption
(b) it is called amalgamation
(c) it is called external reconstruction
(d) it is called internal reconstruction
(a) ABC Ltd. and DEF Limited are known as the “vendor Companies”
(b) ABC Ltd. and XYZ Ltd. are known as the “vendor Companies”
(c) XYZ Ltd. and DEF Ltd. are known as the “vendor Companies”
(d) XYZ Ltd. is known as the “vendor Company”
(a) ABC Ltd. and DEF Ltd. are known as the “Purchasing Companies”
(b) ABC Ltd. and XYZ Ltd. are known as the “Purchasing Companies”
(c) XYZ Ltd. and DEF Ltd. are known as the “Purchasing Companies”
(d) XYZ Ltd. is known as the “Purchasing Company”
5. If the business of an existing company ABC Limited is taken over by an existing

company PQR Limited, it is called
(a) external reconstruction (b) internal reconstruction
(c) absorption (d) amalgamation
318
6. If the business of an existing company ABC Limited is taken over by an existing

company PQR Limited,
(a) ABC Ltd. is known as the “vendor Company”; and PQR Ltd. is known as the
Purchasing Company”
(b) ABC Ltd. and PQR Ltd. are known as the “Purchasing Companies”
(c) PQR Ltd. is known as the “vendor Company”; and ABC Ltd. is known as the
“Purchasing Company”
(d) ABC Ltd. and PQR Ltd. are known as the “vendor Companies”
7. If the business of ABC Limited, a loss - making company, is taken over by a new
company ABC (New) Limited, it is called
(a) internal reconstruction (b) absorption
(c) external reconstruction (d) amalgamation
8. If the business of ABC Limited, a loss - making company, is taken over by a new
company ABC (New) Limited,
(a) ABC Ltd. is known as the “vendor Company”; and ABC (New) Ltd. is known as
the “Purchasing Company”
(b) ABC Ltd. and ABC (New) Ltd. are known as the “Purchasing Companies”
(c) ABC (New) Ltd. is known as the “vendor Company”; and ABC Ltd. is known as
the “Purchasing Company”
(d) ABC Ltd. and ABC (New) Ltd. are known as the “vendor Companies”
9. When the merger involves liquidation of two existing companies and companies and
formation of one new company, it is called
10. When the merger involves liquidation of one or more existing companies and
formation of no new company, it is called
319
11. When the merger involves liquidation of one existing sick company and formation of
one new company, it is called
12. A feature which is common in all cases of merger viz. absorption, amalgamation
and external reconstruction is
(a) purchase of one company by another company
(b) liquidation of at least one new company
(c) formation of at least one new company
(d) liquidation at least one existing company and formation of at least one new
company
13. Under the Companies Act, 1956

(a) absorption’ includes “amalgamation”
(b) amalgamation’ includes ‘absorption’
(c) amalgamation excludes ‘absorption’
(d) internal reconstruction’ includes “external reconstruction”
14. Accounting for amalgamation is governed by

(a) Accounting Standard 1 (b) Accounting Standard 13
(c) Accounting Standard 14 (d) Accounting Standard 11
15. Accounting for absorption is governed by

(c) Accounting Standard 14 (d) Accounting Standard 11
16. Accounting for amalgamation by way of purchase is governed by

(c) Accounting Standard 14 (d) None of the above
17. Accounting for amalgamation by way of merger is governed by

(c) Accounting Standard 14 (d) None of the above
320
18. According to AS 14, Transfer Company means the Company

(a) which is amalgamated into another Company
(b) into which a Company is amalgamated
(c) which is newly formed
(d) none of the above
19. According to AS 14, Transferee Company means the Company

(a) which is amalgamation into another Company
(b) into which a Company is amalgamated
(c) which is liquidated
(d) none of the above
20. According to AS 14, Amalgamation fall into two categories

(a) amalgamation and absorption
(b) merger and purchase
(c) amalgamation and reconstruction
(d) external reconstruction and internal reconstruction
21. On amalgamation, Share issue Expenses A/c appearing on Assets side of the balance
sheet of the vendor company
(a) is closed by debit to Realisation A/c
(b) is closed by debit to Equity Shareholders A/c
(c) is closed by debit to Profit & Loss A/c
(d) is closed by credit to Equity Shareholders A/c
22. On amalgamation, Profit & Loss A/c (Dr.) balance of the vendor company
(a) is closed by debit to Realisation A/c
(b) is closed by debit to Equity Shareholders A/c
(c) is closed by credit to Equity Shareholders A/c
(d) is closed by credit to Realisation A/c
23. On amalgamation, Debenture A/c appearing in the balance sheet of the vendor company
(a) is closed by credit to Purchasing Company A/c, if debentures are taken over by
the purchasing company
(b) is closed by credit to Realisation A/c, whether debentures are not taken over by
the new or not
321
(c) is closed by credit to debenture holders A/c, if debentures are not taken over by
the new company company
(d) is closed by debit to Realisation A/c, whether debentures are taken over by the
new company or not
24. On amalgamation, Provident Fund A/c appearing on the Liabilities side in the balance
(a) is closed by credit to Purchasing Company
(b) is closed by credit to Realisation A/c
(d) is closed by debit to Realisation A/c
25. On amalgamation, Sinking Fund A/c appearing on the Liabilities side in the balance
(a) is closed by credit to Purchasing Company
(b) is closed by credit to Realisation A/c
(d) is closed by debit to Realisation A/c
26. On amalgamation, if the dissolution expenses are paid as well as borne by the
purchasing company
(a) Entries are passed in the books of the vendor company
(b) no entry is passed in the books of the purchasing company
(c) no entry is passed in the books of the purchasing company
(d) no entry is passed in the books of the purchasing as well as the vendor company
27. On amalgamation, if Pref. shares are settled at a premium

(a) the premium is credited to Realisation A/c
(b) the premium is debited to Realisation A/c
(c) the premium is credited to Security Premium A/c
(d) the premium is debited to Capital Reserve A/c
28. On amalgamation, accounting procedure used by the vendor company

(a) is the same in all types of amalgamation
(b) is different depending upon whether the amalgamation is in the nature of a
merger or a purchase as defined by Accounting Standard 14
322
(c) is different depending upon whether the companies are private or public
(d) is different depending upon the amount of purchase consideration
29. On amalgamation, accounting procedure used by the purchasing company (a)

is the same in all types of amalgamation
(b) is different depending upon whether the amalgamation is in the nature of a
merger or a purchase as defined by Accounting Standard 14
(c) is different depending upon whether the companies are private or public
(d) is different depending upon the amount of purchase consideration
30. All the assets and liabilities of the vendor company become the assets and liabilities
of the purchasing company
(a) if the amalgamation is in the nature of merger as defined under AS 14
(b) if the amalgamation is in the nature of absorption as defined under the
Companies Act
(c) if the amalgamation is in the nature of external reconstruction as defined under
the Companies Act
(d) if the amalgamation is in the nature of purchase as defined under AS 14
31. Shareholders holding not less than 90% of the face value of the equity share capital
in the vendor company become equity shareholders in the purchasing company
(b) if the purchase consideration is calculated under payment method
(c) if the amalgamation is in the nature of external reconstruction as defined under
the Companies Act
(d) if the amalgamation is in the nature of purchase as defined under AS 14
32. The assets and liabilities of the vendor company are incorporated in the accounts of
the purchasing company at book values
(b) if the amalgamation is in the nature of purchase as defined under AS 14
(c) if the purchase consideration is calculated under Net Assets method
(d) if the amalgamation is in the nature of external reconstruction as defined under
the Companies Act
323
33. In the books of the purchasing company, the assets and liabilities of the vendor
company are incorporated on the basis of their agreed values (i.e. either the book
values or the fair values)
the Companies Act
34. The difference between the purchase consideration and the net assets of the vendor
company Act if any, is either debited to the Goodwill Account or credited to the
Capital Reserve Account
the Companies Act
35. Under purchase method of amalgamation, the reserves of the vendor Company
(a) are not brought in the books of the purchasing company
(b) (except a statutory reserve) are not brought in the books of the purchasing
company
(c) are brought in the books of the purchasing company
(d) (except a statutory reserve) are brought in the books of the purchasing company
36. Amalgamation Adjustment Reserve

(a) should be shown as a Fixed Asset in the balance sheet of the purchasing
company
(b) should be shown as a Fictitious Asset in the balance sheet of the vendor
company
(c) should be shown under Reserves and Surplus in the balance sheet of the
purchasing compan
(d) should be shown as a Fictitious Asset in the balance sheet of the purchasing
company
324
37. The amounts paid by the purchasing company to discharge the debentures are
(a) ignored while calculating purchase consideration by net payment method
(b) ignored while calculating purchase consideration by net asset method
(c) considered while calculating purchase consideration by net payment method
38. The amounts paid by the purchasing company to discharge the contingent liabilities
are
39. The amounts paid by the purchasing company to meet the expenses of winding up
are
40. The agreed values at which the assets or liabilities are taken over by the purchasing
company are
(c) considered while calculating purchase consideration by net payment method 3
41. The value of assets or liabilities not taken over by the purchasing company is
(c) considered while calculating purchase consideration by net asset method.
42. The Unamortized Expenditure not written off is

(c) considered while calculating purchase consideration by net asset method
325
43. Liquidation expenses of Vendor Co. agreed to be paid / re-imbursed by the Purchasing
Co. should be
(a) considered while calculating purchase consideration by net payment method
(b) considered while calculating purchase consideration by net asset method
(c) ignored while calculating the purchase consideration (whether under net
payments method or net assets method).
44. As per AS-14 purchase consideration is what is payable to

(a) Shareholders
(b) Shareholders and debenture holders
(c) Shareholders and creditors
(d) None of the above
45. When amalgamation is in the nature of merger, the accounting method to be

followed is:
(a) Equity method (b) Purchase method
(c) Pooling of interests method (d) None of the above
46. Amalgamation adjustment reserve is opened in the books of transferee company to

incorporate
(a) The assets of the transferor company
(b) The liabilities of the transferor company
(c) The statutory reserves of the transferor company
47. Under the 'Purchase method of accounting, the transferee company incorporates in
its books:
(a) Only the assets and liabilities of the transferor company
(b) Only the assets, liabilities and statutory reserves of the transferor company
(c) Only the assets, liabilities and reserves of the transferor company.
326
48. Goodwill arising on amalgamation is to be

(a) Retained in the books of the transferee company.
(b) Amortised to income on a systematic basis
(c) Adjusted against reserves and profit and loss account of the transferee company
immediately.
49. Under the pooling of interests method the difference between the purchase
consideration and share capital of transferee company should be adjusted to:
(a) General reserve
(b) Amalgamation adjustment reserve
(c) Goodwill or capital reserve
50. At the time of amalgamation, purchase consideration does not include

(a) The sum which the transferee company will directly pay to the creditors of the
transferor company
(b) Payments made in the form of assets by the transferee company to the
shareholders of the transferor company.
(c) Preference shares issued by the transferee company to the preference
shareholders of the transferor company.
(d) preference shares issued by the transferee company to the equity shareholders
of the transferor company.
51. The asset which is not taken under the Net assets method of calculating purchase
consideration transferor company.
(a) Loose Tools (b) Bills Receivables
(c) Machinery (d) Share issue Expenses
52. Pooling of interest' is a method of

(a) Charging Depreciation
(b) Accounting for Amalgamation
(c) Calculation of Purchase Consideration
327
53. In which of the following methods, the purchase consideration is calculated on the
basis of the agreed value of the shares of the transferor company?
(a) Net Asset Method (b) Net Payment Method
(c) Intrinsic Value Method (d) None of the above
54. The adjustment entry passed to eliminate the inter-company bills of exchange is
(a) Debit bills payable a/c credit bills receivable a/c
(b) Debit bills receivable a/c credit bills payable a/c
(c) Debit amalgamation adjustment a/c, credit statutory reserve a/c
55. Under 'Purchase method', any excess of the amount of purchase consideration over
the net acquired assets of the transferor company should be recognised as:
(a) Capital Reserve (b) Goodwill
(c) Profit & Loss A/c (d) None of the above
56. If there is a provision (RDD) against the debtors, such debtors are transferred to the
Realisation a/c at
(a) Net Amount i.e. Debtors less RDD (b) Current Market Value
(c) Gross Amount of Debtors (d) None of the above
57. Under payments method, purchase consideration for the amalgamation means
(a) Aggregate of shares and cash to shareholders
(b) Aggregate of shares, cash and payment to debenture holders
(c) Shares, cash, payment to debenture holders and expenses of realisation
58. Loss or profit on realisation a/c is transferred by the transferor company, under
amalgamation to
(a) Preference shareholders a/c (b) Equity shareholders a/c
(c) Profit & loss appropriation a/c (d) None of the above
59. Intrinsic value of each equity share of the transferor company is 250 and that of the
transferee company is 400. The ratio of exchange of shares on the basis of intrinsic value is
(a) 2:1 (b) 8:8
(c) 8:5 (d) None of the above
328
-: ANSWER :-
1. (c) 13. (b) 25. (c) 37. (a) 49. (a)
2. (b) 14. (c) 26. (b) 38. (a) 50. (a)
3. (a) 15. (c) 27. (b) 39. (a) 51. (d)
4. (d) 16. (c) 28. (a) 40. (a) 52. (b)
5. (c) 17. (c) 29. (b) 41. (b) 53. (c)

6. (a) 18. (a) 30. (a) 42. (b) 54. (a)
7. (c) 19. (b) 31. (a) 43. (c) 55. (b)
8. (a) 20. (b) 32. (a) 44. (a) 56. (c)
9. (d) 21. (b) 33. (b) 45. (c) 57. (a)
10. (b) 22. (b) 34. (b) 46. (c) 58. (b)
11. (c) 23. (b) 35. (b) 47. (b) 59. (c)
12. (a) 24. (b) 36. (c) 48. (b) 60.
329
FILL IN THE BLANKS
1. In ____________ a new company is formed to take over the business of two or more
old companies.
2. In amalgamation, the old Companies taken over are known as the "_____________"-
Companies", and the new company taking over is known as the "___________
Company”.
3. If the business of an existing company ABC Limited is taken over by another existing
company PQR Limited, it is called ___________.
4. If the business of ABC Limited, a loss-making company, is taken over by a new

company ABC (New) Limited, it is called ____________ reconstruction.
5. Under AS 14, Purchase Consideration (would/would not) include payments made by

the purchasing company to discharge the debentures of the vendor company.
6. Under AS 14, Purchase Consideration (would/would not) include payments made by

the purchasing company to meet the liquidation expenses of the vendor company.
7. In amalgamation, if the liquidation expenses are paid as well as borne by the

purchasing company, (an/no) entry is passed in the books of the vendor company.
8. AS 14 recommends that Goodwill arising on amalgamation should be written off

within ___________. years.
9. The Amalgamation Adjustment Reserve should be shown under _________ in the

balance sheet of the purchasing company.
10. If Purchase Consideration is ascertained under the Net Assets method, this (will/will
not) give rise to Goodwill or Capital Reserve.
11. Dissolution expenses paid & borne by purchasing company are debited in its books
to__________ Account.
330
12. In merger, Shareholders holding not less than___________ % of the face value of
the equity share capital in the vendor company become equity shareholders in the
purchasing company.
13. In merger, the purchase consideration due to the equity shareholders of the vendor
company is discharged by the purchasing company wholly by way of issue of
___________ (equity / preference) shares.
14. An amalgamation in the nature of merger is brought about if shareholders holding

____________% of the face value of equity shares become equity shareholders of
the transferee company.
15. Value of shares based on agreed value of net assets is known as the ___________
value of shares.
----------: ANSWER :----------

1. Amalgamation 9. Reserve
2. Vendor; Purchasing 10. Will not
3. Absorption 11. Goodwill
4. External 12. 90
5. Would not 13. Equity
6. Would not 14. 90
7. No 15. Intrinsic
8. 5
331
INTER CA – ADVANCED ACCOUNTING
AMALGAMATION, ABSORPTION AND EXTERNAL RECONSTRUCTION
CLASSWORK SECTION
Answer 1
In the books of Ellora Ltd. (Selling Co.)
Dr. Realisation Account Cr.
Particulars Amt. (`) Amt. (`) Particulars Amt. (`) Amt. (`)
To Sundry Assets: By Sundry Liabilities:
Land & Building 2,00,000 7% debentures 1,00,000
Machinery 1,00,000 Creditors 1,50,000 2,50,000
Stock 2,00,000 By Ajanta Ltd. A/c(P.C) 3,86,000
Debtors 50,000
Cash 30,000 5,80,000
To Cash A/c (Exp.) 5,000
To Preference
shareholders A/c 10,000
To Equity
shareholders A/c 41,000
(Profit)
6,36,000 6,36,000
Dr. Equity Shareholder’s Account Cr.

Particulars Amt. (`) Particulars Amt. (`)
To Preliminary expenses A/c 10,000 By Equity Share Capital A/c 2,00,000
To Debenture discount A/c 5,000 By Reserve A/c 20,000
To Cash A/c 12,000 By Profit & Loss A/c 30,000
To Equity share in Ajanta By Realisation A/c 41,000
Ltd. A/c 2,64,000
2,91,000 2,91,000
Dr. Preference Shareholder’s Account Cr.

To 14% Preference shares in 1,10,000 By 12% Preference Share 1,00,000
Ajanta Ltd. A/c Capital A/c
By Realisation A/c (bal fig) 10,000
1,10,000 1,10,000
Dr. Cash / Bank Account Cr.

To Balance b/d 5,000 By Realisation A/c 5,000
To Ajanta Ltd. A/c 12,000 By Equity Shareholders A/c 12,000
17,000 17,000
:1:
Dr. Ajanta Ltd A/c Cr.

To Realisation A/c (P.C) 3,86,000 By 14% Preference Share in
Ajanta Ltd 1,10,000
By Equity Share in Ajanta A/c 2,64,000
By Cash A/c 12,000
3,86,000 3,86,000
Dr. 14% Preference Shares in Ajanta Ltd. Account Cr.

To Ajanta Ltd. A/c 1,10,000 By Preference
Shareholders A/c 1,10,000
1,10,000 1,10,000
Dr. Equity Shares in Ajanta Ltd. Account Cr.

To Ajanta Ltd. A/c 2,64,000 By Equity Shareholders A/c 2,64,000
2,64,000 2,64,000
 Calculation of purchase consideration:

Net Payment Method
1) For Preference Shareholders
14% Pref. shares[in Ajanta Ltd. 1,10,000
2) For Equity Shareholders
(a) Equity Shares in Ajanta Ltd.
2.64.000
(b) Cash
12,000
Purchase Consideration 3,86,000
:2:
 Calculation of no. of debentures:

Amount Payable

Issue Price
1, 08, 000
=
100 - 10
1, 08, 000
=
90
= 1,200 debentures
In the books of Ajanta Ltd.

