Accounting Entries in the Books of the Transferor Company ‘To close the books of account of the transferor company, the following steps are followed : Step 1: Prepare the Balance Sheet of the company on the date of liquidation. Step 2: Open a Realisation Account and transfer all assets and liabilities (excluding fictitious assets) to this account. ‘Stop 3: Calculate purchase consideration on the basis of terms and conditions agreed upon. Step 4: Credit Realisation Account by purchase consideration. Step 5: Calculate profit or loss on realisation. ‘Step 6: Transfer share capital, reserve and surplus to Sundry Shareholders Account. Step 7: Transfer profiv/ioss on realisation to Sundry Shareholders Account. Step 8: Receiving of purchase consideration in the form of shares/debentures in the transferee company. Step 9: Payment to preference shareholders. ‘Step 10: Distribution of sharesdebentures of transferee company among existing shareholders. Journal 1. For transferring different assets to Realisation Account Realisation Account Dr. To Sundry Assets Account Undividually, at book value} Points to remember (a) For this purpose agreed valuations are absolutely immaterial. (®) Fictitious dssets, such as preliminary expenses, discount on issue of shares and debentures, debit balance of Profit and Loss Account, etc, are not transferred to Realisation Account. (©) Goodwill, Patents and Trademark etc., are also transferred to Realisation Account. 2. For transferring different liabilities to Realisation Account Liabilities Account Dr. Individually, at book value} To Realisation Account Points to remember (a) Hems in the nature of ‘Provisions’ are 10 be transferred to Realisation Account only €.8 Provident Fund; Provision for Taxation; Pension Fund; Provision for Bad Debts; Provision for Depreciation, etc. (b) Items in the nature of ‘Reserves’ are not to be transferred to Realisation Account. These aretransferred to Sundry Shareholders Account. Examples are : Dividend Equalisation Fund; Profit and Loss Account Credit Balance; Workmen Compensation Fund, etc. 3. For ransering Equity Share Capital, Reserve and Surplus, tc. Equity Share Capital Account General Reserve Account be Profit and Loss Account Dr. ‘To Sundry Shareholders Account ‘Note: Profit and Loss Account debit balance, discount on issue of shares and debentures, etc. are transferred to Sundry Shareholders Account by debiting Sundry Shareholders Account and crediting Profit and Loss, ‘Account, Discount on Issue of Shares Accoumt, etc. 4. Like Equity Share Capital, Preference Share Capital is closed by transferring to Preference ‘Shareholders Account. The entty for this will be : Preference Share Capital Account Dr. To Preference Shareholders Account Note : If the preference shareholders are paid more or less than the amount due to them as per Balance Sheet, the difference is transferred to Realisation Account. 5. For purchase consideration due from transferee company Transferee Company Account Dr. [Purchase consideration} To Realisation Account 6. On receiving purchase consideration from the transferee company Equity Shares in Transferee Company Account Dr. Preference Shares in Transferee Company Account Dr. Debentures in Transferee Company Account Dr. To Transferee Company Account 7. Entries for liquidation expenses are passed as follows: (If the liquidation expenses are borne by the transferor company To Bank Account (ii) Ifthe liquidation expenses are borne by the transferee company [No Entry] 8. For payment to preference shareholders Preference Shareholders Account Dr. To Preference Shares in Transferee Company Account ‘To Bank Account (If any) 9. For loss on realisation Sundry Shareholders Account Dr. ‘To Realisation Account 10. For profit on realisation Realisation Account Dr. “To Sundry Shareholders Account 11. For final payment to Equity Shareholders Sundry Shareholders Account Dr. ‘To Equity Shares in Transferee Company Account ‘To Bank Account (If any) "Note : After payment to equity shareholders, all accounts in the books of the transferor company will be closed.