Unit III

AMALGAMATION WITH RESPECT TO A.S -14

Purchase Consideration
1. H Ltd and L Ltd propose to amalgamate.
Goodwill may be taken at ₹96,000 for H Ltd and ₹38,000 for L Ltd. The stock
of H Ltd and L Ltd to be taken at ₹2,04,000 and ₹1,42,000 respectively. You
are required to find out the purchase consideration received by both the
companies on the basis of Net Assets Method . Their financial position as on
December 31st 2019 were:
Liabilities H LTd L Ltd Assets H LTd L Ltd
₹ ₹ ₹ ₹
Equity Share 5,00,000 2,00,000 Fixed assets 4,00,000 1,00,000
Capital ₹10each Investment 1,00,000 -
General Reserve 2,00,000 20,000 Stock 2,00,000 1,30,000
Profit and Loss a/c 1,00,000 30,000 Debtors 1,70,000 60,000
Creditors 1,00,000 50,000 Cash at Bank 30,000 10,000
3,00,000
9,00,000 3,00,000 9,00,000

2. Calculate the amount of purchase consideration payable by Mini Ltd to Maxi

Ltd . The Summary of Balance sheet of Maxi Limited as on March 31 st 2020
is as follows
Liabilities ₹ Assets ₹
Equity share Capital (₹10 ) 1,50,000 Goodwill 30,000
8% Preference share Capital 60,000 Land 35,000
(₹10each) Building 40,000
Capital Reserve 8,000 Machinery 1,00,000
General Reserve 14,000 Investment 25,000
Profit and Loss a/c 3,000 Stock 24,000
7.5% debentures(₹100each) 30,000 Debtors 15,000
Sundry Creditors 12,000 Cash and Bank 13,000
Outstanding Expenses 8,000 Share Issue Expenses 3,000
2,85,000 2,85,000
 Mini Ltd decided to take over Maxi Ltd by issuing 6 Equity shares of ₹. 10
each fully paid and ₹ 6.50 in cash for every 5 equity shares held in Maxi Ltd.
The Preference Shareholder are to be paid at premium of 15% by issue of 10%
Preference share in Mini Ltd. Debentures holders of Maxi Ltd will be paid
9.5% debentures of Mini Ltd for equal value. Realisation expenses of ₹7,500
are to be borne and paid by Mini Ltd to Maxi Ltd.

AMALGAMATION
P-1
With a view to minimize the running cost, two companies carrying on similar
business decided to amalgamate as from 1-4-2020s. The assets and liabilities as on
the date of amalgamation was as under:
The assets and liabilities as on 31-03-2020were as follows:
Equity and Liabilities G & Co. M & Co.
Ltd Ltd
Rs Rs
Equity share capital (In shares of Rs 10 each) 1,60,000 1,20,000
General Reserve 16,000 --
Dividend Equalisation Reserve 6,000 --
Profit & Loss A/c 5,000 --
Creditors 30,000 86,000
Employees Provident Fund 3,000 --
2,20,000 2,06,000
Assets Rs Rs
Goodwill 20,000 10,000
Land & Building 80,000 57,000
Plant & Machinery 55,000 50,000
Furniture 20,000 46,000
Stock 27,000 14,000
Debtors 10,000 19,000
Bank balance 8,000 10,000
2,20,000 2,06,000
The capital of the combined company was Rs 4, 00,000 divided into 40,000 equity
shares of Rs 10 each.
The conditions of amalgamation were as under:
In case of G & Co Ltd, goodwill and stock were valued at Rs 40,000 and Rs 37,000
respectively. Plant & machinery and furniture were to be depreciated by Rs 15,000
& Rs 2,000 respectively.
In case M & Co Ltd, Land & Building were to taken at Rs 75,000 and plant &
machinery at Rs 45,000. No payment was to be made for goodwill. Bank balance
not to be taken over.
The consideration paid in case of G & Co Ltd in fully paid equity shares for the
amount due. In case of M & Co Ltd, was to be issued 6,000 fully paid equity shares,
300 7 % Preference shares of Rs 100 each and balance being paid in cash.
Pass closing entries in the books of G & Co Ltd & M & Co Ltd .

