Fa Iii

B.
COM (H) part III
Paper 3.1 HA : Financial Accounting
Unit1: Investment Accounting

1. What is an investment Account? What are the main purposes of making investments?
2. Explain important points to be noted as per the guidelines issued by accounting standard
-13 regarding accounting for investment.
3.write a short note on :
A) Cum dividend and ex dividend transactions.
b) Cum interest and ex interest transactions.
C) Right shares received in course of investments.
4. X co ltd held on 1.1.2014 Rs 250000 10% Govt bond at Rs 238000, interest for 3 month
accrued and due on the said date. On 30.6.2014 ,the Co. purchased further Govt. bonds of
the face value RS 50000 @95% net cum interest. On 30.8.2014 , Rs 50000 of the govt bonds
was sold for @Rs 96 net ex interest. 30.9.2015,Rs 30000 of the Govt. bond was sold @ Rs 95
net cum interest. Interest on bonds was payable on 31st march and 30th September every
year. Half yearly interest was collected and credited by the bank on 5th September 2014 and
6th October 2015. The market price of the bond on 31st December 2015 was Rs 97.
You are require to prepare investment accounts in the books of X co. ltd.
5. On 1.4.2015, profitable finance Ltd held 12% debenture in babul fibres Ltd of the face
value of Rs 25,000 at a cost of Rs 20,000.The market value on that date was Rs 22,500.
Interest is payable every year. On 1.11.2015 , debentures of the nominal value of Rs 15,000
was purchased for Rs. 12,500 ex- interest and on 1.12.2015,debentures of the nominal value
of Rs 5,000 was sold cum interest for Rs 4,800. On 1.1.2016 debentures of the nominal value
of Rs. 15,000 was bought for Rs. 14,500. The market value of the debentures on 31st march
2016 was Rs. 92.
Draw an Investment Account in the books of Profitable Finance Ltd showing profit or loss on
sale of investment. Stock on 31st march each year are valued at lower of average cost and
market value.
6. Paul and co. held on 1.1.2015 Rs 60,000 7% Govt bond at Rs 37,000. 3 months interest
had accured on 31 st May 2015.The co. purchased a further Rs 24,000 of the loan at 96 net
cum interest. On 31.07.2015, Rs. 18,000 of the loan sold at Rs. 94 ex- interest. On
30.11.2015 , Rs.12,000 of the loan was sold at 96 net cum- interest. Interest of the loan was
paid in cash in each year .On 31 st March and 30.09.2015 was credited by the bank on 4th
april and 5 th October respectively.the price of the loan on 31.12.2015 was rs 96.
Draw up investment account in the books the Company.
7. Bidhan Nagar Capital Investment Ltd bought and sold 6% stock as follows, interest
payable on 31st march and 30th September each year.
2015,
7
March 1 ,bought rs 24000@958 % cum interest
5
June 15, sold rs 10000@958% ex interest
3
August 1 bought rs 6000 @918% ex interest.
1
September 1 sold rs 4000 @ 938% ex interest
1
December, bought rs 12000@943 % cum interest
Prepare Inmvestment Account for the year ended 31st December 2015 assuming brokerage
1
% in each transaction.
8
8. On 1/4/2015, Paran had 35000 equity share in Profit Making Ltd at a book value of Rs 15
per share( face value rs 10). On 1/6/2015 he purchased 5000 more share of the same Co. at
Rs 16 per share. On 15/8/2015 Profit Making Ltd issued bonus shares on the basis of 1 :
4. Dividend @ 10% for the year ended 31/3/2015 were paid by Profit Making Ltd . On
31.10.2015 but no dividend was paid on bonus share. On 1/12/2015 ,30000 equity shares
were sold at a a premium of 5 per share
Prepare Investment Account in the books of Paran.
Unit 2 :Conversion of partnership into Limited company and Amalgamation of firms.
Theoretical Questions
1. Write what you know about acquisition of business by a company.
2. What is Purchase Consideration? How is it calculated?
3. State the imaginary entries in the books of a purchasing co. For mutual debts and mutual
liabilities taken over from a running business.
4. What is Amalgamation of Firms? Why is it made?
5. What are the accounting records to be made in the new books of (a) the amalgamating firms
and (b) the new firm?
Problem – 1.
Amit and Asit were in partnership sharing profits and losses in the ratio 2:1. The summarised
Balance sheet of the firm as on March 31, 1996 were as follows:
Liabilities Amount Assets Amount
Rs. Rs.
Fixed Capital Accounts Fixed Assets 70000

Amit 50000 Current Assets:
Asit 40000 Stock 35000
_____ 90000
Current Accounts Debtors 65000
Amit 20000 Balance at
Less :Asit 10000 bank 15000
_____ _____ 115000
10000
Loan :Asit 30000
Creditors 55000
_____ _____
185000 185000
_____ _____
The fixed assets included two motor cars having book value of Rs. 8000 and Rs. 6000
respectively.
The partners desiring to retire from business, accept offer of Western India Ltd. To acquire
the stock and fixed Assets, other than Motor cars, at an agreed purchase price of Rs. 160000.
The purchase consideration was to be satisfied by a cash payment of Rs. 56000, the
allotment from the company to the partners of 400, 5% preference shares of Rs. 100 eachg
and 900 Equity shares of Rs. 100 each.
The Debtors realised Rs. 61000 and the Creditors were settled for Rs. 51000. The partners
agreed that the following should be the basis of distribution of dissolution:
i) Amit to take over one car at a valuation of Rs. 12000 and Asit at Rs. 8000.
ii) Asit to be allotted preference shares to the value of his loan, the remainder to be
allotted to Amit.
iii) The Equity shares to be allotted in proportion of Fixed Capitals.
iv) Both the preference and Equity shares to be valued at Rs. 80 per share.
v) The balance to be settled in cash.
You are required to prepare: a) the Realisation Account, b) the bank Account, c) the
partners Capital Accounts showing the final settlement and d) the balance sheet of
Western India Ltd.
Problem – 2.
Conversion on a date subsequent to the date of Balance Sheet
A and B were carrying on business sharing profits and losses equally. The firm’s Balance
sheet as at 31.12.96 was :
Liabilities amount Assets Amount
Rs. Rs.
Sundry Creditors 60000 Stock 60000
Bank Overdraft 35000 Machinery 150000
Capital A/c : Debtors 70000
A 140000 Joint Life Policy 9000
B 130000 Leasehold premises 34000
_____ 270000 Profit and Loss A/c 26000
Drawing Accounts
A 10000
B 6000
_____ 16000
______ _____
365000 365000
______ _____
The business was carried on till 30.6.1997. the partners withdrew in equal amounts half the
amount of profits made during the period of six months after charging depreciation at 10% p.a. on
machinery and after writing off 5% on household premises. In the half year, sundry creditors were
reduced by Rs. 10000 and bank overdraft by Rs. 15000.
On 30.6.1997, stock was valued at Rs. 75000 and Debtors at Rs. 60000; the joint Life policy
had been surrendered for Rs. 9000 before 30.6.1997 and other items remained the same as at
31.12.1996.
On 30.6.1997 the firm sold the business to a limited company. The value of goodwill fixed at
Rs. 100000 and the rest of the assets were valued on the basis of the Balance sheet as at 30.6.1997.
The company paid the purchase consideration in Equity Shares of Rs. 10 each.
You are required to prepare : (a) Balance sheet of the firm as at 30.6.1997; (b) the
Realisation Account, (c) Partners Capital Accounts showing fie final settlement between them.
Problem 3.
A and B are carrying on business as equal partners. The firms balance sheet as on 31st
December, 1996 was as follows:

Rs. Rs.
Capital Accounts Fixed Assets :
A 138000 Leasehold Building 80000
B 152000 Plant and Machinery 180000
Bank Loan 40000 Furniture 20000
Current Liabilities : Current Assets :
Bills Payable 10000 Book Debts 68000
Cash at Bank 2000
______ ______
410000 410000
______ ______
The business was carried on till 30th June, 1997. The partners withdrew in equal amounts
half the amount of profits made during the period of six months [ from January to June 1997] after
charging depreciation on : Leasehold building – 10% per annum; Plant and Machinery – 10% per
annum; Furniture – 10% per annum.
Meanwhile Sundry Creditors were reduced by Rs. 15000; Bills payable by Rs. 2500 and Bank
Loan by Rs. 20000.
On 30th June Stock was valued at Rs. 70000, Book Debts were Rs. 75000 and Cash at Bank
was Rs. 2500.
On 30th June 1997, the firm sold the business to a Limited Company for Rs. 400000 payable
in Equity shares of Rs. 10 each.
The partners decided to take shares in the profit sharing ratio, any difference to be settled in
cash.
You are required to prepare : (1) Statement of Net Assets as on 30th June 1997; (2)
Statement of profit earned during the period six month ended on 30.6.97; (3) Realisation Account;
(4) Capital Account of the partners.
Problem – 4
Conversion made on a date subsequent to the date of Balance Sheet.

Jagai and Madhai were equal partners. Their Balance Sheet as on 31.12.97 was as follows :

Rs. Rs.
Jagai 49500 Leasehold Prem. 45000
Madhai 88500 Machinery 36000
_____ 138000 Furniture 3000
Bills Payable 20000 Joint Life policy 15000
Bank Overdraft 58000 Stock 84000
Sundry Creditors 111000 Sundry Debtors 120000
Current Accounts :
Jagai 18000
Madhai 6000
______ ______
327000 327000
______ ______
The business was carried on till 30.6.1998 during which a net profit of Rs. 24600 was earned after
writing off depreciation @ 10% p.a. on leasehold premises. During these 6 months the following
reductions took place –
Sundry Creditors by Rs. 24000, Bills Payable by Rs. 5850 and Bank overdraft by Rs. 6000.
Current values of stock is Rs. 90600 and Sundry Debtors Rs. 92400. But obsolete stock and
unrealisable book debts should be written off at 5% and 2.5% respectively for the purpose of
handing over the business to a company, Similarly, each partner has withdrawn Rs. 6000 during this
period which should be reckoned. The company decides to pay Rs. 90000 for the goodwill of the
firm.
Problem – 5
A, S and R carried on a manufacturing business in partnership sharing profits and losses in the ratio
5:3:2.
It was agreed that A should retire from the partnership on 31st March, 1997, and a private limited
company, S and R Ltd. Was formed to take over the business and certain assets of the partnership on
that date.
The authorised capital of S and R Ltd. Was Rs. 700000 divided into 10000 preference shares of Rs. 20
each and 25000 ordinary shares of Rs. 20 each.
The firms balance sheet as on 31st March 1997 was as below :

Rs. Rs.
Capital Accounts: Fixed Assets and less
A 200000 depreciation to date:
S 184000 Machinery 160000
R 96000 Motor cars 52000
_____ 480000 Furniture 28000
Current A/C : _____ 240000
A 90000 Goodwill 40000
R 40000 Life Assurance Policy 70000
_____ Stock 180000
130000 Debtors (net) 116000
Less : S overdr. 10000 Bank Balance 144000
_____ 120000 _____ 440000
Loan Account – A 120000
Creditors 70000
_____ ______
790000 790000
_____ ______
S owned the freehold premises occupied by the firm and he agreed to sell them to the
company in return for the issue to him of 2000 preference shares at par.
The company agreed to discharge A’s loan by the issue to him of 6000 preference shares at
par.
The life assurance policy had been taken out on the life of S and was surrendered on 5th
March, 1997, for Rs. 84000 which was received by the partners on 1st April, 1997.
On his retirement, A took over one of the cars at the book value of Rs. 14000. The furniture
in his private office was his property , for which the company paid him Rs. 5000. He agreed further
to take over the partnership debtors at the balance sheet value less 5% and to pay the creditors.
S and R Ltd. Agreed to purchase the remaining assets, including the bank balance for Rs.
520000, the purchase consideration being discharged by the payment of Rs. 80000 in cash and the
issued of 22000 ordinary shares to A,S and R in proportion in which they shared profits.
Formation expenses of Rs. 11000 was paid by the company.
For the purpose of opening entries in the company’s books the assets taken over from
partnership were valued : machinery Rs. 140000 motor cars Rs. 40000, furniture Rs. 20000, Stock Rs.
150000.
You are required to prepare : (a) the realisation account of the partnership, (b) the partner’s
combined capital and current accounts (in columnar form) showing the dissolution of the
partnership, (c) the opening balance sheet of S and R Ltd. As on 31st March, 1997.
Problem – 6
Stern, Bow and Keel have carried on partnership for several years, sharing profits and losses
equally after allowing salaries of : Stern Rs. 10000 p.a Bow Rs. 6000 p.a, Keel Rs. 6000 p.a.
They decided to convert the partnership into a limited company, Amid ships Ltd. As at 31st
October 1996 (the mid-point of their financial year) on the following terms :
(a) Goodwill to be valued at Rs.45000, (b) Other assets to be revalued as follows: Freehold
property- Rs. 90000. Equipment Rs. 8000. Motor vehicle Rs. 20000 (c) shares to be
issued to each partner at par in respect of the amounts of their equity holding at 31st
October. The company is incorporated on 1st November. (d) each partner is to become a
director of the company at a similar salary to that previously allowed in the partnership
and drawn out by the partners. (e) Bow’s loan is to be converted into share capital at
par.
No action has been taken to carry out the terms of the conversion of the partnership
into the limited company in the books of account. At 30th April 1997 a trial balance
showed the following position.
The trial balance of Amidships Ltd. As on 30th April 997.
Debit Balance Amount Credit Balance Amount
Rs. Rs.
Drawings during the year capital A/c at May 1, 1997
Stern 10000 Stern 60000
Bow 6000 Bow 30000
Keel 6000 Keel 20000
Stock 30th April 1997 48000 Sales 200000
Cost of Sales 120000 Accumulated Depreciation
Administration expenses 20000 Equipment 12000
Selling and distribution exp. 10000 Accumulated Depreciation
Financial, Legal and profess. Motor Vehicles 12000
Expenses 4000 Trade Creditors 24000
Expense of conversion to Accruals 1000
The company 2000 Loan-Bow (10% interest) 30000
Freehold property at cost 75000 Bank A/c 4000
Equipment at cost 20000
Motor Vehicle at cost 40000
Trade debtors 30000
Prepayments 2000
______ ______
393000 393000
______ ______
Additional information:
1. The sales during the second half of the year were 60% of the total sales though the gross
profit percentage remained the same through the year.
2. The selling and distribution expenses were in proportion to the sales for each period. All
other overhead expenses were incurred evenly throughout the year.
3. There were no purchase or sales of fixed assets during the year.
4. Depreciation is to be provided on original cost as follows:
Equipment 10% p.a Motor vehicles 20% p.a.
5. The drawings were made evenly. Drawing made after incorporation are to be considered
as director’s salaries.
6. No dividends are paid or proposed but it is decided to write off the preliminary expenses
and also Rs. 5000 of the goodwill.
You are required to prepare :
(a) The trading and profit and loss account of the partnership for the period ended on
31st October 1996.
(b) Partner’s Capital Accounts showing final adjustment to close the books of account of
the partnership firm.
(c) A Balance Sheet of Amidships Ltd. As at 30th April 1997. (Ignore Taxation).
Problem – 7
Somsons Ltd. Agreed to purchase the business of a firm consisting of two brothers –
K. Som and D. Som as on 31st March, 1998. The balance sheet of the firm on the date was as
follows :
Balance Sheet
Rs. Rs.
CapitalAccounts : Land and Building 47000
K Som 76000 Plant & Machinery 28000
D. Som 58000 Furniture & Fixtures 7000
General Reserve 30000 Stock-in-trade 62000
Sundry Creditors 37000 Sundry Debtors 55000
Outstanding Expenses 3000 Cash 5000
_____ _____
704000 704000
_____ _____
The company agreed to take over the liabilities and all the assets, with the exception of cash,
the agreed purchase price being Rs. 180000 to be satisfied as to ¼ in cash and ¾ by the issue
of fully paid equity shares of Rs. 10 each at an agreed value of Rs. 12.50 per share.
The company made the following revaluations of the assets taken over when bringing them
into books :
Rs.
land and Building 62000
plant and Machinery 25000
Furniture and Fixtures 5000
Stock –in-trade 58000
Sundry Debtors 50000
Give the entries necessary to record the acquisition of the business in the books of the
company.
Problem - 8
A and B are partners of A & Co. Sharing profits & losses in the ratio of 3:1. B and C
are partners of B & Co. Sharing profits & losses in the ratio of 1:2. Both the firms engaged in
same line of production. In order to remove the competition they wanted to amalgamate to
a new firm “AB & Co. Sharing profits & losses equally.
The balance sheet as on 31.3.2011 are given below:
Liabilities A & Co. B & Co. Assets A & Co. B & Co.
Rs. Rs. Rs. Rs.
Capital: Goodwill 10000 -----
A 50000 ----- Property 40000 80000
B 30000 30000 Stock 30000 40000
C ----- 40000 Sundry Debtors 40000 30000
Sundry Creditors 30000 50000 Cash & Bank 15000 10000
D’s Loan ---- 10000 Investment Nil ----
Investment Reserve 5000
Reserve Fund 20000 30000
_____ _____ _____ _____
135000 160000 135000 160000
_____ _____ _____ _____
The terms & conditions for amalgamation on 1.4.11 are given below :
i) Goodwill is to be valued at 3 years purchase of average profit of last 5 years after
adjustment of salary of partners @ Rs. 500 p.m. each as opportunity cost.
ii) Profits of last 5 years before partners salaries :
A & Co. B & Co.

