UNIT III | unit 3 amalgamation of firms

AFM 3

UNIT III

Amalgamation of Firms

Question Bank

Part A

Q1) What is a "Merger" of a Partner Company? State its purpose. (5 marks)

A1) Amalgamation means a merger or merger. When two or more entities merge or combine into one entity, it is known as a "Merger." Similarly, when two or more union corporations merge, it is a "merger of union corporations".

Including the merger of her two or more single traders into the company

The scope of this chapter is broad enough to include situations where two or more individual traders merge to form a new partnership. This is generally known as a "merger to a partner company".

It also includes the merger of one or more single traders and one or more of his partnerships.

The scope of this chapter also includes situations where one or more sole ownerships he merges with one or more partnership companies to establish a new company.

Purpose of the Amalgamation of Companies:

The main purposes of the merger of the businesses are:

1. To avoid competition:

The main purpose of a merger is to avoid competition between companies. This provides the corporate a foothold over its competitors.

2. To Scale Back Costs:

The merged company can cash in of operating costs by lowering production costs. This is often possible for a "large economy".

3. The way to get financially:

The merged company will benefit financially within the sort of tax benefits, improved creditworthiness and lower borrowing rates.

4. To realize growth:

The merged company can pool resources to market internal growth and stop the emergence of latest competitors.

5. To diversify activities:

Diversifying your business across two or more industries can reduce your company's risk. In some cases, it can act to hedge weaker merger operations with stronger ones.

Q2) What are the Various forms of corporate "merger"? (5 marks)

A2)

Q3) Explain the Accounting Procedure in own words. (5 marks)

A3) You need to study the accounting of "old companies" and "new companies".

Old Company: If there is a merger of companies, in the case of an old company, there are basically four things that happen.

The old company has dissolved: The old company has dissolved. They are involved. All results of the dissolution (see Chapter 3) follow. Assets and liabilities are either taken over by the new company or disposed of.

Financial Statements: As a result, the company's accounting books are closed as they were in the case of dissolution.

Asset and Liability Valuation: For this purpose, it is necessary to revaluate the existing assets and liabilities of the old company. Unrecorded assets and liabilities must also be considered for such valuations. This is done by mutual agreement.

Partner's final capital to check: At the time of the merger, the assets and liabilities of the old company will be taken over by the new company and an amount equal to this value (as mutually agreed) will be credited to the new company's capital account. When an old company partner becomes a new company partner. Therefore, needs to confirm the final capital of the partners of the old company, and the same becomes the starting capital of these partners of the new company.

New Office

Establishment of new company: Except in the case of absorption (Section 4.4), a new company will be established and take over the business of the old company.

Taking over the assets and liabilities of the old company: The basic purpose of the new company is to take over the running business using the assets and liabilities of the old company at an agreed price. The agreed value of an asset minus the agreed value of an inherited liability is called the "purchase consideration" or "price".

New Company Partner Capital: The "purchase consideration" above will not be paid in cash to the old partner as in the case of a normal dissolution. The “Purchase Consideration” will be credited to the capital account of the new company's old partner, as confirmed and explained in Section 5.1.4.

Devising a new share of profits: Partners united in a merger must agree to a new share of profits.

Partner Capital Restructuring: Often, the new company's partner's capital is restructured based on the new profit share. This may require the introduction of additional cash capital and, in some cases, the withdrawal of surplus capital. Excesses / shortages may even be transferred to your partner's checking / loan account.

Q4) What are the ways to close the books of an old company? (8 marks)

A4) In the case of a merger, "Old Enterprise: Dissolve. Therefore, conceptually, all the principles described in Chapter 3," Dissolution of Partnership Farms "apply to such farms. The old company passes the following entries:

The entries are:

Step 1: Open a Realization Account and a Partner's Capital Account.

Step 2: Same as step 1 of the reassessment method (see Section 6.1.1). Transfer the partner's capital to the partner's capital A / C credit side and transfer the past profits and reserves. The entries are:

Reserve P/L A/c Dr.

To Partners Capital A/c

(Various past profit transferred)

Step 3: Transfer all assets to the realization account. The entries are:

Realisation A/c Dr.

To Concerned asset A/c

(Various assets transferred)

XXX

What students should be aware of here is that the new company will take over due to the merger, so cash and bank balances (accounts) will be transferred.

However, you should not transfer your cash / bank account to a cash account if all your assets and liabilities are not taken over by the company.

Step 4: Transfer all debt to the realized account. The entries are:

Concerned liabilities A/c Dr.

To Realisation A/c

(Various liabilities transferred)

XXX

Step 5: Find out the consideration for the new company's takeover of assets and liabilities. A separate statement is usually created for the "Purchase Consideration". Then the following entry is passed:

Business purchase A/c Dr.

To Realisation A/c

(Value of purchase consideration on amalgamation now recorded)

XXX

Step 6: Assets that were not taken over by the new company and were sold to the outside world / taken over by a partner:

Cash/Bank/Partners capital A/c Dr.

To Concerned asset A/c

(Entry at agreed value)

XXX

Gain / Loss of such sale / acquisition transferred to Realization A / c:

Profit

Asset A/c Dr.

To Realisation A/c

XXX

Loss

Realisation A/c Dr.

To Asset A/c

XXX

Step 7: Partner disclaims / takes over responsibility instead of new company taking over responsibility

Concerned Liability A/c Dr.

To Cash/Bank/Partners Capital A/c

(Entry at agreed value)

XXX

Gains / losses from such emissions / take-backs transferred to Realization A / c:

Profit

Concerned Liability A/c Dr.

To Realisation A/c

(Surplus Transferred as Liability taken over at Lower Value)

XXX

Loss

Realisation A/c Dr.

To Concerned liability A/c

XXX

Profit

Realisation A/c Dr.

To Partners Capital A/c

XXX

Loss

Partners’ Capital A/c Dr.