Journal Entries
Sr. L. Debit Credit
Particulars
No. F. ` `
1. Business Purchase A/c Dr. 3,86,000
To Liquidators of Ellora Ltd. A/c 3,86,000
2. Land & Building A/c Dr. 2,50,000
Stock A/c Dr. 2,20,000
Machinery A/c Dr. 1,00,000
Debtors A/c Dr. 50,000
Cash A/c Dr. 30,000
To R.D.D. A/c (50,000 × 5%) 2,500
To 7% Debenture in Ellora Ltd.(1,00,000 + 8%) 1,08,000
To Creditors A/c 1,50,000
To Business Purchase A/c 3,86,000
To Capital Reserve A/c 3,500
3. Liquidators of Ellora Ltd. A/c Dr. 3,86,000
To 14% Preference Share Capital A/c 1,10,000
To Equity Share Capital A/c 2,40,000
To Securities Premium A/c 24,000
To Cash A/c 12,000
4. 7% Debenture in Ellora Ltd. A/c Dr. 1,08,000
Discount on Issue of Debentures A/c Dr. 12,000
To 9% Debentures A/c 1,20,000
:3:
Answer 2
 Calculation of Purchase Consideration:

Net Payment Method
1) Cash (20,000 equity shares × 15 per share) 3,00,000
2) 7% Preference shares in Ramkrishna Ltd.
5,00,000
3) Equity shares in Ramkrishna Ltd.
2,50,000

Amount Payable

Issue Price
4,00,000 + 10% Prem.

=
100 - 20% Disc.
4,40,000
=
80
= 5,500 Debentures
:4:
In the books of Ramkrishna Co. Ltd

Journal Entries
Sr. L. Debit Credit
No. Particulars F. ` `
To Liquidators of Govind Ltd. A/c 10,50,000
2. Land & Building A/c Dr. 15,60,000
Patent Rights A/c Dr. 3,50,000
Debtors A/c Dr. 4,00,000
Investment A/c Dr. 1,00,000
Cash / Bank A/c Dr. 1,28,000
To R.D.D. A/c 20,000
To Worker Accident Compensation fund A/c 9,000
To Staff PPF A/c 1,50,000
To A’s Debentures A/c 4,40,000
To B’s Debentures A/c 10,50,000
To Loan from Ramkrishna Ltd. A/c 1,00,000
To Capital Reserve A/c (bal. fig) 11,79,000
3. Liquidators of Govind Ltd. A/c Dr. 10,50,000
To Cash A/c 3,00,000
4. Capital Reserve A/c Dr. 8,000
To Cash / Bank A/c 8,000
5. B Debentures A/c Dr. 10,50,000
To Cash A/c 10,50,000
6. A Debentures A/c Dr. 4,40,000
Discount on issue of debentures A/c Dr. 1,10,000
(5,500 debentures × 20)
To 6% Debenture A/c 5,50,000
To Stock A/c (56,000 × 1/7) 8,000
To Cash / Bank A/c (Contingent liability) 20,000
9. Creditors A/c Dr. 50,000
To Debtors A/c 50,000
10. Loan from Ramkrishna Ltd. A/c Dr. 1,00,000
To Loan to Govind Ltd. A/c 1,00,000
11. Amalgamation Adjustment Reserve A/c Dr. 1,00,000
To Development Reserve A/c 1,00,000
:5:
Answer 3

Net Payment Method
1) Equity shares in All India Ltd.
For 6,633 equity shares of ` 100 each ` 50 paid up at ` 60 3,97,980

each
2) Cash for fraction
1 share `60
0.33 share ` 20 20
In the books of Presidency Company

To Sundry Assets: By Creditors A/c 75,000
Freehold Property 2,50,000 By R.D.D A/c 10,000
Plant & Machinery 50,000 By All India Ltd. A/c (P.C) 3,98,000
Stock 3,00,000 By Equity shares
6% Government Paper 10,000 holers A/c (loss) 3,83,500
Debtors 2,30,000
Bank 16,500 8,56,500
To Cash A/c:
Liquidation expenses 2,500
Income Tax 7,500 10,000
8,66,500 8,66,500

To Cash A/c (100 × 35) 3,500 By Equity Share Capital A/c 6,00,000
To Realisation A/c 3,83,500
To Cash A/c 20 By Reserve fund A/c 1,25,000
To Equity share in All India By Profit & Loss A/c 60,000
Co. Ltd. A/c 3,97,980
7,85,000 7,85,000
:6:

To Balance b/d 13,500 By Realisation A/c 10,000
To All India Ltd. A/c 20 By Equity Shareholders A/c 3,500
By Equity Shareholders A/c 20
13,520 13,520
Dr. All India Ltd. Account Cr.

To Realisation A/c 3,98,000 By Equity shares inAll India Ltd. A/c 3,97,980
By Cash A/c 20
3,98,000 3,98,000
Dr. Equity Shares in All India Ltd. Account Cr.

To All India Ltd. A/c 3,97,980 By Equity Shareholders A/c 3,97,980
3,97,980 3,97,980
Answer 4
In the books of B Ltd & Bessons Ltd.
 Calculation of intrinsic value of shares:
Particulars Bessons B. Co
Ltd. Ltd.
Revised value of real assets excluding fictitious taken over
Fixed Assets 1,60,00,000 79,00,000
Current Assets 1,68,00,000 69,00,000
Investments - 17,00,000
3,28,00,000 1,65,00,000
(-) Revised value of liabilities taken over
Unsecured loans - (22,00,000)
Secured loans (40,00,000) -
Creditors (46,00,000) (42,00,000)
Provision for Tax (52,00,000) (11,00,000)
Proposed dividend (10,00,000) -
Net Assets for all shareholders 1,80,00,000 90,00,000
(-) Preference shareholders claim - -
Net Assets for all Equity shareholders 1,80,00,000 90,00,000
(÷) No. of equity shares 8,00,000 50,000
Value per share 22.5 per 180 per
share share
Ratio of value per share 1 : 8
:7:
 The above calculation signifies that shares of B Ltd. are worth 8 times more than
Besson Ltd. therefore for every one share of B Ltd., 8 shares of Bessons Ltd. are issued.
 Calculation of Purchase Consideration

50,000 shares × 8 times × ` 22.5 = ` 90,00,000
Answer 5
Net Payment Method
1) For Equity shareholders
Equity shares in P Ltd.
4,00,000
2) For Preference shareholders
10% Preference shares in P Ltd. (1,00,000 – 10%) 90,000
(900 Preference shares @ ` 100 each)

Amount Payable

Issue Price
1,50,000 + 8% Prem.
=
100 - 10% Disc.
1,62,000
=
90
= 1,800 Debentures
In the books of P Ltd.

Journal Entries
Sr. L. Debit Credit
1. Fixed Assets A/c Dr. 1,05,000
To Revaluation Reserve A/c 1,05,000
(7,00,000 × 15%)
2. Reserve & Surplus A/c Dr. 60,000
To Dividend Payable A/c 60,000
3. Dividend Payable A/c Dr. 60,000
To Liquidators of Q Ltd. A/c 4,90,000
:8:
5. Fixed Assets A/c Dr. 2,87,500

Investment A/c Dr. 80,000
Inventory A/c Dr. 3,04,000
Bills receivable A/c Dr. 20,000
Bank A/c Dr. 10,000
To 12% Debenture A/c 1,62,000
To Bills Payable A/c 25,000
To Capital Reserve A/c 80,000
6. Liquidators of Q Ltd. A/c Dr. 4,90,000
To 10% Preference Share Capital A/c 90,000
7. 12% Debenture A/c Dr. 1,62,000
Discount on Issue of debentures A/c (1800 x 10) Dr. 18,000
To 12% Debentures A/c (1800 x 100) 1,80,000
Answer 6
In the books of Vayu Ltd.
Particulars ` ` Particulars ` `
Goodwill 25,000 Retirement fund 20,000
Building 1,00,000 Trade Payables 80,000 1,00,000
Machinery 1,50,000 By Hari Ltd. A/c 5,30,000
Inventory 1,75,000 (P.C)
Trade Receivable 1,00,000
Cash at Bank 20,000 5,70,000
To PSH 10,000
To Equity Share
holders A/c 50,000
6,30,000 6,30,000
:9:

Particulars ` Particulars `
To Equity shares of By Equity Share Capital A/c 3,00,000
Hari Ltd. A/c 4,20,000 By General Reserve A/c 70,000
By Realisation A/c 50,000
4,20,000 4,20,000
Dr. 10% Preference Shareholder’s Account Cr.

To 9% Preference shares in By 10% Preference Share
Hari Ltd. A/c 1,10,000 Capital A/c 1,00,000
1,10,000 1,10,000
Dr. Hari Ltd. Account (Purchasing Co.) Cr.

To Realisation A/c 5,30,000 By Equity shares in Hari Ltd. 4,20,000
By 9% Preference shares in
Hari Ltd. A/c 1,10,000
5,30,000 5,30,000
Dr. Equity Shares in Hari Ltd. Account Cr.

To Hari Ltd. A/c 4,20,000 By Equity shareholders A/c 4,20,000
4,20,000 4,20,000
Dr. 9% Preference Shares in Hari Ltd. Account Cr.

To Hari Ltd. A/c 1,10,000 By 10% Preference
shareholders A/c 1,10,000
1,10,000 1,10,000
: 10 :
Calculation of Net Assets and P.C.:

Particulars `
Assets:
Goodwill 50,000
Building 1,50,000
Machinery 1,60,000
Inventory (1,75,000 – 10%) 1,57,500
Trade Receivable 1,00,000
Cash at Bank 20,000
(A) 6,37,500
(-) Liabilities
Retirement Gratuity fund (20,000)
Trade Payables (80,000)
Provision for doubtful debts (7,500)
(B) (1,07,500)
Net Assets (A – B) 5,30,000
Discharge of P.C.:
Preference shareholders 1,00,000
(+) Premium @ 10% (i.e. POR) 10,000 1,10,000
Equity Share Capital 4,00,000
(+) Premium @ 5% (40,000 × 0.5) 20,000 4,20,000
4,20,000
= 40,000 shares
10.5
5,30,000
: 11 :
In the books of Hari Ltd.

Journal Entries
L. Debit Credit
Date Particulars F. ` `
1 Business Purchase A/c Dr. 5,30,000
To Liquidators of Vayu Ltd. A/c 5,30,000
(Being business purchased from Vayu Ltd.)
2 Building A/c Dr. 1,50,000

Goodwill A/c Dr. 50,000
Trade Receivable A/c Dr. 1,00,000
Cash at Bank A/c Dr. 20,000
To Retirement Gratuity fund A/c 20,000
To Trade Payables A/c 80,000
To Provision for doubtful debts A/c 7,500
To Business purchase A/c 5,30,000
(Being assets and liabilities taken over)
3 Liquidators of Vayu Ltd. A/c Dr. 5,30,000
(Being P.C. discharged)
Balance sheet of Hari Ltd. As on 31.03.2001 (After Absorp)

Particulars Notes No. `
I. EQUITY AND LIABILITIES
(1) Shareholders funds
(a) Share Capital 1 16,10,000
(b) Reserve & Surplus 2 90,000
(2) Non Current Liabilities
Long term provision (Retirement gratuity fund) 70,000
: 12 :
Trade Payable (1,30,000 + 80,000) 2,10,000

Total 19,80,000
II. ASSETS
(a) Property, Plant and Equipments
(i) Tangible Assets 3 11,10,000
(ii) Intangible Assets (Goodwill) 1,00,000
(2) Current Assets
(a) Inventory (2,50,000 + 1,57,500) 4,07,500
(b) Trade Receivable 4 2,92,500
(c) Cash & Cash Equivalents (Cash at bank) 70,000
(50,000 + 20,000)
Total 19,80,000
Notes to Accounts:
(1) Share Capital
Authorized Share Capital ?
Issued, Subscribed and Paid up Capital
1,40,000 equity shares of ` 10 each fully paid up 14,00,000
2,100, 9% Preference shares of ` 100 each fully paid up 2,10,000
(of the above 1,100 preference shares and 40,000
equity shares were issued for other than cash
consideration)
16,10,000
(2) Reserve and Surplus
Securities Premium 20,000
General Reserve 70,000
90,000
(3) Tangible Assets

Building (3,00,000 +1,50,000) 4,50,000
Machinery (5,00,000 + 1,60,000) 6,60,000
11,10,000
: 13 :
(4) Trade receivable (2,00,000 + 1,00,000) 3,00,000

(-) Provision for Doubtful debts (7,500)
2,92,500
Answer 7
In the books of Better Ltd.
Fixed Assets 15,00,000 Other liabilities 2,00,000
Current Assets 5,00,000 20,00,000 By Best Ltd. A/c (PC) 15,00,000
By equity share holder

3,00,000
A/c
20,00,000 20,00,000

To Realisation A/c 3,00,000 By Equity Share Capital A/c 15,00,000
To Equity shares in By Reserve & Surplus A/c 3,00,000
Best Ltd. A/c 15,00,000 (8,00,000 – 5,00,000)
18,00,000 18,00,000
Dr. Best Ltd. Account Cr.

To Realisation A/c 15,00,000 By Equity shares in
Best Ltd. A/c 15,00,000
15,00,000 15,00,000
Dr. Equity Shares in Best Ltd. Account Cr.

To Best Ltd. A/c 15,00,000 By Equity shareholders A/c 15,00,000
15,00,000 15,00,000
: 14 :
In the books of Best Ltd.

Journal Entries
L. Debit Credit
Date Particulars F. ` `
01.04.11 Business Purchase A/c Dr. 15,00,000
To Liquidators of Better Ltd. A/c 15,00,000
(Being purchase consideration payable)
01.04.11 Fixed Assets A/c Dr. 15,00,000

Current Assets A/c Dr. 5,00,000
To Other Liabilities A/c 2,00,000
To capital reserve 3,00,000
01.04.11 Liquidators of Better Ltd. A/c Dr. 15,00,000

To Equity Share Capital A/c (10,000 x 100) 10,00,000
To Securities Premium A/c (10,000 x 50) 5,00,000
(Being P.C. paid)
01.04.11 Creditors A/c (Better Ltd.) Dr. 1,00,000

To Debtors A/c (Best Ltd.) 1,00,000
(Being inter company debt written off)
01.04.11 Capital Reserve A/c Dr. 10,000

To Stock A/c 10,000
(Being unrealized profit on stock)
Balance sheet of Best Ltd. as at 01.04.2011 (After Absorption)

Particulars Notes No. `
(b) Reserve & Surplus 2 17,90,000
(2) Non Current Liabilities -
: 15 :
(3) Current Liabilities (20,00,000 + 1,00,000) 3 21,00,000

Total 68,90,000
II. ASSETS
(b) Non-current investment 5,00,000
(2) Current Assets 5 2,39,000
Total 68,90,000
Working Notes:
1. Revised value of equity share capital of Better Ltd.
Bonus shares
Issued Held
1 2
? 10,000
5,000
 Revised value = 15,000
i.e. 15,000 × 100 = 15,00,000
2. Calculation of PC
No. of equity share after bonus issue 15,000
(x) Value Per share (x) 100
PC 15,00,00
(÷) Issue Price (÷) 150
No. of equity share issued 10,000
Discharge Of PC
10,000 equity share of `100 each at `150 15,00,000
3. Revised value of Reserve & Surplus
Opening Balance 8,00,000
(-) Bonus shares issued (5,00,000)
Closing Balance 3,00,000
: 16 :
4. Investments are assumed to be long term investments.
Notes to Accounts:
(1) Share Capital
Issued, Subscribed and Paid up Capital
30,000 equity shares of ` 100 each fully paid up 30,00,000
(of the above 10,000 shares are issued for other
than cash consideration)

Other Reserve & Surplus 10,00,000
Securities Premium (J.E.3) 5,00,000
Capital Reserve (3,00,000 – 10,000) 2,90,000
17,90,000

Best Ltd. 20,00,000
Better Ltd. 2,00,000
(-) Inter Company debt (1,00,000) 21,00,000
(4) Tangible Assets

Best Ltd.  Fixed Asset 25,00,000
Better Ltd.  Fixed Asset 15,00,000
40,00,000
(5) Current Asset

Best Ltd. 20,00,000
Better Ltd. 5,00,000
(-) Inter Company debt (1,00,000)
(-) Unrealised profit (10,000) 23,90,000
: 17 :
Answer 8
In the books of Backward Ltd.
Purchase Consideration = 4,00,000 (given)
Discharge of Purchase Consideration
1) 6% Preference shares in Progressive Ltd. 2,00,000
(20,000 shares @ 10 each)
2) Equity shares in Progressive Ltd. 2,00,000
(20,000 shares @ 10 each)

Building 3,18,000 Loans 5,000
Machinery 1,65,000 Creditors 86,100
Motor 6,200 Bills Payable 4,200
Debtors 1,34,000 Bank overdraft 9,400 1,04,700
Stock 83,500 7,06,700 By RDD 3,000
To Cash A/c: By Progressive Ltd.
(PC) A/c 4,00,000
Loans 5,000 By Bank (Debtors) 1,30,000
Creditors 81,000 By Preference 2,00,000
Bills Payables 4,200 Shareholders A/c
Bank overdraft 9,400
Expenses 1,400 1,01,000
To Equity share
holders A/c 30,000
(Profit) (Bal.fig)
8,37,700 8,37,700

To Profit & Loss A/c 4,00,000 By Equity Share Capital A/cBy 6,00,000
To Equity share in Capital Reserve A/c 12,100
Progressive Ltd. A/c 2,00,000 By Realisation A/c 30,000
To Cash A/c 42,100 (Profit)
6,42,100 6,42,100
: 18 :
Dr. Preference Shareholder’s Account Cr.

To 6% Preference shares In By Preference Share
Progressive Ltd. A/c 2,00,000 Capital A/c 4,00,000
To Realisation A/c (Bal. fig.) 2,00,000
4,00,000 6,42,100

To Balance b/d 13,100 By Realisation A/c 1,01,000
To Realisation A/c 1,30,000 By Equity Shareholders A/c(Bal. 42,100
fig)
(Debtors)
1,43,100 1,43,100
Dr. Progressive Ltd. Account Cr.

To Realisation A/c 4,00,000 By Equity shares in
Progressive Ltd. A/c 2,00,000
By 6% Preference shares
Progressive Ltd. A/c 2,00,000
4,00,000 4,00,00
0
Dr. Equity Shares in Progressive Ltd. Account Cr.

To Progressive Ltd. A/c 2,00,000 By Equity Shareholders A/c 2,00,000
2,00,000 2,00,000
Dr. Preference Shares in Progressive Ltd. Account Cr.

To Progressive Ltd. A/c 2,00,000 By Preference
Shareholders A/c 2,00,000
2,00,000 2,00,000
: 19 :
Answer 9
In the books of K Ltd. & L Ltd.
 Calculation of intrinsic value of shares:
Particulars K Ltd. L Ltd.
Revised value of real assets takeover
Goodwill 80,000 -
Land & Building 4,50,000 3,00,000
Plant & Machinery 6,20,000 5,00,000
Furniture 60,000 20,000
Debtors 2,75,000 1,75,000
Stores & Stock 2,25,000 1,40,000
Cash at Bank 1,20,000 55,000
Cash in hand 41,375 17,175
18,71,375 12,07,175
(-) Revised value of outside liabilities takeover
RDD (2.5%) (6,875) (4,375)
Provision for Stores & Stock (2%) (4,500) (2,800)
5% Debentures (2,00,000) -
Sundry Creditors (1,00,000) (2,10,000)
Secured Loan - (2,00,000)
N.A. for all shareholders 15,60,000 7,90,000
(-) Preference shareholders claim (4,40,000) (3,30,000)
Net Assets for all Equity shareholders 11,20,000 4,60,000
(÷) No. of equity shares 8,000 3,000
Value per share 140 153.33
 Calculation of purchase consideration for both the companies.

