ACCOUNTING FOR EXTERNAL RECONSTRUCTION (AMALGAMATION/ MERGER/ TAKEOVER/ ABSORPTION)
Definition
Meaning of Transferor company: Transferor company means the company which is amalgamated into another company. It is also known as Vendor company
Meaning of Transferee company: Transferee company means the company into which a transferor company is amalgamated. It is also known as purchasing company.
Meaning of Takeover: A takeover or acquisition is the purchase of one company by another. We call the purchaser the bidder or acquirer, while the company it wants to buy is the target. It is a type of merger, but not of equals. The Acquiree company continues with its legal and economic identity.
Types of Amalgamation:
From accounting point of view there are two types of Amalgamation:
- Amalgamation in the nature of Merger or pooling interests method of Amalgamation: Amalgamation which satisfies all of the following conditions is considered as amalgamation in the nature of merger:
I) All the assets and liabilities of the transferor company become the assets and liabilities of the transferee company or purchasing company.
II) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company become equity share holder of the transferee company by virtue of 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.
In this type of amalgamation there is a genuine pooling of Assets and liabilities of the combining entity.
2. Amalgamation in the nature of purchase: An amalgamation is considered to be in the nature of purchase when any one or more of the five conditions specified for amalgamation in the nature of merger as stated above is not satisfied. In this type of amalgamation one company acquires another company and equity shareholders of the combining entities do not continue to have a proportional share in the equity of the combined entity or the business of the company which is acquired not intended to be continued after the amalgamation.
Key takeaways:
- Amalgamation in the nature of merger is a type of combination of two business and it is in which either one entity losses its identity or both of amalgamating entities lose their existence to form a new firm.
- Amalgamation in the nature of purchase is a type of purchase of one business entity by another one in which the entity that takes over the other entity retains its identity which is being taken over losses is identity and existence.
Accounting entries in the books of Transferee company (Purchasing Company):
It should be noted that AS 14 regulates the accounting treatment of amalgamation in the nature of Merger and in the nature of purchase in the books of Transferee company only. As per as 14 there are two methods of recording the entries for the assets and liabilities taken over.
I) Under the pooling of interest method: This method of accounting is applied to an amalgamation in the nature of Merger. Under this method minimal changes are made in aggregating the assets and liabilities of the individual amalgamating companies. The following steps are taken while making entries under this method in the books of Transferee company.
A) The assets, liabilities and all types of reserves, capital or revenue, or even arising from revaluation of assets of the Transferor company are recorded by the Transferee company at their existing carrying amounts and in the same form as at the date of amalgamation unless any adjustment is required due to different accounting policies followed by these companies.
B) The balance in the profit and loss account of the Transferor company should be aggregated with the corresponding balance of the Transferee company or transferred to General reserve account.
C) The identity of reserves is maintained and these are shown in the balance sheet of the Transferee company in the same form as they had appeared in the financial statements of the Transferor company.
Journal entries in the books of Transferee company under pooling of interest method:
- On taking over assets and liabilities of Transferor company:
Sundry Assets account Dr ( individual) ( with respective book values)
To Sundry liabilities A/c (individual)(with respective book values)
To provision for doubtful debts A/c
To other provisions A/c
To Surplus in Statement of profit and loss(with book balance)
To Reserves (individual) A/c(book balance)
To Liquidator of Transferor company A/c (with purchase consideration)
2. When purchased consideration for Amalgamation is discharged:
Liquidator of Transferor company A/c. Dr (with purchase consideration)
To Equity share capital A/c (with face value)
To Preference Share capital A/c ( with face value)
To securities premium reserve (with premium amount)
To Bank A/c (amount of cash paid)
To Non cash consideration A/c ( other than shares)
3. When liquidation expenses of the Transferor company paid by the Transferee company.
A) Liquidation expenses A/c Dr
To Bank A/c
B) Statement of profit and loss Dr
To Liquidation expenses A/c
4. For formation expenses if any of the Transferee company
Preliminary expenses A/c Dr
To Bank A/c
II. UNDER PURCHASE METHOD:
The following features of the Purchase method must be noted before making accounting entries in the books of transferee company
1)The assets and liabilities of the transferor company should be Incorporated in either revalued figures for their carrying amount.
