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Unit -1


Company Accounts


INTRODUCTION:

As per Section 128 of the Companies Act, 2013, every company should prepare and keep, at its registered office, books of accounts and other relevant books financial statement for every financial year, which give a true and fair view of the state of the affairs of the company, including that of its branch office or offices, if any.

As per the latest developments, the company may keep such books of accounts or other relevant papers in electronic mode and in such manner, as may be prescribed.

FINAL ACCOUNTS:

Under Section 129 of the Companies Act, 2013, at the Annual General Meeting of a company, the Board of Directors of the company should present financial statements before the company. As per section 2(40) of the Companies Act, 2013, Financial statements includes- i) a balance sheet as at the end of the financial year, ii) a profit and loss account and iii) cash flow statement for the financial year.

Schedule III of the Companies Act, 2013:

As per section 129 of the Companies Act, 2013, the financial statements should give a true and fair view of the state of affairs of the company and comply with the accounting standards notified under Section 133 and should be in form or forms as may be provided for different classes of companies in Schedule III under the Act.

 

Q 1) The following is draft Profit and Loss A/c of Mudra Ltd. The year ended on 31st March, 2001.

Particulars

Amount

Particulars

Amount

To Administrative, Selling Exp.

To Director’s Fees

To Interest on Debentures

To Managerial Remuneration

To Depreciation on Fixed Assets

To Provision for Taxation

To General Reserve

To Investment Revaluation

Reserve

To Balance c/d

8,22,542

1,34,780

31,240

2,85,350

5,22,543

12,42,500

4,00,000

12,500

 

14,20,185

By Balance b/d

By Balance from Trading A/c

By Subsidies received from Govt.

5,72,350

40,25,365

2,73,925

 

 

48,71,640

 

48,71,640

Depreciation on Fixed Assets as per Schedule II of the Companies Act, 2013 was Rs. 5,75,345. You are required to calculate the maximum limits of the managerial remuneration as per the Companies Act, 2013.

Solution:      Calculation of Net Profit u/s 198 of the Companies Act, 2013

Particulars

Amount

Amount

Balance from Trading A/c

Add: Subsidies received from Government

 

Less: Administrative and Selling Exp.

          Director’s Fees

          Interest on Debentures

          Depreciation on Fixed Assets as per Schedule II

 

8,22,542

1,34,780

31,240

5,75,345

40,25,365

2,73,925

 

15,63,907

          Profit u/s 198

 

27,35,383

 

Maximum Managerial Remuneration under Companies Act, 2013 = 11% of 27,35,383 = Rs. 3,00,892.

 

Q 3) Kumar Ltd., a non-investment A/c has been incurring losses for the past few years. The company provides the following information for the current year:

Particulars

Amount

(in lakhs)

Paid up Equity Share Capital

Paid up Preference Share Capital

Reserves (including Revaluation Reserve Rs. 10 lakhs)

Securities Premium

Long term Loans

Deposits repayable after one year

Application money pending allotment

Accumulated losses not written off

Investments

120

20

150

40

40

20

720

20

180

 

Kumar Ltd. Has only one whole-time director, Mr. X. You are required to calculate the amount of maximum remuneration that can be paid to him if no special resolution is passed at the general meeting of the company in respect of payment of remuneration for a period not exceeding three years.

Solution: Calculation of effective capital and maximum amount of monthly remuneration

Particulars

Amount

Paid up Equity Share Capital

Paid up Preference Share Capital

Reserve excluding Revaluation Reserve (150-10)

Securities Premium

Long term loans

Deposits repayable after one year

 

Less: Accumulated losses not written off

Less: Investments

120

20

140

40

40

20

380

(20)

(180)

Effective Capital for the purpose of Managerial Remuneration

180

 

Since Kumar Ltd. Is incurring losses and no special resolution has been passed by the company for payment of remuneration, managerial remuneration will be calculated on the basis of effective capital of the company, therefore maximum remuneration payable to the Managing Director should be Rs. 60,00,000 per annum.

 

Q 3) Due to inadequacy of profits during the year ended 31st March, 2012, XYZ Ltd. Proposes to declare 10% dividend out of general reserves. From the following particulars, ascertain the amount that can be utilised from general reserves, according to the Companies Rules.

Particulars

Amount

17,500 9% Preference Shares of Rs. 100 each, fully paid up

8,00,000 Equity Shares of Rs. 10 each, fully paid up

General Reserves as on 1.4.2011

Capital Reserves as on 1.4.2011

Revaluation Reserves as on 1.4.2011

Net profit for the year ended 31st March, 2012

Average Rate of Dividend during the last three years has been 12%

17,50,000

80,00,000

25,00,000

3,00,000

3,50,000

3,00,000

 

Solution:

Particulars

Amount

Amount

Amount that can be drawn from reserves for 10% Dividend

 

10% Dividend on Rs. 80,00,000

Profits available

Current Year Profit

Less: Preference Dividend

 

Amount which can be utilised from Reserves

 

3,00,000

(1,57,500)

 

8,00,000

 

1,42,500

 

 

6,57,500

 

Conditions as per Companies Rules:

CONDITION I:

Since 10% is lower than the average rate of dividend (which is 12%), 10% dividend can be declared.

CONDITION II:

Maximum amount that can be drawn from the accumulated profits and reserves should not exceed 10% of paid up capital plus free reserves i.e. Rs. 12,25,000 [10% of (80 lacs + 17.50 lacs + 25 lacs)]

CONDITION III:

The balance of Reserves after withdrawal Rs. 18,42,500 (Rs. 25,00,000 – 6,57,500) should not fall below 15% of its paid up capital i.e. Rs. 14,62,500 (15% of Rs. 97,50,000)

Since all the three conditions are satisfied, the company can withdraw Rs. 6,57,500 from accumulated reserves (as per Companies Rules).

 

Q 4) The following is Trial Balance of Omega Ltd. As on 31.3.2012

Particulars

Debit

Particulars

Credit

Land at Cost

Plant at Cost

Trade Receivables

Inventories

Bank

Adjusted Purchases

Factory Expenses

Administrative Expenses

Selling Expenses

Debenture Interest

Interim Dividend Paid

2,20,000

7,70,000

96,000

86,000

20,000

3,20,000

60,000

30,000

30,000

20,000

18,000

Equity Capital (10/- each)

10% Debentures

General Reserve

Profit and Loss A/c

Securities Premium

Sales

Trade Payables

Provision for Depreciation

Suspense A/c

3,00,000

2,00,000

1,30,000

72,000

40,000

7,00,000

52,000

1,72,000

4,000

 

16,70,000

 

16,70,000

 

Additional Information:

  1. The authorised share capital of the company is 40,000 shares of Rs. 10 each.
  2. The company on advice of independent valuer wish to revalue the land at Rs. 3,60,000.
  3. Declared final dividend @ 10%.
  4. Suspense A/c of Rs. 4,000 represents cash received for the sale of some machinery on 1.4.2011. The cost of machinery was Rs. 10,000 and the accumulated depreciation thereon being Rs. 8,000.
  5. Depreciation is to be provided on Plant and Machinery at 10% on cost.

You are required to Prepare Balance Sheet of Omega Ltd. As on 31st March, 2012 and Statement of Profit and Loss as per Schedule III.

 

Solution:                                                   Omega Limited

Balance Sheet as on 31st March, 2012

Particulars

Note

No.