Rs. Rs.
2006-2007 22000 27000
2007-2008 24000 26000
2008-2009 20000 30000
2009-2010 25000 24000
2010-2011 34000 28000
iii) Value of Properties are to be appreciated by 20% and 30% respectively.

iv) A & Co. Owed to B & Co. For Rs. 10000 on the date of Balance Sheet.
v) The value of investment had fully written off in earlier years due to heavy market
depression. However, the related reserve remained in the books. Such investment in
shares in M Ltd. (Face Value Rs. 10000) is sold out on 1.4.11 at 20% profit over face
value.
vi) Provision is to made on Trade Debtors @ 10% for doubtful debts and on trade Creditors
@ 10% for discount.
vii) The partners want to write off goodwill from the books.
Prepare Capital Accounts of Partners in the books of A & Co. B & Co. Show the new
Balance sheet of the new firm.
Unit 3 :Amalgamation, absorption and Reconstruction of Companies.
Theoretical Questions:
1. What do you mean by Amalgamation of Companies ?what are its different forms?
2. Write what you know about “amalgamation in the nature of Merger”.
3. What is pooling of Interest method ? Distinguish it from Purchase Method.
Problem – 1
The following are the Balance Sheets of X Ltd. And Y Ltd. As on 31.3. 2016:
Particulars Note X LTD. Y Ltd.

No.
I. EQUITY AND CAPITAL
1. Shareholders' Funds
Share Capital 1 1,00,000 60,000
Reserves &Surplus 2 40,000 -
2. Non-current Liabilities
6% Debentures 20,000 -
3. Current liabilities
Trade creditors 10,000 8,000
Employee Provident Fund 3,000
---------------- --------------
Total 1,73,000 68,000
II. ASSETS ---------------- ---------------
1. Non- Current Assets
(a) Fixed Assets:
Tangible Assets 3 1,40,000 50,000
2. Current Assets
Inventories
16,000 8,000
Trade Receivables 14,000 9,000
Cash and cash equivalents 3,000 1,000
---------------- --------------
1,73,000 68,000
---------------- ---------------
Notes to Accounts:
X Ltd. Y Ltd.
1. Share Capital
Authorised Capital
Issued and Subscribed capital
(a) 10,000 shares of Rs.10 each 1,00,000
(b) 6,000 shares of Rs. 10 each 60,000
2. Reserves and Surplus

Reserve fund 34,000
Dividend Equalisation Reserve 4,000
Profit & Loss A/c 2,000
3. Tangible Assets
Land & Building
Plant & Machinery 30, 000
1,10,000
The two companies agree to amalgamate and form a new company called Z ltd. which
takes over the assets and Liabilities of both the companies. The authorised capital of Z
Ltd. Is Rs. 1000000 consisting of 100000 Equity Shares of Rs. 10 each.
The assets of X Ltd. are taken over at a reduced valuation of 10% with the exception of
Land and Buildings which are accepted at book value.
Both companies are to receive 5% of the net valuation of their respective business as
goodwill. The entire purchase price is to paid by Z Ltd. in its fully paid shares. In return
for debentures in X Ltd., Debentures of the same amount and denomination are to be
issued by Z Ltd.
Give Journal Entries to close the books of X Ltd. And Y Ltd. And show the opening
Balance sheet of Z Ltd.
Problem – 2
Given below are the Balance Sheets as on 31st March 2016 of Upasi Ltd. and Batasi Ltd. which are
amalgamated to form a new company Kalinga Ltd.
Particulars Note Upasi Ltd. Batasi
No. Ltd.
I. EQUITY AND LIABILITY
1. Shareholders' Fund
(a) Share Capital 1 2,00,000 2,50,000
(b) Reserves & Surplus 2 1,60,000 5,000
2. Non- Current Liabilities

(a) Long term Borrowing 20,000
3.Current Liabilities
(a) Trade Payables 60,000 90,000
------------ ---------------
Total 4,40,000 3,45,000
------------ ---------------
II. ASSETS
(a) Fixed Assets: 1,40,000 1,20,000
(b) Intangible Assets: 90,000 30,000
2. Current Assets
(a) Current Investment 65,000
(b)) Inventory 55,000 70,000
(c)Trade Receivables 64,000 1,23,000
(d)Cash and Cash Equivalents 26,000 2,000
------------ -------------
Total 4,40,000 3,45000
------------ -------------
Notes to Accounts
Upasi Ltd. Batasi Ltd.
1. Share Capital
Authorised Capital ? ?
Subscribed and paid up capital 2,00,000
(a) 20,000 equity shares of Rs10 each 2,50,000
(b) 25,000 equity shares of Rs 10 each
2. Reserves and Surplus 80,000 (65,000)

(a) Profit & Loss Account - 70,000
(b) General Reserve 70,000
(b) Building Fund 10,000
(c) Accident Fund
75,000 25,000
3. Tangible Assets 15,000 5,000
(a) Goodwill
(b) Patent
The scheme of amalgamation is as under :
i) The Kashmira Ltd. Shall take over all the assets and liabilities excluding loans of
Aspi Ltd. At an agreed value of goodwill of Rs. 100000.
ii) Aspi Ltd. Shall receive from Kashmira Ltd. As payment of purchase consideration
Rs. 14000 in cash and the balance in fully paid equity shares in Kashmira Ltd.
iii) Eventually Aspi Ltd. Shall fully pay off its loans together with accrued interest of
Rs. 1000.
iv) All the Liabilities and assets excluding building of Bina Ltd. Shall be taken over by
Kashmira Ltd. For Rs. 75000 to be paid in fully paid equity shares in Kashmira
Ltd.
v) Goodwill of Bina Ltd. Shall be taken as worthless for the purpose of
amalgamation.
vi) Eventually Bina Ltd. Shall realise building at a profit of 25 per cent.
You are required to show Ledger Accounts closing the books either Aspi Ltd. Or
Bina Ltd.
Problem – 3
E. Ltd. And F Ltd. Agree to amalgamate by transferring their undertakings to a new
company EF Ltd. Formed for that purpose. On the date of the transfer, the Balance Sheets of
the two companies were as under:
Particulars Note E Ltd. F Ltd.
No.
I. EUQITY AND LIABILITY
1. Shareholders' Fund
(a) Share Capital 1 3,00,000 1,00,000
(b) Reserves and Surplus 2 80,000 9,000
2. Non- Current Liabilities

(a) Long term Borrowings 3 20,000 20,000
3. Current Liabilities
(a) Trade Payables 16,000 23,000
--------------- -----------
Total 4,16,000 1,52,000
---------------- ------------
II. ASSETS
(a) Fixed Assets:
i. Tangible Assets 2,45,000 1,20,000
2. Current Assets
(a) Current Investment 50,000 10,000
(b) Trade Receivables 70,000 18,000
(c) Cash and Cash equivalent 51,000 4,000
-------------- -----------
4,16,000 1,52,000
-------------- -----------
Notes to Accounts
E Ltd. F Ltd.
1. Share Capital
Authorised Capital ? ?
Issued, Subscribed and Paid up capital
(a) 30,000 equity share of Rs 10 each 3,00,000
(b) 10,000 equity share of Rs 10 each 1,00,000

(a) General Reserve 80,000 5,000
(b) Profit and Loss Account 4,000
3. Fixed Assets - Tangible

(a) Freehold Property 25,000
(b) Other Fixed Assets 2,20,000 1,20,000
The purchase consideration consisted of : (i) the assumption of habilities of both the
companies; (ii) the discharge of the Debentures in F Ltd. At a premium of 10%; (iii) the issue
of Equity Shares of Rs. 10 each at a premium of Rs. 5 per share in EF Ltd.
For the purpose of transfer, the assets are to be revalued as under :
E Ltd. F Ltd.
Rs. Rs.
Freehold Property 60000 ____
Other Fixed Assets 210000 150000
Investments 55000 25000
Debtors 60000 16000
Goodwill 50000 30000
Calculate Purchase Consideration of each vendor company and indicate the basis on which
shares of EF Ltd. Will be distributed among shareholders of E Ltd. And F Ltd. Respectively.
Problem – 4
Star and Moon had been carrying on business independently. They agreed to amalgamate
and form a new company Neptune Ltd. With an authorised share capital of Rs. 200000
divided into 40000 equity shares of Rs. 5 each
On 31st December 1995, the respective Balance sheets of Star and Moon were as follows:
Star (Rs.) Moon(Rs.)

Fixed Assets 317500 182500
Current Assets 163500 83875
______ ______
481000 266375
Less : Current Liabilities 298500 90125
______ ______
Representing Capital 182500 176250
______ ______
Additional information :
a) Devalued figure of Fixed and Current Assets were as follows :
Fixed Assets 355000 195000
b) The debtors and creditors include Rs. 21675 owed by Star to Moon.
The purchase consideration in satisfied by issue of the following shares and debentures :
i) 30000 equity shares of Neptune Ltd. To Star and Moon in the proportion to the
net profitability of their respective business based on the average net profit
during the last three years which were as follows :
1993 Profit 224788 136950
1994 (Loss)/Profit (1250) 171050
1995 Profit 188962 179500
ii) 15% debentures in Neptune Ltd. At par to provide an income equivalent to 8%

return on capital employed in their respective business as on 31st December,
1995 after revaluation of assets.
You are required to :
1) Compute the amount of debentures and shares to be issued to Star and Moon.
2) A Balance sheet of Neptune Ltd. Sharing the position immediately after amalgamation.
Problem – 5 : With an authorised capital of Rs. 400000 in equity shares of Rs. 10 each a new
companyTista Ltd. Was formed to take over the assets and liabilities of Meghna Ltd. The summarised
Balance sheet of Meghna Ltd. On 31st March 2016 was as follows.:
particulars Notes Meghna Ltd.

No.
EQUITY AND LIABILITY
1. Shareholders fund
(a) Share Capital (20,000 equity share @Rs. 10 each) 2,00,000
(b) Reserves and Surplus 20,000
2. Non-current Liabilities
(a) 6% Debentures 1,00,000
(a) Trade Payables 30,000
Total 3,50,000
ASSETS
1. Non-current Assets
(a) Fixed Assets: 1,65,000
Tangible Asset 70,000
Intangible Assets
2. Current Assets
(a) Inventories 70,000
(b) Trade receivables 43,000
(c) Cash and cash equivalents 2,000
3,50,000
Total ------------------
The arrangement provided that the value of Patents be treated as nil and to create
Provision for Bad Debts at 5% and that other assets were to be taken at 10% above their
book values.
Debentures holders were paid off in cash. Sundry Creditors were satisfied by the
issued of 2000 fully paid equity shares at Rs. 12 each and the balance in cash. Equity
shareholders received their dues by the allotment of four fully paid equity shares of Tista
Ltd. At Rs. 12 each five shares of Meghna Ltd. And the balance in cash.
Preliminary expenses of Tista Ltd. Amounts to Rs. 2500. 6000 of the remaining
shares were issued to the public at Rs. 12 per share by Tista Ltd. All shares were subscribed
and money received except the final call money at Rs. 2 per share on 500 shares.
Pass the Journal entries in the books of Meghna Ltd. And prepare the Balance Sheet
of Tista Ltd.
Problem – 6
The following is the Balance Sheet of X Ltd. As on 31.3.1998 on which date it was absorbed
by Z Ltd :
particulars Notes Amounts(Rs) Amount(Rs)

No.
I.Equity and liabilities
1.shareholders fund:
(a)share capital 2,50,000
(b)Reserve and surplus 1,50,000
(2) Non current liabilities
(a)long term borrowings
6% Debentures 2,00,000
(3) current liabilities

(a)Accounts payables 3,50,000
9,50,000
Total
II.Assets
(1) Non current Assets:
(a)fixed assets
(I)Tangible assets:
Land & Building 1,50,000
Plant & Machinery 1,00,000
Furniture & Fixtures 20,000
(2) Current assets

(a))inventories 2,10,000
(b)trade receivable 4,20,000
( c ) Cash and cash equivalents 70,000
---------------
Total 9,50,000
----------------
Expenses of absorption amounted to Rs. 6000. Z Ltd. Took over all assets except and all liabilities
except Rs. 300000 on account of creditors included in Accounts payable.
The purchase consideration payable was as follows :
i) Issue of 4 shares of Rs. 100 each in Z Ltd. At a premium of 10% for every 5 shares in X
Ltd.
ii) Issue of necessary 10% Debentures of Rs. 100 each in Z Ltd. For discharging the
debentures of X Ltd. At a premium of 5%.
iii) A cash payment of Rs. 50 per share every share in X Ltd.
Prepare the necessary Ledger Accounts to close the books of X Ltd. And write the
opening journal entries. In the books of Z Ltd.
Problem – 7
Absorption – Inter company indebtedness – Inter Company Profit included in stock –

Fractional shares involved.
The following are the Balance Sheets of Stiff Ltd. And Pit Ltd. As on 31.3.2016:
particulars Notes Stiff Pit Ltd.(Rs)
No. Ltd.(Rs)
1.Shareholders fund:
(a)share capital 1,00,000 2,00,000
(b)Reserve and surplus:
Reserve Fund 40,000 60,000
Workmen Compensation Fund 10,000 -
2.Current liabilities
(a) short term borrowing: 10,000
Loan from Stiff Ltd.
(b) Trade payables 30,000 40,000
1,80,000 3,10,000
Total
II.Assets
(a)Fixed assets 1,20,000 2,50,000
(I)tangible assets
assets
(2) current assets
(a)current investments 20,000 30,000
(b)inventories 30,000 20,000
( C ) trade receivable - 10,000
(d) Cash and cash equivalents
(e) Short term loans and advances:
Loan to Pit Ltd. 10,000 -
1,80,000 3,10,000
Total
Pit Ltd. Agrees to absorb Stiff Ltd. On the following terms :

i) Pit Ltd. Shall give one shares of Rs. 35 each for every three shares in stiff Ltd. The
shares of Pit Ltd. Are quoted in the market at Rs. 45 per share.
ii) The stock of Stiff Ltd. Includes stock worth Rs. 15000 purchased from Pit Ltd.
Which sold the goods at a profit 32/3% on sales.
iii) Creditors of Stiff Ltd. Include Rs. 5000 due to Pit Ltd.
Chose the books of Stiff Ltd. Also show the journal entries and the opening
Balance Sheet in the books of Pit Ltd.
Problem – 8
Absorption of two companies – Separate valuation of goodwill.
Sagar Ltd. Was formed on 1 january, 2016, with an authorised share capital of
500000 Equity shares of Rs. 10 each. 100000 equity shares were issued for cash at a
premium of Rs. 2.50 per share. No other transactions took place until 1 April, 2016, when
Sagar Ltd. agreed to buy the assets, including goodwill, and assume the liabilities of River
Ltd. and Canal Ltd. for a total of 400000 of its shares.
For the purpose of determining the premium at which the shares of Sagar Ltd. were to be
issued, fixed assets, Current assets and liabilities are to be taken over at their book values;
goodwill is to be determined on the basis of two and half times the average profit of past
three years after deducting a standard profit at 10 per cent on capital employed as on 31
March, 2016. The summarised Balance sheets of River Ltd. And Canal Ltd. As on 31 March,
2016were as follows :
Particulars Notes Amounts(Rs) Amount(Rs)

No. River Ltd Canal Ltd
1.Shareholders fund:
(a)Share capital: 15,50,000 16,75,000
Equity share of Rs.10 each
(b)Reserve and surplus:
Profit & Loss Account 9,50,000 75,000
(2) Current liabilities

(a)Trade payables 10,00,000 27,50,000
(c 35,00,000 45,00,000
Total
II.Assets
(a)Fixed assets
(I)Tangible assets 22,50,000 14,50,000
(2) current assets

(b)Inventories 4,50,000 12,00,000
( C ) Trade receivable 5,50,000 16,50,000
(f) Cash and cash equivalents 2,50,000 2,00,000
--------------
35,00,000 45,00,000
Total
Operating profits for the three years :
River Ltd. Canal Ltd.

Rs. Rs.
Year ended 31 March, 2014 352500 275000
2015 440000 320000
2016 445000 342500
You required to :
a) Calculate the number of shares to be issued by Sagar Ltd. To the shareholders of River Ltd.
And Canal Ltd. Respectively and
b) Prepare a balance sheet of Sagar Ltd. after completion of business purchases.
Problem – 9
The balance sheets as on 31st March, 2016of X Ltd. And Y Ltd. Are as under :
X Ltd.
Balance Sheet as on 31.3.2016
Particulars Notes X Ltd. Y

No. Amounts(Rs) Ltd.Amount(Rs)
I.Equity and Liabilities
1.Shareholders Fund:
(a)Share Capital 1 60,00,000 20,00,000
(b)Reserve and Surplus 2 12,80,000 4,40,000
(a)Long term Borrowings:
12% Debentures 12,00,000

(a)Trade Payables 9,60,000 3,80,000
82,40,000 40,20,000
II.Assets
(a)Fixed assets:
Tangible 3 46,40,000 17,00,000
Intangible: Goodwill 4,00,000
(2) current assets

(b)Inventories 16,00,000 7,20,000
( C )Trade Receivable 9,20,000 7,20,000
(g) Cash and Cash Equivalents 10,80,000 1,80,000
(h) Other Current Assets
3,00,000
Total 82,40,000 40,20,000
Notes to Accounts
X Ltd. Y Ltd.
1. Share Capital
(a) 60,000 equity shares of Rs.100 each fully paid up 60,00,000
(b) 20,000 equity shares of Rs. 100 each fully paid up 20,00,000
2. Reserves and Surplus:

General Reserves 8,00,000 1,00,000
Profit & Loss Account 4,80,000 1,40,000
Capital Reserve 2,00,000
3. Fixed Assets
Tangible :
Building 20,00,000
Machinery 26,00,000 16,80,000
furniture 40,000 20,000
Y Ltd. Was absorbed by X Ltd. On 1st April 1998, on the following terms :
(a) Fixed Assets other than goodwill to be valued at Rs. 2000000 including Rs. 24000 for
furniture.
(b) Stock to be reduced by Rs. 80000 and Debtors by 5%.
(c) X Ltd. To assume liabilities and to discharge the 12% Debentures by issue of 11%
Debentures of the same value and in addition a premium of 6% was paid in cash.
(d) The new project to be valued at Rs. 380000.
(e) The shareholders of Y Ltd. To receive cash payment of Rs. 30 per share plus four equity
shares in X Ltd. For every five shares held in Y Ltd.
(f) Both the companies to declare and pay dividend of 6% prior to absorption.
(g) Expenses of liquidation of Y Ltd. Are to be reimbursed by X Ltd. To the extent of Rs.
20000. The actual expenses amounted to Rs. 24000.
Draft Journal entries recording the scheme in the books of Y Ltd. And prepare the
Balance Sheet of X Ltd. After absorption assuming that X Ltd.’s authorised capital has
been increased to Rs. 8000000.
Problem – 10
Ram Ltd. And Krishna Ltd. Had the following financial position as at 31st March, 2016
Particulars Notes Ram Ltd. KrishnaLtd.