To Realisation A/c

XXX

Step 8: Realization A / c is closed by transferring profit or loss to the partner's capital account at a profit-sharing ratio.

Step 9: The final entry:

Partners’ capital A/c Dr.

To Business Purchase A/c

(Entry to Close the Books of the “Old Firm”)

XXX

Q5) Write short note on Accounting for Mergers. (8 marks)

A5) ICAI has made this AS mandatory since January 4, 1995. The AS handles the accounting for mergers and the processing of the resulting goodwill or reserves. This is primarily intended for businesses, and only some of its requirements apply to partners' accounts, etc.

It states that there are two main ways to account for a merger.

The use of the "equity pooling method" is not discussed here as it is limited to mergers of companies.

The purchase method of accounting for mergers applies the same principles to the purchase of this regular asset. The problem in is solved using this method.

In this way, the assets and liabilities of the transferring company are either taken over by the new company at their existing value or the consideration is allocated to the individual assets and liabilities based on their fair value at that time, according to the contract. The date of the merger. The reserve will not be taken over by the new company, but will be distributed among the partners of the merged company.

AS 14 sets out the accounting procedures that should be followed in the books of the purchasing / transferring company, but does not specify the specific method that should be followed when closing the books of the merged company.

In the above accounting, students are aware of the following:

(i) If the consideration paid exceeds the net assets (assets-liabilities) acquired, the resulting amount is "GOOD WILL".

(ii) Alternatively, if the consideration paid is less than the net assets acquired, it is a "capital reserve".

Such goodwill resulting from the merger should be systematically amortized by the new company over its useful life. Generally, the amortization period should not exceed 5 years.

Para 45 of AS 14 sets disclosure requirements in the first financial statements of the new company after the merger.

Q6) Define Amalgamation. (5 marks)

A6) You have studied the units related to the final accounting of a partnership company in the XIIth standard. These final accounts are similar to the final accounts of individual traders, but with certain changes in the profit / loss distribution of partners in the profit-sharing ratio. However, there are various transactions that affect the accounting of a general partnership, such as partnership, retirement, death of the partnership, partnership, dissolution, and conversion of the partnership.

In this unit we will understand the need to learning Accounting for Mergers of Partnership Companies.

Meaning of Amalgamation of Partnership Companies:

A merger means merging or merging two or more business units that operate the same type of business to form a new business unit.

A merger of union corporations means that two or more union corporations merge to form a new union corporation. The merger of two or more existing partnership companies doing the same type of business, terminating another entity and forming a new company is called a partnership company merger.

Mergers can be formed in one of the following ways:

Q7) Write short note on Books of the New Firm. (5 marks)

A7) The entries in the books of the new firm can be divided into following stages:

1. Recording of the assets and liabilities taken over:

Debit: all assets’ accounts (which are taken over)

Credit: all liabilities accounts (which are taken over)

Credit: Partner’s capital accounts (as per the final balances in the capital accounts in the old firm)

With this entry the final capitals of the partners in the old firm become their initial capitals in the new firm.

2. Restructuring of partners capitals:

The partners may decide a particular capital structure in the new firm, which has to be contributed by the partners in their new profit-sharing ratio. Accordingly, the partners may bring further capital or withdraw excess capital. Alternatively, the excess or deficit may be transferred to current or loan accounts.

3. Removing effects of inter firm transactions of old firms:

(1) If debtors of one of the old firms, are creditors of the other firm the same party will be reflected as both debtor and creditor in the amalgamated firm,

Q8) What entries are being passed at time of cancellation of Debtors and Creditors Account. (5 marks)

A8) (1) If one of the debtors of the old company is the creditor of the other company, the same party will be reflected in both the debtor and the creditor of the merged company, and the common amount will be cancelled as follows.

Sunday Creditors A/c Dr.

To Sundry Debtors A/c

XXX

(2) If the old company before the merger was a debtor / creditor of each other, the common amount will be cancelled in the company after the merger as follows.

Sundry Creditors A/c Dr.

To Sundry Debtors A/c

XXX

(3) Similarly, if the old companies were accepting or withdrawing bills from each other, the same procedure would be performed.

Bills Payable A/c Dr.

To Bills Receivable A/c

XXX

A similar method is used for cancellation of business-to-business loans.

(4) If one company purchased goods from the other company prior to the merger and all or part of the goods are still in stock or on the date of the merger, by the company that sold those goods. The amount of profit obtained is reduced from the combined inventory value as follows.

Goodwill A/c Dr.

To Stock A/c

XXX

Q9) Distinguish between Amalgamation v/s Absorption. (5 marks)

A9) Where two or more existing business entities merge themselves to form a new business entity it is “amalgamation”. Therefore, the old entities are taken over by the newly formed business entity, e.g., where two firms viz. M/s AB & Co. And M/s. CD & Co. Merge to form a new firm M/s. ABCD & Co.

In absorption, one or more existing business entities are taken over by another existing business entity. No new business entity is formed for the purpose. E.g., where a firm AB & Co. ‘absorbs’ another firm CD & Co., it is known as absorption of CD & Co. By AB & Co.

Hence, whereas in amalgamation, all the old business entities are closed and a new business entity is formed, in absorption, one old entity will continue after taking over the other entity or entities.

Comparison Table Between Amalgamation and Absorption

Parameter of Comparison	Amalgamation	Absorption
Meaning	Two or more different companies join to become one, the process is called Amalgamation.	When one company takes over the business of another company, the process is called Absorption.
New entity	The new entity is formed.	No new entity is formed.
Minimum number of companies involved	In the process of amalgamation, there are at least three companies involved (two liquidating and one newly formed).	While in Absorption there are at least two companies involved.
Liquidating companies	At least two companies liquidate.	Only one company is liquidated (whose business is overtaken by the other).
Domination	No company dominates any other company.	The bigger company dominates the weaker company.

