AMALGAMATION AND ABSORPTION OF COMPANIES

Problem No. 1: Raja Company Ltd. and Shyam Company Ltd. carry on business of a similar nature and it is agreed that they should amalgamate. A new company Raja-Shyam Ltd. is to be formed to which the assets and liabilities of the existing companies with certain exceptions are to be transferred. On 31-2-2005 the balance sheet of both the companies was as follows: Balance sheet of Raja Company Ltd. Liabilities Rs. Assets Rs. Issued Share Capital Goodwill 300000 7500 Equity shares of Rs. Land & Building 120000 100/- each 750000 Plant & Machinery General Reserve 55000 (Less Depreciation) 195000 Profit & Loss A/c 20000 Stock 150000 Sundry Creditors 35000 Sundry Debtors 80000 Cash in hand 15000 860000 860000 Balance sheet of Raja Company Ltd. Liabilities Rs. Assets Issued Share Capital Goodwill 5000 Equity shares of Rs. 100/- each 500000 Machinery Depreciation Fund 55000 Stock Profit & Loss A/c 25000 Sundry Debtors Sundry Creditors 35000 Cash in hand 585000

Rs. 150000 250000 120000 60000 5000 585000

Raja Company Ltd. carry on its business from many years. They charged depreciation on machinery regularly. But shyam company Ltd. has started its business on 1-1-2004. The machinery is on the basis of cost and they charged depreciation by the Depreciation Fund method. The capital of Raja- Shyam Ltd. is Rs. 2000000 divided into 100000 equity shares of Rs. 10 each and 100000 6% cumulative preference shares at the rate of Rs. 10 each. Raja-Shayam Ltd. issued 15000 equity shares at par and they decided to give consideration to share holders of Raja Company Ltd and Shyam Company Ltd. i.e. for Rs. 100 each share, 5 equity shares and 5 preference shares of Rs. 10 each fully paid and balance will be paid by cash. Calculate the purchase consideration of Raja Company Ltd. and Shyam Company Ltd. and draw the Balance Sheet of new company after amalgamation.

Problem No. 2: A Ltd. and B Ltd agreed to amalgamate and form a new company C Ltd. which will take over all the assets and liabilities of following two companies. In case of A Ltd. the assets and liabilities are to be taken over at book value for shares in C Ltd. @ 5 shares in C Ltd. of Rs. 10 each at 10 % premium for every 4 shares in A Ltd.

In case of B Ltd. the debentures of B ltd. would be paid off by the issue of an equal No. of debentures in C Ltd. at a discount of 10%. The 6& preference share holders of B Ltd would be allotted 4, 7& preference shares of Rs.100/- each in C Ltd, for every 5 preference shares in B Ltd. The equity share holders would be allotted sufficient shares in C Ltd. to cover the balance on their accounts after adjusting the asset value by reducing Plant & machinery by 10% and providing 5% on sundry debtors. The summarized balance sheet of two companies at the date of amalgamation were as follows: Liabilities A Ltd. B Ltd. Assets A Ltd. B Ltd. Equity Share Capital Plant and Machinery 800000 800000 of Rs. 10 each 400000 500000 Stock 65000 60000 6% preference share Debtors 95000 50000 capital of Rs. 100 each 300000 Profit and Loss Account 140000 4% debentures 200000 Bank 65000 40000 Profit and Loss A/c 500000 Contingency reserve 50000 Creditors 75000 90000 1025000 1090000 1025000 1090000 Calculate purchase consideration for both the companies and pass the journal entries in the books of B ltd. Also Prepare Balance Sheet of C Ltd. Problem No. 3: Given below are the balance sheets of Raj Ltd and Laxmi Ltd. which are amalgamate to form a new company Raj-Laxmi Ltd. Balance sheet Liabilities Raj Ltd. Laxmi Assets Raj Ltd. Laxmi Ltd. Ltd. Equity Share Capital 200000 400000 Goodwill 80000 of Rs. 10 each 100000 20000 Building 60000 50000 Capital Reserve 160000 120000 Plant and Machinery 100000 160000 Loans 20000 100000 Furniture 10000 20000 Creditors 20000 60000 Stock 150000 180000 Bills Payable Debtors 134000 60000 Bills Receivable 44000 66000 Cash 2000 4000 Profit and Loss Account 80000 500000 700000 500000 700000 The shareholders in the amalgamation companies are to be allotted fully paid equity shares of Rs. 10 each in Ra j Laxmi Ltd. for the amount of purchase consideration for which purpose all assets and liabilities are to be taken at book values except goodwill of Laxmi ltd. which is considered worthless. Give Journal entries in the books of Laxmi Ltd. and Prepare the opening Balance Sheet of Raj Laxmi Co. Ltd. Problem 4: Jay Co. Ltd. and Ajay Co. Ltd. carrying on similar business enter into a contract to amalgamate, a new company being formed to taken over the assets and Liabilities of each company. The following are the respective Balance Sheets showing the values of the assets and agreed in the contract and it is provided

