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CACC2

Unit 2

ABSORPTION OF COMPANIES

Q1) The following is the Balance Sheet of Kumar Ltd as on 30th September, 2009

Balance Sheet as on 30th September, 2009

Liabilities	Rs	Assets	Rs
Authorised Share Capital		Land & Buildings	200000
10000 Equity Shares of Rs100	1000000	Plant & Equipments	300000
1000 6% Preference Shares of
Rs 100 each	100000	Furnitures	65000
Total	1100000	Patents	45000
Issued capital		Sundry Debtors	149450
6,000 Equity Shares	600000	Inventory	68950
1000 6% Preference Shares of
Rs 100 each	100000	Cash	3700
10% Debentures	100000	Profit & loss A/C	307900
Sundry Creditors	100000
Bank Overdraft	240000
	1140000		1140000

A new Company Kishor Ltd was formed to take over this company. The Authorized capital of the new company was Rs 1500000 divided into 100000 Equity shares of Rs 10 each and 5000 7% Preference shares of Rs 100 each. The terms and conditions agreed for this were as follows:

10% debenture holders agreed to take new 9%Debentures of Rs.95000 in full satisfaction.

6% Preference shareholders were to receive 3 new 7% Preference shares of Rs.100 each for every 4 old preference shares.

The equity shareholders to receive 30,000 Equity shares of Rs.10 each, credited as Rs.8 paid up

Kishor Ltd. to issue 20,000 equity shares of Rs.10 each at par for cash

Kishor Ltd to make a call of Rs.2 per share on shares issued to Kumar Ltd.

You are required to give necessary Ledger A/c s to close the books of Kumar ltd and Journal entries in the books of Kishor Ltd and Balance Sheet of Kishor Ltd.

A1)

Statement of Purchase consideration: (Net Payment method)

750 7% Preference shares of Rs.100 each 75000

30,000 Equity shares of Rs.10 each Rs. 8 paid up 240000

315000

Goodwill/Capital reserve (Net Assets taken over)

Land & Buildings	200000
Plant & Equipments	300000
Furnitures	65000
Patents	45000
Sundry Debtors	149450
Inventory	68950
Cash	3700	832100

Less: Liabilities taken over at agreed values
10% Debentures	100000
Sundry Creditors	100000
Bank Overdraft	240000	440000
Net Assets taken over		392100
Purchase consideration		315000
Capital Reserve		77100

In the books of Kumar Ltd

Realization A/c

To Land & Buildings	200000	By 10% Debentures	100000
To Plant & Equipments	300000	By Sundry Creditors	100000
To Furnitures	65000	By Bank Overdraft	240000
To Patents	45000	By Kishor	315000
To Sundry Debtors	149450	By Pref Shareholders A/c	25000
To Inventory	68950	By Equity Share holders A/c	52100
To Cash	3700
	832100		832100

Equity Shareholders A/c

To Profit & Loss A/c	307900	By Equity Share Capital A/c	600000
To Realization A/c	52100
To Equity shares in Kishor Ltd	240000
	600000		600000

Kishor Ltd A/c

To Realisation A/c	315000	By Pref Shares in Kishor Ltd A/c By Equity Shares in Kishor Ltd A/c	75000 240000
	315000		315000

Preference Share Holders A/c

To Preference Shares in Kishor Ltd To Realisation A/c	75000 25000	By Preference Share capital A/c	100000
	100000		100000

Equity Shares in Kishor Ltd

To Kishor Ltd	240000	By Equity Share Holders A/c	240000
	240000		240000

Preference Shares in Kishor Ltd

To Kishor Ltd	75000	By Preference Share Holders	75000
	75000		75000

Journal Entries in the Books of Kishor Ltd.