2)general reserve Capital Reserve or Revaluation Reserve of the transferor company other than stated reserve should not be included in the financial statements of the transferee company.
3) Statutory reserves of the transferor company should be carried forward in the books of transferee company for legal compliance.
4) The amalgamation adjustment account should be disclosed under the head miscellaneous expenditure in the asset side of the balance sheet. When it is found Statutory reserve is no longer required to be maintained both the statutory reserves and amalgamation adjustment account will be eliminated by means of reverse entry.
5)Any excess of the amount of the Purchase consideration the value of net assets of the transferor company acquired by the transferee company shall be treated as goodwill arising on amalgamation in the books of transferee company. If the value of net assets is more than purchase consideration the difference is credited to Capital Reserve account.
Accounting entries in the books of Transferee company under Purchase method:
1.For purchase consideration on acquisition of the business
Business purchase account Dr( with the amount of purchase consideration)
To liquidator of Transferor company A/c
2.On acquisition of Assets and liabilities of the transferor company
Sundry Assets account Dr( individually with respective revalue or fair or book values)
To Sundry liabilities account (with revalued or fair or book values)
To Business purchase account ( with the amount of purchase consideration)
3.On discharge of purchase consideration
Liquidator of transferor company A/c Dr(with the amount of purchase consideration)
debentures account debit
To share capital account ( with nominal value of shares)
To securities premium reserve account (with the amount of premium if any)
To Debentures account(with the nominal value of debentures issue)
To Bank account (with the amount paid in cash)
4.when the statutory reserve such as development rebate reserve, Investment allowance reserve, export profit reserve are maintained.
Amalgamation adjustment account Dr ( with the amount of Reserve to respective statutory reserve account.)
To Statutory reserve A/c
5.when liquidation expenses of the transferor company are Borne by transferee company
Goodwill account Dr
To bank account
6.For the formation expenses of the transferee company if any
preliminary expenses account Dr
To bank account.
In case, there are both goodwill and Capital Reserve account Goodwill may be set off against Capital Reserve.
Capital Reserve account Dr (with amount set off to Goodwill account )
To Goodwill A/c
7. on the payment of liability by the transferee company
(respective) liability account Dr (with amount payable).
To share capital account
To debentures account
To bank account.
Purchase Consideration – Meaning & Methods
In case of amalgamation, purchase consideration is the agreed amount which transferee company (Purchasing company) pays to the transferor company (Vendor company) in exchange of the ownership of the transferor company. It may be in form of cash, shares or any other assets as agreed between both the companies.
For example, XYZ Ltd is purchasing the business of ABC Ltd for an agreed amount of INR 5000K and 100K shares of INR 10 each. Here, purchase consideration is INR 6000K (5000000 + 1000000).
Methods of Purchase Consideration:
Following are the different methods of calculating purchase consideration for Amalgamation:
- Lump Sum method: Where the terms of amalgamation provide for payment of a specified sum of money, the consideration for Amalgamation will be taken at that sum and no calculations are needed.
Illustration 1.
A purchasing company agreed to take over a business of selling company for Rs. 5, 00,000. In such a case, the purchase consideration is Rs. 5,00,000. No calculations are needed.
2. Net Worth or Net Assets Method:
Under this method, purchase consideration is calculated by adding up the values of various assets taken over by the purchasing company and then deducting there from the values of various liabilities taken over by the purchasing company. The values of assets and liabilities for the purpose of calculation of purchase consideration are those which are agreed upon between the purchasing company and the vendor company and not the values at which the various assets and liabilities appear in the Balance Sheet of the vendor company.
