method g Para 3.3 ne method Para 3.4 Para 4.1) 3.4.2 (3)) : Exh. 3} 1442) External F tructi A 18. Purchase Consider an 19. Meaning of hase t AS 14 mn 20. Net Payment thod A 21.Not Assets M Ane 22, Debentures and Purchase consid ‘Ans. 23. Liquidation Expenses and Purchase consideration Ans. 24. Swap Ratio Ans 25. Fractional Sh Ar 8) OBJECTIVE QUESTIONS 1. Companies may combine in folowing ways (0) absorption i) amalgamation (v) merger (©) any excopt (iv sy Wace 2. Ifthe ABC Limited and DEF Limited are taken over by a ne x (a) itis called absorption () itis called amalgar (@) itis called external reconstruction itis called intemal recons 3. Ifthe ABC Limited and DEF Limited are taken over by a new company X (@) ABC Lid. and DEF Lid, are known as the Companies’ (b) ABC Ltd. and XYZ Lid. are known as the “Vendor Companies (¢) XYZ Ltd. and DEF Ltd. are known as the “Vendor Companies’ (€) XYZ Lid. is known as the “Vendor Company 4. Ifthe ABC Limited and DEF Limited are taken over by a new c (a) ABC Ltd. and DEF Lid. are known as the “Pu (b) ABC Ltd. and XYZ Ltd. are known as the “Pu (c) XYZ Lid. and DEF Ltd. are known as the “Purchasing Companie: (d) XYZ Ltd. is known as the “Purchasing Company 6. Ifthe business of an existing company ABC Limited is taken over by an ex: Limited, it is called a) external reconstruction (c) absorption 6. ifthe business of an existing company ABC Limited is taken over by an exis Limited, (a) ABC Ltd. is known as the “Vendor Company Company’ {b) ABC Ltd. and POR Ltd. are known as the “Purchasing Companies’ hasing Co (b) internat reconstruction (d) amalgamation and PQR Ltd. is known as th (c) POR Lid. is known as the “Vendor Company”; and ABC Ltd. is known as the “Pur Company” (@) ABC Ltd. and POR Ltd. are known as the “Vendor CompaniesPinanctal ‘over by a 0H COMPANY Ay tod, a tose making company, @ taker (p) absorption vaigamation ¥y HOW COMPANY Ay oxnal reconstruction ) extornal reconst uta ‘8. ifthe business of ABC L (New) Limited: {a) ABC Ld. ie known as tM? “vendor a loss-making © Company" and AB (Now) Lt joknown a the "PUrchagy, Companies” Sree ) Lid, are Know! ag the Ora a6 Non 0 ote ey 400 on nvr COMPANY verano Ld ual sno nvendr CORORNIS, formation of one a Company” (@ ABC Lid, and ABC (New) LG, Bre KT as o. thar tne merger involves Haucatin of (WO company, itis called {a) internal reconstruction (b) absorption {¢) external reconstruction {d) amalgamation 10.When the merger involves (moro existing companion and formation of, new company, itis called {a) internal reconstruction (¢) external reconstruction (4) amalgamation 1 aes nga inalves Hqudation of one exsetng SK ‘company and formation of ne p ‘company, it is called Py (a) internal reconstruction (b) absorption ie © ‘external reconstruction (d) amalgamation A feature which common 0 ‘an cases of merger viz. absorption, amalgamation and exten (a) purchase of one company by another comy ~ liquidation of at least two companies er (¢) formation of at least one new compan (4) liquidation at least one existing os 13. Under the Companies Act, 1956, (a) absorption’ includes “amalgamation” amalgamation’ includes ‘absorption’ ‘amalgamation’ excludes ‘absorption’ Se cher co cides “eae ‘Accounting for amalgamation is governed ot coroner uetor (a) Accounting Standard 1 » a © cea Standard 14 ° Accounting Standard 13, ‘Accounting for absorption is governed by Accounting Standard 11 liquidation of ont (b) absorption y and formation of at least one new company Gee An orAmalgamation, Absorption and External Reconstruction (AS-14) (a) none of the above 120. According to AS 14, Amalgamations fal int ote (@) amalgamation and absorption" "0 cmtegone (0) merger and purchase (6) amalgamation and reconstruction {(@) external reconstruction and internal recons 21.On amalgamation, Shi ea On ama = ue Expenses Alc app (a) is closed by debit to Realisation Ae (0) is closed by debit