1	Business Purchase A/c Dr To Liquidator of Kumar Ltd (Being Business Purchased)	315000	315000
2	Land and Buildings Dr Plant and Equipments Dr Furnitures Dr Patents Dr Sundry Debtors Dr Inventory A/c Dr Cash Dr To Business Purchase A/c To Sundry Creditors To Debentures To Bank Overdraft To Capital Reserve (Being Sundry Assets and Liabilities taken over recorded)	200000 300000 65000 45000 149450 68950 3700	315000 100000 100000 240000 77100
3	Liquidator of Kumar Ltd Dr To Equity Share Capital A/c To 7%Preference Share Capital A/c (Being Purchase Consideration Discharged.)	315000	240000 75000
4	Bank A/c Dr To Equity Share Capital A/c (Being 20000 Equity shares of Rs 10 each issued for cash.)	200000	200000
5	Equity Share Call A/c Dr To Equity Share Capital A/c (Being call made at Rs 2 per share on 30000 equity shares)	60000	60000
6	Bank A/c Dr To Equity Share Call A/c (Being Call amount received.)	60000	60000

Balance Sheet of Kishor Ltd.

Liabilities	Rs	Assets	Rs
Authorised Share Capital		Land & Buildings	200000
100000 Equity Shares of Rs10
Each	1000000	Plant & Equipments	300000
5000 7% Preference Shares of
Rs 100 each	500000	Furnitures	65000
Total	1500000	Patents	45000
Issued capital		Sundry Debtors	149450
50000 Equity Shares of Rs 10
Each	500000	Inventory	68950
750 7% Preference Shares of
Rs 100 each	75000	Cash	3700
Capital Reserve	77100	Bank Balance	20000
10% Debentures	100000
Sundry Creditors	100000
	852100		852100

Q2) The following are the Balance Sheets of P Ltd and S Ltd as on 31st March, 2009 Balance Sheet as on 31st March, 2009

Liabilities	P Ltd	S Ltd	Assets	P Ltd	S Ltd
Equity Share Capital (Rs			Land and Building	250,000	155000
10 each)	500,000	300,000
14% Preference Share
Capital (Rs 100 each)	220,000	170,000	Plant and Machinery	325,000	170000
General Reserve	50,000	25,000	Furniture and Fittings	57,500	35000
Export Profit Reserve	30,000	30,000	Investments	125,000	95000
Profit and Loss A/c	75,000	50,000	Stock	90,000	103000
13% Debentures	50,000	35,000	Debtors	72,500	52000
Sundry Creditors	65,000	50,000	Cash and Bank	70,000	50000
	990,000	660,000		990,000	660000

P Ltd takes over S Ltd on 1st April, 2009. P Ltd discharges the Purchase Consideration as below:

Issued 35000 equity shares of Rs 10 each at par to the equity shareholders of S Ltd.

Issued 15% Preference Shares of Rs 100 each

to discharge the Preference share holders of S Ltd at 10% premium.

The Debentures of S Ltd will be converted into equivalent numbers of debentures of P Ltd.

You are required to give necessary ledger accounts to close the books of S Ltd and Journal entries in t the books of P Ltd and Balance sheet of P Ltd after absorption.

A2)

Statement of Purchase consideration: (Net Payment method)

35000 equity shares of Rs 10 each 350000

1870 15%Preference Shares of Rs 100 each

(Old Preference Share Capital 170000

Add : 10%Premium 17000 187000

537000

In the books of S Ltd

Realization A/c

To Land and Buildings	155000	By 13% Debentures	35000
To Plant and Equipments	170000	By Current Liabilities	50000
To Furnitures	35000	By P Ltd	537000
To Investment	95000	By Equity Share holders A/c	55000
To Inventory	103000
To Sundry Debtors	52000
To Cash	50000
To Preference Share
holders	17000
	677000		677000

Equity Shareholders A/c

To Realisation A/c To Equity Shares In P Ltd	55000 350000	By Equity Share Capital A/c By General Reserve A/c By Profit & Loss A/c By Export Profit Reserve	300000 25000 50000 300000
	405000		405000

P Ltd A/c

To Realisation A/c	537000	By Equity Shares in P Ltd By Preference Shares in P Ltd	350000 187000
	537000		537000

Preference Share Holders A/c

To Preference Shares in P Ltd	187000	By Preference Share capital A/c By Realisation A/c	170000 17000
	187000		187000