(Agreed value of Assets taken over) – (Agreed value of liabilities taken over) = Net Assets
The following relevant points are to be noted while ascertaining the purchase price under this method:
(i) If the transferee company agrees to take over all the assets of the transferor company, it would mean inclusive of cash and Bank balances.
(ii) The term all assets, however, does not include fictitious assets, like Debit balance of Profit and Loss Account, Preliminary Expenses Account, Discount and other expenses on issue of shares and Debentures, Advertising Expenses Account etc.
(iii) Any specific asset, not taken over by transferee company, should be ignored while computing the purchase price,
Iv) If there is any goodwill, pre-paid expenses etc. The same are to be included in the assets taken over unless otherwise stated
(iv) The term liabilities will always signify all liabilities to third parties. Trade liabilities are those incurred for the purchase of goods such as Trade Creditors or Bills Payable,
(v) Other liabilities like Bank Overdrafts, Tax payable, Outstanding expenses etc. Are not a part of trade liabilities.
(vi) Liabilities do not include accumulated or undistributed profits like, General Reserve, Securities Premium, Workmen Accident Fund, Insurance Fund, Capital Reserve, Dividend Equalisations Fund etc.
Illustration 2: (Net Assets Method)
X Limited is taken over by Y Limited on the following terms and conditions:
I) The assets of X Limited are valued at Rs. 8,80,000
II) The liabilities of X Limited are valued at Rs. 430,000
III) Rs.240,000 in cash is paid to the shareholders of X Limited.
IV) The balance of consideration is discharged by issue of shares of Rs.10 each at Rs. 20 per share.
Show how the purchase consideration for Amalgamation is discharged by Y Limited.
Solution: Calculation of purchase consideration
Assets taken over | Rs. 880,000 |
Less: Liabilities taken over | Rs. 430,000 |
Net Assets ( Purchase Consideration) | Rs.450,000 |
Purchase Consideration for Amalgamation is discharged as under:
Purchase consideration for Amalgamation | Rs.450,000 |
Less: Discharged in cash | Rs.240,000 |
Amount to be discharged by issue of shares | Rs. 210,000 |
Therefore, Number of shares= Rs. 210,000÷ Rs.20= 10,500 Shares.
3. Net Payment Method:
The agreement between selling company and purchasing company may specify the amount payable to the share-holders of the selling company in the form of cash or shares or debentures in purchasing company. AS – 14 states that consideration for amalgamation means the aggregate of shares and other securities issued and the payment made in the form of cash or other assets by transferee company to the share-holders of transferor company. Thus, under net payment method purchase consideration is the total of shares, debentures and cash which are to be paid for claims of Equity and Preference share-holders of the transferor company.
The following points are to be noted while ascertaining the purchase price under net payment method:
(i) The assets and liabilities taken over by the transferee company and the values at which they are taken over are not relevant to compute the purchase consideration.
(ii) All payments agreed upon should be added, whether it is for equity share holders or preference share-holders.
(iii) If any liability is taken over by purchasing company to be discharged later on, such amount should not be deducted or added while computing purchase consideration.
(iv) When liabilities are not take over by the transferee company, they are neither added or deducted while computing consideration.
(v) Any payment made by transferee company to some other party/third party/outside liabilities on behalf of transferor company are to be ignored.
Illustration 3 (Net Payment Method):
Illustration 1: X Limited is taken over by Y Limited which is having 60000 equity shares of Rs. 10 each. Y Limited agrees to make the following payments:
- Cash @ Rs 4.50 per share are for every share held in X Limited.
- Issue 3 shares of Rs 10 each at per for every five years held in X Limited.
- Discharge of Rs 300000, 12% debentures of X Limited at 10% premium by issuing 13% debentures in Y Limited at par and
- Rs. 90000 cash to the creditors of X Limited in final settlement of their account. Determine the amount of purchase consideration for amalgamation as per A S 14.
