STUDY MATERIAL

COURSE : II B.COM
SEMESTER : IV
SUBJECT : CORPORATE ACCOUNTING
UNIT : IV
SUBJECT CODE: 18BCO41C
UNIT – IV Amalgamation, Absorption, (Excluding inter-company holdings and owing).
External Reconstruction (Balance sheet as per revised schedule VI)

Meaning of Amalgamation
Amalgamation is defined as the combination of one or more companies into a new entity. It
includes:
Two or more companies join to form a new company
Absorption or blending of one by the other
Thereby, amalgamation includes absorption.
However, one should remember that Amalgamation as its name suggests, is nothing but
two companies becoming one. On the other hand, Absorption is the process in which the one
powerful company takes control over the weaker company.
Generally, Amalgamation is done between two or more companies engaged in the same line of
activity or has some synergy in their operations. Again the companies may also combine for
diversification of activities or for expansion of services.

Transferor Company means the company which is amalgamated into another company; while
Transferee Company means the company into which the transferor company is amalgamated.

Existing companies A and B are wound up Amalgamation

and a new company C is formed to take
over the businesses of A and B

Existing company A takes over the business Absorption

of another existing company B that is
wound up.

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 A New Company X is formed to take over External reconstruction
the business of an existing company Y that
is wound up.

How is Amalgamation different from a Merger?

Amalgamation is different from Merger because neither of the two companies under reference
exists as a legal entity. Through the process of amalgamation a completely new entity is
formed to have combined assets and liabilities of both the companies.

Types of Amalgamation
Amalgamation in the nature of merger:
In this type of amalgamation, not only is the pooling of assets and liabilities is done but also of
the shareholders’ interests and the businesses of these companies. In other words, all assets and
liabilities of the transferor company become that of the transfer company. In this case, the
business of the transfer or company is intended to be carried on after the amalgamation. There
are no adjustments intended to be made to the book values. The other conditions that need to be
fulfilled include that the shareholders of the vendor company holding atleast 90% face value of
equity shares become the shareholders’ of the vendee company.

Amalgamation in the nature of purchase:

This method is considered when the conditions for the amalgamation in the nature of merger are
not satisfied. Through this method, one company is acquired by another, and thereby the
shareholders’ of the company which is acquired normally do not continue to have proportionate
share in the equity of the combined company or the business of the company which is acquired is
generally not intended to be continued.
If the purchase consideration exceeds the net assets value then the excess amount is recorded as
the goodwill, while if it is less than the net assets value it is recorded as the capital reserves.

Accounting of Amalgamation

A. Pooling of Interests Method:

Through this accounting method, the assets, liabilities and reserves of the transfer or company
are recorded by the transferee company at their existing carrying amounts.

B. Purchase Method:

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In this method, the transfer company accounts for the amalgamation either by incorporating the
assets and liabilities at their existing carrying amounts or by allocating the consideration to
individual assets and liabilities of the transfer or company on the basis of their fair values at
the date of amalgamation.

Why Amalgamate?
To acquire cash resources
Eliminate competition
Tax savings
Economies of large scale operations
Increase shareholders value
To reduce the degree of risk by diversification
Managerial effectiveness
To achieve growth and gain financially

The legal process of amalgamation

An amalgamation is, in fact, a specific subset within a broader group of “business

combinations”. There are three main types of business combinations, which are outlined below
in more detail. It’s important to understand the subtle differences when talking about mergers,
acquisitions, and amalgamations.

1. Acquisition (two survivors): The purchasing company acquires more than 50% of the
shares of the acquired company and both companies survive.

2. Merger (one survivor): The purchasing company buys the selling company’s
assets. The sale of the acquired company’s assets leads to the survival of only
the purchasing company.

3. Amalgamation (no survivors): This third option creates a new company in which none
of the pre-existing companies survive.

As you can see with the above examples, the difference comes down to the surviving
companies. In an amalgamation, a new company is created and none of the old companies
survive.