Equity Shares in P Ltd

To P Ltd A/c	350000	By Equity Share Holders A/c	350000
	350000		350000

Preference Shares in P Ltd

To P Ltd A/c	187000	By Preference Share Holders A/c	187000
	187000		187000

Journal Entries in the books of P Ltd

Sr.No	Particulars	Dr. Rs.	Cr. Rs.
i.	Business Purchase A/c Dr.	5,37,000
	To Liquidator of Q Ltd.		5,37,000
	(Being Business of Q Ltd. Purchased)

ii.	Building A/c Dr.	155000
	Machinery A/c. Dr.	170000
	Furniture and Fittings Dr	35000
	Investment Dr	95000
	Stock Dr.	103000
	Debtors Dr.	52000
	Cash and Bank A/c. Dr.	50000
	To 13 % Debentures		35000
	To Current Liabilities		50000
	To Business Purchase		537000
	To Capital Reserve		38000
	(Being sundry assets & liabilities taken over of Q Ltd. Recorded)

iv.	Liquidator of P Ltd. A/c Dr.	1875000
	To Equity share capital A/c		1250000
	To Securities Premium A/c		625000
	(Being Purchase consideration discharge)

v.	Liquidator of Q Ltd. A/c. Dr.	537000
	To Equity Share Capital A/c.		350000
	To 15% Preference Share Capital A/c.		187000
	(Being purchase consideration discharged)

vi.	Amalgamation Adjustment A/c. Dr.	30000
	To Export profit reserve		30000
	(Being statutory reserve maintained)

vii.	13% Debentures in Q Ltd. A/c. Dr	35000
	To 13% Debentures		35000

Balance Sheet as on 31st March, 2009

Liabilities	Rs	Assets	Rs
Equity Share Capital (Rs		Land and Building
10 each)	850,000		405,000
14% Preference Share
Capital (Rs 100 each)	220,000	Plant and Machinery	495,000
15% Preference Share
Capital (Rs 100 each)	187,000	Furniture and Fittings	92,500
General Reserve	50,000	Investments	220,000
Export Profit Reserve	60,000	Stock	193,000
Capital Reserve	38,000	Debtors	124,500
Profit and Loss A/c	75,000	Cash and Bank	120,000
13% Debentures	85,000	Amalgamation Adjustment A/c	30000
Current Liabilities	115,000
	1,680,000		1,680,000

Q3) The following is the Balance Sheet of Shy Ltd as on 30th September, 2009

Balance Sheet as on 30th September, 2009

Liabilities	Rs	Assets	Rs
Issued capital		Land & Buildings	85000
18000 Equity Shares of Rs10		Plant & Equipments	45000
General Reserve	24000	Furnitures	15000
Profit & loss	10400	Trademarks	7000
12% Debentures	80000	Investments	23000
Sundry Creditors	63720	Sundry Debtors	60000
		Stock	112000
		Bank	11120
	358120		358120

Shy Ltd was absorbed by Chai Ltd., on the following terms and conditions:

All liabilities and all assets are to be taken over except Investments which were sold by Shy Ltd. at 90% of book value.

Debentures of Shy Ltd, to be discharged at a discount of 10% by the issue of 14% debentures of Rs 100 each in Chai Ltd.

Trademarks were found useless.

Issue of one equity share of Rs 10 each in Chai Ltd., issued at Rs 12 and a cash payment of Rs 3 for every s hare in Shy Ltd.

Cost of absorption paid : Rs 1160

Shy Ltd. sold half the shares received from Chai Ltd. at Rs 15 per share.

You are required to give necessary Ledger A/c s to close the books of Shy Ltd. and Journal entries in the books of Chai Ltd.