Amount

I. EQUITY AND LIABILITIES

1. Shareholder’s Funds

    a. Share Capital

    b. Reserves and Surplus

2. Non-Current Liabilities

    a. Long term Borrowings

3. Current Liabilities

    a. Trade Payables

    b. Other Current Liabilities

 

1

2

 

3

 

4

 

300000

500000

 

200000

 

52000

30000

TOTAL

 

1082000

II. ASSETS

1. Non-Current Assets

    a. Property, Plant and Equipment

        i. Tangible Assets

2. Current Assets

    a. Inventories

    b. Current Assets

    c. Cash and Bank Balances

 

5

 

880000

 

86000

96000

20000

TOTAL

 

1082000

 

Statement of Profit and Loss for the year ended on 31st March, 2012

Particulars

Note

No.

Amount

I. Revenue from Operations

II. Other Income

 

6

700000

2000

III. Total Revenue

 

702000

IV. Expenses:

      Purchases

      Finance Costs

      Depreciation (10% of 760000)

      Other Expenses

 

7

 

8

 

320000

20000

76000

120000

      Total Expenses

 

536000

V. Profit/(Loss) for the period

 

166000

 

Notes to Accounts:

Note

No.

Particulars

Amount

Amount

1

Share Capital

Equity Share Capital

Authorised

40000 shares of Rs. 10 each

Issued, Subscribed and Called up

30000 shares of Rs. 10 each

 

 

400000

 

300000

 

TOTAL

 

 

300000

2

Reserves and Surplus

Securities Premium A/c

Revaluation Reserve (360000-220000)

General Reserve

Profit and Loss Balance

    Opening Balance

    Profit for the current period

 

    Less: Appropriations

               Interim Dividend

               Final Dividend (300000 x 10%)

 

72000

166000

238000

 

(18000)

(30000)

 

40000

140000

130000

 

190000

 

TOTAL

 

 

500000

3

Long term Borrowings

    10% Debentures

 

 

200000

4

Other Current Liabilities

     Dividend

 

 

30000

5

Tangible Assets

Land

     Opening Balance

     Add: Revaluation Adjustment

     Closing Balance

Plant and Machinery

     Opening Balance

     Less: Disposed off

 

     Less: Depreciation (172000-8000+76000)

     Closing Balance

 

220000

140000

 

770000

(10000)

760000

(240000)

 

360000

 

520000

 

TOTAL

 

 

880000

6

Other Income

Profit on Sale of Machinery:

     Sale Value of Machinery

     Less: Book Value of Machinery (10000-8000)

 

 

4000

(2000)

 

2000

7

Finance Costs

Debenture Interest

 

 

20000

8

Other Expenses:

     Factory Expenses

     Selling Expenses

     Administrative Expenses

 

60000

30000

30000

 

120000

 


Introduction to IAS and IFRS:

The International Accounting Standards (IAS) are older accounting standards issued by the International Accounting Standards Board (IASB) based in London. The IAS were replaced in 2001 by International Financial Reporting Standards (IFRS).

The International Accounting Standards (IAS) were the first international accounting standards.

The goal then, as it remains today, was to make it easier to match businesses around the world, increase transparency and confidence in financial reporting, and raise global trade and investment.

International Financial Reporting Standards (IFRS) set common rules so that financial statements can be consistent, transparent and comparable in all the countries around the globe. IFRS are issued by the International Accounting Standards Board (IASB). They specify how organisations must maintain and report their accounts and other events with financial impact.

History of IFRS

IFRS originated in the European Union, with the intent to make business affairs and accounts accessible across the continent. The very same notion quickly spread globally, because experts knew that a shared language allows greater communication worldwide. Although the U.S. And some other countries don't use IFRS, most of the countries do, making IFRS the most common global set of standards.

IFRS were established to create a common accounting language, so that various businesses and their financial statements can be not only reliable but also consistent and comparable from one company to another and from one country to another country.

 

Following quote is taken from the official website of IFRS.

“Our mission is to develop IFRS Standards that bring transparency, accountability and efficiency to financial markets around the world. Our work serves the public interest by fostering trust, growth and long-term financial stability in the global economy.”

 

Benefits of IFRS:

-          Globally comparable accounting standards promote transparency, accountability, and efficiency in financial markets around the world.

-          Universal standards also significantly reduce reporting and regulatory costs, especially for companies with international operations and subsidiaries in multiple countries.

IFRS are sometimes confused with International Accounting Standards (IAS), which were the older standards that IFRS replaced. IAS were in practise from the year 1973 till 2000. Later, the International Accounting Standards Board (IASB) replaced the International Accounting Standards Committee (IASC) in 2001.

Standard IFRS Requirements:

1)     Statement of Financial Position: This is also known as a balance sheet. IFRS guides the ways in which the components of a balance sheet can be reported to the users of the financial statements.

 

2)     Statement of Comprehensive Income: As per the guidelines issued under IFRS, this can take the form of one statement, or it can be separated into a profit and loss statement and a statement of other income, including property and equipment.

 

3)     Statement of Changes in Equity: Also known as ‘Statement of Retained Earnings’, this statement produce the company's change in earnings or profit for the given financial period.

 

4)     Statement of Cash Flow: This report summarizes the company's financial transactions in the given period, separating cash flow into Operations, Investing, and Financing.

To conclude, IFRS were established to form a common accounting language, so that business and accounts can be understood from company to company and country to country in a similar way. Both companies and investors benefit from IFRS because people are more assured investing in a company if its business practices are transparent and reliable and can be understood by all of them in the same sense.

 

Introduction to Accounting Standards of India:

Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting standard adopted by the companies in India and issued under the supervision of Accounting Standards Board (ASB) which was constituted as a body in the year 1977. ASB is a committee formed under the Institute of Chartered Accountants of India (ICAI). The committee consists of various representatives from government department, academicians and other professional bodies.

The Ind AS are named and numbered in the same way as the International Financial Reporting Standards (IFRS). National Financial Reporting Authority (NFRA) recommends these standards to the Ministry of Corporate Affairs (MCA). MCA has to spell out the Accounting Standards applicable for companies in India.             

Convergence of Indian AS into IFRS:

IND AS standards are framed keeping in mind the economic environment and practices of India. They are made to suit the Indian companies and the disclosure requirements as per the various laws practised in India. The IFRS, on the other hand, are made keeping global standards and environment in mind.

So, convergence would mean bridging the gap between the two, i.e. the IFRS and the Indian AS. Convergence will involve alignment of these two sets of standards.

Following are the few benefits of Convergence:

1) Beneficial to the Economy

If the accounting standards are converged it will promote international business and increase the influx of foreign capital into the country. This will help India’s economy to grow and expand. International investing will also mean more capital for domestic companies as well.

2) Beneficial to Investors

Convergence is a boon for investors who wish to invest in foreign markets. It makes it much easier for them to study and compare the financial statements of foreign companies. Since the financial statements are made using the same set of standards it is also easier for the investors to understand and analyse them.

3) Beneficial to the Industry

With globally accepted standards, the industry can also move ahead. So convergence is important for the industry as well. It will allow the industry to lower the cost of foreign capital. If companies are not burdened by adopting two different sets of standards, it will allow them to enter easily into the market.

4] More Transparency

Convergence will benefit the users of the financial statements as well. It will make it easier for them to understand the financial statements. This will generate better transparency and raise the confidence of the foreign investors to invest funds.

It will be especially helpful for those companies that have subsidiaries and branches in many countries.

Some of the difficulties of convergence with the IFRS:

There are some significant challenges of converging the IFRS and the Indian AS. Some of them are as follows:

1)     Other than the Accounting Standards, India has many rules and regulations to implement them. These rules will need to be updated as well.

 

2)     Accounting is done via software these days, like Tally. Convergence with IFRS means this software will have to be updated which is a costlier affair.

 

3)     Also, there is a lack of trained and efficient personnel. The accountants, auditors, etc. will have to undergo training and learning programmes for the updated standards.

