Study Material of Corporate Reporting Practice and AS

Corporate Reporting Practices and AS IV Sem M.
Com
Module 1
Evolution and Convergence of International Financial Reporting
ACCOUNTING STANDARDS
According to ICAI (Institute of Chartered Accountants of India), Accounting Standards are

“written documents, policies, and procedures issued by expert accounting body or government or
other regulatory body covering the aspects of recognition, measurement, treatment, presentation
and disclosure of accounting transactions in the financial statement”.
OBJECTIVES OF ACCOUNTING STANDARDS:
1. Standardize the diverse accounting policies.

2. To eliminate to the extent possible the non comparability of financial statements.
3. It adds the reliability to the financial statements.
4. It increases the arithmetic accuracy of financial statements.
5. Accounting standards helps to understand accounting treatment in financial statement.
GAAP (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES)
GAAP (Generally Accepted Accounting Principles) is a general terms for a set of financial
accounting standards and reporting guidelines used to prepare accounting in a given
environment. Examples UK GAAP in London, US GAAP in America.
INTERNATIONAL ACCOUNTING STANDARD BOARD
International Accounting Standards Board (IASB) was formed to take over the work of the
International Accounting Standard Committee (IASC) in April 2001. The IASC had complete
autonomy in the setting of international accounting Standards and in the issue of discussion
documents on international accounting issues from 1981.
OBJECTIVIES OF INTERNATIONAL ACCOUNTING STANDARD BOARD
 To develop, in the public interest, a single set of high quality, understandable and enforceable
global accounting standards.
 To provide transparent and comparable information in financial statements.
 To promote the use of rigorous application of those standards.
 To work actively with national standard-setters.
 To achieve convergence of national accounting standards and IFRS to provide high quality
solutions.
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Dr.Nidhi Goel Department of Management
Corporate Reporting Practices and AS IV Sem M.Com
HISTORICAL BACKGROUND OF IFRS
In 1973, an organization known as the International Accounting Standards Committee (IASC)

was formed to address the need for standards that could be used by smaller nations in creating
their own accounting standards. This group was succeeded by the International Accounting
Standards Board (IASB) in 2001.
In March 2001 the IASC foundation was formed as a not-for-Profit corporation incorporated in
the USA. The IASC Foundation is the Parent entity of the IASB. In July 2010 it changed its
name to the IFRS foundation.
From April 2001 the IASB assumed accounting Standard Setting responsibilities from its
predecessor body, the International Accounting Standards Committee (IASC).
IASB Consists of 14 members from nine Countries and have a variety of backgrounds with a mix
of auditors prepares of financial statements, users of financial statements and an academics.
IFRS FOUNDATION
The IFRS Foundation is made up of 22 Trustees, who essentially monitor and fund the IASB, the
IFRS Advisory Council and the IFRS Interpretations Committee. The Trustees are appointed
from a variety of geographic and functional backgrounds according to the following procedure:
 The international Federation of Accountants suggests candidates to fill five of the Trustee
seats and International organizations of prepares, users and academics each suggested one
candidate.
 The remaining Trustees are ‘at large’ in that they were not selected through the
constituency nomination process.
IFRS ADVISORY COUNCIL
The IFRS Advisory Council acts as an adviser to the International Accounting Standard Board
and its Trustees. It comprises of 50 members and meets at least three times a year. It is consulted
by the IASB on all major projects and its meeting is open to the public. It advises the IASB on
the prioritization of its work and on the implication of proposed standards for uses and prepares
of financial Statements.
IFRS INTERPRETATION COMMITTEE
The forerunner of the IFRIC, the Standing Interpretations Committee (SIC) was founded in April
1997 with the objective of developing conceptually sound and practicable interpretations of IFRS
to be applied on a global basis:
 For newly identified financial reporting issues not specifically addressed in IFRSs
 Where unsatisfactory, conflicting, divergent or other unacceptable interpretations have
developed, or seem likely to develop in the absence of authoritative guidance.
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ORGANISATION STRUCTURE OF IFRS
Monitoring Board
Approve and oversee
Trustees
IASC Foundation (22

Trustees)
Standard Advisory Council Board International financial reporting

Interpretations committee (IFRIC)
(SAC) (16 Members)
Working groups for major

agenda projects
MEANING OF IFRS:
International financial reporting standards (IFRS) refers to a set of generally accepted accounting
principles (GAAP) used by companies to prepare financial statements, a critical sources of
information published annually at a minimum and useful to various stakeholders in
understanding a company’s financial performance and management’s stewardship of the
company’s resources.
In other words International financial reporting standards (IFRS) are a set of Accounting
standard developed by the international accounting standard board (IASB) which helps in
becoming the global standard for the preparation of public company financial statements.
FEATURES OF IFRS
1. Faithfull representation: It is basic feature of IFRS. The financial statement is prepared

under IFRS system is complete and free from Bias.
2. Comparability: The second basic feature of IFRS is Comparability. It will help to compare
financial statement form one period to the next or for two companies in the same industry so
that we can make a informed decision about the companies.
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3. Accrual Basis of Accounting: An entity shall recognize its items such as Assets, liabilities,
Equity, Income and Expenses when they satisfy the Recognition criteria which are in the
frame work of IFRS.
4. Materiality and Aggregation: Every material class of similar item has to be presented
separately. Items that are dissimilar in nature or function shall be presented separately unless
they are immaterial.
5. Verifiability: Verifiability helps the users that the information is faithfully presented
according to the economic phenomenon. It means that different knowledgeable and
independent observers could reach the consensus that a particular depiction provides a
faithful representation.
6. Timeliness: It means having information available to Decision makers in time to be capable

of influencing their decisions. This is based on the conceptual framework of IFRS and hence
it helps the users of IFRS to take a relevant decision.
7. Understand ability: Financial reports are prepared for users who have reasonable knowledge
of business and economic activities and who review and analyze the information diligently.
Some phenomenon is complex and cannot be made easy to understand. Excluding
information on those phenomenon’s might make their information easier who understand.
USERS OF IFRS
a) Investors: A financial report helps the investors to take decision about buying and selling of
shares, taking up a rights issue and voting. Investors can also know the level of dividend and
any changes in share price by going through financial reports. A financial report helps the
investors to know about liquidity and solvency position of the company and also the
company’s future prospects.
b) Employees: Financial reporting helps the employees to know about their security of
employment and future prospects for job in the company and help them with collective pay
bargaining.
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c) Lenders (Debenture holders and Creditors): They need information to decide whether to
lend to a company. They will also need to check that the value of any security remains
adequate, that the interest repayments are secured, that the cash is available to redemption at
the appropriate time and that any financial restrictions have not been breached.
d) Suppliers: Suppliers to need to known whether the company will be a good customer and
pay its debts.
e) Customers: They need to know the weather the company will be able to continue producing
and supplying goods.
f) Government: Government is specifically concerned with compliance with tax and company
law, ability to pay tax and general contribution of the company to the economy.
BENEFIT /ADVANTAGES OF IFRS:
a) Single Reporting: Convergence with IFRS eliminates multiple reporting such as Indian
GAAP, IFRS, US GAAP.
b) Increase Comparability: IFRS will give more comparability among sectors, countries and
companies. This will result in more transparent financial reporting of a company’s activities
which will benefit investors, customers and other key stakeholders in India and overseas.
c) Access to Global Capital Markets: Convergence with IFRS will enable Indian entities to
have easier access to global capital markets and eliminates barriers to cross-border listings. It
encourages international investing and thereby leads to more foreign capital flows to the
country.
d) Benefits for Investors: Financial statements prepared using a common set of accounting
standards help investors better understand investment opportunities as opposed to financial
statements prepared using a different set of national accounting standards.
e) IFRS balance sheet will be closer to economic value: Historical cost will be substituted by
fair values for several balance sheet items, which will enable a corporate to know its true
worth.
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f) Benefits to the accounting professional: Convergence to IFRS will increase the

opportunities for Indian professionals in abroad as they will be able to sell their services as
experts in different parts of the world.
g) Benefits for the Industry: Currently companies need to prepare additional financial
statements based on multiple reporting formats to arise capital in global market. Convergence
with IFRS will eliminate the requirement for dual set of financial statements and thereby
reduces the cost of raising funds by the companies.
h) Improvement in financial reporting: Better quality of financial reporting due to consistent

application of accounting principles and improvement in reliability of financial statements.
This, in turn, will lead to increased trust and reliance placed by investors, analysts and other
stakeholders in a company’s financial statements.
DISADVANTAGES OF IFRS:
a) Small companies that have no dealings outside the countries have no incentive to adopt IFRS
unless mandated.
b) There is an extremely high price-tag – “…the SEC estimates the costs for issuers of
transitioning to IFRS would be approximately $32 million per company and relate to the first
three years of filings on Form 10-K under IFRS. Total estimated costs for the approximately
110 issuers estimated to be eligible for early adoption would be approximately $3.5 billion”
(SEC, 2008).
c) Although it is unlikely, Commissioners have three years to change their minds. A definite
decision will not be made until 2011. There is no incentive for early adoption due to the fact
that it could be a colossal waste of time and resources. Also, companies would be required to
have two sets of records, one GAAP, one IFRS, during this time just in case IFRS is not
adopted.
d) Many feel that during this financial crisis that the world is currently experiencing, a
conversion of this magnitude is too much to ask of executives and management
e) A minimum of two years of financial information prior to conversion would need to be

maintained on two sets of books, both GAAP and IFRS, to meet the requirement of financial
statements to contain three years of financial data.
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PROCESS OF SETTING IFRS
Identification and review of associated issues and consideration of the application

of the frame work to the issues.
Study of National Accounting requirements and practices and an exchange of views

with national standards setters
Consultation with SAC about adding the topic to the IASB’s Agenda
Formation of an advisory (“ Working”) Group to advise IASB
Publishing a discussion document (paper i.e. DP) for Public comment.
Publishing an exposure draft (ED) for Public Comment
Consideration of all comments received within the comment period.
If considered desirable, holding a public hearing and conducting field-tests
Approval of a standard by at least Nine Votes of the IASB
PRACTICAL CHALLENGES IN IMPLEMENTATION OF IFRS
1. Change to regulatory environment: For the success of convergence in India, certain

regulatory amendment is required. For example, The Companies Act (Schedule VI)
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prescribes the format for presentation of financial statements for Indian companies, whereas
the presentation requirements are significantly different under IFRS. So, the companies act
needs to be amended in line with IFRS.
2. Lack of Preparedness: Adoption of IFRS by approximately 5000 listed companies by 2011

would result in a significant demand for IFRS resources. Corporate India and accounting
professionals need to be trained for effective migration to IFRS. Additionally auditors would
need to train their staff to audit under IFRS environment.
3. Educating Stakeholders: Educating Stakeholders comprising of investors, lenders,