Procedure for Amalgamation

 The terms of amalgamation are finalized by the board of directors of the amalgamating
companies.

 A scheme of amalgamation is prepared and submitted for approval to the respective High
Court.

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  Approval of the shareholders’ of the constituent companies is obtained followed by
approval of SEBI.

 A new company is formed and shares are issued to the shareholders’ of the transferor
company.

 The transferor company is then liquidated and all the assets and liabilities are taken over
by the transferee company.

Purchase consideration:
It is amount paid by the purchasing company to the vendor company for the purpose of
taking over the business. The purchasing company may pay purchase price in the form of
cash, shares debentures of a company.
Calculation of purchase consideration:
a) Lump Sum method: The price to be paid to shareholders may be mentioned in the
agreement directly.
b) Net asset method: Under this method value of all assets taken over less amount of
liabilities taken over by the purchasing company.
c) Net payment method:- The purchasing company discharge purchase price by
issuing shares, debentures & cash
d) Intrinsic value method: Under this method the purchase consideration is
ascertained on the basis of the ratio in which the shares of the purchasing company are
exchanged with those of the selling company. .
If the purchase price must be compared with the net asset purchased. If the amount paid is
in excess of net asset the difference amount is debited to Goodwill. If the amount paid is less
than net asset purchased the difference amount is credited to Capital Reserve. 3. Difference
between External Reconstruction and Internal Reconstruct

Accounting standard 14 is not applicable for selling company.

Accounting is done with the objective of closing books of accounts and simultaneous
determination of profit or loss on closing books of accounts.

Transfer to realization account

SL.NO PARTICULAR DEBIT CREDIT
1 Transfer all Assets at book value to realization a/c
( except Miscellaneous)
Realisation A/C Dr XXX
To Assets A/c XXX
2 Transfer all liabilities taken over purchasing
company(Except equity, preference and reserves)
Liabilities A/c Dr
To Realisation A/c XXX
XXX

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PURCHASE CONSIDERATION
Purchase consideration represents consideration paid in cash, shares, debentures etc.
SL.NO PARTICULAR DEBIT CREDIT
1 Due entry for consideration
Transferee company A/C Dr XXX
To Realisation A/c XXX
2 Receipt of consideration
Shares/Cash A/c Dr XXX
To Transferee company A/c XXX

SALE OF ASSETS NOT TAKEN OVER BY PURCHASING COMPANY

SL.NO PARTICULAR DEBIT CREDIT
1 Sale with assuming profit
Bank A/C Dr XXX
To Assets A/C(book value) XXX
To Realisation A/c(Profits) XXX
2 Sale with assuming loss
Bank A/c Dr XXX
Realisation A/c(loss) Dr XXX
To Assets A/c(Book Value) XXX

SETTLEMENT OF LIABILITIES NOT TAKEN OVER BY PURCHASING COMPANY

SL.NO PARTICULAR DEBIT CREDIT
1 Settlement with assuming at discount)
Liabilities A/C Dr XXX
To Bank A/C(book value) XXX
To Realisation A/c(Profits) XXX
2 Settlement with assuming at loss
Liabilities A/c Dr XXX
Realisation A/c(loss) Dr XXX
To Bank A/c(Book Value) XXX

Realisation Expense
SL.NO PARTICULAR DEBIT CREDIT
1 Incurred by transferor(Selling Co.) company
Realisation A/c XXX
To Bank A/c XXX
2 Incurred by transferee(purchasing Co.) company
NO ENRTY NIL NIL
3 Incurred by transferor(Selling Co.) company
Reimbursed by transferee company
Transferee company A/c Dr XXX

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 To Bank A/c XXX
On Reimbursement
Bank A/c Dr XXX
To Transferee company A/c XXX

AMOUNT DUE TO EQUITY SHAREHOLDERS

SL.NO PARTICULAR DEBIT CREDIT
1 Transfer of share capital and reverse to
shareholders account
Equity Share capital A/c Dr XXX
Reserves A/c Dr XXX
To Shareholders A/c XXX
2 Transfer of balances in realization account
Realisation A/c (Profit) Dr XXX
To shareholders A/c XXX
In Case of loss
Shareholders A/c Dr XXX
To Realisation A/c (Loss) XXX

