Problem.No.

Amalgamation in the nature of purchase –Net Asset Method without statutory reserve)

A and B Ltd agreed to amalgamate and form a new company called C Co. Ltd. The balance sheet on the date of
amalgamation as under:

Liabilities A Ltd B Ltd. Assets A Ltd B Ltd.

shares capital 1,00,000 1,40,000 Fixed assets 1,20,000 1,80,000

Reserve 1,70,000 1,00,000 Stock 60,000 1,10,000

creditors 40,000 90,000 Debtors 80,000 1,30,000

bank Loan -- 90,000 Cash 50,000 --

3,10,000 4,20,000 3,10,000 4,20,000

The consideration was to be based on the net assets of the company but subject to an addition to compensate Rs.90,000 to
A Ltd., for its super profit. The shares of C Ltd. Were to be issued to A Ltd. and B Ltd., at a premium and in proportion to the
agreed Net Assets. C ltd proposed to issue 12,000 shares of Rs.10 each at a price of Rs.15 per share.

a) Calculate the number of share issued to A Ltd. And B Ltd.

b) Pass the journal entries in the books of A Ltd. And B Ltd.
c) Prepare the amalgamated balance sheet of C Ltd. Under Amalgamation in the nature of purchase.

Solution

Calculation of Purchase Consideration(net Assets method)

A. Assets Taken over values: A co. B Co.

Fixed Assets 1,20,000 1,80,000
Stock 60,000 1,10,000
Debtors 80,000 1,30,000
Cash 50,000
-
Total (A) 3,10,000 4,20,000
B.Liabilities taken over
Creditors 40,000 90,000
Bank Loan 90,000
Total B 40,000 1,80,000

( A-B) 2,70,000 2,40,000

Add: Goodwill 90,000
Purchase Consideration 3,60,000 2,40,000

Discharge of purchase Consideration

No of shares issued to A Ltd = Rs.3,60,000/15 = 24,000 shares

No. of shares issued to B ltd = Rs.2,40,000/15 = 16,000 shares

Journal entries in the books of A Ltd (vendor or transferor Company)

S.No Particulars LF Dr. Cr.

1. Realisation A/c…………………….Dr. 3,10,000
To Fixed Assets A/c 1,20,000
To Stock A/c 60,000
To Debtors A/c 80,000
To Cash A/c 50,000
(being transfer of assets)

2. Creditors A/c…………………..Dr. 40,000

To realization A/c 40,000

3. C Ltd A/c…………………….Dr. 3,60,000

To Realisation A/c 3,60,000

4. Realisation A/c………………..Dr. 90,000

To Equity shareholders A/c 90,000
3,10,000-40,000= 2,70,000- (PC is 3,60,000) =90,000

5. Share Capital A/c…….Dr. 1,00,000

Reserves A/c……………Dr. 1,40,000
To eq. sh holders A/c 2,40,000

6. Eq. Shares in C Ltd. A/c………………….Dr. 2,40,000

To C Ltd. A/c 2,40,000
(receipt of PC)

7. Eq. shareholders A/c………………….Dr. 2,40,000

To Eq. shares in C Ltd A/c 2,40,000
(final payment to eq. shareholders)

Journal entries in the books of B Ltd (vendor or transferor Company)

S.No Particulars LF Dr. Cr.

1. Realisation A/c…………………….Dr. 4,20,000
To Fixed Assets A/c 1,80,000
To Stock A/c 1,10,000
To Debtors A/c 1,30,000
(being transfer of assets)

2. Creditors A/c…………………..Dr. 90,000

Bank Loan A/c……………….Dr. 90,000
To realization A/c 1,80,000
 3. C Ltd A/c…………………….Dr. 2,40,000
To Realisation A/c 2,40,000

4. Share Capital A/c…….Dr. 1,00,000

Reserves A/c……………Dr. 1,70,000
To eq. sh holders A/c 2,70,000

5. Eq. Shares in C Ltd. A/c………………….Dr. 3,60,000

To C Ltd. A/c 3,60,000
(receipt of PC)

6. Eq. shareholders A/c………………….Dr. 3,60,000

To Eq. shares in C Ltd A/c 3,60,000
(final payment to eq. shareholders)

Amalgamated balance sheet

Laibilities Rs. Assets Rs.

