Chp 15. amalgamation

PART I AMALGAMATION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 1
Q.No 1:
Calculation of Purchase Consideration
Cash 200,000 @ Rs. 15 per share = 3,000,000
10% Preference shares 200,000 X ¼ X 10 = 500,000
Equity shares 200,000 X 5/4 X 10 = 2,500,000
Purchase consideration = 6,000,000
Q.No 2:
1) Equity shareholders:
Equity shares (50,000 X 10) = 5, 00,000
12% Debentures (5,000 X 100) = 5, 00,000
2) Preference shareholders:
13% preference shares (10,000 X 10) = 1, 00,000
Purchase consideration 11, 00,000
Q.No 3:
Cash 30,000 @ Rs. 3 per share = 90,000
Shares 30,000 X 3/5 X 15 = 270,000
Purchase consideration = 360,000

Q.No 4:
Calculation of Purchase Consideration (X Ltd):
Assets taken over = 100,000
(-) Liabilities taken over = 25,000
P.C = 75,000
In the Books of X Ltd
Ledger Accounts
(1) REALIZATION ACCOUNT
Particulars Amount(Rs) Particulars Amount(Rs)
To Sundry assets A/C 120,000 By Sundry creditors A/C 25,000
By Shares in XY Ltd A/C 75,000
By Sundry Shareholders A/C (loss) 20,000
Total 120,000 Total 120,000
(2) XY Ltd. ACCOUNT
To Realization A/C 75,000 By Shares in XY Ltd A/C 90,000
To Loan: Y Ltd A/C 15,000
Total 90,000 Total 90,000
(3) SHARES IN XY Ltd. ACCOUNT
To XY Ltd A/C 75,000 By Sundry Shareholders A/C 90,000
(4) SUNDRY SHAREHOLDERS ACCOUNT
To Realization A/C 20,000 By Share Capital A/C 100,000
To Shares in XY Ltd A/C 90,000 By Profit & loss A/C 10,000
Total 110,000 Total 110,000

Q.No 5: In the Books of A Co Ltd (Transferee Company)
Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. Realization A/C
To Good Will A/C
To Land & Building A/C
To Plant & Machinery A/C
To Stock A/C
To Debtors A/C
350,000
50,000
150000
83000
35000
32000
2. 12% Debentures A/C
To Realization A/C
100,000
100,000
3. B Co Ltd A/C
To Realization A/C
245,000
245,000
4. Shares in B Co Ltd A/C
Cash A/C
To B Co Ltd A/C
165,000
80,000
245,000
5. Creditors A/C
To Cash A/C
30,000
30,000
6. Realization A/C
To Cash A/C
3,000
3,000
7. Equity share capital A/C
General reserve A/C
Profit & loss A/C
To Sundry shareholders
200,000
50,000
20,000
270,000
8. Sundry shareholders A/C
To Realization A/C
8,000
8,000
To Cash A/C
To Shares in B Co Ltd A/C
262,000
97,000
165,000
Working Notes: Payment of PC:
Calculation of Purchase Consideration: Equity Shares (1650 x 100) 165000
Goodwill 75,000 Cash (245000 – 165000) 80000.
Land & Building (150,000 X 90/100) 135,000 Total PC 245000
Plant & Machinery (83,000 X 90/100) 74,700
Stock (35,000 X 90/100) 31,500
Debtors (32,000 X 90/100) 28,800
Total Assets 345,000
12% Debentures (100,000)
P.C Value 245,000