P-2
C Ltd and F Ltd decided for amalgamation by selling their to a new company which
is formed with an authorized capital Rs 15,00,000 divided into 10,000 equity shares
of Rs 100 each and 5,000 9 % Preference shares Rs 100 each.
The assets and liabilities of C Ltd were as follows:
Equity and Liabilities Rs
Issued capital 6,75,000
9,000 equity shares of Rs 100 each Rs 75 paid up
Share premium 81,000
Reserve 15,000
Profit & Loss A/c 9,000
Creditors 5,000
7,85,000
Assets Rs
Land & building 5,50,000
Plant & machinery 1,25,000
Stock 50,000
Debtors 20,000
Bank 18,000
Advertising suspense A/c 22,000
7,85,000

The assets and liabilities of F Ltd were as follows:

Equity and Liabilities Rs
Issued capital 5,00,000
5,000 equity shares of Rs 100 each fully paid
Profit & loss A/c 500
6 % Debenture 50,000
Accrued interest on debenture 1,500
Creditors 27,000
5,79,000
Assets Rs
Goodwill 60,000
Freehold premises 3,20,000
Fixture & fitting 65,000
Stock 15,000
Debtors 1,15,000
Bank 1,000
Preliminary expenses 3,000
5,79,000
It is proposed that the amalgamation of C Ltd & F Ltd should be on the following
basis:
1. Land and building to be appreciated by Rs 1,30,000 but freehold premises to
be reduced to 3,10,000.
2. The shareholders of C Ltd to receive one preference share and two equity
shares (at a premium of 10 %) fully paid for three equity shares held.
3. The shareholders of F Ltd to receive two preference shares and two equity
shares (at a premium of 10 %) fully paid for every five equity shares held.
4. The new company to discharge the debentures and accrued interest in F Ltd
by the issue of 7 % debentures at Rs103
5. The expense of amalgamation Rs 10,000 to be borne by the new company.
Prepare Ledger accounts in the books of C Ltd & F Ltd .
P-3
The assets and liabilities of Star Ltd and Moon Ltd as at 31-3-2020 is as under:
Equity and Liabilities Star Ltd Moon
Rs Ltd
Rs
Equity share capital of Rs 10 each 2,10,000 1,50,000
9 % Redeemable preference shares of 90,000 ---
Rs 100 each
Share premium 10,500 ---
Capital redemption reserve 60,000 ---
General reserve 49,500 75,000
8 % debentures 60,000 90,000
Creditors 1,20,000 1,35,000

Total 6,00,000 4,50,000

Assets Rs Rs
Goodwill 15,000 ---
Land & building 1,05,000
Plant 3,00,000 1,35,000
Furniture 5,000 15,000
Vehicles 10,000 15,000
Stock 1,20,000 75,000
Debtors 80,000 50,000
Advances 50,000 35,000
Cash and bank 20,000 20,000
Total 6,00,000 4,50,000
On 1-4-20 Sun Ltd was formed by amalgamating Star Ltd and Moon Ltd on the
following terms:
1. Sun Ltd to issue 60 – 12 % Debentures of Rs 1000 each to debenture holders
of Star Ltd
 2. The debenture holders of Moon Ltd were allotted 7,500 equity shares of Rs 10
each at Rs 12 per share
3. Preference shareholders of Star Ltd were allotted 900 – 11% Redeemable
Preference shares of Rs 100 each.
4. The equity shareholders of Star Ltd are to be allotted 10 equity shares at par
for 7 equity shares held by them. The share of Sun Ltd is of Rs 10 each.
5. The assets of Star Ltd are taken over at book value
6. The assets and liabilities of Moon Ltd are valued at under
a. Goodwill Rs 30,000
b. Land Rs.1, 50,000
c. Building Rs. 45,000
d. Plant Rs. 1, 20,000
e. Other fixed assets Rs. 15,000
f. All current assets Rs. 1, 50,000
g. All current liabilities Rs. 1, 50,000
The balance consideration is to be paid by allotment of equity shares at par to Moon
Ltd
Calculate purchase consideration payable to Star Ltd and Moon Ltd
Pass Journal entries and prepare Balance sheet of Sun Ltd under Purchase method