SETTLEMENT TO SHAREHOLDERS BY TRANSFER OF

CONSIDERATION RECCEIVED
SL.NO PARTICULAR DEBIT CREDIT
1 Shareholders A/c Dr XXX
To shares of transferee company A/c XXX
To Bank A/c XXX

Journal Entries in case of Transferee Company or purchasing company

Due entry for business purchase
SL.NO PARTICULAR DEBIT CREDIT
1 Business Purchase A/c Dr XXX
To Liquidator transferor company A/c XXX

Incorporation of assets and liabilities taken over

SL.NO PARTICULAR DEBIT CREDIT
1 Sale consideration more than net assets of selling
company.
Assets A/c Dr XXX
Goodwill A/c Dr(Bal.Fig) XXX

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 To Liabilities A/c XXX
To Business Purchase A/c XXX
2 Sale consideration less than net assets of selling
company.
Assets A/c Dr XXX
To Liabilities A/c XXX
To Business Purchase A/c XXX
To Capital Reserve A/c (Bal.Fig) XXX

Sale consideration - net assets of selling company = positive amount = Goodwill (loss to
purchasing Company)
Sale consideration - net assets of selling company = Negative amount = Capital Reserve
(profit to Purchasing company)

DISCHARGE OF PURCHASE CONSIDERATION

SL.NO PARTICULAR DEBIT CREDIT
1 Liquidator of transferor company A/c Dr XXX
To Share capital A/c XXX
To Securities premium A/c XXX
To Bank A/c XXX

OTHERS
SL.NO PARTICULAR DEBIT CREDIT
1 Cancellation of inter company owings
Creditors A/c Dr XXX
To Debtors XXX
2 Elimination of unrealised profits on goods sold by
one company to the other and remaining unsold on
the date of amalgamation
Goodwill/Capital reserve A/c Dr XXX
To Stock reserve/Stock A/c XXX
3 Realisation expense
Incurred by purchasing company
Goodwill/Capital reserve A/c Dr XXX
To Bank A/c XXX
Realisation incurred by selling company
NO ENTRY NIL NIL

Realisation expense by selling and the same was

reimbursed by purchasing company
Goodwill/Capital reserve A/c Dr XXX
To Bank A/c XXX

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Contra entry for statutory reserve appearing in selling company and the same to be maintained
by purchasing company.

SL.NO PARTICULAR DEBIT CREDIT

1 Amalgamation Adjustment A/c Dr XXX
To Statutory reserve A/c XXX

Amalgamation in the nature of Purchase

Problem No. 1Raman Ltd., agrees to purchase the business of Krishnan Ltd., on the following
terms:

a) For each of the 10,000 shares of Rs. 10 each in Krishnan Ltd., 2 shares in
Raman Ltd., of Rs. 10 each will be issued at an agreed value of Rs. 12 per
Share. In addition, Rs. 4 per share cash also will be paid.

b) 8% Debentures worth Rs. 80,000 will be issued to settle the Rs.60,000 9%

Debentures in Krishnan Ltd.

c) Rs.10,000 will be paid towards expenses of winding up.

Calculate the purchase consideration.

Problem No. 2: X Ltd and Y Ltd have agreed to amalgamate as from 31st December 2019 On
which date their respective Balance sheet were as follows
Liabilities X Ltd Rs. Y Ltd Rs. Assets X Ltd Rs. Y Ltd Rs.
Share capital: Shares Cash in hand 100 50
of Rs.10 each 80,000 25,000 Cash at Bank 3,400 450
Creditors 3,000 1,000 Debtors 22,500 6,000
Reserve fund 7,500 4,000 Plant 12,000 4,500
P&L A/c 2,500 1,000 Stock 15,000 7,000
Premises 30,000 10,000
Patents 10,000 3,000

93,000 31,000 93,000 31,000

Draw up the Balance Sheet of the new company 'XY' Ltd which was incorporated to take over
the amalgamated concerns and state the number of shares in the new company which will be
allotted to the shareholders of the old companies (Assume the same face value)

Problem No. 3 :Raj Ltd and Gobi Ltd agreed upon an amalgamation. The balance sheet of both
the companies were as follows
Liabilities Raj Ltd Gobi Ltd Assets Raj Ltd Gobi
Rs. Rs. Rs. Ltd Rs.