 


Underwriting Commission:

The Underwriter provides an assurance to the company that it would be able to raise the required amount of capital and on this basis; the risk of under subscription would be avoided and the company can proceed further in its Investment programme.

In consideration of Underwriter’s services, they receive ‘Underwriting Commission’ from the company.

The Companies Act, 2013 provides the rules for the rate of commission to be paid to the underwriters.

It provides that the rate of commission can be paid only at the rate prescribed in the Articles, not exceeding 2.5% on issue price of debentures and 5% on issue price of shares.

There are two types of Underwriting Contract –

  1. Normal Underwriting
  2. Firm Underwriting

 

  1. Questions on Normal Underwriting-

In this method, the allocation of unmarked applications can be done in two ways:

a)      Unmarked applications are allotted in the proportion of Gross Amount of capital underwritten or

b)     Unmarked applications are allotted in the proportion of Gross Amount of capital underwritten as reduced by Marked Applications.

In absence of information in the question, Students are advised to adopt any method and provide a suitable note for the same.

ALSO NOTE – If in the Question, following is mentioned:

‘Credit of Marked Application is not given to Individual Underwriter’ – Solve ONLY as per ‘a’ above.

‘Credit of Marked Application is given to Individual Underwriter’ – Solve ONLY as per ‘b’ above.

Q 1) New Ltd. Incorporated on 1st January, 2013 issued a prospectus inviting applications for 20,000 equity shares of Rs. 10 each. The whole issue was fully underwritten by Aman, Boman and Chintaman as follows:

Aman  10,000 shares

Boman  6,000 shares

Chintaman 4,000 shares

Applications were received for 16,000 shares of which marked applications were as follows:

Aman  8,000 shares

Boman  2,850 shares

Chintaman 4,150 shares

You are required to find out the liabilities of individual underwriters.

Solution:

Computation of Net Liability of Underwriters

Particulars

Aman

Boman

Chintaman

Total

1. Gross Liability

2. Marked Applications

3. Unmarked Applications

    (Gross Liability Ratio)

4. Total (2 + 3)

5. Surplus of Chintaman in the

    Ratio of 10:6

10,000

8,000

500

 

8,500

219

6,000

2,850

300

 

3,150

131

4,000

4,150

200

 

4,350

(350)

20,000

15,000

1,000

 

16,000

-

 

6. Total (4 + 5)

8,719

3,281

4,000

16,000

7. Net Liability (1-6)

1,281

2,719

NIL

4,000

 

2.      Questions on Firm Underwriting-

Q 2) A company made a public issue of Rs. 1,25,000 equity shares of Rs. 100 each, out of which Rs. 50 is payable on application. The entire issue was underwritten by four parties: A, B, C and D in the proportion of 30%, 25%, 25% and 20% respectively. Commission of 2% was payable on the amounts underwritten.

A, B, C and D also agreed on firm underwriting of 4,000, 6,000, Nil and 15,000 shares respectively.

The total subscriptions excluding firm underwriting but including marked applications were for 90,000 shares. Marked applications were as under:

A 24,000   B 12,000   C 20,000   D 24,000

Ascertain the liability of each underwriter.

Solution:

It is assumed that benefit of firm underwriting is given to individual underwriters:

1 – Total Marked Application: 80,000 shares

2 – Shares subscribed excluding firm underwriting:

Total Applications    90,000

Less: Marked Applications   80,000

So, Unmarked Applications   10,000 shares

 

3 –     Statement showing Liability of Underwriters

Particulars

A

B

C

D

Total

Gross Liability

(30:25:25:20)

Less: Marked

Applications

 

Less: Unmarked

(in G.L. Ratio)

 

Less: Firm Underwriting

 

Less: Surplus of ‘D’

Allotted to A,B and C

 

Less: Surplus of B

Allotted to A and C

37,500

 

(24,000)

_________

13,500

(3,000)

_________

10,500

(4,000)

_________

6,500

(6,000)

_________

500

 

500

31,250

 

(20,000)

_________

11,250

(2,500)

_________

8,750

(6,000)

_________

2,750

(5,000)

_________

(2,250)

 

-

31,250

 

(12,000)

_________

19,250

(2,500)

_________

16,750

-

_________

16,750

(5,000)

_________

11,750

 

1,750

25,000

 

(24,000)

_______

1,000

(2,000)

_______

(1,000)

(15,000)

_______

(16,000)

-

_______

-

 

-

1,25,000

 

(80,000)

_______

45,000

(10,000)

_______

35,000

(25,000)

_______

10,000

-

_______

10,000

 

-

NET LIABILITY

NIL

NIL

10,000

-

10,000

 

4 –     Amount due to/from Underwriters 

Particulars

A

B

C

D

Total

Shares to be

Subscribed

 

Amount due @ 50 per

Share

Less: Commission due

Of shares underwritten

4,000

 

2,00,000

 

(75,000)

6,000

 

3,00,000

 

(62,500)

10,000

 

5,00,000

 

(62,500)

15,000

 

7,50,000

 

(50,000)

35,000

 

17,50,000

 

(2,50,000)

 

1,25,000

2,37,500

4,37,500

7,00,000

15,00,000

 


Amalgamation

Amalgamation is the combination of two existing companies. It is the pooling of assets and liabilities of two companies.

In other words, Amalgamation involves combination of two companies into a new entity. Amalgamation is distinct from merger because neither company involved in the process survives as a legal entity.

Usually, the two companies being amalgamated are of same size and both look out for expansion in the new market.

Why the companies amalgamate?

As said earlier, two companies amalgamate to enter in a new market, geographically or product wise. In other words, amalgamation takes place for the following reasons:

-          To diversify the activities

-          To gain financially

 

Example: Maruti Motors of India and Suzuki of Japan were amalgamated in 1982 to form Maruti Suzuki.

 

Re-construction

It includes a) Internal Reconstruction and b) External Reconstruction.

Internal Reconstruction is the process in which alterations are done to the Share Capital and some debts are waived off. In this process, the company is neither               liquidated nor is a new company formed.

External Reconstruction is the process in which a new company is formed to takeover all the assets and liabilities of the old company. In the process, the old company is liquidated and the new company is formed deliberately to buy the assets and liabilities of the old company.

SYMBOLICALLYAMALGAMATION:

 

 

SYMBOLICALLY ABSORPTION:

 

 

Difference between Amalgamation and Absorption:

Points

Amalgamation

Absorption

1. Meaning

 

2. Minimum number of companies involved

 

3. Creation of new company

 

4. Size of entities involved

 

5. Number of companies liquidated

The process in which two or more companies are wound up to form a new company is called Amalgamation.

 

Three companies involved.

(Eg above – A Ltd, B Ltd, AB Ltd)

 

In case of Amalgamation, a new company is formed.

 

The entities are, more or less, of same size.

 

Minimum 2 companies are liquidated.

(Eg above – A Ltd and B Ltd)

The process in which one existing company takes over another existing company is called as Absorption.

 

Two companies are involved.

(Eg above –A Ltd, B Ltd)

 

In case of Absorption, no new company is formed.

 

The bigger entity overpowers the smaller entity.

 

Only 1 company is liquidated.

 

(Eg above – A Ltd is liquidated)

 

Q1) A Ltd. And B Ltd. Carrying on similar business decided to amalgamate and for this purpose a new company AB Ltd. Was formed to take over assets and liabilities of both the companies. It is agreed that fully paid shares of Rs.100 each shall be issued by the new Co. To the value of net assets of each of the old companies.