Q.No 6: In the Books of X Ltd (Transferee Company)
(1) REALIZATION ACCOUNT
To Land & Building A/C 350,000 By Creditors A/C 210,000
To Plant & Machinery A/C 670,000 By Debentures A/C 150,000
To Stock A/C 450,000
To Debtors A/C 250,000 By Y Ltd A/C (PC due) 1,000,000
To Bank A/C 30,000 By Sundry Shareholders A/C
(loss)
390,000
Total 1,750,000 Total 1,750,000
(2) Y Ltd. ACCOUNT (Transferor Co)
Particulars Amount(Rs) Particulars Amount(Rs
)
To Realization A/C 1,000,000 By Shares in Y Ltd A/C 1,000,000
Total 1,000,000 Total 1,000,000
(3) SHARES IN Y Ltd. ACCOUNT
To Y Ltd A/C 1,000,000 By Sundry Shareholders A/C 1,000,000
Total 1,000,000 Total 1,000,000
(4) PROFIT & LOSS ACCOUNT
To Preliminary Exp. A/C
To S. Shareholders A/C
10,000
20000
By Balance b/d 3,0000
SUNDRY SHAREHOLDERS ACCOUNT
To Realization A/C 390,000 By Share Capital A/C 1,000,000
To Shares in Y Ltd A/C 1,000,000 By Profit & loss A/C 20,000
By Reserve A/C 370,000
Total 1,390,000 Total 1,390,000

Journal entries in the books of Y Ltd. (Transferor Co)
1. Business purchase A/C
To Liquidator of X Ltd. A/C
1,000,000
1,000,000
2. Land & Building A/C
Plant & Machinery A/C
Stock A/C
Debtors A/C
Bank A/C
To 12% Debentures A/C
To Creditors A/C
To Reserve A/C
To Profit & loss A/C
To Business purchase A/C
350,000
670,000
450,000
250,000
30,000
150,000
210,000
370,000
20,000
1,000,000
3. Liquidator of X Ltd. A/C
To Equity Share capital
1,000,000
1,000,000
4. Reserve A/C
To Bank A/C
10,000
10,000
To Bank A/C
150,000
150,000
Q.No 8: Calculation of Purchase Consideration:
100,000 ÷ 10 = 10,000 × 11.55 = Rs 115,500
In the books of B Ltd. (Transferee Company)
Journal entries
1. Realization A/C
To Fixed Assets A/C
To Stock A/C
To Cash and Bank A/C
200,000
125,000
60,000
15,000
2. Creditors A/C
To Realization A/C
50,000
50,000
3. A Ltd A/C
To Realization A/C
115,500
115,500
4. Shares in A Ltd A/C
To A Ltd A/C
115,500
115,500
General Reserve A/C
Profit & loss A/C
To Sundry shareholders A/C
100,000
20,000
30,000
150,000
6. Sundry Shareholders A/C
To Realization A/C
34,500
34,500
To Shares in Y Ltd A/C
115,500
115,500

Journal entries In the books of A Ltd. (Transferor Company)
To Liquidator of B Ltd. A/C
115,500
115,500
2. Fixed Assets A/C
Stock A/C
Cash A/C
To Creditors A/C
To Reserve A/C
125,000
60,000
15,000
50,000
4,500
30,000
115,500
3. Liquidator of B Ltd A/C
To Equity Share Capital A/C
115,500
115,500
BALANCE SHEET
Q.No 9: Journal entries in the books of A Ltd, B Ltd
Date. Particulars. L/F. Debit (Rs.) Credit (Rs.)
A Ltd B Ltd A Ltd B Ltd
1. Realization A/C
To Land & building A/C
To Plant & machinery A/C
To Investments A/C
To Stock A/C
To Debtors A/C
To Bank A/C
1,700,000 850,000
400,000
500,000
100,000
300,000
350,000
50,000
100,000
400,000
100,000
100,000
150,000
---------
2. Creditors A/C
To Realization A/C
450,000 200,000
450,000 200,000
3. C Ltd A/C
To Realization A/C
1,200,000 600,000
1,200,000 600,000
4. Shares in C Ltd A/C
To C Ltd A/C
1,200,000 600,000
1,200,000 600,000
General reserve A/C
1,000,000
250,000
500,000
150,000
1,250,000 650,000
To Realization A/C
50,000 50,000
50,000 50,000
To Share in C Ltd A/C
1,200,000 600,000
1,200,000 600,000
Liabilities Amount(Rs) Assets Amount(Rs)
Equity Share Capital (150,000 + 115,500) 265,500 Fixed assets (140,000 + 125,000) 265,000
Reserve (60,000 + 4,500) 64,500 Stock (30,000 +60,000) 90,000
Profit & loss (15,000 + 30,000) 45,000 Cash (80,000 + 15,000) 95,000
Creditors (25,000 + 50,000) 75,000
Total 450,000 Total 450,000