that fully paid shares of Rs. 50/- each shall be issued by the new Company Ltd. to the value of the net assets of the each old company. Jay Co Ltd Balance Sheet as on 31st March 2004 Liabilities Rs. Assets Rs. Share capital Land & Building 95000 2500 shares of Rs.10/-each 250000 Machinery 90000 Sundry creditors 41000 Stock 75000 Cash at bank 11000 Profit & Loss A/c 20000 291000 291000

Jay Co Ltd Balance Sheet as on 31st March 2004 Liabilities Rs. Assets Rs. Share capital Land & Building 75000 2000 shares of Rs.100/-each 200000 Machinery 100000 Sundry creditors 30000 Stock 45000 Reserve Fund 50000 Debtors 35000 Profit and Loss Account 10000 Cash at bank 35000 290000 291000 Calculate the purchased consideration of the two companies and give the opening entries in the books of the Vijay Co. Ltd. and its balance sheet. Problem 5: Abha Ltd. and Prabha Ltd. agreed upon an amalgamation. Their balance sheets were as follows. Liabilities Abha Ltd. Prabha Ltd. Assets Abha Ltd. Prabha Ltd. Rs. Rs. Rs. Rs. Issued share capital 600000 480000 Plant and Machinery 180000 126000 Reserve 30000 Debtors 288000 360000 P & L A/c. 72000 Bank 367200 244800 Sundry creditors 258000 148800 P & l A/c. 22800 858000 730800 858000 730800 The assets of Abha Ltd. are taken at book values except Plant and Machinery which is to be written down by Rs. 61200 those of Prabha Ltd. are to be taken at book value except that the debtors are to be considered worth Rs. 198000. Liabilities of both the companies are taken at book values. The share capital of the new Prabhat Company Ltd is to be 48000 preference shares of Rs. 10/- each fully paid and 91200 equity shares of Rs. 5/- each fully paid. The allocation of the shares is equal except that the surplus capital of Abha Ltd. is to be satisfied in preference shares. Calculate the purchase consideration of both the companies and give details of the exchange of shares. Give opening balance sheet of Prabha Company Ltd. Problem 6:

The Jay Co. Ltd. and the Vijay Co. Ltd. agree to combine and form a new company Jay-Vijay Co. Ltd. with a capital of Rs. 2000000 divided in equity shares of Rs. 10/- each. The new company is to take over all the assets and liabilities of both the companies on a consideration of issue of Vijay Co. Ltd. of Rs. 1000000 and Jay Co. Ltd. of Rs. 800000 in fully paid shares of Rs. 10/- each. The new company is to pay the liquidation expenses of the vendor companies viz. Vijay Co. Ltd. Rs. 8000 and Jay Co. Ltd. Rs. 11000. Jay-Vijay companys incorporation expenses amounted to Rs. 11000. On the date of amalgamation the balances in the books of the vendor companies were as follows. Particulars Vijay Co. Ltd. Jay Co. Ltd. Rs. Rs. Issued and paid up capital 900000 700000 Reserve fund 100000 80000 Creditors 75000 60000 P & L A/c(Cr.) 40000 35000 Good will 100000 85000 Land and buildings 250000 200000 Plant and Machinery 670000 530000 Debtors 50000 35000 Stock in trade 20000 10000 Bank Balance 25000 15000 The amalgamation is duly completed. Various assets and liabilities are being taken over at their book values. Give necessary Journal entries in the books of Vijay Co. Ltd. and also opening Balance Sheet of the new company. Problem 7: Radha Co. Ltd. and Shyam Co. Ltd. were in financial crisis. Shareholders of both the companies agreed to amalgamate and form a new company with authorized share capital of Rs. 2000000 divided in equity shares of Rs. 10 each. The new company will have the name Radhe shyam Co. Ltd. Shareholders of Radha Co. Ltd. and Shyam Co. Ltd. are to be satisfied by issue of 4 shares in new company against 5 shares in original company. Radha Companys Debenture holders are to be given 85 debentures of the same amount and shyam companys debentureholders are to be satisfied by paying cash for 50% of their holdings and fully paid shares in new company for the balance. In addition to these shareholders of Radha Co. Ltd. were getting Rs. 2/share held by them. Formation expenses ofRs. 10000