Illustration 22

The following is the Summary Balance Sheet of Vikrant Ltd:

Liabilities ₹ Assets ₹
Issued and Paid up Intangible Assets 50,000
Equity Share Capital 5,00,000 Fixed Assets 4,20,000
Statutory Reserve (to be mentioned 10,000 Current Assets 1,10,000
for 3 more years) Profit & Loss A/c 80,000
Debentures 1,00,000
Creditors
50,000_ 6,60,000
6,60,000

Virat Ltd agreed to absorb Vikrant Ltd on the following terms:

(1) Virat Ltd agreed to take over all the Assets and Liabilities.
(2) The Assets of Vikrant Ltd are to be considered to be worth ₹ 5,00,000.
(3) The purchase price is to be paid one-quarter in cash and the balance in shares,
which are issued at the market price.
(4) Liquidation expenses amounted to ₹300 agreed to be paid by Vikrant Ltd.
(5) Market value of share of ₹ 10 each of Virat Ltd is ₹12 per share.
(6) Debentures of Vikrant Ltd were paid.
(7) The amalgamation is in the nature of purchase
You are required to show :
a) Purchase Consideration
b) Ledger accounts in the books of Vikrant Ltd
c) Opening entries in the books of Virat Ltd
Solution:
Purchase Consideration (PC):
Particulars ₹ ₹
Market value of assets taken over --- --- --- --- --- 5,00,000
Less: Liabilities taken over
Creditors --- --- --- --- --- 50,000
Debentures --- --- --- --- --- 1,00,000 1,50,000
3,50,000

Purchase Consideration is to be Discharged

In cash 1/4 x ₹ 3,50,000 87,500
In shares 3/4 x ₹ 3,50,000 2,62,500
3,50,000
Working Notes:
No. of shares to be issued to the vendor co. has been calculated as under:
Amount to be paid in shares : 3/4 of ₹ 3,50,000 =2,62,500
Agreed Value of 1 share ₹ 12
No. of shares = 2,62,500 / 12 21,875 shares

In the books of Vikrant Ltd

Dr. Realisation Account Cr
Particulars ₹ Particulars ₹
To Intangible Assets 50,000 By Debentures 1,00,000

To Fixed Assets 4,20,000 By Creditors 50,000

To Current Assets 1,10,000 By Virat Ltd. (PC) 3,50,000

To Bank (Expenses) 300 By Equity 80,300

Shareholders (Loss on ________
__________ realisation) 5,80,300
5,80,300
Equity Shareholders Account
Particulars ₹ Particulars ₹
To Realisation A/c 80,300 By Equity Share Capital 5,00,000
By Statutory Reserve 10,000
To Profit & Loss A/c 80,000

To Bank 87,200

To Shares in Virat Ltd. 2,62,500

_______ 5,10,000
_
5,10,000

Virat Ltd Account

Particulars ₹ Particulars ₹
To Realisation A/c 3,50,000 By Bank A/c 87,500

By Shares in Virat Ltd. 2,62,500

3,50,000 3,50,000
Bank A/c
Particulars ₹ Particulars ₹
To Virat Ltd. 87,500 By Realisation A/c 300
87,200
87,500 By Equity Shareholders 87,500

Equity Shares in Virat Ltd.

Particulars ₹ Particulars ₹
To Virat Ltd. 2,62,500 By Equity Shareholders 2,62,500
2,62,500 2,62,500
 In the books of Virat Ltd.
Journal
No. Particulars Dr. Cr.
1. Business Purchase A/c Dr. 3,50,000
3,50,000
To Liquidators of Vikrant Ltd. A/c

[Being P. C. agreed with Vendor Co.]

______________________________________
2 Fixed Assets A/c Dr. 4,20,000
Dr. 1,10,000
Current Assets A/c
50,000
To Trade Creditors A/c
1,00,000
To Debentures in Vikrant A/c
30,000
To Capital Reserve A/c
3,50,000
To Business Purchase A / c

[Being Assets & Liabilities taken over]

3. Liquidators of Vikrant Ltd. A/c Dr. 3,50,000

To Equity Share Capital A/c 2,18,750

To Securities Premium A/c 43,750
To Bank A/c 87,500
[Being purchase consideration paid]
4 Amalgamation Adjustment Reserve To Dr. 10,000
10,000
Statutory Reserve [Being Statutory Reserve
carried forward]

5. Debentures in Vikrant A/c To Bank A/c Dr. 1,00,000

1,00,000
[Being payment to Debenture holders of vendor
Co. being Debenture not taken over]