P-4
Alpha Ltd and Beta Ltd were amalgamated on and from 1-4-2020. A new company
Gamma Ltd was formed to take over the businesses. The assets and liabilities of
Alpha Ltd and Beta Ltd as on 31-3-20 are given below:

(in lakhs)
Equity and Liabilities Alpha Beta
Ltd Ltd
Rs Rs
Share capital
Equity shares of Rs 100 each 1,000 800
15% Preference shares of Rs 100 each 400 300
Reserve & surplus
Statutory reserve 100 80
General reserve 200 150
Profit & Loss A/c 80 60
Secured Loan 96 80
12 % Debenture of Rs 100 each
Current liabilities & Provisions 204 95
2,080 1,565
Assets Rs Rs
Fixed assets 1,200 1,000
Current assets, loans & advances 880 565
2,080 1,565
Other information
1. 12 % Debenture holders of Alpha Ltd and beta Ltd are discharged by Gamma
Ltd by issuing adequate number of 16 % debentures of Rs 100 each to ensure
that they continue to receive the same amount of interest.
2. Preference shareholders of Alpha Ltd and beta Ltd have received same
number of 15 % Preference shares of Rs 100 each of Gamma Ltd
3. Gamma Ltd has issued 1.5 equity shares for 1equity share of Alpha Ltd and
1equity share for 1equity share of Beta Ltd. The face value of shares issued by
Gamma Ltd is Rs100 each.
4. Statutory reserve to be maintained for 3 years.
Pass journal entries in the books of Gamma Ltd assuming amalgamation is in
the nature of purchase and prepare Balance sheet

P-5
Josh Ltd and Ashish Ltd were amalgamated to form a new company Shilpa Ltd
from 1st April, 2020
The assets and liabilities as on 31st March, 2020:
Equity and Liabilities Josh Ltd Ashish
Rs Ltd
Rs
Equity shares of Rs 100 each 4,00,000 3,75,000
12% Preference shares of Rs 100 each 1,50,000 1,00,000
General reserve 85,000 75,000
Profit & Loss A/c 25,000 15,000
Statutory reserve 1,00,000 75,000
10% Debentures of Rs 100 each 30,000 15,000
Creditors 1,10,000 70,000
Bills Payable 1,00,000 25,000

10,00,000 7,50,000
Assets Rs Rs
Land & Building 3,00,000 1,50,000
Machinery 1,50,000 1,80,000
Computers 75,000 20,000
Stock 2,00,000 1,00,000
Debtors 1,25,000 2,00,000
Bills Receivable 90,000 20,000
Bank 60,000 80,000

10,00,000 7,50,000
Additional information:
1) Shilpa Ltd issued 5 equity shares for each equity shares of Josh Ltd and four
equity shares for each equity share of Ashish Ltd. The shares are of Rs 10
each issued at Rs 30 each.
2) Preference shareholders of both companies are issued equivalent number of
15% preference shares of new company at Rs 150 per share (face value Rs
100).
3) 10% Debentures of Josh Ltd and Ashish Ltd are discharged by Shilpa Ltd
issuing such number of 15% Debentures of Rs 100 each that they continue to
receive same amount of interest.
4) Statutory reserve to be maintained for 3 years more.
The assets were revalued as follows:
Josh Ltd Ashish Ltd
Land & Building 4,00,000 2,00,000
Machinery 1,20,000 1,50,000
Computers 70,000 10,000
Stock 1,50,000 80,000
Debtors 1,10,000 1,90,000
Compute purchase consideration
Show Journal entries in the books of Shilpa Ltd