No. Amounts(Rs) Amount(Rs)
(a)Share Capital 8,00,000 6,00,000
(b)Reserve and Surplus:
General Reserve 3,00,000 2,00,000
Investment Allowance Reserve 3,00,000

(a) )Trade Payables 4,00,000 1,50,000
Total 15,00,000 12,50,000
II.Assets
(a)Fixed assets
(II)Intangible assets – Goodwill 5,00,000 1,00,000
(b)Non current investments 3,00,000 2,00,000
(2) current assets

( a )Trade Receivable 3,00,000 2,50,000
Total 15,00,000 12,50,000
It was decided that Ram Ltd. Will take over the business of Krishna Ltd. On that date, on
the basis of the respective share values adjusting, wherever necessary, the book values
of assets and liabilities on the strength of information given below :
1. Investment of Krishna Ltd. Included 1000 shares in Ram Ltd. Acquired at a cost of Rs.
150 per share. The other investment of Krishna Ltd. Have a market value of Rs.
25000.
2. Investment Allowance Reserve was in respect of additions made to fixed assets by
Krishna Ltd. In the years of 2010-2015 on which Income Tax relief has been
obtained. In terms of the Income Tax Act, the company has to carry forward till 2020
reserve of Rs. 150000 for utilisation.
3. Goodwill of Ram Ltd. And Krishna Ltd. Are to be taken at Rs. 400000 and Rs. 200000
respectively.
4. The market value of investments of Ram Ltd. Was Rs. 200000.
5. Current assets of Ram Ltd. Included Rs. 80000 of stock in trade obtained from
Krishna Ltd. Which company normally sold its goods at a profit of 25% over cost.
6. Fixed assets of Ram Ltd. And Krishna Ltd. Are valued at Rs. 500000 and Rs. 750000
respectively.
Suggest the scheme of absorption and show the journal entries necessary in the
books of Ram Ltd. Also prepare the Balance sheet of that company after take over of
the business of Krishna Ltd.
Suggest the scheme of absorption and show the journal entries necessary in the
books of Ram Ltd. Also prepare the Balance sheet of that company after take over of
the business of Krishna Ltd.
Problem - 11
Absorption – special calculation of purchase consideration – payment of cash to be

found out .
The balance sheet of X Co. Ltd. And Y Co. Ltd. As on 31st March, 2016are as follows :
Balance Sheet as on
Particulars Notes X Ltd. Y Ltd.

(a)Share Capital 1 10,00,000 8,00,000
(b)Reserve and Surplus:
Capital Reserve 2,00,000 8,00,000
General Reserve 70,000
(a) Other Long Term Liabilities 2,00,000 5,00,000

(a)Trade Payables 3,10,000 3,60,000
17,80,000 24,60,000
Total
II.Assets
(a)Fixed assets
(II)Intangible assets – goodwill 80,000
(2) current assets
(a)Inventories 5,00,000 4,00,000
( b )Trade Receivable 4,00,000 2,60,000
© Cash and Cash Equivalents 2,00,000
17,80,000 24,60,000
Total
Notes to Accounts:
X Ltd. Y Ltd.
1. Share Capital
Authorised Capita:
(a) 10,000 Equity Shares of Rs. 100 each 10,00,000
(b) 2,00,000 Equity Shares of Rs. 10 each 20,00,000
Issued, Subscribed and Paid up Capital:
(a) 10,000 Equity Shares of Rs. 100 each 10,00,000
(b) 2,00,000 Equity Shares of Rs. 10 each 20,00,000
It was proposed that X Co. Ltd. Should be taken over by Y Co. Ltd. The following arrangement
was accepted by both the Companies :
a) Goodwill of X Co. Ltd. Is considered valueless.

b) Arrears of depreciation of X Co. Ltd. Amounted to Rs. 40000.
c) The holder of every 2 shares in X co. Ltd. Was to receive :
i) As fully paid at par 10 shares in Y Co. Ltd. And
ii) So much cash as is necessary to adjust the rights of shareholders of both the
companies in accordance with the intrinsic value of the shares as per their
balance sheets subject to necessary adjustments with regard to goodwill and
depreciation in X Co. Ltd.’s Balance Sheet.
You are required to :
a) Determine the composition of purchase consideration; and (b) show the Balance
Sheet after absorption.
Problem –12
X Ltd. Absorbs Y Ltd. By issue of 6 shares of Rs. 10 each at a premium of 10% for every 5 shares of Y
Ltd. For purpose of absorption, it was agreed that trade investment held by Y will realise their book
value and goodwill of Y Ltd. Will be Rs. 20000.
Kindly prepare the Balance sheet of X Ltd. after absorption of Y Ltd. (all working are to form
part of your answers).
Balance Sheet as on
Particulars Notes X Ltd. Y Ltd.

(a)Share Capital (Rs. 10 each) 4,00,000 3,00,000
(b)Reserve and Surplus 2,40,000 1,50,000

(a)Trade Payables 40,000 30,000
6,80,000 4,80,000
II.Assets
(a)Fixed assets 3,00,000 3,00,000
(I)Tangible assets
(2) current assets

(a)Current Investments:
Trade Investment 30,000 20,000
Shares in X Ltd. At cost - 60,000
(b)Inventories 50,000 80,000
( C )Trade Receivable 3,00,000 20,000
Total 6,80,000 4,80,000
Problem – 13
X Limited, a trading company decided that the value of its building could be used to provide
additional working capital. The balance sheet of the Company as on 31st March, 1993 was as under :
Rs. Rs.
Paid up Capital : Fixed Assets:
10000 equity share Building at cost 200000
Of Rs. 10 each 100000 Less : Depreciation 40000
5000, 12% Redeemable Furniture at cost 90000
Preference shares of Less : Depreciation 30000
Rs. 10 each 50000 _____ 60000
Share Premium A/c 5000 Current Assets :
Profit and Loss A/c 70000 Loans and Advances :
Secured Loan : Stock 58000
12% Debentures 70000 Debtors 52000
Current Liabilities : Bank 5000
Creditors 40000
_____ ______
335000 335000
_____ _____
Depreciation on building has been provided at 2% per annum on cost.

The following action was taken : (1) the building was sold for Rs. 220000 to another
company, who leased it back to X Limited for 21 years at an annual rent of Rs. 1600, (2) 12%
Debentures were discharged at a premium of 10% , (3) Preference shares were rendered at a
premium of 10% .
The directors expect that the profit of the company will further increase by Rs. 20000 for the
coming year due to change in working capital.
a) Draft the journal entries necessary to record the above transactions.
b) Calculate the effect of the future annual profits ( before taxation) available for distribution
to equity shareholders. Calculate the additional pre-far increase in earnings per share.
Problem – 14
The Balance Sheet of Sunlight Co. Ltd. On 31st December 1993 stood as follows :

Rs. Rs.
Share Capital Goodwill at cost 200000
10000, 7% Cumulative Works, Plants and
Preference shares of Rs. 100 each 1000000 Machineries
20000 Equity shares of Rs. 100each 2000000 (less depreciation) 1800000
6% Debentures 300000 Stock 300000
Sundry Creditors 400000 Debtors 450000
Bank Overdraft 300000 Cash 150000
Preliminary Exp.
Commission etc. 100000
Profit & Loss A/c 1000000
______ ______
4000000 4000000
______ ______
N.B.: Preference Dividends are in arrears for 2 years.
The company in the past few years had suffered heavily due to slump and labour unrest but since
the last quarter of 1993 finds the conditions turning towards better and hopes to earn a revenue
profit in future to release a reasonable dividend on Equity share if adjusted to a reduced value.
A reorganisation was agreed to by all parties concerned and you are requested to frame an
external scheme of reconstruction taking into consideration the following points of agreement and
results of revaluation :
1. Creditors to forego Rs. 50000.
2. Preference shareholders to forego their claim for arrears of dividend and if loss to Equity
shareholders tends to exceed 50% to lower their Capital claim by 20% at the maximum by
reducing the normal value in consideration of 9% dividend effective after reorganisation.
3. Bank to convert the overdraft to term loan to the extent as would raise the current ratio to
2:1.
4. Debentures will be exchanged according to the existing terms and denomination.
5. Works, Plants and Machineries will be devalued at Rs. 1500000.
6. Debtors will be written off Rs. 50000 being bad.
7. Equity shares will be exchanged for the same number of Equity shares in the new company
at a reduced denomination as would be warranted by the circumstances.
Your scheme will show the necessary working regarding the total loss and its distribution,
the reorganisation of shares and Debentures, the revision of working Capital and a pro
forma Balance Sheet of the new company.
Sacrifice : Creditors Rs. 50000, Preference Shareholders Rs. 200000, Equity shareholders Rs.
425000, Working Capital Rs. 425000.
Problem – 15
The following is the Balance Sheet of Weak Ltd. As at 31st December, 1996:

Rs. Rs.
Share Capital 100000 shares of Fixed and Intangible :

Rs. 1 each fully paid 100000 Freehold Premises 40000
6% Mortgage Debentures Plant and Machinery 50000
(giving floating charge) 50000 Floating :
Interest outstanding 3000 53000 Stock in trade 14700
Sundry Creditors 19800 Work in progress 8350
Sundry Debtors 15280
Cash at Bank 1970
Profit and Loss A/c 42500
_____ _____
172800 172800
_____ _____
The Debentures are held by Strong Ltd. Which company also holds 25000 of the shares
(such shares being acquired a year before at a cost of Rs. 17500). Agreement was
reached between two companies whereby strong Ltd. Absorbed Weak Ltd. On following
terms :
a) Strong Ltd. Take over the assets and liabilities of Weak Ltd. As at 31st December, 1996 at
their book values. Subject to reduction of Freehold premises by Rs. 5000 and Plant and
Machinery Rs. 2500.
b) That the Capital and interest due of Debentures be considered as part of the purchase
consideration. Such Debentures to be cancelled on completion of absorption.
c) That the outside shareholders in Weak Ltd. Be allotted Rs. 1 share in Strong Ltd. At par (but
considered to be worth Rs. 1.25 each), the shares in Weak Ltd. To be taken as of the value of
50p. Each.
Show Journal entries to close the books of Weak Ltd. And to record the transaction in the
books of Strong Ltd.
Internal reconstruction of Company
1. Write a short note on the internal reconstruction of a company.
2. Write what you know about –
a) Sub-division of shares
b) Consolidation of shares
c) Surrender of shares.
Practical Problems
Problem - 1
The Balance Sheet of a Liability company. As on 31stMarch 2016 is started below :
Balance Sheet as on
Particulars Notes Amounts(Rs)

No.
(a)Share Capital 1 2,50,000
(b)Reserve and Surplus (50,000)
2. current liabilities
(a) Short Term Borrowing
Bank overdraft 50,000
(b)Trade Payables 20,000
--------------
Total 2,70,000
--------------
II.Assets
1.Non current Assets:

(a)Fixed assets
(I)Tangible assets:
Land & Building 90,000
Plant & Machinery 80,000
(II)Intangible assets:
Goodwill 14,100
Patent 6,000
(2) current assets
(a)Inventories 29,600
( b))Trade Receivable 50,300
--------------
2,70,000
sTotal --------------
Notes to Accounts:
1. Share Capital
Authorised Capital
Issued and Subscribed Capital
15,000 Equity Shares of Rs.10, each fully paid 1,50,000
1,000 Preference Shares of Rs100 each, fully paid 1,00,000
Dividends on Preference Shares are in arrear for three years. The company passes a special
resolution to reduce its capital in according with the following scheme and the same is duly
sanctioned by the court :
The Preference Shares are to be reduced to Rs. 75 each and Equity Shares of Rs. 5 each. Both
being fully paid.
The arrears of dividend on Preference Shares are to be cancelled.
The debit balances on the P and L and goodwill Accounts are to be written off entirely.
Land and Buildings and Plant and Machinery are to devalued at 85% and 80% of their
respective book values.
Book Debts worth Rs. 2400, known to be paid, are to be written off.
The balance of total capital reduction is to be utilised in written down patents.
A secured loan of Rs. 80000 bearing interest at 4% p.a. is to be obtained by mortgaging
tangible fixed assets for procuring cash for payment of bank overdraft and for providing
additional funds for working capital.
Pass Journal entries giving effect to the above scheme and prepare a revised Balance Sheet
of the company on this basis.
Problem – 2
The Balance Sheet of Losing Co. Ltd. as at 31stMarch 2016 was as follows :
Particulars Notes Amounts(Rs)

No.
(a)Share Capital 1 30,00,000
(b)Reserve and Surplus (11,00,000)
(2) Non-current liabilities
(a)Long term Borrowings:
7% Mortgage Debentures 5,00,000

(a)Trade Payables 81,250
(b) Other Current Liabilities:
Interest accrued on Debentures 8,750
(c)Short Term Provisions:
Provision for Income tax 25,000
-------------
25,15,000
Total --------------
II.Assets
1, Non -current Assets:
(a)Fixed assets
(I)Tangible assets 2 18,10,000
(II)Intangible assets:
Goodwill 50,000
(b)Non current investments 2,90,000
(c) Other Non-Current Assets 3 75,000
(2) current assets
(a)Current Investments
(b)Inventories 1,15,000
( C )Trade Receivable 1,00,000
(d)Cash and Cash Equivalents 50,000
(e)Short term loans and advances 25,000
--------------
25,15,000
Total -------------
Notes to Accounts
1. Share Capital
Authorised Capital
Issued and Subscribed Capital:
20,000 Equity Shares of Rs.100 each fully paid up 20,00,000
10,000, 8% Pref. Shares of Rs.100 each fully paid up 10,00,000
2. Fixed Asset - Tangible

(a)Land & Building 5,80,000
(b) Plant & Machinery 10,80,000
(c) Furniture 45,000
(d) Motor Vehicles 1,05,000
3. Other Non-current Assets

Discount on Issue of shares and Debentures 30,000
Underwriting Commission 45,000
As the company suffered huge losses, the following scheme of reconstr4uction was prepared
and duly sanctioned :
a) Equity shares were to be converted into equal number of fully paid shares of Rs. 50
each.
b) Preference shares were to be converted into equal number of fully paid shares of Rs. 75
each.
c) The future rate of dividend on Pref. Shares was to be raised to 9%.
d) Debenture holders were to forego the accrued as shown in the Balance Sheet.
e) Claims of Trade Creditors were to be reduced by Rs. 31250.
f) The Stock-in-trade was to be written down by Rs. 45000 and Bad Debts were to be
written off to the extent of Rs. 8000.
g) A provision for Doubtful Debts was to be created on Sundry Debtors @ 5%.
h) The value of Motor Vehicles was to be written down by Rs. 8000.
i) The Goodwill and all Fictitious Assets were to be completely written off.
j) The Liability for Income-Tax was to be satisfied in full.
You are required to show the following (i) Capital Account, (ii) Sundry Creditors Account,
(iii) Sundry Debtors Account. (iv) The Reconstructed Balance Sheet of the company (after
the scheme has been carried out).
Problem – 3
Balance Sheet as at 31st March 1993 of XY Limited

Rs. Rs.
200000 Equity Shares of Fixed Assets 1140000
Rs. 10 each. Rs. 5 paid 1000000 Patents and copyright 80000
6000, 8% Preference shares Investments at cost 65000
Of Rs. 100 each. 600000 (Market Value
9% Debentures 600000 Rs. 55000)
Interest accrued on deben. 108000 Current Assets :
Bank of India 150000 Stock 400000
Interest accrued on Bank O.D 15000 Debtors 439000
Current Liabilities : Bank 10000
Creditors 69000 profit & Loss A/c 408000
______ ______
2542000 2542000
______ ______
Preference dividend is in arrear for one year.
1. Preference Shareholders to give up their claims, inclusive of dividends to the

extent of 30% and desire to be paid off.
2. Debenture-holders agree to give up their claims to interest in consideration of
their interest being enhanced to 12%.
3. Bank agree to give up 50% of its interest outstanding in consideration of its
being paid off at once.
4. Creditors would like to grant discount of 5% if they are paid immediately.
5. Balance of Profit and Loss Account, Patents and Copyrights and Debtors of Rs.
30000 to be written off.
6. Fixed Assets to be written down by Rs. 34000.
7. Investments are to be reflect their market value.
8. To the extent not specifically stated, equity shareholders suffer on reduction of
their rights. Cost of reconstruction is Rs. 3350.
Draft Journal entries in the books of the company assuming that the scheme has
been put through fully with the equity shareholders bringing in necessary cash
to pay off the parties and to leave a working capital of Rs. 30000 and prepare
the Balance sheet after reconstruction.
Problem – 4
The following is the Balance Sheet of Bagatiery Ltd. On December, 31, 1997 :

Rs. Rs.
Issued and Subscribed Goodwill 75000
Capital : Land & Buildings 150000
30000 Equity Shares of Plant & Machinery 137500
Rs. 10 each. Fully paid 300000 Furniture 16250
2000, 12% Preference shares Stock 131500
Of Rs. 100 each fully paid up 200000 Sundry Debtors 23000
11% Debentures 125000 Cash in hand 375
Sundry Creditors 22750 Profit & Loss A/c 182500
Bank Overdraft 68375
______ ______
716125 716125
______ ______
The Preference Dividends are in arrear for 5 years and the Company is handicapped by the
antiquated nature of plant. According to expert opinion, substantial profits can be earned if new
capitals are available and modern plants are acquired.
A capital reduction scheme is submitted as follows :
(h) Equity Shares to be reduced to Rs. 5 each.
(i) All arrears of preference dividends to be cancelled.
(j) Each Preference share to be reduced to Rs. 75 and then exchanged for one new 12%
Preference Share of Rs. 50 each and five Equity shares of Rs. 5 each.
(k) The debit Balance of Profit & Loss A/c to be written off. Plant & machinery to be written
down by Rs. 47500 and goodwill is to be reduced as much as possible.
(l) The Debentures are to be redeemed at 5% Premium, holders being given the option to
subscribe at par for new 12% Debentures.
Approval of the Court is obtained 100000 new Equity Shares are issued at par (sufficient
new Equity shares are created by increasing the Authorised Share Capital) payable in full
on application. The whole issued is underwritten for a commission of 2% and is fully
taken up. Holders of old Debentures to the extent of Rs. 50000 exercised their option
and is fully taken up. Holders of old Debentures to the extent of Rs. 50000 exercised
their option and subscribed for the new Debentures.
Expenses in connection with scheme amounted to Rs. 3375.