Balance Sheet of A Ltd. As at 31st December 2012

Liabilities

Amount

Assets

Amount

Shares of Rs.50 each

General Reserve

Profit & Loss A/c

Sundry Creditors

Bills Payable

50,000

20,000

3,000

4,000

4,000

Goodwill

Land and Building

Plant & Machinery

Stock

Debtors

Furniture & Fittings

Cash at Bank

5,000

17,000

24,000

10,000

12,000

5,000

8,000

 

81,000

 

81,000

 

Balance Sheet of B Ltd. As at 31st December 2012

Liabilities

Amount

Assets

Amount

800 Shares of Rs.50 each

Bank Overdraft

Sundry Creditors

40,000

8,000

8,000

Goodwill

Land and Building

Plant & Machinery

Stock

Furniture & Fittings

Debtors

Cash

Profit & Loss A/c

2,000

10,000

16,000

7,500

7,500

7,000

300

5,700

 

56,000

 

56,000

 

The following is the accepted scheme of valuation of business of the two companies:

A Ltd:  a) to provide for reserve for bad debts at the rate of 5% on debtors

b) to write off Rs.400 from stock; and

c) to write off 33-1/3% from plant & machinery

B Ltd:  a) to eliminate its goodwill and profit & loss a/c balances;

b) to write off bad debts Rs.1000 and to provide reserve of 5% on balances of debtors;

c) to write down plant & machinery by 10%; and

d) to write off Rs.1,400 from the value of stock.

You are required to pass the Journal entries and prepare the Ledger Accounts in the books of A Ltd. & B Ltd. Giving effect to the above transactions. Also pass the journal entries in the books of AB Ltd. And prepare opening Balance Sheet of AB Ltd.

SOLUTION:   Statement of Purchase Consideration (Net Asset Method)

Particulars

A Limited

B Limited

Assets:

Goodwill

Land and Building

Plant and Machinery

Furniture and Fittings

Stock

Debtors

Cash

 

5,000

17,000

16,000

5,000

9,600

12,000

8,000

 

10,000

14,400

7,500

6,100

6,000

300

Total                                                                           (A)

72,600

44,300

Less: External Liabilities:

Reserve for Bad Debts

Creditors

Bills Payable

Bank Overdraft

 

600

4,000

4,000

-

 

300

8,000

-

8,000

Total                                                                           (B)

8,600

16,300

Purchase Consideration                                   (A – B)

64,000

28,000

Fully paid Shares of Rs.100 each AB Limited

64,000

28,000

 

Note: Assets for which valuation is not given are taken at book values. E.g. Land & Buildings, Furniture etc.

Journal of A Limited

No.

Particulars

Debit

Credit

1

 

2

 

3

 

4

 

5

 

6

 

7

 

8

Assets tfd.

Realisation A/c                                                                Dr.

    To Goodwill

    To Land & Building

    To Plant & Machinery

    To Stock

    To Debtors

    To Furniture & Fixtures

    To Cash

(Being the assets transferred, to close the assets a/cs on amalgamation)

 

Liabilities tfd.

Sundry Creditors A/c                                                   Dr.

Bills Payable A/c                                                            Dr.

    To Realisation A/c

(Being transfer of current liabilities on amalgamation)

 

Purchase Consideration due

AB Limited                                                                      Dr.

    To Realisation A/c

(Being the purchase consideration due for take-over of assets & liabilities)

 

Loss on Realisation

Equity Shareholders A/c                                              Dr.

    To Realisation A/c

(Being the loss on realization transferred)

 

Capital tfd.

Equity Share Capital A/c                                              Dr.

    To Equity Shareholders A/c

(Being the transfer on amalgamation to close capital A/c)

 

Reserves Tfd.

General Reserve                                                            Dr.

Profit & Loss A/c                                                             Dr.

    To Equity Shareholders A/c

(Being transfer of reserves etc. on amalgamation)

 

PC Received

Equity Shares in AB Ltd.                                                Dr.             

    To AB Limited

(Being the purchase consideration received from AB Ltd. Vide agreement)

 

Payment to Equity Shareholders

Equity Shareholders A/c                                              Dr.

    To Equity Shares in AB Ltd.

(Being the payment of purchase consideration to Equity Shareholders vide agreement of amalgamation)

 

81,000

 

4,000

4,000

 

64,000

 

9,000

 

50,000

 

20,000

3,000

 

64,000

 

64,000

 

5,000

17,000

24,000

10,000

12,000

5,000

8,000

 

8,000

 

64,000

 

9,000

 

50,000

 

23,000

 

64,000

 

64,000

 

LEDGER OF A LIMITED

Realisation Account

Particulars

JV

Amount

Particulars

JV

Amount

To Sundry Assets (Transfer)

1

81,000

By Creditors (Transfer)

By Bills Payable (Transfer)

By AB Limited (P.C.due)

By Equity Shareholders

(Loss realization)

2

2

 

3

4

4,000

4,000

 

64,000

9,000

 

 

81,000

 

 

81,000

 

Equity Shareholders Account

Particulars

JV

Amount

Particulars

JV

Amount

To Realisation A/c (Loss)

To Equity Shares in AB Ltd.

(Pur. Cons. Recd.)

4

8

9,000

64,000

By Equity Share Capital A/c (Transfer)

By General Reserve A/c

(Transfer)

By Profit & Loss A/c

(Transfer)

5

 

6

 

6

50,000

 

20,000

 

3,000

 

 

73,000

 

 

73,000

 

AB Limited Account

Particulars

JV

Amount

Particulars

JV

Amount

To Realisation A/c (P.C. Due)

 

3

64,000

By Equity Shares in AB Ltd.

(Pur. Cons. Received)

6

64,000

 

 

64,000

 

 

64,000

 

Journal of B Limited

No.

Particulars

Debit

Credit

1

 

2

 

3

 

4

 

5

 

6

 

7

 

8

 

Assets tfd.

Realisation A/c                                                                  Dr.

    To Goodwill

    To Land & Building

    To Plant & Machinery

    To Furniture & Fittings

    To Stock

    To Debtors

    To Cash

(Being the following assets transferred, to close the assets A/cs on amalgamation)

 

Liabilities tfd.

Bank Overdraft                                                                  Dr.

Sundry Creditors                                                              Dr.

    To Realisation

(Being transfer of current liabilities on amalgamation)

 

Purchase consideration due

AB Limited                                                                           Dr.

    To Realisation A/c

(Being the purchase consideration due for take over of assets & liabilities vide agreement)

 

Loss on Realisation

Equity Shareholders A/c                                                  Dr.

    To Realisation A/c

(Being the loss on realization transferred)

 

Reserves tfd.

Equity Shareholders A/c                                                  Dr.

    To Profit & Loss A/c

(Being transfer of P & L A/c to Equity shareholders on amalgamation)

 

Capital tfd.

Equity Share Capital A/c                                                 Dr.

    To Equity Shareholders A/c

(Being the transfer on amalgamation to close capital A/c)

 

Receipt of Purchase consideration

Equity Shares in AB Ltd.                                                   Dr.

    To AB Limited

(Being the purchase consideration received from AB Ltd. Vide agreement)

 

Payment to Equity Shareholders

Equity Shareholders A/c                                                 Dr.

    To Equity Shares in AB Ltd.

(Being the payment of purchase consideration to Equity Shareholders vide agreement)

 

50,300

 

8,000

8,000

 

28,000

 

6,300

 

5,700

 

40,000

 

28,000

 

28,000

 

2,000

10,000

16,000

7,500

7,500

7,000

300

 

16,000

 

28,000

 

6,300

 

5,700

 

40,000

 

28,000

 

28,000

 

LEDGER OF B LIMITED

Realisation Account

Particulars

JV

Amount

Particulars

JV

Amount

To Sundry Assets (Transfer)

1

50,300

By Bank overdraft (Transfer)

By Creditors (Transfer)

By AB Limited A/c

(Pur.cons.due)

By Equity Shareholders A/c

(Loss Realisation)

2

 

2

3

8,000

 

8,000

28,000

 

6,300

 

 

 

50,300

 

 

50,300

Equity Shareholders Account

Particulars

JV

Amount

Particulars

JV

Amount

To Realisation A/c

(Loss tfd)

To P & L A/c (Dr. Bal.)