Solution:
Calculation of purchase consideration for amalgamation
Cash for shareholders: 60000× Rs 4.5 = Rs.270,000
Shares for shareholders: 60000×3Rs.10÷5= Rs.360,000
Purchase consideration for amalgamation=. Rs.630,000
Note. Payment made to 12%Debentures and creditors are ignored
4. Intrinsic Value Method (Shares Exchange Method):
Under this method, net value of assets is calculated according to net assets method and it is divided by the value of one share of transferee company which gives the total number of shares to be received by the share-holders of transfer or company from the transferee company. When the number of shares to be received by the transferor company is known then it is divided by the existing shares of the transferor company and thus the ratio of shares can be found out.
Suppose, in exchange of 50 shares of transfer or company, 100 shares of transferee company is available, then everyone share in the transferor company, two shares in the transferee company is available. Therefore, the ratio is 1: 2. This method is also known as Share Proportion Method.
Intrinsic Value = Assets available for equity shareholders/Number of equity shares
Fractional Shares:
Sometimes owing to certain ratio in which shares are to be given, it is not possible to find the whole number of shares. Any fraction of shares so arrived at, in the absence of any agreement, is always settled in cash at market value.
Illustration 4:
The purchasing company agrees to issue four shares of Rs. 10 each for every three shares of Rs. 10 each of the vendor company. The total numbers of shares of the vendor company are 10,000. The market price of each share of the purchasing company is Rs. 15. Find out purchase price.
Solution:
The total number of shares to be issued by the purchasing company to the vendor company = 10,000 x 4/3 = 13,333 1/3 (i.e.13,333 and 1/3)
The purchase price = 13,333x Rs 15 each = Rs 1, 99,995
In cash Rs 15 x 1/3 Rs 5
Total = 2,00,000
Note:
In the absence of instruction, it is presumed that cash for a fraction of a share will be paid on market price basis.
Key takeaways:
- Purchase consideration is the amount which is required to pay by the Transferee company to Transferor company for giving the value of business which is amalgamated.
Selection of method for determination of purchase consideration for amalgamation:
If payment method cannot be applied where information regarding payment to various claimants is not given or where the information regarding various payments is incomplete, Net asset method of calculation of consideration for amalgamation should be applied.
Note: Calculation of General reserve to be shown in balance sheet
Minus/ Plus | GENERAL RESERVE FOR BOTH COMPANIES | Xxxx |
Minus | Excess payment (i.e Purchase Consideration- share capital of Transferor company) | (Xxxx) |
Plus | Short payment (i.e Share capital of Transferor company- Purchase Consideration) | Xxxx |
Show in balance sheet | Balance of general Reserve | Xxx |
Identify nature of Amalgamation
If the six conditions of amalgamation in nature of merger not satisfied then it is treated as amalgamation in nature of purchase. If the information provided in the question is not sufficient to decide the nature of amalgamation or question is silent on the nature of amalgamation then it is better to assume the nature of amalgamation as purchase.
PRACTICAL PROBLEMS:
ILLUSTRATION 5:
The following are the balance sheet of X Limited and Y Limited as on 31-3-2020on which date the firms are amalgamated on the following terms:
1) the Assets and liabilities of Y Limited are taken over by X Limited at the book values.
2) a payment of cash at Rs 60 for every Debenture in Y Limited in full discharge of the debentures.