employees, auditors, audit committee and etc would be a big challenge as this would require
a considerable time and effort.
4. Significant cost: Significant one-time costs of converting to IFRS (including costs of

internal personnel time, adapting IT systems, implementing revised reporting policies and
processes, training personnel and educating investors, analysts and members of the board).
5. Complexity in the financial reporting process: Under IFRS, companies would need to
increasingly use fair value measures in the preparation of financial statements. Companies,
auditors, users and regulators would need to get familiar with fair value measurement
techniques.
6. Impact on financial performance: Due to the significant differences between Indian GAAP
and IFRS, adoption of IFRS is likely to have a significant impact on the financial position
and financial performance of most Indian companies.
7. Communication of Impact of IFRS to investors: Companies also need to communicate the

impact of IFRS convergence to their investors to ensure they understand the shift from Indian
GAAP to IFRS.
8. Conceptual differences: For example, the Indian standard on intangibles is based on the
concept that all intangible assets have a definite life, which cannot generally exceed 10 years;
while IFRS acknowledge that certain intangible assets may have indefinite lives and useful
lives in excess of 10 years are not unusual.
9. Legal and regulatory considerations: In some cases, the legal and regulatory accounting
requirements in India differ from the IFRS. In India, Companies Act of 1956, Banking
Regulation Act of 1949, IRDA regulations and SEBI guidelines prescribe detailed formats
for financial statements to be followed by respective enterprises in their financial reporting.
In such cases, strict adherence to IFRS in India would result in various legal problems.
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10. Training to Preparers: Some IFRS are complex. There is lack of adequate skills amongst
the preparers and users of Financial Statements to apply IFRS. Proper implementation of
such IFRS requires extensive education of preparers.
THEORETICAL STUDY ON INTERNATIONAL FINANCIAL REPORTING

STANDARDS (IFRS)
IFRS – 1: FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING

STANDARDS
Scope:
 IFRS 1 does not apply to entities already reporting under IFRSs
 IFRS 1 applies to the first set of financial statements that contain an explicit and
unreserved statement of compliance with IFRSs
 IFRS 1 applies to any interim financial statements for a period covered by those first
financial statements that are prepared under IFRSs.
Effective Date:
IFRS 1 (2008) issued on November 2008, replaced IFRS 1 (2003). IFRS 1 (2008) is effective for
first IFRS financial statements for periods beginning on or after 1 July 2009.
Objectives:
 To prescribe the procedures when an entity adopts IFRSs for the first time as the basis for
preparing its general purpose financial statements.
Opening Ifrs Statement Of Financial Position
 An opening IFRS Statement of Financial Position is prepared at the date of transition.

 All IFRSs are applied consistently across all reporting periods in the entity’s first set of
IFRS compliant financial statements (i.e. both the comparatives and the current reporting
period)
 If a standard is not yet mandatory but permits early application, an entity is permitted, but
not required, to apply that Standard in its first IFRS set of financial statements.
IFRS 2 SHARE-BASED PAYMENT

Scope
IFRS 2 applies to all share-based payment transactions, which are defined as follows:
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 Equity-settled, in which the entity receives goods or services as consideration for equity
instruments of the entity (including shares or share options)
 Cash-settled, in which the entity receives goods or services by incurring a liability to the
supplier that is based on the price (or value) of the entity’s shares or other equity instruments
of the entity
Effective date
Annual periods beginning on or after 1 January 2005
Objectives
To prescribe the accounting for transactions which an entity receives or acquires goods or
services either as consideration for its equity instruments or by incurring liabilities for amounts
based on the price of the entity’s shares or other equity instruments of the entity.
Measurement
Share Based Payments can be measured in three forms:
 Equity Settled.
 Cash Settled.
 Combination of both Equity and cash.
IFRS 3 BUSINESS COMBINATIONS

Scope
A business combination is: Transaction or event in which acquirer obtains control over a
business (e.g. acquisition of shares or net assets, legal mergers, reverse acquisitions).
Effective date
IFRS 3 (2008) issued on January 2008, replacing IFRS 3 (2003).
IFRS 4 INSURANCE CONTRACTS

Scope
The standard applies to:
 Insurance contracts that an entity issues and reinsurance contracts that it holds
 Financial instruments that an entity issues with a discretionary participation feature.
Effective Date
 Annual periods beginning on or after 1 January 2005.
Objective
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To prescribe the financial reporting for insurance contracts until the IASB completes the second
phase of its project on insurance contracts.
IFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED

OPERATIONS
Scope
Applies to all recognized non-current assets and disposal groups of an entity that are:
 Held for sale; or

 Held for distribution to owners.
 Assets classified as non-current in accordance with IAS 1 Presentation of Financial
Statements shall not be reclassified as current assets until they meet the criteria of IFRS 5
Effective date
 Annual Periods beginning on or after 1 January 2005
Objectives
To prescribe the accounting for non-current assets held for sale and the presentation and
disclosure of discontinued operations.
Measurement
 Immediately prior to classification as held for sale, carrying amount of the asset is measured
in accordance with applicable IFRSs
 After classification, it is measured at the lower of carrying amount and fair value less costs to
sell. Assets covered under certain other IFRSs are scoped out of measurement requirements
of IFRS 5 – see above
 Impairment must be considered at the time of classification as held for sale and subsequently
IFRS 6 EXPLORATIONS FOR AND EVALUATION OF MINERAL RESOURCES

Scope
 An entity applies IFRS 6 to exploration and evaluation expenditures that it incurs

 An entity does not apply IFRS 6 to expenditures incurred:
 Before the exploration for and evaluation of mineral resources, such as expenditures
incurred before the entity has obtained the legal rights to explore a specific area
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 After the technical feasibility and commercial viability of extracting a mineral resource
are demonstrable.
Effective date
Objectives
To prescribe the financial reporting for the exploration for and evaluation of mineral resources
until the IASB completes a comprehensive project in this area.
IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES

Scope
 IFRS 7 applies to all recognised and unrecognised financial instruments (including contracts
to buy or sell non-financial assets) except:
 Interests in subsidiaries, associates or joint ventures, where IAS 27/28 or IFRS 10/11 permit
accounting in accordance with IAS 39/IFRS 9
 Assets and liabilities resulting from IAS 19
 Insurance contracts in accordance with IFRS 4 (excluding embedded derivatives in these
contracts if IAS 39/IFRS 9 require separate accounting)
Effective date
 Annual periods beginning on or after 1 January 2007
Objective
To prescribe disclosure that enable financial statement users to evaluate the significance of
financial instruments to evaluate the significance of financial instruments to an entity, the nature
and extent of their risks, and how the entity manages those risks.
IFRS 8 OPERATING SEGMENTS

Scope
IFRS 8 applies to the annual and interim financial statements of an entity. It applies to the
separate or individual financial statements of an entity and to the consolidated financial
statements of a group with a parent:
Effective date
Objectives
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An entity shall disclose information to enable users of its financial statements to evaluate the
nature and financial effects of the business activities in which it engages and the economic
environments in which it operates.
IFRS 9 FINANCIAL INSTRUMENTS

THE DIFFERENT VERSION OF IFRS – 9
IFRS 9 has been completed in stages, with the IASB’S phased approach reflected in a number of
versions of the standard being issued since 2009. Previous versions of IFRS 9 will be superseded
by the version issued in July 2014 at its effective date of 1 January 2018.
Scope
IFRS 9 carries forward the scope of IAS 39, and adds:
 An option to include certain contracts that would otherwise be subject to the ‘own use’.
 Certain loan commitments and contract assets in respect of the impairment requirements.
Effective date
 IFRS 9 financial instruments issued in July 2014 is the IASB’s replacement of IAS 39
financial instruments
Objective
 IFRS’s 9 sets out requirements for recognition and measurement, impairment,

Derecognition and general hedge accounting.
IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS

Scope
A parent is required to present consolidated financial statements, except if:
 It meets all the following conditions:

 It is a subsidiary of another entity and all its other owners, including those not otherwise
entitled to vote, have been informed about, and do not object. to, the parent not presenting
consolidated financial statements.
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 Its debt or equity instruments are not traded in a public market.

 It did not, nor is in the process of filing, financial statements for the purpose of issuing
instruments to the public.
Effective Date
Objectives
To prescribe a single consolidation model for all entities base on control, irrespective of the
nature of the investee i.e. whether an entity is controlled through voting rights of investors or
through other contractual arrangements as is common is special purpose entities.
IFRS 11 JOINT ARRANGEMENTS

SCOPE
IFRS 11 applies to all parties subject to a joint arrangement. A joint arrangement (JA):
 Binds the parties by way of contractual agreement (does not have to be in writing, instead it
is based on the substance of the dealings between the parties).
 Gives two (or more) parties joint control.
Effective date
Objectives
To establish principles for financial reporting by entities that has an interest in joint arrangement.
IFRS 12 DISCLOSURE OF INTERESTS IN OTHER ENTITIES

Scope
Applied by entities those have an interest in: Subsidiaries; joint arrangements, associates; and
unconsolidated structured entities. IFRS 12 does not apply to:
 Post-employment benefit plans or other long-term employee benefit plans to which IAS
19 Employee Benefits applies
 Separate financial statements, where IAS 27 Separate Financial Statements applies
Effective date
Objective
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To require information to be disclosed in an entity’s financial statements that will enable users of
those statements to evaluate the nature of, and risks associated with the entity’s interests in other
entities as well as the effects of those interest on the entity’s financial position, financial
performance.
IFRS 13 FAIR VALUE MEASUREMENT

Effective date
Objective
To establish a definition of fair value, provide guidance on how to determine fair value and
prescribe the required disclosures about fair value measurements. However, IFRS 13 does not
stipulate which items should be measured or disclosed at fair value.
Objective
To establish a definition of fair value, provide guidance on how to determine fair value and
prescribe the required disclosures about fair value measurements. However, IFRS 13 does not
stipulate which items should be measured or disclosed at fair value.
IFRS 14 REGULATORY DEFERRAL ACCOUNTS

Effective date
 First annual IFRS financial statements beginning on or after 1 January 2016 with earlier
application permitted.
Objective
To specify the financial reporting requirements for regulatory deferral account balances that arise
when an entity provides goods or services to customer at a price or rate that is subject to rate
regulation.
IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS

SCOPE
Applies to all contracts with customers, except:
 Lease contracts (refer to IAS 17)
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 Insurance contracts (refer to IFRS 4)

 Financial instruments and other contractual rights or obligations (refer to IFRS 9/IAS 39,
IFRS 10, IFRS 11, IAS 27, and IAS 28)
 Certain non-monetary exchanges.
Effective date
Objective
To prescribe the accounting treatment for revenue arising from sales of goods and rendering
services to a customer.
Revenue that does not arise from a contract with a customer is not in the scope of this standard.
For example revenue arising from dividends, and donations received would be recognized in
accordance with other standards.
LIST OF INTERNATIONAL ACCOUNTING STANDARD ISSUED BY IASB