Show the Journal entries necessary to record the Reduction Scheme and set out the new
Balance Sheet of the company.
Problem – 5
The following is the Balance Sheet of Ference& Coil Ltd. As on December 31, 1997:

Rs. Rs.
Issued and fully paid Equity Fixed Assets : 233500
Shares of Rs. 10 each. 500000 Current Assets:
10% pref. Shares of Rs. 100 Debtors 233750
Each 200000 Stock 406250
Reserve 226750 Cash 12250 652250
11% Debentures of Rs. 100 100000 Profit & Loss A/c 278250
Creditors 137250
_______ _______
1164000 1164000
______ _______
The Company , after the approval of the court, puts the following scheme of reconstruction :
a) Each existing Pref. Share is to be reduced to Rs. 35 each, of which Rs. 20 will be represented
by new 12% Preference Shares and Rs. 15 by new Equity Shares; (b) Each Rs. 100 of
Debenture is to be exchanged for Rs. 50 of new 13% Debenture, one new 12% Preference
Share of Rs. 25 each and for new Equity Shares of Rs. 2.50 each; (c) Each existing Equity
Share is to be reduced to Rs. 2.50 each.
The reduction of Capital & Reserves are utilised for writing off losses, 50% stock and Debtors
and the balances, if any, is used for writing down fixed assets.
Show the necessary journal entries and draw up the revised Balance Sheet.
Problem - 6
Reduction of paid-up value of shares
The Directors of Hardluck Ltd. Decided to recommend to shareholders certain steps to put
the affairs of the company back on the rails on 30th June, 1997. The Balance Sheet of the Company
was as under :
Liabilities Amount Amount Assets Amount Amount

Rs. Rs. Rs. Rs.
Share Capital : Fixed Asset.:
Authorised : 100000 Goodwill at
Equity Shares of Rs. 1 cost 22600
Each _____ 100000 Freehold
Issued &Paid : 85000 property at
Equity shares of Rs. Cost 50000
1 each 85000 Less :Deprn. 8500
Reserve &Surplus : _____ 41500
Share Premium 15000 Plant & Mach.
Current Liabilities : at cost 119000
Trade Creditors 64500 Less :Deprn. 59000
Bank Overdraft 56500 _____ 60000 124100
Loan from Bank 60000 181000 Investments :
Shares at cost in
Associated compa. 30000
other quoted invest.
At cost 16000
_____ 46000
Current assets :
Stock 23000
Debtors 19600
_____ 42600
Misc. Exp. & Loss.
______ ______
281000 281000
The scheme of reconstruction, as approved by the competent authorities, was as under :

(i) The issued ordinary shares were reduced to 5 paise each paid up. The unpaid value of
the share was subsequently called by the company and paid by all the shareholders.
(ii) The balance of unissued capital was allotted to the Bank in discharge of the loan, the
balance due was paid in cash.
(iii) The authorities capital of the company is to be increased by another 50000 shares and
these are to be issued to the existing shareholders as rights issue. The amount due from
shareholders was realized.
(iv) Interest of Rs. 6500 on overdraft to be waited by the Bank and the balance overdraft to
be paid off.
(v) Trade creditors to give up 25% of their claims and the balance due to them to be
converted into 12% secured Debentures of Rs. 100 each.
(vi) All amounts available, including share premium, to be utilized to write off losses,
goodwill and value of shares in associated companies.
Show the Journal Entries to record the above and Balance Sheet of the Company after
the scheme is fully implemented.
Problem – 7
The following is the Balance Sheet of M. Chemicals Ltd. As on 30th June, 1997 :

Authorized, Issued and Subscribe Freehold Property 600000
Capital : Plant & Machinery 402000
18000, 7% Pref. Shares of Rs. 50 each 900000 Patents 177000
22500 Equity Shares of Rs. 50 each 1125000 Goodwill 300000
Director’s Loan 895500 Stock 600000
Sundry Creditors 310500 Debtors 492000
Bills Payable 52500 Preliminary Expenses 16500
______ ______
3247500 3247500
______ ______
The following scheme for the reduction of capital was duly prepared and sanctioned :
1. The Equity shares of Rs. 50 each were to be reduced to an equal number of fully paid shares
of Rs. 2.50 each.
2. Each Equity Shareholder agreed to take against cash 3 Equity shares of Rs. 2.50 each for
every Equity share held by him.
3. The Preference shareholders agreed to waive ¾ ths of the dividend in arrears. The rest of the
amount was to be paid in cash.
4. Preference shareholders were to be issued four 5% preference shares of Rs. 10 each and
four Equity shares of Rs. 2.50 each for every 7% Preference Shares of Rs. 50 each held.
5. 18000, 5% Preference shares of Rs. 10 each and 18000 Equity Shares of rs. 2.50 each will be
issued to directors in payment of their loan to the extent of Rs. 225000.
6. The Directors agreed to take for cash 60000 new Equity shares of Rs. 2.50 each.
7. The Directors were to be receive Rs. 240000 in cash in part payment of their loan.
8. The Balance of the Capital Reduction A/c will be used as follows : (a) to write off preliminary
expenses, Profit and Loss A/c and Patents completely. (b) to write off Plant and Machinery
to the extent of Rs. 27000. (c) the Balance to be used in writing off Goodwill.
Show the Journal entries (including cash transactions) to give effect to the above and set out
the Balance sheet after the reduction of Capital. There will be no change in the amount of
authorised share capital.
Problem - 8
The Balance Sheet of H.L. Ltd. As on 30th June, 1997 was as follows :
` liabilities Amount Assets Amount
Rs. Rs.
Share Capital : Freehold Land &Buil. 34000

Authorised, Issued & paid up : Plant 96000
10000, 6% Cumulative Pref. Tools and Dies 27300
Shares of Rs. 10 each 100000 Investments 15000
15000 Ordinary shares of Rs. Stock 42500
10 each 150000 Debtors 53400
______ Research and Development
250000 Expenditure 18000
7% Debentures 60000 Profit & Loss A/c 98000
Interest due thereon 4200
____ 64200
(Secured on freehold land
And buildings and plant)
Creditors 50000
______ ______
384200 384200
______ ______
The scheme of reorganisation detailed below has been agreed by all the interested parties
and approved by the court. You are required to prepare (a) the Journal Entries recording the
transactions in the books, including cash; and (b) the Balance Sheet of the company as at 1st
July, 1997 after completion of the scheme.
1. The following assets are to be revalued as shown below :
Plant Rs. 59000; Tools and Dies Rs. 15000; Stock Rs. 30000 and Debtors Rs. 48700.
2. The research and development expenditure and the debit balance of Profit and Loss A/c
are to be written off.
3. Price of land recorded in the books at Rs. 6000 is valued at Rs. 14000 and is to be taken
over by the debenture holders in part repayment of principal. The remaining freehold
land and building are to be revalued at Rs. 400000.
4. A creditor for Rs. 18000 has agreed to accept a second mortgage debenture of 10 per
cent per annum secured on the plant for Rs. 15500 in settlement of his debt. Other
creditors totalling Rs. 10000 agree to accept a payment of Rs. 0.85 in the rupee for
immediate settlement.
5. The investment, at a valuation of Rs. 22000, are to be taken over by the bank.
6. The ascertained loss is to be met by writing down the ordinary shares to Rs. 1 each and
preference to Rs. 8 each. The authorised share capital is to be increased immediately to
the original treatment.
7. The ordinary shareholders agree to subscribe for two ordinary shares at par for every
share held. The cash is all received.
8. The costs of the Scheme are Rs. 3500. These have been paid and are to be written off.
The debenture interest also has been paid.
Problem – 9
Use of shares surrendered Account
The Balance Sheet of Revise Ltd. As at 31st March, 1998 was as follows :

Rs. Rs.
Share capital Fixed Assets :
Authorised and Subscribed : Machineries 100000
10000 Equity Shares of Rs. Current Assets :
100 each fully paid 1000000 Stock 320000
Unsecured Loan : Debtors 270000
12% Debentures 200000 Bank 30000
Accrued Interest 24000 Profit & Loss A/c 600000
Current Liabilities :
Creditors 72000
Provision for Income-Tax 24000
______ ______
1320000 1320000
______ ______
It was decided to reconstruct the Company for which necessary resolution was passed and
sanctions were obtained from appropriate authorities. Accordingly, it was decided that :
a) Each share be sub-divided into ten fully paid Equity shares of Rs. 10 each.
b) After sub-division, each shareholder shall surrender to the company 50 per cent of his
holding. For the purpose of re-issue to debenture holders and creditors as necessary.
c) Out of Shares surrendered, 10000 shares of Rs. 10 each shall be converted into 12%
Preference shares of Rs. 10 each fully paid up.
d) The claims of debenture holders shall be reduced by 75% in consideration of the
reduction, the debenture holders shall receive Preference shares of Rs. 100000 which
are converted out of shares surrendered.
e) Creditors claim shall be reduced to 50%, to be settled by the issue of Equity Shares of Rs.
10 each out of shares surrendered.
f) Balance of Profit and Loss Account to be written off.
g) The shares surrendered and not re-issued shall be cancelled.
You are required to show the Journal Entries giving effect to the above and the resultant
Balance sheet.
Problem - 10
Missing Information
Sailing through rough economic weather and experiencing regular loss during the past few
years, helpless Ltd. Decided to take up certain financial measures to revitalise the company. Its
assets and Liabilities as on 31st March, 1998 are given below :
20000 Equity Shares of Rs. 10 each – Rs. 200000; 1000, 12% Debentures of Rs. 100 each – Rs.
100000; Outstanding Interests on Debentures – Rs. 12000; Buildings – Rs. 120000; Furniture – Rs.
80000; Current Assets – Rs. 66000; Creditors – Rs. 50000.
The following scheme of reorganisation was proposed by the Directors of the Company and
agreed by all parties concerned-
(i) The Equity Shares are to be sub-divided into shares of Rs. 5 each and 90% of the shares
would be surrendered.
(ii) The total claims of debenture holders to be reduced by Rs. 62000 and in consideration
of this, they are to be allotted Equity shares of Rs. 25000 out of Surrendered Shares
Account.
(iii) The creditors agree to give up their claims for Rs. 20000 and 1/3rd of the balance to be
satisfied by issue of Equity shares out of those surrendered.
(iv) Assets are to be re-valued as Building Rs. 75000 and Furniture Rs. 21000 and Current
Assets to be written off by Rs. 17000.
(v) The Shares surrendered but no re-issued are to be cancelled.
Draft the journal entries in the books of the company to record the above transactions
and show its Balance Sheet after reconstruction.
Problem - 11
The ledger balances of Sick Ltd. As on 31.3.13 include (in Rs.)
Fixed Assets 800000

Investments 10000
Inventories (market value Rs. 340000) 390000
Debtors 460000
Preliminary Expenses 20000
10% 1st Debentures 200000
12% 2nd Debentures 500000
Creditors (including Y for Rs. 550000) 1150000
Outstanding Debentures Interest
1st December 20000
2nd December 60000 80000
Equity Share (face value Rs. 100 each. 60% paid up) 600000 Due to heavy accumulated
losses and over valuation of fixed assets, following scheme of reconstruction is agreed upon –
a) To make call against- the existing equity shares to make them fully paid up and then to
subdivide them to shares of Rs. 20 each.
b) After subdivision the equity share holders to surrender 80% of their holding for
redistribution or otherwise for cancellation.
c) To settle the claim (including interest) of the holders of the 1st debentures by issuing
1000, 13.5% debentures of Rs. 100 each. They are also to be issued 3000 Equity shares
out of surrendered shares account.
d) To issue 15000 equity shares out of surrendered shares to the holders of 2nd Debentures
in full settlement of their claim (including interest).
e) To issue 10000 equity shares out of surrendered shares to y in full settlement of his
account. Pass necessary journal entries (without narration) to give effect to the above
transaction and prepare the Balance Sheet of the company immediately after the
reconstruction.
Unit 4: Valuation of Goodwill
Theoretical Question
1. What is inherent goodwill ? What are the different methods of valuing such goodwill ?
2. How would you define goodwill ?what are its feature and different types?
3. Write short notes on : Super profit method of valuation of goodwill.
Problem – 1

Rs. Rs.
Paid up Capital – Land and Buildings 350000

1000, 8% Preference shares Plant & Machinery 400000
Of Rs. 100 each 100000 Stock-in-trade 200000
1000 Equity shares of Rs. 100 100000 Book Debts 150000
General Reserve 10000 Cash at Bank 50000
Un-appropriated Profits 40000
7% Mortgage Debentures 500000
Trade Creditors 400000
______ ______
1150000 1150000
______ ______
You are asked to value the goodwill with the help of the following further information :
(i) Adequate provision has been made in the accounts for income-tax.
(ii) The present value of Plant & Machinery is Rs. 500000.
(iii) The Profit/Losses and sales for the past few years were : (before interest & tax @ 50%)
Years 1995 1996 1997

Profits/Losses (Rs.) 100000 150000 170000
Sales (Rs.) 1200000 1400000 1750000
The reasonable return on capital invested in the class of business is 10%. Goodwill may be
assumed to be 5 years purchase of super profits.
Problem - 2
Goodwill on Weighted Average Profits basis

X Ltd. Decided to take over the business of Y Ltd. And value the Goodwill of the latter at 3
years purchase of the weighted average profits of the preceding 4 years. The profits and their
respective weights were :
Years 1994 1995 1996 1997

Weights 1 2 3 4
Profits (Rs.) 101000 124000 100000 150000
On a scrutiny of the accounts the following matter are revealed :

(i) On 1.9.96 an alteration of plant for Rs. 30000 was wrongly charged to revenue. It was
decided to capitalise this amount for goodwill after providing depreciation @ 10 p.a. on
reducing balance method.
(ii) The closing stock of 1995 was overvalued by Rs. 12000 but this was correctly brought
into the books in 1996.
(iii) Managerial remuneration Rs. 24000 should be provided as an annual charge for
valuation goodwill. Calculate the value of the goodwill.
Problem - 3
Goodwill valued under different methods
From the following particulars, calculate the value of goodwill under (a) Annuity Method (b)
Super profits basis (5 years purchase) (c) Capitalization of Super-Profits:
i. Capital Employed – Rs. 150000 (ii) Normal Rate of Return – @ 10% (iii) Present value
of Annuity of Rs. 1 for 5 years at 10%-Rs. 3.78,(iv) Net Profits for 5 years : 1st Year –
Rs. 14400. 2nd year – Rs. 15400, 3rd year – Rs. 16900, 4th Year – Rs. 17400, 5th Year –
17900.
Annual Profits included Interest @ 6% on Investments of the nominal value of Rs.