3) Shareholders of Y Limited to get 7 equity shares in X Limited of Rs 10 each at premium of Rs 5 per share for every two shares in Y Limited. Show the accounting entries in the books of X Limited and draw the balance sheet after amalgamation.(In the nature of Merger)
Y Limited
Balance sheet as at 31-03-2020
Particulars | Amount (Rs) |
I.EQUITY AND LIABILITIES 1. Shareholders fund A) Share capital: issued and paid up capital: 8000 equity shares of Rs 50 each fully paid
B) Reserves and surplus: General Reserve 2.Non current Liabilities Long term borrowings 1000, 7 % Debentures of Rs 50 each Staff provident fund
3.Current Liabilities Trade payables
Total |
400,000
50,000
50,000 40,000
80,000
620,000 |
II. ASSETS
Fixed assets
2. Current assets Inventory Trade receivables Cash and cash equivalents Total |
430,000
90,000 90,000 10,000
620,000 |
X Limited
Balance sheet as at 31-03-2020
Particulars | Amount (Rs) |
I.EQUITY AND LIABILITIES 1. Shareholders fund A) Share capital: issued and paid up capital: 120000 equity shares of Rs10 each fully paid
B) Reserves and surplus: General Reserve 2.Non current Liabilities 3.Current Liabilities Trade payables
Total |
1200,000
100,000 NIL
250,000
1550,000 |
II. ASSETS
Fixed assets Goodwill
2. Current assets Inventory Trade receivables Cash and cash equivalents
Total |
685,000 10,000
310,000 222,000 323000
1550,000 |
Solution: Calculation of purchase consideration:
Amount of Purchase Consideration received by Y Limited in Equity shares= 8000×7×Rs.15÷2= Rs.420,000
No. Of shares = 420,000÷ 15= 28,000 Shares
Adjustment of general Reserve:
General Reserve of YLimited. 50000
+) general Reserve of X Limit 100,000
150,000
Less. excess of purchase consideration over paid up share capital
purchase consideration 420000 – share capital 400000 (20000 )
balance of general reserve. 130000
In the books of X Limited (Transferee company)
Journal entries
Date | Particulars | LF | Dr. Amount (Rs) | Cr Amount (Rs) |
31-3-2020 | Fixed asset account Dr inventory account Dr Sundry Debtors A/c. Dr cash account. Dr To 7% debenture account To sundry creditors account to staff provident fund account To liquidator of YLimited account To reserve account (Being the Assets and liabilities take over at a consideration of Rs 420000 from Y Limited and difference is credited to general reserve account) |
| 430,000 90,000 90,000 10,000 |
50,000 80,000
40,000
420,000 30,000
|
“ | Liquidator of Y Limited account Dr To equity share capital account To securities premium account (being consideration for amalgamation discharge) |
| 420,000
|
280000
140000 |
“ | 7% debenture A/c Dr premium on redemption of debenture account Dr To Cashaccount ( being discharge of 7% debentures of rupees 50 each at rupees 60each) |
| 50,000
10,000 |
60,000 |
“ | Securities premium account debit to premium on redemption of debenture account |
| 10,000 |
10,000 |
X limited
Balance sheet as at 31-3-2020
Particulars | Amount (Rs) |
I.EQUITY AND LIABILITIES 1. Shareholders fund A) Share capital: issued and paid up capital: 120000+28000=148000 equity shares of Rs10 each fully paid
B) Reserves and surplus: General Reserve Securities premium reserve (140000-10000)
2.Non current Liabilities
3.Current Liabilities Trade payables (250000+80,000) Staff provident fund
Total |
1480,000
130,000 130000
NIL
330,000 40,000
21,10,000 |
II. ASSETS
Fixed assets Goodwill 2. Current assets Inventory Trade receivables Cash and cash equivalents(10,000+323000-60,000) Total |
11,15,000 10000 400,000 312000
273000
21,10,000 |
ILLUSTRATION 6:
The following are the balance sheet of X Limited and Y Limited as on 31-3-2020 on which date the firms are amalgamated on the following terms:
1) The Assets and liabilities of Y Limited are taken over by X Limited at the book values.
