Advanced Corporate Accounting Mergers & Acquisitions

Problem – 3 (Bangalore University, June 2018, SM 477 – 14 marks)

Following is the Balance Sheet of Rama Ltd on 31-03-2018

Liabilities Amount Assets Amount

Share Capital: Buildings 1,50,000
30,000 E. Shares of ₹ 10 each 3,00,000 Machinery 1,00,000
General Reserve 10,000 Stock-in-trade 35,000
Profit & Loss A/c 20,000 Sundry Debtors 70,000
Sundry Creditors 50,000 Bank 5,000
Preliminary Expenses 20,000
Total 3,80,000 Total 3,80,000

Leela Ltd acquired Rama Ltd and agreed to take over the assets except the debtors & cash
but took over no liabilities. However, agreed to pay Creditors out of the collections from
Debtors, which amounted to ₹ 65,000.

Leela Ltd discharged the Purchase Consideration by allotment of 10 Equity Shares for every
20 shares held in Rama Ltd. of ₹ 10 each at a market price of ₹ 20 each & ₹ 5 in cash for
every share in Rama Ltd. Expenses of liquidation amounted to ₹ 5,000.

Show necessary Ledger Accounts to close the books of Rama Ltd. & Prepare the Balance
Sheet of Leela Ltd after acquisition.

Solution:

Step:1 – Calculation of Purchase Consideration (Net Payment Method)

Particulars Amount
Payment to E. Shareholders
• In the form of E. Shares of Leela Ltd 3,00,000
(30,000 shares x 10/20 x ₹ 20) (15,000 shares)
• In the form of Cash 1,50,000
(30,000 x ₹ 5 per share)
Total Purchase Consideration ₹ 4,50,000

Step:2 – Ledger A/cs in the books of Rama Ltd

In the books of Rama Ltd

Dr Realiazation A/c Cr
Particulars Amount Particulars Amount
To Buildings A/c 1,50,000 By S. Creditors A/c 50,000
To Machinery A/c 1,00,000 By Leela Ltd A/c 4,50,000
To Stock-in-trade A/c 35,000 By Cash A/c 65,000
To Sundry Debtors A/c 70,000
To Bank A/c 50,000
(Payment of S. Crs)
To Bank A/c 5,000
(Liquidation Expenses)
To E. Shareholders A/c 1,55,000
(Realization Profits) (Bal. figure)
5,65,000 5,65,000

Dr Leela Ltd A/c Cr

Particulars Amount Particulars Amount
To Realization A/c 4,50,000 By E. Shares in Leela Ltd A/c 3,00,000
By Cash A/c 1,50,000
4,50,000 4,50,000

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Advanced Corporate Accounting Mergers & Acquisitions

Dr E. Shares in Leela Ltd A/c Cr

Particulars Amount Particulars Amount
To Leela Ltd A/c 3,00,000 By E. Shareholders A/c 3,00,000

3,00,000 3,00,000

Dr Cash & Bank A/c Cr

Particulars Amount Particulars Amount
To Bal b/d 5,000 By Realization A/c 50,000
(Payment of S. Crs)
To Leela Ltd A/c 1,50,000 By Realization A/c 5,000
(Liquidation Expenses)
To Realization A/c 65,000 By E. Shareholders A/c 1,65,000
(Bal. Fig)
2,20,000 2,20,000

Dr E. Shareholders A/c Cr
Particulars Amount Particulars Amount
To Prel. Expenses A/c 20,000 By Realization A/c 1,55,000
(Realization Profits)
To E. Shares in Leela Ltd A/c 3,00,000 By General Reserve A/c 10,000
To Cash & Bank A/c 1,65,000 By Profit & Loss A/c 20,000
By E. Share Capital A/c 3,00,000
4,85,000 4,85,000

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Advanced Corporate Accounting Mergers & Acquisitions

In the Books of Leela Ltd

Balance Sheet (after acquisition)

Particulars Note No Amount
I. Capital & Liabilities
1. Shareholders Funds
a. Share Capital 1,50,000
15,000 E. Shares of ₹ 10 each
b. Reserves & Surplus
Securities Premium (15,000 x 10) 1,50,000
2. Non-Current Liabilities -
3. Current Liabilities -
Bank overdraft 1,50,000
Total 4,50,000
II. Assets
1. Non- Current Assets
• Fixed Assets
Goodwill (Bal. Fig) 1,65,000
Buildings 1,50,000
Machinery 1,00,000
2. Current Assets
Inventory 35,000
Total 4,50,000

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