IAS 1 Presentation of Financial Statements.
IAS 2 Inventories
IAS 3 Consolidated Financial Statements Originally issued 1976, effective 1 Jan 1977.
Superseded in 1989 by IAS 27 and IAS 28
IAS 4 Depreciation Accounting Withdrawn in 1999, replaced by IAS 16, 22, and 38, all of
which were issued or revised in 1998
IAS 5 Information to Be Disclosed in Financial Statements Originally issued October 1976,
effective 1 January 1997. Superseded by IAS 1 in 1997
IAS 6 Accounting Responses to Changing Prices Superseded by IAS 15, which was
withdrawn December 2003
IAS 7 Cash Flow Statements
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
IAS 9 Accounting for Research and Development Activities – Superseded by IAS 38 effective
1.7.99
IAS 10 Events After the Balance Sheet Date
IAS 11 Construction Contracts
IAS 12 Income Taxes
IAS 13 Presentation of Current Assets and Current Liabilities – Superseded by IAS 1.
IAS 14 Segment Reporting (superseded by IFRS 8 on 1 January 2008)
IAS 15 Information Reflecting the Effects of Changing Prices – Withdrawn December 2003
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue
IAS 19 Employee Benefits
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
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IAS 21 The Effects of Changes in Foreign Exchange Rates

IAS 22 Business Combinations – Superseded by IFRS 3 effective 31 March 2004
IAS 23 Borrowing Costs
IAS 24 Related Party Disclosures
IAS 25 Accounting for Investments – Superseded by IAS 39 and IAS 40 effective 2001
IAS 26 Accounting and Reporting by Retirement Benefit Plans
IAS 27 Consolidated Financial Statements
IAS 28 Investments in Associates
IAS 29 Financial Reporting in Hyperinflationary Economies
IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions –
Superseded by IFRS 7 effective 2007
IAS 31 Interests in Joint Ventures
IAS 32 Financial Instruments: Presentation (Financial instruments disclosures are in IFRS 7
Financial Instruments: Disclosures, and no longer in IAS 32)
IAS 33 Earnings Per Share
IAS 34 Interim Financial Reporting
IAS 35 Discontinuing Operations – Superseded by IFRS 5 effective 2005
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition and Measurement
IAS 40 Investment Property
IAS 41 Agriculture
LIST OF INTERNATIONAL ACCOUNTING STANDARDS COMPARED WITH INDIAN

ACCOUNTING STANDARDS
Indian Accounting Standard IAS/IFRS

AS Name of Standard IAS/ IFRS Name of Standard
No. No.
1 Disclosures of Accounting Policies 1 Presentation of financial statements
2 Valuation of Inventories 2 Inventories
3 Cash Flow Statements 7 Statements of Cash Flows
4 Contingencies and Events Occurring 10 Events after the Reporting Period
after the Balance Sheet Date
5 Net Profit or Loss for the Period, 8 Accounting Policies, Changes in
Prior Period Items and Changes in Accounting Estimates and Errors
Accounting Policies
6 Depreciation No equivalent standard. Included in IAS

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7 Constructions Contracts 11 Constructions Contracts
9 Revenue Recognition 18 Revenue
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10 Accounting for Fixed Assets 16 Property, Plant and Equipment

11 The Effects of Changes in Foreign 21 The Effects of Changes in Foreign
Exchanges Rates Exchanges Rates
12 Accounting for Government Grants 20 Accounting for Government Grants and
Disclosure of Government Assistance
13 Accounting for Investments Mainly dealt with in IAS 39
14 Accounting for Amalgamations IFRS 3 Business Combinations
15 Employee Benefits 19 Employee Benefits
16 Borrowing Costs 23 Borrowings Costs
17 Segment Reporting IFRS 8 Operating Segments
18 Related Party Disclosures 24 Related Party Disclosures
19 Leases 17 Leases
20 Earnings Per Share 33 Earnings Per Share
21 Consolidated Financial Statements 27 Consolidated and Separate Financial
Statements
22 Accounting for Taxes for Income 12 Income Taxes
23 Accounting for Investment in 28 Investments in Associates
Associates in Consolidated Financial
Statements
24 Discontinuing Operations IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations
25 Interim Financial Reporting 34 Interim Financial Reporting
26 Intangible Assets 38 Intangible Assets
27 Financial Reporting of Interest in 31 Interest in Joint Ventures
Joint Ventures
28 Impairment of Assets 36 Impairment of Assets
29 Provisions, Contingent Liabilities and 37 Provisions, Contingent Liabilities and
Contingent Assets Contingent Assets
30 Financial Instruments: Recognition 32 Financial Instruments: Recognition and
and Measurement Measurement
LIST OF IND AS ISSUED BY MINISTRY OF CORPORATE AFFAIRS (MCA)
IND AS No DESCRIPTION
Indian Accounting Standard (Ind

First-time Adoption of Indian Accounting Standards
AS) 101

Share-based Payment
AS) 102
Indian Accounting Standard (Ind Business Combinations
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AS) 103

Insurance Contracts
AS) 104

Non-current Assets Held for Sale and Discontinued Operations
AS) 105

Exploration for and Evaluation of Mineral Resources
AS) 106

Financial Instruments: Disclosures
AS) 107

Operating Segments
AS) 108

Financial Instruments
AS) 109

Consolidated Financial Statements
AS) 110

Joint Arrangements
AS) 111

Disclosure of Interests in Other Entities
AS) 112

Fair Value Measurement
AS) 113

Regulatory Deferral Accounts
AS) 114

Revenue from Contracts with Customers
AS) 115

Presentation of Financial Statements
AS) 1

Inventories
AS) 2

Statement of Cash Flows
AS) 7
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Indian Accounting Standard

Accounting Policies, Changes in Accounting Estimates and Errors
(IndAS 8)

Events after the Reporting Period
AS) 10

Income Taxes
AS) 12

Property, Plant and Equipment
AS) 16

Leases
AS) 17

Employee Benefits
AS) 19
Indian Accounting Standard (Ind Accounting for Government Grants and Disclosure of Government
AS) 20 Assistance

The Effects of Changes in Foreign Exchange Rates
AS) 21

Borrowing Costs
AS) 23

Related Party Disclosures
AS) 24

Separate Financial Statements
AS) 27

Investments in Associates and Joint Ventures
AS) 28

Financial Reporting in Hyperinflationary Economies
AS) 29

Financial Instruments: Presentation
AS) 32

Earnings per Share
AS) 33

Interim Financial Reporting
AS) 34
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Impairment of Assets
AS) 36

Provisions, Contingent Liabilities and Contingent Assets
AS) 37

Intangible Assets
AS) 38

Investment Property
AS) 40

Agriculture
AS) 41
Module 2
Accounting and Reporting for Business Combinations (As per Ind AS)
Meaning of Amalgamation/Merger
The term "Amalgamation/Merger" refers to the combining of two or more companies to form a
new company. When two or more existing companies close their separate entity and transfer all
their assets and liabilities to a newly formed company it amounts to amalgamation/merger of
companies.
Meaning of Acquisition/Absorption
The term “Acquisition/Absorption” refers to the taking over of one or more companies by
another company. When one or more existing companies close their separate entity and transfer
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all their assets and liabilities to another existing company it amounts to acquisition/absorption of
companies.
Varieties of Amalgamation/Mergers
From the view point of business structures, following are the important varieties of mergers:
 Horizontal Merger: - Under horizontal merger, two or more companies that are in direct
competition and share the same product lines and markets come together.
 Vertical Merger: - Under vertical merger, a customer company and vendor company or a
supplier company and customer company come together. For example, the cone supplier
company may merge with an ice cream making company.
 Market-extension Merger: - Under market-extension merger, two or more companies that
sell the same product in different markets come together.
 Product-extension Merger: - Under product-extension merger, two or more companies
that are selling different but related products in the same market come together.
 Conglomeration: - Under conglomeration, two or more companies that have no common
business areas come together
Differences between Amalgamation/Merger and Acquisition/Absorption

The important differences between merger & acquisition may be summarised as under:
Amalgamation/Merger Acquisition/Absorption
1. Involves liquidation of two or more 1. Involves liquidation of one or more
companies companies
2. Requires formation of a new 2. Does not require formation of any
company new company
Objectives/Advantages/Benefits merger and acquisition of companies

Following are the main objectives of amalgamation/merger and acquisition/absorption of
companies:
 To avoid competition: The main purpose of amalgamation/acquisition of companies is to
avoid competition among themselves. This will give the company an edge over its
competitors.
 To reduce cost: The amalgamated or acquired company can derive the operating cost
advantage through lowering the cost of production. This is possible because of
‘economies of large scale’.
 To gain financially: The amalgamated or acquired company can derive financial gain
which may be in the form of tax advantage, higher credit worthiness and lower rate of
borrowing.
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 To achieve growth: The amalgamated or acquired company can pool its resources to

facilitate internal growth and to prevent the advent of a new competitor.
 To diversify the activities: The risk of a company can be lowered by diversifying its
activities into two or more industries. At times, amalgamation or acquisition may act as
hedging the weak operation with a stronger one.
 To expand the business or operations: The business or operations of the company can be
expanded.
 To acquire new technology: To stay competitive, companies need to stay on top of
technological developments and their business applications. By buying a smaller
company with unique technologies, a large company can maintain or develop a
competitive edge.
 To improve market reach and industry visibility: Companies buy companies to reach
new markets and grow revenues and earnings. A merge may expand two companies'
marketing and distribution, giving them new sales opportunities. A merger can also
improve a company's standing in the investment community: bigger firms often have an
easier time raising capital than smaller ones.
 To use resources effectively: The amalgamated or acquired company can use its various
resources like economic, financial, technical resources efficiently and effectively.
 In the public interest: The Company may be ordered by the Central Government in
exercise of its powers conferred by section 396 to be amalgamated or acquired.
 Other purposes: A company having vulnerable financial/economic position may prefer
an amalgamation or acquisition by another company so as to secure itself. And the
companies may adopt the concept laid down by the proverb, ‘union is strength’, the result
of which may be an amalgamation or acquisition.
Accounting Standard (AS) 14 - Accounting for Amalgamations

Accounting Standard (AS) 14 deals with accounting for amalgamations and the treatment of any
resultant goodwill or reserves. This standard is directed principally to companies although some
of its requirements also apply to financial statements of other enterprises. This standard does not
deal with cases of acquisitions which arise when there is a purchase by one company (referred to
as the acquiring company) of the whole or part of the shares, or the whole or part of the assets, of
another company (referred to as the acquired company) in consideration for payment in cash or
by issue of shares or other securities in the acquiring company or partly in one form and partly in
the other. The distinguishing feature of an acquisition is that the acquired company is not
dissolved and its separate entity continues to exist.
Types of Amalgamations
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Generally speaking, there are two types of amalgamations viz., (a) Amalgamation in the nature
of merger and (b) Amalgamation in the nature of purchase.
Amalgamation in the nature of merger