Net Payment Method:
K Ltd. L Ltd.
(1) For Preference shareholders
Equity shares in LK Ltd. 4,40,000 3,30,000
[K Ltd = 4,000 x 5 = 20,000 @ ` 22]
[L Ltd = 3,000 x 5 = 15,000 @ ` 22]
(2) For Equity shareholders
(a) Equity shares in LK Ltd. 10,56,000 3,96,000
[K Ltd = 8,000 x 6 = 48,000 X 22]
[L Ltd = 3,000 x 6 = 18,000 X 22]
(b) Cash paid 64,000 64,000
11,20, 000 - 10, 56, 000 
 4,60, 000 - 3,96, 000 
 
Purchase Consideration 15,60,000 7,90,000
: 20 :
Note: While recording journal entries in LK Ltd. combine the figures of assets & liabilities and
write.
Journal Entries
Sr. L. Debit Credit
To Liquidators of L Co. Ltd. A/c 15,60,000
To Liquidators of K Co. Ltd. A/c 7,90,000
2. Goodwill A/c Dr. 80,000
Land & Building A/c Dr. 7,50,000
Plant & Machinery A/c Dr. 11,20,000
Furniture A/c Dr. 80,000
Stores & Stock A/c Dr. 3,65,000
Bank A/c Dr. 1,75,000
Cash A/c Dr. 58,550
To RDD A/c 11,250
To Provision for Stock A/c 7,300
To Loans A/c 2,00,000
3. Liquidators of K Ltd. A/c Dr. 15,60,000
Liquidators of L Ltd. A/c Dr. 7,90,000
To Equity Share Capital A/c (1,01,000 X 18) 18,18,000
To Securities Premium A/c (1,01,000 X 4) 4,04,000
To Cash / Bank A/c 1,28,000
4. 5% debentures A/c Dr. 2,00,000
6. RDD (20,000 X 2.5%) Dr. 500
To Goodwill A/c 500
(Being RDD cancelled on cancellation of
mutual debt.)
7. Cash / Bank A/c (15,000 × 22) Dr. 3,30,000

To Equity Share Capital A/c(15,000 × 18) 2,70,000
(15,000 × 4)
: 21 :
Note: since it is a loss pertaining to amalgamation.
Answer 10
 Calculation of Purchase Consideration of A Ltd.:
Net Payment Method
1) For Preference shareholders
10% Cumulative Preference shares in C Ltd. (2,000 @ 2,00,000
100)
2) For Equity shareholders
Equity shares in C Ltd.
Old New
-
2 3
6,000 ? = 9,000 shares @ 100 each 9,00,000
 Calculation of Purchase Consideration of B Ltd.:

Net Assets Method
Assets takeover (Balance sheet) 4,78,400
(-) Liabilities takeover (2,71,600)
Discharge of Purchase Consideration
2,068 equity share in C Ltd @ ` 100 each 2,06,800
 Authorised Capital 5,000
(-) Issued to A Ltd. (2,000)
Issued for Cash (Preference shares) 3,000
 Authorised Capital 20,000

(-) Issued to A & B Ltd. (9,000 + 2,068) (11,068)
8,932
(-) Reserved for Conversion of preference shares (5,000)
Issued for Cash 3,932
: 22 :
Journal Entries
Sr. L. Debit Credit
To Liquidators of A Ltd. A/c 11,00,000
To Liquidators of B Ltd. A/c 2,06,800
2. Goodwill A/c Dr. 2,30,000
Bank A/c Dr. 77,200
Goodwill A/c (bal. fig) Dr. 2,20,500
3. Liquidators of A Ltd. A/c Dr. 11,00,000
Liquidators of B Ltd. A/c Dr. 2,06,800
To 10% Cumulative Preference share
Capital A/c 2,00,000
4. Cash / Bank A/c Dr. 3,00,000
To 10% Cumulative Preference share
Capital A/c 3,00,000
5. Cash / Bank A/c Dr. 3,93,200
7. Goodwill A/c Dr. 6,000
To Stock A/c 6,000
8. to 6% debentures A/c Dr. 4,00,000
Creditors A/c (8,09,900 – 24,000) × 30% Dr. 2,35,770
To Cash / Bank A/c 6,35,770
: 23 :
Answer 11
In the books of A Ltd. & B Ltd.
 Calculation of Purchase Consideration (Net Asset Method)
Particulars A Ltd. B Ltd.
Goodwill (WN 1) 90,000 -
Fixed Assets 1,20,000 1,80,000
Stock 60,000 1,10,000
Debtors 80,000 1,30,000
Bank 50,000 -
4,00,000 4,20,000
Creditors (40,000) (90,000)
Bank Overdraft - (90,000)
3 : 2
14,400 9,600
24,000 Shares
Total Nat Assets = 3,60,000 + 2,40,000
= ` 6,00,000
Total no. of shares = ` 24,000
6, 00, 000
IssuePrice =
24, 000
= ` 25 (10 + 15)
 Calculation of Goodwill
Year Profits Weights Products
2008 – 09 20,000 1 20,000
2009 – 10 80,000 2 1,60,000
2010 – 11 1,20,000 3 3,60,000
6 5,40,000
5, 40, 000
Goodwill = = ` 90, 000
6
Journal Entries
Sr. L. Debit Credit
No. Particulars F.
1. Realisation A/c Dr. 3,10,000
To Fixed Assets A/c 1,20,000
To Stock A/c 60,000
To Bank A/c 50,000
2. Equity Share Capital A/c Dr. 1,00,000
Reserve & Surplus A/c Dr. 1,70,000
To Equity Share holders A/c 2,70,000
: 24 :

To Realisation A/c 40,000
4. C Ltd. A/c Dr. 3,60,000
5. Equity share in C Ltd. A/c Dr. 3,60,000
To C Ltd. A/c 3,60,000
6. Realisation A/c Dr. 90,000
To Equity share holders A/c 90,000
7. Equity share holders A/c Dr. 3,60,000
To Equity share in C Ltd. A/c 3,60,000
Working note:
Cash & Bank balance in C Ltd.
Takeover from A Ltd. 50,000
(+) Fresh issue of shares (12,000 shares × 15) 1,80,000
Cash 2,30,000
Balance Sheet of C Ltd. (After Amalgamation)

Particulars Note Amt. (`)
No.
I. EQUITY AND LIABILITIES:
(1) Shareholders funds:
(b) Reserve and Surplus 2 4,20,000
(2) Non-Current Liabilities Nil
(a) Trade Payables 3 1,30,000
(b) Short term Borrowings (Bank o/d) 90,000
Total 10,00,000
II. ASSETS:
(1) Non Current Assets:
(a) Property, Plant & Equipments:
(ii) Intangible Assets (Goodwill) 90,000
(2) Current Assets:
(a) Inventory 1,70,000
(b) Trade Receivable 2,10,000
(c) Cash & Cash equivalent 2,30,000
Total 10,00,000
: 25 :
Notes to Accounts:
(1) Share Capital
Authorised Share Capital
44,000 equity shares of ` 10 each 4,40,000
Issued, Subscribed & Paid up
(Of the above 24,000 shares have been issued
for
consideration other than cash)
3,60,000
Securities Premium (3,60,000 + 60,000) 4,20,000
4,20,000
(3) Trade Payables
Creditors (40,000 + 90,000) 1,30,0000
1,30,000
(4) Tangible Assets
Fixed Assets (1,20,000 + 1,80,000) 3,00,000
3,00,000
Answer 12
In the books of White Ltd. & Blue Ltd.
 Valuation of Goodwill
Particulars White Ltd. Blue Ltd.
Average Profits (Trading profits) 1,94,200 1,08,000
(-) Standard profits (1,10,000) (58,000)
84,200 50,000
(×)
No. of years of purchase 2 2
Goodwill 1,68,400 1,00,000
Working Note:
1. Average Profit (Trading)
Average Profit 1,94,200 1,25,000
(-) Income from Investments (Non - operating) - (17,000)
Average Profit 1,94,200 1,08,000
2. Standard Profit (Trading)

Net Trading Assets (Capital employed)
Total of Assets 13,15,800 8,06,800
(-) Investment - (1,00,000)
(-) Creditors (2,15,800) (1,26,800)
Capital employed 11,00,000 5,80,000
Standard Profit @ 10% 1,10,000 58,000
: 26 :
 Calculation of Purchase Consideration (Net Asset Method)

Goodwill 1,68,400 1,00,000
Freehold Property 4,48,000 1,44,000
Machinery 3,05,700 1,72,950
Investments - 1,00,000
Stock (1,10,000 – 10%, 89,500 – 10%) 99,000 80,550
Debtors (89,000 – 11,125, 64,000 – 8,000) 77,875 56,000
Bank 4,36,800 2,53,300
15,35,775 9,06,800
Creditors (2,15,800) (1,26,800)
 Discharge of Purchase Consideration:

Equity shares in New company:
1,31,997 shares @ 10 13,19,970 -
78,000 shares @ 10 - 7,80,000
Cash for fraction 5 -
13,19,975 7,80,000
Balance Sheet of New Co.

Particulars Note No. Amt. (`)
(b) Reserve and Surplus –
(2) Non-Current Liabilities Nil
Total 24,42,570
II. ASSETS:
(a) Property, Plant & Equipments:
(ii) Intangible Assets (Goodwill) 2,68,400
(a) Non - current Investment 1,00,000
(2) Current Assets:
(a) Inventory (99,000 + 80,550) 1,79,550
(b) Trade Receivable (77,875 + 56,000) 1,33,875
(c) Cash & Cash equivalent 6,90,095
(9,36,800 + 2,53,300 – 5)
Total 24,42,570
: 27 :
Notes to Accounts:
(1) Share Capital
Authorised Share Capital ??
2,09,997 equity shares of ` 10 each 20,99,970
(Of the above all shares are issued for
20,99,970
(2) Trade Payables
Creditors (2,15,800 + 1,26,800) 3,42,600
3,42,600
(3) Tangible Assets
Property (4,48,000 + 1,44,000) 5,92,000
Machinery (3,05,700 + 1,72,950) 4,78,650
1,00,000
10,70,650
Answer 13
Calculation of Purchase Consideration (Net Payment Method):
Particulars Star Ltd. Moon Ltd.
1) Equity shares
13,750 shares @ ` 5 68,750 -
16,250 shares @ ` 5 - 81,250
2) 15% Debentures 1,10,000 98,000
 Equity Shares:
Average Net Profit 1,37,500 1,62,500
(Ratio of shares) 13,750 16,250
shares shares
 15% Debentures:
Capital Employed
Fixed Assets 3,55,000 1,95,000
5,04,750 2,73,875
(-) Liabilities
Current liabilities (2,98,500) (90,125)
Capital Employed 2,06,250 1,83,750
8% of Capital Employed 16,500 14,700
Above figures should be equivalent interest earned by
debenture holders.
 15% Debentures (8% of Capital Employed ÷ 15) 1,10,000 98,000
: 28 :
Answer 14
 Calculation of Purchase Consideration - Net Payment Method (in lakhs):
Particulars Amt. (`)
1) For Equity share holders
Equity shares in P Ltd.
Old New
-
2 3
600 ? = 900 shares × 10 each 9,000
Purchase Consideration 9,000

Journal Entries
Sr. L. Debit Credit
1. Business Purchase A/c Dr. 9,000
To Liquidators of V Ltd. A/c 9,000
2. Plant & Machinery A/c Dr. 5,000
Stock A/c Dr. 4,041
Cash / Bank A/c Dr. 609
Bills Receivable A/c Dr. 80
Cost of issue of debenture A/c Dr. 50
To Foreign Project Reserve A/c 310
To General Reserve A/c 200
To Profit & Loss A/c 825
To 12% Debentures A/c 1,000
To Creditors A/c 463
To Provisions A/c 702
To Business Purchase 9,000
3. Liquidators of V Ltd. A/c Dr. 9,000
To Equity Share Capital A/c 9,000
4. Bills Payable A/c Dr. 80
To Bills Receivable 80
5. 12% Debentures A/c Dr. 1,000
To 13% Debentures A/c 1,000
6. General Reserve A/c Dr. 1
To Cash / Bank A/c 1
7. General Reserve A/c Dr. 2
To Stock A/c 2
: 29 :
Answer 15
In the books of M Ltd. & N Ltd.
 Calculation of Purchase Consideration - Net Payment Method (in lakhs):
Particulars M Ltd. N Ltd.
1) 12% Preference shares in MN Ltd. 1,200 -
(120 lakh shares @ 10 each)
2) Equity shares in MN Ltd.
(720 lakh shares @ 10 each) 7,200 -
(90 lakh shares @ 10 each) - 900
Purchase Consideration 8,400 900
Working Notes:
(1) Cash / Bank MN Ltd.
Takeover from M LTd. & N Ltd. 1,782
(-) Expenses of liquidation (6)
(-) Preliminary expenses (15)
Balance (B/S) 1,761
(2) Free Reserves
Profit & Loss A/c 780
2,880
(-) Deficiency (3,600)
(-) Expenses of liquidation (6)
(-) Preliminary expenses (48)
Profit & Loss (Dr,) (774)
In the books of MN Ltd.

Journal Entries (` in Lakh)
Sr. L. Debit Credit
No. Particulars F.
1. Business Purchase A/c Dr. 9,300
To Liquidators of M Ltd. A/c 8,400
To Liquidators of N Ltd. A/c 900
2. Machinery A/c Dr. 4,683
Motor Vehicles A/c Dr. 51
Stock A/c Dr. 2,814
Cash at Bank A/c Dr. 1,782
Preliminary expenses A/c Dr. 33
Discount on issue of debenture A/c Dr. 6
: 30 :
Profit & Loss A/c Dr. 720

To Capital Reserve A/c 600
To 8% Debentures A/c 300
To Creditors A/c 2,790
To Provisions A/c 963
To Business Purchase A/c 9,300
3. Liquidators of M Ltd. A/c Dr. 8,400
Liquidators of N Ltd. A/c Dr. 900
To Equity Share Capital 8,100
To 11% Preference share capital 1,200
4. Profit & Loss A/c Dr. 6
To Cash A/c 6
5. 8% debentures A/c Dr. 300
To 8.5% Redeemable debentures A/c 300
6. Preliminary expenses A/c Dr. 15
To Cash / Bank A/c 15
7. Profit & Loss A/c Dr. 48
To Preliminary expenses A/c 48
(33 + 15) [AS 14, 26]
Notes to Accounts:
(1) Share Capital
Authorised Share Capital
1,500 lakhs shares @ ` 10 each 15,000

120 lakhs 12% preference shares @ ` 10 each 1,200
810 lakhs equity shares @ ` 10 each 8,100
(Of the above all the shares are issued for
9,300
(2) Reserve & Surplus
Capital Reserve 600
(-) Profit & Loss A/c (Dr.) (774)
(174)
(3) Tangible assets
Machinery 4,683
Furniture 2,583
Motor vehicles 51
7,317
: 31 :
Balance Sheet of MN Ltd. (in Lakhs)

Note No. Amt. (`)
(a) Share Capital 1 9,300
(b) Reserve and Surplus 2 (174)
(2) Non-Current Liabilities:
(a) Long term Borrowings (8.5% debentures) 300
(a) Trade Payables 2,790
(b) Short term Provisions 963
Total 13,179
II. ASSETS:
(a) Property, Plant & Equipment’s 3
Tangible Assets 7,317
(2) Current Assets:
(a) Inventory 2,814
(b) Trade Receivable 1,281
(c) Cash & Cash equivalent 1,761
(d) Other current assets (Discount on issue of 6
debenture)
Total 13,179
: 32 :
AMALGAMATION, ABSORPTION AND EXTERNAL RECONSTRUCTION
HOMEWORK SECTION
Answer 16
Calculation of purchase consideration:
For Preference share holder
Issue Held
3 4
? 2,000
1,500 x 100 = 1,50,000
For Equity share holder

Issue Held
6 5
? 5,000
6,000 x 125 7,50,000
Cash 5,000 × 20 1,00,000
10,00,000
Answer 17
Calculation of equity shares issued to Neel Ltd. & Gagan Ltd.:
Profits Neel Gagan
1 Year 2,62,800 2,75,125
2 Year 2,12,200 2,49,875
Total 4,75,000 5,25,000
Ratio 475 : 525
475
Neel = 24,000 × = 11,400 equity shares
1,000
525
Gagan = 24,000 × = 12,600 equity shares
1,000
:1:
Calculation of 12% preference shares issued to Neel Ltd. & Gagan Ltd.:
Neel Gagan
Net asset 8,40,000 9,24,000
8% Return on net asset 67,200 73,920
12% Preference share to issued:

100 1
Neel = 67,200 × × = 56,000 shares
12 10
100 1
Gagan = 73,920 × × = 61,600 shares
12 10
Calculation of P.C.:
Payment to Payment in `
Neel Equity Shares (11,400 X 25) 2,85,000
12% Preference Shares 5,60,000
8,45,000
Gagan Equity Shares (12,600 X 25) 3,15,000
12% Preference Shares 6,16,000
9,31,000
Calculation of Net Assets:

Neel Gagan
Building 7,75,000 6,48,000
(-) Current liabilities (6,23,500) (5,57,600)
8,40,000 9,24,000
:2:
Answer 18
Amalgamation in the Nature of Merger
In the books of X Ltd.
Journal Entries
L. Debit Credit
To Liquidators of Y Ltd. A/c 53,70,000
(Being business purchased from Y Ltd.)

