MACR

Accounting for Amalgamation - Problems

Kiran KVK, VVCE

Exercise 1 (VTU, Dec-2011, 10 Marks) (Books of Target Co) On 31 March 2012, the Balance Sheet of M/s. Jaysheela Ltd stood as follows:
st

Liabilities Share Capital (Rs. 10 Each) Creditors

Rs. 600000 130000

Assets Furniture Stock Debtors Cash at Bank Profit and Loss Account

Rs. 60000 415000 115000 40000 100000 730000

730000

On this date, M/s. Girish Ltd took over the business of Jaysheela Ltd for Rs. 500000, payable in the form of its equity shares of Rs. 10 each at par. Show the necessary ledger accounts in the books of Jaysheela Ltd.

Exercise 2 (VTU, Dec-2011, 10 Marks) (Books of Target Co) The following is the Balance Sheet of M/s. Chiranjeevi Ltd as on 31st March 2011: Liabilities Equity Share Capital General Reserve Workmens Accident Compensation Reserve Profit and Loss Account Sundry Creditors Rs. 1000000 110000 50000 70000 160000 Assets Goodwill Land and Buildings Plant and Machinery Patents and Trademarks Stock Sundry Debtors
Less: Provision for bad debts

Rs. 190000 200000 440000 30000 210000 180000 12000 168000 132000 20000 1390000

Cash at Bank Preliminary Expenses 1390000

Chiranjeevi Ltd is acquired by M/s. Madesh Ltd for Rs. 1400000, i.e., 120000 fully paid Rs. 10 shares and balance in cash. There was a contingent liability in respect of a claim for compensation under the Workmens Compensation Act. The claim was not taken over by Chiranjeevi Ltd. Give journal entries in the books of Chiranjeevi Ltd

MACR

Accounting for Amalgamation - Problems

Kiran KVK, VVCE

Exercise 3 (VTU, Jul-2011, 15 Marks) (Books of Target Co) The following is the Balance Sheet of M/s. Prajwal Ltd as on 31st March 2012: Liabilities 50000 equity shares of Rs. 10 each General Reserve Profit & Loss A/c 12% Debentures of Rs. 100 each Trade Creditors Employee Provident Fund Rs. 500000 170000 30000 100000 50000 15000 865000 865000 Assets Buildings Machinery Stock Debtors Cash Rs. 150000 550000 80000 70000 15000

M/s. Chethan Ltd has agreed to purchase Prajwal Ltd at Rs. 661500 to be paid in fully paid equity shares of Rs. 10 each. Prepare Journal Entries to close the books of accounts of Prajwal Ltd and also prepare the realization and equity share holders account. Exercise 4 (VTU, Jan-2010, 10 Marks)(AS14) M/s. Kushal Tours Ltd. is considering a merger to achieve further growth. The company has decided to acquire M/s. Praveen Travelers Ltd. Kushal Tours Ltd. offers Rs. 1000000 for Rs. 600000 of Praveen Travelers Ltd.s stock at book value. Praveen Travelers Ltd. has Rs. 200000 debt. Calculate goodwill that may arise if Kushal Tours Ltd has Rs. 2000000 equity and Rs. 500000 debt itself. Prepare a Combined Balance Sheet under: i) ii) Purchase Method Pooling of Interests Method Exercise 4 (VTU, Jul-2009, 10 Marks) The following is the abridged Balance Sheets of M/s. Raghavendra Ltd and M/s. Mubarak Ltd as on 31st March 2012: Liabilities
Equity Share Capital Rs. 10 each) 10% Preference Share Capital (Rs. 100 each) 1000 Current Assets 4000 1970

Raghavendra Rs.
8000

Mubarak Rs.
3000

Assets
Fixed Assets

Raghavendra Rs.
11000

Mubarak Rs.
4730

MACR

Accounting for Amalgamation - Problems

Kiran KVK, VVCE

General Reserve Statutory Reserve Profit and Loss A/c 12% Debentures Current Liabilities

4610 390 563 1437 15000

980 125 355 250 990 6700 15000 6700

On 1st April 2012, Raghavendra Ltd takes over Mubarak Ltd on the following terms: i) ii) iii) Raghavendra Ltd will issue 350000 equity shares of Rs. 10 each at par to the equity shareholders of Mubarak Ltd Raghavendra Ltd will issue 11000, 10% Preference Share of Rs. 100 each at par to the Preference Shareholders of Mubarak Ltd The debentures of Mubarak Ltd will be converted into an equal number of 12.5% debentures of same denomination You are informed that the statutory reserves of Mubarak Ltd are to be maintained for two more years. You are required to show the balance sheet of Raghavendra Ltd immediately after the above-mentioned scheme of amalgamation has been implemented assuming that the amalgamation is in the nature of merger.