Journal entries in the books of C Ltd.
To liquidator of A Ltd. A/C
To liquidator of B Ltd. A/C
1,800,000
1,200,000
600,000
2. Land & building A/C
Plant & machinery A/C
Investments A/C
Stock A/C
Debtors A/C
Bank A/C
To Creditors A/C
To Reserve A/C
500,000
900,000
200,000
400,000
500,000
50,000
650,000
100,000
1,800,000
3. Liquidator of A Ltd A/C
Liquidator of B Ltd A/C
To Equity Share capital A/C
1,200,000
600,000
1,800,000
4. Creditors A/C
To debtors A/C
(Mutual Indeptness)
50,000
50,000
5. General Reserve A/C
To Stock A/C (25000 x 20/100)
(Un realized profit in Stock)
5,000
5,000
BALANCE SHEET
Equity Share Capital 1,800,000 Land & building 500,000
Reserve (100,000 - 5,000) 150,000 Stock (400,000 - 5,000) 395,000
Creditors (650,000 - 50,000) 600,000 Debtors (500,000 - 50,000) 450,000
Plant & machinery 900,000
Investments 200,000
Bank 50,000
Total 2,495,000 Total 2,495,000

Q.No 10
Journal entries in the books of B Ltd.
1. Realization A/C
To Fixed assets A/C
To Stock A/C
To Debtors A/C
To Cash A/C
175,000
100,000
25,000
30,000
20,000
2. Creditors A/C
To Realization A/C
10,000
10,000
3. A Ltd A/C
To Realization A/C
120,000
120,000
4. Shares in A Ltd A/C (12000 x 10)
To A Ltd A/C
120,000
120,000
5. Provision for bad debts A/C
To Profit & Loss A/C
5,000
5,000
6. Profit & loss A/C
To Advertisement Suspense A/C
10,000
10,000
General reserve A/C
Profit & loss A/C
100,000
40,000
25,000
165,000
To Realization A/C
45,000
45,000
To Shares in A Ltd A/C
120,000
120,000
Journal entries in the books of A Ltd.
To Liquidator of B Ltd. A/C
120,000
120,000
2. Fixed assets A/C
Stock A/C
Debtors A/C
Cash A/C
To Creditors A/C
To Reserve A/C
100,000
25,000
30,000
20,000
10,000
20,000
25,000
120,000
3. Liquidator of B Ltd A/C
To Share capital A/C
120,000
120,000

BALANCE SHEET
Q.No 11
Net Assets of A & B A Ltd : B Ltd
Share Capital 150,000 : 100,000
General reserve 35,000 : 30,000
Profit & loss 15,000 : 10,000
Increase in the value of Assets
Land & Building 15,000 : 5,000
Plant & machinery 10,000 : 5,000
Net Assets 225,000 : 150,000
225 : 150
15 : 10
3 : 2
Purchase Consideration:
A Ltd: - 30,000 X 3/5 = 18,000 x 10 = Rs 180000
B Ltd: - 30,000 X 2/5 = 12,000 x 10 = Rs 120000
Equity Share Capital 270,000 Fixed assets 220,000
Reserve (30,000 + 20,000) 50,000 Stock (20,000 +25,000) 45,000
Profit & loss (20,000 + 25,000) 45,000 Debtor (50,000 + 30,000) 80,000
Creditors (20,000 + 10,000) 30,000 Cash ( 30,000 + 20,000) 50,000
Total 395,000 Total 395,000