Q10) What are the different forms of ‘Amalgamation’ of firms? (5 marks)

A10) Amalgamation of firms may take any of the following forms:

Amalgamation of Two or more Sole-traders: Here, two or more sole-traders amalgamate themselves into a new partnership firm. E.g., Mr. A and Mr. B, two Chartered Accountants, practicing separately, merge their practice to form a new firm of Chartered Accountants viz. M/s AB.

Amalgamation of Sole-trader and Firm: Here, one or more existing sole-traders merge with one or more existing partnership firms, so that the existing entities lose their identity and a new partnership firm is formed to take over their businesses. E.g., Mr. X, a proprietor and M/s. YZ, a partnership firm, who are doing businesses separately, amalgamate to form a new firm, M/s. XYZ.

Amalgamation of Two or more Partnership Firms: Here, two or more existing partnership firms merge and form a new firm to take over the businesses of the existing firms. E.g., M/s. PQ and M/s. RS, two partnership firms doing competing businesses, amalgamate to form a new partnership firm viz. M/s PQRS. In all the above cases, A, B, X, YZ, PQ and RS lose their individual identity, close their businesses and new firms, M/s. AB, M/s. XYZ and M/s. PQRS respectively, come into existence to take over businesses.

Absorption: In this case, all the merging units do not lose their identity. One of them will continue to exist after taking over the other existing units. E.g., M/s. JK and M/s. MN are in competing business. M/s. JK absorbs or takes over M/s. MN so that M/s. MN is dissolved and M/s. JK continues to exist. It now has the assets and liabilities taken over from M/s. MN, in addition to its existing assets and liabilities.

Part B

Q11) 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
Authorized Share Capital		Land & Buildings	200000
10000 Equity Shares of Rs100	1000000	Plant & Equipment’s	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.(12 marks)

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

Preference Share Holders A/c

To Preference Shares in

Kishor Ltd To Realisation A/c

75000

25000

By Preference Share capital A/c

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.

Business Purchase A/c Dr

To Liquidator of Kumar Ltd

(Being Business Purchased)

315000

Land and Buildings Dr

Plant and Equipments Dr

Furnitures Dr

Patents Dr

Sundry Debtors Dr

Inventry 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

240000

77100

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

Bank A/c Dr

To Equity Share Capital A/c

(Being 20000 Equity shares of Rs 10 each issued for cash.)

200000

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

Bank A/c Dr

To Equity Share Call A/c (Being Call amount received.)

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

Q12) 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.(8 marks)

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

P Ltd A/c

To Realisation A/c

537000

By Equity Shares in P Ltd

By Preference Shares in P Ltd

350000

187000

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

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

Q13) 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.(8 marks)

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

Chai Ltd A/c

To Realisation A/c

270000

By Equity Shares in Chai Ltd

By Bank

216000

54000

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

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

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

Q14) 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.(8 marks)

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

550000

577500

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

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

Journal Entries in the Books of C Ltd.

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

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

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

Liquidator of A Ltd Dr

To Equity Share Capital A/c

To Security Premium A/c

(Being Purchase Consideration Discharged.)

550000

500000

50000

Liquidator of B Ltd Dr

To Equity Share Capital A/c

To Preference Share Capital A/c

(Being Purchase Consideration Discharged.)

577500

337500

240000

Old Debentures A/c

To New Debenture A/c

To Capital Reserve A/c

(Being old Debentures settled at 10% discount.)

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

Q15) Following were the balance sheets as on March 2014 of two firm’s M/s A & B and M/s C & D:

Balance Sheet

Liabilities	A & B	C & D	Assets		A & B	C & D
Sundry Creditors	20,000	10,000	Cash at bank		15,000	8,000
Bills Payable	5,000	–	Investment at Cost		10,000	8,000
Bank Overdraft	2,000	10,000	Debtors	10,000
E’s Loan	6,000	–	Less: Provision	1,000
Capitals					9,000	8,000
A	35,000		Furniture		12,000	6,000
B	22,000		Premises		30,000	–
C		36,000	Land		–	50,000
D		20,000	Machinery		15,000	–
General Reserve	8,000	3,000	Goodwill		9,000	–
Investment Fluctuation	2,000	1,000
Fund
	1,00,000	80,000			1,00,000	80,000

It was decided by both the firms to amalgamate their business on 1st April 2014 for this purpose it was decided that the new firm shall not take furniture of both the firms and shall take over investment at 10

% Less than the cost land at 80,000 premises at 45,000, machinery at 9,000 New firm agreed to take over only trade liabilities of both the firms and to pay 12,000 to each firm as goodwill Unrecorded typewriter with C & D valued at 800 was not taken over by the new firm. (8 marks)

A5) Journal in the Books of M/s. A & B

Date 31/3/14	Particulars		L F	Debit	Credit
	Realisation A/c To Cash at Bank A/c To Investment A/c To Debtors To Furniture A/c To Premises A/c To Machinery A/c To Goodwill (Being Transfer of Assets to Realisation A/c)	Dr.		1,01,000
					15,000
					10,000
					10,000
					12,000
					30,000
					15,000
					9,000
	Creditors A/c Balance Payable A/c Bank OD A/c Provision for Doubtful Debt A/c A’S Loan A/c To Realisation (Being Transfer of Liabilities to Realisation A/c)	Dr. Dr. Dr. Dr. Dr.		20,000
				5,000
				2,000
				1,000
				6,000
					34,000
	Investment Fluctuation Fund A/c To Realisation A/c	Dr.		1,000
	Investment Fluctuation Fund A/c To Realisation A/c	Dr.			1,000

(Being Reduction in the Value of Investment Accounted for)

General Reserve A/c Dr.

To A’s Capital A/c To A’s Capital A/c

(Being Reserve Distributed to old Partners in Profit Sharing Ratio)

8,000

4,000

New Firm A/c

To Realisation A/c

(Being Purchase Consideration Recorded)

Dr.