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 Share capital: Shares Furniture 9,000 6,300
of Rs.10 each 30,000 24,000 Debtors 14,400 18,000
Reserve fund --- 1,500 Bank 18,360 12,240
P&L A/c --- 3,600 Profit & Loss A/c 1,140 ----
Creditors 12,900 7,440
42,000 36,540 42,000 36,540

The assets of Raj Ltd are to be taken over at book value except furniture which is to be written
down by Rs.3,060. Gobi Ltd's assets are to be taken over at book value except debtors which are
to be considered worth Rs.9,900. The share capital of the combined company is to be 2,400
preference shares of Rs.10 each fully paid and ordinary shares of Rs.5 each fully paid. The
allocation of the shares is equal except that the surplus capital of Raj Ltd is to be satisfied by
preference shares.
Show the Balance sheet of the new company

Absorption
Problem No. 4: The following is the balance sheet of Suma Ltd., which is absorbed by Kusum
Ltd.

Liabilities Rs. Assets Rs.

Equity Share Capital (Rs. 10 each) 6,00,000 Fixed Assets:
Pref. Share Capital (Rs. 100 each) 2,00,000 Machinery 3,40,000
Current Liabilities 1,00,000 Buildings 1,60,000
10% Debentures 3,00,000 Current Assets:
Stock 4,00,000
Debtors 2,00,000
Profit & Loss A/c 1,00,000

12,00,000 12,00,000

Kusum Ltd., takes over Suma Ltd., on the following terms:

1. Take the fixed assets at 10% depreciation, stock at Rs. 3,00,000 and debtors
After a provision of 25%.

2. Debentures are to be settled by issuing them 9% debentures in Kusum

Ltd. Current liabilities will be taken over at book values.

3. The consideration will be discharged by issue of 10,000 equity shares of

Rs. 10 each in Kusum Ltd. At an agreed value of Rs. 15 per share and the
Balance in cash.

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 4. Expenses of liquidation of Rs. 20,000 will be reimbursed by Kusum Ltd.
You are required to give (a) journal entries to close the books of Suma Ltd.

(b) Journal entries to record the acquisition assuming it is in the nature of purchase.

Problem No. 5:Spring Field Ltd.is absorbed by Sports Field Ltd., the consideration being:

1) The taking over of the trade liabilities of Rs. 40,000;

2) The payment of cost of absorption of Rs. 15,000;

3) The repayment of ‘B’ debentures of Spring Field Ltd. Of Rs. 2,00,000 at par;

4) The discharge of ‘A’ debentures of Rs. 3,00,000 in the Vendor Co. at a

Premium of 10% by the issue of 8% debentures in Sports Field Ltd. at par;

5) A payment of Rs. 20 per share in cash and the exchange of 4 fully paid
Rs. 10 shares in Sports Field Ltd. at a market price of Rs. 15 per share for
Every Rs. 50 share in Spring Field Ltd. which were 40,000 in number.

You are required to find out the purchase consideration.

Problem No:6 Ram & Co Ltd. is absorbed by Krishnan & Co Ltd. the consideration being

1) Assumption of the liabilities,

2) The discharge of the debentures at a premium of 7.5% by issue of 7.5% debentures in

Krishnan & Co Ltd.

3) A cash payment of Rs. 100 per share and the exchange of 12 shares of Rs. 20 each in
the Krishnan & Co Ltd. at an agreed value of Rs. 25 per share for every share in Ram
& Co Ltd.