P- 6
Following are the assets and liabilities of Bold Ltd and Beautiful Ltd as on 31st
March, 2020:
Liabilities Bold Ltd Beautiful Assets Bold Ltd Beautiful
Ltd Ltd
Equity share 5,50,000 2,00,000 Land & 2,00,000 ----
capital (Rs10 building
each)
General 4,00,000 2,50,000 Plant & 3,00,000 2,60,000
Reserve machinery
Profit & Loss 1,00,000 48,000 Furniture 50,000 30,000
A/c
Statutory 50,000 ---- Investment 1,00,000 -----
reserve (Market value
Rs 1,25,000)
12% ---- 1,00,000 Current asset 7,40,000 4,55,000
Debenture
Current 3,00,000 1,52,000 Preliminary 10,000 5,000
Liabilities expenses
14,00,000 7,50,000 14,00,000 7,50,000
The two companies combine and form a new company called Best Ltd with an
authorized capital of Rs 20,00,000 consisting of 2,00,000 equity shares of Rs 10
each. The terms of agreement were as follows:
a. All assets and liabilities of both companies were taken at book value except
Land & Building at book value plus 10%, Plant & machinery at book value
less 5% and Investment at its market value.
b. Both the companies received 5% of their valuation of their respective business
as goodwill.
 c. The entire purchase consideration was paid in the form of equity shares of Rs
10 each fully paid at a premium of Rs 5 per share.
d. 12% Debentures were redeemed at par by issue of equity shares of Rs 10 each
fully paid by amalgamated company at par.
Prepare statement of purchase consideration
Prepare Balance Sheet of Best Ltd after amalgamation is in the nature of purchase
method

ABSORPTION
P-7
Following is the assets and liabilities of Tal Ltd and Sur Ltd as at 31st March, 2020:
Liabilities Tal Ltd Sur Ltd Assets Tal Ltd Sur Ltd
Equity share capital 10,00,000 5,00,000 Building 14,00,000 8,00,000
General reserve 5,00,000 4,00,000 Furniture 1,00,000 2,00,000
Profit & Loss A/c 1,60,000 2,40,000 Computer 50,000 20,000
Statutory reserve 20,000 10,000 Stock 1,20,000 1,80,000
Loans from Tal Ltd 10,000 Debtors 2,40,000 3,00,000
Bills payable 40,000 40,000 Bills 40,000 60,000
receivable
Creditors 2,80,000 4,00,000 Loans to 10,000 ----
Sur Ltd
Cash 40,000 40,000
20,00,000 16,00,000 20,00,000 16,00,000
a. Tal Ltd takes over the business of Sur Ltd for Rs 12,00,000 in the form of
equity shares of Rs 10 each allotted at par.
b. Included in bills payable of Tal Ltd amounting to Rs 25,000 accepted in
favour of Sur Ltd for goods purchased. Of the above mentioned bills of Rs
25,000 bills for Rs 8,000 still remain on the date of absorption in the hands of
Sur Ltd. The rest having been endorsed in favour of creditors or discounted
with the bank.
c. On the date of amalgamation the stock of Tal ltd include goods purchased
from Sur Ltd at an invoice price of Rs 10,000. Sur Ltd charging profit at 25%
on cost.
 d. Expenses of liquidation of Sur Ltd Rs 12,000 were met by Tal Ltd.
Prepare Realisation A/c and Equity shareholders A/c in the books of Sur Ltd
Journal entries in the books of Tal Ltd
Balance sheet in the books of Tal Ltd under purchase method