100000.
Problem - 4
Hammer Ltd. And Grace Ltd. Propose to amalgamate. The Balance Sheets of Hammer Ltd.
And Grace Ltd. As on 31st December 1991 are given below :
Liabilities Hammer Grace Assets Hammer Grace

Ltd. (Rs.) Ltd. (Rs.) Ltd. (Rs.) Ltd. (Rs.)
Share Capital : Fixed Assets

Equity Share of Rs. 10 less depre. 400000 100000
Each 500000 200000 Investments
General Reserve 200000 20000 (Face value
Profit & Loss A/c 100000 30000 Rs. 100000, 6%
Current Liabilities 100000 50000 G.P. Notes) 100000 __
______ ______ ______ ______
900000 300000 900000 300000
______ ______ ______ ______
Net profit (after taxation) : Hammer Ltd – 1989: Rs. 130000, 1990: Rs. 125000; 1991 : Rs. 150000.
Grace Ltd – 1989 :Rs. 45000; 1990 : Rs. 40000; 1991 : Rs. 56000.
Goodwill for the purpose of amalgamation may be taken at 4 years purchase of average super –
profits (trading) on the basis of 15% normal profit on closing capital invested. The current asets to
Hammer Ltd. Are to be taken as Rs. 420000 and that of Grace Ltd. Rs. 210000.
Ascertain the value of Goodwill.
Problem - 5
From the following balance sheet (as at 31st December) compute the goodwill of the firm
XYZ Co. Ltd. On the basis of four years purchase of the average profits on a 10% yield basis.
Liabilities 1990 1991 1992 Assets 199019911992
Rs. Rs. Rs. Rs. Rs. Rs.
10000 Equity Shares

Of Rs. 10 each, fully
Paid. 1000000 1000000 1000000 Goodwill 500000 400000 300000
General Reserve 500000 600000 700000 Buil. & Mach. 900000 1000000 100000
(Less. Dep.)
Stock 400000 500000 600000
Profit & Loss A/c 70000 80000 120000 Debtors 10000 80000 120000
Creditors 300000 400000 500000 Cash at Bank 60000 100000 200000
______ ______ ______ _____ _____ ______
1870000 2080000 2320000 1870000 2080000 2320000
______ ______ ______ ______ ______ _______
The following assets had been undervalued, their real worth to business being.
Assets 1990(Rs.) 1991(Rs.) 1992(Rs.)

Building and Machinery 1000000 1100000 1200000
Stock 600000 700000 800000
Net profit – after writing off depreciation and

making provisions For Taxation and General
Reserve (including opening balance) 410000 510000 610000
As per the articles of Association of this private company, its Directors have declared and
paid dividends to its members in the month of December, each year out of the profit of the relative
year.
The cost of the goodwill to the company was Rs. 500000. Capital employed at the beginning
of the year 1990 was Rs. 1930000 including the cost of Goodwill and balance in Profit and Loss
Account at the same time was Rs. 60000.
Valuation of Shares
Theoretical Question
1. What is valuation of shares ?why shares are valued ? what are the factors on which
valuation depends ?
2. Write what you know about valuation related basic earnings per share.
3. Write short notes on : (a) Break-up value of shares. (b) Yield value of shares.
Problem – 1
valuation for Minority Share holding

Mr.Ganapat holds 200 shares in a Company. He wants to transfer these shares to
Mr.Nagarmall at a fair value to be computed from the following :
a) Balance Sheet of the Company as on 31.3.1998

Rs. Rs.
50000 Equity Shares of Goodwill 20000
Rs. 10 each 500000 buildings 100000
General reserve 20000 Machinery 200000
Profit & Loss A/c 60000 Debtors 200000
Cash & Bank 10000
Preliminary Exp. 10000
______ ______
620000 620000
______ ______
b) Revaluation Suggested : Buildings Rs. 150000; Machinery Rs. 180000 and Goodwill Rs.
20000. Book Debts to be written off @ 10%.
c) Dividends paid for the last 3 years : 14%; 18% and 16%.
d) Normal Expected Return 12%.
Problem – 2
On 31st December, 1997 the Balance Sheet of Goodluck Company Ltd. Was as follows :

Rs. Rs.
5000 Shares of Rs. 100 each 500000 Fixed Assets 600000
Reserves 120000 Current Assets 250000
Profit & Loss A/c 60000 Goodwill 63000
6% Debentures 100000 Preliminary Exp. 7000
Current Liabilities 140000
_____ ______
920000 920000
_____ ______
On 31st December, 1997 the fixed assets are valued at Rs. 450000 and Goodwill at Rs. 80000.
The net profits of the last three years were Rs. 76000. Rs. 79500 and Rs. 78500 of which 25%
was placed to Reserve, this proportion being considerable in the industry in which the
company is engaged and where a fair investment return may be taken at 10%. Compute the
value of company’s shares by (a) the net assets method and (b) Yield method. Ignore
taxation.
Problem – 3
The following in the summarised Balance sheet of Sudip Ltd. As on 31.12.94 :

Rs. Rs.
Share Capital : Fixed Assets 3800000

10000, 5% Preference shares Investments 1025000
of 100 each fully paid 1000000 Current Assets :
150000 Eq. Shares of Rs. 10 Stock-in-trade 572000
Fully paid 1500000 Sundry Debtors
100000 Eq. Shares of Rs. 5 (less provisions) 1278000
Fully paid 500000 Cash and Bank balance 225000
Reserve and Surplus :
General Reserve 1500000
Profit and Loss A/c 1200000
Secured Loan :
6% Debentures 800000
Sundry Creditors 275000
Liabilities for Exp. 125000
______ _______
6900000 6900000
______ _______
For the purpose of valuation of share. Fixed assets are to be depreciated by 10%.
Investments are to be taken at Rs. 1080000 and Sundry Debtors are to be further reduced by
5%. Interest on Debentures is due for 9 months and Preference dividend for 1994 is also,
neither of these has been provided for in the Balance Sheet.
Calculate the value of each Equity share.
Problem – 4
From the following information, calculate the value per equity share :
2000, 9% Preference shares of Rs. 100 each. Rs. 200000

25000 Equity Shares of Rs. 10 each fully paid Rs. 250000
20000 Equity Shares of Rs. 10 each. Rs. 7.50 per share paid up Rs. 150000
Expected profits per year before tax Rate of Tax 50% Rs. 218000
Transfer to General Reserve 20 % of the profit
Normal rate of earning 15%
Problem – 5
Rama is running a proprietary business whose assets and liabilities as on 31st March 1995
fare as under :
Rs. Rs. Rs.
Current Assets : Stock in trade 30000
Sundry Debtors less provision
For doubtful debts 40000
Cash and Bank Balances 30000
_____ 100000
Fixed Assets : Goodwill 20000
Plant and Machinery 40000
Land and Buildings 40000
_____ 100000 200000
Represented by :
Sundry Creditors for goods 60000
Loans 40000
Liabilities for expenses 15000
______
115000
______ _______
Capital of Rama 85000 200000
_____ ______
Krishna is interested in buying the business. The average return from the particular line of
business is estimated at 20%. The pre-tax profits of the latest five years are found to be :
Year ended on Rs. Year ended on Rs.

31st March 1991 40000 31st March 1993 32000
31st March 1992 30000 31st March 1994 30000
31st March 1995 33000
Profits for the year ended 31st March 1991 include a capital profit of Rs. 10000 and for the
year ended 31st March 1995 are after adjustment of Rs. 7500 being loss by fire. An average
rate of 40% is payable as income tax.
Ascertain the goodwill, payable by Krishna for the business, on the basis of 5 years purchase
of average super profit.
Problem – 6
From the following information supplied to you, ascertain the value of goodwill of A Ltd.
Which is carrying on business as retail trader, under super profit method :
Balance Sheet as on 31st March 1992

Rs. Rs.
Paid-up Capital : Goodwill at cost 50000
5000 Shares of Rs. 100 Land & Building at cost 220000
Each fully paid 500000 Plant & Machinery at cost 200000
Bank Overdraft 116700 Stock-in-trade 30000
Sundry Creditors 181000 Book debts less provision 180000
Provision for taxation 39000
Profits and Loss
Appropriation A/c 113300
______ ______
950000 950000
______ ______
The Company commenced operations in 1975 with a paid up capital of Rs. 500000. Profits
for the recent years (after taxation) have been as follows :
Year ended 31st March 1988 1989 1990 1991 1992

Rs. 40000 88000 103000 116000 130000
st
the loss for the year ended 31 March 1988 occurred due to a prolonged strike.
The income-tax paid so far has been at the average rate of 40% , but it is likely to be50%from
1993 onwards. Dividends were distributed at the rate of 10% on the paid-up capital in 1988-
89 and 1989-90 and at 15% in 1990-91 and 1991-92. The market price of shares is ruling at
Rs. 125 at the end of the year ended 31st March, 1992. Profits till 1991-92 have been
ascertained after debiting Rs. 40000 as remuneration to the managing director. The
government has approved a remuneration of Rs. 60000 with effect from 1st April 1992. The
Company has been able to secure a contract for supply of materials at advantageous prices.
The advantage has been valued at Rs. 40000 per annum for the next five yhears.
Problem – 7
Ashok Ltd. Babar Ltd.

Rs. Rs.
Fixed Assets
Investments 120000 100000
3% Government Bonds (Face value Rs.
20000, Market value Rs. 10000) 18000 _____
Shares in Companies (Market value
Rs. 40000) 24000
Debtors 20000 15000
Stock at cost 60000 70000
Balance at Bank 40000 20000
_____ _____
258000 229000
_____ _____
Share Capital :
Authorised, Issued and Fully paid
shares of Rs. 10 each. Equity 92000 123000
preference 10000 ___
Reserves 89000 44500
Current Liabilities 67000 61500
_____ _____
258000 229000
_____ _____
You ascertain the following :

i. The trading including income on investment for each of the last three years to 31st
March were :
1992 1993 1994
Rs. Rs. Rs.
Ashok Limited 25600 31000 38000
Babar Limited 21500 18500 31500
ii. The Investments of each company had been held for the more than three years and
the income on the same received by Babar Ltd. Was Rs. 1500 in each of the above
years.
iii. The Fixed Assets of Ashok Ltd. And Babar Ltd. Are to be valued at Rs. 140000 and Rs.
90000 respectively.
iv. The stocks of each company are to be written down by 5% of their book values.
v. The Preference shares of Ashok Ltd. Are to be redeemed at par.
vi. An earning yield of 15% on net trading assets should obtained from the business of
the type carried on by the companies.
You are required to compute the value per share of Equity Shares of each of the above
companies and the value attributable to goodwill in the revised figure for net trading assets
in each company.
Problem – 8
From the following Balance Sheet of XYZ Ltd. As on 31.12.91, you are to ascertain the fair
value of the company’s share showing in detail your calculations.

Rs. Rs.
Share Capital : Building at cost 40000
25000 Equity Shares of Rs. 10 Furniture at cost 2000
Each fully paid 250000 Investment at cost 200000
General Reserve 60000 Stock-in-trade at market val. 210000
Depreciation fund: Sundry Debtors :
Building 6500 All considered good 100000
Investment 15000 Cash at Bank 49500
____ 21500
Sundry Creditors 40000
Profit & Loss A/c:
Balance on 1.1.91 30000
Profit for the year 200000
_____ 230000
______ ______
601500 601500
______ ______
The following information are given.

a) The company’s prospect for 1992 are equally good.
b) The market value of Building is Rs. 100000 and that of Furniture is Rs. 6000.
c) Profits for the past three years have recorded an increase of Rs. 20000 p.a.
d) Companies of similar nature are showing a profit earning capacity of 10% on market
value of shares.
e) Investments earn interest at 5% p.a.
Problem – 9
Balance Sheet of Good Enterprise Ltd. As on 31.3.1994 :

Rs. Rs.
Equity Share Capital : Goodwill 50000
Rs. 10 each 200000 Fixed Assets 100000
Rs. 4 each 100000 Stock 120000
General Reserve 30000 Debtors 135000
Profit & Loss A/c 10000 Cash 10000
Gratuity Fund 15000 Prepaid Expenses 2000
Workman’s Compensation Preliminary Expenses 13000
Fund 5000
Depreciation Fund 10000
Sundry Trade Creditors 25000
Expenses Creditors 5000
______ ______
430000 430000
______ ______
A share holder holding 100 shares of Rs. 10 and 200 shares of Rs. 4 wants to dispose of all the
shares. Dividends paid for last three years were 12%, 14% and 13% normal expectation is 10%.
Fixed assets are worth Rs. 60000, goodwill is to be increased to an amount equal to average
of book value and a valuation made at 4 years purchase of average super profit for last 3 years.
Debtors are estimated to be worth Rs. 142000, Rs. 3000 of trade creditors are outstanding for many
years and it is estimated that this amount will be payable. On the other hand, Rs. 6000 being
disputed bonus claim for 1993-94 has been provided in the accounts but it is likely that the amount
shall have to be paid.
Profits for three years after taxation are Rs. 35000, Rs. 48000 and Rs. 43000.
a) Find out break up value, market value and fair value of the above two types of shares.
b) What should be the fair value of the shares if the controlling interest of the managing
director is being sold.
Problem - 10
S. Ltd. And its subsidiary Ltd. Get their supply of some essential raw materials from P. Ltd. To
co-ordinate their production on a more profitable basis, S. Ltd. And P. Ltd. Agree between
themselves, each to acquire a quarter of shares in the others Authorised Capital by means of
exchange of shares. The terms are as follows :
1. S. Ltd. Shares are quoted at Rs. 14, but for the purpose of exchange, the value is to be taken
at the higher of the two values e.g. (a) quoted and (b) on the basis of the Balance Sheet
valuation;
2. P. Ltd’s shares which are unquoted are to be taken at the higher of the value as on (a) Yield
basis and (b) Balance Sheet basis. The future profits are estimated at Rs. 105000 subject t
one-third to be retained for development purpose. Shares of similar companies yield 8%.
3. Freehold properties of P. Ltd. Are to be taken at Rs. 430000.
4. No cash is to pass and the balance due on settlement is to be treated as loan between the
two companies.
The summarised Balance Sheet of the companies on 31.3.94 stood as follows :
S. Ltd. A. Ltd. P. Ltd.

Rs. Rs. Rs.
Authorised Share Capital :
Equity Shares of Rs. 10 each 1200000 500000 1000000
Issued and Fully paid 800000 500000 750000
Share Premium 80000 ____ ____
7% Debentures 300000 ____ ____
Profit & Loss A/c 230000 210000 200000
Current Liabilities 280000 180000 210000
Proposed Dividend 100000 50000 ___
______ ______ ______
1790000 940000 1160000
______ ______ ______
Freehold Properties 660000 290000 330000
Plant and Machinery 450000 410000 440000
Investments :
40000 shares in Asit Ltd. 470000 ____ _____
Current Assets 210000 240000 390000
______ _____ ______
1790000 940000 1160000
______ _____ ______
You are required to compute the value of the shares according to the terms of the
agreement and to present the final settlement.
Problem – 11
The following is the Balance Sheet of Ravi Ltd. As on 31st March, 1995 :

Rs. Rs.
100000 Equity Shares of Rs. Fixed Assets :
10 each 1000000 Machinery 800000
Less : Calls in Arrear 50000 Factory Shed 300000
(Rs. 2 for Final Call) 950000 Vehicles 200000
Furniture 50000
Reserve and Surplus : Current Assets :
General Reserve 400000 Stock 400000
Profit & Loss Account 230000 Debtors 750000
Current Liabilities : Bank Balance 60000
Bank Overdraft 500000 Miscellaneous Exp.
Creditors 500000 (to the extent not
Written off)
Preliminary Exp. 20000
______ _______
2580000 2580000
The following additional information is furnished :

1. Machinery and Factory Shed are worth 30% above their book value. Depreciation on
appreciated value of Machinery and Factory Shed is not be considered for valuation of
goodwill and shares.
2. For the purpose of valuation of shares, Goodwill is to be considered on the basis 4 years
purchase of super profits based on average profit (after tax) of the last 3 years. Profits of
the last 3 yrs. (after tax) are as follows :
For the ended : 31.3.93-Rs. 260000; 31.3.9 – Rs. 350000; 31.3.95 – Rs. 290000.
3. In the year ended 31.3.93, new addition to Factory Shed costing Rs. 20000 was charged
to Profit& Loss Account. Depreciation charged on Factory Shed is @ 10% on reducing
balance method.
4. In a similar business, return on capital employed is 15% (after tax).
5. Income Tax @ 46%.
Find out the value of each fully paid and partly paid Equity Share on Net Assets basis.
UNIT 5 :Holding Company
1. Why consolidation is made ? State the position of consolidated financial statements in India.
2. What is a Holding Company ? What are the legal requirements for presenting information to
the members of the holding company?
3. What is a consolidated Balance Sheet? What are the advantages of preparing it?
4. How would you treat the following in preparing consolidated financial statements-
a) Inter-company profits included in Stock : b) Inter-company indebtedness.
5. State the contents of AS – 21 regarding the preparation of consolidated financial statements.
Practical Problems
Problem – 1
On 31st March, 1996 the Balance Sheets of H. Ltd. And S. Ltd. Stood as follows :
Liabilities H Ltd. S. Ltd. Assets H. Ltd. S. Ltd.

Rs. Rs. Rs. Rs.
Share Capital : Sundry Assets 517600 304000
Sh. Of Rs. 10 each, fully paid 500000 200000 60% Shares in S. Ltd.
Reserve 100000 50000 acquired on 21st March,
Creditors 80000 1996 (cost) 162400 ____
Preliminary Exp. ____ 6000
_____ ______ _____ ______
680000 310000 680000 310000
_____ ______ _____ ______
Prepare a consolidated Balance Sheet as at 31st March, 1996.
Problem – 2
From the Balance Sheets given below, prepare a Consolidated Balance Sheet of X Ltd. And its
subsidiary company Y Ltd. The interest of minority shareholders in Y Ltd. Is to be shown as a
separate item in the consolidated Balance Sheet.
Balance Sheet of X Ltd. As on 31st March, 1995

Rs. Rs.
Shares Capital: Freehold buildings at cost 80000
Authorised and Issued : Plant & Machinery at cost
12000 Shares of Rs. 10 (Rs. 40000)
Each 120000 Less Depreciation 30000
General Reserve 25000 Shares in Subsidiary Co. At
Profit & Loss A/c 12000 cost (2000 shares of Rs. 10 25000
Trade Creditors 15000 each)
Stock at cost 10000
Trade Debtors 22000
Bank Balance 5000
_____ ______
172000 172000
_____ ______
Balance Sheet of Y Ltd. As on 31st March, 1995

Rs. Rs.
Share Capital : Leasehold Property at Cost 25000
Authorised and Issued : ( Rs. 30000) less depreciation
3000 shares of Rs. 10 each 30000 Plant & Machinery at cost
General Reserve as on 1.4.94 6000 (Rs. 15000)
Profit & Loss A/c 9000 less depreciation 10000
Trade Creditors 5000 Stock at Cost 3000
Trade Debtors 7000
Bank Balance 5000
_____ _____
50000 50000
_____ _____
At the date of acquisition by X Ltd. Of its holding of 2000 shares in Y Ltd. The latter Company
had a credit balance of Rs. 6000 in its Profit & Loss A/c
Problem – 3
Pre-acquisition and post-acquisition profits – Inter company profit included in stock
On 31st March, 1996 the Balance Sheets of H. Ltd. And its subsidiary S. Ltd. Stood as follows :
Liabilities H Ltd. S Ltd. Assets H Ltd. S. Ltd.

