Chapter 5

AMALGAMATION WITH RESPECT TO A.S -14

AMALGAMATION
P-1
With a view to minimize the running cost, two companies carrying on similar business
decided to amalgamate as from 1-4-2022. The assets and liabilities as on 31-03-2022 were as
follows:
Equity and Liabilities G & Co. Ltd M & Co. Ltd
Rs Rs
Equity share capital (In shares of Rs 10 each) 1,60,000 1,20,000
General Reserve 16,000 --
Dividend Equalization Reserve 6,000 --
Profit & Loss A/c 5,000 --
Creditors 30,000 86,000
Employees Provident Fund 3,000 --
2,20,000 2,06,000
Assets Rs Rs
Goodwill 20,000 10,000
Land & Building 80,000 57,000
Plant & Machinery 55,000 50,000
Furniture 20,000 46,000
Stock 27,000 14,000
Debtors 10,000 19,000
Bank balance 8,000 10,000
2,20,000 2,06,000
The capital of the New Company was Rs 4, 00,000 divided into 40,000 equity shares of Rs 10
each.
The conditions of amalgamation were as under:
In case of G & Co Ltd, goodwill and stock were valued at Rs 40,000 and Rs 37,000
respectively. Plant & machinery and furniture were to be depreciated by Rs 15,000 & Rs 2,000
respectively.
In case M & Co Ltd, Land & Building were to taken at Rs 75,000 and plant & machinery at Rs
45,000. No payment was to be made for goodwill. Bank balance not to be taken over.
The consideration paid in case of G & Co Ltd in fully paid equity shares for the amount due.
In case of M & Co Ltd, was to be issued 6,000 fully paid equity shares, 300 7 % Preference
shares of Rs 100 each and balance being paid in cash.
Calculate Net assets taken over and Purchase consideration
Pass closing entries in the books of G & Co Ltd & M & Co Ltd under Purchase method

1
P-2
C Ltd and F Ltd decided for amalgamation by selling the two companies and form a new
company CEF Ltd which is formed with an authorized capital Rs 15,00,000 divided into
10,000 equity shares of Rs 100 each and 5,000 9 % Preference shares Rs 100 each.
The assets and liabilities of C Ltd were as follows:
Equity and Liabilities Rs
Issued capital 6,75,000
9,000 equity shares of Rs 100 each Rs 75 paid up
Share premium 81,000
Reserve 15,000
Profit & Loss A/c 9,000
Creditors 5,000
7,85,000
Assets Rs
Land & building 5,50,000
Plant & machinery 1,25,000
Stock 50,000
Debtors 20,000
Bank 18,000
Advertising suspense A/c 22,000
7,85,000
The assets and liabilities of F Ltd were as follows:
Equity and Liabilities Rs
Issued capital 5,00,000
5,000 equity shares of Rs 100 each fully paid
Profit & loss A/c 500
6 % Debenture 50,000
Accrued interest on debenture 1,500
Creditors 27,000
5,79,000
Assets Rs
Goodwill 60,000
Freehold premises 3,20,000
Fixture & fitting 65,000
Stock 15,000
Debtors 1,15,000
Bank 1,000
Preliminary expenses 3,000
5,79,000
It is proposed that the amalgamation of C Ltd & F Ltd should be on the following basis:
1. Land and building to be appreciated by Rs 1,30,000 but freehold premises to be
reduced to 3,10,000.
2. The shareholders of C Ltd to receive one preference share and two equity shares (at a
premium of 10 %) fully paid for three equity shares held.

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 3. The shareholders of F Ltd to receive two preference shares and two equity shares (at
a premium of 10 %) fully paid for every five equity shares held.
4. The expense of amalgamation Rs 10,000 to be borne by the new company.
Prepare Ledger accounts in the books of C Ltd & F Ltd under Purchase method

P-3
The assets and liabilities of Star Ltd and Moon Ltd as at 31-3-2022 is as under:
Equity and Liabilities Star Ltd Moon Ltd
Rs Rs
Equity share capital of Rs 10 each 2,10,000 1,50,000
9 % Redeemable preference shares of Rs 100 each 90,000 ---
Share premium 10,500 ---
Capital redemption reserve 60,000 ---
General reserve 49,500 75,000
8 % debentures 60,000 90,000
Creditors 1,20,000 1,35,000