to Equity Shareholders A/ (6) is closed by debit to Profit& Loss Ac (2) is closed by credit to Equity Shareholders Alc 22.0n amalgamation, Profit & Loss Alc (Dr.) balance of the vendor company (a) is closed by debit to Realisation Ac (b) is closed by debit to Equity Shareholders A/c (6) is closed by credit to Equity Shareholders Ale (d) is closed by credit to Realisation A/c ring on Assets side of the balance sheet of 23.0n 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 taken over by the new company ‘or not (c) is closed by credit to Debentureholders Alc, if debentures are not taken over by the new ‘company (2) is closed by debit to Realisation A/c, whether debentures are taken over by the new company or not 24.0n amalgamation, Provident Fund Alc appearing on the Liabilities side in the balance sheet of the vendor company {a) is closed by credit to Purchasing Company A/c (b) is closed by credit to Realisation Ale (c) is closed by credit to Equity Shareholders 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 sheet of the vendor company {a) is closed by credit to Purchasing Company A/c Js closed by redt to Realisation Ne closed credit to Equity Shareholders Se, ealisation Ac : n, if the dissolution expenses are paid as well as borne by the purchasing d in the books of the purchasing as well as the vendor company> (.¥.B.Com. : SEM.y, Financial Accounting any counting procedure used By the purchasing comps a ne ‘amalgamation ot apie the aame i al 1ype8 is (i art copenang upon wee! I ar ‘chase as defined by Account ‘Standard 14 different d ceotiather the companies are Private © public i pending upon whether the Com (c) is itferent dependin <) eater depending upon the amount ‘hase consideration jount of purchas is diferent dep pont! . 20.At the assets and lables of the vendo ‘company become the ase! purchasing company ee aaa (a) ifthe amalgamation isin 1 en it the amalgamation is i ; © aalgaton into nan of atruction 2s fn Act (@) ifthe amalgamati 31. Shareholders holding not ‘vendor company become {a) if the amalgamation isin t (6) ifthe purchase consideration is cal (c) ifthe amalgamation is in the nature of Act 1 in the nature of 2 Merger o ts and liabilities of As 14 \der the Companies Act ed under the Compan, in the nature of merge 1e nature of absorpt ‘external recor urchase as defined under AS 14 Tage than 90% of the face value of the equity share capital in th, equity shareholders in the purchasing company the nature of merger as defined under AS 14 culated under payment method vernal reconstruction as defined under the Company ion is in the nature of P ed under AS 14 {q) ifthe amalgamation isin the nature of purchase as defin ied in the accounts of the purchasin 42. The assets and labilties of the vendor company are incorporat company at book values (a) if the amalgamation isin the nature of merger as defined under AS 14 (0) ifthe amalgamation is in the nature of purchase as defined under AS 14 (@) if the purchase consideration is calculated under Net Assets method (6) tte amigaraton in he nature of external reconstruction as defined under the Companies ct '83.{n 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 ® ieee a tne fiseronae defined under AS 14 pesos Beni Pateioe fs inst pm somes ac A 14 ice en roab is calculated under Net Assets method 45. ils in the nature of external reconstruction as defined under the Companies 34. The difference between the purchase consid je Many, lotr debited othe Goodvil eee ® G - pecoeeson 's in the nature of merger as defined under AS 14 i ion isin the nature of purchase as defi ® : ee 3 consideration is calculated under Net rae a eee iuine amalgamation isin the nature of extemal reconstruction as fae nder under the Companies 35. Under purchase ethod of amalgamation, the re: \d the net assets of the vendor company, ei ‘edited to the Capital Reserve Account 47 8 a Fixed Asset