(Transfer)

To Equity Shares in AB Ltd.

(Pur. Con. Rec.)

4

 

5

 

8

6,300

 

5,700

 

28,000

By Equity Share Capital A/c (Transfer)

6

40,000

 

 

40,000

 

 

40,000

 

AB Limited Account

Particulars

JV

Amount

Particulars

JV

Amount

To Realisation A/c

(Pur. Cons. Due)

3

28,000

By Equity Shares in AB Ltd.

(Pur. Cons. Received)

7

28,000

 

 

28,000

 

 

28,000

 

Journal of AB Limited

No.

Particulars

Debit

Credit

1

 

2

 

3

 

4

Takeover of A Limited (Purchase Method)

Goodwill A/c

Land & Building A/c

Plant & Machinery A/c

Furniture & Fittings A/c

Stock A/c

Debtors A/c

Cash A/c

    To Creditors A/c
    To Bills Payable A/c

    To Reserve for Bad Debts A/c

    To Liquidator of A Ltd.

(Being the assets & liabilities taken over at agreed value)

 

Liquidator of A Ltd.

   To Equity Share Capital A/c

(Being payment of purchase consideration)

 

Takeover of B Limited (Purchase Method)

Land & Building A/c

Plant & Machinery A/c

Furniture & Fittings A/c

Stock A/c

Debtors A/c

Cash A/c

    To Creditors A/c

    To Bank Overdraft A/c

    To Reserve for Bad Debts A/c

    To Liquidator of B Ltd.

(Being payment of purchase consideration)

 

Liquidator of B Ltd.

    To Equity Share Capital A/c

(Being payment of purchase consideration)

 

5,000

17,000

16,000

5,000

9,600

12,000

8,000

 

64,000

 

10,000

14,400

7,500

6,100

6,000

300

 

28,000

 

4,000

4,000

600

64,000

 

64,000

 

8,000

8,000

300

28,000

 

28,000

 

AB Limited

Balance Sheet as on 31-12-2012

Particulars

Note

Amount

Amount

I EQUITY AND LIABILITIES

1 Shareholders Funds

    Share Capital

2 Current Liabilities

a Trade Payables

b Short Term Borrowings (Bank Overdraft)

 

1

 

2

 

16,000

8,000

 

92,000

 

24,000

Total

 

 

1,16,000

II ASSETS

1 Non – current Assets

   Fixed Assets

-          Tangible Assets

-          Intangible Assets (Goodwill)

2 Current Assets

a Inventories

b Trade Receivables (18,000 – 900)

c Cash and Cash Equivalents (Cash in Hand)

 

3

 

69,900

5,000

 

15,700

17,100

8,300

 

74,900

 

41,100

Total

 

 

1,16,000

 

Notes to Accounts

1 Share Capital

   Equity Share Capital

   920 Equity Shares of Rs.100 each fully paid up

   (issued for consideration other than cash in pursuance of scheme of

   Amalgamation)

2 Trade Payables

a Creditors

b Bills Payables

 

92,000

 

12,000

4,000

Total

16,000

3 Fixed Assets

   Tangible Assets

-          Land and Buildings

-          Plant and Machinery

-          Furniture and Fittings

 

27,000

30,400

12,500

Total

69,900

 

Q2) BK Ltd. Is formed to take over Bunty Ltd. And Kuber Ltd. Their balance Sheets on the date of amalgamation are as below:

Balance Sheets as on 31st March, 2012

Liabilities

Bunty

Ltd.

Kuber

Ltd.

Assets

Bunty

Ltd.

Kuber

Ltd.

Share Capital of Rs.10 each

B

Equity Shares

11% Pref. Shares

General Reserve

Profit & loss A/c

9% Debentures

Sundry Creditors

Other Liabilities

 

2,40,000

1,50,000

45,000

30,000

1,00,000

60,000

40,000

 

1,60,000

1,00,000

40,000

21,000

1,00,000

40,000

24,000

Goodwill

Buildings

Machinery

Furniture

Investments

Debtors

Stock

Cash and Bank

Other Current Assets

Share issue Expenses

-

1,50,000

80,000

10,000

1,40,000

1,65,000

75,000

13,000

 

20,000

 

12,000

25,000

1,40,000

60,000

5,000

80,000

60,000

90,000

8,000

 

10,000

 

7,000

 

6,65,000

4,85,000

 

6,65,000

4,85,000

 

BK Ltd. Issued 10,000 Equity shares of Rs.10 each to the public at a premium of 10%. Bunty Ltd. And Kuber Ltd were taken over by BK Ltd. On the following terms.

Re: Bunty Ltd.

a)      Equity Shareholders are to be issued 7 Equity Shares of Rs.10 at par in BK Ltd. And are to be paid Rs.5 in cash for surrender of each 6 shares.

b)     Preference shareholders are to be paid at 10% premium by 12.5% preference shares in BK Ltd. Issued at par.

c)      All Assets and liabilities are valued at book value except Machinery which is valued at 10% below book value and Debtors are worth Rs.1,60,000.

d)     Liquidation expenses of Rs.12,500 are to be borne by BK Ltd.

e)     Discharge the debentures of Bunty Ltd. At a discount of 10% by the issue of 13% Debentures of Rs.100 each in BK Ltd.

 

Re: Kuber Ltd.

a)      Cash Rs.3,000 is to be retained for liquidation expenses.

b)     Debtors and Investments are valued at 90% of cost.

c)      Machinery and stock are valued at 10% above cost and other assets and liabilities are valued at book value except Fictitious Assets.

d)     Preference shareholders are to be paid at 10% premium by 12.5% preference shares in BK Ltd. Issued at par.

e)     Balance of Purchase consideration is payable in equity shares at par.

f)       Discharge the debentures of Kuber Ltd. At par by the issue of 13% Debentures of Rs.100 each in BK Ltd.

The Face value of Equity shares and Preference shares in BK Ltd. Is Rs.10 each.

Show the necessary Ledger Accounts in the books of Bunty Ltd. Also calculate purchase consideration.

SOLUTION:             CALCULATION OF PURCHASE CONSIDERATION

Bunty Ltd. (Net Payment Method)

Particulars

Amount

Amount

For Equity Shareholders

-          28,000 [ 24,000 x 7] Equity Shares of Rs.10 each

                    6

-          Cash [ 24,000 x 5 ]

                        6

For Preference Shareholders

-          16,500 12.5% Preference Shares of Rs.10 (1,50,000 x 110%)

 

2,80,000

 

20,000

 

-

 

3,00,000

 

1,65,000

 

 

4,65,000

 

Kuber Ltd. (Net Asset Method)

Particulars

Amount

Amount

Assets at agreed value

Goodwill (BV)

Buildings (BV)

Machinery (60,000 x 110%)

Furniture (BV)

Investments (80,000 x 90%)

Debtors (60,000 x 90%)

Cash & Bank (8,000 – 3,000)

Other Current Assets (BV)

Stock (90,000 x 110%)

Less: Liabilities taken over at book value

9% Debentures (BV)

Sundry Creditors (BV)

Other Liabilities (BV)

 

25,000

1,40,000

66,000

5,000

72,000

54,000

5,000

10,000

99,000

 

1,00,000

40,000

24,000

 

4,76,000

 

1,64,000

Purchase Consideration (Kuber Ltd.)