4) The liquidation expenses of Rs. 8,000 to be borne by Ram & Co Ltd. Show the
necessary journal entries in the books of both the companies.

Problem No:7 The following are the summarized Balance sheets of Amar Ltd and Samar Led as
on 31st March 2019:

Liabilities Amar Ltd Sammar Assets Amar Ltd Sammar

Rs. Ltd Rs. Rs. Ltd Rs.

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 Share capital: Shares Good will ---- 1,20,000
of Rs.10 each 8,00,000 6,00,000 Fixed assets 6,00,000 2,40,000
P&L A/c 1,40,000 ---- Current Assets 4,20,000 2,80,000
Creditors 80,000 2,40,000 Profit &Loss A/c --- 2,00,000

10,20,000 8,40,000 10,20,000 8,40,000

Amar Ltd agreed to takeover the business of SamarLtd as on the date of the balance sheets.
After due negotiations, it was determined that the shares of Amar Ltd are worth Rs.12 each and
the shares of Samar Ltd are worth Rs.5 each.
You are required to make the necessary entries in the books of Amar Ltd and draw up its
balance sheet immediately after the takeover.
Problem No:8 White Ltd agreed to acquire the business to Green Ltd as an 31st December
1986, The Balancesheet of Green Ltd on that date was a follows:

Liabilities Rs. Assets Rs.

Share capital in fully paid 6,00,000 Goodwill 1,00,000

Land and Buildings 6,40,000
shares of Rs.10 Stock 1,68,000 1,68,000
General Reserve 1,70,000 Debtors 36,000
Profit & Loss a/c 1,10,000 Cash 56,000
6% Debentures 1,00,000
Creditors 20,000
10,00,000 10,00,000

The consideration payable by White Ltd was agreed as follows

a) A cash payment equivalent to Rs 2.50 for every Rs.10 shares in Green Ltd.
b) The issue of Rs. 90,000, Rs.10 shares fully paid in white Ltd having an agreed value of
Rs.15 per share.
c) The issue of such an amount of fully paid 5% Debenture of white Ltd at 96% as is
sufficient to discharge the 6% Debentures of Green Ltd at a premium of 20%. The
directors of white Ltd valued Land and Buildings at Rs.850000 and created 5% provision
on debtors. Expenses of Liquidation Rs.6000 were paid by white Ltd.,
Show the calculation of the purchase consideration and pass acquisition entries in the books of
white Ltd. Green Ltd – Liquidator of Vendor company White Ltd – Purchasing company

Problem No.9 The following information has been extracted from the balance sheets of P Ltd.
and S Ltd. as on 31st March, 2012:

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P Ltd. takes over S Ltd. on 1st April, 2012, and discharges consideration for the business as
follows:
(i) Issued 35 lakh fully paid equity shares of Rs 10 each at par to the equity shareholders of S
Ltd.

(ii) Issued fully paid 12% preference shares of Rs 10 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.

You are required to show the balance sheet of P Ltd. assuming that:
(i) The amalgamation is in the nature of merger, and

(ii) The amalgamation is in the nature of purchase.

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Problem No.10:. The following is the Balance sheet of Anita Ltd. and Sunita Ltd. as on 31st
March 2014. Balance Sheet as on 31st March 2014.

Liabilities Anita Ltd. Anita Assets Anita Ltd. Anita

Rs. Ltd. Rs. Rs. Ltd. Rs.

Share Capital Building 80,000 --

Shares of Rs. 10 each 40000 Machinery 46,000 42,000
8% Debentures 1,20,000 - Stock 80,000 10,000
General Reserve 20,000 - Debtors 40,000 12,000
Development Equalization 30,000 - Cash 20,000 6,000
Reserve 42,000 -
Employee’s Provident Fund
Creditors 4,000 -
50,000 -

2,66,000 70,000 2,66,000 70,000

The above companies have agreed to amalgamate and a new company Vanita Ltd. is formed.
Vanita Ltd. Takes over assets and liabilities of both the companies on the following terms:

1) Building of Anita Ltd. is accepted at book value and Machinery at Rs. 40,000. The other
assets are taken over at 10% depreciation.