A3)

Statement of Purchase consideration: (Net Payment method)

18000 Equity shares of Rs.10 each at Rs.12 per share 216000

Cash at Rs. 3 per share on 18000 Equity shares 54000

Purchase Consideration 270000

Goodwill/Capital reserve (Net Assets taken over)

Land & Buildings	85000
Plant & Equipments	45000
Furnitures	15000
Sundry Debtors	60000
Stock	112000
Bank	11120
		328120
Less :
Liabilities taken over
Debentures	80000
Creditors	63720	143720
Net assets taken over		184400
Less :
Purchase consideration		270000
Goodwill		85600

In the books of Shy Ltd

Realization A/c

To Land & Buildings	85000	By 10% Debentures	80000
To Plant & Equipments	45000	By Sundry Creditors	63720
To Furnitures	15000	By Chai Ltd.	270000
To Trademarks	7000	By Bank (Investment sold)	20700
To Sundry Debtors	60000	By Bank (shares sold)	27000
To Bank	11120
To Investments	23000
To Stock	112000
To Equity Share holders A/c	103300
	461420		461420

Equity Shareholders A/c

To Bank A/c To Equity Shares in Chai Ltd	209700 108000	By Equity Share Capital A/c By Profit & Loss A/c By General Reserve A/c By Realisation A/c	180000 10400 24000 103300
	317700		317700

Chai Ltd A/c

To Realisation A/c	270000	By Equity Shares in Chai Ltd By Bank	216000 54000
	270000		270000

Bank A/c

To Equity shares in Chai Ltd To Realisation A/c To Chai Ltd.	135000 20700 54000	By Equity Shareholders A/c	209700
	209700		209700

Equity Shares in Chai Ltd

To Chai Ltd. To Realisation A/c	216000 27000	By Bank By Equity Share Holders A/c	135000 108000
	243000		243000

Journal Entries in the Books of Chai Ltd.

1	Business Purchase A/c To Liquidator of Shy Ltd (Being Business Purchased)	Dr		270000	270000
2	Land and Buildings Dr Plant and Equipments Dr Furniture Dr Sundry Debtors Dr Stock Dr Bank Dr Goodwill (Bal Fig) Dr To Business Purchase A/c To Sundry Creditors To Debentures (Being Sundry Assets and Liabilities taken over recorded)			85000 45000 15000 60000 112000 11120 85600	270000 63720 80000
3	Liquidator of Shy Ltd To Equity Share Capital A/c To Securities Premium A/c To Bank (Being Purchase Consideration Discharged.)		Dr	270000	180000 36000 54000
4	Goodwill A/c To Bank (Being amalgamation expenses paid)	Dr.		1160	1160
5	Debentures in Shy A/c Dr. To Debentures in Chai Ltd A/c (Being new debentures issued in satisfaction of old Debentures)			72000	72000

Q4) A Ltd and B Ltd agreed to amalgamate and form a new company C Ltd. which will take over all the assets and liabilities of the two companies.

The assets and liabilities of A Ltd are to be taken over at a book value for shares in C Ltd. At the rate of 5 shares in C Ltd. at 10% premium (i.e. Rs 11 per share) for every four shares in A Ltd.

In the case of B Ltd:

The debentures of B Ltd. would be paid off by the issue of an equal no. of debentures in C Ltd.

The 11.5% Preference Shareholders of B Ltd. would be allotted four 12% Preferences of Rs 100 each in C Ltd. for every five Preference shares in B Ltd.

Sufficient shares of C Ltd would be allotted to the equity share holders to cover the balance on their account after adjusting asset values by reducing Plant and Machinery by 10% and providing 5% on sundry debtors.

The summarized Balance Sheets of the two companies just prior to amalgamation were as follows:

Liabilities	A Ltd.	B Ltd	Assets	A Ltd.	B Ltd
Issued capital			Plant & Equipments	800000	800000
Equity Capital of Rs10 each	400000	500000	Stock	65000	60000
11.5 Preference Shares of Rs 100 each.		300000	Profit and Loss A/c		140000
12% Debentures		200000	Sundry Debtors	95000	50000
Profit & loss A/C	500000		Bank	65000	40000
Sundry Creditors Contingency Reserve	75000 50000	90000
	1025000	1090000		1025000	1090000

Show the Journal entries in the books of both the companies.

