Amalgamtion, Absorption

INTER CA – ADVANCED ACCOUNTING
AMALGAMTION, ABSORPTION PAST EXAMINATION QUESTIONS
PAST PAPER SECTION
Answer 22
(i) Purchase Consideration
Particulars A Ltd. B Ltd.
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
(a) Share Capital 1 12,54,000
2. Non – Current Liabilities
(a) Long – term Borrowings 2 1,26,000
3. Current Liabilities
(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:
(i) Tangible Assets 3 7,30,000

(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
6% Debentures 1,26,000
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. (` )
1 Business Purchase A/c Dr. 12,54,000
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
To Business Purchase A/c 8,70,000
(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
To Equity Share Capital A/c 12,54,000
(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
3,00,000 equity shares of ` 10 each 30,00,000
60,000 8% Cumulative Preference Shares of `10 6,00,000
each
36,00,000
Issued, Subscribed & Paid up
(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

Particulars ` Particulars `
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.

Particulars 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
: 12 :
Cash at Bank 1,08,000 95,000

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 -----
: 13 :
29,400 × ---- 1,96,000
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
80,000 equity shares of ` 5 each 4,00,00
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
(a) Inventories 1,85,000
(b) Trade Receivables 1,42,000
(c) Cash at Bank 58,000
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
In the books of P Ltd.

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)
2 8% Debentures A/c Dr. 1,10,000
Trade Payables Dr. 54,000
To Realisation A/c 1,64,000
(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
To Realisation A/c 1,89,000
(Being purchase consideration due)
5 Bank A/c Dr. 44,000
: 17 :
To Realisation A/c 44,000

(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)
Purchase Consideration 23,31,000 12,25,000
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
(a) Inventories 7,26,000
(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 -
Trade Receivables 3,00,000
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
Inventory A/c Dr. 4,72,500
Trade Receivable A/c Dr. 3,00,000
Bank A/c Dr. 60,000
Unrecorded Assets A/c Dr. 15,000
To Retirement Gratuity Fund A/c 60,000
To Trade Payables A/c 2,40,000
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
(a) Trade Payables 4 6,10,000
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)
: 22 :
48,30,000
2 Reserve & Surplus
Securities Premium 60,000
General Reserve 2,10,000
2,70,000
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
Trade Receivables 3,00,000
Unrecorded Assets 15,000
: 23 :
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
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
: 24 :
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
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
To Realisation A/c 2,85,000 By Balance b/d 2,85,000
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
: 25 :
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)
4 Goodwill A/c Dr. 30,000
To Cash / Bank A/c 30,000
(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
(Being P.C. discharged)
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
: 26 :
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
9% Debentures A/c
To Realisation A/c 5,00,000 By Balance b/d 5,00,000
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
By Realisation A/c 31,00,000
75,50,000 75,50,000
: 27 :
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
Cash & Bank A/c Dr. 2,55,000
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
(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
: 28 :

Answer 34 6,25,000 25,000
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
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
: 29 :
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
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
In the books of X Ltd.

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
Stock A/c Dr. 7,00,000
: 30 :
Debtors A/c Dr. 9,00,000

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)
5 Goodwill A/c Dr. 5,000
To Bank A/c 5,000
(Being liquidation expenses paid)
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
In the books of X Ltd.

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
: 31 :
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
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
: 32 :
(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
(a) Inventory 26,10,000
(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
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
: 33 :
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
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
(b) Reserve & Surplus 2 2,72,990
(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
: 34 :
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
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
: 35 :
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
Bills Receivable 15,000
Freehold Premises 4,00,000
Furniture & Fittings 80,000
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
Paid up value of one equity e Shares = ` 8 each. Hence no. of equity
shares allotted
= 93,750 Equity Shares
: 36 :
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.)
To Realisation A/c 79,500
2,38,300 2,38,300
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
: 37 :

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
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
: 38 :
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
Bills Receivable 30,000
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
To Bank A/c By Jupiter Ltd. (P.C.) 18,80,000
Liquidation Expenses 8,000 By Bank A/c (Debtors) 1,50,000
: 39 :
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
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
: 40 :
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
To Business Purchase A/c 1,150
(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
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
: 41 :
(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
To preference shareholders
(excess payment) 30,000
16,34,300 16,34,300
Equity Shareholders Account
: 42 :
` `
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
By Realisation A/c 30,000
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
A Ltd. B Ltd.
` `
Payable to preference shareholders:
: 43 :
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
Plant & Machinery 1,75,000 2,00,000
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
Trade receivables Dr. 4,21,000
Bank balance Dr. 3,40,000
: 44 :
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)
6 12% Debentures A/c Dr. 2,00,000
To 15% Debentures A/c 2,00,000
(Being Allotment of 15% Debentures to debenture
holders of A Ltd.)
7 Trade payable of B Ltd. Dr. 25,000
To Trade receivables of A Ltd. 25,000
: 45 :
(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
To 12% Debentures in MG Ltd. 3,24,000
To Bills Payable 50,000
: 46 :
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
Working Note:
: 47 :
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
competition and reap the economies done to reorganise
: 48 :
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
To Business Purchase A/c 13,500
(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
: 49 :
(Purchase consideration discharged in the

form of equity shares)
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.
Equity and Liabilities