66,000

A’s Capital A/c B’s Capital A/c

To Realisation A/c

(Being Furniture taken over by Partners)

Dr.

6,000

12,000

Investment Fluctuation Fund A/c Dr.

To A’s Capital A/c To B’s Capital A/c

(Being Surplus Balance Transferred to Partner’s Capital Accounts.

1,000

500

Realisation A/c Dr.

To A’s Capital A/c To B’s Capital A/c

(Being Profit on Realisation Distributed to Partners in Profit)

12,000

6,000

A’s Capital A/c B’s Capital A/c

To New Firm A/c

(Being balances in Partner’s Capital A/c Adjusted)

Dr.

39,500

26,500

66,000

Ledger Accounts

Dr. Realisation A/c


To Sundry Assets:			By Sundry Liabilities
Cash at Bank	15,000		Creditors	20,000
Investment	10,000		Bills Payable	5,000
Debtors	10,000		Bank Overdraft	2,000
Furniture	12,000		RDD	1,000
Premises	30,000		A’s Loan	6,000	34,000
Machinery	15,000		By Investment Fluctuation		1,000
			Fund A/c
Goodwill	9,000	1,01,000	By Business Purchase A/c		66,000
To Realisation Profit			By Partners Capital A/c		12,000
A	6,000		(Furniture taken over)
B	6,000	12,000
		1,13,000			1,13,000

Partner’s Capital A/c Cr.

	A	B		A	B
To Furniture	6,000	6,000	By Balance b/d	35,000	22,000
To Business Purchase A/c	39,500	26,500	By Realisation A/c By General Reserve By Inv.fluctuation Fund	6,000 4,000 500	6,000 4,000 500
	45,500	32,500		45,500	32,500

Dr. New Firm A/c (Business Purchase A/c) Cr.

To Realisation A/c

66,000

By Capital accounts: A

39,500

26,500

66,000

Working Note: Value of Business Purchase:

Particulars	A & B		C & D
Assets taken over: Cash (*15,000 –2,000 – 6,000) Investment Debtors Land/Premises Machinery Goodwill Less: Liabilities Creditors RDD Bills payable	*7,000		8,000
	9,000		7,200
	10,000		8,000
	45,000		80,000
	9,000		–
	12,000	92,000	12,000	1,15,200
	20,000		10,000
	1,000		–
	5,000	(26,000)		(10,000)
		66,000		1,05,200

Journal Entries in the Books of M/s. C & D

Date	Particulars		LF	Debit	Credit
	Realisation A/c To Bank A/c To Investment A/c To Debtors A/c To Furniture A/c To Land A/c (Being Assets Transferred)	Dr.		80,000
					8,000
					8,000
					8,000
					6,000
					50,000
	Creditors A/c To Realisation A/c (Being Liabilities transferred)	Dr.		10,000	10,000
	Investment Fluctuation Fund A/c To Realisation A/c To C’s Capital A/c To D’s Capital A/c (Being reduction in value of investments transferred to Realisation A/c and balance distributed to Partners in profit sharing ratio)	Dr.		1,000
					800
					100
					100
	General Reserve A/c	Dr.		3,000

To C’s Capital A/c To D’s Capital A/c (Being general reserve distributed to partners in profit sharing ratio)			1,500 1,500
Bank Overdraft A/c To C’s Capital A/c To D’s Capital A/c (Being Liabilities taken over by partners)	Dr.	10,000	5,000 5,000
New Firm A/c To Realisation A/c (Being Purchase Consideration Recorded)	Dr.	1,05,200	1,05,200
C’s Capital A/c D’s Capital A/c To Realisation A/c (Being Furniture taken over)	Dr. Dr.	3,000
		3,000
			6,000
C’s Capital A/c D’s Capital A/c To Realisation A/c (Being Type writer taken over)	Dr. Dr.	400
		400
			800
Realisation A/c To C’s Capital A/c To D’s Capital A/c (Being Profit on Realisation Transferred in Profit Sharing Ratio)	Dr.	42,800
			21,400
			21,400
C’s Capital A/c D’s Capital A/c To New Firm A/c (Being Balance in Partner’s Capital A/c Adjusted)	Dr.	60,600

Ledger Accounts

Dr. Realisation A/c Cr.


To Sundry Assets: Cash at Bank Investment Debtors Furniture Land To Partner’s Capital: C D	8,000 8,000 8,000 6,000 50,000	80,000 42,800	By Sundry liabilities: Creditors By Investment fluctuation fund By Business purchase A/c By Partner’s capital A/c (furniture) By Partner’s capital A/c (typewriter)	10,000 800 1,05,200 6,000 800
	21,400 21,400	80,000 42,800		10,000 800 1,05,200 6,000 800
		1,22,800		1,22,800

Dr. Partner’s Capital A/c Cr.

	C	D		C	D
To Realisation (Furniture)	3,000	3,000	By Balance b/d	36,000	20,000
To Realisation (typewriter)	400	400	By Realisation	21,400	21,400
To Balance c/d	60,600	44,600	By Bank o/d	5,000	5,000
			By General Reserve	1,500	1,500
			By Inv. Fluctuation Fund	100	100
	64,000	48,000		64,000	48,000

Dr. New Firm A/c (Business Purchase A/c) Cr.