Furniture & Fixture A/c Dr. 3,50,000
Cash & Bank A/c Dr. 5,20,000
General Reserve (X Ltd) A/c Dr. 4,20,000
To Export Profit Reserve A/c 2,00,000
To Investment Allowance Reserve A/c 1,00,000
To Profit & Loss A/c 5,00,000
To Trade Payables A/c 3,50,000
To Other Current Liabilities A/c 1,50,000
To Business purchase A/c 53,70,000
(Being assets and liabilities taken over from)
Y Ltd.
2 Liquidators of Y Ltd. A/c Dr. 53,70,000

:3:
3 13% Debentures of Y Ltd. A/c Dr. 3,50,000

(Being debenture of Y Ltd. settled)
Balance sheet of X Ltd. for the year ending as 31.03.2011 (After Merger)
Particulars Notes `
No.
(a) Share Capital 1 1,25,70,000
(a) Long term liabilities 3 8,50,000
(a) Trade Payables (4,50,000 + 3,50,000) 8,00,000
(b) Other Current Liability (2,00,000 + 1,50,000) 3,50,000
Total 1,65,00,000
II. ASSETS
(b) Non current investments (7,00,000 + 5,00,000) 12,00,000
(2) Current Assets
(a) Inventory (12,50,000 + 9,50,000) 22,00,000
(b) Trade Receivable (9,00,000 + 10,30,000) 19,30,000
(c) Cash & Cash Equivalents (7,25,000 + 12,45,000
5,20,000)
Total 1,65,00,000
Notes to Accounts:
(1) Share Capital
Issued, Subscribed, Called up and Paid up Capital
18,700 15% pref. shares of ` 100 each fully paid up 18,70,000
(Out of above 3,50,000 equity shares & all the 15% pref. shares
:4:
were issued for consideration other than cash)

1,25,70,000
General Reserve (5,00,000 – 4,20,000) 80,000
Export Profit Reserve (3,00,000 + 2,00,000) 5,00,000
Investment Allowance Reserve 1,00,000
Profit / Loss A/c (7,50,000 + 5,00,000) 12,50,000
19,30,000
(3) Long term borrowings
8,500, 13% Debentures 8,50,000
(4) Tangible Assets

Land & Building (25,00,000 + 1,55,000) 40,50,000
Plant & Machinery (32,50,000 + 17,00,000) 49,50,000
Furniture & Fixture (575,000 + 3,50,000) 9,25,000
99,25,000
Working Note
1. Loss on Merger
PC 53,70,000
(-) Paid-up share capital of Y Ltd. (47,00,000)
(30,00,000 + 17,00,000)
Loss on Merger 6,70,000
General reserve of Y Ltd General reserve of X Ltd

2,50,000 4,20,000
Debited in 2nd Entry
:5:
Amalgamation in the Nature of Purchase

Journal Entries
L. Debit Credit
To Liquidators of Y Ltd. A/c 53,70,000
(Being business purchased from Y Ltd.)
2 Land & Building A/c Dr. 15,50,000

Furniture & Fixture A/c Dr. 3,50,000
To Capital Reserve A/c (Bal. Fig.) 3,80,000
To 13% Debentures of Y Ltd. A/c 3,50,000
To Other Current Liabilities A/c 1,50,000
To Business Purchases A/c 53,70,000
3 Liquidators of Y Ltd. A/c Dr. 53,70,000
4 13% Debentures of Y Ltd. A/c Dr. 3,50,000
(Being debenture of Y Ltd. settled)
5 Amalgamation Adjustment Reserve A/c Dr. 3,00,000

To Investment Allowance Reserve A/c 1,00,000
(Being statutory reserve of Y Ltd. taken over
& carried forward)
:6:
Balance sheet of X Ltd. for the year ending as 31.03.2011 (After Absorption)
Particulars Notes `
No.
(a) Share Capital 1 1,25,70,000
(a) Long term liabilities 3 8,50,000
(a) Trade Payables (4,50,000 + 3,50,000) 8,00,000
(b) Other Current Liability (2,00,000 + 1,50,000) 3,50,000
Total 1,65,00,000
II. ASSETS
(b) Non current investments (7,00,000 + 5,00,000) 12,00,000
(2) Current Assets
(a) Inventory (12,50,000 + 9,50,000) 22,00,000
(b) Trade Receivable (9,00,000 + 10,30,000) 19,30,000
(c) Cash & Cash Equivalents (7,25,000 + 12,45,000
5,20,000)
Total 1,65,00,000
Notes to Accounts:
(1) Share Capital
Issued, Subscribed, Called up and Paid up Capital
18,700 15% pref. shares of ` 100 each fully paid up 18,70,000
(Out of above 3,50,000 equity shares & all the 15% pref. shares
were issued for consideration other than cash)
1,25,70,000
:7:
Amalgamation Adjustment Reserve (3,00,000)

Export Profit Reserve (3,00,000 + 2,00,000) 5,00,000
Investment Allowance Reserve 1,00,000
Profit / Loss A/c 7,50,000
Capital Reserve A/c 3,80,000
19,30,000
(3) Long term borrowings
8,500, 13% Debentures 8,50,000
(4) Tangible Assets
Land & Building (25,00,000 + 1,55,000) 40,50,000
Plant & Machinery (32,50,000 + 17,00,000) 49,50,000
Furniture & Fixture (575,000 + 3,50,000) 9,25,000
99,25,000
Payment to Payment in Calculation `

Equity shareholder Equity Shares 3,50,000 × ` 10 35,00,000
Preference shareholder 15% Preference  18,700 × ` 100 18,70,000
Shares (17,00,000 + 10%
= 18,70,000 )
P.C. 53,70,000
Answer 19
In the books of Srishti Ltd.
Goodwill 5,00,000 9% Debentures 5,00,000
Fixed Assets 30,00,000 Trade Creditors 1,00,000
Stock 10,40,000 By Anu Ltd. A/c 75,00,000
Debtors 1,80,000 (P.C)
Cash & Bank 2,55,000 50,00,000 By Cash A/c 50,000
To Cash (Real Exp.) (Re-imbursement of
75,000
Expenses)
To Shareholders A/c 31,00,000
81,50,000 81,50,000
:8:
Dr. Anu Ltd. Account Cr.

To Realisation A/c (P.C.) 75,00,000 By Equity shares in Anu Ltd. 67,50,000
By Cash 7,50,000
75,00,000 75,00,000

To Preliminary expenses 50,000 By Equity Share Capital A/c 30,00,000
To Equity shares of By Export Profit Reserve A/c 8,50,000
Anu Ltd. A/c 67,50,000 By General Reserve A/c 50,000
To Cash / Bank 7,50,000 By Profit / Loss A/c 5,50,000
By Realisation A/c 31,00,000
75,50,000 75,50,000
Dr. 9% Debentures Account Cr.

To Realisation A/c 5,00,000 By Balance b/d 5,00,000
5,00,000 5,00,000
Payment to Payment in Calculation `
Equity shareholder Equity Shares 4,50,000 × ` 15 67,50,000
Equity shareholder Cash 3,00,000 × ` 2.50 7,50,000
P.C. 75,00,000
:9:
In the books of Anu Ltd.

Journal Entries
L. Debit Credit
To Liquidators of Srishti Ltd. A/c 75,00,000
(Being business purchased from Srishti Ltd.)
2 Tangible Fixed Assets A/c Dr. 60,00,000

Goodwill A/c (Bal Fig.) Dr. 10,64,000
To 9% Debentures A/c (5,00,000 + 20%) 6,00,000
To Trade Creditors A/c 1,00,000
To Provision for doubtful debt A/c 9,000
To Business Purchases A/c 75,00,000
3 Liquidators of Srishti Ltd. A/c Dr. 75,00,000

To Equity Share Capital A/c (4,50,000 × 10) 45,00,000
To Cash A/c 7,50,000
To Securities Premium A/c 22,50,000
4 9% Debentures A/c Dr. 6,00,000
Discount on issue of Debentures A/c Dr. 25,000
To 8% Debentures on Anu Ltd. A/c 6,25,000
(Being 9% debentures settled)
5 Goodwill A/c Dr. 50,000

To Cash & Bank A/c 50,000
(Being amount paid for Liquidators expenses
: 10 :
of Shrishti)
6 Amalgamation Adjustment Reserve A/c Dr. 8,50,000
(Being statutory reserve carried forward)
Answer 20
In the books of _________
Land & Building 7,64,000 Bills Payables 40,000
Inventory 7,75,000 Creditors 2,26,000
Bills Receivable 30,000 Provision for tax 2,20,000 4,86,000
Debtors 1,60,000 17,29,000 By R.D.D. 8,000
To Bank A/c: By Jupiter Ltd. A/c 18,80,000
Liquidation Exp. 8,000 (P.C)
Bills Payable 38,000 By Bank A/c
Income tax 2,22,000 2,68,000 Trade receivable 1,50,000
To Bank A/c (T/P) 2,11,000
To Equity
Shareholders 3,16,000
25,24,000 25,24,000

To Equity Share in Jupiter
14,70,000 By Equity Share Capital A/c 10,00,000
Ltd. A/c
To 10% Preference Share in
4,10,000 By Capital Reserve A/c 42,000
Jupiter Ltd. A/c
By Contingency Reserve A/c 2,70,000
By Profit / Loss A/c 2,52,000
By Realisation A/c (Profit) 3,16,000
18,80,000 18,80,000
Dr. Bank Account Cr.
To Balance b/d 3,29,000 By Realisation A/c 2,68,000
To Realisation A/c 1,50,000 By Realisation A/c (T/P) 2,11,000
(Bal. Fig.)
4,79,000 4,79,000
: 11 :
Dr. Jupiter Ltd. Account Cr.

To Realisation A/c By 10% Preference Share in
18,80,000 9,10,000
Jupiter Ltd. A/c
By Equity Share in Jupiter
14,70,000
Ltd. A/c A/c
18,80,000 18,80,000
Calculation of No. of Preference & Equity share in Jupiter Ltd.:

Land & Building 10,80,000
Inventory 7,70,000
 Total Purchase Consideration 18,80,000
(-) 10% Preference Share Capital (4,100 sh × ` 100) (4,10,000)
 Purchase Consideration for equity shareholder in equity share 14,70,000
Number of shares for equity shareholders of ` 10 each, 8 paid up
 14,70,000  1,83,750
 
 8 
: 12 :
AMALGAMTION, ABSORPTION PAST EXAMINATION QUESTIONS
PAST PAPER SECTION
Answer 22
(i) Purchase Consideration
Assets :
Goodwill 1,40,000 40,000
Freehold Property 3,00,000 2,40,000
P&M 1,00,000 40,000
Motor Vehicles 30,000 20,000
Inventory 2,30,000 1,80,000
Trade Receivables 2,00,000 80,000
Cash at Bank 80,000 40,000
10,80,000 6,40,000
(-) Liabilities :
6% Debentures (1,20,000 x 105%) ---- (1,26,000)
Trade Payables (2,10,000) (1,30,000)
Net Assets = Purchase consideration 8,70,000 3,84,000
Issue of shares of AB Ltd. @ ` 10 each 87,000 38,400
Balance sheet AB Ltd. As at 1.4.2014

Particulars Note C.Y. P.Y.
I EQUITY AND LIABILITIES
1. Shareholder’s Funds
2. Non – Current Liabilities
(a) Long – term Borrowings 2 1,26,000
(a) Trade Payables (2,10,000+1,30,000) 3,40,000
TOTAL 17,20,000
II ASSETS
1. Non – Current Assets
(a) Property Plant & Equipment
:1:

(ii) Intangible Assets 4 1,80,000
2. Current Assets
(a) Inventories (1,30,00,000 + 1,80,000) 4,10,000
(b) Trade Receivables (2,00,000 + 80,000) 2,80,000
(c) Cash & cash equivalent (80,000 + 1,20,000
40,000)
TOTAL 17,20,000
Notes to Accounts
1 Share Capital ` `
Authorised ?
Issued, subscribed & paid up
1,25,400 Equity shares of `10 each (All the
above shares issued for consideration other
than cash) 12,54,000
12,54,000
2 Long – term Borrowings
Secured
1,26,000
3 Tangible Assets
Freehold Property
A Ltd. 3,00,000
B Ltd. 2,40,000 5,40,000
P&M
A Ltd. 1,00,000
B Ltd. 40,000 1,40,000
Motor Vehicles
A Ltd. 30,000
B Ltd. 20,000 50,000
7,30,000
4 Intangible Assets
Goodwill
A Ltd. 1,40,000
B Ltd. 40,000 1,80,000
:2:
In the books of AB Ltd.

JOURNAL ENTRIES
Date Particulars L/F Dr. (`) Cr. (`)
To Liquidator of A Ltd. 8,70,000
To Liquidator of B Ltd 3,84,000
(Being the amount of Profit / Loss payable)
2 Goodwill Dr. 1,40,000
Freehold Property Dr. 3,00,000
P&M Dr. 1,00,000
Motor Vehicles Dr. 30,000
Trade Receivables Dr. 2,00,000
Inventory Dr. 2,30,000
Cash at Bank Dr. 80,000
To Trade Payables 2,10,000
(Being Assets & Liabilities of A Ltd. T/O)
3 Goodwill Dr. 40,000
Freehold Property Dr. 2,40,000
P&M Dr. 40,000
Motor Vehicles Dr. 20,000
Trade Receivables Dr. 80,000
To 6% Debentures of B Ltd. 1,26,000
(Being Assets & Liabilities of B Ltd. T/O)
4 6% Debentures of B Ltd. Dr. 1,26,000
To 6% Debentures 1,26,000
(Being issue of 6% Debentures to Debenture
holders of B Ltd.)
5 Liquidator of A Ltd. Dr. 8,70,000
Liquidator of B Ltd. Dr. 3,84,000
(Being the purchase consideration discharged)
:3:
Answer 23
Following are the conditions to be satisfied for amalgamation in the nature of merger as
per AS – 14:
(i) All the assets & liabilities of the transferor company became, after
amalgamation, the assets & liabilities of the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares of
the transferor company (other than the equity shares already held therein,
immediately before the amalgamation, by the transferee company or it is
subsidiaries or their nominees) become equity shareholders of the transferee
company by virtue of the amalgamation.
(iii)The consideration for the amalgamation receivable by those equity
shareholders of the transferor company who agree to become equity
shareholders of the transferee company is discharged by the transferee
company wholly by the issue of equity shares in the transferee company, except
that cash may be paid in respect of any fractional shares.
(iv) The business of the transferor company is intended to be carried on after the
amalgamation by the transferee company.
(v) No adjustment i.e. intended to be made to the book values of the assets &
liabilities of the transferor company when they are incorporated in the financial
statements of the transferee company except to ensure uniformity of accounting
policies. For example, if transferor company is following straight line method of
depreciation and transferee company is following written down value method of
depreciation the book value of the assets of the transferor company will be
revised by applying the written down method of depreciation.
Answer 24
Balance sheet AB Ltd. As at 1.4.2014
(b) Reserves & Surplus 2 6,17,100
(a) Other Current Liabilities 38,900
TOTAL 37,36,000
II ASSETS
Tangible Assets 3 23,09,000
:4:
Intangible Assets 4 1,12,000

(b) Non – Current Investments 1,55,000
2. Current Assets
(a) Inventories (3,58,000 + 2,40,000) 5,98,000
(b) Trade Receivables (72,000 + 70,000) 1,42,000
(c) Cash & Cash Equivalent 4,20,000
TOTAL 37,36,000
Notes to Accounts C.Y. P.Y.

1 Share Capital
Authorised
60,000 8% Cumulative Preference Shares of `10 6,00,000
each
36,00,000
(Out of the above shares 2,18,000 shares have
been issued for consideration other than cash)
60,000 8% cumulative preference shares of `10
each 6,00,000
30,80,000
2 Reserves & Surplus
Profit & Loss A/c (38,900 + 24,000) (62,900)
Securities Premium
(2,48,000 equity shares x 2.50) + (60,000
preference shares x 1) = 6,20,000 + 60,000 6,80,000
6,17,100
3 Tangible Assets
Building 5,40,000
Motor Car 1,26,000
P&M 15,10,000
Furniture 1,33,000
23,09,000
4 Intangible Assets
Goodwill (WN 4) 12,000
Patents 1,00,000
1,12,000
:5:
WN 1: Purchase Consideration
A Ltd. B Ltd.
Cash Payment 5,75,000 16,000
Equity shares
(1,18,000 shares x ` 12.5) 22,50,000 ----
(38,000 shares x ` 12.5) ---- 4,75,000
Total purchase consideration 28,25,000 4,91,000
WN 2: Cash & Bank A/c

To Issue of Preference shares 6,60,000 By Payment to A Ltd. 5,75,000
(60,000 x 11)
To Equity shares
3,75,000 By Payment to B Ltd. 16,000
(30,000 x 12.50)
By Preliminary Expenses 24,000
By Balance c/d 4,20,000
10,35,000 10,35,000
WN 3: Calculation of Goodwill / Capital Reserve of A Ltd. & B Ltd.

Business Purchase (PC) 28,25,000 4,91,000
(-) : Goodwill ---- (62,000)
Patent (1,00,000) ----
Building (5,40,000) ----
P&M (15,10,000) ----
Motor Car ---- (1,26,000)
Furniture (75,000) (58,000)
Investment (1,55,000) ----
Stocks (3,58,000) (2,40,000)
Debtors (72,000) (70,000)
Goodwill / Capital Reserve 15,000 (65,000)
Net Goodwill = 15,000 + 62,000 – 65,000

= 12,000
:6:
Answer 25
(i) Calculation of No. of shares issued to P Ltd. & Q Ltd.
Amount of share capital as per Balance sheet `
P Ltd. 6,00,000
Q Ltd. 8,40,000
14,40,000
Total No. of Equity shares (14,40,000 ÷ 10)
14,40,00
3:2
P Ltd. Q Ltd.
86,400 57,600
Issue price per share =
= ` 25
FV SP
10 15
In the books of PQ Ltd.

JOURNAL ENTRIES
Date Particulars L/F Debit Credit
To Liquidator of P Ltd. 21,60,000
To Liquidator of Q Ltd. 14,40,000
(Being purchase consideration payable)
Fixed Assets Dr. 7,20,000
Trade Receivable Dr. 4,80,000
Cash at Bank Dr. 3,00,000
:7:

(Being Assets & Liabilities of P Ltd. T/O)
3 Fixed Assets A/c Dr. 10,80,000
Trade Receivable Dr. 7,80,000
To Bank Overdraft 5,40,000
To Business Purchase 14,40,000
(Being Assets & Liabilities of Q Ltd. T/O)
4 Liquidator of P Ltd. Dr. 21,60,000
To Equity Share Capital (86,400 × 10) 8,64,000
To Securities Premium (86,400 × 15) 12,96,000
(Being purchase consideration discharged)
5 Liquidator of Q Ltd. Dr. 14,40,000
To Equity Share Capital (57,600 × 10) 5,76,000
6 Bank A/c (72,000 × 25) Dr. 18,00,000
To Equity Share Capital A/c (72,000 × 10) 7,20,000
(Being Equity Share Capital issued)
Balance sheet PQ Ltd. as at 31.03.2017 after Amalgamation

(a) Trade Payables (2,40,000+5,40,000) 7,80,000
TOTAL 61,80,000
II ASSETS
Tangible Assets (7,20,000+10,80,000) 18,00,000
Intangible Assets 3 5,40,000
2. Current Assets
(a) Inventories (3,60,000 + 6,60,000) 10,20,000
:8:
(b) Trade Receivables (4,80,000+ 7,80,000) 12,60,000

(c) Cash & Cash Equivalent 4 15,60,000
TOTAL 61,80,000

1 Share Capital
Authorised
2,16,000 Equity Shares of `10 each 21,60,000
21,60,000
(Of the above 1,44,000 equity share are issued for consideration other
than cash.
Securities Premium 32,40,000
(2,16,000 shares @ ` 15)
32,40,000
3 Intangible Assets
Goodwill 5,40,000
5,40,000
4 Cash & Cash Equivalents
Cash at Bank
P Ltd. Balance 3,00,000
(+) Cash received from fresh issue 18,00,000
(72,000 x 25)
21,00,000
(-) Overdraft of Q Ltd. (5,40,000) 15,60,000
15,60,000
WN 1 : Calculation of Goodwill
= (3,00,000 x 1) + (5,25,000 x 2) + (6,30,000 x 3)
1+2+3
= 32,40,000
6
Goodwill = 5,40,000
:9:
WN 2: Net Assets
Particulars P Ltd. Q Ltd.
Assets :
Goodwill 5,40,000 ----
Fixed Assets 7,20,000 10,80,000
Inventory 3,60,000 6,60,000
Trade Receivable 4,80,000 7,80,000
Cash at Bank 3,00,000 ----
(-) : Liabilities
Bank Overdraft ---- (5,40,000)
Trade Payable (2,40,000) (5,40,000)
Net Assets / Purchase consideration 21,60,000 14,40,000
Ratio of Net assets 216 : 144 = 3 : 2
WN 3: New Authorised Capital
= ` 14,40,000 + ` 12,00,000
= ` 26,40,000
Answer 26
Books of P Ltd.
Realisation A/c
To Goodwill 1,00,000 By 8% Debentures 2,00,000
To L & B 4,50,000 By Creditors 88,000
To P & M 6,20,000 By PQ Ltd. 16,02,100
To Furniture & Fitting 1,00,000 By Equity Shareholders 1,37,900
To Debtors 3,25,000
To Inventory 2,33,000
To Cash at Bank 1,08,000
To Cash in Hand 54,000
To Preference Shareholders 38,000
20,28,000 20,28,000
: 10 :
Equity Shareholders A/c