Journal entries in the books of A Ltd, B Ltd.
Date. Particulars. L/F. Dr. (Rs.)A Dr. (Rs.)B Cr. (Rs.)A Cr. (Rs.)B
1. Realization A/C
To Land & building A/C
To Furniture & Fixture A/C
To Stock A/C
To Debtors A/C
To Cash and Bank A/C
250,000 175,000
75,000
50,000
40,000
35,000
25,000
25,000
60,000
40,000
25,000
15,000
20,000
15,000
2. Creditors
To Realization A/C
50,000 35,000
50,000 35,000
3. AB Ltd A/C
To Realization A/C
180,000 120,000
180,000 120,000
4. Shares in AB Ltd A/C
To AB Ltd A/C
180,000 120,000
180,000 120,000
General reserve A/C
Profit & Loss A/C
150,000
35,000
15,000
100,000
30,000
10,000
200,000 140,000
To Realization A/C
20,000 20,000
20,000 20,000
To Share in AB Ltd A/C
180,000 120,000
180,000 120,000
Journal entries in the books of AB Ltd.
To liquidator of A Ltd. A/C
To liquidator of B Ltd. A/C
300,000
180,000
120,000
2. Land & building A/C
Plant & machinery A/C
Furniture & fixture A/C
Stock A/C
Debtors A/C
Cash and Bank A/C
To Creditors A/C
To Reserve A/C
135,000
90,000
65,000
50,000
45,000
40,000
85,000
15,000
25,000
300,000
3. Liquidator of A Ltd A/C
Liquidator of B Ltd A/C
180,000
120,000
300,000

BALANCE SHEET OF AB Ltd.
Q.No 12:
Journal entries in the books of X Ltd.
To liquidator of Y Ltd. A/C
(6,00,000 x 110/100)
660,000
660,000
2. Plant & machinery A/C
Furniture A/C
Stock A/C
Debtors A/C
Bank A/C
To Creditors A/C
To Capital Reserve A/C
To Foreign Projects Reserve A/C
To General reserve A/C
To 11 % Debenture A/C
550,000
135,200
315,800
129,300
74,360
182,480
13,000
9,700
24,130
15,350
300,000
660,000
3. Liquidator of Y Ltd A/C
660,000
660,000
To Debenture holder A/C
300,000
300,000
5. Debenture holders A/C
To 12% Debentures A/C
300,000
300,000
Equity Share Capital 300,000 Land & building 135,000
Reserve 15,000 Stock 50,000
Creditors 85,000 Debtors 45,000
Profit & loss A/C 25,000 Plant & machinery 90,000
Furniture & fixtures 65,000
Cash 40,000
Total 425,000 Total 425,000

IN THE BOOKS OF “Y LTD”
REALIZATION ACCOUNT
To Machinery A/C 550,000 By 11 % Debentures A/C 300,000
To Furniture A/C 135,200 By Creditors A/C 182,480
To Stock A/C 315,800 By Sundry Shareholders A/C (loss) 62,180
To Debtors A/C 129,300 By X Ltd A/C 660,000
To Cash at Bank A/C 74,360
Total 1,204,660 Total 1,204,660
SUNDRY SHAREHOLDERS ACCOUNT
Particulars Amount (Rs) Particulars Amount (Rs)
To Realization A/C 62,180 By Share Capital A/C 600,000
To Share in X Ltd A/C 660,000 By Profit & loss A/C 24,130
By Capital Reserve A/C 13,000
By F. P Reserve A/C 9,700
By General Reserve A/C 75,350
Total 722,180 Total 722,180

Q.No 13:
Journal entries in the books of B Co Ltd
1. Realization A/C
To Building A/C
To Investments A/C
To Stock A/C
To Debtors A/C
To Cash at Bank A/C
277,500
70,000
60,000
60,000
27,500
50,000
10,000
2. Sundry Creditors A/C
Employees Provident fund A/C
To Realization A/C
30,000
20,000
50,000
3. A Co Ltd A/C
To Realization A/C
290,000
290,000
4. Equity Shares in A Co Ltd A/C
Cash A/C
To A Co Ltd A/C
260,000
30,000
290,000
5. Cash A/C
To Realization A/C
55,000
55,000
6. Share capital A/C
General reserve A/C
Profit & loss appropriation A/C
Accident Insurance Fund A/C
Dividend Equalization Fund A/C
100,000
80,000
10,000
20,000
20,000
230,000
To Preliminary expenses A/C
2,500
2,500
8. Realization A/C
117,500
117,500
To Shares in A Co Ltd A/C
To Cash A/C
345,000
260,000
85,000