To Realisation A/c

1,05,200

By Partners Capital A/c: C

60,600

44,600

1,05,200

Journal Entries in the Books of New Firm

Date 1/4/14	Particulars		LF	Debit	Credit
(1)	Bank A/c Investments A/c Debtors A/c Premises A/c Machinery A/c Goodwill A/c To Sundry Creditors A/c To Bill payable A/c To Provision for Doubtful Debts A/c To A’s Capital A/c To B’s Capital A/c (Being Assets and Liabilities Taken over at Revised Values Credited to Capital of A & B)	Dr. Dr. Dr. Dr. Dr. Dr.		7,000
				9,000
				10,000
				45,000
				9,000
				12,000
					20,000
					5,000
					1,000
					39,500
					26,500
(2)	Bank A/c Investments A/c Debtors A/c Land A/c Goodwill A/c To Sundry Creditors A/c To C’s Capital A/c To D’s Capital A/c (Being Assets and Liabilities of the Firm C and D taken over at Revised Value)	Dr. Dr. Dr. Dr. Dr.		8,000
				7,200
				8,000
				80,000
				12,000
					10,000
					60,600
					44,600
(3)	A Current A/c B’s Current A/c To A’s Capital A/c	Dr. Dr.		500
				13,500
					500

	To B’s Capital A/c (Being shortfall in amount of fixed capital debited to current A/cs)			13,500
(4)	C’s Capital A/c D’s Capital A/c To C’s Current A/c To D’s Current A/c (Being Amount Excess over the Fixed Capital Transferred to Respective Current A/cs)	Dr. Dr.	20,600
			4,600
				20,600
				4,600

Balance Sheet of New Firm as on 1st April 2014

Liabilities		Assets
Sundry Creditors	30,000	Bank Investment Debtors Less: Provision Machinery Premises Land Goodwill Partner’s Current A/cs: A B		15,000
Bills Payable	5,000			16,200
Partner’s Capital A/cs:			18,000
A	40,000		1,000	17,000
B	40,000
C	40,000			9,000
D	40,000			45,000
				80,000
Partner’s Current A/c				24,000
C	20,600		500
D	4,600		13,500	14,000
	2,20,200			2,20,000

Notes: 1. Loss on investment is to be net out of investment fluctuation fund. The remaining fund is treated as accumulated profit.

2. Since there is no sufficient bank balance in the firm C and D. Liabilities not taken over have been transferred to capital accounts. Alternatively, it can be presumed that they have brought in the required money to pay off the liabilities. Of course, the net effect would be the same.

3. Trade liabilities include liabilities on account of goods. Bank overdraft is a liability but not trade liability. Similarly, salary outstanding, loans, etc., are all liabilities but not trade liabilities.

Working Note: For adjustment of capital:

	A	B	C	D
Opening Balance	39,500	26,500	60,600	44,600
Surplus/Deficit	+500	+13,500	–20,600	–4,600
Required	40,000	40,000	40,000	40,000

Q16) J and K were in partnership sharing profits and losses in the ration of 3:2. They were dealing in retail merchandising in the trade name of J & Co. Their balance sheet as on December 31, 2014 was as follows:

Liabilities			Assets
Sundry Creditors		15,000	Cash at bank	4,000
Capital A/cs:			Sundry debtors	10,000
J	75,000		Stock-in-trade	16,000
K	60,000	1,35,000	Furniture and fixtures	15,000
			Delivery van Godown Land and building	25,000 5,000 75,000
		1,50,000		1,50,000

M and N were in partnership in the trade name of M & Co. Sharing profit and losses in the ratio of 2:3 doing the same business as J & Co. The balance sheet of M & Co. As on December 31, 2014 was as follows:

Liabilities			Assets
Sundry Creditors		6,000	Sundry Debtors	8,000
Bank Overdraft		4,000	Stock in Trade	18,000
Capital A/cs:			Furniture and Fixtures	10,000
M	40,000		Delivery van	20,000
N	60,000	1,00,000	Land and Building	54,000
		1,10,000		1,10,000

It was mutually agreed by both the firms to amalgamate their businesses as on January 1, 2015 in trade name of F & Co. On the following terms and conditions:

	J & Co.	M & Co.
Stock-in-trade	18,000	14,000
Delivery Van	20,000	18,000
Furniture and Fixture	12,000	–
Land and Building	90,000	–
Goodwill	20,000	15,000

(1) F & Co. Should take over the assets of the two firms, as detailed below:

(2) It was mutually agreed that F & Co., was not to take over the furniture and fittings and land and building of M & Co. However, these assets were sold at 72,000 in cash on January 1, 2015.

(3) K took over the possession of the godown of his firm for a consideration of 4,000.

(4) It was decided to make provision for doubtful debts at 10% on the sundry debtors and also make a provision for discount at 5% on sundry creditors of both the firms.

(5) All the partners unanimously agreed to have a new profit-loss sharing ratio as follows: J – 2: K – 1: M – 1: and N – 2.

(6) The capital of F & Co. Was fixed at 2,40,000 and the partners were required to adjust their capitals in tune with their profit-loss sharing ratio, by making necessary adjustments in cash.

You are required to:

(i) Pass journal entries for opening new books. (7 marks)

(ii) Prepare Realisation accounts of the old partnership firms.

A6) Ledger Accounts in the Books of J & Co.

Dr. Realisation A/c Cr.

Particulars		Amount	Particulars	Amount
To Sundry Assets			By Sundry Creditors	15,000
Sundry Debtors		10,000	By K’s Capital A/c (Godown)	4,000
Stock		16,000	By F & C. A/c (Purchase	1,58,750
			Consideration)
Furniture and Fixtures		15,000
Delivery Van		25,000
Godown		5,000
Land and Building		75,000
Cash		4,000
To Profit Realisation Transferred to:
J’s Capital A/c	16,650
K’s Capital A/c	11,100	27,750
	11,100	1,77,750		1,77,750

Dr Realisation A/c Cr.