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)
: 50 :
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
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
General Reserve 14,550
Securities Premium 4,500
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
Furniture & Fittings 6,006
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)
: 51 :
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.
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
: 52 :
of Orange Ltd. Capital

By Realization Account
(Premium on Redemption of
Preference Shares)
30,000
3,30,000 3,30,000
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
: 53 :
To 9% Preference Share Capital A/c 3,30,000

To Securities Premium A/c (10%) 1,03,000
(Being Purchase Consideration satisfied as
above).
Balance Sheet of Orange Ltd. (after absorption)

as at 31st March, 2019
Particulars Notes `
Equity and Liabilities
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
: 54 :
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
General Reserve 3,05,000
Total 4,08,000
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
Answer 47
: 55 :
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
(2) Non-Current Liabilities
Long-term borrowings 3 7,50,000
(3) Current Liabilities
Trade payables (4,30,000 – 15,000) 4,15,000
Total 61,90,000
II. Assets
(1) Non-current assets
(a) Property, Plant and Equipment 4 47,60,000
(i) Tangible assets
(b) Non-current investments 1,60,000
(2) Current assets
(a) Inventory 3,05,000
(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
: 56 :

4. Tangible assets
Land and Building 15,60,000
Plant and Machinery 32,00,000 47,60,000
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)
: 57 :
Capital Reserve 1,17,000

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
: 58 :
J.K.SHAH CLASSES CA INTERMEDIATE - ADVANCED ACCOUNTING
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
Capital reserve 283.33 393.22
(3) Computation of securities premium
: 57 :
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
(a) Inventories 8 900
(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
(Issued for consideration other than cash) 750 2,250
: 59 :
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
: 62 :
Balance Sheet of Glorious Ltd. as at 1st April, 2020
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 Non-current assets
(a)
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
: 63 :
8% 3,000 Debentures of `100 each 3,00,000
4. Property Plant and Equipment
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
: 64 :
Note:
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)
Purchase Consideration 45,00,000
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
Trade receivables 16,80,000 10,80,000
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
Land & Building A/c Dr. 28,00,000
Plant & Machinery A/c Dr. 20,00,000
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
To Securities Premium A/c 27,00,000
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
Plant & Machinery A/c Dr. 7,60,000
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
To Securities Premium A/c 14,40,000
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
debenture- holders. 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 :
: 73 :

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INTER CA – ADVANCED ACCOUNTING

AMALGAMTION, ABSORPTION PAST EXAMINATION QUESTIONS

PAST PAPER SECTION

Balance sheet AB Ltd. As at 1.4.2014

(i) Tangible Assets 3 7,30,000

In the books of AB Ltd.

Intangible Assets 4 1,12,000

Notes to Accounts C.Y. P.Y.

WN 2: Cash & Bank A/c

WN 3: Calculation of Goodwill / Capital Reserve of A Ltd. & B Ltd.

Net Goodwill = 15,000 + 62,000 – 65,000

Issue price per share =

In the books of PQ Ltd.

To Business Purchase A/c 21,60,000

Balance sheet PQ Ltd. as at 31.03.2017 after Amalgamation

(b) Trade Receivables (4,80,000+ 7,80,000) 12,60,000

Notes to Accounts C.Y. P.Y.

Equity Shareholders A/c

9% Preference Shareholders A/c

Equity Shareholders A/c

9% Preference Shareholders A/c

Cash at Bank 1,08,000 95,000

29,400 × ---- 1,96,000

Balance sheet of Jupiter Ltd. as at 31.3.18

Notes to Accounts C.Y. P.Y.

WN 1 : Goodwill / Capital Reserve `

Balance sheet of PQ Ltd. as at 1.4.2014

Notes to Accounts C.Y. P.Y.

In the books of P Ltd.

To Realisation A/c 44,000

Balance sheet of Abhilasha Ltd. (After Amalgamation) as at 1.4.2014

Notes to Accounts C.Y. P.Y.

4 Trade Receivables (3,05,000 + 2,85,000) 5,90,000

11% Preference shares of ` 10 each 10% Discount

(Being purchase consideration discharged)

Balance sheet of X Ltd. (After Absorption) as at 31.03.2018

Notes to Accounts C.Y. P.Y.

Cash at Bank 60,000

In the books of Rashmi Ltd.

Nitin Ltd. A/c

Equity shareholder A/c

Journal Entries in the books of Nitin Ltd.

To Trade Payables 75,000

FV (100) Discount (5)

In the books of Shrishti Ltd.

Equity shareholders A/c

Journal Entries in the books of Nitin Ltd.

FV (100) Discount (4)

In the books of Y Ltd.

By Equity Shares in X Ltd. 38,50,000

Preference Shareholders A/c

Equity Shareholders A/c

In the books of X Ltd.

Debtors A/c Dr. 9,00,000

Particulars X Ltd. Y Ltd.

In the books of X Ltd.

To Equity Shareholders 5,40,000

Equity Shareholders A/c

In the books of Y Ltd.