in the balancs Bee in the ban eet of the purchasing com shown as a Fictitious sen pele hey eet ofthe vendor company, Reserves and Surplus ar pas aes sheet of the purchasing comps one RS — of the Purchasir hee arge the eo” ae by net payment aly ‘sideration by net asset method ration by net payment ‘methodAmalgamation, Absorption and External Reconstruct n (AS-14) a My, 38.The amounts paid by the purchasing company discharge t! ion by net payment met ine contingent liabilities are hod ™ (2) ignored while calculating purchase considerati fb) ignored while calculating purchase consideration by net Asoo" mettod and 4, {6} considered while calculating purchase consideration By net Pa ment mettod ‘Sbiiy, 39, The amounts paid by the purchasing company 10 ‘meat the expenses of winding UP are 4 (a) ignored while calculating purchase consideration by net payment method Compa fp)ignored while calculating purchase consideration by net asset metrod der seria {¢) considered while calculating purchase consideration by net payment mettod theg’’t — 40.the agreed values at which the assets or liabilties are taken over by the purchasing company =e {a) ignored while calculating purchase consideration by net payment method {b) ignored while calculating purchase consideration by net asset method hy (6) considered while calculating purchase consideration by net payment method 441. The value of assets or liabilities not taken over by the purchasing company i$ {@) ignored while calculating purchase consideration by net payment method der the {b) ignored while calculating purchase consideration by net asset method Cong, __{@) considered while calculating purchase consideration by net asset method 42. The Unamortized Expenditure not writen off is wales (a) ignored while calculating purchase consideration by net Putty, _(0)gnored while calculating purchase consideration by net asset method {@) considered while calculating purchase consideration by net asset method 4a.Liguidation expenses of Vendor Co. agreed to be paid / re-imbursed by the Purchasing CO. ‘should be {@) considered while calculating purchase consideration by net payment method ) considered while calculating purchase consideration by net asset method ©) ignored while calculating the purchase consideration (whether under net payments method ‘or net assets method). ‘As per AS-14 purchase consideration is what Shareholders payment method is payable to ) (b) Shareholders and debenture holders ‘Shareholders and creditors (d) None of the above ‘amalgamation is in the nature of merger, the accounting method to be followed is Equity method (b) Purchase method ; Pooling of interests method (d) None of the above ‘adjustment reserve is opened in the books of transferes ‘assets of the transferor company liabilities of the transferor company statutory reserves of the transferor company ‘of the above "Purchase method of accounting’, the transferee company incorporates in its books: ‘and liabilities of the transferor company liabilities and statutory reserves of the transferor company liabilities and reserves of the transferor company. 1e company to incorporate ill ‘on is to be ined in the books of the transferee company. systematic basis ‘and profit and loss account of the transferee company immediately, vot interests method the difference between the purchase consideration and ‘company should be adjusted to : (b) Amalgamation adjustment reserve (a) None of the aboveFinancial Accounting (T¥-B.Com. :Sky., "4 yolude sideration does not inclu rectly pay to the credito! Jn, purchase con r8 of the trangy, ‘sferee company will di 50. At the time of amaigamatio: (a) The sum which the tran company. (b) Payments made in transferor company. (c) Preterence shares issue’ transferor company. (e) pretence shares iseved by the tansteree company to the & transferor compary. 