It is an amalgamation which satisfies all the following conditions:
a. All the assets and liabilities of the transferor company become, after amalgamation, the
assets and liabilities of the transferee company.
b. Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than the equity shares already held therein, immediately before
the amalgamation, by the transferee company or its subsidiaries or their nominees)
become equity shareholders of the transferee company by virtue of the
amalgamation.
c. The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agree to become equity shareholders of the transferee
company is discharged by the transferee company wholly by the issue of equity shares
in the transferee company, except that cash may be paid in respect of any fractional
shares.
d. The business of the transferor company is intended to be carried on, after the
amalgamation, by the transferee company.
e. No adjustment is intended to be made to the book values of the assets and liabilities of
the transferor company when they are incorporated in the financial statements of the
transferee company except to ensure uniformity of accounting policies.
In the above category there is a genuine pooling not merely of the assets and liabilities of the
amalgamating companies but also of the shareholders’ interests and of the businesses of these
companies. Such amalgamations ensure that the resultant figures of assets, liabilities, capital and
reserves more or less represent the sum of the relevant figures of the amalgamating companies.
Amalgamation in the nature of purchase
It is an amalgamation which does not satisfy any one or all of the above conditions:
a. The assets and liabilities of the transferor company should be incorporated in either
revalued figures or at their carrying amount.
b. General reserve, capital reserve or revaluation reserve of the transferor company other
than the statutory reserves should not be included in the financial statements of the
transferee company.
c. Statutory reserve of the transferor company such as Development Allowance Reserve
Account, Investment Allowance Reserve Account etc., should be carried forward in the
books of the transferee company for legal compliance.
d. The Amalgamation Adjustment Account should be disclosed under the head :
Miscellaneous Expenditure in the asset side of the balance sheet. When it is found that
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the statutory reserve is no longer required to be maintained, both the Statutory Reserve
and Amalgamation Adjustment Account will be eliminated by means of reverse entry.
e. Any excess of the amount of purchase consideration over the value of net assets of the
transferor company acquired by the transferee company shall be treated as goodwill
arising on amalgamation in the books of the transferee company. If the value of net assets
is more than the purchase consideration then the difference is credited to Capital Reserve
Account.
In the above category one company acquires another company and, as a consequence, the
shareholders of the company which is acquired normally do not continue to have a proportionate
share in the equity of the combined company, or the business of the company which is acquired
is not intended to be continued.
Amalgamation in the nature of Merger V/s Amalgamation in the nature of Purchase

Amalgamation in the nature of Merger Amalgamation in the nature of purchase
(Pooling of interest method) (Purchase method)
 All assets and liabilities of the vendor  Only those assets and liabilities which are
company will be incorporated in the taken over will be incorporated in the
books of purchasing company books of purchasing company.
 All reserves of the vendor company  No reserves (except statutory reserves) of
will be recorded in the books of the vendor company will be recorded in
purchasing company the books of purchasing company.
 The assets and liabilities will be  The assets and liabilities which are taken
incorporated at book values over will be recorded at agreed values.
 Any difference between purchasing  Any difference between purchasing cost
cost and value of net assets taken over and value of net assets taken over will be
must be adjusted against reserves. treated as Goodwill or Capital Reserve.
 There is no need to open  When statutory reserves are there,
Amalgamation Adjustment A/c in the Amalgamation Adjustment A/c should be
books of purchasing company opened in the books of purchasing
company.
Important terms/definitions
 Transferor Company/Vendor Company - It means the company which is amalgamated

or merged into another company.
 Transferee Company/Purchasing Company - It means the company into which a
transferor company is amalgamated or merged
 Reserve - It means the portion of earnings, receipts or other surplus of an enterprise
(whether capital or revenue) appropriated by the management for a general or a specific
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purpose other than a provision for depreciation or diminution in the value of assets or for
a known liability.
 Statutory Reserve - It means the reserves that are maintained in accordance with any
law or legislation. Development Rebate Reserve, Investment Allowance Reserve,
Foreign Project Reserve, Export Profit Reserve, Investment Allowance Reserve,
Workmen Compensation Reserve etc., are a few examples of Statutory Reserves.
 Amalgamation in the nature of purchase - It is an amalgamation which does not
satisfy any one or more of the conditions specified for amalgamation in the nature of
merger.
 Purchase Consideration or Consideration for Amalgamation - It means the aggregate
of the shares and other securities issued and the payment made in the form of cash or
other assets by the transferee company to the shareholders of the transferor company.
 Fair value - It is the amount for which an asset could be exchanged between a
knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length
transaction.
 Pooling of interests - It is a method of accounting for amalgamations the object of which
is to account for the amalgamation as if the separate businesses of the amalgamating
companies were intended to be continued by the transferee company. Accordingly, only
minimal changes are made in aggregating the individual financial statements of the
amalgamating companies.
Methods of Accounting for Amalgamations
The Pooling of Interests Method

Under the pooling of interests method, the assets, liabilities and reserves of the transferor
company are recorded by the transferee company at their existing carrying amounts (after
making the adjustments required). If, at the time of the amalgamation, the transferor and the
transferee companies have conflicting accounting policies, a uniform set of accounting policies is
adopted following the amalgamation. The effects on the financial statements of any changes in
accounting policies are reported in accordance with Accounting Standard (AS)
The Purchase Method

Under the purchase method, the transferee company accounts for the amalgamation either by
incorporating the assets and liabilities at their existing carrying amounts or by allocating the
consideration to individual identifiable assets and liabilities of the transferor company on the
basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may
include assets and liabilities not recorded in the financial statements of the transferor company.
Where the assets and liabilities are restated on the basis of their fair values, the determination of
fair values may be influenced by the intentions of the transferee company. For example, the
transferee company may have a specialised use for an asset, which is not available to
other potential buyers. The transferee company may intend to effect changes in the
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activities of the transferor company which necessitate the creation of specific provisions
for the expected costs, e.g., planned employee termination and plant relocation costs.
Lump-sum Method
Where the terms of amalgamation provide for payment of a specified sum of money either in the
form of cash or in the form of shares or in the form of both cash and shares, the consideration for
amalgamation will be taken at that sum. It is known as Lump-sum Method of purchase
consideration.
Net Assets Method

Where the terms of amalgamation provide for payment of excess value of assets over liabilities
taken over by the transferee company, it is known as Net Assets Method. Under this method the
total amount of outside liabilities is deducted from the total realisable value of assets taken over
to arrive at the value of Purchase Consideration. In other words, Total Realisable Value of
Assets taken over minus Outside Liabilities taken over is considered as Purchase Consideration.
Net Payment Method

Where the terms of amalgamation provide for payment of different sums of money in the form of
shares and cash, it is known as Net Payment Method. Under this method, value of shares issued
and the cash payment made to the shareholders of Transferor Company is totalled up to arrive at
the purchase consideration.
Intrinsic Value Method

The realisable value of total net assets divided by the number of shares outstanding is the
intrinsic value of a share. This value is also known as Asset Back Value of shares. Under this
method the purchase consideration and the number of shares to be issued to vendor company by
the purchasing company is calculated as under:
Purchase Consideration
= (No. of shares of Vendor Company) x (Intrinsic Value of shares of Vendor
Company).
Number of shares to be issued

= Purchase Consideration/Face (intrinsic) value of shares of Purchasing
Company
PROBLEMS ON CALCULATION AND DISCHARGE OF PURCHASE

CONSIDERATION
Problem (Amalgamation - Lump-sum Payment Method)
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A Ltd., and B Ltd., agree to amalgamate and form a new company called AB Ltd., The
amalgamation agreement provide for purchase consideration of Rs. 1,50,000 to A Ltd., and Rs.
2,00,000 to B Ltd., to be discharged by the issue of 10,000 shares of Rs.10 each to A Ltd., and
15,000 shares of Rs.10 each to B Ltd., and the balance in cash to A Ltd., and B Ltd.,
respectively. Show the discharge of purchase consideration.
Solution
Statement showing discharge of purchase consideration
Amount (Rs.)
Mode of discharge
A Ltd., B.Ltd.,
Issue of shares of Rs.10 each (10,000 x 10) & (15,000 x 10) 1,00,000 1,50,000
Payment of cash (Balancing Figure) 50,000 50,000
Purchase Consideration 1,50,000 2,00,000
Problem (Amalgamation - Lump-sum Payment Method):

amalgamation agreement provide for purchase consideration of Rs. 1,00,000 to A Ltd., and Rs.
1,20,000 to B Ltd., to be discharged by the issue of 9,000 shares of Rs.10 each to A Ltd., and
11,000 shares of Rs.10 each to B Ltd., and the balance in cash to A Ltd., and B Ltd.,
respectively. Show the discharge of purchase consideration.
Solution
Amount (Rs.)
Mode of discharge
A Ltd., B.Ltd.,
Issue of shares of Rs.10 each (9,000 x 10) & (11,000 x 10) 90,000 1,10,000
Problem (Acquisition - Lump-sum Payment Method):

A Ltd., took over the business of B Ltd., The other details are as follows: Assets taken over
Rs.10,00,000; Liabilities taken over Rs.6,00,000. B Ltd., pays a purchase consideration of
Rs.6,00,000 as follows: 70% in Equity shares of Rs.10 each and the balance in 12% Debentures
of Rs.1,000 each. Show the discharge of purchase consideration.
Solution
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Mode of discharge Amount (Rs.)