Share Capital 5,20,000 Fixed assets(1,20,000+ 3,00,000
(24,000 + 16,000 + 12,000) 1,80,000)
52,000 shares of Rs.10 each
Creditors 1,30,000 Stock (60,000+1,10,000) 1,70,000
Bank loan 90,000 Debtors ( 80,000 +1,30,000) 2,10,000
Securities premium (52,000 x 2,60,000 Goodwill 90,000
Rs.5)
Cash (50,000+ 2,30,000
1,80,000)

10,00,000 10,00,000

Shares issued to public by C ltd is 12,000 shares at Rs.15 = 12,000 x 15= 1,80,000
Problem.No.2(Amalgamation in the nature of merger-pooling of interest method –with statutory reserve)

The following are the balance sheet of X Ltd. And Y Ltd., as on 31 st march 2005

Liabilities Rs. Rs. Assets Rs. Rs.

Share capital Land & building 25,00,000 15,50,000

Equity shares of Rs.10 50,00,000 30,00,000 Plant& machinery 32,50,000 17,00,000

14 % preference shares of Rs.100 22,00,000 17,00,000 Furniture & fittings 5,75,000 3,50,000

General reserve 5,00,000 -- Investments 7,00,000 5,00,000

Export profit Reserve 3,00,000 2,50,000 Stock 12,50,000 9,50,000

(required under Sundry debtors 9,00,000 10,30,000

Income Tax Act) Cash and Bank 7,25,000 5,20,000

Investment Allowance Reserve -- 2,00,000

(statutory)

P & L A/c
7,50,000 1,00,000
13% debentures of Rs.100
5,00,000 5,00,000
Trade creditors
4,00,000 3,50,000
Other current liabilities
2,00,000 1,50,000

99,00,000 66,00,000 99,00,000 66,00,000

XY Ltd., is formed to take over X Ltd. and Y Ltd., for the following consideration.

X Ltd.

i) Issue of 4,80,000 equity shares of Rs.10 each of XY Ltd. At Par to the equity shareholders.
ii) Issue of 15% preference shares of Rs.100 each of XY Ltd. To discharge the preference shareholders of X Ltd. At 10%
premium.
Y Ltd.

i) Issue of 3,50,000 equity shares of Rs.10 each of XY Ltd. At Par to the equity shareholders.
ii) Issue of 15% preference shares of Rs.100 each of XY Ltd. To discharge the preference shareholders of Y Ltd. At 10%
premium.
The debentures of X Ltd., and Y Ltd., Will be converted into equivalent number of debentures of XY Ltd. The statutory
reserves are to be maintained for two more years.
Close the books of X Ltd. And Y Ltd. And show the opening entries and balance sheet of XY ltd. On the assumption that the
amalgamation is in the nature of merger.

Solution

Calculation of Purchase Consideration

a) Towards Equity shareholders

In eq. shares of XY Ltd
X ltd 4,80,000 shares of Rs.10 each 48,00,000
Y Ltd 3,50,000 shares of rs.10 each 35,00,000

b) Towards pref. shares

(in 15% pref. shares of X Y Ltd)
X Ltd Rs.22,00,000 + 2,20,000 24,20,000
Y Ltd Rs.17,00,000+ 1,70,000 18,70,000
72,20,000 53,70,000
Discharge of PC

X Ltd Y Ltd
In eq. shares of XY 48,00,000 35,00,000
In pref. shares 24,20,000 18,70,000
PC 72,20,000 53,70,000

In the book of X Ltd

Realisation A/c

Particulars Rs. Particulars Rs.

To L & B 25,00,000 By gen reserve 5,00,000
To P & M 35,50,000 By export profit reserve 3,00,000
To Furnitures 5,75,000 By P 7 L A/c 7,50,000
To investments 7,00,000 By 13% deb 5,00,000
To Stock 12,50,000 By trade creditors 4,50,000
To debtors 9,00,000 By other Current liabilities 2,00,000
To bank 7,25,000 By XY ltd(PC) 72,20,000
To 14% pref. shareholders A/c(premium on 2,20,000 By Equity shareholders A/c ( bal.fig) 2,00,000
redemption of pref. shares)

1,01,20,000 1,01,20,000

XY Ltd A/c

Particulars Rs. Particulars Rs.

To realization A/c 72,20,000 By eq. shares in XY Ltd 48,00,000
By 15% pref. shares in XY ltd 24,20,000

72,20,000 72,20,000
Eq. shareholders A/c

Particulars Rs. Particulars Rs.

To eq. shares in XY ltd 48,00,000 By eq. share capital A/c 50,00,000
To realization (loss) 2,00,000

50,00,000 50,00,000

14% pref. shareholders A/c

Particulars Rs. Particulars Rs.

To 15% pref. shares in XY ltd 24,20,000 By 14% pref. shares Capital A/c 22,00,000
By realization A/c 2,20,000

24,20,000 24,20,000

Eq. capital 83l

Pref. 42,90,000

General Reserve Bal.fig = 12,45,000

b/s total = 1,65,00,000