Rs. Rs. Rs. Rs.
Equity Share Capital 800000 200000 Fixed Asset 550000 100000

General Reserve 150000 70000 75% Sh. In S.
Profit & Loss A/c 90000 55000 Ltd. (at cost) 280000 ____
Creditors 120000 80000 Stock 105000 177000
Other Current
___________ Assets 225000 128000
1160000 405000 ______ ______
___________ 1160000 405000
______ ______
Draw a Consolidated Balance Sheet are at 31st March, 1996 after taking into consideration the
following information :
(i) H. Ltd. Acquired the shares on 31st July, 1995.

(ii) S Ltd. Earned a profit of Rs. 45000 for the year ended 31st March, 1996.
(iii) In January , 1996 S. Ltd. Sold to H. Ltd. Costing Rs. 15000 for Rs. 20000. On 31st March,
1996 half of these goods were lying as unsold in the god owns of H. Ltd.
Problem - 4
The following are the balance sheets of H. Ltd. And its subsidiary S. Ltd. As at 31st March,
1995 :
Liabilities H. Ltd.(Rs.) S. Ltd.(Rs.) Assets H. Ltd(Rs.) S. Ltd(Rs.)
Share Capital : Machinery 300000 100000
Sh. Of Rs. 10 each, Furniture 70000 45000
Fully paid 600000 200000 70% shares
General Reserve 150000 70000 in S Ltd. At
Profit & Loss (A/c) 70000 50000 cost 260000 ____
Creditors 90000 60000 Stock 175000 189000
Debtors 55000 30000
Cash at Bank 50000 10000
Preliminary
Exp. ____ 6000
______ ______ _____ _____
910000 380000 910000 380000
______ ______ _____ _____
H Ltd. Acquired the shares of S Ltd. On 30th June, 1994, on 1st April 1994 S Ltd. General
reserve and profit and loss account stood at Rs. 60000 and Rs. 20000 respectively. No part of the
preliminary expenses was written off during the year ended 31st March, 1995, prepare the
consolidated balance of H Ltd. And its subsidiary S Ltd. As at 31st March, 1995.
Problem – 5
Shares acquired in the middle of the current year :

The balance sheets of Union Ltd. And State Ltd. On 31st December, 1994 were as follows :
Liabilities Union State Assets Union State

Ltd. (Rs.) Ltd. (Rs.) Ltd. (Rs.) Ltd. (Rs.)
Share Capital (Rs. 100 Land &Buil. 60000 ____
Each) 200000 50000 Plant & Mach. 200000 ____
General Reserve Stock 40000 85000
(1.1.94) 30000 10000 Sundry Debt. 10000 30000
Profit & Loss A/c 90000 45000 Cash at Bank 10000 10000
Creditors 50000 30000 Bills Receivable ___ 10000
Bills Payable 15000 ____ Investment in
In 300 shares in
State Ltd. At
Cost 65000 ___
______ ______ _____ _____
385000 135000 385000 135000
______ ______ _____ _____
Shares were acquired by Union Ltd. On 1st July 1994. The balance in Profit and Loss A/c of State Ltd.
As on 1.1.94 was Rs. 20000. Bills receivable held by state Ltd. Are all accepted by Union Ltd. Included
in the Debtors of State Ltd. Is Rs. 6000 owing by Union Ltd. In respect of goods supplied.
Prepare a consolidated Balance Sheet as on 31st December 1994.
Problem – 6
Distinction between Pre-Acquisition and post-acquisition profits unrealized profit included in

stock.
The following are the balance sheets of RM Ltd. And its subsidiary GM Ltd. As at 31st
March, 1997 :
Liabilities RM Ltd. GM Ltd. Assets RM Ltd. GM Ltd.

Rs. Rs. Rs. Rs.
Fully paid Machinery 390000 135000

Equity Shares Furniture 80000 40000
Of Rs. 10 each 600000 200000 80% Shares in
General Res. 340000 80000 GM Ltd. At cost 340000 ____
Profit & Loss 100000 60000 Stock 180000 120000
Creditors 70000 35000 Cash at Bank 70000 50000
Debtors 50000 30000
______ ______ ______ ______
1110000 375000 1110000 375000
______ ______ ______ ______
The following additional information is provided to you :

(i) Profit & Loss Account of GM Ltd. Stood at Rs. 30000 on 1st April, 1996 whereas General
Reserve has remained unchanged since that date.
(ii) RM Ltd. Acquired 80% shares in GM Ltd. On 1st October, 1996 for Rs. 340000 as
mentioned above.
(iii) Included in Debtors of GM Ltd is a sum of Rs. 10000 due from RM Ltd. For goods sold
while the 25% on cost price, till 31st March, 1997 only one-half of the goods had been
sold while the remaining goods were lying in the go down on RM Ltd. As on that date.
Prepare a consolidated Balance Sheet as at 31st March, 1997.
Problem- 7
Similar to the previous problem + Both the Companies hold debentures of the other
Company and there are outstanding interests on stock debentures
The following are the Balance Sheets of M Ltd. And N Ltd. As at 31st December, 1997 :
Liabilities M Ltd. N Ltd. Assets M Ltd. N Ltd.
Rs. Rs. Rs. Rs.
Eq. Shares of Rs. Each Fixed Asset 600000 340000

Fully paid 300000 200000 Investment in :
Capital Redemption 15000 Equity
Reserve 120000 ____ shares in N Ltd.
General Reserve 100000 30000 on 30.6.97 200000 ____
Profit & Loss A/c 60000 40000 Debentures
Debentures 200000 100000 of N Ltd.
O/S Interest on at par 50000 ____
Debentures for one Debentures of
Year 30000 15000 M Ltd. At par __ 60000
Other Liabilities 190000 115000 Other Assets 150000 100000
______ ______ ______ _____
1000000 500000 1000000 500000
______ ______ ______ _____
Prepare the Consolidated Balance Sheet as at 31st December, 1997, assuming that N Ltd. Has
earned uniformly in 1997 and its Profit and Loss A/c showed a debit balance of Rs. 20000 on
January, 1, 1997.
Problem – 8
p. Ltd. Acquired 1600 Equity Shares of S. Ltd. Of Rs. 100 each on 31st December, 1992. The
summarised Balance Sheets of P Ltd. And S. Ltd. As on that date were as under :
liabilities P. Ltd. S. Ltd. Assets P. Ltd. S Ltd.

Rs. Rs. Rs. Rs.
Share Capital : Land &Buil. 150000 180000

5000 Eq. Share of Rs. Plant & Mach. 240000 109400
100 each 500000 ____ Investments in
2000 Eq. Sh. Of Rs. Shares in S Ltd.
100 each ____ 200000 at cost 340000 ____
Capital Reserve ____ 120000 Stocks 120000 36000
General Reserve 240000 ____ Bills Receivable
Profits & Loss A/c 57200 36000 (including Rs.
Bank Overdraft 80000 ____ 3000 from S.
Bills Payable (include Ltd.) 15800 ____
Rs. 4000 due to P. Ltd. ____ 8400 Debtors 44000 40000
Sundry Creditors 47100 9000 Cash & Bank
Balance 14500 8000
______ ______ ______ ______
924300 373400 924300 373400
______ ______ ______ ______
You are given the following information :

(i) S Ltd. Had made a Bonus issue of 31st December 1992 of one Equity Share for every two
shares held by its share holders. Effect has yet to be given in the accounts for the issue.
(ii) The Directors are advised that Land and Buildings of S Ltd. Are undervalued by Rs. 20000
and plant and Machinery of S Ltd. Overvalued by Rs. 10000. These assets have to be
adjusted accordingly.
(iii) Sundry Creditors of P. Ltd. Include Rs. 10000 due to S. Ltd.
(iv) Stock of S. Ltd. Include Rs. 24000 being goods purchased form P Ltd. Which sells goods
at cost plus 20% Prepare the consolidated balance sheet as at 31st December, 1992,
showing detailed workings.
Problem – 9
Dividends paid out of Pre-Acq. Profits of subsidiary Company

The Balance Sheets of Hari Ltd. And its subsidiary Sadhan Ltd. As on 31st March, 1998 are as
follows :
Liabilities Hari Sadhan Assets Hari Sadhan

Ltd. (Rs.) Ltd. (Rs.) Ltd (Rs.) Ltd. (Rs.)
Shares Capital : Plant & Mach. 480000 90000
Sh. Of Rs. 10 each, Furniture 15000 27000
Fully paid 400000 100000 Investments 200000 ____
General Reserve Stock 95000 42000
(as on 1.4.97) 280000 34000 Debtors 60000 42000
Profit & Loss A/c 170000 42000 Cash at Bank 70000 10000
Creditors 70000 35000
______ ______ ______ _____
920000 211000 920000 211000
______ ______ ______ _____
The following information are also given to you :

(i) Hari Ltd. Acquired 8000 Equity shares in Sadhan Ltd. On 1st July, 1997 at a cost of Rs.
200000.
(ii) Stock of Hari Ltd. Includes Rs. 6000 relating to goods purchased from Sadhan Ltd. Which
follows the practice of charging 25% extra on the cost of determining the sale price.
(iii) Creditors of Hari Ltd. Include Rs. 10000 on account of purchases from Sadhan Ltd.
(iv) Balance in Sadhan Ltd.’s Profit & Loss Account on 1st April, 1997 was Rs. 26000.
Dividends @ 10% for the year 1996-97 was declared out of this balance after 1st July,
1997.
(v) Profits during the year 1997-98 have been earned on uniform basis throughout the year.
Prepare a Consolidated Balance Sheet of Hari Ltd. And its subsidiary Sadhan Ltd. As at
31st March, 1998.
Problem – 10
Jupiter Ltd. Purchased control of Neptune Ltd. On 1.7.91. following are Balance Sheets of
two companies as at 31.12.91 :
Liabilities Jupiter Neptune Assets Jupiter Neptune

Ltd. (Rs)Ltd. (Rs.) Ltd. (Rs.)Ltd. (Rs.)
Eq. Sh. Capital of Rs. 10 each 360000 180000 Goodwill 6000 24000
General Reserve 36000 30000 Land & Building 60000 60000
Profit & Loss A/c 60000 60000 Plant & Machinery 120000 108000
Creditors 60000 42000 Stock-in-trade 70500 60000
Bills Payable to Jupiter Ltd. Debtors 30000 54000
(contingent Liabilities of Investments in 13500
Jupiter Ltd. Rs. 9000 for bills shares of Neptune Ltd. 202500 ____
Discounted ) ___ 6000 Cash at Bank 27000 12000
_____ _____ _____ _____
516000 318000 516000 318000
_____ _____ _____ _____
Neptune Ltd. Had on 1.1.91 Rs. 30000 in General Reserve and Rs. 36000 (Cr) in Profit & Loss A/c 1%
dividend was received by Jupiter Ltd. In July from Neptune Ltd. For 1990 and this amount was
credited to Profit & Loss A/c of Holding Company.
Plant & Machinery standing in the books of Neptune Ltd. At Rs. 120000 on the date of
purchase were re valued at Rs. 144000. Stock of Neptune Ltd. Includes Rs. 9600 on which Jupiter Ltd.
Made a profit of 25% on cost.
Prepare Consolidated Balance Sheet.
Problem – 11
Following are the Balance Sheets of A Ltd. And B Ltd. As on March, 31, 1999 :
Liabilities A Ltd. B Ltd. Assets A. Ltd. B. Ltd.
Share Capital (Equity Share Building 200000 100000
Of Rs. 10 each) 500000 100000 Plant & Machinery 230000 100000
General Reserve 200000 60000 Investments :
Profit & Loss A/c 120000 140000 8000 Equity Shares
Sundry Creditors 80000 60000 in B Ltd. 80000 ____
Bills Payable 50000 20000 Others 30000 10000
Stock 140000 40000
Debtors 160000 40000
Bank 110000 90000
_____ _____ _____ ______
950000 380000 950000 380000
_____ _____ _____ _____
Additional Information :
(i) A Ltd. Acquired 8000 Equity Shares in B Ltd. On 1.4.97. on that date B ltd. Had Rs.
40000 in Profit & Loss A/c and Rs. 40000 in General Reserve.
(ii) B Ltd. Declared on 1.7.97, 10% dividend for 1996-97 and 15% dividend on 1.6.98 for
1997-98. A Ltd. Credited share of both the dividends to Investment in B Ltd. A/c.
(iii) Further on 1.8.98 B Ltd. Declared bonus dividend in the ratio of one for four shares
held out of its balance in General Reserve on 1.4.97. though A. Ltd. Rightly treated
share of bonus dividend in its books of account, B Ltd. Has not yet given effect to the
bonus dividend in the accounts.
(iv) On 1.4.98 B Ltd. Purchased Plant & machinery for Rs. 60000 from A Ltd. Which
yielded a profit of 20% on selling price to A Ltd. B Ltd. Charges 10% depreciation on
its Plant & Machinery.
(v) The entire bills payable of B Ltd. Represent bills accepted in favour of A Ltd.
(vi) Liability for expenses not given effect in the books of A Ltd. Amounts to Rs. 25000.
Prepare a Consolidated Balance Sheet on 31.3.1999.
Problem – 12
Dividend paid by Subsidiary Company partly out of Pre-acquisition Profit & partly out of
Post-acquisition Profit.
H. Ltd, acquired 20000 shares is S Ltd. On 1st October, 1993. The Balance Sheet as at 31st
March, 1994 were as under:
Liabilities H Ltd. S Ltd. Assets H Ltd. S Ltd.
Rs. Rs. Rs. Rs.
Equity Shares of Rs. Buildings 257500 75000
each 375000 125000 Machinery 75000 67750
Reserve as at 1.4.93 227500 5000 Debtors 140000 40000
Profit & Loss A/c 200000 90000 Bills Receivable 10000 10000
Creditors 37500 35250 Stock 85000 50500
Current A/c with S Investments:
Ltd. 7000 ___ 20000 shares in S. Ltd. 200000 ___
Bills Payable 3000 5000 Cash & Bank 82500 9000
Current A/c with H. Ltd. ____ 8000
_____ _____ ______ _____
850000 260250 850000 260250
_____ _____ ______ _____
The balance of Profit & Loss Account of S. Ltd. On 1st April, 1993 was Rs. 70000, interim
dividend @ 16% was paid during the year ended 31st March, 1994. Stock of H. Ltd. Includes Rs. 7500
for goods supplied by S. Ltd. At a profit of 25% on cost. The Profit & Loss Account of H. Ltd. Includes
interim dividend from S. Ltd. The difference in Current Account arises on account of a cheque sent
by H. Ltd. But not reached S. Ltd. Bills Payable of S. Ltd. Are all in favour of H. Ltd. Out of which H.
Ltd. Discounted bills for Rs. 3000.
Prepare consolidated Balance Sheet as at 31.3.94 showing in details necessary workings.
Problem – 13
The following is the summary of balances in the books of Black Ltd. And Bird Ltd, as on 31st
March, 1994:
Black Ltd. (Rs.) Bird Ltd. (Rs.)
Credits
Fully paid Equity Shares of Rs. 1 each 300000 180000
General Reserve 50000 40000
Profit & Loss A/c 98500 48000
Provision for Depreciation on Fixed Assets 60000 30000
6% Debentures (20 Debentures of Rs. 1000 each) ___ 20000
Proposed dividend 30000 18000
Debenture interest accrued ___ 1200
Creditors 87000 26200
_____ _____
625500 363400
_____ _____
Debits
Fixed Assets at cost 250000 220000
135000 Equity Shares in Bird Ltd. At cost 225000 ___
6% 5 Debentures of Bird Ltd. 5500 ___
_____ _____
625500 363400
_____ _____
You ascertain the following:

a) Black Ltd. Acquired the shares in Bird Ltd. On 31st March, 1993.
b) The General Reserve of Bird Ltd. Was the same on 31st March, 1993 as on 31st March, 1994.
The balance on the Profit & Loss Account of Bird Ltd. Is made up as follows:
Balance on 31st March 1993 28000

Net Profit, year ended 31st March, 1994 34400
_____
62000
Less: Provision for proposed dividend 14400
_____
48000
_____
c) The stock-in-trade of Bird Ltd. On 31st March, 1994, included Rs. 16000 in respect of goods
purchased from Black Ltd. These goods had been sold by Black Ltd. To Bird Ltd. At such a
price as to give Black Ltd. A profit of 20% on the invoice price.
You are required to prepare the Consolidated Balance sheet of Black Ltd. And its subsidiary
company, Bird Ltd. As on 31st March, 1994.
Problem – 14
From the following Balance Sheets of H. Ltd, and its subsidiary S. Ltd. As at 31.12.93 prepare
a consolidated Balance sheet:
Liabilities H Ltd. S Ltd. Assets H Ltd. S Ltd.