Liabilities		Assets
To Sundry Assets		By Sundry Creditors	6,000
Stock	18,000	By Bank Overdraft	4,000
Sundry Debtors	8,000	By F and Co. A/c (Purchase Consideration)	1,16,500
Furniture and fixture	10,000
Delivery Van Land and Building To Profit on Realisation Transferred to M’s Capital A/c 6,600 N’s Capital A/c 9,900	20,000 54,000 16,500
	1,26,500		1,26,500

Q17) R and S are partners of Don & Co. Sharing profits and losses in the ratio of 3:1 T and U are partners of John & Co. Sharing profits and losses in the ratio of 2:1. On 31st July 2014, they decided to amalgamate and form a new firm M/s Don & John where in R, S, T and U were to be the partners sharing profits and losses in the ratio of 4:2:3:2. Their balance sheets on that date were as under:

Liabilities	Don & Co.	John & Co.	Assets	Don & Co.	John & Co.
Creditors	16,000		Cash	10,000	5,000
Ram aur Shyam	40,000	–	Bank	15,000	20,000
Don & Co.	–	50,000	Debtors:
Others	60,000	58,000	John & Co.	50,000	–
Reserves Capital	25,000	50,000	Ram aur Shyam	–	30,000
R	1,20,000	–	Others	80,000	1,00,000
S	80,000	–
T	–	1,00,000	Stock	60,000	70,000
U	–	50,000	Furniture & Office
			Equipment	10,000	3,000
			Vehicles	–	80,000
			Plant & Machinery	75,000	–
			Building	25,000
	3,25,000	3,08,000		3,25,000	3,08,000

The amalgamated firm took over the business on the following terms:

(a) Goodwill of Don & Co. Was worth 60,000; Goodwill of John & Co. Was 50,000. However goodwill account was not to be opened in the books of accounts. The adjustments for the change in the profit share are to be recorded through the capital accounts of the partners.

(b) Buildings, plant and machinery and vehicles are taken over at 50,000. 90,000 and 1,00,000 respectively.

(c) Provision for doubtful debts has to be carried forward at 4,000 in the case of Don & Co. And 5,000 in the case of John & Co.

You are asked to:

Compute the adjustment for goodwill

2. Pass the entries in the books of Don and John assuming that excess capitals with reference to share in profits are to be transferred to loan accounts. (8 marks)

A7) Computation of Adjustment for Goodwill

	Old Share in Goodwill		New Share in Goodwill		Change

R	3/4 of 60,000	45,000	4/11	40,000	(–)5,000
S	1/4 of 60,000	15,000	2/11	20,000	(+)5,000
T	2/3 of 50,000	33,333	3/11	30,000	(-)3,333
U	1/3 of 50,000	16,667	2/11	20,000	(+)3,333
		1,10,000		1,10,000

Journal Entries M/s Don and John

Date 31/7/14		LF	Debit	Credit
(1)	Cash A/c Dr. Bank A/c Dr. John & Co’s A/c Dr. Debtors A/c Dr. Stock A/c Dr. Furniture and office equipment A/c Dr. Plant and machinery A/c Dr. Building A/c Dr. To Provision for doubtful debts A/c To Ram aur Shyam A/c To Creditors A/c To B capital A/c To S capital A/c (Being the assets and liabilities of Don & Co. Taken over)		10,000
			15,000
			50,000
			80,000
			60,000
			10,000
			90,000
			50,000
				4,000
				40,000
				60,000
				1,65,750
				95,250
			3,65,000	3,65,000

Note: Working to arrive at capital balance:

Particulars
Balance as per balance sheet		1,20,000	80,000
Reserves		18,750	6,250
Profit on revaluation:
Buildings	25,000
Plant	15,000
Provision for doubtful debts	40,000 4,000
Revaluation Profit (3:1)	36,000	27,000	9,000
		1,65,750	95,250

Note: Working for capitals.

Particulars

Balance as per Balance Sheet Reserves

Profit on Revaluation

Vehicles 20,000

Less: Provision for Doubtful Debts 5,000

Revaluation Profit (2:1) 15,000

1,00,000

33,333

10,000

50,000

16,667

5,000

1,43,333

71,667

We now record adjusting entries for goodwill and writing off the inter-firm debts.

Date

Debit

Credit

(3)

S’s capital A/c Dr.

U’s capital A/c Dr.

To R’s Capital A/c To T’s Capital A/c

(Being the purchase of goodwill by the former partners from the latter

Partners on amalgamation of the two firms)

5,000

3,333

5,000

3,333

(4)

Don & Co.’s A/c Dr.

To John & Co’s A/c

(Being the closure of the above 2 accounts by transferring the balances on amalgamation of the 2 firms)

50,000

Working for Balance Sheet

(1) The debit balance in Ram aur Shyam’s account (vide entry No. 2 will be adjusted against the credit balance in Ram aur Shyam’s account (vide entry no. 1). Ram aur Shyam will appear as net creditor for only 10,000 ( 40,000 – 30,000)

(2) Capital balances:

Share	R 4/11	S 2/11	T 3/11	U 2/11
Entry no. 1 2	1,65,750 —	95,250 —	— 1,43,333	— 71,667
3 Capitals Required on the Basis of U’s Capital which is the Lowest	(+) 5,000 1,70,750 1,36,668	(–) 5,000 90,250 68,334	(+) 3,333 1,46,666 1,02,501	(–)3,333 68,334 68,334
Transfer to Loan	34,082	21,916	44,165	Nil

Date

Particulars

Debit

Credit

(5)

B’s Capital A/c Dr.

S’s Capital A/c Dr.

T’s Capital A/c Dr.