51. The asset which isnot taken un is {@) Loose Tools (b) Bills Receivables (¢) Machinery (a) Share issue Expenses '52.'Pooling of interest is a method of (a) Charging Depreciation {@) Calculation of Purchase Consideration _(d) None of the above 52. unich of the following methods, the purchase consideration is calculated on the basis ofp, agreed value of the shares of the transferor company ? ¥ (@) Net Asset Method (b) Net Payment Method (©) Intrinsic Value Method (@) None of the above ‘54. The adjustment entry passed to eliminate the inter-company bills of exchange is {@) Debit bis payable ac credit bills receivable a/c ene credit bills payable a/c (¢) Debit amalgamation adjustment a/c, credit sta (d) None of the above iipaboron ieee ef, 85.Under ‘Purchase method’, any excess of ci the amount of purcha: Meta canse tata se consideration over th ee 'sferor company should be reeagneed ioe: go pms tose fae It there isa provision (ROD) a Fete gainst the d isc lebtors, such debtors are transferred to the Realisatie: (a) Net Amount .¢. Debtors less RDD (¢) Gross Amount of Debtors 87. Under payments method, purchase consid (d) None of the above 4 , leration for (2) Asrgatefsares and cash to sharehokia ttl etl ») Aggregate of shares, cash and pay af (c) Shares, cash, yment to debenture hold , payment to debenture hold at? ss (d) None of the above lers and expenses of realisatior Loss or profit on realisation J (a) Protretoa shareholders Mag TansterTed by the transferor compan i. (c) Profit & loss appropriation a/c (b) Equity shareholders en amalgamation Intrinsic value of each () None of the at ss sets by the transferee company £0 ne shareholders the form of ass «by the transferee company tothe Preference shareholders of, .quity shareholders of , hod of calculating purchase consideray, der the Net assets met (0) Accounting for Amalgamation (b) Current Market Value n over by another existing comps” is taken over by a new company AS = pmol pure purche (anino a. AS 14 years The A of the 10.1f Pur rise te 11. Diss0 Accor 42.In me capit 13.in me disch share 14.An af of the 15. Value (Al)EeE—"_ ation wh of two existing com" Jone new compar: formation of itis called ‘When the merger fe we or ere exeting COMPA stad tormation of no new COMPS itis called ‘When the mera cof one existing sick & formation of one new com itis called Agcounting ‘governed bY Recording to AS 14 Transteror ‘Company means the Company iacoording to AS 14, Transteree Company means the Company ‘ecording to AS 14, Amalgamations fall into two categories {Atleast 90% of equity shareholders ‘ofthe Vendor Co. become the share holders of the Purchasing Co. involves liquidation er involves liquidation ‘ompany and pany, 3g for amalgamation is COLUMN A ‘On amalgamation, Preliminary Expenses A/c appearing on Assets side of the balance sheet of the vendor company ‘On amalgamation, if the dissolution ‘expenses are paid as well as borne by the purchasing company. On amalgamation, if pref. shares are ‘settled at a premium, the premium ‘On amalgamation, accounting procedure used by the vendor company ‘Shareholders holding not less than 190% of the face value of the equity share capital in the vendor company become equity shareholders in the Purchasing company The amounts paid by the purchasing Gompany to discharge the debentures _ The Miscellaneous Expenditure not oft is __ Liquidation expenses of Vendor Co, _ Agreed to be paid /re-imbursed by, Co., should be Ae Financial (@) w) ©) @) @) ( (9) (h) 0) ) () (a) 10) a reo ——— een (1¥.B.Com. SEM.y, punting 210" pureha merger and P ‘amalgamation fy is anal company econstruction struction jamated into another ‘external 1 internal recon absorption Purchase Method struction ‘external reconstru pecounting Standard 19 ‘recounting standard 14 Merger Method into which a Com nand pany is amalgamate, COLUMN B Ignored while calculating purchase consideration by net asset method if the amalgamation is in the nature ‘of merger as defined under AS 14 is closed by debit to Profit & Loss Ac is closed by debit to Equity Shareholders A/c is debited to Realisation Alc is different depending upon whether the amalgamation is in the nature of ‘@ merger or a purchase as defined bj Accounting Standard 14 no entry is passed in the books of the vendor company isthe same in all types of amalgamai! Considered while calculating Purchase consideration by Ret payment method ‘tthe amalgamation is in the nature? Purchase as defined under AS 14 tare while calculating purchase i leration by net payment metho mates while calculating the jnaiore Consideration (whether fa Ret payments method or assets method) a cot ‘Am ‘Abs 1. Two or ‘When t fair val termed In the ¢ Accord interes . Under the as Goody til the - Under extern . Incon ‘shoul Capit 10. Unde 11. Unde 12.1n am 13. Unde iat 14. Unde ooy By ynation, Absorption and External Reconstruction (AS-14) 7 ‘COLUMN A COLUMN 8 ‘amalgamation Absorption (a) Two or more Liquidations; ‘One Formation External Reconstruction ‘Two types of amalgamation un as14 n under Merger vide AS 14 (b) The shareholders of the acquired ‘company become shareholders, in the acquiring company 5 : 5 amalgamation Adjustment Ri (©) Net Payment Method $ Gondor Capt Reserve a aes hua epee eee iy pata expenses paid & bore by | (Purchase and Merge" 4, Inthe books of he purchasing (@) Amalgamation by Purchase coreaythe mete moetines |” Soho ted ee a brite Bae we (Reserve inthe balance sheet of the hone (on the basis of their fair purchasing company ues (Amalgamation and Absorption 0) eS {K) One Liquidation; One Formation company, the assets and liabilities of | (|) Capital Reserve Account fre vendor company ar incorporte | (m) Tne sraaroters ofthe aured ‘on the basis of their book values: company do not become shareholders in the acquiring company {n) Two or more Liquidations; No Formation (0) ‘Reserves & Surplus’ in the Balance ‘Sheet of the Purchasing Company {p) Net Assets Method ane koe “Two or more companies combining to form a new company is called absorption When the transferee company decides to compensate the transferor compat the basis of {anvalues of the assets and liabilities, the method of computing the purchase consideration is iquidations and one formation. S-14 purchase consi reed to be payable to different rs, debenture holders, : ting, the transferee company incorporates in its Books, of the transferor company. tetained in the books of the company books only theFinancial Accounting (1. 78 10d" shares are iss 17.Under the ‘pooling of interests meth dn ish between arnal 48. Accounting standard (AS) 14 does not distinguish Dé 49. Absorption is said to take place when an existing compar 8.5 CHECK YOUR ANSWERS \y takes over ¢ 84 = 7 @ J 10 @ | 1% @ | 2. (@) | 97. (@) | 46 2 ) | 1. @ | 20. &) | 29. &) | 98 () | 47 3. (a) | 12 (@) | 21 () | 30 (a) 39. (a) 48 4 @ | 13 @) | 22 &) | 31. @ | 40. (@) | 49 5 () | 14 © | 23 () | 32 (a) | 41. (b) | 50 6 (a) | 15. () | 24 (o) | 33. (b) | 42. (b) | 51 7 (© | 16 @ | 25. (@) | 34 &) | 4. © 52 & () | 17. © | 26. () | 35. (b) | 44. (a) | 53 2. ( | 18. (@) | 27. ) | 36 (©) | 45. @) | 54 ad by the transferee Igamation ar ¥.B.Com. bo (15) Intrinsic D783 A: (1)-(0), (2)- (9, (9)- (6) (4)- (2), (5) - (0, (6)- (0), (7) -(h), (8) FB=(1)- (0), 2)-(0), (3) - (0) (4) -().(8)- (0). (6) - (7) a, (6) Denti (2). (0) (4) (6) = (, (8) - (ke), (7) - (a), (8) 84 Meioia ria” (1), (8) - (©), (6) - (i), (7) = (c), (8) , 2, 4, 6, 7, 8,9, 11, 13, 14, 15, 16 Land and Build Plant a ings Stock "4 Machinery >| Debtors -| Cash (d) @ () (€), (9) - (g), (1 1,10,000 | 16,000 14.000 82 (1) Amalgamation (2) Vendor, Purchasing (3) Absorption (4) External (5) Would not (6) W. not (7) No (8) 5 (9) Reserve (10) Will not (11) Goodwill (12) 90 (13) Equity pee wale Sha 6,00 of 2 1,56 of? 50,( z1 Ger Pro! Cre An terr 4) (2) (3) (4) (5) (6) Giv