Authorised, Issued and Paid- Rs. Rs. Rs. Rs.
Up Capital : Goodwill at cost 60000 40000
5% Pref. Sh. Of Rs. 100 each 150000 80000 Fixed Assets, at cost
Equity Sh. Of Rs. 10 each 200000 40000 Less Depreciation:
5% Debentures ___ 50000 Buildings 100000 50000
Sundry Creditors 92000 60000 Plant & Machinery 120000 30000
Due to S. Ltd. 3000 ___ Furniture & Fittings 12000 5000
Bills Payable: Investments in S. Ltd. At cost:
Draw by H.Ltd ___ 10000 200 Preference Shares 24000 ___
3,000 Equity Shares 33000 ___
Others 25000 5000 Stock 80000 70000
Reserves 50000 20000 Sundry Debtors less
Profit & Loss A/c 23000 11000 Reserve for Bad Debts 70000 46000
Bills Receivable:
S Ltd. 3000 ___
Others 11000 7000
Amount due from H. Ltd. ___ 5000
Cash Balances 30000 23000
_____ _____ _____ _____
543000 276000 543000 276000
_____ _____ _____ _____
On the date when H. Ltd. Acquired shares in S. Ltd. Latter’s reserve stood at Rs. 15000 and its Profit
and Loss Account had a credit balance of Rs. 8000 Preference dividends have been regularly paid up
to 30.6.1993,and equity dividends up to 31.12.1992, Dividend received by H. Ltd. Have been
correctly recorded in that company’s books. Of the first dividend on Equity Shares paid since the
date of acquisition of the shares H. Ltd. credited Rs. 3000 to the Equity Shares in S. Ltd. Account
Debenture interest are paid to date. At the date of acquisition of the shares, plant and machinery
standing at Rs. 24000 in S. Ltd.’s books were re-valued at Rs. 20000 but no adjustment was made in
the books, Between that date and 31.12.1993, depreciation amounting to 40% in all have been
written-off from plant. H. Ltd. Remitted Rs. 2000 on 30.12.1993 but was received by S. Ltd. On
4.1.1994.
Problem –15
The Balance Sheets of X Ltd. And Y Ltd. As at 31st December, 1994 are given below:
Liabilities X Ltd. Y Ltd. Assets X Ltd. Y Ltd.
Rs. Rs. Rs. Rs.
Share Capital : Goodwill at cost 150000 100000
(Shares of Rs. 10 each) Fixed Assets 700000 150000
6% Preference Shares 400000 80000 Investments:
Equity Shares 600000 160000 5000, 6% Preference shares
5% Debentures ___ 100000 in Y Ltd. 60000 ___
General Reserve 100000 40000 12000 Equity Shares in
Profit & Loss A/c 60000 24000 Y Ltd. 130000 ___
Current Liabilities 300000 150000 Current Assets 420000 304000
_____ _____ _____ ______
1460000 554000 1460000 554000
_____ _____ _____ _____
On the date of acquisition of the shares in Y Ltd. by X Ltd. the general reserve and Profit and Loss
Account of Y Ltd. Stood at Rs. 30000 and Rs. 10000 respectively. Y Ltd. paid preference dividends up
to 30th June, 1994 and equity dividends up to 31st December, 1993. The equity dividend of Rs. 6000
received by X Ltd. Since the acquisition of the shares out of the balance of Rs. 10000 brought
forward at the time of acquisition has been credited to the Investment Account by X Ltd. Debenture
interest has been paid up to 31st December, 1994.
It was decided that the value of the plant and machinery of Y Ltd. Standing in the books at
Rs. 50000 should be re valued at Rs.40000. no adjustment has been made for this in the books.
Depreciation of Plant and machinery is written off at 20% p.a.
The stock of X Ltd. Includes goods worth Rs. 7500 purchased from Y Ltd. the cost of which to
Y Ltd. Is Rs. 5000. The stock of Y Ltd. Includes goods worth Rs. 20000 purchased from X Ltd. X Ltd.
Invoices its goods by adding 25% in cost.
You are required to prepare a Consolidated Balance Sheet of X Ltd. and its subsidiary as at
31st December, 1994.
Problem - 16
The following are the summarised Balance Sheets of Haran Ltd. And Paran Ltd. As 31st
March, 1995:
Liabilities Haran Paran Assets Haran Paran
Ltd (Rs) Ltd. (Rs.) Ltd(Rs) Ltd.(Rs.)
Authorised & Issued Capital Fixed Assets (Net) 500000 440000
Equity Shares of Rs. 10 each. 600000 200000 1200 Pref. Shares of
7% Pref. Sh. Of Rs. 100 each ___ 160000 Paran Ltd. At cost 120000 ----
General Reserve 100000 80000 15000 Equity Shares of
Profit & Loss Account 197000 88800 Paran Ltd. At cost 330000 -----
6% Debentures ___ 40000 10000 6% Debentures
Proposed Dividends: of Paran Ltd. At cost 10000 ----
Of Equity Shares 60000 20000 Current Assets 291000 286800
On Pref. Shares ___ 11200
Debenture Interest:
Accrued ___ 2400
Creditors 294000 124000
_____ ______ _____ _____
1251000 726800 1251000 726800
_____ ______ _____ ______
The following particulars are available: a) the General Reserve of Paran Ltd. As on 31.3.94
was Rs. 80000 b) Haran Ltd. Acquired the share-cum-dividend in Paran Ltd. On 31.3.94. c) the
balance of Profit & Loss A/c of Paran Ltd. Is made up as follows:
Rs.
Balance as on 313.94 56000
Net Profit for the year ended 31.3.95 64000
______
120000
Less : Provision for Proposed Dividend 31200
______
88800
______
d) The balance of Profit & Loss A/c of Paran Ltd. As on 31.3.94 is after providing for the
preference dividend of Rs. 11200 and proposed equity dividend of Rs. 10000 both of which
were subsequently paid but credited to Profit & Loss A/c of Haran Ltd.
e) No entries have been made in the books of Haran Ltd. For debenture interest due from or
proposed dividend of Paran Ltd. For the year ended 31.3.95.
f) Paran Ltd. Has issued fully paid bonus shares of Rs. 40000 on 31.3.95 among the existing
shareholders by drawing upon the general reserve. The transaction has not been given
effect to in the books of Paran ltd.
You are required to prepare a consolidated Balance Sheet of Haran Ltd. And its subsidiary
paranLtd. As on 31.3.95.
Problem – 17
The following are the Balance Sheets of H. Ltd. And S. Ltd. As at 31st December, 2015.
Particulars Note H.Ltd. S. Ltd.

No. Rs. Rs.
1. EQUITY AND LIABILITIES
I. Shareholders’ Funds
i. Share Capital (Shares of Rs. 10 each) 50000 40000
ii. Reserves and Surplus 1 22000 10000
II. Current Liabilities
a) Trade Payables 2 11000 7900
_____ _____
Total 83000 57900
_____ _____
Particulars Note H. Ltd. S. Ltd.
No. Rs. Rs.
III. ASSETS
1. Non-Current Assets
a) Fixed Assets 20000 30000
b) Non-current investment 3 40900 12000
2. Current Assets
a) Inventories – Stock 4000 9000
b) Trade Receivables 4 12000 5000
c) Cash and Cash Equivalents (Cash at Bank) 5500 1900
d) Other Non-current Assets (Goods – in-transit) 600
_____ _____
Total 83000 57900
_____ _____
Notes to Accounts:
H. Ltd. S. Ltd.
Rs. Rs.
a) General Reserve 12000 4000
b) Balance in Statement of Profit & Loss 10000 6000
_____ _____
22000 10000
_____ _____
2. Trade Payables
a) Creditors i) External 11000 5000
(ii) H. Ltd. ____ 2900
_____ _____
11000 7900
_____ _____
3. Non-Current Investments:
a) Shares in S. Ltd. 32000 ___
b) Other Investments 8900 12000
_____ ____
40900 12000
_____ ____
4. Trade Receivables
Debtors (i) External 9000 5000
(ii) S. Ltd. 3000 5000
____ ____
12000 10000
____ ____
The Credit balance of the Statement of Profit and Loss of S. Ltd. At the date H. Ltd. Bought its
shares was Rs. 2000 and the General Reserve stood at nil. At 31st December, 2015, there
were goods in transit from H. Ltd. To S. Ltd. Rs. 600 and cash in transit Rs. 100 from S. Ltd. To
H. Ltd. These had been entered only in the books of the sending companies.
Prepare a Consolidated Balance sheet of H. Ltd. And its subsidiary as at 31st
December, 2015.
Problem – 18
The following are the summarised Balance Sheets of X Ltd. And its Subsidiary Y Ltd.
At 31st December, 2015:
Particulars Note X Ltd. Y. Ltd.

No. Rs. Rs.
I. Equity and Liabilities
1. Shareholder’s Funds
a) Share Capital (Equity Shares of Rs. 10 each) 100000 50000
b) Reserves and Surplus 1 50000 50000
2. Non-Current Liabilities
a) Long-term Borrowings (6% Debentures of
Rs. 100 each ) 20000 ___
a) Trade Payables (Sundry Creditors) 60000 10000
_____ _____
Total 230000 110000
_____ _____
II. ASSETS
a) Fixed Assets-Tangible Assets 2 110000 45000
b) Non-Current investments (4000 Equity
Shares of Y Ltd. At cost) 50000 ___
2. Current Assets
a) Inventories (Stock-in trade) 20000 30000
b) Trade Receivables (Sundry Debtors) 5000 10000
c) Cash and Cash Equivalents 45000 25000
_____ _____
Total 230000 110000
_____ _____
Notes to Accounts :
X. Ltd. Y. Ltd.
Rs. Rs.
1. Reserve and Surplus
b) Balance in Statement of Profit & Loss ___ 25000
_____ _____
50000 50000
_____ _____
2. Fixed Assets-Tangible Assets
a) Land & Building 50000 30000
b) Plant & Machinery 40000 ___
c) Furniture & Fixtures 20000 15000
_____ _____
110000 45000
_____ _____
3. Cash and Cash Equivalents
a) Cash in hand 5000 5000
b) Cash at Bank 40000 20000
_____ _____
45000 25000
_____ _____
The following information are supplied
(i) X. Ltd. Acquired shares in Y Ltd. On 1st January, 2015 when Y Ltd. Had Rs. 25000
in General Reserve and Rs. 20000 in the statement of Profit and Loss (Cr.
Balance)
(ii) Stock in trade Y. Ltd. Includes goods of the value of Rs. 20000 purchased from X
Ltd. On which X Ltd. Charged cost plus 25%.
(iii) Debtors Y Ltd. Include Rs. 2000 due from X Ltd.
(iv) The proper value of Land and Buildings which stood at Rs. 30000 in the books of
Y Ltd. As at the date of acquisition was Rs. 50000.
You are asked to prepare a Consolidated Balance Sheet of X Ltd. And its
subsidiary Y. Ltd. As at 31st December, 2015.
Problem – 19
Pre-acquisition Loss and Revaluation of Subsidiary Company’s Assets
When ‘O’ Ltd. Purchased 24000 Equity shares in P. Ltd. On 1.1.15 P. Ltd. Had Rs.
22500 in general Reserve and Balance in Statement of Profit & Loss Rs. 37500 (Loss)
from their Balance Sheets on 31.12.15 as below, prepare a Consolidated Balance
Sheet.
No. Rs. Rs.
1. EQUITY AND LIABILITIES
I. Shareholder’s Funds
a) Share Capital (Equity Shares of Rs. 10 Each) 750000 300000
b) Reserves and Surplus 1 150000 (60000)
a) Trade payable (Sundry Creditors) 105000 31500
______ ______
Total 1005000 271500
______ ______
II. ASSETS
a) Fixed Assets-Tangible Assets 675000 150000
b) Non-current investment to Profit & Loss
(investment in P. Ltd.) 210000 ___
2. Current Assets 120000 121500
_____ ______
Total 1005000 271500
_____ ______
Notes to Accounts :
O. Ltd. P. Ltd.
Rs. Rs.

b) Balance in Statement of Profit & Loss 60000 (67500)
_____ _____
150000 (60000)
_____ _____
[N.B. Figures in the parenthesis represent loss.]
Fixed Assets standing in the books of P. Ltd. At Rs. 90000 was considered worth Rs. 75000 on
the date of purchase of control for the purpose of determining the value of shares. 20% depreciation
has been written off since acquisition. Stock of O. Ltd. Includes Rs. 30000 on which P. Ltd. Made Rs.
7500 profit.
Problem – 20
On 1.1.2015 H. Ltd. Purchased 24000 Equity Shares in S. Ltd. On that date S. Ltd. Had Rs.
2500 in general Reserve and Balance in statement of Profit & Loss Rs. 37500 (Loss). From their
Balance Sheets on 31.12.15 as below, prepare a Consolidated balance sheet. Balance sheet as on
31.12.15.
No. Rs. Rs.
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
a) Share Capital (Equity Shares of Rs. 10 each) 750000 300000
b) Reserves and Surplus 1 150000 ___
a) Trade payable (Sundry Creditors) 90000 31500
_____ _____
Total 990000 331500
_____ _____
II. ASSETS
a) Fixed Assets-Tangible Assets 685000 160000
b) Non-current investment 200000 ___
(investment in S.Ltd)
2. Current Assets 105000 171500
_____ _____
Total 990000 331500
_____ _____
Notes to Surplus:
H. Ltd. S. Ltd.
Rs. Rs.
b) Balance in Statement of Profit & Loss 60000 (7500)
_____ _____
150000 ___
_____ _____
[N. B. Figures in the parenthesis represent loss.]
Fixed Assets standing in the books of S. Ltd. at Rs. 90000 was considered worth Rs.
75000 on the date of acquisition of shares for the purpose of determining the value of
shares. 20% depreciation has been written off since acquisition. Stock of H. Ltd. includes Rs.
30000 on which S. Ltd. Made Rs. 7500 profit.
B. Module II
Unit 1 Introduction to Accounting t theory

10 marks
1. What is Accounting Theory? what are its features?

2. Distinguish between Accounting Theory and Accounting Practice.
3. What do you mean by capital?
4. What is historical cost Accounting? What are its limitations?
5. What is Accounting for changing price level? Why is it made?
6. Distinguish between the current Purchasing Power Method and Current cost Accounting
Method.
7. what do you mean by ‘accounting concepts’? state the criteria for accounting concepts.
8. What is GAAP?
9. What is Fair Value? What are the features of fair value accounting?
10. What do you mean by operating capital maintenance and financial capital maintenance?
Explain with suitable example.
Unit 2 : Introduction to Financial Statement
1. The statements of Profit and Loss of a Co. For the year ended 31st March, 2013 and 2014,
are available. You are required to prepare a comparative Income statement –
Statements of P&L for the year ended 31st March 13 & 14

Particulars 31.3.13 (Rs.) 31.3.14 (Rs.)
I. Income
Revenue from operations 520000 650000
Other Income 26000 39000
II. Expenses
Purchase of stock – in – trade 234000 403000
Charges in inventories of stock-in-trade 26000 13000
Employees benefit Expenses 39000 104000
Other expenses 91000 117000
______ ______
total 390000 611000
______ ______
III. Profit [ I – IIII] 156000 78000
Note: 31.3.14 (Rs.) 31.3.14(Rs.)

Other Expenses include
Provision for Tax 78000 91000
st
2. From the following B/S of ICC Ltd. As on 31 March 2013 and 2014, prepare a common size
Balance sheet.
particulars Note No. 31st March 31stMarch

2013 (Rs.) 2014 (Rs.)
1. Equity and Liabilities
Shareholder’s Funds
a) Share Capital 400000 640000
b) Reserves & Surplus 240000 320000
2. Non-current Liabilities 400000 640000
Current Liabilities
a) Trade Payables 160000 320000
3. Assets
Non – current Assets
a) Fixed Assets
b) Tangible 800000 1200000
c) Current Assets 400000 720000
______ _______
1200000 1920000
______ _______
3. Calculate the trend percentage from the following information taking 2008 as base year:
Figures given in Lakhs
2008 2009 2010 2011
Share Capital 300 360 390 420
Reserves & Surplus 120 144 156 168
Debentures 240 240 288 312
Current liabilities 180 117 126 135
Unit 3: Accounting Ratios for financial statement analysis
5 marks
4. What is Ratio analysis? Discuss its importance.
5. What are the limitations of accounting ratios?
6. Explain the following ratios –
a) Capital Gearing Ratios
b) Acid Test Ratio
c) Operation Ratio
d) Cash Position Ratio
7. What do you know about –
a) Earning per share
b) Debt coverage ratio
c) Fixed Asset Proprietary Ratio
8. From the following information prepare a summarised B/S as at 31st March 2010.
Stock velocity 6 Creditor Payment period 73 days

Fixed Asset turnover
Ratio 4 the Gross Profit was Rs. 60000
Capital turnover Ratio 2 closing stock was in excess
Of Opening Stock Rs. 5000
Gross Profit 20%
Debt collection period 2 months
9. Compute ‘operating Expenses Ratio’ and the amount of office overhead from the following:-
(Rs.)
Sales 1000000
Gross Profit : 33.6% of cost of goods sold
Net operating profit is 25% of operating cost
Office overhead to selling and distribution overhead is 3.2
10 Marks
1. From the Ratios and other information supplied below, prepare a ‘proprietor’s funds’
statement with as many components as possible.
Current Ratio 5/2
Liquid Ratio 3/2
Fixed Assets to net worth 0.75
Cash Position Ratio 1/5
Capital gearing (highly geared) 2
R/S to Equity Capital 20%
Working Capital (net) Rs. 90000; Bank Overdraft Rs. 20000. There is no long-term liabilities
except.
Preference Share Capital.
2. Following are the Ratio relating to the trading acetifies of an organisation:-
Debtor’s Velocity 3 months
Stock Velocity 4 months
Creditors Velocity 2 months
Gross Profit Ratio 25%
Capital Profit Ratio 3
Fixed Assets turnover Ratio 4
Gross Profit for the year ended 31st March, 199s was Rs. 750000. Stock as on 31st March,
1991 was Rs. 30000 more than it was on 1st April, 1990. At the end of the year bills payable and bills
Receivable were Rs. 45000 and Rs. 50000 respectively and Bank Draft was Rs. 110000. Make
necessary assumptions that you think fit. Prepare the statement of proprietary for the year ended
31st March, 1991.
3. A business furnishes you with the following details:-
(Rs.)
Opening Stock 50000
Closing Stock 70000
Sales:
Credit 210000
Cash 150000
Gross Profit 60000
Year – end Debtors 20000
Less: Provision for 2000 18000
Bad Debts
Year-end bills Receivable 15000
A year way to taken to be 360 days. You are asked to:-

a) Work out stock turnover to Debtors turnover Ratio.
b) Calculate the operating cycle and state its significance.
4. Following are the Accounts of A Ltd. For 2 years.