Journal entries in the books of A Co Ltd.
To liquidator of B Ltd A/C
290,000
290,000
2. Plant & machinery A/C
Buildings A/C
Stock A/C
Debtors A/C
Cash at Bank A/C
Goodwill A/C
To Employees provident fund A/C
To Creditors A/C
60,000
70,000
27,500
50,000
10,000
122,500
20,000
30,000
290,000
3. Liquidator of Y Ltd A/C
To Share premium A/C
To Cash A/C
290,000
160,000
100,00
30,000
4. Good Will A/C
To Cash A/C
2,000
2,000
Calculation of Purchase Consideration:
Equity Shares in A Co Ltd (10,000 x 2 = 20,000 x13) Rs 260,000
Cash (10,000 x 3) 30,000
P.C 290,000
Q.No 14:
Journal entries in the book of Y Ltd.
1. Realization account
To Goodwill
To Land & building
To Plant & machinery
To Closing Stock
462,000
50,000
200,000
100,000
30,000

To Debtor
To Cash
50,000
32,000
2. Creditors
Bills payable
To Realization A/C
30,000
50,000
80,000
3. X Ltd
To Realization A/C
495,000
495,000
4. Shares in X Ltd
Cash
6% preference shares
To X Ltd
360,000
30,000
10,500
495,000
5. 5% Preference shares
Realization
To Preference share holders
100,000
5,000
105,000
6. Preference shareholder
To 6% preference shares of X
105,000
105,000
7. Equity share capital
300,000
300,000
8. Sundry Shareholder
To Prepaid Expense
15,000
5,000
10,000
9. Realization A/C
To Cash
3,000
3,000
10. Realization A/C
To Sundry shareholder
105,000
105,000
11. Sundry shareholders
To Share capital
To Cash
390,000
360,000
30,000
Journal entries in the book of X Ltd.
1. Business purchase
To Liquidation of B Ltd.
495,000
495,000
2. Land & building
Plant & machinery
Closing Stock
Debtor
Cash
Goodwill
To Creditors
To Bills payable
To Business purchase
200,000
183,000
30,000
50,000
32,000
80,000
30,000
50,000
495,000
3. Liquidation of Y Ltd
To Share capital
To 6% preference shares
To Cash
120,000
360,000
105,000
30,000
Calculation of P.C
Equity Shares
30,000 X 12/10 X 10 = 360,000
Cash = 30,000
6% preference shares ( 100,000 X 10/10) = 105,000
P.C = 495,000

Q.No 18 SOLUTION:-
1. Realization A/C
To Sundry assets
858,300
858,300
2. 5% Debentures
Sundry creditors
Dividend
To Realization A/C
250,000
80,500
24,000
354,500
3. M Ltd
To Realization
528,000
528,000
4. Equity shares in M Ltd
Cash
To M Ltd
520,000
8,000
528,000
5. Cash
To Realization A/C
45,500
45,500
6. Cash (8,000 X ¼ X 63)
Realization (8,000 X ¼ X 2)
To Equity shares in M Ltd
126,000
4,000
130,000
7. Provision for tax
To Cash
48,200
48,200
8. Share capital
General reserve
Profit & Loss
400,000
50,000
5,600
455,600
9. Realization A/C
To Sundry shareholder
65,700
65,700
10. Sundry shareholder
To Equity shares in M Ltd
To Cash
521,300
390,000
131,300
Journal entries in the book of M Ltd.
Calculation of P.C
To Liquidation of B Ltd.
528,000
528,000
2. Building
Plant & machinery
Debtor
Stock
Bank
Goodwill
To Provision for doubtfuldebts
To Creditors
To 5% Debentures
To Dividend
170,000
380,000
140,500
80,700
16,500
86,515
4,215
80,500
237,500
24,000
528,000
3. Liquidation of D Ltd
To Share capital
To Share premium
To Cash
528,000
480,000
40,000
8,000
4. Goodwill
To Cash
1,500
1,500
5. 5% Debentures
To 2% Debentures
237,500
237,500