2) Shareholders of Y Limited to get equity shares in X Limited of Rs 10 each for every two shares in Y Limited. Show the accounting entries in the books of X Limited and draw the balance sheet after amalgamation.(In the nature of Merger)
Y Limited
Balance sheet as at 31-03-2020
Particulars | Amount (Rs) |
I.EQUITY AND LIABILITIES 1. Shareholders fund A) Share capital: issued and paid up capital: 10,000 equity shares of Rs 50 each fully paid
B) Reserves and surplus: General Reserve 2.Non current Liabilities
3.Current Liabilities Trade payables Other current Liabilities
Total |
500,000
50,000 NIL
70,000 10,000
630,000 |
II. ASSETS
Fixed assets
2. Current assets Inventory Trade receivables Cash and cash equivalents
Total |
420,000
100,000 100,000 10,000
630,000 |
X Limited
Balance sheet as at 31-03-2020
Particulars | Amount (Rs) |
I.EQUITY AND LIABILITIES 1. Shareholders fund A) Share capital: issued and paid up capital: 200,000 equity shares of Rs10 each fully paid
B) Reserves and surplus: General Reserve 2.Non current Liabilities 3.Current Liabilities Trade payables
Total |
20,00,000
300,000 NIL
200,000
2500,000 |
II. ASSETS
Fixed assets
2. Current assets Inventory Trade receivables Cash and cash equivalents
Total |
1700,000
200,000 400,000 200,000
25,00,000 |
Solution: Calculation of purchase consideration:
Amount of Purchase Consideration received by Y Limited in Equity shares= 1000×8×Rs.10÷2= Rs.400,000
No. Of shares = 400,000÷ 10= 40,000 Shares
Adjustment of general Reserve:
General Reserve of Y Limited. 50000
+) general Reserve of X Limit 300,000
350,000
Less. Short payment of purchase consideration over paid up share capital
Share capital 500,000- Purchase consideration 400,000 100,000
Balance of general reserve. 450000
In the books of X Limited (Transferee company)
JOURNAL ENTRIES
Date | Particulars | LF | Dr. Amount (Rs) | Cr Amount (Rs) |
31-3-2020 | Fixed asset account Dr inventory account Dr Sundry Debtors A/c Dr cash account Dr
To sundry creditors account To other current Liabilities To liquidator of Y Limited account To reserve account. ( Being the Assets and liabilities take over at a consideration of Rs 420000 from Y Limited and difference is credited to general reserve account) |
| 420,000 100,000 100,000 10,000 |
70,000 10000 400,000 150,000
|
“ | Liquidator of Y Limited account Dr To equity share capital account (being consideration for amalgamation discharge) |
| 400,000
|
400,000 |
X limited
Balance sheet as at 31-3-2020
Particulars | Amount (Rs) |
I.EQUITY AND LIABILITIES 1. Shareholders fund A) Share capital: issued and paid up capital: 200,000+40000=240,000 equity shares of Rs 10 each fully paid
B) Reserves and surplus: General Reserve
2.Non current Liabilities
3.Current Liabilities Trade payables (200000+70,000) Other current Liabilities
Total |
24,00,000
450,000
NIL
270000 10,000
31,30,000 |
II. ASSETS
Fixed assets 420,000+17,00,000
2. Current assets Inventory (100000+200000) Trade receivables (100,000+400000) Cash and cash equivalents (10,000+200,000)
Total |
21,20,000
300,000 500000
210,000
31,10,000 |
Note: Calculation of capital Reserve/Goodwill under Purchase method of Amalgamation
Particulars | Amount | Amount |
Total Assets taken over |
| XXX |
Less: Liabilities taken over |
| XXX |
Net Assets taken over |
| XXX |
Less: Purchase Consideration: Equity shares Preference shares |
XXX xxxx |
XXX |
If resulting figure is in negative then it will be GOODWILL and if in positive it will be capital reserve (to be shown in balance sheet after amalgamating) |
|
XXX |
Illustration 7:
X Limited the acquired the undertaking of Y Limited on 31-3-2020 for a purchase consideration of Rs. 250 lakh to be paid by fully paid equity shares of Rs.10 each.