P-8
On 31st March, 2020 Dimond Ltd was absorbed by Panna Ltd the latter taking over
all assets and liabilities of the former company at book values. The consideration
for the business was fixed at Rs 6,00,000 to be discharged by Panna Ltd in the form
of fully paid equity shares of Rs 10 each to be distributed among the shareholders of
Dimond Ltd.
The assets and liabilities of the two companies as on 31st March, 2020 was as
follows:
Liabilities Panna Dimond Assets Panna Dimond
Ltd Ltd Ltd Ltd
Equity shares of 10,00,00 5,00,000 Goodwill 2,00,000 1,00,000
Rs 10 each
Statutory 30,000 20,000 Furniture 4,12,000 2,00,000
reserve
General reserve 4,00,000 80,000 Computer 2,08,000 50,000
Profit & Loss 20,000 10,000 Stock 4,20,000 1,00,000
A/c
Creditors 60,000 60,000 Debtors 2,80,000 1,80,000
Bills Payable 80,000 20,000 Cash 20,000 30,000
Provision for 40,000 30,000 Bank 90,000 60,000
tax
16,30,000 7,20,000 16,30,000 7,20,000
Amalgamation expenses amounting to Rs 12,000 were paid by Panna Ltd in cash.
 Show the following ledger accounts in the books of Dimond Ltd
Realisation A/c
Equity shareholders A/c
 Pass Journal entries in the books of Panna Ltd
 Prepare Balance Sheet of Panna Ltd under Merger method
P-9
Following are the assets and liabilitiesof Satyam Ltd and Shivam Ltd as on 31st
March 2020:
Liabilities Satyam Shivam Assets Satyam Shivam
Ltd Ltd Ltd Ltd
Equity share capital 10,00,000 4,00,000 Building 8,00,000 3,00,000
of Rs each
Securities premium 2,00,000 ---- Machinery 5,10,000 1,70,000
General reserve 6,00,000 3,00,000 Furniture 3,20,000 1,60,000
Profit & loss A/c 2,00,000 1,20,000 Computer 80,000 40,000
Loan from Shivam 10,000 ---- Debtors 70,000 30,000
Ltd
Creditors 40,000 60,000 Bills 30,000 40,000
Receivable
Bills Payable 50,000 20,000 Stock 1,80,000 1,10,000
Proposed dividend 1,00,000 40,000 Cash at bank 2,10,000 80,000
Loan to ---- 10,000
Satyam Ltd
22,00,000 9,40,000 22,00,000 9,40,000
a) Satyam Ltd absorbed Shivam Ltd on the above date by issuing two equity
shares of Rs 10 each at a premium of Rs 5 per share for every one share of
Shivam Ltd.
b) Before merger each company paid dividend @ 10% on paid up equity share
capital to all its respective shareholders as proposed by its respective Board of
Directors for the year ended 31-03-2020.
c) Satyam Ltd Bills receivable included bills of Rs 10,000 accepted by Shivam
Ltd.
 Show the following ledger accounts in the books of Shivam Ltd
Realisation A/c
Equity shareholders A/c
 Journal entries in the books of Satyam Ltd

P-10
Black Berry Ltd absorbed I Pad Ltd. Given below are the assets and liabilities of
two companies as on 31st March, 2020:
Liabilities Black I Pad Assets Black I Pad
Berry Ltd Berry Ltd
Ltd Ltd
18,000 Equity shares of ---- 24,30,000 Building 24,00,000 8,00,000
Rs 135 each
6,00,000 equity shares 60,00,000 ---- Furniture 16,00,000 3,00,000
of Rs 10 each
General reserve 20,00,000 8,00,000 Computers 8,00,000 4,00,000
Statutory reserve 2,00,000 1,00,000 Stock 22,00,000 15,00,000
Creditors 8,00,000 6,70,000 Debtors 18,00,000 9,00,000
Bank 2,00,000 1,00,000
90,00,000 40,00,000 90,00,000 40,00,000
The holders of every three shares in I Pad Ltd were to receive five shares in Black
Berry Ltd valued at Rs 75 each.
 Give the following in the books of I Pad Ltd
Equity shareholders A/c
Realisation A/c
 Journal entries in the books of Black Berry Ltd