To R’s Loan A/c To S’s Loan A/c To T’s Loan A/c

(Being Excess Capital with Reference to Share in Profits

Transferred to Loan Accounts)

34,082

21,916

44,165

34,082

21,916

44,165

M/s Don and John Balance Sheet as on 1st August 2014

Liabilities			Assets
Ram aur Shyam		10,000	Cash	15,000
Other Creditors		1,18,000	Bank	35,000
Loans			Debtors 1,80,000
B	34,082		Less: Provision for Doubtful Debts 9,000	1,71,000
S	21,916
T	44,165	1,00,163	Stock	1,30,000
Capitals:			Furniture and Office Equipment	13,000
B	1,36,668		Vehicles	1,00,000
S	68,334		Plant and Machinery	90,000
T	1,02,501		Building	50,000
T	68,334	3,75,837
		6,04,000		6,04,000

Q18) A and Co. (consisting of A and B as partners sharing profits and losses in the ratio of 2:1) and C & Co. (consisting of A and B as partners) decide to amalgamate their businesses with effect from December 31, 2014 on which date their respective Balance Sheets as under:

Liabilities	A & Co.	C & Co.	Assets	A & Co.	C & Co.
Capitals			Goodwill	–	12,000
A	10,000	25,000	Motor Vehicle	10,000	8,000
B	10,000	–	Furniture	2,000	5,000
C	–	5,000	Stock	8,000	25,000
Investment Fluctuation			Debtors	8,000	2,000
Reserves	–	2,000	Investments:
Sundry Creditors	8,000	15,000	Shares in C Ltd.	–	–
Bills Payable	2,000	13,000	Cash at Bank	2,000	8,000
	30,000	60,000		30,000	60,000

Note: (1) Included in the above Balance Sheet was an amount of 1,000 owing by A & Co. To C & Co.

On the above date the investment held by C & Co. In C Ltd. Were realized at 5,500. These had earlier been fully written off.

Goodwill of A & Co. Was to be valued at Nil.

Show journal entries in the books of the new amalgamated firm to record the opening entries and prepare the Balance Sheet of the new firm. (8 marks)

A8) Journal Entries in Books of the Amalgamated Firm

Date 31/12/14	Particulars	LF	Debit	Credit
	Motor Vehicles A/c Dr. Furniture A/c Dr. Stock A/c Dr. Debtors A/c Dr. Bank A/c Dr. To Bills Payable A/c To Sundry Creditors A/c (8,000–1,000) To Sundry Debtors A/c (inter firm debts) To A’s Capital A/c To B’s Capital A/c (Being the Assets and Liabilities of M/s × & Co. Taken over)		10,000
			2,000
			8,000
			8,000
			2,000
				2,000
				7,000
				1,000
				10,000
				10,000
	Goodwill A/c Dr. Motor Vehicles A/c Dr. Furniture A/c Dr. Stock A/c Dr. Debtors A/c Dr. Debtors A/c (inter-firm debts) Dr. Bank A/c Dr. To Sundry Creditors A/c To Bills payable A/c To A’s capital A/c To C’s Capital (Being the assets and liabilities of M/s Z & Co. Taken over)		30,000	30,000
			12,000
			8,000
			5,000
			25,000
			1,000
			1,000
			13,500
				15,000
				13,000
				*28,750
				*8,750
			65,500	65,500

	X	Z
Capitals as per Balance Sheet	25,000	5,000
Investment Fluctuation Reserve	1,000	1,000
Profit re: Z Ltd. Shares	2,750	2,750
	28,750	8,750

Balance Sheet of the Amalgamated Firm as on 31 st December 2014

Liabilities			Assets
Capital Accounts:			Goodwill	12,000
A	38,750		Furniture	7,000
B	10,000		Motor Vehicles	18,000
C	8,750	57,500	Stock	33,000
Sundry Creditors		22,000	Debtors	9,000
Bills Payable		15,000	Bank	15,500
		94,500		94,500

Q19) 9: M/s. A & Co. Have A & B as partners decided to amalgamate with M/s. C & Co. Having C and D partners on the following terms and conditions:

(i) The new firm M/s. MO & Co. To consider Goodwill of both the firms at 12,000 each.

(ii) The new firm to take over investments at 10% depreciation; Debtors and Furniture at book value; Premises at 53,000; Land at 66,800; Machinery at 9,000 and such cash which remained after discharge of partners’ loans by the respective old firms before amalgamation.

(iii) The new firm also assumed other liabilities of old firms.

The following were the Balance Sheets of both the firms on the date amalgamation:

Liabilities	A & Co.	C & Co.	Particulars	A & Co.	C & Co.
Creditors	20,000	10,000	Cash	15,000	12,000
Bills Payable	5,000	–	Investments	10,000	8,000
Loans: A	8,000	–	Debtors	9,000	4,000
C	–	10,000	Furniture	12,000	6,000
Reserves	10,000	4,000	Premises	35,000
Capital A	35,000	–	Land	–	50,000
B	22,000	–	Machinery	14,000
C	–	36,000	Goodwill	5,000
D	–	20,000
	1,00,000	80,000		1,00,000	80,000

Included in Debtors of A & Co. Was 3,000 receivable from X & Co. And included in creditors of C & Co. Was 5,000 payable to X & Co.

Prepare following ledger Accounts in each case:

Realisation Account.
Partners’ Capital Accounts.
New Firm Account; and also prepare the Balance Sheet of the New Firm. (7 marks)

A9)

In the Books of A & Co.

Dr. Realisation A/c Cr.

Particulars		Particulars
To Sundry Assets: Cash (15,000 – 8,000) 7,000 Investment 10,000 Debtors 9,000 Furniture 12,000 Premises 35,000 Machinery 14,000 Goodwill 5,000 To Profit on Realisation to: M 9,500 N 9,500	92,000	By Sundry Liabilities: Creditors 20,000 Bills Payables 5,000 By MO & Co. A/c (Purchase Consideration)	25,000 86,000
	19,000
	1,11,000		1,11,000

In the Books of C & Co.

Dr. Realisation A/c Cr.

