AN EXAMINING THE IMPACT OF AMALGAMATION AND ABSORPTION IN INDIA WITH THE HELP OF A CASE STUDY
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Accounting for Amalgamations
Computation of Purchase consideration
a
National Company LTD was incorporated on 1 st July 2004 for purpose of acquiring M LTD LTD , N LTD and O Ltd . a The Balancesheets of These Companies are as follows Particulars
M Ltd
O Ltd
N Ltd
Assets Tangible fixed assets - Cost less Dep
5 00 0 00
Goodwill
4 0 0 00 0
300000
6 00 0 0
Other Assets
20 0 00 0
2 80 0 00
85000
Total
70 0 00 0
7 40 0 0 0
385000
Issu Issued ed equi equity ty Shar Share e capi capita tall
4000 400000 00
5000 500000 00
P&L A/c
1 50 0 00
1 1 00 0 0
Liabilities
10% Debentures
70 0 00
Sundry Creditors
8 00 0 0
1 3 0 00 0
70 0 00 0
7 40 0 0 0
250000 60000 40000 35000 385000
9000 90000 0
1200 120000 00
50000
6 2 00 0 0
48 0 00 0
360000
Total Aver Averag age e Annu Annual al prof profit its s befo before re Debe Debent ntur ure e inte inters rstt (July 2003 to June 2004 inclusive) professional valuation of tangible assets as of 30 June 2004
1. The Directors in their negotiations agreed that i. Recorded goodiwll of N Ltd is valueless ii. The other Asses of M Ltd are worth Rs 30000 iii. The Valuation on 30th June 2004 in respect of tangible Fixed assets should be accepted. iV. Valuation on adjustments are to be made by the individual companies before completion of acquisition
2. The Acquisition agreement provides for the issue of 12% unsecured debentures to the value of net assets o companies M Ltd , N Ltd & O Ltd and for the issuance of of Rs. 10 Nominal value equity shares shares for the capitalize average profit of each acquired company in excess of net assets contributed . The capitalization rate is Establi at 10% You are required to Compuate a. Purchase consideration b.Show the discharge of purchase consideration
Solution : Compuation of Purchase consideration c onsideration Wn 1 Consideration in form of 12% debentures
particulars Assets Tangible Assets Other Assets
M Ltd
N LTd
O Ltd
620000 30000
480000 280000
360000 85000
Total Assets Liabilties 10% Debentures Sundry Creditors