Particulars | X Limited Amount (Rs) | Y Limited Amount (Rs) |
I.EQUITY AND LIABILITIES 1. Shareholders fund A) Share capital: issued and paid up capital: equity shares of Rs 10 each fully paid
B) Reserves and surplus: General Reserve Statement of profit and loss Development rebate reserve
2.Non current Liabilities
3.Current Liabilities Trade payables Total |
250,00,000
120,00,000 10,00,000 25,00,000
Nil
45,00,000 450,00,000 |
150,00,000
18,00,000 5300,000 61,00,000
Nil
95,00,000 377,00,000 |
II. ASSETS
Fixed assets 2. Current assets Inventory Trade receivables Cash and cash equivalents Total |
330,00,000
55,00,000 45,00,000 20,00,000
450,00,000 |
280,00,000
40,00,000 40,00,000 17,00,000
377,00,000 |
Pass the necessary journal entries in the books of X Limited when amalgamation is in the nature of purchase and also prepare balance sheet of X Limited after amalgamation assuming that development rebate reserve of Y Limited is required to be continued in the books of X Limited.
Solution:
Purchase consideration= Rs.250 Lakhs (given)
Calculation of Capital Reserve/ Goodwill
Particulars | Amount | Amount |
Total Assets taken over |
| 377,00,000 |
Less: Liabilities taken over |
| 95,00,000 |
Net Assets taken over |
| 282,00,000 |
Less: Purchase Consideration: Equity shares |
|
250,00,000 |
capital reserve
(to be shown in balance sheet after amalgamating) |
|
32,00,000 |
Amalgamation in the nature of purchase:
In the books of X Limited
Journal entries
Date | Particulars | LF | Dr (Rs) | Cr (Rs) |
31-3-2020 | Business purchase account Dr To liquidators of Y Limited (Being purchase of business of Y Limited)
Fixed asset account Dr Inventory account Dr Trade debtors account Dr Cash and cash equivalents account Dr To current liabilities account To business purchase account To Capital Reserve account
(Being Assets and liabilities taken over.)
Y Limited account Dr To Equity share capital account
(Being payment of purchase price by issue of 2500000 equity shares of rupees 10 each)
Amalgamation adjustment account Dr To development rebate reserve ( being caring for what of reserves of Y Limited) |
| 250,00,000
280,00,000 40,00,000 40,00,000 17,00,000
250,00,000
61,00,000 |
250,00,000
95,00,000 250,00,000 32,00,000
250,00,000
61,00,000 |
X Limited
Balance sheet as at 31-3-2020
Particulars | Amount (Rs) |
I.EQUITY AND LIABILITIES 1. Shareholders fund A) Share capital: issued and paid up capital: 50,00,000 equity shares of Rs 10 each fully paid
B) Reserves and surplus: General Reserve (X Limited) Capital Reserve Statement of profit and loss (X Limited) Development rebate reserve (61,00,000+25,00,000)
2.Non current Liabilities
3.Current Liabilities Trade payables
Total |
500,00,000
120,00,000 32,00,000 10,00,000 86,00,000
Nil
140,00,000
888,00,000 |
II. ASSETS
Fixed assets 330,000+280,00,000
2. Current assets Inventory (55,00,000+40,00,000 Trade receivables (45,00,000+40,00,000) Cash and cash equivalents (17,00,000+20,00,000) Amalgamation adjustment account (Y limited)
Total |
610,00,000
95,00,000 85,00,000 37,00,000 61,00,000
888,00,000 |
Reference:
- C.Mohan Juneja, Biplab Das, Atul Ch. Das Advanced Corporate Accounting, Kalyani Publishers
- S.P.Jain, K.L. Narang- Advanced Corporate Accounting, Kalyani Publishers
- B.B. Dam, H.C. Gautam- Advanced Corporate Accounting, Gayatri Publications, Guwahati