6,00,000 4,50,000
Assets Rs Rs
Goodwill 15,000 ---
Land & building 1,05,000
Plant 3,00,000 1,35,000
Furniture 5,000 15,000
Vehicles 10,000 15,000
Stock 1,20,000 75,000
Debtors 80,000 50,000
Advances 50,000 35,000
Cash and bank 20,000 20,000
6,00,000 4,50,000
On 1-4-2022 Sun Ltd was formed by amalgamating Star Ltd and Moon Ltd on the following
terms:
1. Sun Ltd to issue 60 – 12 % Debentures of Rs 1000 each to debenture holders of Star
Ltd
2. The debenture holders of Moon Ltd were allotted 7,500 equity shares of Rs 10 each at
Rs 12 per share
3. Preference shareholders of Star Ltd were allotted 900 – 11% Redeemable Preference
shares of Rs 100 each.
4. The equity shareholders of Star Ltd are to be allotted 10 equity shares at par for 7
equity shares held by them. The share of Sun Ltd is of Rs 10 each.
5. The assets of Star Ltd are taken over at book value
6. The assets and liabilities of Moon Ltd are valued at under
a. Goodwill Rs 30,000
b. Land 1, 50,000

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 c. Building 45,000
d. Plant 1, 20,000
e. Other fixed assets 15,000
f. All current assets 1, 50,000
g. All current liabilities 1, 50,000
The balance consideration is to be paid by allotment of equity shares at par to Moon Ltd
Calculate purchase consideration payable to Star Ltd and Moon Ltd
Pass Journal entries in the books of Sun Ltd under Purchase method

P-4
Alpha Ltd and Beta Ltd were amalgamated on and from 1-4-2022. A new company Gamma
Ltd was formed to take over the businesses. The assets and liabilities of Alpha Ltd and Beta
Ltd as on 31-3-2022 are given below: (in lakhs)
Equity and Liabilities Alpha Ltd Beta Ltd
Rs Rs
Share capital
Equity shares of Rs 100 each 1,000 800
15% Preference shares of Rs 100 each 400 300
Reserve & surplus
Statutory reserve 100 80
General reserve 200 150
Profit & Loss A/c 80 60
Secured Loan 96 80
12 % Debenture of Rs 100 each
Current liabilities & Provisions 204 95
2,080 1,565
Assets Rs Rs
Fixed assets 1,200 1,000
Current assets, loans & advances 880 565
2,080 1,565
Other information
1. 12 % Debenture holders of Alpha Ltd and Beta Ltd are discharged by Gamma Ltd by
issuing same number of 16 % Debentures of Rs 100.
2. Preference shareholders of Alpha Ltd and Beta Ltd have received same number of 15
% Preference shares of Rs 100 each of Gamma Ltd
3. Gamma Ltd has issued 1.5 equity shares for 1equity share of Alpha Ltd and
1equity share for 1equity share of Beta Ltd. The face value of shares issued by Gamma Ltd is
Rs100 each.
4. Statutory reserve to be maintained for 3 years.
Pass journal entries in the books of Gamma Ltd assuming amalgamation is in the nature
of merger and prepare Balance sheet

P-5
Following are the assets and liabilities of Bold Ltd and Beautiful Ltd as on 31st March, 2022:

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Liabilities Bold Ltd Beautiful Assets Bold Ltd Beautiful
Ltd Ltd
Equity share capital 5,50,000 2,00,000 Land & building 2,00,000 ----
(Rs10 each)
General Reserve 4,00,000 2,50,000 Plant & machinery 3,00,000 2,60,000
Profit & Loss A/c 1,00,000 48,000 Furniture 50,000 30,000
Statutory reserve 50,000 ---- Investment 1,00,000 -----
(Market value Rs
1,25,000)
12% Debenture ---- 1,00,000 Current asset 7,40,000 4,55,000
Current Liabilities 3,00,000 1,52,000 Preliminary expenses 10,000 5,000
14,00,000 7,50,000 14,00,000 7,50,000
The two companies combine and form a new company called Best Ltd with an authorized
capital of Rs 20,00,000 consisting of 2,00,000 equity shares of Rs 10 each. The terms of
agreement were as follows:
a. All assets and liabilities of both companies were taken at book value except Land &
Building at book value plus 10%, Plant & machinery at book value less 5% and
Investment at its market value.
b. Both the companies received 5% of their valuation of their respective business as
goodwill.
c. The entire purchase consideration was paid in the form of equity shares of Rs 10 each
fully paid at a premium of Rs 5 per share.
Calculate net assets taken over
Prepare statement of purchase consideration
Prepare Balance Sheet of Best Ltd after amalgamation is in the nature of purchase method

