SCAA Academy Problems on Amalgamation Problem 1 The following were the Balance Balance Sheet of P Ltd and V Ltd as at 31st March, 2011 Liabilities
Equity Share Capital (Fully paid shares of Rs.10 each) Securities Premium Foreign Project Reserve General Reserve Profit & Loss Account 12% Debentures Bills Payable Sundry Creditors Sundry Provisions
P Lt d V Ltd (Rs in (Rs in Lakhs) Lakhs) 15,000 6,000 3,000 9,500 2,870 120 1,080 1,830
310 3,200 825 1,000 463 702
33,400
12,500
6,000 14,000 2,304 7,862 2,120 1,114 -
5,000 1,700 4,041 1,020 609 80 50
33,400
12,500
Assets Land and Buildings Plant and Machinery Furniture, Fixtures and Fittings Stock Debtors Cash at Bank Bills Receivable Cost of issue of Debentures
All the bills receivable held by V Ltd were P Ltd’s acceptance On 01st April, 2011 P Ltd., took over V Ltd., in an amalgamation in the nature of merger. It was agreed that in discharge of consideration for the business P Ltd., would allot 3 fully paid Equity Shares of Rs.10 each at par pa r for every 2 shares held in V Ltd. It was also agreed that 12% Debentures in V Ltd., would be converted into 13% Debentures in P Ltd. of the same amount of denomination. Expenses of amalgamation amounting to Rs.1,00,000 were borne by P Ltd. You are required to : i) Pass Pass journa journall entri entries es in the the books books of P Ltd. Ltd.,, and ii) Prepare Prepare P Ltd’s Balance Balance Sheet immedi immediately ately after after the merger merger 1
Problem 2 The financial position of two companies Hari Ltd., and Vayu Ltd., as on 31st March, 2011 was as under Assets Goodwill Building Machinery Stock Debtors Cash at Bank Preliminary Expenses
Hari Ltd (Rs) 50,000 3,00,000 5,00,000 2,50,000 2,00,000 50,000 30,000
Vayu Ltd (Rs) 25,000 1,00,000 1,50,000 1,75,000 1,00,000 20,000 10,000
13,80,000
5,80,000
10,00,000 1,00,000 1,00,00 50,000 1,30,000
3,00,000 1,00,000 80,000 20,000 80,000
13,80,000
5,80,000
Liabilities Share Capital: Equity Share of Rs. 10 each 9% Preference Share of Rs.100 each 10% Preference Share of Rs.100 each General Reserve Retirement Gratuity Fund Sundry Creditors
Hari Ltd., absorbs Vayu Ltd., on the following terms : a) 10% Preference Share Holders are to be paid at 10% Premium by issue of 9% Preference Share of Hari Ltd., b) Goodwill of Vayu Ltd., is valued at Rs.50,000, Buildings are valued at Rs.1,50,000 and the machinery at Rs.1,60,000. c) Stock to be taken over at 10% less value and reserve for bad and doubtful debts to be created @ 7.5% d) Equity Shareholders of Vayu Ltd., will be issued Equity Shares @ 5% Premium Prepare necessary ledger accounts to close the books of Vayu Ltd., and show the acquisition entries in the books of Hari Ltd., Also draft the Balance sheet after absorbtion as at 31st March, 2011 Problem 3 2
The following is the balance sheet of A Ltd., as at 31st March, 2011 Liabilities 8,000 equity shares of Rs.100 each General Reserve 10% Debentures Loan from A Creditors
Rs. 8,00,00 0 80,000 4,00,00 0 1,60,00 0 3,20,00 0
17,60,0 00
Assets Building
Rs. 3,40,000
Machinery Stock
6,40,000 2,20,000
Debtors
2,60,000
Bank
1,36,000
Goodwill Misc Expenses
1,30,000 34,000 17,60,00 0
B Ltd., agreed to absorb A Ltd., on the following terms and conditions: 1) B Ltd., would take over all assets, except bank balance at their book values less 10%. Goodwill is to be valued at 4 years’ purchase of super profits, assuming that the normal rate of return be 8% on the combined amount of share capital and general reserve 2) B Ltd., is to take over creditors at book value 3) The purchase consideration is to be paid in cash to the extent of Rs.6,00,000 and the balance in fully paid equity shares of Rs.100 each at Rs.125 per share The average profit is Rs.1,24,000. The liquidation expenses amounted to Rs.16,000. B Ltd., sold prior to 31st March, 2011 goods costing Rs.1,20,000 to A Ltd., for Rs.1,60,000. Rs.1,00,000 worth of goods are still in stock of A Ltd., on 31st March, 2011. Creditor of A Ltd include Rs.40,000 still due to B Ltd., Show the necessary ledger accounts to close the books of A Ltd and prepare the balance sheet of B Ltd as at 01st April, 2011 after the takeover.