 

3,12,000

Settlement of Purchase Consideration (Kuber Ltd.)

Particulars

Amount

For Preference Shareholders (1,00,000 + 10%)

-          11,000 12.5% preference shares of Rs.10 each

Balance to Equity Shareholders at par

-          20,200 Equity shares of Rs.10 each

 

1,10,000

 

2,02,000

Total

3,12,000

 

IN THE BOOKS OF BUNTY LTD.

Realisation A/c

Particulars

Amount

Particulars

Amount

To Buildings

To Machinery

To Furniture

To Investments

To Debtors

To Stock

To Cash & Bank

To Other Current Assets

To 11% Preference Shareholders (Premium)

1,50,000

80,000

10,000

1,40,000

1,65,000

75,000

13,000

20,000

15,000

By 9% Debentures

By Sundry Creditors

By Other Liabilities

By BK Ltd. A/c (P.C)

By Equity Shareholders A/c (Loss)

1,00,000

60,000

40,000

4,65,000

3,000

 

6,68,000

 

6,68,000

 

Equity Shareholders A/c

Particulars

Amount

Particulars

Amount

To Share issue Expenses

To Equity Shares in BK Ltd.

To Cash

To Realisation A/c (Loss)

12,000

2,80,000

 

20,000

3,000

By Equity Share Capital

By General Reserve

By Profit & Loss A/c

2,40,000

45,000

30,000

 

3,15,000

 

3,15,000

 

11% Preference Shareholders A/c

Particulars

Amount

Particulars

Amount

To 12.5% Preference Shares in BK Ltd.

1,65,000

By 11% Preference Share Capital

By Realisation A/c

1,50,000

 

15,000

 

1,65,000

 

1,65,000

 

B.K. Ltd A/c

Particulars

Amount

Particulars

Amount

To Realisation A/c (P.C.)

4,65,000

By Equity Shares in BK Ltd.

By Cash A/c

By 12.5% Preference Shares in BK Ltd.

2,80,000

 

20,000

1,65,000

 

4,65,000

 

4,65,000

 

Equity Shares in B.K. Ltd A/c

Particulars

Amount

Particulars

Amount

To BK Ltd

2,80,000

By Equity Shareholders

2,80,000

 

2,80,000

 

2,80,000

 

12.5% Preference Shares in B.K. Ltd A/c

Particulars

Amount

Particulars

Amount

To BK Ltd

1,65,000

By Preference Shareholders

1,65,000

 

1,65,000

 

1,65,000

 

Cash A/c

Particulars

Amount

Particulars

Amount

To BK Ltd.

20,000

By Equity Shareholders

20,000

 

20,000

 

20,000

 

NOTE for Students - Similar ledgers will be prepared in the books of Kuber Ltd.

 

Q3) Long Limited has agreed to acquire Goodwill and assets (except investments and Bank Balances) of Short Limited as at 31st March, 2012. The Balance Sheet of Short Limited as on that date was as follows:

Liabilities

Amount

Assets

Amount

Share Capital (Rs.10 each)

General Reserve

Profit & Loss A/c

8% Debentures

Creditors

Provision for Taxation

1,60,000

25,000

18,000

60,000

37,000

20,000

Goodwill

Land & Buildings

Plant

Investment

Stock

Debtors

Bank

20,000

80,000

80,000

30,000

40,000

50,000

20,000

 

3,20,000

 

3,20,000

 

Long Ltd. Will:

a)      Discharge the Debentures @ 8% premium by issue of 7% Debentures in Long Ltd. At 10% discount.

b)     Issue 3 shares of Long Ltd. At market price of Rs.11 for 2 shares of Short Ltd.

c)      Pay Rs.2 in cash for each share of Short Ltd.

d)     Re-imburse absorption expenses of Rs.3,000

Short Ltd. Sells investments for Rs.32,000; one third of the shares received from Long Ltd. Are sold @ Rs.10.50 each. Tax liability is determined at Rs.24,000. Before transfer, Short Ltd. Declares and pays 10% dividend. Long Ltd. Values Land and Building at Rs.1,00,000, Plant at 10% below book value, stock at Rs.35,000, and debtors subject for 5% provision.

Show a) Ledger accounts in the books of Short Ltd. And b) Journal entries in the books of Long Ltd.

SOLUTION:          Calculation of Purchase consideration (Net Payment Method)

Payments to

Old

No.

Exch.

Ratio

New

No.

Rate

Amount

1 Equity Shareholders

   Equity Shares in Long Ltd.

   Cash

 

16,000

16,000

 

2:3

 

24,000

 

11.00

2.00

 

2,64,000

32,000

 

 

 

 

 

2,96,000

 

LEDGER OF SHORT LTD.

Realisation Account

Particulars

Amount

Particulars

Amount

To Sundry Assets

(transfer, except Bank)

To Bank (Tax Liability paid)

To Bank (Creditors paid)

To Equity Shareholders A/c

(Profit realization)

3,00,000

 

24,000

37,000

84,000

By Sundry Creditors (transfer)

By Debentures

By Provisions for Tax (transfer)

By Long Limited (pur.cons.due)

By Bank (sale investment)

37,000

 

60,000

20,000

 

2,96,000

 

32,000

 

4,45,000

 

4,45,000

 

Equity Shareholders Account

Particulars

Amount

Particulars

Amount

To Equity Shares in Long Ltd.

(loss on sale of shares)

To Bank (balance paid)

To Equity Shares in Long Ltd.

(balance shares given)

4,000

 

91,000

1,76,000

By Equity Share Capital (transfer)

By General Reserve (transfer)

By Profit & Loss  A/c (transfer, 18,000 – dividend 16,000)

By Realisation A/c (profit transferred)

1,60,000

 

25,000

2,000

 

84,000

 

2,71,000

 

2,71,000

 

Bank Account

Particulars

Amount

Particulars

Amount

To Opening balance b/d

To Realisation A/c (sale of investment)

To Long Limited (pur.cons.received)

To Equity shares in Long Ltd.

(Sale of Shares)

To Long Ltd. (Exp. Re-imbursed)

20,000

32,000

 

32,000

 

84,000

 

3,000

By Realisation A/c (Creditors paid)

By Realisation A/c (tax liability paid)

By Realisation A/c (expenses paid)

By Profit & Loss A/c

(Dividend paid 10% on Capital)

By Equity Shareholders A/c

(Bal. Paid)

37,000

 

24,000

 

3,000

 

16,000

 

91,000

 

1,71,000

 

1,71,000

 

Long Ltd. Account

Particulars

Amount

Particulars

Amount

To Realisation A/c (pur.cons.due)

To Bank A/c (Expenses due)

2,96,000

 

3,000

By Equity Shares in Long Ltd.

By Bank A/c (P.C. Recd.)

By Bank A/c (Exp. Reimbursed)

2,64,000

32,000

3,000

 

2,99,000

 

2,99,000

 

Equity Shares in Long Ltd. Account

Particulars

Amount

Particulars

Amount

To Long Limited (pur.cons.recd.)

2,64,000

By Bank A/c (Sale of 8,000 shares at Rs.10.50)

By Equity Shareholders A/c

(Loss on sale tfd. 8,000 x 0.50)

By Equity Shareholders A/c

(balance shares distributed)

84,000

 

4,000

 

1,76,000

 

2,64,000

 

2,64,000

 

Journal of Long Limited

No.

Particulars

Debit

Credit

1

 

2

 

3

 

4

Land & Building

Plant

Stock

Debtors

Goodwill (bal. Fig.)

    To Debentures in Short Ltd.

    To Prov. For doubtful debts

    To Liquidator of Short Ltd.