2) All assets and liabilities of Sunita Ltd. are taken over at book value.

3) Both the companies to receive 10% of net valuation of their respective business as Goodwill.
The entire purchase price of both the companies paid in Equity Shares of Rs. 10 each. Close the
books of Anita Ltd. and Sunita Ltd. and also give the opening journal entries in the books of
Vanita Ltd

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Problem No:11 X Ltd. and Y Ltd.are two companies carrying on business in the same line.
Their Balance sheet as on 31st March 2014 are given below.
Balance Sheet as on 31st March 2014
Liabilities XLtd. Rs. YLtd. Assets X Ltd Rs. YLtd.
Rs. Rs.

Share Capital Building 1,00,000 --

Machinery 7,00,000 3,00,000
Shares of Rs. 10 each 6,00,000 2,00,000 Investment 1,00,000 --
General Reserve 4,00,000 2,00,000 Stock 9,00,000 4,00,000
Secured Loan 6,00,000 1,00,000 Debtors 3,00,000 1,00,000
Current Liabilities 6,00,000 4,00,000 Cash 1,00,000 1,00,000

22,00,000 9,00,000 22,00,000 9,00,000

The above companies have agreed to amalgamate into XY Ltd.

a) X Ltd. holds 8,000 shares in Y Ltd. at Rs. 12.50 each.
b) All the assets and liabilities of the two companies, except Investments are taken over.
c) Each share in Y Ltd. is valued at Rs. 25/- for the purpose of amalgamation.
d) Each share in X Ltd. is valued at Rs. 15/- for the purpose of amalgamation.
e) Shareholders in X Ltd. and Y Ltd., are paid off by issuing to them sufficient number of
Equity Shares of Rs. 10/- each in XY Ltd., as fully paid at par.
Give ledger accounts of X Ltd. and Y Ltd.

Problem No.12
Balance Sheet of B Co. Ltd.as on 31st March 2014
Liabilities Rs. Assets Rs.
Share Capital Goodwill 2,00,000
50,000 Equity Shares of Rs. 100 50,00,000 Fixed Assets 83,00,000
each Current Assets 69,00,000
Capital Reserve 10,00,000 Investments 17,00,000
General Reserve. 36,00,000
Unsecured Loans Sundry 22,00,000
Creditors Provision for 42,00,000
Taxation 11,00,00
1,71,00,000 1,71,00,000
B Co. Ltd. is absorbed by Bee Sons Ltd. as on 31st March 2014, on which date the Balance sheet of
Bee Sons Ltd. is as follows
Balance Sheet of Bee Sons Ltd. as on 31st March 2014
Liabilities Rs. Assets Rs.
Share Capital Fixed Assets 1,60,00,000
8,00,000 Equity Shares of Rs. 10 80,00,000 Current Assets 1,68,00,000
each
General Reserve. 1,00,00,000
Secured Loans 40,00,000
Sundry Creditors 46,00,000
Provision for Taxation 52,00,000
Provision for Dividend 10,00,000

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 3,28,00,000 3,28,00,000

For the purpose of absorption, the Goodwill of B Co. Ltd. is considered valueless. There are
also arrears of depreciation in B Co. Ltd. amounting to Rs. 4, 00,000. The shareholders in B
Co. Ltd., are allotted in full satisfaction of their claims, shares in Bee Sons Ltd., in the same
proportion as the respective intrinsic values of the shares of the two companies bear to one
another.
Pass the Journal Entries in the books of both the companies to give effect to the above.

Problem No.13: .SS Limited registered with a capital of Rs.10,00,000 in Equity shares of
Rs.10 each, acquired the business of John Brothers. The Balance Sheet of the firm at the date
of acquisition was as under.

The assets and liabilities were subject to the following revaluation:

Machinery and Furniture to be depreciated at 10% and 15% respectively.