To Realisation A/c 1,37,900 By Equity Share Capital 8,20,000
To Equity Shares in PQ Ltd. 10,82,400 By P & L 3,52,000
To Cash 1,01,700 By General Reserve 1,50,000
13,22,000 13,22,000
9% Preference Shareholders A/c

To Preference Shares in PQ Ltd. 4,18,000 BY Preference Shares Capital 3,80,000
By Realisation A/c (Bal.fig.) 38,000
4,18,000 4,18,000
PQ Ltd. A/c
To Realisation A/c 16,02,100 By Equity Shares in PQ LTD. 10,82,400
By Preference Shares in PQ LTD. 4,18,000
By Cash 1,01,700
16,02,100 16,02,100
Books of Q Ltd.
Realisation A/c
To Goodwill 80,000 By 8% Debentures 1,00,000
To L & :B 3,40,000 By Creditors 1,60,000
To P & M 4,50,000 By Unsecured Loan 1,75,000
To Furniture & Fittings 50,000 By PQ Ltd. (P.C.) 7,92,250
To Debtors 1,50,000 By Equity Shareholders A/c 90,750
To Stock 1,05,000
To Cash at Bank 95,000
To Cash in Hand 20,000
13,18,000 13,18,000
: 11 :

To Equity Shares in PQ Ltd, 4,22,400 By Equity Share Capital 3,20,000
To Realisation 90,750 By P & L 2,05,000
To Cash 61,850 By General Reserve 50,000
5,75,000 5,75,000
9% Preference Shareholders A/c

To Preference Shares in PQ Ltd. 3,08,000 By Preference Share Capital 2,80,000
By Realisation A/c (Bal. fig.) 28,000
3,08,000 3,08,000
PQ Ltd. A/c
To Realisation A/c 7,92,250 By Equity Shares in PQ LTD. 4,22,400
By Preference Shares in PQ LTD. 3,08,000
By Cash 61,850
7,92,250 7,92,250
WN 1: Purchase Consideration
Preference Shares @ ` 22 4,18,000 3,08,000
Equity Shares @ ` 22 10,82,400 4,22,400
Cash (WN) 1,01,700 61,850
16,02,100 7,92,250
WN 2: Net Assets
Goodwill 1,00,000 80,000
L&B 4,50,000 3,40,000
P & M (Book value – 10%) 5,58,000 4,05,000
Furniture & Fittings (Book value – 10%) 90,000 45,000
Trade Receivables – 5% 3,08,750 1,42,500
Inventory – 5% 2,21,350 99,750
Cash at Bank 1,08,000 95,000
: 12 :
Cash in Hand 54,000 20,000

18,90,100 12,27,250
(-) : Debentures (2,00,000) (1,00,000)
Trade Payables (88,000) (1,60,000)
Secured Loans ---- (1,75,000)
16,02,100 7,92,250
(-) : Payable in Shares (15,00,400) (7,30,400)
Payable in Cash 1,01,700 61,850
Answer 27
Amount of debentures & shares to be issued:
Particulars Sun Neptune
(i) Average Net Profit 2,75,000 3,25,000
(4,49,576 – 2,500 + 3,44,924) (2,73,900 + 3,42,100 + 3,59,000)
3 3
Ratio of average net 11 13
profit
(ii) Equity Shares Issued -----
60,000 x 11 / 24 27,500
60,000 x 13/24 ---- 32,500
Amount
27,500 x ` 5 1,37,500 ----
32,500 x ` 5 ---- 1,62,500
(iii) Capital Employed
FA + CA – CL
(7,10,000 + 2,99,500 – 4,12,500 ----
5,97,000)
(3,90,000 + 1,57,750 – ---- 3,67,500
1,80,250)
(iv) Debenture Issued
8% Return on Capital 33,000 29,400
Employed.
15% Debenture to be
issued to provide
equivalent income.
33,000 × 2,20,000 -----
29,400 × ---- 1,96,000
: 13 :
Balance sheet of Jupiter Ltd. as at 31.3.18

(After Amalgamation)
(b) Reserves & Surplus 2 64,000
3. Current Liabilities (7,77,250 – 43,350) 7,33,900
TOTAL 15,13,900
II ASSETS
(i) Tangible Assets 11,00,000
2. Current Assets (4,57,250 – 43,350) 4,13,900
TOTAL 15,13,900

1 Share Capital
Authorised
60,000 Equity Shares of ` 5 each 3,00,000
(All the above shares issued other than cash
consideration) 3,00,000
Capital Reserve (WN) 64,000
64,000
4,16000
: 14 :
WN 1 : Goodwill / Capital Reserve `

Fixed Assets (7,10,000 + 3,90,000) 11,00,000
Current Assets (2,99,500 + 1,57,750) 4,57,250
15,57,250
(-) Current Liabilities (5,97,000 + 1,80,250) (7,77,250)
Net Assets 7,80,000
Less Net Payment (PC)
Equity Share (60,000 × 5) 3,00,000
15% Debenture (2,20,000 + 1,96,000) 4,16,000 (7,16,000)
Capital Reserve 64,000
Answer 28
Calculation of Purchase Consideration
P Ltd. Q Ltd.
Assets
Goodwill 50,000 1,50,000
Building 1,00,000 1,90,000
P&M 25,000 80,000
Furniture & Fixtures ---- 35,000
Inventories 1,35,000 50,000
Debtors ---- 1,42,000
Cash at Bank ---- 58,000
3,10,000 7,05,000
(-) Liabilities
8% Debentures (1,10,000 + 10%) (1,21,000) ----
Trade Payables ---- (1,40,000)
Net Assets 1,89,000 5,65,000
Shares of PQ Ltd. of `10 each 18,900 56,500
: 15 :
Balance sheet of PQ Ltd. as at 1.4.2014

(b) Reserves & Surplus 2 11,000
(b) Trade Payables 1,40,000
TOTAL 10,15,000
II ASSETS
2. Current Assets
(b) Trade Receivables 1,42,000
TOTAL 10,15,000

1 Share Capital
Authorised
75,400 Equity of ` 10 each fully paid 7,54,000
(All the above shares issued for consideration
other than cash) 7,54,000
Securities Premium (1,10,000 x 10%) 11,000
11,000
1,10,000
: 16 :
4 Tangible Assets
Building
P Ltd. 1,00,000
Q Ltd. 1,90,000 2,90,000
P&M
P Ltd. 25,000
Q Ltd. 80,000 1,05,000
Furniture & Fixture
Q Ltd. 35,000
4,30,000
5 Intangible Asset
Goodwill
P Ltd. 50,000
Q Ltd. 1,50,000 2,00,000
2,00,000

JOURNAL ENTRIES
Date Particulars L/F Debit Credit
1 Realisation A/c Dr. 3,04,000
To Building 1,00,000
To P & M 25,000
To Inventories 1,35,000
To Trade Receivables 44,000
(Being all assets transferred to Realisation
A/c except cash)
Trade Payables Dr. 54,000
(Being all liabilities transferred to
Realisation A/c)
3 Equity Share Capital A/c Dr. 1,40,000
P & L A/c Dr. 30,000
To Equity Shareholders A/c 1,70,000
(Being equity transferred to Equity
shareholders A/c)
4 PQ Ltd. Dr. 1,89,000
(Being purchase consideration due)
5 Bank A/c Dr. 44,000
: 17 :

(Being cash received from Debtors in full)
6 Realisation A/c Dr. 54,000
To Bank A/c 54,000
(Being payment made to creditors)
7 Equity Shares in PQ Ltd. Dr. 1,89,000
To PQ Ltd. 1,89,000
(Being P.C. received)
8 Realisation A/c Dr. 39,000
To Equity Shareholders A/c 39,000
(Being profit on realization transferred to
Equity Shareholders A/c)
9 Equity Shareholders A/c Dr. 2,09,000
To Equity Shares in PQ Ltd. 1,89,000
To Bank A/c 20,000
(Being final payment made to
shareholders)
Answer 29
Purchase Consideration
Abhay Ltd. Asha Ltd.
Goodwill 1,95,000 1,25,000
L&B 9,35,000 6,32,500
P&M 3,79,500 2,47,500
Inventory 4,62,000 2,64,000
Debtors – 10% RDD 2,74,500 2,56,500
Bank – Liquidation Expense 1,40,000 25,000
23,86,000 15,50,500
(-) Creditors (35,000 + 15,500)* (55,000) (50,500)*
12% Debentures ---- (2,75,000)
Shares @ ` 100 each 23,310 12,250
: 18 :
Balance sheet of Abhilasha Ltd. (After Amalgamation) as at 1.4.2014

(b) Reserves & Surplus
(a) Trade Payables 1,05,500
TOTAL 39,36,500
II ASSETS
2. Current Assets
(b) Trade Receivables 4 5,31,000
(c) Cash & Cash equivalent 5 1,65,000
TOTAL 39,36,500

1 Share Capital
Authorised ?
35,560 Equity shares of ` 100 each 35,56,000
2,750, 12% Preference shares @ ` 100 each 2,75,000
(The above shares have been issued for
consideration other than cash) 38 ,31,000
2 Tangible Assets
L & B (9,35,000 + 6,32,500) 15,67,500
P & M (3,79,500 + 2,47,500) 6,27,000
21,94,500
3 Intangible Assets
Goodwill (1,95,000 + 1,25,000) 3,20,000
: 19 :
4 Trade Receivables (3,05,000 + 2,85,000) 5,90,000

(- )10% RDD (59,000)
5,31,000
5 Cash & Cash equivalent 1,65,000
Note: 12 % Preference share are issued to debenture holders of Asha Ltd.
Answer 30
(i) Calculation of Purchase Consideration `
Cash Payment (` 15 x 1,50,000) 23,50,000
11% Preference shares of ` 10 each 10% Discount
8,10,000
[(1,50,000 x 3/5) x ` 9]
Equity shares of ` 10 each @ 20% premium
14,40,000
[(1,50,000 x 4/5) x ` 12]
45,00,000
Note: PC calculated as per information given in question. Now shares cannot
be issued at discount.
: 20 :
Answer 31
In the books of Y Ltd.
Realisation A/c
To Sundry Assets By Retirement Gratuity Fund 60,000
Goodwill 75,000 By Trade Payables 2,40,000
L&B 3,00,000 By X Ltd. (P.C.) 15,90,000
P&M 4,50,000
Inventory 5,25,000 -
Bank 60,000 17,10,000
To Preference Share holders 30,000
(Premium on Redemption)
To Equity Shareholders 1,50,000
(Profit)
18,90,000 18,90,000
JOURNAL ENTRIES
Date Particulars L/F Dr. (`) Cr. (`)
To Liquidator of Y Ltd. A/c 15,90,000
(Being business of Y Ltd. T/O)
2 Goodwill A/c Dr. 1,50,000
L & B A/c Dr. 5,00,000
P & M A/c Dr. 4,00,000
Bank A/c Dr. 60,000
Unrecorded Assets A/c Dr. 15,000
To Retirement Gratuity Fund A/c 60,000
To RDD A/c 7,500
(Being assets and liabilities T/O)
3 Liquidator of Y Ltd. A/c Dr. 15,90,000
To 9% Preference Share Capital 3,30,000
To Equity Share Capital 12,00,000
To Securities Premium 60,000
: 21 :
Balance sheet of X Ltd. (After Absorption) as at 31.03.2018

(a) Long – term Provisions 3 2,10,000
3 Current Liabilities
TOTAL 59,20,000
II ASSETS
(a) Property plant & Equipment
2. Current Assets
(a) Inventories 8 12,22,500
(b) Trade Receivables 9 8,72,500
(c) Cash & Cash equivalent 10 2,10,000
(d) Other Current Assets 11 15,000
TOTAL 59,20,000

1 Share Capital
Authorised ??
4,20,000 Equity shares of ` 10 each fully paid up 42,00,000
(Out of above 1,20,000 equity shares were issued
in consideration other than for cash)
6,300 9% Preference shares of 100 each 6,30,000
(Out of above 3,300 preference shares were
issued in consideration other than for cash)
48,30,000
2 Reserve & Surplus
2,70,000
: 22 :
3 Long – term Provisions

Retirement Gratuity Fund 2,10,000
4 Trade Receivables
(3,90,000 + 2,40,000 – 20,000) 6,10,000
5 Tangible Assets
L&B 14,00,000
P&M 19,00,000
33,00,000
6 Intangible Assets
Goodwill (1,50,000 + 1,50,000) 3,00,000
7 Inventories (7,50,000 + 4,72,500) 12,22,500
8 Trade Receivables (6,00,000+ 3,00,000 – 20,000) 8,80,000
(-) Provision for bad debts 7,500
8,72,500
9 Cash & Cash equivalent (1,50,000 + 60,000) 15,000
10 Other Current Assets 2,10,000
WN 1: Goodwill
Average Profit = 90,000 + (78,000 + 10,000) + (72,000 – 25,000)
3
= ` 75,000
Goodwill = ` 75,000 x 2 years
= ` 1,50,000
WN : 2 P.C. `
Goodwilll 1,50,000
L&B 5,00,000
P&M 4,00,000
Inventory 4,72,500
Unrecorded Assets 15,000
Cash at Bank 60,000
18,97,500
(-) : Retirement Gratuity (60,000)
Trade Payables (2,40,000)
RDD (7,500)
Purchase consideration 15,90,000
: 23 :
Discharge of PC
(a) For Preference shareholder
3,300, 9% preference share of X Ltd. Of ` 100 at 3,30,000
par (3,00,000 + 10%)
(b) Equity shareholder
1,20,000 equity share of ` 10 each at `10.5 12,60,000
15,90,000
Answer 32
Purchase consideration `
Cash payment (1,80,000 x 5) 9,00,000
Equity Shares (3,00,000 x 12) 36,00,000
45,00,000
In the books of Rashmi Ltd.

Realisation A/c
To Freehold Property 12,40,000 By Trade Payables 75,000
To P & M 5,60,000 By Nitin Ltd. (P.C.) 45,50,000
To Inventory 6,24,000 By Cash Bank 30,000
To Trade Receivable 1,08,000 (Re-imbursement of
exp.)
To Investment 1,60,000
To C & CE (1,68,000 – 20,000) 1,48,000
To Cash & Bank A/c (Expenses) 50,000
To Profit on Realisation 18,60,000
48,90,000 48,90,000
Nitin Ltd. A/c

To Realisation A/c 45,00,000 By Equity Shares in Nitin Lt.d. 36,00,000
By Cash Bank 9,00,000
45,00,000 45,00,000
: 24 :
Equity shareholder A/c

To Equity share in Nitin Ltd. 36,00,000 By Equity share capital 18,00,000
To Cash Bank 9,00,000 By General Reserve 4,10,000
By Profit & Loss 1,00,000
By Export profit reserve 2,50,000
By Investment allowances 80,000
reserve
By Realisation 18,60,000
45,00,000 45,00,000
9% Debentures A/c
2,85,000 2,85,000
Journal Entries in the books of Nitin Ltd.

Date Particulars Dr. (`) Cr. (`)
To Liquidator of Rashmi Ltd. 45,00,000
(Being transferred of Rashmi Ltd.)
2 Freehold Property Dr. 27,28,000
P&M Dr. 5,04,000
Trade Receivables Dr. 1,08,000
Cash & Cash equivalent Dr. 1,48,000
Investments Dr. 1,30,000
Goodwill Dr. 8,01,890
To RDD 8,640
To Liability for 9% Debentures 3,56,250
To Trade Payables 75,000
(Being Assets & Liabilities taken over)
3 Amalgamation Adjustment Reserves Dr. 3,30,000
To Export Profit Reserves 2,50,000
To Investment Allowance Reserves 80.000
(Being Reserves T/O)
: 25 :
(Being Liquidation Expenses reimbursed)

5 Liquidator of Rashmi Ltd. Dr. 45,00,000
To Securities Premium 6,00,000
To Bank A/c 9,00,000
6 Liability for 9% Debentures Dr. 3,56,250
Discount on Issue of Debentures 18,750
(Being liability of debenture holders discharged)
Working Note:
Payment to 9% debenture holders
Agreed Value of 9% Debenture (2,85,000 + 25% premium) 3,56,250
(÷) Issue price of 10% Debenture (100 - 5%) ÷ 95
No of 10% Debenture 3,750
FV (100) Discount (5)

3, 75,000 18,750
Answer 33
Purchase Consideration
`
Cash Payment (3,00,000 x ` 2.5) 7,50,000
Equity Shares (4,50,000 x ` 150 67,50,000
75,00,000
In the books of Shrishti Ltd.
Realisation A/c
To Tangible FA 30,00,000 By Creditors 1,00,000
To Stock 10,40,000 By Anu Ltd.(PC) 75,00,000
To Debtors 1,80,000 By Cash Bank 50,000
To C & B A/c (2,80,000 – 25,000) 2,55,000 (Re-imbursement of exp.)
To C & B A/c (Realisation Exp.) 75,000
To Equity shareholder 31,00,000
81,50,000 81,50,000
: 26 :
9% Debentures A/c
5,00,000 5,00,000
Anu Ltd.
To Realisation A/c 75,00,000 By Equity Share in Anu Ltd. 67,50,000
By Cash A/c 7,50,000
75,00,000 75,00,000
Equity shareholders A/c

To Preliminary Expenses 50,000 By Equity Share Capital 30,00,000
To Equity Shares in Anu Ltd. 67,50,000 By Export Profit Reserves 8,50,000
To Cash / Bank A/c 7,50,000 By General Reserves 50,000
By P & L A/c 5,50,000
75,50,000 75,50,000
Journal Entries in the books of Nitin Ltd.