(Being the Assets & Liabilities taken over at agreed values, difference between purchase consideration and value of net assets transferred to Goodwill)

 

Goodwill A/c

    To Bank A/c

(Being absorption expenses of short Ltd. Re-imbursed)

 

Liquidator of Short Ltd.

    To Equity Share Capital

    To Security Premium A/c

    To Bank

(Being payment of pur.cons.)

 

Debentures in Short Ltd.

Discount issue of Debentures

    To 7% Debentures

(Being Debentures taken over discharged)

1,00,000

72,000

35,000

50,000

1,06,300

 

3,000

 

2,96,000

 

64,800

7,200

 

64,800

2,500

2,96,000

 

3,000

 

2,96,000

 

72,000

 

Note: Discount on issue of debentures may be adjusted against Security Premium.

Q4) The following Balance Sheet of X Ltd. Is given as on 31 -3-2012

Balance Sheet

Liabilities

Amount

Assets

Amount

Share Capital:

5,000 6% Cumulative Preference Shares of Rs.10 each

15,000 Equity Shares of Rs.10 each

5% Debentures

Creditors

Note: Preference Dividends was in arrears for 2 years

 

50,000

 

1,50,000

30,000

20,000

Goodwill

Patents

Sundry Assets

Cash

Profit & Loss Account

Share issue Expenses

40,000

15,000

1,64,500

500

28,000

2,000

 

2,50,000

 

2,50,000

 

A scheme of reconstruction was framed as under:

1)     Y Ltd. Was formed with an authorized capital of Rs.3,25,000 in equity shares of Rs.10 each.

2)     One equity share of Rs.5 paid in Y Ltd. To be issued for each equity share in X Ltd. And also one equity share for each preference share respectively.

3)     Arrears of dividends are cancelled.

4)     Creditors are taken over by Y Ltd.

5)     Debenture holders to receive 3,000 equity shares in Y Ltd. Credited as full paid.

6)     Remaining unissued shares of Y Ltd. To be taken up and paid in full by public in cash.

7)     Y Ltd. To be take over all assets except patents subject to writing down, Sundry assets by Rs.53,000.

8)     Patents realized Rs.1,000 and expenses of X Ltd. Amounted to Rs.1,000.

Prepare the following: 1) Journal entries in X Ltd. 2) Journal entries in Y Ltd. 3) Balance Sheet of Y Ltd.

SOLUTION:          Calculation of Purchase Consideration (Net Payment Method)

Particulars

Old

No.

Exch.

Ratio

New

No.

Rate

Amount

1 Equity Shareholders:

   Equity Shares in Y Ltd.

2 Preference Shareholders:

   Equity Shares in Y Ltd.

 

15,000

 

5,000

 

1:1

 

1:1

 

15,000

 

5,000

 

5.00

 

10.00

 

75,000

 

50,000

 

Journal of X Limited

No.

Particulars

Debit

Credit

1

 

2

 

3

 

4

 

5

 

6

 

7

 

8

 

9

 

10

 

11

 

12

Realisation A/c

    To Goodwill

    To Patents

    To Sundry Assets

    To Cash

(Being the assets tfd. To close assets A/cs)

 

5% Debentures A/c

Creditors

    To Realisation A/c

Being transfer to close Debentures & Creditors A/c)

 

Y Limited

    To Realisation A/c

(Being the purchase consideration due vide agreement)

 

Cash

    To Realisation A/c

(Being the amount received on sale of patents not taken over)

 

Realisation A/c

    To Cash

(Being the payment for expenses of Reconstruction)

 

Preference Share Capital A/c

    To Preference Shareholders A/c

(Being the transfer to close Preference Share Capital A/c)

 

Equity Shareholders A/c

    To Realisation A/c

Being the loss on realization transferred)

 

Equity Share Capital A/c

    To Equity Shareholders A/c

(Being the transfer to close Equity Share Capital A/c)

 

Equity Shareholders A/c

    To Share issue Expenses

    To Profit & Loss A/c (Dr. Bal.)

(Being transfer to shareholders)

 

Equity Shares in Y Ltd. (Rs.5 paid up)

Equity Shares in Y Ltd. (Rs.10 paid up)

    To Y Ltd.

(Being the purchase consideration received vide agreement)

 

Preference Shareholders A/c

    To Equity Shares in Y Ltd. (Rs.10)

(Being the payment to Preference Shareholders vide agreement)

 

Equity Shareholders A/c

    To Equity Shares in Y Ltd. (Rs.5)

(Being the payment of purchase consideration to Equity Shareholders vide agreement)

2,20,000

 

30,000

20,000

 

1,25,000

 

1,000

 

1,000

 

50,000

 

45,000

 

1,50,000

 

30,000

 

75,000

50,000

 

50,000

 

75,000

 

40,000

15,000

1,64,500

500

 

50,000

 

1,25,000

 

1,000

 

1,000

 

50,000

 

45,000

 

1,50,000

 

2,000

28,000

 

1,25,000

 

50,000

 

75,000

 

 

Journal of Y Limited

No.

Particulars

Debit

Credit

1

 

2

 

3

 

4

Sundry Assets

Cash

Goodwill (bal. Fig.)

    To Creditors

    To Debentures in X Ltd

    To Liquidator of X Ltd.

(Being the Assets & liabilities taken over at agreed value; difference between purchase consideration and value of net assets transferred to Goodwill)

 

Liquidator of X Ltd.

    To Equity Share Capital (Rs.10)

    To Equity Share Capital (Rs.5)

(Being payment of purchase consideration)

 

Debentures in X Ltd.

    To Equity Share Capital (Rs.10)

(Being settlement of Debentures)

 

Cash

    To Equity Share Capital (Rs.10)

(9,500 Shares issued to Public, fully paid)

1,11,500

500

63,000

 

1,25,000

 

30,000

 

95,000

 

20,000

30,000

1,25,000

 

50,000

75,000

 

30,000

 

95,000

 

Y Ltd

Balance Sheet as on 31st March 2012

Particulars

Note

Amount

Amount

I EQUITY AND LIABILITIES

1 Shareholders Funds

    Share Capital

2 Current Liabilities

    Trade Payables

 

1

 

 

 

2,50,000

 

20,000

Total

 

 

2,70,000

II ASSETS

1 Non – current Assets

    Fixed Assets

-          Tangible Assets (1,64,500 – 53,000)

-          Intangible Assets [Goodwill (40,000 + 23,000)]

2 Current Assets

    Cash and Cash Equivalents

 

2

 

1,11,500

63,000

 

1,74,500

 

95,500

Total

 

 

2,70,000

 

Notes to Accounts

Amount

1 Share Capital

   Equity Share Capital

   Authorised Shares (32,000 Equity Shares of Rs.10)

   Issued, subscribed & fully paid Shares:

   17,500 Equity Shares of Rs.10 each

   Issued, subscribed but partly paid Shares:

   15,000 Equity Shares of Rs.10 each (Rs.5 paid)

   (Of the above, 8,000 shares Rs.10 paid up, and 15,000 Shares Rs.5 paid

    Up, issued for consideration other than cash in pursuance of a contract)

 

3,25,000

 

1,75,000

 

75,000

Total

2,50,000

2 Cash and Cash Equivalents

    Cash on Hand (500 + 95,000)

 

95,500

 

Note: Arrears of Preference Dividends (see Balance Sheet of X Ltd) are cancelled vide the scheme of reconstruction. No entry is required for such cancellation in the books of X Ltd. Or Y Ltd.


Introduction:

A company comes into existence through a legal process and also it comes to end by law. The legal procedure through which the existence of a company comes to an end is known as ‘Liquidation’.

Definition:

As per Sec 2(94A) of the Companies Act, 2013, winding up means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016.