Issue of shares of Rs.10 each (6,00,000 x 70%) 4,20,000
Issue of 12% Debentures of Rs.1,000 each (Balancing Figure) 1,80,000
Purchase Consideration 6,00,000
Problem (Amalgamation - Net assets method):

amalgamation agreement provide for discharge of purchase consideration by the issue of 9,500
shares of Rs.10 each to A Ltd., and 11,500 shares of Rs.10 each to B Ltd., and the balance in
cash to A Ltd., and B Ltd., respectively. The value of assets and liabilities taken over by AB
Ltd., is as under:
A Ltd., B Ltd.,
Fixed Assets 1,10,000 1,20,000
Current Assets 70,000 60,000
Liabilities 70,000 50,000
Show the calculation and discharge of purchase consideration.
Solution
(i) Statement showing calculation of purchase consideration
A Ltd., B Ltd.,
Assets taken over:
Fixed Assets 1,10,000 1,20,000
Current Assets 70,000 60,000
Total assets taken over 1,80,000 1,80,000
Less: Liabilities taken over 70,000 50,000
(ii) Statement showing discharge of purchase consideration

Amount (Rs.)
Mode of discharge
A Ltd., B.Ltd.,
Issue of shares of Rs.10 each (9,500 x 10) & (11,500 x 10) 95,000 1,15,000
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Problem (Amalgamation - Net assets method):

purchasing company takes over the assets and liabilities of A Ltd., and B Ltd., as under:
A Ltd., B Ltd.,
Goodwill 50,000 75,000
Land & Buildings 1,10,000 1,40,000
Plant & Machinery 40,000 60,000
Stock & Debtors 50,000 75,000
Bills Payable 25,000 50,000
Creditors 10,000 20,000
The amalgamation agreement provide for the discharge of purchase consideration by the issue of
20,000 and 25,000 equity shares of Rs.10 each and the balance in cash to A Ltd., and B Ltd.,
respectively. Show the calculation and discharge of purchase consideration.
Solution
A Ltd., B Ltd.,
Assets taken over:
Goodwill 50,000 75,000
Land & Buildings 1,10,000 1,40,000
Plant & Machinery 40,000 60,000
Stock & Debtors 50,000 75,000
Total assets taken over 2,50,000 3,50,000
Less: Liabilities taken over
Bills Payable 25,000 50,000
Creditors 10,000 20,000

Mode of discharge Amount (Rs.)
A Ltd., B.Ltd.,
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Problem (Acquisition - Net assets method):

Calculate purchase consideration from the following details:
Total Assets at book values Rs. 5,00,000
Assets are taken over at 10% less than book values.
Total liabilities Rs.2,00,000
Liabilities not taken over Rs.50,000
Liquidation expenses of Rs.5,000 is to be borne by the purchasing company.
(BU June 2007)
Solution
Calculation of Purchase Consideration
Particulars
Assets taken over (5,00,000 – 10%) 4,50,000
Less: Liabilities taken over (2,00,000 – 50,000) 1,50,000
Note: Liquidation expenses of Rs.5,000 borne by the purchasing company shall not to be taken
into consideration for calculation of purchase consideration.
Problem (Absorption - Net assets method)

Calculate the purchase consideration from the following:
a. Value of assets as per balance sheet Rs.25,12,750
b. Agreed value of assets taken over Rs.18,21,570
c. Liabilities as per balance sheet Rs.3,21,570
d. Liabilities not taken over Rs.21,570
(BU June 2009)
Solution
Calculation of Purchase Consideration
Particulars
Agreed value of assets taken over 18,21,570
Less: Liabilities taken over (3,21,570 – 21,570) 3,00,000

Q Ltd. is taken over by R Ltd. on the following terms and conditions:
a. The assets of Q Ltd. are valued at Rs.3,00,000.
b. The liabilities of Q Ltd. are valued at Rs. 1,00,000.
c. Rs. 50,000 in cash is paid to the shareholders of Q Ltd.
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d. The balance of consideration is discharged by issue of shares of Rs. 10 each at Rs. 15 per
share.
Show how the consideration for amalgamation is discharged by R Ltd. and number of shares
issued to the shareholders of Q ltd.
Solution
(i) Calculation of Purchase Consideration
Particulars Rs.
Agreed value of assets taken over 3,00,000
Less: Liabilities taken over 1,00,000

Mode of discharge Rs.
Payment of cash 50,000
Issue of shares of Rs.10 each at Rs.15 per share 1,50,000
(iii) Number of shares issued: 1,50,000/15 = 10,000

Nischal Ltd., takes over the business of Nishanth Ltd., on 1st April, 2013. The following details
are extracted from the books of Nishanth Ltd., as on this date.
 Fixed Assets Rs.6,00,000
 Current Assets Rs.3,00,000
 Current Liabilities Rs.2,00,000
 Equity Share Capital Rs.7,00,000 (Shares of Rs.10 each).
The purchase considered is to be discharged as follows:
 Rs.1,50,000 in cash and
 The balance in the form of equity shares of Rs.10 each in Nischal Ltd., at Rs.20 each.
You are required to find out the purchase consideration and state the number of shares issued by
Nischal Ltd., to shareholders of Nishanth Ltd.,
Solution
Particulars Rs.
Assets taken over:
Fixed Assets 6,00,000
Current Assets 3,00,000
Total assets taken over 9,00,000
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Less: Liabilities taken over:

Current Liabilities 2,00,000

Mode of discharge Amount
(Rs.)
Payment of cash 1,50,000
Issue of shares of Rs.10 each at Rs.20 per share 5,50,000
Problem (Amalgamation - Net payment method):

amalgamation agreement provide for discharge of purchase consideration as follows:
 Issue of 12,000 shares of Rs.10 each and payment of cash Rs. 30,000 to A Ltd., and
 Issue of and 18,000 shares of Rs.10 each and payment of cash Rs. 20,000 to B Ltd.
Show the calculation of purchase consideration.
Solution
Statement showing calculation of purchase consideration
Rs.
Mode of discharge
A Ltd., B.Ltd.,
Payment of cash 30,000 20,000
Problem (Absorption - Net payment method):

Calculate the amount of purchase consideration:
 A cash payment of Rs.50,000
 Issue of 80,000 equity shares of Rs.10 each fully paid at Rs.15 per share
 Issue of 50,000 preference shares of Rs.10 each Rs.6 per share paid up and
 Issue of 30,000 debentures of Rs.10 each at a discount of 10%.
Solution
Issue of 80,000 equity shares of Rs.10 each fully paid at Rs.15 per share 12,00,000
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(80,000x15) 3,00,000
Issue of 50,000 preference shares of Rs.10 each Rs.6 per share paid up 2,70,000
(50,000 x 6)
Issue of 30,000 debentures of Rs.10 each at a discount of 10% (30,000 x 9)
Problem (Amalgamation - Intrinsic value method):

A Ltd., and B Ltd., agree to amalgamate and form a new company called AB Ltd., which would
be registered with an authorised capital of 1,00,000 equity shares of Rs.2 each. The
amalgamation agreement provide for discharge of purchase consideration on the basis of intrinsic
value of shares of both the companies. The share capital of A Ltd., consists of 5,000 equity
shares of Rs.10 each and the share capital of B Ltd., consists of 6,000 equity shares of Rs.10
each. The intrinsic values of shares of these two companies are Rs.24 and Rs.26 respectively.
Show the calculation and discharge of purchase consideration and also state the number of shares
issued by AB Ltd., to vendor companies.
Solution
(i) Purchase Consideration
PC = (No. of shares of Vendor Company) x (Intrinsic Value of shares of Vendor Company).
A Ltd., = 5,000 x 24 = Rs. 1,20,000
B Ltd., = 6,000 x 26 = Rs. 1,56,000
(ii) Number of shares to be issued = Purchase Consideration/Face (intrinsic) value of

shares of Purchasing Company
A Ltd., = 1,20,000/2 = 60,000 shares
B Ltd., = 1,56,000/2 = 78,000 shares
Problem (Amalgamation - Share exchange method):

A Ltd. and B Ltd. decide to amalgamate and form a new company called AB Ltd., which would
be registered with an authorised capital of 4,00,000 equity shares of Rs. 6 each. A Ltd is having
a share capital of Rs.1,00,000 divided into Equity shares of Rs.10 each and B Ltd., is having a
share capital of Rs.1,50,000 divided into Equity shares of Rs.10 each. The scheme of
amalgamation states that for every 4 shares held in A Ltd., its shareholders are to get: (i) Rs.2.50
in cash & (ii) 5 equity shares of Rs.6 each at par of AB Ltd., and for every 5 shares held in B
Ltd., its shareholders are to get: (i) Rs.3 in cash & (ii) 4 equity shares of Rs.6 each at par of AB
Ltd. Calculate the consideration for amalgamation.
Solution
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No. of shares of A Ltd. = 1,00,000/10 = 10,000

Purchase Consideration in case of A Ltd.,
Rs.
Payment in cash – Rs.2.50 for every four shares (2.50/4) x 10,000 6,250
Issue of 5 equity shares of Rs. 6 each for every four shares (5/4) x 10,000 x 75,000
Rs.6
Purchase consideration 81,250
No. of shares of B Ltd., = 1,50,000/10 = 15,000

Purchase Consideration in case of A Ltd.,
Rs.
Payment in cash – Rs.3 for every five shares (2.50/5) x 15,000 7,500
Issue of 4 equity shares of Rs. 6 each for every five shares (4/5) x 15,000 x 72,000
Rs.6
Purchase consideration 79,500

S Ltd., having 40,000 Equity shares of Rs. 10 each, is taken over by K Ltd., which agrees to
make the following payments:
a. Cash @ Rs. 4 per share for every share held in S Ltd.
b. Issue 1 share of Rs. 10 each at par for every 2 shares held in S Ltd.
c. Discharge of Rs. 1,00,000 8% debentures of S Ltd. at 10% premium by the issue of 10%
Debentures in K Ltd. at par, and
d. Cash Rs. 90,000 to creditors of S Ltd. in full & final settlement of their account.
Determine the amount of consideration for amalgamation as per AS-14.
Solution
Payment of cash (40,000 x 4) 1,60,000
Issue of 1 share of Rs.10 each at par for every 2 shares held (1/2 x 40,000 x 2,00,000
10)
Note: As per AS-14 purchase consideration consists of payments made to shareholders only. Any
payment made for discharge of debentures and creditors will not form part of purchase
consideration.

M Ltd. is taken over by S Ltd. on the following terms and conditions:
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a. The assets of M Ltd. are valued at Rs.6,00,000.

b. The liabilities of M Ltd. are valued at Rs. 2,00,000.
c. Rs. 2,00,000 in cash is paid to the shareholders of M Ltd.
d. The balance of consideration is discharged by issue of shares of Rs. 10 each at Rs. 20 per
share.
Show how the consideration for amalgamation is discharged by S Ltd. and number of shares
issued to the shareholders of M ltd
Solution
Particulars Rs.
Value of assets taken over 6,00,000
Less: Value of Liabilities taken over 2,00,000

(Rs.)
Issue of shares of Rs.10 each at Rs.20 per share (Bal.fig) 2,00,000
Problem (Absorption – Net assets method)

Following is the list of liabilities and assets of A Ltd., as at 31-03-2008.
Liabilities Rs.
Equity share capital: 10,000 shares of Rs.10 each 1,00,000
Reserves & Surplus 50,000
12% Debentures 75,000
Creditors 25,000
2,50,000
Assets Rs.
Current Assets 50,000
2,50,000
B Ltd., absorbs the business of A Ltd., as at the above date and agree to discharge the purchase
consideration as under:
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a) Cash payment of Rs.2 per share

b) Issue of sufficient number of equity shares of Rs.10 each at a premium of 100% for the
balance
Calculate purchase consideration and state the number of equity shares issued assuming that
fixed assets are valued at Rs.2,75,000 and current assets at Rs.45,000.
Solution
Particulars Rs.
Value of assets taken over 2,75,000
Less: Value of Liabilities taken over 45,000

(Rs.)
Payment of cash (10,000 x 2) 20,000
Issue of shares of Rs.10 each at Rs.20 per share (Bal.fig) 2,10,000
Problem (Absorption – Net assets method)