Particulars 2009 2010 Particulars 2009 2010
Rs. Rs. Rs. Rs.
To Opening Stock 10000 By sales 150000 200000
To Purchases 120000 125000 By Closing Stock 10000
To Wages 30000 35000 By Gross 10000
To Manufacturing Exp. 20000 25000 Loss
To Gross Profit 5000
____________ ____________
170000 200000 170000 200000
____________ ____________
Comment on the:
a) GP Ratios
b) Operating Ratios
c) Stock turnover Ratios
For the 2 years of the company.
5. Compute working capital requirements from the following-

Average collection Period 60 days
Average payment Period 75 days
Inventory holding Period 90 days
( calculated with cost of goods sold)
Cash & bank balance 2.5% of Sales
Sales Rs. 2000000
Gross Profit 25%
Credit purchase 1/3rd of goods sold
The company expects 50% sales increment during the next year (Assume 1 year = 360 days)
Unit: 4 Fund Flow Statement

Theoretical Question: -
1) State the main differences between Fund Flow Statement & Cash Flow Statement.
2) What do you mean by cash Flow Statement?
3) What are the objectives of cash flow statement?
4) Discuss the limitations of “Cash Flow Statement”.
5) Distinguish between Cash Book and Cash Flow Statement.
Practical Problems: -
1) From the following information prepare

 Statement of Sources and Application of Fund.
 Statement of changes in working Capital.
Balance Sheet
31.12.2014 31.12.2015
Rs. Rs.
1.Shareholders’ funds:
6,00,000 7,00,000
a) Share Capital(Rs.100)
b) Reserve and Surplus
1,52,500 76,000
2.Share application money pendingallotment _ _
3.Non-current liabilities:
8% Debentures 1,25,000 2,00,000
4. Current liabilities:
Accrued Debenture Interest 2,500 4,000
Proposed Dividend 60,000 70,000
Unclaimed Fund 8,000 6,000
Depreciation Fund 1,30,000 1,55,000
Inventory Provision 8,000 9,500
Provision for Taxation 23,000 26,600
Sundry creditors 1,20,000 1,30,000
TOTAL 12,29,000 13,81,900
II. ASSETS
1.Non-current assets:
Building & Machinery
7,80,000 8,55,000
Goodwill 30,000 25,000

2.Current assets:
Inventories 1,95,000 2,15,900
Debtors 1,50,000 1,90,000
Cash & Cash equivalent 20,000 30,000
Advances 50,000 60,000
Debenture Discount Unamortised 4,000 6,000
TOTAL 12,29,000 13,81,900
a) Net loss amounted to Rs. 22,500.

b) Debenture were issued of 5% Discount.
c) Machinery costing Rs. 30,000 was sold for Rs. 8,000
d) A running business was purchased in the year by issue of Rs.1,00,000 shares at par. The
business had machinery of Rs. 50,000, stock Rs. 30,000, Sundry debtors Rs. 25,000 and
Sundry creditors Rs. 20,000
e) Tax paid during the year was Rs. 25,000.
2. From the following Balance Sheet of Beta Ltd, prepare (1) Fund Flow statement and (2) Statement
of changes in working capital:
In the books of Beta Ltd.
Balance sheet
2004 2005
Rs. Rs.
Equity Share Capital 3,00,000 4,00,000
13% Redeemable Preference Share Capital 1,50,000 1,00,000
Capital Reserve
- 20,000
General Reserve
Profit & Loss A/C 40,000 50,000
30,000 48,000
2.Share application money pendingallotment - -
3.Non-current liabilities: - -
Sundry Creditors 42,000 50,000
Bill Payable 25,000 47,800
Liability for Expenses 20,000 16,000
TOTAL 6,77,000 8,17,000
II. ASSETS
Goodwill 1,00,000 80,000
Building 2,00,000 1,70,000
Plant 80,000 20,000
2. Current Assets
Investment 20,000 30,000
Stock 1,40,000 1,70,000
Sundry Debtors 77,000 1,09,000
Bills Receivable 20,000 30,000
Cash and Cash equivalent 25,000 18,000
Preliminary Expenses 15,000 10,000
TOTAL 6,77,000 8,17,000
Additional Information:
a) A building has been sold out in 2005 and the profit on sale has been credited to Capital
Reserve.
b) Plant has been sold for Rs. 10,000. The written down value of the plant was Rs. 12,000.
Depreciation of Rs. 10,000 is charged on plant account in 2005.
c) Rs.3000 by way of dividend is received on trade Investments. This includes Rs. 1,000 from
pre-acquisition profit which has been credited to Investment Account.
d) An interim dividend of Rs. 20,000 has been paid in 2005.
e) Intangible assets are written off against General Reserve.
3. From the following abridged Balance Sheets of Kanchan Ltd. As on 31.12.04 and 31.12.05 and
other information furnished, prepare a statement of sources and applications of Funds
For the year ended 31.12.2005 and describe the significant development.
Balance Sheets
2004 2005
Rs. Rs.
1,50,000 2,00,000
Equity Share Capital
Redeemable Preference Share Capital 1,00,000 -
Capital Redemption Reserve - 50,000
Profit & Loss 1,50,000 2,20,000
2.Share application money pendingallotment - -
Secured Loan 1,50,000 1,00,000
Sundry Creditors 2,50,000 2,30,000
TOTAL 8,50,000 8,75,000
II. ASSETS
Fixed Assets 2,20,000 3,00,000
2. Current assets
Investments 20,000 15,000
Stock 1,90,000 2,40,000
Debtors 2,20,000 2,50,000
Cash & Cash equivalent 1,90,000 62,000
Prepaid Expenses 10,000 8,000
TOTAL 8,50,000 8,75,000
a) On 31st December 2004, accumulated depreciation on fixed assets amounted to Rs. 70,000
and on 31st December 2005 to Rs. 85,000.
b) Machinery costing Rs. 15,000(accumulated depreciation thereon being Rs. 5,000) was sold
for Rs. 7,000 during 2005.
c) During the year 2005 investment costing Rs. 5,000 was sold for Rs. 6,000.
d) Dividend paid for 2004 was Rs. 30,000.
e) Equity share of Rs. 50,000 were issued at a premium of 5% while preference shares were
redeemed at a premium of 5% during the year.
4. The following is the summarized Balance Sheet of Mahindra & Co. Ltd. as at 31st Dec.2004
Balance Sheet
Amount
Rs.
Equity Share Capital 2,75,000
8% Redeemable Preference Shares 1,50,000
Share Premium
30,000
General Reserve
Profit & Loss A/c 1,15,000
46,000
2.Share application money pendingallotment -
3.Non-current liabilities -
Trade Creditors 1,24,000
Bank Overdraft 9,000
TOTAL 7,49,000
II. ASSETS
Freehold hand Property at cost 2,56,000
Plant & Machinery 1,61,000
Less: Depreciation
Furniture & Fittings 9,000
Less: Depreciation
2. Current assets
Investment (market value Rs.1,08,000) 90,000
Stock 75,000
Debtors 1,58,000
TOTAL 7,49,000
On 31st December 2005 the statement shown below was prepared when stock and debtors
amounted to Rs. 62,000 and Rs.1,46,000 respectively and creditors amounted to Rs.1,12,000.
Sources and application of working Capital for the year ended 31.12.05
Sources Amount Application Amount

Rs. Rs.
Net Profit for the year 72,000 Redemption of Preference Shares 1,05,000
Add: Depreciation on Plant 26,000 (Including 5% Premium) 35,000
Furniture 2,250 Purchase of Plant & Machinery 40,000
1,00,250 Payment of dividend
Less: Profit on sale of
Furniture 250 Increase in working Capital 12,000
1,00,000
Less: Profit on Sale of
Sale of Furniture 2,000
Sale of Investment 1,08,000
1,92,000 1,92,000
Prepare the Balance Sheet of the company as on 31.12.05
Unit 5: Cash Flow Statement

1. The summarized Balance Sheets of XYZ Ltd. as at 31st December,2012 and 2013 given below:
2012 2013
Rs. Rs.
Share Capital 4,50,000 4,50,000
General Reserve 3,00,000 3,10,000
Profit and Loss Account 56,000 68,000
2.Share application money pending allotment
Mortgage Loan - 2,70,000
4.Current liabilities:
Creditors 1,68,000 1,34,000
Provision for Tax 75,000 10,000
TOTAL 10,49,000 12,42,000
II. ASSETS
1.Non-current Assets:
Fixed Assets 4,00,000 3,20,000
2. Current assets:
Investments 50,000 60,000
Stock 2,40,000 2,10,000
Debtors 2,10,000 4,55,000
Cash and Cash equivalent 1,49,000 1,97,000
TOTAL 10,49,000 12,42,000
Additional information:
a) Investments costing Rs. 8,000 were sold during the year 2013 for Rs. 8,500.
b) Provision for tax made during the year was Rs. 9,000
c) During the year, part of the fixed assets costing Rs. 10,000 was sold for Rs. 12,000 and the
profit was included in profit and loss account.
d) Dividend paid during the year amounted to Rs. 40,000.
You are required to prepare a statement of sources and uses of cash.
2) The balance Sheets of AB Ltd. as on 31st December 2014 and 2015 are as under –
2014 2015
Rs. Rs.
1,50,000 2,50,000
Equity Share Capital
8% Preference Share Capital 1,50,000 1,00,000
General Reserve 20,000 30,000
Capital Reserve - 25,000
Profit & Loss A/c 18,000 27,000
2.Share application money pendingallotment
3.Non-current liabilities
Sundry Creditors 26,000 53,000
Bill Payable 18,000 12,000
TOTAL 4,37,000 5,62,000
II. ASSETS
Land & Building 1,00,000 75,000
Plant & machinery 90,000 1,91,000
Goodwill 60,000 47,000
2. Current assets:
Stock 85,000 78,000
Sundry Debtors 60,000 90,000
Bills Receivable 15,000 18,000
Cash and Cash equivalent 17,000 28,000
TOTAL 4,37,000 5,62,000
The following further particulars are given:

a) In 2015 Rs. 18,000 depreciation has been written off Plant & Machinery and no depreciation
has been charged on land & building.
b) A piece of land has been sold out and the balance has been revalued, Profit on such sale and
revaluation being transferred to capital Reserve. There is no other entry in Capital Reserve
Account.
c) A Plant was sold for Rs. 12,000 (WDV Rs. 15,000)
d) Dividend received amounted to Rs. 2,100 which included pre-acquisition dividend of Rs,600.
e) An interim dividend of Rs. 10,000 has been paid 2005.
You are required to prepare a cash flow statement for the year 2015.
3) The balance Sheets of Sundaram Ltd as on 31st December 2014 and 2015 are given below:
2014 2015
Rs. Rs.
1.Shareholders’ funds: 3,00,000 4,00,000
Equity Share Capital - 10,000
Capital Reserve 1,70,000 2,00,000
General Reserve 60,000 75,000
Profit & Loss Account 3,00,000 4,00,000
Debentures 2,00,000 1,40,000
Current Liabilities 1,20,000 1,30,000
Unpaid Dividend - 4,000
Provision for Income Tax 90,000 85,000
TOTAL 9,70,000 10,80,000
II. ASSETS
Fixed Assets: As Cost 8,00,000 9,50,000
Less: Depreciation 2,30,000 2,90,000
5,70,000 6,60,000
2. Current assets:
Investments 1,00,000 80,000
Stock in Trade 54,000 75,000
Sundry Debtors 1,25,000 2,10,000
Cash and Cash equivalent 1,01,000 45,000
Preliminary Expense 20,000 10,000
TOTAL 9,70,000 10,80,000
During the year 2015 the company:

a) Sold one machine for Rs. 25,000 the cost of which was Rs. 50,000 and the depreciation
provided on it was Rs. 21,000.
b) Tax paid in 2005 Rs. 88,000.
c) Provided Rs. 95,000 as depreciation
d) Redeem 30% of the Debentures @103.
e) Sold some Trade Investment at a profit which was credited to capital Reserved.
f) Decided to value stock at cost where as previously the practice was to value stock at cost
less10%. The stock according to books on 31.12.14 was Rs. 54,000. The stock on
31.12.15 was correctly valued at cost Rs. 75,000 and.
g) Decided to write off fixed assets costing Rs. 14,000 (fully depreciated)
You are required to prepare a Cash Flow Statement.
4) From the following Balance Sheets prepare a cash flow statement of Sundry Ltd. for the year
ended 31st December 2015.
2014 2015
Rs. Rs.
Equity Share Capital 1,50,000 3,50,000
Redeemable Preference Share Capital 1,00,000 1,50,000
Reserve & Surplus 40,000 50,000
Debentures 1,50,000 1,00,000
Long term loan 1,00,000 50,000
Creditors 80,000 1,00,000
Bank Overdraft 60,000 -
TOTAL 7,30,000 9,00,000
II. ASSETS
Fixed Assets 3,55,000 6,20,000
Goodwill 75,000 60,000
2. Current assets:
Inventories 1,10,000 70,000
Debtors 1,20,000 75,000
Cash and Cash equivalent - 25,000
Prepaid Expenses 30,000 20,000
Miscellaneous Expenditure 40,000 30,000
TOTAL 7,30,000 9,00,000
a) Accumulated depreciation on Fixed Assets amounted to Rs. 1,60,000 and Rs. 1,85,000 as on
31.12.2014 & 31.12.2015 respectively; and a Plant costing Rs. 30,000 (25% depreciated) was
sold for Rs. 50,000.
b) Land of Rs. 1,50,000 & Stock of Rs. 40,000 were purchased for consideration of Rs. 2,00,000
paid for in shares.
c) Dividend for 2014 was paid along with an interim dividend of 5% on opening Equity Capital.
d) Tax liabilities for 2014 was settled at Rs. 28,000.

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B.

COM (H) part III

Paper 3.1 HA : Financial Accounting

Unit1: Investment Accounting

3.write a short note on :

A) Cum dividend and ex dividend transactions.

b) Cum interest and ex interest transactions.

C) Right shares received in course of investments.

Draw up investment account in the books the Company.

Prepare Investment Account in the books of Paran.

Unit 2 :Conversion of partnership into Limited company and Amalgamation of firms.

Fixed Capital Accounts Fixed Assets 70000

Liabilities Amount Assets Amount

Conversion made on a date subsequent to the date of Balance Sheet.

Liabilities Amount Assets Amount

Liabilities Amount Assets Amount

A & Co. B & Co.

iii) Value of Properties are to be appreciated by 20% and 30% respectively.

Unit 3 :Amalgamation, absorption and Reconstruction of Companies.

Particulars Note X LTD. Y Ltd.

2. Reserves and Surplus

2. Non- Current Liabilities

2. Reserves and Surplus 80,000 (65,000)

2. Non- Current Liabilities

2. Reserves and Surplus

3. Fixed Assets - Tangible

Star (Rs.) Moon(Rs.)

ii) 15% debentures in Neptune Ltd. At par to provide an income equivalent to 8%

particulars Notes Meghna Ltd.

particulars Notes Amounts(Rs) Amount(Rs)

(3) current liabilities

(2) Current assets

Absorption – Inter company indebtedness – Inter Company Profit included in stock –

Pit Ltd. Agrees to absorb Stiff Ltd. On the following terms :

Particulars Notes Amounts(Rs) Amount(Rs)

(2) Current liabilities

(2) current assets

Operating profits for the three years :

River Ltd. Canal Ltd.

Balance Sheet as on 31.3.2016

Particulars Notes X Ltd. Y

(3) current liabilities

(2) current assets

2. Reserves and Surplus:

Balance Sheet as on 31.3.2016

Particulars Notes Ram Ltd. KrishnaLtd.

(2) current liabilities

(2) current assets

Absorption – special calculation of purchase consideration – payment of cash to be

Particulars Notes X Ltd. Y Ltd.

(3) current liabilities

a) Goodwill of X Co. Ltd. Is considered valueless.

Particulars Notes X Ltd. Y Ltd.

(3) current liabilities

(2) current assets

Depreciation on building has been provided at 2% per annum on cost.

Liabilities Amount Assets Amount

N.B.: Preference Dividends are in arrears for 2 years.

Liabilities Amount Assets Amount

Share Capital 100000 shares of Fixed and Intangible :

Internal reconstruction of Company

The Balance Sheet of a Liability company. As on 31stMarch 2016 is started below :

Particulars Notes Amounts(Rs)