A Company may be liquidated

-          Voluntarily

-          Compulsorily

A company can be voluntarily wounded

-          If the company passes a resolution in general meeting

  • As the period has expired of its duration, if any, fixed by its Articles or
  • On occurrence of some event and on happening of which, the Articles provide for its dissolution

-          If the company passes a special resolution for voluntarily winding up of the company.

A company can be compulsorily wounded by

-          Tribunal

-          Filing a petition

  • By Contributory
  • By Registrar
  • By the Company

To the tribunal.

IMPORTANT NOTE for Students:

In case of voluntary winding up, the statement prepared by the liquidator to show Receipts and Payment of Cash is called as ‘Liquidator’s Statement of Account’ and in case of Compulsory winding up, it is called ‘Official Liquidator’s Final Account’.

 

Q1) M. Ltd. Resolved on 31st December that the company be wound up voluntarily. The following was the trail balance extracted from its books as on that date.

Particulars

Amount

Amount

Equity shares of Rs.10 each

9% Preference shares of Rs.10 each

Plant (less depreciation w/o Rs.85,000)

Stock in Trade

Trade Receivables

Trade Payables

Bank balance

Preliminary expense

Profit & Loss A/c (balance on 1st January 2016)

Trading loss for the year 2016

Preference dividend for the year 2016

Outstanding Expenses (including mortgage interest)

4% Mortgage loan

 

2,15,000

2,50,000

55,000

 

74,000

6,000

 

24,000

6,000

 

2,00,000

1,00,000

 

75,000

 

30,000

 

25,000

2,00,000

Total

6,30,000

6,30,000

 

On 1st January, 2017 the liquidator sold M. Ltd.’s Plant for Rs.2,05,000 and Stock in trade for Rs.2,00,000. The sale was completed in January, 2017 and the consideration satisfied as to Rs.2,62,200 in cash and as to the balance in 6% Debentures of the purchasing company issued to the liquidator at the premium of 2%.

The remaining steps in the liquidation were as follows

1)     The liquidator realized Rs.52,000 out of the book debts and the cost of collection  amounted to Rs.2,000.

2)     The loan mortgaged was discharged on 31st January, 2017 along with interest from 31st July, 2016. Creditors were discharged subject to 2% and outstanding expenses excluding mortgage interest were settled for Rs.2,000

3)     On 30th June 2017 six months interest on debentures was received from M. Ltd.

4)     Liquidation expenses amounting to Rs.3,000 and liquidators remuneration of 3% on disbursements to members were paid on 30th June, 2017 when;

a)      The preference shareholders were paid out in cash; and

b)     The debentures on M. Ltd. And the balance of cash were distributed ratably among the Equity shareholders.

Prepare the Liquidators Statement of Account showing the distribution.

 

SOLUTION:           M. Ltd. (In Liquidation)

Liquidators Statement of Account from 1st January, 2017 to 30th June, 2017

Particulars

Amount

Amount

Particulars

Amount

Amount

Balance at Bank

Realisation from:

Trade Receivables

Rs.1,40,000 6% Debentures

Cash

6 months interest on debentures

Equity Shareholders

Less: Cost of Collection of Debts

 

 

1,42,800

2,62,200

74,000

 

52,000

 

4,05,000

 

4,200

 

5,35,200

 

(2,000)

Liquidators remuneration

(3% on Rs.2,43,398)

Liquidation Expenses

Loan on mortgage with Accrued interest

Creditors including Outstanding expenses

Return contributors:

6% Preference share

Holders Rs.10 per share

6% Debentures

Cash (3 paise approx.)

 

1,42,800

 

5,98

 

7,302

 

3,000

 

2,04,000

 

75,500

 

1,00,000

 

143398

Total

 

5,33,200

Total

 

5,33,200

 

Q2) The following is the Balance Sheet of Confidence Builders Ltd. As at 30th Sept.2016

Particulars

Amount

Particulars

Amount

Share Capital

Issued: 11% Pref. Shares of Rs.10 each

10,000 Equity Shares of Rs.10 each fully paid up

5,000 Equity Shares of Rs.10 each, Rs.7.50 per share paid up

13% Debentures

Mortgage Loan

Bank Overdraft

Creditors for Trade

Income tax arrears:

(Assessment concluded in July 2012)

Assessment year 2014 – 2015

Assessment year 2015 - 2016

 

1,00,000

 

1,00,000

 

37,500

1,50,000

80,000

30,000

32,000

 

21,000

 

5,000

Land and Buildings

Sundry Current Assets

Profit and Loss Account

Debenture issue expenses not written off

 

1,20,000

3,95,000

38,500

 

2,000

 

5,55,500

 

5,55,500

 

Mortgage Loan was secured against Land and Buildings. Debentures were secured by a floating charge on all the other assets. The company was unable to meet the payments and therefore the debenture holders appointed a Receiver for the Debenture holders brought the Land and Buildings to auction and realized Rs.1,50,000. He also took charge of Sundry assets of value of Rs.2,40,000 and realized Rs.2,00,000. The Bank Overdraft was secured by a personal guarantee of two of the Directors of the Company and on the Bank raising a demand, the Directors paid off the due from their personal resources. Costs incurred by the Receiver were Rs.2,000 and by the Liquidator Rs.2,800. The Receiver was not entitled to any remuneration by the Liquidator was to receive 3% fee on the value of assets realized by him. Preference shareholders had not been paid dividend for period after 30th September 2014 and interest for the last half year was due to the debentures holders. Rest of the assets were realized at Rs.1,00,000.

Prepare the accounts to be submitted by the Liquidator and Receiver.

SOLUTION:     Receivers Receipts and Payments Account

Particulars

Amount

Amount

Particulars

Amount

Amount

Sundry Assets realized

Surplus received from mortgage

Sale Proceeds of Land & Building

Less: Applied to discharge of mortgage loan

 

1,50,000

 

(80,000)

 

2,00,000

 

70,000

Costs of the Receiver

Preferential payments

Creditors paid taxes raised within 12 months

Debenture holders

Principal

Interest for half year

Surplus transferred to the liquidator

 

1,50,000

 

9,750

 

2,000

 

26,000

 

1,59,750

 

82,250

 

 

2,70,000

 

 

2,70,000

 

Liquidator’s Final Statement of Account

Particulars

Amount

Particulars

Amount

Surplus received from Receiver

Assets Realized

Calls on Contributories:

On holder of 5,000at the rate of Rs.2.17 per share

 

82,250

1,00,000

 

10,850

Cost of Liquidation

Remuneration to Liquidator (1,00,000 x 3%)

Unsecured Creditors

For trade                              32,000

Directors for payment

Of Bank O/D                        30,000

Preferential Shareholders:

Principal                            1,00,000

Arrears of Dividends         22,000

 

Equity Shareholder:

Return of money to contributors to holders of 10,000 shares at 33 paise each

2,800

3,000

 

62,000

 

1,22,000

 

3,300

 

1,93,100

 

1,93,100

 

Working Note:

Call from partly paid shares

Deficit before call from Equity Shares (1,82,250 – 1,89,800)   =  7,550

Notional call on 5,000 shares @ Rs.2.50 each                                               12,500

Net balance after notional call                                                                      a) 4,950

No. Of shares deemed fully paid                                                                  b) 15,000

Refund on fully paid shares                        4,950                                         =      33p

15,000

Calls on partly paid share (2.50 – 0.33)                                                       =    Rs.2.17

 

Books recommended :

1. M. C. Shukla and T. S. Grewal —Advanced Account

2. S. M. Shukla —Advanced Accounts.

3. R. L. Gupta —Advanced Accounts.

4. Man Mohan Prasad — Advanced Accounts.

5. S. K. Singh & R. U. Singh —Specialised Accounts


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