Equity Shares
4,000 X 2 = 8,000 X 65 = 520,000
Cash
4,000 X 2 = 8,000
P.C = 528,000
REALIZATION ACCOUNT
Assets 858,300 Liability 354,500
Share in M Ltd 4,000 P.C 528,000
Profit 65,700 Investment 45,500
Total 928,000 Total 928,000
Q.No 21 SOLUTION:- Requirement 1.
Ratio of exchange of shares
P.C calculation on take over basis
Assets : Strong : Small
Goodwill : --------- : 50,000
Fixed assets : 195,000 : 75,000
Stock : 42,000 : 47,000
Debtor : 30,000 : 50,000
Bank : 80,000 : 10,000
Total Assets = 347,000 232,000
Less:- Liability
10% Debentures : -------- : 20,000
Creditors : 15,000 : 32,000
Net Assets = 300,000 : 180,000
No. of shares = 15,000 : 12,000
Intrinsic Value = Net Assets/No. of shares
300,000/15,000 : 180,000/12,000

20per share : 15per share
No of shares to be issued by Strong Ltd to Small Ltd to discharge P.C value of
Small Ltd = Net Assets/per share value
180,000/20 = 9,000
Rate of exchange
12,000 : 9,000
4 : 3
3Shares of strong will be issued for every 4 shares of small Ltd held.
Requirement 2.
Requirement 3.
BANK ACCOUNT
To balance 80,000 Liquidation expense 3,000
To business purchase 10,000
Balance 87,000
Note:- It is assumed that strong Ltd will pay the debenture holder on subsequent date. May be after a
week time.
Calculation of P.C
To Liquidation of Small Ltd.
528,000
528,000
2. Goodwill
Fixed assets
Debtor
Stock
Bank
To 10% Debentures
To Creditors
50,000
75,000
50,000
47,000
10,000
20,000
32,000
180,000
3. Liquidation of D Ltd
To Share capital
To Share premium
180,000
90,000
90,000
4. Liquidation expense
To Bank
3,000
3,000
5. Goodwill
To Liquidation expense
3,000
3,000

Assets : A : B
Fixed assets : 830,000 : 1,600,000
Depreciation : 40,000 : -------------
: 79,000 : 1,600,000
Investment : 170,000 : -----------
Current Assets : 690,000 : 1,680,000
Total Assets = 1,650,000 : 3,280,000
Less:- Liability
Secured loan : -------- : 400,000
Unsecured loan : 220,000 : ----------
Provision for tax : 110,000 : 520,000
Proposed dividend : ---------- : 100,000
Creditors : 420,000 : 460,000
Net Assets = 900,000 : 80,000
No. of shares = 5,000 : 80,000
Intrinsic Value = Net Assets/No. of shares
900,000/5,000 : 1,800,000/80,000
180per share : 22.5per share
No of shares to be issued by B Ltd to Small Ltd to discharge P.C value of
A Ltd = Net Assets/per share value
900,000/22.5 = 40,000
Rate of exchange
5,000 : 40,000
1 : 8
8Shares will be allotted of B to shareholders of A Ltd for One share held.
Requirement 2.