To Liquidator of Shrishti Ltd. 75,00,000
(Being business of Shrishti Ltd. T/O)
2 Tangible Fixed Assets Dr. 60,00,000
Stock Dr. 7,10,000
Debtors Dr. 1,80,000
Goodwill (Bal. fig) Dr. 10,64,000
To RDD 9,000
To Liability for 9% Debentures 6,00,000
To Creditors 1,00,000
(Being Assets & Liabilities T/O)
3 Amalgamation Adjustment reserve A/c Dr. 8,50,000
To Export Profit Reserves 8,50,000
: 27 :
(Being Export Profit Reserves T/O)

4 Goodwill Dr. 50,000
To Bank A/c 50,000
(Being Liquidation Expenses reimbursed)
5 Liquidator of Shrishti Ltd. Dr. 75,00,000
To Equity Share Capital (4,50,000 x 10) 45,00,000
To Securities Premium (4,50,000 x 5) 22,50,000
To Bank A/c 7,50,000
6 Liability for 9% Debentures Dr. 6,00,000
Discount on Issue of Debentures Dr. 25,000
(Being liability of debenture holders discharged)
Working Note:
Agreed Value of 9% Debenture (5,00,000 + 20% premium) 6,00,000
(÷) Issue price of 8% Debenture ÷ 96
No of 8% Debenture 6,250

6,25,000 25,000
Answer 34
Calculation of Purchase Consideration:
Particulars `
(a) For PSH
3,750, 9% Preference Shares of ` 100 each at par (5,000 x ¾ 3,75,000
)
(b) For ESH
15,000 Equity Shares of ` 100 at ` 125 (12,500 x 6/5) 18,75,000
Cash (12,500 x ` 20) 2,50,000
Total Purchase Consideration 25,00,000
: 28 :
Answer 35
Purchase Consideration:
Particulars ` `
Equity Shares for
Preference Shareholders (1,00,000 x 11) 11,00,000
Equity Shareholders (2,50,000 x 11) 27,50,000 38,50,000
Cash to Equity Shareholders (2,50,000 x 4) 10,00,000
Realisation A/c
To Goodwill 8,00,000 By Creditors 4,00,000
To Building 7,00,000 By Workmen’s Profit 3,00,000
Sharing Fund
To P & M 13,00,000 By X Ltd. (PC) 48,50,000
To Stock 7,00,000
To Debtors 9,00,000
To Bank 6,60,000
To Preference Shareholders 1,00,000
To ESH 3,90,000
55,50,000 55,50,000
X Ltd. A/c
To Realisation A/c 48,50,000 By Bank 10,00,000
By Equity Shares in X Ltd. 38,50,000
48,50,000 48,50,000
Bank A/c
To X Ltd. 10,00,000 By Equity Shareholders 10,00,000
10,00,000 10,00,000
Preference Shareholders A/c

To Equity Shares in X Ltd. 11,00,000 By Preference Share Capital 10,00,000
11,00,000 11,00,000
: 29 :
Equity Shares in X Ltd. A/c

To X Ltd. 38,50,000 By Preference Shareholders 11,00,000
By Equity Shareholders 27,50,000
38,50,000 38,50,000
To Preliminary Expenses 40,000 By Equity Share Capital 20,00,000
To Bank 10,00,000 By General Reserve 6,00,000
To Equity Shares in X Ltd. 27,50,000 By P & L A/c 8,00,000
By Profit on Realisation 3,90,000
37,90,000 37,90,000
Journal Entries
To Liquidator of Y Ltd. 48,50,000
(Being Y Ltd.’s business purchased)
2 Building A/c Dr. 12,00,000
P & M A/c Dr. 10,00,000
Bank A/c Dr. 6,60,000
Goodwill A/c (Bal. Fig.) Dr. 11,20,000
To Creditors 4,00,000
To Workmen’s Profit Sharing Fund 3,30,000
To Business Purchase 48,50,000
(Being Assets & Liabilities Taken Over)
3 Liquidator of Y Ltd. Dr. 48,50,000
To Bank A/c 10,00,000
To Equity Share Capital (3,50,000 x 10) 35,00,000
To Securities Premium (3,50,000 x 1) 3,50,000
(Being Payment of P.C.)
4 Workmen’s Profit Sharing Fund Dr. 3,30,000
To bank A/c 3,30,000
(Payment of Workmen’s Profit Sharing Fund)
To Bank A/c 5,000
(Being liquidation expenses paid)
: 30 :
Answer 36
Purchase Consideration:
Particulars X Ltd. Y Ltd.

No. of Shares 3,00,000 1,80,000
(-) No. of shares held by X Ltd. in Y Ltd. ---- (15,000)
Shares held by outsider 3,00,000 1,65,000
Value per share ` 18 ` 20
Purchase consideration ` 54,00,000 ` 33,00,000
No. of shares of Z Ltd. @ 16 3,37,500 shares 2,06,250 shares

Realisation A/c
To Sundry Assets By 10% Debentures 15,00,000
L&B 27,00,000 By Creditors (7,80,000 + 1,80,000) 9,60,000
P&M 15,00,000 BY Z Ltd. (P.C.) 54,00,000
Investments 2,40,000
Stock 15,60,000
Debtors 12,30,000
Bank 90,000
To Equity Shareholders 5,40,000
78,60,000 78,60,000
To Shares in Z Ltd. 54,00,000 By Equity share Capital 30,00,000
By Securities Premium 6,00,000
By General Reserve 9,00,000
By P & L (5,40,000 – 1,80,000) 3,60,000
54,00,000 54,00,000
Realisation A/c
To Sundry Assets By Secured Loan 9,00,000
L&B 13,50,000 By Creditors 5,10,000
P&M 11,40,000 BY Z Ltd. 33,00,000
Stock 10,50,000
Debtors 7,80,000
Bank 1,20,000
To Equity Shareholders A/c 2,70,000
47,10,000 47,10,000
: 31 :

To Shares in Z Ltd. 33,00,000 By Equity share Capital 18,00,000
By P & L A/c 4,80,000
33,00,000 33,00,000
Balance sheet of Z Ltd. (After Amalgamation)

Particulars Note C.Y. P.Y,
(I) EQUITY AND LIABILITIES
1. Shareholders’ Funds
2. Non – current Liabilities
(a) Trade payable 14,70,000
TOTAL 1,25,70,000
(II) ASSETS
1. Non – current Assets
(i) Tangible Asset 4 66,90,000
(ii) Intangible Asset 5
10,50,000
2. current Assets
(b) Trade receivable 20,10,000
(c) Cash & cash equivalent
2,10,000
TOTAL 1,25,70,000
Notes to Accounts
1 Share Capital
Authorised ??
Issued, Subscribed & Paid – up
5,43,750 Equity Shares of ` 10 each
(Above shares are issued for consideration other than cash) 54,37,500
54,37,500
: 32 :
2 Reserve & Surplus

Securities Premium (5,43,750 x 6) 32,62,500
Debentures 15,00,000
Secured Loan 9,00,000
24,00,000
4 Tangible Assets
L&B 40,50,000
P&M 26,40,000
66,90,000
5 Intangible Assets
Goodwill (WN) 10,50,000
Working Note:
*Calculation of Goodwill /Capital Reserve
Assets Taken over (Excluding investment in shares of Y Ltd.) `

Land & Building (27,00,000 + 13,50,000) 40,50,000
P & M (15,00,000 + 11,40,000) 26,40,000
Stock (15,60,000 + 10,50,000) 26,10,000
Debtors (12,30,000 + 7,80,000) 20,10,000
Cash at Bank (90,000 + 1,20,000) 2,10,000
1,15,20,000
(-) Liability Taken over
10% Debenture (15,00,000)
Security Loan (9,00,000)
Creditors (9,60,000 + 5,10,000) (14,70,000)
Net Assets 76,50,000
Less: Net Payment (PC) (54,00,000 + 33,00,000) (87,00,000)
Goodwill 10,50,000
: 33 :
Answer 37
Note: As per ICAI following changes are made in the question-
1. Kindly ignore the word = “ without liquidation letter”
2. “two companies” to be read as “ Vasudha Ltd after absorption of Vaishali Ltd.
Balance sheet of Vasudha Ltd. as at 31.3.12 (After Absorption)
Particulars Note C.Y. P.Y,

(I) EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Trade Payables (44,400 + 58,200) 1,02,600
TOTAL 13,18,890
(II) ASSETS
1. Non – current Assets
(i) Tangible Asset 3 3,85,000
(ii) Intangible Asset
4 1.00.,000
2. Current Assets
(a) Inventory (91,500 + 75,000) 1,66,500
(b) Trade receivable (2,86,900 + 1,72,900) 4,59,800
(c) Cash & Cash Equivalents 2,07,590
(98,000 + 1,09,590)
TOTAL 13,18,890
Notes to Accounts
1 Share Capital
Authorised ??
Issued, Subscribed & Paid – up
94,330 Equity Shares of ` 10 each (of the above 40,330 equity 9,43,300
shares were issued for consideration other than cash. 9,43,300
2 Reserve & Surplus
Securities Premium (40,330 x 3) 1,20,990
General Reserves 1,01,000
P & L A/c 66,000
(-) Preliminary Expenses (15,000) 51,000
2,72,990
: 34 :
3 Tangible Assets
Factory Building (2,10,000 + 1,75,000) 3,85,000
4 Intangible Assets
Goodwill (50,000 + 50,000) 1,00,000
Calculation of PC
Particulars Vasudha Ltd. Vaishali Ltd.

Goodwill 75,000 50,000
Factory Building 1,95,000 1,75,000
Debtors 2,86,900 1,72,000
Stock (82,500÷ 110% = 75,000) 91,500 75,000
Cash at Bank 98,000 1,09,590
7,46,400 5,82,490
(-) Creditors (44,400) (58,200)
Net Assets 7,02,000 5,24,290
No. of Shares 54,000 40,330
Intrinsic Value ` 13 ` 13
Hence Vasudha Ltd. Will give it 40,330 share of `10 at `13, to Vaishali Ltd.
Answer 38
(i) Purchase Consideration
Agreed value of Assets taken over
Machinery 1,60,000
Stock 3,45,000
10,00,000
Discharge of P.C.
1. 13% Preference Shares
= 10,00,000 x ¼ = 2,50,000
No. of 13% preference shares of `100 each
= 2500 Preference Shares
2. Equity Shares
= 10,00,000 – 2,50,000 = 7,50,000
: 35 :
Paid up value of one equity e Shares = ` 8 each. Hence no. of equity

shares allotted
= 93,750 Equity Shares
In the books of Reckless Ltd.

Realisation A/c
To Freehold Premises 2,20,000 By Creditors 1,13,000
To Machinery 1,77,000 By Acceptance 20,000
To Furniture & Fittings 90,800 By Provision for Tax 1,10,000
To Stock 3,87,400 By RDD 4,000
To Sundry Debtors 80,000 By Careful Ltd.(PC) 10,00,000
To Bills Receivable 15,000 By C / B (Debtors) 79,500
To C / B
Acceptance 19,000
Provision for Tax 1,11,600
Liquidation Expenses 4,000 1,34,600
To C/B (Creditors) 1,3,700
To Equity share holder 1,18,000
13,26,500 13,26,500
Cash & Bank A/c

To Balance b/d By Realisation A/c 1,34,600
Cash at Bank 1,56,500 By Realisation A/c (Creditors) 1,03,700
Cash in Hand 2,300 (Bal. fig.)
2,38,300 2,38,300
: 36 :
Careful Ltd. A/c

To Realisation A/c 10,00,000 By 13% Cumulative Preference 2,50,000
Shares in Careful Ltd.
By Equity Shares in Careful Ltd. 7,50,000
10,00,000 10,00,000

To 13% Cumulative Preference 2,50,000 By Equity Share Capital 6,00,000
Shares in Careful Ltd.
To Equity Shares in Careful Ltd. 7,50,000 By Pre Incorporation Profits 21,000
By Contingency Reserve 1,35,000
By P & L Appropriation 1,26,000
10,00,000 10,00,000
Journal Entries in the books of Careful Ltd.

To Liquidator of Reckless Ltd. A/c 10,00,000
(Being amount payable)
2 Bills Receivable Dr. 15,000
Freehold Premises Dr. 4,00,000
Furniture & Fittings Dr. 80,000
Machinery Dr. 1,60,000
Stock Dr. 3,45,000
(Being Assets Taken Over)
3 Liquidator of Reckless Ltd. Dr. 10,00,000
To 13% Cumulative Preference Share Capital 2,50,000
: 37 :
Answer 39
Calculation of Purchase Consideration
Particulars ` `
1. For Preference Shareholder
Cash @ ` 10 per share [8000 x ` 10] 80,000
8,000, 9% Preference Shares in BXE Ltd.
@ ` 100 each 8,00,000 8,80,000
2. For equity Shareholder
Cash @ ` 20 per share [15,000 x ` 20] 3,00,000
15,000 Equity shares in BXE Ltd. of `
100 @ ` 140 each 21,00,000 24,00,000
Answer 40
Calculation of No. of shares to be allotted
`
L&B 10,80,000
Stock 7,70,000
No. of equity
Purchase Consideration 18,80,000 shares =
Discharge of PC
4,100, 10% preference share of ` 100 at par 4,10,000
1,83,750 equity shares of ` 10 at ` 8 paid up 14,70,000
Total 18,80,000
= 1,83,750 shares
In the books of Mars Ltd.

Realisation A/c
To L & B 7,64,000 By RDD 8,000
To Stock 7,75,000 By Bills Payable 40,000
To Debtors 1,60,000 By Sundry Creditors 2,26,000
To Bills Receivable 30,000 By Provision for Tax 2,20,000
: 38 :
To Bank A/c By Jupiter Ltd. (P.C.) 18,80,000

Liquidation Expenses 8,000 By Bank A/c (Debtors) 1,50,000
Bills Payable 38,000 By Bank (Exp. Reimbursed) 5,000
Income Tax 2,22,000 2,68,000
To Bank (Creditors) 2,16,000
To Equity shares 3,16,000
25,29,000 25,29,000
Bank A/c
To Balance b/d 3,29,000 By Realisation A/c 2,68,000
To Realisation A/c 1,50,000 By Realisation (Creditors) (Bal. fig) 2,16,000
To Realisation 5,000
4,84,000 4,84,000

To 10% Preference Shares in Jupiter Ltd. 4,10,000 By Equity Share Capital 10,00,000
To Equity Shares in Jupiter Ltd. 14,70,000 By Capital Reserve 42,000
By Contingency Reserve 2,70,000
By P & L A/c 2,52,000
18,80,000 18,80,000
Jupiter Ltd. A/c

To Realisation A/c 18,80,000 By 10% Preference Shares in Jupiter Ltd. 4,10,000
By Equity Shares in Jupiter Ltd. 14,70,000
18,80,000 18,80,000
: 39 :
Answer 41
In the books of V Ltd.
Realisation A/c
Particulars ` in Particulars ` in
lakhs lakhs
To L & B 445 By 10% Secured Cumulative Debenture A/c 600
To P & M 593 By Outstanding Debenture Interest A/c 30
To Furniture, fixture & fittings 114 By Trade Payables A/c 170
To Inventories 380 By P Ltd. A/c (P.C.) 1,150
To Trade Receivables 256
To Bank A/c 69
To Cash in Hand 6
To Equity Shareholders A/c 87
1,950 1,950
Journal Entries in the books of Careful Ltd. ` in lakhs

Date Particulars (`) (`)
1 Business Purchase A/c Dr. 1,150
To Liquidator of V Ltd. 1,150
(Being amount payable)
2 L&B Dr. 445
P&M Dr. 593
Furniture, Fixtures & Fittings Dr. 114
Inventories Dr. 380
Trade Receivables Dr. 256
Bank Dr. 69
Cash in Hand Dr. 6
P&L Dr. 87
To 10% Debentures 600
To O/s Debenture Interest A/c 30
To Trade Payables A/c 170
(Being Assets & Liabilities of V Ltd. Taken Over)
3 Liquidator of V Ltd. Dr. 1,150
To Equity Share Capital (64L X 10) 640
To 13% Cumulative Preference Share Capital 350
To Securities Premium A/c (64L X 2.5) 160
4 10% Secured Cumulative Debenture A/c Dr. 600
: 40 :
To 10.5% Secured Debenture A/c 600

(Being 10% Secured Cumulative Debentures of
V Ltd. converted into 10.5% Secured Cumulative
Debenture of P Ltd.)
5 O/s Debenture Interest A/c Dr. 30
To Bank A/c 30
(Being O/s Debenture Interest paid)
6 P & L A/c Dr. 2
To Bank A/c 2
(Being amalgamation exp. met by P Ltd.)
7 Trade Payables A/c Dr. 7
To Trade Receivables A/c 7
(Being settlement of mutual liabilities)
8 P & L A/c Dr. 1
To Inventories A/c (5 x 20%) 1
(Being unrealized profit on stock eliminated)
WN: Purchase Consideration

` in lakhs
(a) For PSH
35 Lakhs13% Cumulative Preference Shares of ` 10 each 350
(b) For ESH
Equity Shares – 80 lakhs shares x 4/5 800
= 64 lakhs Equity Shares of `10 @ ` 12.5
1,150
Answer 42
Books of A Ltd.
Realization Account
` `
To Land & Building 2,50,000 By Trade payables 3,17,500
To Plant & Machinery 1,75,000 By AB Ltd. 10,49,225
To Furniture 75,000 (Purchase consideration)
To Trade receivables 4,21,000 By Equity shareholders A/c 67,575
To Inventory 1,20,000 (loss)
To Bank Balance 3,40,000
To Cash in hand 23,300
: 41 :
To preference shareholders
(excess payment) 30,000
16,34,300 16,34,300
Equity Shareholders Account

` `
To Realisation A/c (loss) 67,575 By Equity share capital 5,00,000
To Equity Shares in AB Ltd. 6,60,000 By Profit & Loss A/c 1,36,800
To Cash 59,225 By General Reserve 1,50,000
7,86,800 7,86,800
9% Preference Shareholders Account

` `
To Preference Shares in AB 3,30,000 By 9% preference 3,00,000
Ltd. share capital
3,30,000 3,30,000
AB Ltd. Account
` `
To Realisation A/c (loss) 10,49,225 By Equity shares AB Ltd.
For Equity 6,60,000
Pref. 9,90,000
3,30,000
By Cash 59,225
10,49,225 10,49,225
Working Notes:
(i) Purchase consideration
1. Preference share issued to PSH @ `22
A Ltd = 3,000 x 5 = 15,000 x 22 = 3,30,000
B Ltd = 2,000 x 5 = 10, 000 x 22 = 2,20,000
2. Euity share issued to ESH @ `22

A Ltd = 5,000 x 6 = 30,000 x 22 = 6,60,000
B Ltd = 2,500 x 6 = 15,000 x 22 = 3,30,000
: 42 :
A Ltd. B Ltd.
` `
Payable to preference shareholders:
Preference shares at ` 22 (18+ 4) per share 3,30,000 2,20,000
Equity Shares at ` 22(18+4) per share 6,60,000 3,30,000
Cash [See W.N. (ii)] 59,225 93,000
10,49,225 6,43,000
(ii) Value of Net Assets

A Ltd. B Ltd.
` `
Goodwill 2,00,000
Land & Building 2,50,000 1,90,000
Furniture 75,000 50,000
Trade receivables less 7.5% 3,89,425 2,77,500
Inventory less 5% 1,14,000 95,000
Bank balance 3,40,000 1,80,000
Cash in hand 23,300 51,300
15,66,725 10,43,800
Less: Debentures 2,00,000 –
Trade payables 3,17,500 2,00,800
Secured Loans - (5,17,500) 2,00,000 (4,00,800)
10,49,225 6,43,000
Payable in shares 9,90,000 5,50,000
Payable in cash 59,225 93,000
Journal Entries in the Books of AB Ltd.