Bindu Ltd., was agreed to be absorbed by Sindhu Ltd., as on 31-03-07. On this date the
liabilities and assets of Bindu Ltd., was as follows:
Liabilities
50,000 shares of Rs. 10 each 5,00,000
General Reserve 2,00,000
P & L A/c 1,50,000
5% Debentures 1,20,000
Sundry Creditors 1,30,000
11,00,000
Assets
Current Assets excluding cash 1,60,000
Cash balance 40,000
11,00,000
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Sindhu Ltd., agreed to acquire fixed assets at 10% more than the book values, but current assets
were valued only at Rs.1,50,000. The purchase consideration was paid 50% in shares of Rs.10
each and the balance in cash. Determine the purchase consideration and also show the discharge
of purchase consideration.
Solution
Particulars Rs.
Value of Assets taken over:
Fixed Assets (9,00,000+10%) 9,90,000
Current Assets other than cash 1,50,000
Cash 40,000
11,80,000
Less: Value of Liabilities taken over:
Sundry Creditors 1,30,000

(Rs.)
Issue of shares of Rs.10 each (9,30,000 x 50%) 4,65,000
Payment of cash (Bal.fig) 4,65,000

X Ltd., having 50,000 Equity shares of Rs. 10 each, is taken over by Y Ltd., which agrees to
make the following payments:
a) Cash @ Rs. 5.00 per share for every share held in X Ltd.
b) Issue 1 share of Rs.10 each at par for every 2 shares held in X Ltd.,
c) Discharge of Rs.2,00,000, 8% Debentures of X Ltd., at 10% premium by the issue of
10% Debentures in Y Ltd., at par and
d) Rs. 20,000 cash to creditors of X Ltd., in final settlement of their account.
Determine the amount of consideration for amalgamation as per AS-14.
Solution
Payment of cash (50,000 x 5) 2,50,000
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Issue of 1 share of Rs.10 each at par for every 2 shares held (1/2 x 50,000 x 2,50,000
10)
Note: As per AS-14 purchase consideration consists of payments made to shareholders only. Any
payment made for discharge of debentures and creditors will not form part of purchase
consideration.

D Ltd., was acquired by N Ltd., The share capital of D Ltd., was 4,000 shares of Rs.100 each. N
Ltd., issued 2 shares of Rs.60 each at Rs.65 per share and also agreed to pay Rs.2 in cash to the
shareholders of D Ltd., in exchange for one share in D Ltd., D Ltd., sold in the open market 1/4 th
of the shares received from N Ltd., at the average rate of Rs.63 per share. Give statement of
purchase consideration and journal entries affecting the sale of shares in the books of D Ltd.,
Solution
Issue of 2 shares of Rs.10 each at par for 1 share held (2/1 x 4,000 x 65) 5,20,000
Payment of cash Rs.2 per share (4,000 x 2) 8,000
(ii) Journal Entry for sale of shares by D Ltd.,

Particulars Dr. Rs. Cr. Rs.
Bank A/c Dr. (2,000 x 63) 1,26,000
Realisation A/c Dr. (2,000 x 2) 4,000
To Shares in N Ltd., (2,000 x 65) 1,30,000
Problem: (Absorption - Share exchange method)

X Ltd., absorbs Y Ltd., by issuing 4 equity shares of Rs.10 each at a premium of 10% for every 2
shares in Y Ltd., The share capital of Y Ltd., was 16,000 shares of Rs.10 each. Y Ltd., held
6,000 shares in X Ltd., Calculate purchase consideration.
Solution
Note: In this problem, it is given that Y Ltd., holds 6,000 shares in X Ltd. When one company
holds the shares of another company, it is called as inter-company holding. In such a case,
adjustment for inter-company holding should be made while calculating number of shares to be
issued. The total number of shares to be issued by purchasing company to vendor company is
arrived at as follows:
Gross Number of shares to be issued by X Ltd., to Y Ltd., at 4 shares for 2
shares held (4/2 x 16,000) 32,000
39
Less: Shares already held by Y Ltd., 6,000

Net Number of shares to be issued by X Ltd., to Y Ltd., 26,000

Issue of 26,000 shares of Rs.10 each at a premium of 10% (26,000 x 11) 2,86,000
Problem 21 (June 2006): (Absorption - Intrinsic value method):

Following is the balance sheet of R Ltd.,
Liabilities Rs.
Issued Capital –Shares of Rs.10 each 1,50,000
Trade Liabilities 60,000
Total 2,10,000
Assets
Goodwill 30,000
Fixed Assets at cost less depreciation 50,000
Floating Assets 80,000
P & L A/c 50,000
Total 2,10,000
T Ltd., agreed to take over the business of R Ltd., The shareholders of R Ltd., agreed to accept
shares of T Ltd., on the basis that the shares of T Ltd., were worth Rs.12.50 and that of R Ltd.,
were worth Rs.5 each, which is taken as the basis for calculating purchase consideration. The
purchasing company took over fixed and floating assets only. Trade liabilities were not taken
over. Calculate the purchase consideration and give the revised value of assets.
Solution
(i) Purchase Consideration
= (No. of shares of Vendor Company) x (Intrinsic Value of shares of Vendor Company).
= 15,000 x 5
= Rs. 75,000
(ii) Number of shares to be issued

= Purchase Consideration/Face (intrinsic) value of shares of Purchasing Company
= 75,000/12.5
= 6,000 shares
(iii) Calculation of revised value of assets: For calculation of revised value of assets, the
balance sheet is to be redrafted as under.
Revised Balance Sheet (to find out revised value of assets)
40
Liabilities
Share Capital 75,000
Trade Liabilities 60,000
Total 1,35,000
Assets
Fixed Assets 50,000
Floating Assets 80,000
Goodwill (Balancing Figure) 5,000
Total 1,35,000
ACCOUNTING ENTRIES UNDER PURCHASE METHOD IN THE BOOKS OF

PURCHASING COMPANY
Steps for journal entries

1. Purchase consideration due
2. Taking over of assets and liabilities
3. Payment of purchase consideration
4. Others adjustments like maintenance of statutory reserve, payment of liabilities of
vendor company, payment of liquidation expenses of vendor company, etc.,
PROFORMA JOURNAL ENTRIES
For purchase consideration due on acquisition of the business:

Business Purchase A/c Dr. (with the amount of purchase consideration)
To Liquidator of Transferor Company A/c
On acquisition of assets and liabilities of the transferor company:

Respective Asset A/c Dr. (with value of assets taken over)
Goodwill A/c Dr. ( with difference, see note below)
To Respective Liabilities A/c (with the value of liabilities taken over)
To Business Purchase A/c (with the amount of purchase consideration )
To Capital Reserve A/c (with difference, see note below)
Note: In the above journal entry, if the total amount of the debit accounts is greater than the total
amount of the credit accounts, the difference is credited to Capital Reserve Account. Similarly if
the total amount of the credit accounts is more than the debit total, the difference is debited to
Goodwill Account.
For discharge of purchase consideration:
41
Liquidator of Transferor Company A/c Dr. (with amount of purchase

consideration)
Discount on Issue of Shares/Debentures A/c Dr. (amount of discount)
To Share Capital A/c (nominal value of shares)
To Securities Premium A/c (amount of premium, if any)
To Debentures A/c (nominal value of debentures issued)
To Bank A/c (amount paid in cash)
(There may be either discount on issue of shares/debentures account or securities premium
account.)
For maintenance of statutory reserves such as Development Rebate Reserve, Investment

Allowance Reserve & Export Profit Reserve:
Amalgamation Adjustment A/c Dr. (amount of reserve)
To Statutory Reserves A/c
If liquidation expenses of the transferor company are borne by the transferee company:
Goodwill A/c or Capital Reserve A/c Dr. (amount of expenditure)
To Bank A/c

For the formation expenses of the transferee company, if any:
Preliminary Expenses A/c Dr. (amount of expenditure)
To Bank A/c
In case there are both Goodwill and Capital Reserve Account, Goodwill may be set off against
capital reserves:
Capital Reserve A/c Dr. (amount of goodwill written off)
To Goodwill A/c
Note: Capital Reserve Account and Goodwill Account should not appear simultaneously in the
balance sheet.
On payment of liability by the transferee company:

Respective Liability A/c Dr. (amount payable)
To Share Capital A/c
To Debentures A/c (As the case may be)
To Bank A/c
ACCOUNTING ENTRIES IN THE BOOKS OF VENDOR COMPANY
Steps for journal entries

1. Transfer of assets to realisation account
42
2. Transfer of liabilities to realisation account

3. Purchase consideration due
4. Purchase consideration received
5. Sale of assets that are not taken over by purchasing company
6. Payment of liabilities that are not taken over by purchasing company
7. Payment of liquidation expenses
8. Transfer of preference share capital and other amounts due to preference
shareholders
9. Payment to preference shareholders
10. Closing of realisation account and transfer of profit or loss to equity shareholders
11. Transfer of equity share capital and other amounts to equity shareholders
12. Final payment to equity shareholders
PROFORMA JOURNAL ENTRIES
For transfer of assets including cash at their book values

Realisation A/c Dr.
To Respective Assets A/c (at book values)
For transfer of liabilities including debentures and statutory reserves at their book values
Respective liabilities A/c Dr.
Statutory Reserves A/c Dr.
To Realisation A/c
For purchase consideration due (receivable)

Purchasing Company A/c Dr.
To Realisation A/c
For purchase consideration received

Shares in Purchasing Company A/c Dr.
Debentures in Purchasing Company A/c Dr.
Bank A/c Dr.
To Purchasing Company A/c
For sale of assets not taken over by purchasing company

Bank A/c Dr.
To Realisation A/c
For payment of liabilities not taken over by purchasing company

Realisation A/c Dr.
43
To Bank A/c
For liquidation expenses met by vendor company

Realisation A/c Dr.
To Bank A/c
For preference share capital and other amounts due (payable) to Preference Shareholders
Preference Share Capital A/c Dr.
Realisation A/c Dr. (if premium is payable)
To Preference Shareholders A/c
For payment to Preference Shareholders

Preference Shareholders A/c Dr.
To Shares in Purchasing Company A/c
To Debentures in Purchasing Company A/c
To Bank A/c
For profit on closing of realisation account

Realisation A/c Dr.
To Equity Shareholders A/c
For equity share capital and other amounts due (payable) to Equity Shareholders
Equity Share Capital A/c Dr.
Non-statutory Reserves A/c Dr.
Profit & Loss A/c Dr.
To Equity Shareholders A/c
For payment to Equity Shareholders

Equity Shareholders A/c Dr.
To Shares in Purchasing Company A/c
To Debentures in Purchasing Company A/c
To Bank A/c