Requirement 3.
BALANCE SHEET
Share capital 1,200,000 Fixed assets 2,390,000
Share Premium 500,000 Investment 170,000
Secured Loan 400,000 Current Assets 1,370,000
Unsecured Loan 220,000
Creditor 880,000
Provision for tax 630,000
General Reserve 1,000,000
Dividend 100,000
Total 4,930,000 Total 4,930,000
Capital employed S M
Fixed Assets (Revalued) : 35,500 : 195,000
Current assets : 149,750 : 87,875
Total Assets : 504,750 : 273,875
(-) Liability : 298,500 : 90,125
Capital employed : 206,250 : 183,750
Requirement 2. Average Profit
Year : S : M
1993 : 224,788 : 136,950
1994 : (1,250) : 171,050
1995 : 188,962 : 179,500
To Liquidation of Small Ltd.
900,000
900,000
2. Fixed assets
Current Assets
Investment
To Unsecured loan
To Creditors
To Provision for tax
790,000
690,000
170,000
220,000
420,000
110,000
900,000
3. Liquidation of A Ltd
To Share capital
To Share premium
900,000
400,000
500,000

: 412,500 : 487,500
Divide By 3 We get:- 137,500 : 162,500
Ration of net average profit
137,500 : 162,500
1,375 : 1,625
11 : 13
No. of Shares to be issued:-
30,000 at ratios S : M
30,000 X 11/24= 13750 : 30,000 X 13/24 = 16,250
Total value of shares
S = 13,750 X 5 = 68,750
M = 81,250 X 5 = 81,250
Debentures to be issued:-
To give income equivalent to 8% capital employed by their respective business. So their 8% income of
capital employed
S = 206,250 X 8/100 = 16,500
M = 183,750 X 8/100 = 14,700
Amount of debenture to be issued:-
S = 165,000 X 100/15 = 110,000
M = 147,000 X 100/15 = 98,000
No P.C Value:-
S : M
Shares : 68,750 : 81,250
Debentures : 110,000 : 98,000
178,750 : 179,250
BALANCE SHEET

Share Capital
(30,000X5)
150,000 Fixed assets (355,000 +
195,000)
550,000
Debentures (110,000 +
98,000)
208,000 C. Assets (149,750 + 78,875 –
21,675)
266,950
C. Liability (298,500
+90,125 – 21,675)
366,950
Capital reserve 32,000
Total 756,950 Total 756,950
Average Profit
Year : River : Canal
1995 : 352,500 : 275,000
1996 : 440,000 : 320,000
1997 : 445,000 : 342,500
: 1,237,500 : 937,500
Divide By 3 We get:- 412,500 : 312,500
Requirement 2. Return on capital Rate 10%
: River : Canal
Total assets : 3,500,000 : 4,500,000
Less: Liability : (1,000,000) : (2,750,000)
: 2,500,000 : 1,750,000
Return rate 2,500,000X10/100 : 1,750,000X10/100
Std Profit : 250,000 : 175,000
Requirement 3. Goodwill Calculation
2.5 times of average profit after deducting the Std profit of C. employed
: River : Canal
Std profit : 412,500 : 312,500
Less : 250,000 : 175,000
: 162,500 : 137,500

Multiply By : 2.5 : 2.5
Goodwill : 406,250 : 343,750
Calculation of P.C River Canal
Goodwill : 406,250 : 343,750
Fixed Assets : 2,250,000 : 1,450,000
Current assets : 1,250,000 : 3,050,000
Total Assets : 3,906,250 : 4,843,750
(-) Liability : 1,000,000 : 2,750,000
Net assets : 2,906,250 : 2,093,750
Per share value : 12.5 : 12.5
No of shares to be issued 232,500 : 167,500
BALANCE SHEET
Share Capital
(500,000X10)
5,000,000 Goodwill (406,250 + 343,750) 750,000
Share premium
(500,000X2.5)
1,250,000 Current Assets 4,300,000
Creditors (1,000,000
+2,750,000)
366,950 Fixed assets 3,700,000
Bank (100,000 X 12.5) 1,250,000
Total 10,000,000 Total 10,000,000
INTER-COMPANY INVESTMENT
Q.No 30 SOLUTION:-
1. Realization A/C
To Sundry assets
340,000
340,000
2. Sundry creditors
To Realization A/C
140,000
140,000
3. XY Ltd
To Realization
60,000
60,000
4. Equity shares in XY Ltd
To XY Ltd
60,000
60,000
5. Share capital
To Shareholders
200,000
200,000
6. Shareholders
To Realization
140,000
140,000
7. Shareholders A/C
To Shares in XY Ltd
60,000
60,000