A4)

Statement of Purchase consideration for A Ltd.(Net Payment Method)

5 Equity Shares of Rs 10 each at 10% premium for

every four shares in A Ltd. 550000

(40000 shares/4 x 5= 50000 shares x Rs.11)

Statement of Purchase Consideration for B Ltd(Net Assets Method) &

Net Assets taken over of A Ltd.

Assets Taken Over:	A Ltd	B Ltd
Plant & Equipments	800000	720000
Stock	65000	60000
Sundry Debtors	95000	47500
Bank	65000	40000
	1025000	867500
Less: Liabilities taken over
Debentures		200000
Sundry creditors	75000	90000
Net Assets	950000	577500
Less: P.C	550000
Capital Reserve	400000
P.C (Net Assets Method)		577500

In the books of A Ltd and B Ltd

Realization A/c

Particulars	A Ltd	B Ltd	Particulars	A Ltd	B Ltd
To Plant & Equipments A/c	800000	800000	By Debentures A/c		200000
To Stock A/c	65000	60000	By Creditors A/c	75000	90000
To Sundry Debtors A/c	95000	50000	By C Ltd A/c	550000	577500
To Bank A/c	65000	40000	By Preference Shareholders A/c		60000
			By Equity Share holders A/c	400000	22500
	1025000	950000		1025000	950000

C Ltd A/c

Particulars	A Ltd	B Ltd	Particulars	A Ltd	B Ltd
To Realisation A/c	550000	577500	By Equity Shares in C Ltd By Preference Shares in C Ltd	550000	337500 240000
To Realisation A/c	550000	577500	By Equity Shares in C Ltd By Preference Shares in C Ltd	550000	577500

Equity Shareholders A/c

Particulars	A Ltd	B Ltd	Particulars	A Ltd	B Ltd
To Profit & Loss A/c To Equity shares in C Ltd To Realisation A/c	550000 400000	140000 337500 22500	By Equity Share Capital A/c By Profit & Loss A/c By General Reserve A/c	400000 500000 50000	500000
	950000	500000		950000	500000

Preference Share Holders A/c

To Preference Shares in C Ltd To Realisation A/c		240000 60000	By Preference Share capital A/c		300000
		300000			300000

Equity Shares in C Ltd

To C Ltd A/c		337500	By Equity Share Holders A/c	550000	337500
	550000	337500		550000	337500

Preference Shares in C Ltd

To C Ltd	B Ltd 240000	By Preference Share Holders A/c	B Ltd 240000
	240000		240000

Journal Entries in the Books of C Ltd.

1	Business Purchase A/c Dr To Liquidator of A Ltd A/c To Liquidator of B Ltd A/c (Being Business Purchased)		1127500	550000 577500
2	Plant and Equipments A/c Dr Stock A/c Dr Debtors A/c Dr Bank A/c Dr To Business Purchase A/c To Sundry Creditors To Capital Reserve A/c (Being Sundry Assets and Liabilities taken over recorded)		800000 65000 95000 65000	550000 75000 400000
3	Plant and Equipments A/c Dr Stock A/c Dr Debtors A/c Dr Bank A/c Dr To Business Purchase A/c To Sundry Creditors To Debentures (Being Sundry Assets and Liabilities taken over recorded)		720000 60000 47500 40000	577500 90000 200000
4	Liquidator of A Ltd Dr To Equity Share Capital A/c To Security Premium A/c (Being Purchase Consideration Discharged.)		550000	500000 50000
5	Liquidator of B Ltd Dr To Equity Share Capital A/c To Preference Share Capital A/c (Being Purchase Consideration Discharged.)		577500	337500 240000
6	Old Debentures A/c To New Debenture A/c To Capital Reserve A/c (Being old Debentures settled at 10% discount.)	Dr	200000	180000 20000

Balance Sheet of C Ltd.

Liabilities	Rs	Assets	Rs
Issued capital		Plant & Equipments	1520000
Equity Capital of Rs10 each	837500	Stock	125000
11.5 Preference Shares of Rs
100 each.	240000	Sundry Debtors	142500
12% Debentures	180000	Bank	105000
Sundry Creditors	165000
Security Premium	50000
Capital Reserve	420000
	1892500		1892500

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