Note on treatment of liquidation expenses of vendor company paid by purchasing
company.
When the problem states that the liquidation expenses of vendor company is paid by purchasing
company, two alternatives may be considered.
a) The vendor company need not pass any journal entry
OR
44
b) The following journal entries may be passed in the books of vendor company.
Purchasing Company A/c Dr XXX
To Bank A/c XXX
Bank A/c Dr. XXX
To Purchasing Company A/c XXX
Problems
Problem
A Ltd., & B Ltd., agreed to amalgamate and form a new company called AB Ltd., with an
authorised capital of Rs.10,00,000 consisting of 1,00,000 equity shares of Rs.10 each. The
purchase consideration is agreed at Rs.4,00,000 for A Ltd., and Rs.3,00,000 for B Ltd., Show
the journal entry for purchase of the business & discharge of purchase consideration in the books
of AB Ltd.,
Solution
Journal entries in the books of AB Ltd., for purchase of the business of A Ltd., and B Ltd &
discharge of purchase consideration to A Ltd., and B Ltd
Particulars A Ltd., B Ltd.,
Business Purchase A/c Dr. 7,00,000
To Liquidator of A Ltd., A/c 4,00,000
To Liquidator of B Ltd., A/c 3,00,000
(Being the purchase of the business of A Ltd., & B Ltd.,)
Liquidator of A Ltd., A/c 4,00,000
Liquidator of B Ltd., A/c 3,00,000
To Equity Share Capital A/c 7,00,000
(Being discharge of purchase consideration by the issue of
equity shares)
Problem
Write journal entry for the purchase of the business and settlement of purchase consideration in
the books of purchasing company from the following details. Purchase consideration
Rs.5,00,000 Discharge of purchase consideration by issue of equity shares of Rs. 100 each at a
premium of 25%.
Solution
45
Analytical Note:
 In the above problem it is stated that the purchase consideration is discharged by the issue
of equity shares of Rs.100 each at a premium of 25%.
 Therefore, the issue price of each equity share is Rs. 125 (i.e., Face Value Rs. 100 +
Share premium 25%).
 The total number of equity shares to be issued is 40,000 (i.e., 5,00,000/125)
 The amount to be appropriated towards share capital is Rs. 4,00,000 (i.e., 40,000 x 100)
 The amount to be appropriated towards share premium is Rs. 1,00,000 (i.e., 40,000 x 25)
Journal Entry in the books of Purchasing Company

To Liquidator of Vendor Company A/c 5,00,000
(Being the purchase of the business of Vendor Company)
Liquidator of Vendor Company A/c Dr. 5,00,000
To Equity Share Capital A/c (40,000 x 100) 4,00,000
To Share Premium A/c (40,000 x 25) 1,00,000
(Being the discharge of purchase consideration)
Problem
authorised capital of Rs.25,00,000 consisting of 2,50,000 equity shares of Rs. 10 each. The
purchase consideration is agreed at Rs.5,50,000 for A Ltd., and Rs.6,60,000 for B Ltd., to be
settled by the issue of equity shares at a premium of 10%. The agreed value of assets and
liabilities taken over by AB Ltd., is as under:
Land & Buildings 4,00,000 3,00,000
Plant & Machinery 2,50,000 2,75,000
Furniture & Fixtures 1,50,000 2,50,000
Stock & Debtors 1,00,000 1,25,000
Cash & Bank 50,000 75,000
Creditors 75,000 1,50,000
Bank Overdraft 25,000 50,000
Bank Loan 75,000 75,000
12% Debentures 2,00,000 1,50,000
You are required to show in the books of AB Ltd., :
1. Journal entries for (a) business purchase, (b) incorporation of assets and liabilities and (c)
discharge of purchase consideration and
2. The Balance Sheet in the books of AB Ltd.,
Solution
46
(i) Journal entries in the books of AB Ltd

To Liquidator of A Ltd., A/c 5,50,000
To Liquidator of B Ltd., A/c 6,60,000
(Being the purchase of the business of A Ltd., & B Ltd.,)
Land & Buildings 7,00,000
Plant & Machinery 5,25,000
Furniture & Fixtures 4,00,000
Stock & Debtors 2,25,000
Cash & Bank 1,25,000
Goodwill (Balancing Figure) 35,000
To Creditors 2,25,000
To Bank Overdraft 75,000
To Bank Loan 1,50,000
To 12% Debentures 3,50,000
To Business Purchase A/c 12,10,000
(Being incorporation of assets and liabilities of vendor
companies)
To Share Premium A/c 1,10,000
1,10,000 equity shares of Rs.10 each at a premium of 10%)
(ii) Balance Sheet in the books of AB Ltd.

Liabilities
Equity Share Capital A/c 11,00,000
Share Premium A/c 1,10,000
Bank Loan 1,50,000
To Bank Overdraft 75,000
Creditors 2,25,000
Total 20,10,000
Assets
Goodwill 35,000
Plant & Machinery 5,25,000
Furniture & Fixtures 4,00,000
Stock & Debtors 2,25,000
47
Cash & Bank 1,25,000

Total 20,10,000
Problem
purchase consideration is agreed at Rs.4,40,000 for A Ltd., and Rs.3,30,000 for B Ltd., which is
to be satisfied as follows:
 Rs.40,000 in cash and the balance in equity shares to A Ltd., and
 Rs.30,000 in cash and the balance in equity shares to B Ltd.,
Show the journal entry for business purchase & discharge of purchase consideration.
Solution
(i) Statement showing discharge of purchase consideration
Mode of discharge A Ltd., B Ltd.,
Issue of equity shares of Rs.10 each 4,00,000 3,00,000
(ii) Journal entry

To Liquidator of A Ltd., 4,40,000
To Liquidator of B Ltd., 3,30,000
To Cash A/c 70,000
(Being discharge of purchase consideration)
Problem
purchase consideration is agreed at Rs.6,50,000 for A Ltd., and Rs.4,80,000 for B Ltd., which is
to be satisfied as follows:
 Rs.50,000 in cash and the balance by the issue of equity shares in AB Ltd., at a premium
of 50% to A Ltd., and
 Rs.30,000 in cash and the balance by the issue of equity shares in AB Ltd., at a premium
of 50% to B Ltd.,
You are required to show:
(a) The journal entries for business purchase & discharge of purchase consideration and
48
(b) The relevant items as they appear in the Balance Sheet of AB Ltd.,
Solution
(a) Statement showing discharge of purchase consideration
Mode of discharge A Ltd., B Ltd.,
Issue of equity shares of Rs.10 each 6,00,000 4,50,000
(b) Journal entries in the books of AB Ltd.,

To Liquidator of B Ltd., 4,80,000
To Cash A/c 80,000
To Share Premium A/c 3,50,000
(c) Balance Sheet in the books of AB Ltd. (Extracts)

Liabilities
Authorized Capital – 2,00,000 Equity shares of Rs.10 each 20,00,000
Issued Capital – 70,000 Equity shares of Rs.10 each fully paid 7,00,000
Share Premium 3,50,000
Problem
Following are the balance sheets of C Ltd., and D Ltd., as at 31-03-2015.
C Ltd., D Ltd.,
Liabilities
Equity Share Capital (15,000shares) 1,50,000 1,50,000
Reserves & Surplus 50,000 1,00,000
12% Debentures 1,00,000 1,00,000
Creditors 60,000 60,000
3,60,000 4,10,000
Assets
Land & Buildings 1,00,000 1,50,000
Plant & Machinery 1,50,000 1,25,000
Stock 75,000 75,000
Debtors 25,000 50,000
49
Cash 10,000 10,000

3,60,000 4,10,000
C Ltd., and D Ltd., merge their business and form a new company called DC Ltd. The assets of
both the companies are valued as follows: Fixed assets 25% more; Stock 15% less and Debtors
10% less. The purchase consideration is discharged by the issue to both companies sufficient
number of equity shares of Rs.10 each in DC Ltd., at an agreed value of Rs.12.50 per share.
Assuming that the merger process is duly completed show the journal entries & opening balance
sheet of DC Ltd., which has an authorized capital of Rs. 20,00,000 consisting equity shares of
Rs. 10 each.
Solution
(a) Statement showing calculation of purchase consideration
Mode of discharge C Ltd., D Ltd.,
Assets taken over:
Land & Buildings (25% more) 1,25,000 1,87,500
Plant & Machinery (25% more) 1,87,500 1,56,250
Stock (15% less) 63,750 63,750
Debtors (10% less) 22,500 45,000
Cash 10,000 10,000
4,62,500
Less Liabilities taken over:
12% Debentures 1,00,000 1,00,000
Creditors 60,000 60,000
(b) Statement showing discharge of purchase consideration

Particulars Rs.
a) To C Ltd., - Issue of 19,900 (i.e., 2,48,750 / 12.50) equity shares of 2,48,750
Rs.10 each at a premium of Rs.2.50 per share
b) To D Ltd., - Issue of 24,200 (i.e., 3,02,500 / 12.50) equity shares of Rs. 3,02,500
10 each at a premium of Rs. 2,50 per share
5,51,250
(c) Journal entries in the books of DC Ltd.,

Particulars Dr. (Rs.) Cr. (Rs.)
To Liquidator of C Ltd., 2,48,750
To Liquidator of D Ltd., 3,02,500
(Being purchase of the business of C Ltd., and D Ltd.,)
Land & Buildings (1,25,000 + 1,87,500) 3,12,500
Plant & Machinery (1,87,500 + 1,56,250) 3,43,750
50
Stock (63,750 + 63,750) 1,27,500

Debtors (22,500 + 45,000) 67,500
Cash (10,000 + 10,000) 20,000
To 12% Debentures (1,00,000 + 1,00,000) 2,00,000
To Creditors (60,000 + 60,000) 1,20,000
(Being incorporation of assets and liabilities taken over from C
Ltd., and D Ltd.,)
Liquidator of C Ltd., A/c 2,48,750
Liquidator of D Ltd., A/c 3,02,500
To Equity Share Capital A/c (19,900 + 24,200) X Rs.10 4,41,000
To Share Premium A/c (19,900 + 24,200) X Rs.2.50 1,10,250
equity shares of Rs.10 each at a premium of Rs.2.50 per share)
(d) Balance Sheet in the books of DC Ltd. (Extracts)