(b) Premises should be appreciated by 20%.
(c) Make provision for bad debts on debtors at 2.5%.
(d) Goodwill of the firm valued at $24,000.
(e) The purchase consideration was to be discharged as follows:
(i) Allotment of 10,000 Equity shares of Rs10 each at Rs12 each.
(ii) Allotment of 500 10% Debentures of Rs100 each at a discount of Rs10 each.
(iii) Balance in cash.
You are require to show journal entries in the books of the company and prepare the balance
sheet.

External Reconstruction

Problem No.:14 Green Ltd. went into voluntary liquidation for its reconstruction on 31st March
2014, when its Balance Sheet was as follows.

Liabilities Rs. Assets Rs.

Share Capital Freehold Property 4,15,000
3,000, 6% Preference Shares of Plant and Machinery 2,15,000

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 Rs. 100 each 3,00,000 Vehicle 40,000
7,000 Equity Shares of Rs. 100 Stock 1,75,000
each 7,00,000 Debtors 50,000
Share Premium 10,000 Less: R.D.D. -5,000 45,000
Unsecured Loan 50,000 ----------
Bills Payable 30,000 Bills Receivable 10,000
Creditors 70,000 Cash 4,000
Profit and Loss 2,56,000
11,60,000 11,60,000

A new company White Ltd. was formed to take over the following assets and liabilities of the
Green Ltd.

Freehold Property at Rs. 3, 60,000; Plant and Machinery at Rs. 2, 00,000; Vehicles at Rs.
45,000; Stock at Rs. 1, 50,000. White Ltd. also took over Unsecured Loan and Creditors at the
book value.

The Purchase Consideration was satisfied in 2,350, 7%, Preference Shares of Rs. 100 each
and 10,000 equity Shares of Rs. 100 each, Rs. 40 paid-up. There was a contingent liability for a
Repair bill amounting to Rs. 1,700 for which White Ltd. issued 11 Equity Shares of Rs. 100 each
fully paid in full satisfaction of their claim.

The Preference shareholders of Green Ltd., accepted Preference Shares of White Ltd., in full
satisfaction of their claim and partly paid Equity Shares of White Ltd., were allotted to the
Equity Shareholders of Green Ltd.

The Debtors and Bills Receivables of Green Ltd., realized Rs. 48,000 and Rs. 8,000
respectively. Bills Payable were fully paid. The winding up expenses were Rs. 4,500.

White Ltd. immediately made a call of Rs. 60 on partly paid Equity Shares to pay the
Unsecured Loan and Creditors.

Preliminary expenses of White Ltd. amounted to Rs. 10,000.

Close the books of Green Ltd. and prepare necessary ledger accounts and journal entries in
the books of White Ltd.

Problem No.15: Balance Sheet of Unfortunate Ltd.as on 31st March 2014

Liabilities Rs. Assets Rs.

Share Capital 2,500 Equity Land and Building 1,30,000
Shares of Rs. 100 each Plant and Machinery 75,000
Creditors Stock 50,000
Debtors 57,000
Cash 1,000
Preliminary Expenses 5,500
Profit & Loss 56,500

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 11,60,000 11,60,000
The shareholders of the company resolved to take the company into voluntary liquidation and to
form Fortunate Ltd., a new company with an authorised share capital of Rs. 10 lakhs to take over
the business on the following terms:--

a) Preferential Creditors of Rs. 15,000 are to be paid in full.

b) Unsecured Creditors to receive 50 paisa in a rupee in full settlement of their claims or at

par value in 7% Debentures of Fortunate Ltd.

c) 2,500 Equity Shares of Rs. 100 each, Rs. 60 paid, to be distributed pro-rata to existing
shareholders.

Half the Unsecured Creditors opted to be paid in Cash, and the funds for this purpose were found
by calling up the balance of Rs. 40 per share. Cost of liquidation amounted to Rs. 3,500 was paid
by Fortunate Ltd. to Unfortunate Ltd.

Compute the Purchase Consideration and prepare the Balance Sheet of the new company
assuming that all assets are taken over at book value except Building, which is also taken over.

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