Particulars		Particulars
To Sundry Assets:		By Sundry Liabilities: Creditors By MO & Co. A/c (Purchase Consideration)
Cash (12000 – 10,000) 2,000			10,000
Investment 8,000
Debtors 4,000			88,000
Furniture 6,000
Land 50,000	70,000
To Profit on Realisation to:
C 14,000
D 14,000	28,000
	98,000		98,000

Partner’s Capital A/cs

Particulars	A	B	Particulars	A	B
To MO & Co. A/c	49,500	36,500	By Balance b/d	35,000	22,000
			By Reserves A/c	5,000	5,000
			By Realisation A/c	9,500	9,500
	49,500	36,500		49,500	36,500

Dr. MO & Co. A/c Cr.

Particulars

To Realisation A/c

86,000

By M’s Capital A/c

By N’s Capital A/c

49,500

36,500

86,000

Partner’s Capital A/c

Dr Cr.

Particulars	C	D	Particulars	C	D
To MO & Co. A/c	52,000	36,000	By Balance b/c	36,000	20,000
			By Reserves A/c	2,000	2,000
			By Realisation A/c	14,000	14,000
	52,000	36,000		52,000	36,000

Dr. MO & Co. A/c Cr.

Particulars

To Realisation A/c

88,000

By C’s Capital A/c

By D’s Capital A/c

52,000

36,000

88,000

MO & Co. Balance Sheet as at 31-12-2014

Liabilities			Assets
Capital Accounts:			Fixed Assets:
A	49,500		Goodwill	24,000
B	36,500		Land	66,800
C	52,000		Premises	53,000
D 36,000		1,74,000	Plant and Machinery	9,000
			Furniture	18,000
Current Liabilities:			Investments	16,200
Sundry Creditors (30,000 – 3,000)		27,000	Current Assets:
Bills Payable		5,000	Debtors (13,000 – 3,000)	10,000
			Cash in Hand	9,000
		2,06,000		2,06,000

Note: Since X & Co. Becomes both debtor and creditors, its debits are set off against credit.

Q20) Raj and Rohan are two sole traders. Their Balance Sheets as on 1st January, 2014 are given below:

Raj’s Balance Sheet as at 1st January, 2014

Liabilities

Assets

Sundry Creditors Bank Overdraft

Capital Account

10,000

5,000

15,000

Plant and Machinery Stock in Trade

Sundry Debtors

7,500

10,000

12,500

30,000

Rohan’s Balance Sheet as at 1st January, 2014

Liabilities		Assets
Sundry Creditors	8,500	Plant and Machinery	10,500
Capital Account	20,000	Stock in Trade	5,000
		Sundry Debtors	11,000
		Cash at Bank	2,000
	28,500		28,500

They agree to amalgamate their business as on 1st January, 2014. The following revaluations were to be made:

(1) Plant and Machinery were to be reduced by 10%

(2) Stock in Trade was to be reduced in case of Raj by 20% and in case of Rohan by 10%.

(3) A reserve of 2½% is to be raised against Sundry Debtors.

(4) Each partner is to be credited with Goodwill of 5,000.

(5) The bank overdraft of Raj is to be paid off by him.

Included in debtors of Raj is 2,000 due from Rohan and the same amount is included in creditors of Rohan.

You are required to give the journal entries for recording the above transactions in the books of Raj and Rohan. Give also the amalgamated balance sheet of the New Firm as on 1st January, 2014.( 8 marks)

A10)

Journal Entries in the Books of Raj

Date 1/1/14	Particulars		LF	Debit	Credit
(1)	Realisation A/c	Dr.		30,000
	To Plant and Machinery A/c				7,500
	To Stock in Trade A/c To Stock in Debtors A/c (Being assets transferred to Realisation account)				10,000 12,500
(2)	Sundry Creditors A/c To Realisation A/c (Being liabilities transferred to realization account)	Dr.		10,000	10,000
(3)	M/s Raj and Rohan A/c To Realisation A/c (Being purchase consideration due)	Dr.		21,937	21,937
(4)	Realisation Raj To Raj Capital A/c (Being profit on realizations)	Dr.		1,937	1,937
(5)	Bank Overdraft A/c To Raj Capital A/c (Being bank overdraft taken over by Raj personally)	Dr.		5,000	5,000
(6)	Raj Capital A/c To M/s Raj and Rohan A/c (Being capital account settled)	Dr.		21,937	21,937

Journal Entries in the Books of Rohan

Date	Particulars		LF	Debit	Credit
(1)	Realisation A/c To Plant and Machinery A/c To Stock in Trade A/c To Sundry Debtors A/c To Cash at Bank A/c (Being assets transferred to realizations account)	Dr.		28,500
					10,500
					5,000
					11,000
					2,000
(2)	Sundry Creditors A/c To Realisation A/c (Being liabilities transferred to realizations account)	Dr.		8,500	8,500
(3)	M/s Raj and Rohan A/c To Realisation A/c (Being purchase consideration due)	Dr.		23,175	23,175
(4)	Realisation A/c To Rohan Capital A/c	Dr.		3,175

(Being profit on realizations)

3,175

(5)

Rohan Capital A/c Dr.

To M/s Raj and Rohan A/c (Being capital account settled)

23,175

M/s. Raj and Rohan Balance Sheet as at 1-1-2014

Liabilities			Assets
Capital Accounts:			Fixed Assets: Goodwill Plant and Machinery Current Assets Stock Debtors Less: Provision For Bad Debts Cash at Bank	21,500 (538)
Raj	19,987				10,000
Rohan	25,175				16,200
		45,162
Sundry Creditors		16,500			12,500
					20,962
					2,000
		61,662			61,662

Working Note

Particulars	Raj	Rohan
Assets:
Cash at Bank	–	2,000
Plant and Machinery (90% of book value)	6,750	9,450
Stock in Trade (Agreed value)	8,000	4,500
Debtors (book value)	10,500	11,000
Goodwill (agree value)	5,000	5,000
	30,250	31,950
Less: Liabilities:
RDD (2½% of debtors)	263	275
Creditors (book value)	10,000	6,500
	10,263	6,775
Purchase Consideration	19,987	25,175

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