Liabilities
Authorized Capital – 2,00,000 Equity shares of Rs.10 each 20,00,000
Issued Capital – 44,100 Equity shares of Rs.10 each fully paid 4,41,000
Share Premium 1,10,250
Creditors 1,20,000
Total 8,71,250
Land & Buildings (1,25,000 + 1,87,500) 3,12,500
Plant & Machinery (1,87,500 + 1,56,250) 3,43,750
Stock (63,750 + 63,750) 1,27,500
Debtors (22,500 + 45,000) 67,500
Cash (10,000 + 10,000) 20,000
Total 8,71,250
Problem (Acquisition)
The Balance Sheet of A Ltd., as at 31-03-2015 was as under:
Rs.
Liabilities
24,000 Equity Shares of Rs.10 each fully paid 2,40,000
Creditors 60,000
Bank Overdraft 56,000
3,56,000
51
Total
Assets
Plant & Machinery 80,000
Stock 30,000
Debtors 44,000
Profit & Loss A/c 2,000
Total 3,56,000
A Ltd., went into voluntary liquidation and assets were sold to B Ltd., for Rs.1,50,000 payable as
to Rs.1,20,000 in cash and Rs.30,000 in the form of 12,000 equity shares of Rs.10 each of B
Ltd., at Rs.2.50 paid up per share. The creditors and bank overdraft are not taken over by B Ltd.
The expenses of liquidation of A Ltd., came to Rs.2,000 and is paid by B Ltd., You are required
to pass closing journal entries in the books of A Ltd., and opening journal entries in the books of
B Ltd.,
Solution
(a) Purchase Consideration – Directly given in the problem as Rs.1,50,000
(b) Mode of discharge of purchase consideration

Issue of 12,000 equity shares of Rs.10 each at Rs.2.50 paid (12,000 X 30,000
2.50)
1,50,000
(c) Closing Journal Entries in the books of A Ltd.,

Realisation A/c Dr. 3,54,000
To Land & Buildings 2,00,000
To Plant & Machinery 80,000
To Stock 30,000
To Debtors 44,000
(Being assets accounts transferred to realisation account)
Creditors A/c 60,000
Bank Overdraft A/c 56,000
52
To Realisation A/c 1,16,000

(Being liabilities accounts transferred to realisation account)
B Ltd., A/c Dr. 1,50,000
(Being purchase consideration due)
Bank A/c Dr. 1,20,000
Equity shares in B Ltd., A/c Dr. 30,000
To B Ltd., A/c 1,50,000
To Bank A/c 1,16,000
(Being Creditors Rs.60,000 and Bank Overdraft Rs.56,000 not
taken over by B Ltd., discharged by payment in cash)
Equity Shareholders A/c Dr. 2,04,000
To Realisation A/c (see note 1 below) 2,04,000
(Being loss on realisation transferred to equity shareholders)
Equity Share Capital A/c Dr. 2,40,000
To Equity Shareholders A/c 2,40,000
(Being equity share capital transferred to equity shareholders)
Equity Shareholders A/c Dr. 2,000
To Profit & Loss A/c 2,000
(Being debit balance in P&L A/c transferred to equity
shareholders)
To Equity Shares in B Ltd., A/c 30,000
To Bank A/c (1,20,000 – 1,16,000) 4,000
Working Notes:
1. Profit or loss on realisation is arrived at by preparing Realisation A/c as under:
Realisation A/c
Particulars Rs. Particulars Rs.
To Land & Buildings 2,00,000 By Creditors A/c 60,000
To Plant & Machinery 80,000 By Bank Overdraft A/c 56,000
To Stock 30,000 By B Ltd., A/c 1,50,000
To Debtors 44,000 By Equity Shareholders 2,04,000
To Bank (Creditors & A/c
Overdraft discharged) 1,16,000
4,70,000 4,70,000
53
2. For cross checking whether the journal entries and amounts are correct or not, we can prepare
Equity Shareholders A/c as under by posting the relevant items in the journal entries. If the
account tallies, we can conclude that the closing journal entries is complete in all respects.
Equity Shareholders A/c

To Realisation A/c 2,04,000 By Equity Share Capital 2,40,000
To Profit & Loss A/c 2,000 A/c
To Equity Shares in B Ltd., 30,000
To Bank A/c 4,000
2,40,000 2,40,000
(d) Opening Journal Entries in the books of B Ltd.,

(Being purchase of the business of A Ltd.,)
Stock 30,000
Debtors 44,000
To Capital Reserve A/c (Balancing figure) 2,04,000
(Being incorporation of assets of A Ltd.,)
Capital Reserve A/c Dr.
To Bank A/c
(Being liquidation expenses of A Ltd., paid by B Ltd.,)
To Bank A/c 1,20,000
To Equity Share Capital A/c (12,000 X 2.50) 30,000
(Being discharge of purchase consideration by the payment of
cash and issue of 12,000 equity shares of Rs.10 each as Rs.2.50
paid up)
Problem (Acquisition)
The Balance Sheet of B Ltd., as at 31-03-2007 was as under:
Rs.
Liabilities
24,000 Equity Shares of Rs.10 each fully paid 2,40,000
54
Creditors 60,000
Bank Overdraft 56,000
3,56,000
Assets
Stock 30,000
Debtors 44,000
Profit & Loss A/c 2,000
3,56,000
B Ltd., went into voluntary liquidation and the business was sold to C Ltd., for Rs.2,50,000
payable as to Rs.20,000 in cash and the balance in the form of equity shares of Rs.10 each of C
Ltd., The expenses of liquidation of B Ltd., came to Rs.12,000 and is paid by C Ltd., You are
required to pass closing journal entries in the books of B Ltd., and opening journal entries in the
books of C Ltd.,
Solution
(a) Purchase Consideration – Directly given in the problem as Rs.2,50,000
(b) Mode of discharge of purchase consideration

Issue of 12,000 equity shares of Rs.10 each at Rs.2.50 paid (12,000 X 2,30,000
2.50)
2,50,000
(c) Closing Journal Entries in the books of A Ltd.,

To Land & Buildings 2,00,000
To Plant & Machinery 80,000
To Stock 30,000
To Debtors 44,000
(Being assets accounts transferred to realisation account)
55
Creditors A/c 60,000

Bank Overdraft A/c 56,000
(Being liabilities accounts transferred to realisation account)
B Ltd., A/c Dr. 2,50,000
(Being purchase consideration due)
Bank A/c Dr. 20,000
Equity shares in B Ltd., A/c Dr. 2,30,000
To B Ltd., A/c 2,50,000
Realisation A/c Dr. (see note 1 below) 12,000
To Equity Shareholders A/c 12,000
(Being loss on realisation transferred to equity shareholders)
Equity Share Capital A/c Dr. 2,40,000
To Equity Shareholders A/c 2,40,000
(Being equity share capital transferred to equity shareholders)
To Profit & Loss A/c 2,000
(Being debit balance in P&L A/c transferred to equity
shareholders)
Equity Shareholders A/c Dr. 2,50,000
To Equity Shares in B Ltd., A/c 2,30,000
To Bank A/c 20,000
Working Notes:
1. Profit or loss on realisation is arrived at by preparing Realisation A/c as under:
Realisation A/c
To Land & Buildings 2,00,000 By Creditors A/c 60,000
To Plant & Machinery 80,000 By Bank Overdraft A/c 56,000
To Stock 30,000 By B Ltd., A/c 2,50,000
To Debtors 44,000
To Equity Shareholders A/c 12,000
(Balancing figure)
3,66,000 3,66,000
2. For cross checking whether the journal entries and amounts are correct or not, we can prepare
Equity Shareholders A/c as under by posting the relevant items in the journal entries. If the
account tallies, we can conclude that the closing journal entries is complete in all respects.
56
Equity Shareholders A/c

To Profit & Loss A/c 2,000 By Equity Share Capital 2,40,000
To Equity Shares in B Ltd., 2,30,000 A/c 12,000
To Bank A/c 20,000 By Realisation A/c
2,52,000 2,52,000
(d) Opening Journal Entries in the books of B Ltd.,

(Being purchase of the business of B Ltd.,)
Stock 30,000
Debtors 44,000
Goodwill A/c (Balancing figure) 12,000
To Creditors A/c 60,000
To Bank Overdraft A/c 56,000
(Being incorporation of assets & liabilities of B Ltd.,)
Goodwill A/c Dr. 12,000
To Bank A/c 12,000
(Being liquidation expenses of B Ltd., paid by C Ltd.,)
To Bank A/c 20,000
57

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Corporate Reporting Practices and AS IV Sem M.

According to ICAI (Institute of Chartered Accountants of India), Accounting Standards are

1. Standardize the diverse accounting policies.

GAAP (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES)

INTERNATIONAL ACCOUNTING STANDARD BOARD

OBJECTIVIES OF INTERNATIONAL ACCOUNTING STANDARD BOARD

HISTORICAL BACKGROUND OF IFRS

In 1973, an organization known as the International Accounting Standards Committee (IASC)

IFRS INTERPRETATION COMMITTEE

ORGANISATION STRUCTURE OF IFRS

IASC Foundation (22

Standard Advisory Council Board International financial reporting

Working groups for major

1. Faithfull representation: It is basic feature of IFRS. The financial statement is prepared

6. Timeliness: It means having information available to Decision makers in time to be capable

BENEFIT /ADVANTAGES OF IFRS:

f) Benefits to the accounting professional: Convergence to IFRS will increase the

h) Improvement in financial reporting: Better quality of financial reporting due to consistent

e) A minimum of two years of financial information prior to conversion would need to be

PROCESS OF SETTING IFRS

Identification and review of associated issues and consideration of the application

Study of National Accounting requirements and practices and an exchange of views

Formation of an advisory (“ Working”) Group to advise IASB

Publishing a discussion document (paper i.e. DP) for Public comment.

Publishing an exposure draft (ED) for Public Comment

Consideration of all comments received within the comment period.

If considered desirable, holding a public hearing and conducting field-tests

Approval of a standard by at least Nine Votes of the IASB

PRACTICAL CHALLENGES IN IMPLEMENTATION OF IFRS

1. Change to regulatory environment: For the success of convergence in India, certain

2. Lack of Preparedness: Adoption of IFRS by approximately 5000 listed companies by 2011

3. Educating Stakeholders: Educating Stakeholders comprising of investors, lenders,

4. Significant cost: Significant one-time costs of converting to IFRS (including costs of

7. Communication of Impact of IFRS to investors: Companies also need to communicate the

THEORETICAL STUDY ON INTERNATIONAL FINANCIAL REPORTING

IFRS – 1: FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING

Opening Ifrs Statement Of Financial Position

 An opening IFRS Statement of Financial Position is prepared at the date of transition.

IFRS 2 SHARE-BASED PAYMENT

Annual periods beginning on or after 1 January 2005

Share Based Payments can be measured in three forms:

IFRS 3 BUSINESS COMBINATIONS

IFRS 3 (2008) issued on January 2008, replacing IFRS 3 (2003).

IFRS 4 INSURANCE CONTRACTS

The standard applies to:

 Annual periods beginning on or after 1 January 2005.

IFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED

 Held for sale; or

 Annual Periods beginning on or after 1 January 2005

IFRS 6 EXPLORATIONS FOR AND EVALUATION OF MINERAL RESOURCES

 An entity applies IFRS 6 to exploration and evaluation expenditures that it incurs

 Annual periods beginning on or after 1 January 2006.

IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES

 Annual periods beginning on or after 1 January 2007

IFRS 8 OPERATING SEGMENTS

 Annual periods beginning on or after 1 January 2009

IFRS 9 FINANCIAL INSTRUMENTS