To Liquidator of A Ltd 10,49,225
To Liquidator of B Ltd 6,43,000
(Being Amount payable to A Ltd & B Ltd. as per
agreement dated)
Land & Building Dr. 2,50,000
Plant & Machinery Dr. 1,75,000
Furniture Dr. 75,000
: 43 :
Trade receivables Dr. 4,21,000

Bank balance Dr. 3,40,000
Cash in hand Dr. 23,300
To RDD 31,575
To Trade payables 3,17,500
To Business Purchase Account 10,49,225
(Being Incorporation of various assets and liabilities
taken over from A Ltd.’s at agreed value)
3 Land & Building Dr. 1,90,000
Plant & Machinery Dr. 2,00,000
Furniture Dr. 50,000
Trade receivables Dr. 3,00,000
Inventory Dr. 95,000
Bank balance Dr. 1,80,000
Cash in hand Dr. 51,300
To RDD 22,500
To Secured Loans 2,00,000
To Trade payables 2,00,800
(Being Incorporation of various assets and liabilities taken
over from B Ltd.’s at agreed value)
4 Liquidator of A Ltd. Dr. 10,49,225
To Equity Share Capital(30,000 x 18) 5,40,000
To 9% Preference Share Capital (15,000 x 18) 2,70,000
To Securities premium (45,000 x 4) 1,80,000
To Bank A/c 59,225
(Being Discharge of consideration for A Ltd.’s business)
5 Liquidator of B Ltd. Dr. 6,43,000
To Equity Share Capital (15,000 x 18) 2,70,000
To 9% Preference Share Capital (10,000 x 18) 1,80,000
To Securities premium (25,000 x 4) 1,00,000
To Bank A/c 93,000
(Being Discharge of consideration for B Ltd.’s business)
(Being Allotment of 15% Debentures to debenture
: 44 :
holders of A Ltd.)
7 Trade payable of B Ltd. Dr. 25,000
To Trade receivables of A Ltd. 25,000
(Being Cancellation of mutual owing)
Note: Alternative set of entries (combined entries for both A Ltd. and B Ltd.)
may also be given for entries numbered 1,2,3.
Answer 43
(i) Journal Entries in the Books of VT Ltd.
Dr. ` Cr. `
1 Fixed Assets Dr. 2,10,000
To Revaluation Reserve 2,10,000
(Being Revaluation of fixed assets at 15% above book
value)
2 Reserve and Surplus Dr. 1,20,000
2 To Equity Dividend 1,20,000
(Being Declaration of equity dividend @ 10%)
3 Equity Dividend Dr. 1,20,000
To Bank Account 1,20,000
(Being Payment of equity dividend)
4 Business Purchase Account Dr. 9,80,000
To Liquidator of MG Ltd. 9,80,000
(Being Consideration payable for the business taken
over from MG Ltd.)
5 Fixed Assets (115% of `5,00,000) Dr. 5,75,000
Inventory (95% of ` 6,40,000) Dr. 6,08,000
Debtors Dr. 3,80,000
Bills Receivable Dr. 40,000
Investment Dr. 1,60,000
(` 80,000 –`60,000 dividend paid)
To Provision for Bad Debts (5% of ` 3,60,000) 18,000
To Sundry Creditors 2,50,000
: 45 :
To 12% Debentures in MG Ltd. 3,24,000

To Bills Payable 50,000
To Capital Reserve (Balancing figure) 1,61,000
(Being Incorporation of various assets and liabilities
taken over from MG Ltd. at agreed values and
difference of net assets and purchase consideration
being credited to capital reserve)
6 Liquidator of MG Ltd. Dr. 9,80,000
To 10% Preference Share Capital 1,80,000
(Being Discharge of consideration for MG Ltd.’s
business)
7 12% Debentures in MG Ltd. Dr. 3,24,000
Discount on Issue of Debentures Dr. 36,000
(Being Allotment of 12% Debentures to debenture
holders of MG Ltd. at a discount of 10%)
8 Sundry Creditors Dr. 20,000
To Sundry Debtors 20,000
(Being Cancellation of mutual owing)
9 Capital Reserve Dr. 60,000
To Bank 60,000
(Being liquidation expenses reimbursed to MG Ltd.)
(ii) Statement of Consideration payable by VT Ltd. for 60,000 shares (payment
method)
For Equity share holder `
Shares to be allotted 60,000/12 × 16 = 80,000 shares of VT Ltd.
Issued 80,000 shares of ` 10 each 8,00,000
For PSH
(to be paid at 10% discount = 2,00,000 × 90%)
1,800, 10% Preference share of ` 100 each 1,80,000
Consideration amount 9,80,000
: 46 :
Working Note:
Agreed Value of 12% Debenture of MG Ltd = 3,00,000 + 8% = 3,24,000
(÷) Issue price (100 – 10%) ÷ 90
No of Debenture 3,600

3,60,000 36,000
Answer 44
Difference between Amalgamation, Absorption and External Reconstruction
External
Basis Amalgamation Absorption
Reconstruction
Meaning Two or more In this case, an In this case, a newly
companies are existing company formed company
wound up and a new takes over the takes over the
company is formed business of one or business of an
to take over their more existing existing company.
business. companies.
Minimum At least 3 At least two Only two companies
number of companies are companies are are involved.
Companies involved. involved.
involved
Number of Only one resultant No new resultant Only one resultant
new companyis formed. company is formed. company is formed.
resultant Two companies are Under this case a
companies wound up to form a newly formed
single resultant company takes
company. over the business of
an existing company.
Objective Amalgamation is Absorption is done to External
done to cut cut competition and reconstruction is
: 47 :
competition and reap the economies done to reorganise

reap the economies in large scale. the financial
in large scale. structure of the
company.
Example A Ltd. and B Ltd. A Ltd. takes over the B Ltd. is formed to
amalgamate to form business of another take over the
C Ltd. existing company B business of an
Ltd. existing companyA
Ltd.
Answer 45
Books of Namo Ltd. Journal Entries
(` in Lacs) (` in
Lacs)
1 Business Purchase A/c Dr. 13,500
To Liquidator of Raga Ltd. 13,500
(Being business of Raga Ltd. taken over
for consideration settled as per agreement)
2 Plant and Machinery Dr. 7,500
Furniture & Fittings Dr. 2,550
Inventory Dr. 6,061.5
Debtors Dr. 1,530
Cash at Bank Dr. 913.5
Bills Receivable Dr. 120
To Foreign Project Reserve 465
To General Reserve (4,800 - 4,500) 300
To Profit and Loss A/c (1,237.5 – 75 ) 1,162.5
To Liability for 12% Debentures 1,500
To Creditors 694.5
To Provisions 1,053
(Being assets & liabilities taken over from
Raga Ltd.)
3 Liquidator of Raga Ltd. A/c Dr. 13,500
To Equity Share Capital A/c 13,500
(Purchase consideration discharged in the
form of equity shares)
: 48 :
4 Profit & Loss A/c Dr. 1.5

To Bank A/c 1.5
(Liquidation expenses paid by Namo Ltd.)
5 Liability for 12% Debentures A/c Dr. 1,500
To 13% Debentures A/c 1500
(12% debentures discharged by issue of 13%
debentures)
6 Bills Payable A/c Dr. 120
To Bills Receivable A/c 120
(Cancellation of mutual owing on account of
bills)
Note: Cost of issue of debenture ` 75,00,000 adjusted against P& L account of Raga
Balance Sheet of Namo Ltd. as at 1st April, 2011 (after merger)
` (in lakhs)
Note No.

1 Shareholders' funds
A Share capital 1 36,000

B Reserves and Surplus 2
2 Non-current liabilities 24,981
A Long-term borrowings 3 1,500
3 Current Liabilities
A Trade Payables (1,800+694.5-120) 2,374.5
B Short-term provisions (2,745+1,053) 3,798
Total 68,653.5
Assets
1. Non-current assets
A Property, Plant & Equipment

Tangible assets 4 43,506
2 Current assets
A Inventories (11,793+6,061.5) 17,854.5
B Trade receivables (3,180+1,650-120) 4,710
C Cash and cash equivalents (1,671+913.5-1.5) 2,583
Total 68,653.5
: 49 :
Notes to Accounts
`
1. Share Capital
Authorised ?
issued, subscribed and paid-up
36 crores equity shares of ` 10 each (of the above shares,
13.5 crores shares have been issued for consideration other
than cash) 36,000
2. Reserves and Surplus
Foreign Project Reserve 465
Profit and Loss Account ` (4,305 +1,162.5-1.5) 5,466
Total 24,981
3. Long-term borrowings
Secured 13% Debentures
1,500
4. Tangible assets
Land & Buildings
9,000
Plant & Machinery
28,500
Total 43,506
Working Note:
Computation of purchase consideration
Purchase consideration was discharged in the form of three equity shares of Namo
Ltd. for every two equity shares held in Raga Ltd.
Purchase consideration = ` 9,000 lacs × = ` 13,500 lacs
Particulrs Amount
PC 13,500
(-) Paid up share capital of Raga Ltd. (9,000)
Loss on merger (Adjusted against General Reserve) 4,500
Note: The balance sheet has been prepared on the basis of Schedule III to the
Companies Act, 2013 irrespective of the financial year given in the question.
: 50 :
Answer 46
In the Books of Yellow Ltd.
Realization Account
` `
To Sundry Assets By Retirement Gratuity Fund 35,000
Goodwill 90,000 By Trade payables 1,45,000
Building 2,50,000 By Orange Ltd. (Purchase 14,63,000
Consideration)
Machinery 3,80,000
Inventory 3,30,000
Trade receivable 3,60,000
Bank 85,000 14,95,000

(Premium on Redemption)
To Equity Shareholders
(Profit on Realization) 1,18,000
16,43,000 16,43,000
Equity Shareholders Account
` `
To Equity Shares of Orange Ltd. 11,33,000 By Equity share Capital 9,00,000
By Realization Account 1,18,000
(Profit on Realization)
11,33,000 11,33,000
Preference Shareholders Account

` `
To 9% Preference Shares 3,30,000 By 10% Preference Share 3,00,000
of Orange Ltd. Capital
By Realization Account
(Premium on Redemption of
Preference Shares)
30,000
3,30,000 3,30,000
: 51 :
Orange Ltd. Account

` `
To Realization Account 14,63,000 By 9% Preference 3,30,000
Shares of orange Ltd.
By Equity Shares of 11,33,000
orange Ltd.
14,63,000 14,63,000
In the Books of Orange Ltd.

Journal Entries
Dr. Cr.
` `

To Liquidators of Yellow Ltd. Account 14,63,000
Being business of Yellow Ltd. taken over)
2 Goodwill Account Dr. 1,50,000
Building Account Dr. 3,50,000
Machinery Account Dr. 4,25,000
Inventory Account (3,30,000 ÷ 110%) Dr. 3,00,000
Trade receivables Account Dr. 3,33,000
Bank Account Dr. 85,000
To Retirement Gratuity Fund Account 35,000
To Trade payables Account 1,45,000
(Being Assets and Liabilities taken over
as per agreed valuation)
3 Liquidators of Yellow Ltd. A/c Dr. 14,63,000
To Securities Premium A/c (10%) 1,03,000
(Being Purchase Consideration satisfied as
above).
: 52 :
Balance Sheet of Orange Ltd. (after absorption)

as at 31st March, 2019
Particulars Notes `
A Share capital 1 41,10,000
B Reserves and Surplus 2 4,08,000
2 Non-current liabilities
A Long-term provisions 3 1,85,000
3 Current liabilities
A Trade Payables (4,25,000 + 1,45,000) 5,70,000
Total 52,73,000
Assets
1 Non-current assets
A Property, Plant and Equipment
(i) Tangible assets 4 28,15,000
(ii) Intangible assets 5 3,60,000
2 Current assets
A Inventories (6,60,000 + 3,00,000) 9,60,000
B Trade receivables 6 8,13,000
C Cash and cash equivalents
(2,40,000 + 85,000) 3,25,000
Total 52,73,000
Notes to accounts:
`
1 Share Capital
Authorised
Issued, subscribed & Paid up.
3,53,000 Equity Shares of ` 10 each fully paid 35,30,000
(out of above 1,03,000 Equity Shares were issued
in consideration other than for cash)
2500, 8% Preference Shares of ` 100 each 2,50,000
3,300 9% Preference Shares of ` 100 each (all 3,30,000
the above 9% Preference Shares were issued in
consideration other than for cash)
Total 41,10,000
2 Reserves and Surplus
Securities Premium 1,03,000
Total 4,08,000
: 53 :
3 Long-term provisions
Gratuity fund (1,50,000 + 35,000) 1,85,000
4 Tangible assets
Buildings (7,90,000 + 3,50,000) 11,40,000
Machinery (12,50,000 + 4,25,000) 16,75,000
Total 28,15,000
5 Intangible assets
Goodwill (2,10,000 + 1,50,000) 3,60,000
6 Trade receivables (4,80,000 + 3,33,000) 8,13,000
Working Notes:
Purchase Consideration: `
Goodwill 1,50,000
Building 3,50,000
Machinery 4,25,000
Inventory 3,00,000
Trade receivables 3,33,000
Cash at Bank 85,000
16,43,000
Less: Liabilities:
Retirement Gratuity (35,000)
Trade payables (1,45,000)
Net Assets/ Purchase Consideration 14,63,000
To be satisfied as under:
10% Preference Shareholders of Yellow Ltd. 3,00,000
Add: 10% Premium 30,000
3,300 9% Preference Shares of Orange Ltd. 3,30,000
Equity Shareholders of Yellow Ltd. to be satisfied by issue
of 1,03,000 equity Shares of Orange Ltd. of ` 10 at ` 11 11,33,000
Total 14,63,000
No of Equity share = 11,33,000 ÷ 11 = 1,03,000
: 54 :
Answer 47
Balance Sheet of Grey Ltd. as at 1st April, 2020
Particulars Note (` )
No.
I. Equity and Liabilities
(1) Shareholder's Funds
(b) Reserves and Surplus 2 1,85,000
Long-term borrowings 3 7,50,000
Trade payables (4,30,000 – 15,000) 4,15,000
Total 61,90,000
II. Assets
(a) Property, Plant and Equipment 4 47,60,000
(i) Tangible assets
(b) Non-current investments 1,60,000
(2) Current assets
(b) Trade receivables(6,90,000 – 6,75,000
15,000)
(c) Cash and cash Equivalents 2,90,000
Total 61,90,000
Notes to Accounts:
(` ) (`)
1. Share Capital
Authorized:
2,00,000 shares of ` 25 each 50,00,000
Issued, subscribed, and paid up
1,80,000 Equity shares of `25 each 45,00,000
3,400 Preference shares of ` 100 each 3,40,000
(all the above shares are allotted as fully paid-up 48,40,000
pursuant to contracts without payment being received
in cash)
2. Reserves and surplus
Securities Premium (3,400 x ` 20) 68,000
Capital Reserve 1,17,000 1,85,000
: 55 :

4. Tangible assets
Land and Building 15,60,000
Working Notes:
(`)
Black Ltd. Grey Ltd.
1. Computation of Purchase consideration
(a) Preference shares:
Shares at ` 120 each 2,40,000 1,68,000
(b) Equity shares:
Preceding 2 years profitability
Year 1 1,50,000 1,20,000
Year 2 2,00,000 1,30,000
Shares (in ratio 35: 25) 3,50,000 2,50,000
1,05,000 shares at ` 25 26,25,000
75,000 shares at ` 25 18,75,000
Amount of purchase consideration (a + b) 28,65,000 20,43,000
2. Calculation of Goodwill/Capital Reserve
Assets Taken Over at Agreed value 15,60,000
Land & Building (5,20,000 + 10,40,000) 32,00,000
Plant & Machinery (18,00,000 + 14,00,000) 1,60,000
Inventory (1,80,000 + 1,25,000) 3,05,000
Trade Receivable (4,25 000 + 2,65,000) 6,90,000
Cash at Bank (1,60,000 + 1,30,000) 2,90,000 62,05,000
Less: Liability Taken over at agreed value
15% Debentures (WN) 7,50,000
Trade Payable (3,10,000 + 1,20,000) 4,30,000 11,80,000
Net Assets 50,25,000
(-) Net Payment (i.e. total PC) (49,08,000)
Capital Reserve 1,17,000
: 56 :
3. Calculation of 18% Debenture issued (i.e. Agreed value of 15% debenture)

15% Debenture of black Ltd. & while Ltd. = 4,00,000 + 5,00,000 = 9,00,000
Interest requested from 18% Debenture = 9,00,000 x 15% = 1,35,000
Value of 18% debenture to earn same Amount of interest.
= 1,35,000 ÷ 18% = ` 7,50,000
Answer 48
Balance Sheet of Little Ltd. as at 1st April, 2020
Particulars Note (` in lakhs)
No.
(a) Share Capital 1 1,150.0
(b) Reserves and Surplus 2 2,437.8
Long-term borrowings 3 185.2
Trade payables 4 130.0
Total 3,903
II. Assets
(a) Property, Plant and Equipment 5 1,885
(i) Tangible assets
(b) Non-current investment (95 + 80) 175
(2) Current assets
(a) Inventory (415+389) 804
(b) Trade receivables 6 570
(c) Cash and cash equivalent (303 + 166) 469
Total 3,903
: 57 :
Notes to Accounts
(` in lakhs) (` in
lakhs)
1. Share Capital
Authorised ?
Issued, subscribed & Paid up
65,50,0001 Equity shares of 10 each 655
4,95,0002 Preference shares of ` 100 495
each
(all the above shares are allotted as fully
paid-up pursuant to contracts without
payment being received in cash) 1,150
Securities Premium Account
(W.N.3)
(1080+ 681.25) 1,761.25
Capital Reserve (W.N. 2) (283.33 + 393.22) 676.55
Investment Allowance Reserve (80 + 40) 120
Amalgamation Adjustment Reserve (80 + 40) (120) 2,437.8
(a) Secured Loan
15% Debentures 135.2
(b) Unsecured Loan
Public Deposit 50
185.2
4. Trade payables
Sundry Creditors: High Ltd. 65
Low Ltd. 35
Bills Payable: High Ltd. 30 130
5. Tangible Assets
Land and Building: High Ltd 670
Low Ltd 385 1055
Plant and Machinery: High Ltd. 475
Low Ltd. 355 830 1,885
6. Trade receivables
Sundry Debtors: High Ltd. 322
Low Ltd. 213
Bills Receivables: High Ltd. 35 570
: 56 :
Working Notes:
(` in lakhs)
High Low Ltd.
Ltd.
(1) Computation of Purchase consideration
(a) (a) Preference shareholders:
( ) 400
218.75
 1,75,00,000 
 i.e. 1,75,000 shares   125 each
 100 
(b) Equity shareholders:
1,400
( )
( )
892.50
Amount of Purchase Consideration 1,800 1,111.25

Computation of Capital Reserve
Assets taken over:
Land and Building 670 385
Plant and Machinery 475 355
Investments 95 80
Inventory 415 389
Debtors 322 213
Bills Receivables 35
Cash and bank 303 166
2,315 1,588
Less: Liabilities taken over:
Debentures 86.67 48.53
Unsecured Loan 50
Creditors Bills 65 35 83.53
Payable 30 231.67
Net assets taken over 2083.33 1,504.47
Purchase consideration 1,800 1,111.25
: 57 :
Capital reserve 283.33 393.22

(3) Computation of securities premium
On preference share capital
High Ltd.- 3,20,000 x 25 80
Low Ltd.- 1,75,000 x 25 43.75
On equity share capital
High Ltd.- 40,00,000 x 25 1000 637.5
Low Ltd.- 25,50,000 x 25
Total 1080 681.25
(4) Issue of Debentures (` In Lakhs)