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Problem 4 The following are the balance sheet of Strong Limited and Small Limited as at 31stMarch, 2011 Liabilities Equity Shares of Rs.10 each Reserves 10% Debentures Trade Creditors
Strong Ltd 1,50,000
95,000 47,000 2,92,000
Small Assets Ltd 1,20,00 Fixed Assets 0 (Net Depreciation) 10,000 Stock 20,000 Sundry Debtors 32,000 Cash at Bank 1,82,00 0
Strong Ltd 1,40,000
Small Ltd 75,000
42,000 30,000
47,000 50,000
80,000
10,000
2,92,000
1,82,00 0
Strong Limited agreed to absorb Small Limited as on 31st March 2011 on the following terms: (1) Strong Limited agreed to repay 10% Debentures of Small Limited (2) Strong Limited to revalue its Fixed Assets at Rs 1,95,000 to be incorporated in the books (3) Shares of both companies to be valued on net Assets Basis after considering Rs 50,000 towards value of goodwill of Small Limited. (4) The cost of absorption of Rs 3,000 are met by Strong Limited. You are required to : (a)Calculate the ratio of exchange of shares (b)Give Journal Entries in the books of Strong Limited and, (c)Construct the Bank Account to arrive at the balance on absorption
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Problem 5 The following are the balance sheets of RS Ltd and XY Ltd as on 31st March, 2011
Liabilities Equity Shares of Rs.100 each Reserves & Surplus 10% Debenture s Loan from Financial Institutions Bank Overdraft Sundry Creditors Proposed Dividend
RS Ltd
XY Ltd
500
Assets Fixed Assets net 1,000 of Depreciati on Investment s Sundry - Debtors
250
Cash and 400 Bank
2,000
800
-
Profit and 100 Loss Account
300
300
200
-
4050
1800
Rs.in 000s XY Ltd
RS Ltd
2,700
850
700
-
400
150
250
-
-
800
4,050
1,800
It was decided that XY Ltd. will acquire the business of RS Ltd. for enjoying the benefit of carry forward of business loss. After acquisition, XY Ltd. will be renamed as XYZ Ltd The following scheme has been approved for the merger: (i) XY Ltd. will reduce its shares to Rs. 10 and then consolidate 10 such shares into one share of Rs. 100 each (New Share). (ii) Financial institutions agreed to waive 15% of the loan of XY Ltd. (iii) Shareholders of RS Ltd. will be given one new share of XY Ltd. in exchange of every share held in RS Ltd. (iv) RS Ltd. will cancel 20% holding of XY Ltd. Investments were held at Rs. 250 thousands. (v) After merger the proposed dividend of RS Ltd. will be paid to the shareholders of RS Ltd. (vi) Authorised Capital of XY Ltd. will be raised accordingly to carry out the scheme. (vii) Sundry creditors of XY Ltd. includes payable to RS Ltd. Rs. 1,00,000. 5
Pass the necessary entries to implement the scheme in the books of RS Ltd. and XY Ltd. and prepare a Balance Sheet of XYZ Ltd.
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