‘Mustration 4 ‘The following are the Balance Sheets as on 31st December, 2004 of X Lid. and Y Lid. Tans xd [Yun 75s Xba] be cs Bs Bs Fs ‘Eqay Share Copal Rs 100 par Share) | 7,00 000] 6,000 | Land and Bulngs ‘30,00 = 8% Debenes of Rs 10 each ‘20000 = | Pant and Machinery 1.401000 | $000 Reserve 34000 = | Stoce ‘000 ) “000 Ovidend Equasatn Fund ‘$000 = | Dotto 14000) 9.000 Employees PF. 3000 = |casn 3000/ 1,000, Trade Crees 00 | 000 | Prot and Loss Ne 2.000| = ‘73000 | 62000] “7a000 | 600 In January, 2005, the two companies agree to amalgamate and form a new company called Z Lid. which takes over the sets and liabilities of both the companies. The authorised Capital ofZ Lid. is Rs 10,00,000, consisting of 1,00,000 Equity Shares of Rs 10 each. ‘The purchase consideration is agreed at Rs 1,20,000 and Rs 60,000 for X Ltd and Y Lid respectively. ‘The entire ‘purchase consideration is io be paid by Z Ld. in is fully paid shares. In return for debentures in X Lid. debentures of the ‘sume amount and denomination are to be issued by Z Li. ‘Give Joumal Entries o close the books of X Lid. and Y Lid. and show the Opening entries in the books of Z: Lid. Also ‘prepare the opening Balance Sheet of Z Lid. Solution In the books of X Ltd. Journal, Fealsaton We Be "To Lan an Bulogs Ae ‘To Panter Ne joke To Dettos Ae ‘ToGash Ne (Being be waste of erent asst to RealsatonAczont as por he Scho! enaigaraon) ‘5% Debentures AE rey Rt & ggg Bs 8 1.00.00 34.000 4000 2000 “To Suny Equly Shareoksrs Ae 1.40000 {Bei the rans of Stare Capa, Reserve and Supls to Sharcholders Accu) Zid Ne “To Reaisaion Ac 1.20000 (Going the purchase consideration due tom 2 Lid) ‘Srey Eqaly Sareolders Ac 0 20000 ToRealsaon Nc (Nolet) 20000 {ong te lss on realisation rans o Suny Equy Shareoiers Account ‘Sharesin 20 AE oe 120000 ToZUud. Ne 1.20000 {Being pachase considraton received fom 2 Lid) ‘Sarey Eqaty Sereciders Ae 120000 ‘To Shares in 2 Ltt Ae | 1.20000 {Geng to dbo of Shares in Z. Lt. among he oxsng Sharehoders) f = veeq s| 8 3In the books of ¥ Ltd. Journal g Paras TF giao fe ealaion We m ‘To Plan and Machinery Ae sa To Scr Ae 4 ToDetios Ae a ToCash Ne 1 8888 (Being te waster teren assets o Reason Account as pete Scho amalgamate) Fade Credios Ae O. 8.000 “To Resin Ale a (Geng te rans of Trade Cretors to Reston Account as ere Scho amagarton) uty Share Captal Ne O 60.000 “To Sundry Eguy Sarchalders Ne | Cy (Being te vane of Share Capital fo Sharohdes Account) ZENE. Be 60.000 To Reason Ae e000 ing te picasa consideration dve tom Z. Ltd) Shares in Z Ud. We Or 60,000! To Ud. Ne 0m (Geng te purchase conseraton rected) ‘Sindy Eat Sarboldes AC Be 60.00 ‘To Starsin. Lu. Ne coon (Being he istrbtenof Shares in Z. Lis. ang the eising Shareholders) a In the books of Z Ltd. Journal Dr cr. ay Business Purchase Ne To Ligue of Xd Ae 120.000 To Lutter of ¥ Lid Ae ‘0.000 (Geing te aunt payable to te ators of X id and Lid as pe agement ac Land and Butings We Plant and Machinery Ale Steck Ae Debiors Ne ‘4000 ash Ae To. Debentures nx Lid Ae 20000 To Trade Gets Ae 0000 To