Exercise 5 (VTU, Jul-2011, 7 Marks) The following is the Balance Sheet of M/s. Saddam Ltd as on 31st March 2011: Liabilities 6000 equity shares of Rs. 100 each fully paid General Reserve Profit & Loss Appropriation A/c Bills Payable Sundry Creditors Rs. 600000 250000 80000 70000 245000 Assets Goodwill Plant and Machinery Furniture Stock Debtors Cash at Bank
Preliminary Expenses

Rs. 70000 460000 102000 436000 134000 23000 20000 1245000

1245000 Suppose: i) ii) iii) iv) M/s Dastgir Ltd purchased the business of Saddam Ltd

Goodwill is valued at Rs. 200000, while stock is valued at Rs. 416000, other assets are considered worth their book value Dastgir Ltd does not take over cash at bank Consideration is to be discharged in the form of 90000 fully paid equity shares of Rs. 10 each, valued at par and balance in cash

MACR

Accounting for Amalgamation - Problems

Kiran KVK, VVCE

From the above given information, calculate purchase consideration for Saddam Ltd

Exercise 7 (VTU, Jul-2011, 20 Marks) The following is the Balance Sheet of M/s. Chandan Ltd as on 31st March 2012: Liabilities 40000, Equity Shares of Rs. 10 each General reserve Profit & Loss A/c 10% Debentures Creditors Rs. 400000 50000 29600 250000 128700 858300 Assets Buildings Plant and Machinery Investment Debtors Stock Cash at Bank Rs. 170000 400000 50600 140500 80700 16500 858300

Chandan Ltd was absorbed by M/s Om Ltd on the above mentioned date on the following terms and conditions: Om Ltd should, i) ii) iii) Assume liabilities and to acquire all assets except investments which are sold by Chandan Ltd for Rs. 45000 Discharge the debentures of Chandan Ltd at a discount of 5% by the issue of 12% Debentures of Rs. 100 each in Om Ltd Issue two equity shares of Rs. 5 each in Om Ltd at Rs. 6 per share and also to pay Rs. 2 per share in cash to the shareholders of Chandan Ltd in exchange of every share in Chandan Ltd iv) Pay the cost of absorption of Rs. 2500 as a part of purchase consideration. Chandan Ltd sold in open market 1/4th of the shares received from Om Ltd at the average rate of Rs. 5.50 per share Show the necessary ledger accounts in the books of Chandan Ltd and the opening entries in the books of Om Ltd Exercise 8 (VTU, Jun-2010, 20 Marks) M/s Sachin Ltd and M/s Aslam Ltd doing business in the same field, decided to amalgamate to avoid unnecessary competition and secure economy in production and marketing. Following were the Balance Sheets as on 31st December 2011: Liabilities
Equity Shares of Rs. 10 each
Sachin Ltd Rs. Aslam Ltd Rs.

Assets
Goodwill

Sachin Ltd Rs.

Aslam Ltd Rs.

1000000

500000

100000

MACR

Accounting for Amalgamation - Problems

Kiran KVK, VVCE

Land and Buildings 8% Preference Shares of Rs. 10 each 10% Debentures of Rs. 100 each 8% Debentures of Rs. 100 each Reserve Fund P & L A/c Workmens SB A/c Other Liabilities 500000 160000 70000 130000 286000 2646000 250000 110000 50000 314000 1524000 Furniture and Fixtures Investments Stock Sundry Debtors Bills Receivable Cash at Bank Miscellaneous Expenses 500000 300000 Plant and Machinery

1530000 480000

810000 240000

30000 20000 305000 125000 19000 74000 63000 2646000

26000 10000 187000 69000 11000 38000 33000 1524000

The Amalgamation was effected on 1st January 2012. The purchase consideration payable by the new company named, M/s. Saclam Ltd was as follows: For Sachin Ltd: i) ii) iii) Equity shareholders to get one equity share of Rs. 10 each in Saclam Ltd valued at Rs. 12 per share for every equity shares in Sachin Ltd 8% Preference shareholders to get 10% preference shares in Saclam Ltd equal to their claim 10% debenture holders to get sufficient 12.5% debentures of Saclam Ltd so as to get the same amount of interest as they were getting in Sachin Ltd For Aslam Ltd: i) ii) iii) 4 equity shares of Rs. 10 each in Saclam Ltd valued at Rs. 12 per share for every 5 equity shares in Aslam Ltd 8% preference shareholders to get 90% of their claim in 10% preference shares in Saclam Ltd in full satisfaction 8% debenture holders to get sufficient 12.5% debentures of Saclam Ltd so as to get the same amount of interest as they were getting in Aslam Ltd Saclam Ltd took over all the assets and liabilities of both the companies at their book values except land and buildings, plant and machinery and stock of Sachin Ltd, which were taken over at Rs. 1850000, Rs. 320000 and Rs. 280000 respectively and investments of Aslam Ltd at Rs. 16000. The liquidation expenses of Sachin Ltd came to Rs. 13000 and that of Aslam Ltd to Rs. 9000. Balance of Cash and bank was transferred to Saclam Ltd. The authorized capital of Saclam Ltd is 250000equity shares of Rs. 10 each and 100000, 10% preference shares of Rs. 10 each. Prepare purchase consideration statements, close the books of Sachin Ltd and Aslam Ltd and prepare opening balance sheet of Saclam Ltd