Journal entries in the book of X Ltd.
1. Realization A/C
To Sundry assets
500,000
500,000
2. Sundry creditors
Debentures
To Realization A/C
150,000
100,000
250,000
3. XY Ltd
To Realization
50,000
50,000
4. Equity shares in XY Ltd
To XY Ltd
50,000
50,000
5. Share capital
Profit & loss A/C
To Shareholders
400,000
50,000
450,000
6. Shareholders
To Realization
200,000
200,000
7. Shares in XY Ltd
Shareholders A/C
To Investment in Y Ltd
45,000
155,000
200,000
8. Sundry Shareholders
To Shares in XY Ltd
95,000
95,000
Journal entries in the book of XY Ltd.
To Liquidation of X Ltd
To Liquidation of Y Ltd
340,000
50,000
60,000
2. Sundry assets
To 15% debentures
To creditor
500,000
100,000
290,000
110,000
3. Liquidation of XY
To Share capital
110,000
110,000
Calculation of P.C X Ltd Y Ltd
Assets taken over 300,000 : 200,000
Less Liability
15% Debentures 100,000 : --------
Creditors 150,000 : 140,000
P.C 50,000 : 60,000
REALIZATION ACCOUNT
Assets 340,000 Creditors 140,000
XY Ltd 60,000
Loss 140,000
Total 340,000 Total 340,000
SHAREHOLDERS ACCOUNT

Assets 140,000 Capital 200,000
Share 60,000
Total 200,000 Total 200,000
OPENING BALANCE SHEET XY
Liability Amount(Rs) Assets Amount(Rs)
Share capital 110,000 Sundry Assets 500,000
Debentures 290,000
Creditors 100,000
Total 500,000 Total 500,000
Q.No 31 SOLUTION:-
Cash 1,000,000/10 = 100,000
100,000 X 20 M.R = 2,000,000
2,000,000 / 25 = 80,000
Less Already in hand = 15,000
New shares to be issue = 65,000
Purchase consideration(65000X25) = 1,625,000
In the book of Summit
REALIZATION ACCOUNT
Sundry Assets 1,000,000 Debentures 1,000,000
Stock 700,000 P. Tax 200,000
Debtor 1,450,000 Other liabilities 800,000
Cash 50,000 Apex Ltd P.C 1,625,000
Profit 425,000
Total 3,625,000 Total 3,625,000
INVESTMENT IN SHARES OF APEX
To balance 300,000 By shareholders 2,000,000

Apex Ltd P.C 1,625,000
Shareholders 75,000
Total 2,000,000 Total 2,000,000
SHAREHOLDERS ACCOUNT
To Share in Apex Ltd 2,000,000 By capital 1,000,000
Reserve 500,000
Profit(R.A) 425,000
Profit(investment) 75,000
Total 2,000,000 Total 2,000,000
Journal entries in the book of Summit.
1. Realization A/C
To Sundry assets
3,200,000
3,200,000
2. Debentures
P. Tax
Other liability
To Realization A/C
1,00,000
200,000
800,000
2,000,000
3. Apex Ltd
To Realization
1,625,000
1,625,000
4. Equity shares in Apex Ltd
To Apex Ltd
1,625,000
1,625,000
5. Realization A/C
To Shareholders
425,000
425,000
6. Shares in Apex
To Investment
To realization
375,000
300,000
75,000
7. Shareholders A/C
To Shares in Apex Ltd
2,000,000
2,000,000
Journal entries in the book of Apex Ltd.
To Liquidation of summit
1,625,000
1,625,000
2. Goodwill
Fixed assets
Stock
Debtor
Cash
To Debenture
To provision for tax
To Other liabilities
475,000
1,000,000
700,000
1,450,000
50,000
1,050,000
200,000
800,000
1,625,000
3. Liquidation of summit
To Share capital
To Share premium
1,625,000
650,000
975,000

Chp 15. amalgamation

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