Employes PF Ne 3.000 ‘To Reser Ae [Se Tutoal Not] 1400 g| 3 reeeg 8‘ToProft and Loss Ate 2.000 ‘To Dvidend Equation Fund Ae 4000 To Busness Puchase Ac 120000 (Going fe aso bites, seve, Proft and Loss Account akon over adhe tlererce between he ano rcored as share capt isi and share captal of X Lid adie sgarstresene)) i 3 eee9 88 “To Trade Castors Ne 000 To Busnes Pucase Ac 60.000 i ; i “To 6% Debentures Me 2000 ‘Tutorial Nate 1 shouldbe noted that reserve, dividend equalisation fund, Profit and Loss Account willbe cari forward inthe books of ZL However, the difference between the amount recorded as share capital and the share capil of X Lid will be adjusted agains he Reserve. The amount to be adjusted hasbeen calculated as follows Pansies a ‘Krcunt recorded as Share Capi 1000 Less: Share Capt ox Ls ‘00000 ‘Amount tobe adjusted in Reserve 22000 ere of XU. [sor Les: Anbu be aust as cated above) 200 Bales of Reserve tebe showin Balance Sheet of Zid 14.000 Balance Sheet of Z Ltd. as on 1st January, 2005 Tobie cy oy fe “hare Cala Fie Raves ‘Auhosed Catal: Lard ard Baling mon 1.00000 Eauy Shares cfs 10 each 1.90.90 | Pant and Wachinony 1.60000 ‘issue anc Sutsorted Captal F tovestnens Ni "14000 Equty Shaves A 10 each 18,000 | Cure Assets, Loane and Advances (Alte above cmos nave been aloted 2s A) Curent assets ‘ly pap pursuant a contac wero. Soa 400 payrert bang recound nea) Debio 200 serve and ‘cash ‘so Roser 14,00 | Miscetaneous Expenctre Ni Pott and Less Account 2.000] een Equateaton Fund 4000} Secured Loans 8, Dobetros 000 ‘Unsecured Loane Na (Ciro! Linbties ane Provione 1K Guneet Libis Trade Credo 14,000 8 Proveons Enpioyees PF. seo 21.00 aioWorking Notes : or. “The summarised Balance Sheets of A Lid and B Las at Ist January, 2005 are as under Toure ‘goco| 8000] By Tad Cedtr Ac co ToDeoers Ae 4am] Sapo ZUNE 1000 Toes Ae 00] 1.00] By Sy Sheets A an ‘racto| ooo i eon Mustration 5 Tales Aud | Bue 7 a Fs As Bs Tay Samar ea 720060 [ae ae Bags 72000 uty Stas oP 10 each =| 19n000 | Steck 15.00 sere eco} 53000 | Daboss yo00} 25000 Prat ar Loss Account 1o,cco] 23,000 | Casa and Bark samo| 2300 Cress moo} 1090 zanqo | 1B0000 2zno00 | 180000 The aove wo companies ape oumalgunae and fora ew company AB Lid ce flowing condone ‘AB Ld will take over all the assets and liabilities of A Lid and B Lid. 2 Threat purcowr cmideraten willbe ssf byte sue of 2,60 cauity sues of Rs 10 cah of AB i 3. Forthe purpose of amalgamation, the value of each equity share is agreed at Rs 25 and Rs 12.50 for A Lid and, B Lid respectively. 4, The creditors are to be paid off by AB Lid. You are required to (@_ Pass journal entries to close the books of A Lid and B Lid; (il) Pass journal entries inthe books of AB Ld: and. (ii Prepare the Balance Sheet of AB Lid; ‘Solution ‘Tiss an analganaion nthe nar of merger because: (@ ABU wltae ove al te asus a abies ALi and BL (Tro oro purcrase considera wl be sus by sve of equity stares. ‘Allocation of Purchase Consideration Number of shares: Lid 8000s .20.000/ 15) B Li 10.000 (100.0007 10) Matt van of share: ALtd— 8000 Re 25 «Re 2.0.00. BLid— 10000. Rs 1250= Rs 125,000. ‘Tho tota purchase concerto 28,600 Re 10 Rs 2.5006, is 26,00 wilbe sharedby A and Bin rao of 200.000: 1.25, 00085. Thorlo, Li wil gt: RS 2,386,000 B13 =P 1,76,000. BL wl got: 2.95000 8/9. Re 1.10000, In the books of A Lid. Journal Dr. = 2505 | Reals We 220,06 | sant To Land and Bultogs Nec 140000 ‘To ScckNe ‘30000 ‘To Dabs Ac “aco ‘To Cash and Bank At 40.0 (Being te tater of cierence assets to Reelsaton Accont sper he scheme anaiamater) Cede Ne see | "To Roleaion Ae saeco (Being to tant of cert ReteatonAocoun)Eqaiy fae Capel Ae & 1.25000 Fesowe Ne o ‘om Proftand Lass At o ‘0,00 | To Sundry Eauty Startoters Ne 1190 0c0 (Being te tanto Share Capa, Roser and Pref nd Loce Account nar o Suny Sharholors Alex) ABTS. ® 175000 To Realsaton At 176900 (Boing fe purchase censraton de For AB Ld) 14000 To Realsaton Nb Not 1) 14900 (Bong eon nao ered Suny Et Sharer ost ‘Sharsin ABLGNe 176000 ToABLIOAe 176.00 (Being te puch ceriderton eid om AB Lt) ‘Sond Equty Sarco Ae 178, o's na aA | 00 (Being te dstibton of shares in ABLdanog th existing shares) In the books of B Lid. Journal Dror. Dat Part TE] 7s a La 10000 ant To Land an Bukngs Ale To Seok Ne To Dobos Ae To Cash ard Bark Ac (Boing he Farseref cron asotso Renton Aczuntas por he een of analgaraton) Giese & 10900 To Raleaton Ne 19,900 (Gong ta rarer cars to Realsaton Accum) aay Shar Capa A or 100000 Resowe Ne o 0000 Prof and Loss Ae. ot 00 To Soy Ey Sharer Ne 1.70000 {Being he ane of Share Capital, Rose and Prot and Loss Aesrnt alacef Soeky Shaves Accout) ABLE, or 1.10000] ‘oRakeston Ne 1.46000 (Beng he pucnaseconsceraien due hom AB Li) Suny Eauty Sarehoges Ae oe e000 ToRealston Ae (ol 1) ox,000 {Being es on alton Vast Suncy Equty Strohl ACO) ‘Shares nABTERC Be 1.10000 ToABLdAC 1.30000 (Being the purchase consideration recived rom AB Lif) ‘Sundiy Equy Sharh Ne Be 4,100 ToS i AB Ud NE 110.0 {Being the detrton of hares in AB Lid anor the siding sheroblder) In the books of AB Ltd. Journal Dr cr. aie Paiaaas Th] fe Rs 205 | Buanes Purchase We B 176,00) sant To Unite of ALG Ne 176.000 (Being the erourt poate oA Li sper eerie ced...) {and end Bangs Me 0: 1.40.00 Stoel oy ‘0,00Detions Ne be 10.000 Cash and Bank Ac Dr 000 To Reserve [As 60,000 (Rs 1.76000 ~ 120.00) 4.00 To Prof and Loss We 10,000 To Gredtors Ne 00 To Business Purchase Ne 1.76000 (Being he ctferent assets andliabiestacen over an te diference between share capital 'ssued and he amount of share capital ot A Lid, adjusted agains! reserves) Ugadatoro Aid Ne O. 176,000 To Equiy Share Capita Ale 1,75,000 (Being fe isur of shares agar purchase consideration) Business Puchase Ac Or 1.10,000 To Luar of 8 Lid le 1.10,000 [Being he amount payableto 8 Li as per agreement dated {and and Buldngs Ale De Stock Ae Or. Detiors Ac Oe (Cash and Bank Ne De To Reserve Ales $0,000 (Rs 1, 10,000 ~ 1.00000) 40.000 To Prof and Lass Ne 2.000 To Credtors Ne ‘0,000 To Busness Purchase Nc 1.40}000 [Boing ho siferont aseotsandliabitiestakon over ard the dleronce botwoen share cata 'ssusd andthe share capital ofB Ld, aust agains reserves) Tigidaior of B Ld Ne Oe 1,10,000 To Equiy Share Capita Ale 4.10,000 [Being fe issue of shares aganst purchase consideration) Creditors Ac (Rs 9,000 + 10,000) Or 0,000 To Cash and Bank AC 40,000 [Boing he cedtrs paid of) Balance Sheet of AB Ltd. as on st January, 2005 Tanita 1s Share Copal Fied beanie ‘Ashrsed Capt: . Land ane Buliag (140,000 + Rs 1.20000) 260000 «= Equty Shae oR. oa Invests Mt |ssuad and Subscribe Capt (Curent Assets, Loane ané Advances 2.00 Equty Shares oF 10 each (4) Curent Asses: (Alte above stares ar alotedas Shock (Rs 30,000 +R 15,00) 50m fly paid up pursuant oa contract itn Detirs Fs 10.00 + Rs 25.000) son payment being recevedin cast) (Casi and Bank (Rs 4,00 + Rs 20.000 - Rs 40,000) 00 Resere and Suu Miscetaneous Expenditure Nt Reser (Ri 4.00 +i 400) Prelit an Loss Account (Fi 1.000 + Re 20000) Secured Loans Unsecured Lene Current Liable and Provslens sa0% Working Notes : Dr (1) Realisation Account cr. Bue fs 10.000 1.40000 ‘oom 160.008