High Ltd.- 15% fresh issue of debenture for 13% old debentures = (100 X 13%
/15% = 86.67(rounded off)
Low Ltd.- 15% fresh issue of debenture for 13% old debentures = (56 X 13%
/15% = 48.53 (rounded off)
Total value of debentures issued = 86.67 + 48.53 = 135.20 Lakhs
Working Note:
(1) The transferors are D, E, H, J and K. When the transferees pay the amount due as
“present” member contributories, there will not be any liability on the transferors. It is
only when the transferees do not pay as “present” member contributories then the
liability would arise in the case of “past” members as contributories.
(2) D will not be liable to pay any amount as the winding up proceedings commenced
after one year from the date of the transfer.
(3) J also will not be liable as the transferee R has paid the balance ` 20 per share as call
in advance.
(4) E, G/X, H and K will be liable, as former members, to the maximum extent as indicated,
provided the transferees do not pay the calls.
(5) X to whom shares were transmitted on demise of his father G would be liable as an
existing member contributory. He steps into the shoes of his deceased father under
section 430. His maximum liability would be at ` 20 per share on 200 shares received on
transmission i.e. for ` 4,000.
: 58 :
Answer 49
Balance Sheet of Bright Ltd. as at 1st April, 2021
Particulars Note No. (` in lakhs)
(a) Share Capital 1 2,250
(b) Reserves and Surplus 2 4,200
Long-term borrowings 3 84.375
Trade payables 4 915
Total 7449.375
II. Assets
(a) i. Property, plant and equipment 5 2,325
ii. Intangible assets 6 633.375
(b) Non-current investments 7 300
(2) Current assets
(b) Trade receivables 9 975
(b) Cash and cash equivalents 10 2316
Total 7449.375
Notes to Accounts
(` in lakhs) (` in lakhs)
1. Share Capital
Authorized Share Capital
1,50,00,000 Equity shares of `10 each 1500
7,50,000 16% Preference Share of 100 each 750
Issued: 1,50,00,000 Equity shares of ` 10 1500
each
(Out of which 1,05,00,000 Shares were Issued
for consideration other than cash)
7,50,000 16% Preference Shares of 100 each
: 59 :
(Issued for consideration other than cash) 750 2,250

Securities Premium Account
(1,50,00,000 shares ×` 25) 3750
(7,50,000 shares × ` 60) 450 4,200
Investment Allowance Reserve 150
Amalgamation Adjustment Reserve (150) 4,200
16% Debentures (56,25,000 + 28,12,500) 84.375
(W.N. 3)
4. Trade payables
Dark Ltd. 630
Fair Ltd. 285 915
5. Property, plant & equipment
Land and Building 1350
Plant and Machinery 975 2,325
6. Intangible assets
Goodwill [W.N. 2] 624.375
Add: liquidation exp. (6+3) 9.00 633.375
7. Non-current Investments
Investments (225+75) 300
8. Inventories
Dark Ltd. 525
Fair Ltd. 375 900
9 Trade receivables
Dark Ltd. 450
Fair Ltd. 525 975
10 Cash & cash equivalents
Dark Ltd. 450
Fair Ltd. 300
Liquidation Expenses (6+3) (9)
Shares issued for cash (45 lakh shares x `35) 1575 2316
Working Notes:
: 60 :
(` in lakhs)
Dark Ltd. Fair Ltd.
(1) Computation of Purchase consideration
(a) Preference shareholders:
 4,50,00,000 
 
 100 
i.e. 4,50,000 shares x `160 each 720
 3,00,00,000 
 
 100 
480
i.e.3,00,000 shares x `160 each
(b) Equity shareholders:
 12,00,00,000  5 
 
 100 
i.e. 60,00,000 shares x `35 each
2100
 11,25,00,000  4 
 
 100 
i.e. 45,00,000 shares  `35 each _____ 1,575
Amount of Purchase Consideration 2,820 2,055
(2) Net Assets Taken Over
Assets taken over:
Property Plant & Equity 1,350 975
Non-Current Investments 225 75
Inventory 525 375
Trade receivables 450 525
Cash and bank 450 300
3,000 2,250
Less: Liabilities taken over:
10% Debentures 56.25 28.125
Trade payables 630 (686.25) 285 (313.125)
Net assets taken over 2,313.75 1936.875
Purchase consideration 2,820 2055.00
Goodwill 506.25 118.125
Total goodwill 624.375
(3) Issue of Debentures

: 61 :
Debentures ` 90,00,000 ` 45,00,000

Interest 10% ` 9,00,000 ` 4,50,000
 9,00,000100   4,50,000100 
   56,25,000    28,12,500
 16   16 
NOTE:
In the above solution ` 35 has been considered as the issue price of Equity shares
for public issue also. Alternative considering this as ` 10 also possible. In that case,
the balance of cash and cash equivalents will be ` 1,191 lakhs and securities
premium will be ` 3,075 lakhs in place of the balances given in the balance sheet
in the above solution.
Answer 50
Calculation of Purchase consideration (or basis for issue of shares of Glorious
Ltd.)
Galaxy Ltd. Glory Ltd.
Purchase Consideration: ` `
Goodwill 4,48,000 1,68,000
Freehold property 5,88,000 3,36,000
Plant and Machinery 2,52,000 84,000
Motor vehicles 56,000 -
Inventory 3,36,000 4,38,000
Trade receivables 4,62,000 -
Cash at Bank 2,38,000 24,000
23,80,000 10,50,000
Less: Liabilities:
6% Debentures (3,00,000 x 110%) - (3,30,000)
Trade payables (4,20,000) ______
Net Assets taken over 19,60,000 7,20,000
To be satisfied by issue of shares of Glorious Ltd. @ 1,96,000 72,000
` 10 each
Balance Sheet of Glorious Ltd. as at 1st April, 2020

: 62 :
Particulars Note No Amount

`
EQUITY AND LIABILITIES

(a) Share capital Reserves and surplus 1 26,80,000
(b) Reserves and surplus 2 30,000
2 Non-current liabilities
(a) Long-term borrowings 3 3,00,000
3 Current liabilities
(a) Trade payables 4,20,000
Total 34,30,000
ASSETS
1 (a) Non-current assets
i Property, plant and equipment 4 13,16,000
ii Intangible assets 5 6,16,000
2 Current assets
(b) Trade receivables 4,62,000
(c) Cash and cash equivalents 7 2,62,000
Total 34,30,000
Notes to accounts:
` `
1. Share Capital
Equity share capital
2,68,000 shares of ` 10 each 26,80,000
(All the above shares are issued for consideration
other than cash)
Securities Premium
(10% premium on debentures of `3,00,000) 30,000
Secured
8% 3,000 Debentures of `100 each 3,00,000
4. Property Plant and Equipment
: 63 :
Freehold property
Galaxy Ltd. 5,88,000
Glory Ltd. 3,36,000 9,24,000
Plant and Machinery
Glory Ltd. 84,000 3,36,000
Motor vehicles - Galaxy Ltd. 56,000
13,16,000
5 Intangible assets
Goodwill
Glory Ltd. 1,68,000 6,16,000
6 Inventories
Glory Ltd. 4,38,000 7,74,000
7 Cash and cash equivalents
Glory Ltd.(As per working note) 24,000 2,62,000
Working note:
Calculation of cash balance of Glory Limited to be taken over by Glorious
Limited
Cash balance as at 31st March,2020 1,04,000
Add: Received from debtors 1,10,000
2,14,000
Less: paid to creditors (1,80,000)
34,000
Less: Commission to liquidators
On Debtors @ 5% 5,500
On Creditors @ 2.5% 4,500
(10,000)
24,000
Note:
: 64 :
1. It is assumed that the nominal value of debentures of Glory Ltd. is ` 100

each.
2. As per the information given in the question, debentures of Glory Ltd. are to
be discharged by the issue of debentures of Glorious Ltd. at premium of 10%.
It is assumed in the above solution that the debentures are issued at
premium of ` 10 for discharge of debentures of ` 3,30,000. Alternative
answer considering other reasonable assumption is also possible.
Answer 51
(i) No. of shares issued by Black Ltd. to White Ltd. against purchase
consideration
White Ltd. ` `
Goodwill 2,40,000
Property, plant and equipment 24,00,000
Less: Depreciation [24,00,000 x 10 % x 3/12] (60,000)
23,40,000
Add: Appreciation 1,20,000 24,60,000
Inventory 7,20,000
Trade receivables 10,80,000
Cash and Bank balances 4,20,000
Add: Profit after depreciation 2,40,000
Add: Depreciation (non-cash) 60,000 3,00,000
Less: Dividend [36,00,000 x 10%] (3,60,000) 3,60,000
48,60,000
Less: Trade payables (3,60,000)
Number of shares to be issued by Black Ltd. @ ` 100 each 45,000 shares
: 65 :
(ii) Calculation of Net Current Assets as on 01.07.2020

Black Ltd. White Ltd.
` ` `
Current assets:
Inventory 9,60,000 7,20,000
Cash and Bank 14,40,000 4,20,000
Less: Dividend (6,00,000) (3,60,000)
Add: Profit after 4,80,000 2,40,000
depreciation
Add: Depreciation
being non cash 90,000 14,10,000 60,000 3,60,000
40,50,000 21,60,000
Less: Trade payables (6,00,000) (3,60,000)
34,50,000 18,00,000
(iii) Profit and Loss Account balance of Black Ltd. as on 1.07.2020
`
P & L A/c balance as on 31.03.2020 7,20,000
Less: Dividend paid (6,00,000)
1,20,000
Add: Estimated profit for 3 months after charging depreciation 4,80,000
6,00,000
(iv) Property, plant and equipment as on 01.07.2020
Property, plant and equipment of Black Ltd. as on 36,00,000
31.03.2020
Less: Depreciation for 3 months [36,00,000 x 10% x (90,000)
3/12]
35,10,000
Property, plant and equipment of White Ltd. Taken
over as on 31.03.2020 24,00,000
Less: Proportionate depreciation for 3 months on (60,000)
fixed assets
23,40,000
Add: Appreciation above the estimated book value 1,20,000 24,60,000
Total Property, plant and equipment as on 1.7.2020 59,70,000
: 66 :
Answer 52
Journal Entries in the books of Z Ltd.
` `
Business Purchase A/c Dr. 54,00,000
To Liquidator of A Ltd. A/c 54,00,000
Long term advance to B Ltd. A/c Dr. 2,20,000
Inventories A/c Dr. 10,40,000
Trade Receivables A/c Dr. 8,20,000
Cash and Bank A/c Dr. 3,00,000
Goodwill A/c Dr. 12,20,000
To Retirement Gratuity Fund A/c 1,00,000
To Unsecured Loan A/c 6,00,000
To Other liabilities A/c 2,00,000
10% Debentures A/c Dr. 20,00,000
Liquidator of A Ltd. A/c Dr. 54,00,000
Business Purchase A/c Dr. 28,80,000
To Liquidator of B Ltd. A/c 28,80,000
Land and Building A/c Dr. 21,00,000
Inventories A/c Dr. 7,00,000
Trade Receivables A/c Dr. 5,20,000
Cash and Bank (less dividend) A/c Dr. 60,000
To Unsecured Loan A/c 8,20,000
To Capital Reserve A/c 1,00,000
: 67 :
Liquidators of B Ltd. A/c Dr. 28,80,000

Unsecured Loans A/c Dr. 2,20,000
To Long term Advance to B Ltd. A/c 2,20,000
*Capital Reserve A/c Dr. 1,00,000
To Cash and Bank A/c (Liquidation expenses) 80,000
To Goodwill A/c 20,000
Note:
1. The journal entries for A Ltd. and B Ltd. have been given separately in the
above solution. Alternatively, the entries may be given as combined for both
companies.
2. *Alternatively, following set of entries may be given in place of the last entry
given in the above solution:
Goodwill A/c Dr. 50,000

To Cash & Bank A/c (Liquidation expenses of A Ltd.) 50,000
Capital Reserve A/c Dr. 30,000 30,000

To Cash and Bank A/c (Liquidation expenses of B
Ltd.)
Capital Reserve A/c Dr. 70,000 70,000
To Goodwill A/c
Balance Sheet of Z Ltd. as at 31st March, 2022

Particulars Note No. (`)
(b) Reserves and Surplus 2 41,40,000
(a) Long-term borrowings 3 20,00,000
(b) Long term provisions 4 1,00,000
: 68 :

(a) Short-term borrowings1 5 12,00,000
(b) Trade payables 6 4,40,000
(a) Other liability 2,00,000
Total 1,22,20,000
II. Assets
(a) i. Property, plant and equipment 7 76,60,000
ii. Intangible assets 12,00,000
(Goodwill 12,20,000-20,000)
(2) Current assets
(b) Trade receivables 9 13,40,000
(b) Cash and cash equivalents 10 2,80,000
Total 1,22,20,000
Notes to Accounts
(`) (`)
1. Share Capital
Authorized Share Capital
6,00,000 Equity shares of ` 10 each 60,00,000
Issued: 4,14,000 Equity shares of ` 10 each 41,40,000
(all these shares were Issued for consideration
other than cash)
Securities Premium Account (4,14,000 shares × ` 41,40,000
10)
3. Long-term borrowings 20,00,000
12% Debentures
4 Long term Provisions 1,00,000
Retirement gratuity fund
: 69 :
5. Short-term borrowings
Unsecured loans
A Ltd. 6,00,000
B Ltd. 8,20,000 14,20,000
Less: Mutual (2,20,000) 12,00,000
6. Trade payables
A Ltd. 1,00,000
B Ltd. 3,40,000 4,40,000
7. Property, plant & equipment
Land and Building
A Ltd. 28,00,000
B Ltd. 21,00,000 49,00,000
Plant and Machinery
A Ltd. 20,00,000
B Ltd. 7,60,000 27,60,000
76,60,000
8. Inventories
A Ltd. 10,40,000
B Ltd. 7,00,000 17,40,000
9 Trade receivables
A Ltd. 8,20,000
B Ltd. 5,20,000 13,40,000
10 Cash & cash equivalents
A Ltd. 3,00,000
B Ltd. [3,00,000-2,40,000(dividend)] 60,000
3,60,000
Less: Liquidation Expenses (80,000) 2,80,000
: 70 :
Working Note:
Calculation of amount of Purchase Consideration
A Ltd. B Ltd.
Existing shares 3,00,000 2,40,000
Agreed value per share ` 18 ` 12
Purchase consideration 54,00,000 28,80,000
No. of shares to be issued of ` 20 each (including ` 10 2,70,000 1,44,000
premium)
Face value of shares at ` 10 27,00,000 14,40,000
Premium of shares at ` 10 27,00,000 14,40,000
Answer 53
As per AS 14 “Accounting for Amalgamations”, the term consideration has been
defined as the aggregate of the 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.
Purchase consideration will be:
` Form
Equity shareholders:
1,50,000 × ` 18 27,00,000 Cash
1,50,000 × 2/3 × ` 10 10,00,000 11% Pref. shares
1,50,000 × 1/3 × ` 13 6,50,000 Equity shares
43,50,000
Note:
1. According to AS 14, ‘consideration’ excludes the any amount payable to
debentureholders. The liability in respect of debentures of vendor company
will be taken by transferee company, which will then be settled by issuing
new debentures.
2. Liquidation expenses will also not form part of purchase consideration.
: 71 :
Answer 54
Amalgamation in the nature of merger is an amalgamation which satisfies all
the following conditions:
(i) All the assets and liabilities of the transferor company become, after
amalgamation, the assets and liabilities of the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares
of the transferor company (other than the equity shares already held
therein, immediately before the amalgamation, by the transferee company
or its subsidiaries or their nominees) become equity shareholders of the
transferee company by virtue of the amalgamation.
(iii) The consideration for the amalgamation receivable by those equity
shareholders of the transferor company who agree to become equity
shareholders of the transferee company is discharged by the transferee
company wholly by the issue of equity shares in the transferee company,
except that cash may be paid in respect of any fractional shares.
(iv) The business of the transferor company is intended to be carried on, after
the amalgamation, by the transferee company.
(v) No adjustment is intended to be made to the book values of the assets and
liabilities of the transferor company when they are incorporated in the
financial statements of the transferee company except to ensure uniformity
of accounting policies.
Answer 55
Consideration for the amalgamation means the aggregate of the 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.
Computation of Purchase consideration (`) Form
For Preference Shareholders of Moon 17,50,000 25,000
Ltd. (25,000 × ` 70) Preference
For equity shareholders of Moon Ltd. 77,00,000 70,000
(70,000 × ` 110) Equity shares of Star
Ltd.
1,25,000 Cash
Total Purchase consideration 95,75,000
: 72 :

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INTER C.A.

PART A : THEORY SECTION

There are two methods to calculate purchase consideration amount.

Accounting in the books of Selling Company (S Ltd.)

Step 1 : Transfer of B/s items at B/s values (Empty B/s in Ans.)

Step 2 : Demand PC from Buying Co.

Step 4: Sale of Assets not T/O

Step 5 : Payment of liability not T/O

Step 6 : Payment of Realization Expenses

Case B: Seller pays but buyer reimburse

Case C : Buyer pays & Bears

Step 7: Payment to PSH

At the end ESH A/c must Tally

Accounting for Buying Company

I Purchase Method II. Merger

Step 5: carry forward of unexpired Not required

Step 6: Payment / reimbursement of Step 6

Merger Method (Pooling of interest method) :

3. Payment to equity shareholders of selling co. should be in form of equity share of

PART B: CLASSWORK SECTION

The consideration payable by Ajanta Limited was agreed as under :

Question 2 Very important

Details of Trade receivables and trade payables are as under:

Liabilities Hari Ltd. (`) Vayu Ltd. (`)

Hari Ltd. absorbs Vayu Ltd. on the following terms:

The following further information is given —

(B) You are further informed that :

You are required to :

White Ltd. Blue Ltd.

(ii) 15% debentures in Neptune Ltd. at par to provide an income equivalent to 8%

PART C : HOMEWORK SECTION

P. Ltd. has agreed:

Following are the additional information:

(ii) The purchase consideration is to be discharged as under:

Bills Payable 40,000

Balance Sheet of Y Ltd.

General Reserve 8,00,000

PART D : PAST EXAM QUESTIONS

by issue of 1,80,000 equity shares, credited as fully paid, to be treated as valued at

8% Debentures 2,00,000 1,00,000 Machinery 6,20,000 4,50,000

Balance Sheet of P Limited as at 31.03.2014

Balance Sheet of Q Limited as at 31.03.2014

You are required to:

General Reserve 2,10,000 2,10,000

X Ltd. absorbs Y Ltd. on the following terms:

3. Long term Borrowing:

Current Liabilities Misc. Exp.

Investments (15,000 Shares of Y Ltd.) 2,40,000 -

Following are the additional information:

3. Long term Borrowing:

The terms of Amalgamation are as under :

(3) Issue of 6 equity shares of ` 20 each in AB limited @ ` 18 paid up at a premium of `

Details of Trade receivables and trade payables are as under:

Namo Ltd. Raga Ltd.

Share Capital : Plant, Property

Particulars Note No. Dark Ltd. Fair Ltd.

Dark Ltd. (` in Fair Ltd. (` in

Galaxy Ltd. Glory Ltd.

Note Particulars Black Limited White Limited

Black Limited takes over White Limited on 1st July, 2020.