MACR

Accounting for Amalgamation - Problems

Kiran KVK, VVCE

Exercise 9 The following are the Balance Sheets of P Ltd and S Ltd as on 31st March 2010:
P Ltd Rs. 000 S Ltd Rs. 000

Liabilities:
Equity Share Capital, Rs. 10 each, fully paid 11% Preference Share Capital General Reserve Export Profit Reserve Profit and Loss Account 9% Debentures, Rs. 100 each, fully paid Creditors 11500 99000 7500 8000 72000 30000 17000 4500 2000 4000 5000 3500 66000

Assets:
Land and Buildings Plant and Machinery Furniture and Fittings Stock Debtors Cash at Bank 25000 32500 5750 21500 7250 7000 99000 29000 9410 17390 5200 5000 66000

P Ltd takes over S Ltd on 1st April 2010 and discharges consideration for the business as follows: (i) (ii) Issued 35 lac fully paid equity shares of Rs. 10 each at par to the equity shareholders of S Ltd Issued fully paid 12% preference shares of Rs. 100 each to discharge the preference shareholders of S ltd at a premium of 10% It is agreed that the debentures of S Ltd will be converted into equal number and amount of 10% debentures of P Ltd. The statutory reserve if S Ltd is to be maintained for two more years. You are required to show the Balance Sheet of P Ltd assuming that: (a) The amalgamation is in the nature of merger, and (b) The amalgamation is in the nature of purchase Exercise 10 P Ltd, for business taken over from S Ltd agrees to pay Rs. 500000 in cash and allot to S Lt 400000 equity shares of Rs. 10 each fully paid at an agreed value of Rs. 15 per share. Calculate the purchase consideration under Net Payments Method

MACR

Accounting for Amalgamation - Problems

Kiran KVK, VVCE

Exercise 11 Following is the Balance Sheet of S Ltd: Liabilities Share Capital: 20000 11% preference shares of Rs. 100 each fully paid up 800000 Equity shares of Rs. 10 each fully paid up Reserves Sundry Liabilities 8000000 5000000 6000000 21000000 21000000 2000000 Sundry Assets 21000000 Rs. Assets Rs.

P Ltd takes over the business of S Ltd and agrees to give for each 11% preference share in S Ltd, ten 12% preference shares of Rs. 10 fully paid up at par and for each equity share in S Ltd Re.1 in cash and one fully paid equity share in P Ltd of Rs. 10 valued at Rs. 15. Calculate the consideration. Exercise 12 (CS-Inter, Dec 1998) On 31 March, 2010 the Balance Sheet of X Ltd stood as follows:
st

Liabilities Share Capital, 150000 equity shares of Rs. 10 each fully paid Securities Premium General Reserve Profit and Loss Account Creditors

Rs. 1500000 150000 625500 185300 360740 2821540

Assets Plant and Machinery Furniture and Fixtures Stock Debtors Cash at Bank

Rs. 1610000 194400 705500 198440 113200 2821540

On this date, X Ltd took over the business of Y Ltd for Rs. 660000 payable in the form of its fully paid equity shares of Rs. 10 each at par, shareholders of Y Ltd getting 110 shares of X Ltd for every 100 shares held in Y Ltd. The scheme of amalgamation also provided that 3000 11% debentures of Y Ltd would be converted into equal number of 12% debentures of X Ltd of Rs. 100 each. The Balance Sheet of Y Ltd on the date of amalgamation was as follows: Liabilities Share Capital, 60000 equity shares of Rs. 10 each fully paid Capital Reserve Foreign Project Reserve (Statutory Reserve) General Reserve Profit and Loss Account 3000, 11% debentures of Rs. 100 each Rs. 600000 13000 9700 75350 24130 300000 Assets Machinery Furniture Stock Debtors Cash at Bank Preliminary Expenses Rs. 550000 135200 315800 129300 68260 6100

MACR

Accounting for Amalgamation - Problems

Kiran KVK, VVCE

Creditors

182480 1204660 1204660

You are required to: (i) Pass Journal Entries in the books of X Ltd and draw X Ltds Balance Sheet immediately after the takeover, assuming (a) the amalgamation is in the nature of merger, (b) the amalgamation is in the nature of purchase; (ii) Show journal entries and prepare important ledger account in the books of Y Ltd