ABSORPTION
P-6
Following is the assets and liabilities of Tal Ltd and Sur Ltd as at 31st March, 2022:
Liabilities Tal Ltd Sur Ltd Assets Tal Ltd Sur Ltd
Equity share capital 10,00,000 5,00,000 Building 14,00,000 8,00,000
General reserve 5,00,000 4,00,000 Furniture 1,00,000 2,00,000
Profit & Loss A/c 1,60,000 2,40,000 Computer 50,000 20,000
Statutory reserve 20,000 10,000 Stock 1,20,000 1,80,000
Loans from Tal Ltd 10,000 Debtors 2,40,000 3,00,000
Bills payable 40,000 40,000 Bills 40,000 60,000
receivable
Creditors 2,80,000 4,00,000 Loans to Sur 10,000
Ltd
Cash 40,000 40,000
20,00,000 16,00,000 20,00,000 16,00,000
a. Tal Ltd takes over the business of Sur Ltd for Rs 12,00,000 in the form of equity shares
of Rs 10 each allotted at par.

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 b. Included in bills payable of Tal Ltd amounting to Rs 25,000 accepted in favour of Sur
Ltd for goods purchased.
c. On the date of amalgamation, the stock of Tal ltd include goods purchased from Sur
Ltd at an invoice price of Rs 10,000. Sur Ltd charging profit at 25% on cost.
d. Expenses of liquidation of Sur Ltd Rs 12,000 were met by Tal Ltd.
Prepare Realisation A/c and Equity shareholders A/c in the books of Sur Ltd
Journal entries in the books of Tal Ltd under Purchase method

P-7
On 31st March, 2022Moon Ltd was absorbed by Sun Ltd the latter taking over all assets and
liabilities of the former company at book values. The consideration for the business was
fixed at Rs 12,00,000 to be discharged by Sun Ltd in the form of fully paid equity shares of Rs
10 each to be distributed among the shareholders of Moon Ltd.The assets and liabilities of
the two companies as on 31st March, 2022 was as follows:
Liabilities Sun Ltd Moon Ltd Assets Sun Ltd Moon Ltd
Equity shares of Rs 20,00,00 10,00,000 Goodwill 4,00,000 2,00,000
10 each
Statutory reserve 60,000 40,000 Furniture 8,24,000 4,00,000
General reserve 8,00,000 1,60,000 Computer 5,16,000 1,00,000
Profit & Loss A/c 40,000 20,000 Stock 8,40,000 2,00,000
Creditors 1,20,000 1,20,000 Debtors 5,60,000 3,60,000
Bills Payable 1,60,000 40,000 Cash 40,000 60,000
Provision for tax 80,000 60,000 Bank 1,80,000 1,20,000
32,60,000 14,40,000 33,60,000 14,40,000
Amalgamation expenses amounting to Rs 24,000 were paid by Sun Ltd in cash.
▪ Show the following ledger accounts in the books of Moon Ltd
Realisation A/c
Equity shareholders A/c
▪ Pass Journal entries in the books of Sun Ltd under merger method

EXTERNAL RECONSTRUCTION
P-8
The books of S Ltd contained the following balances as on 31-3-2022:
Particulars Dr Cr
Rs Rs
Equity share capital 12,00,000
( Rs 10 each )
Creditors 14,00,000
Patents & trade marks 12,00,000
Plant & Machinery 4,00,000
Stock 3,00,000
Debtors 5,00,000
Cash 12,500
Preliminary expenses 72,500

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Profit & Loss A/c 1,15,000
26,00,000 26,00,000
The company is not in a position to raise any further capital the following scheme of
reconstruction has therefore been framed:
1. The company will go into voluntary liquidation. A new company S.S Ltd will be
formed with an authorized capital of Rs 20, 00,000 to take over the assets and
liabilities.
2. After take over the New Company will discharge the liability to creditors by
payment of 25p in a rupee in cash and 50p in a rupee by issue of 14 % Debentures.
3. 1,20,000 shares of Rs 10 each (Rs 5 per share paid up) will be issued to the
shareholders of S Ltd and the balance Rs 5 per share was paid on allotment.
4. Expenses of liquidation amounting to Rs 17,500 will be paid by S.S Ltd
5. The scheme was duly approved by all parties.
Prepare following ledger accounts in the books of S Ltd.
● Realisation A/c
● Equity shareholders A/c
● S.S Ltd A/c
● Equity shares in S.S Ltd A/c
Give Journal entries in the books of S.S Ltd.