P-11
The following are the assets and liabilities of Alpha Ltd and Beeta Ltd as on 31st
March, 2020
Liabilities Alpha Beeta Assets Alpha Beeta
Ltd Ltd Ltd Ltd
7% preference 4,50,000 6,00,000 Goodwill 60,000 1,00,000
shares of Rs 100
each
Equity shares of Rs 8,00,000 12,00,00 Premises 6,50,000 7,00,000
100 each 0
General reserve 70,000 80,000 Machiner 4,80,000 6,20,000
y
Profit & Loss A/c 45,000 62,000 Computer 1,20,000 2,00,000
Statutory reserve 27,000 48,000 Stock 1,80,000 2,50,000
10% Debenture 1,50,000 84 Debtors 1,10,000 3,15,000
Creditors 75,000 1,20,000 Bills 30,000 20,000
receivable
Bills Payable 25,000 35,000 Bank 12,000 24,000
16,42,00 22,29,00 16,42,00 22,29,00
0 0 0 0
Beeta Ltd takes over Alpha Ltd on 1st April, 2020 on the following terms:
Beeta agreed to discharge the purchase consideration as follows
1. Issued 10,000 Equity shares of Rs 100 each at a premium of 5% for the equity
shareholders of Alpha Ltd
2. Issued 8% Preference shares of Rs 100 each at par to discharge the preference
shareholders of Alpha Ltd at a premium of 10%.
3. The debenture holders of Alpha ltd to be converted into equivalent number of
debentures in Beeta Ltd
4. Debtors of Beeta Ltd include Rs 25,000 being amount due from Alpha Ltd
5. Bills Payable of Alpha Ltd includes Rs 7,000 being the amount of bills
accepted in favour of Beeta Ltd but bills receivable of Beeta Ltd includes Rs
5,000 only being the amount of bills due from Alpha Ltd.
6. The stock of Beeta ltd includes Rs 30,000 worth of goods purchased from
Alpha Ltd on which Alpha Ltd made a profit of 25% on cost.

Calculate purchase consideration

Pass Journal entries and prepare Balance Sheet in the books of Beeta Ltd assuming
that amalgamation is in the nature of purchase.

EXTERNAL RECONSTRUCTION
P-12
The books of S Ltd contained the following balances as on 31-3-2020:
Particulars Dr Cr
Rs Rs
Equity share capital 12,00,000
( Rs 10 each )
Creditors 14,00,000
Patents & trade marks 12,00,000
Plant & Machinery 4,00,000
Stock 3,00,000
Debtors 5,00,000
Cash 12,500
Preliminary expenses 72,500
Profit & Loss A/c 1,15,000
26,00,000 26,00,000
The patents & trademarks are considered overvalued. The company is not in a
position to raise any further capital the following scheme of reconstruction has
therefore been framed:
1. The company will go into voluntary liquidation. A new company S.S Ltd will
be formed with an authorized capital of Rs 20, 00,000 to take over the assets
and liabilities.
2. After take over the New Company will discharge the liability to creditors by
payment of 25p in a rupee in cash and 50p in a rupee by issue of 14 %
Debentures.
3. 1,20,000 shares of Rs 10 each ( Rs 5 per share paid up ) will be issued to the
shareholders of S Ltd and the balance Rs 5 per share to be paid on allotment.
4. Expenses of liquidation amounting to Rs 17,500 will be paid by S.S Ltd
5. The scheme was duly approved by all parties.
Prepare following ledger accounts in the books of S Ltd.
 Relisation A/c
 Equity shareholders A/c
 S.S Ltd A/c
 Equity shares in S.S Ltd A/c
Give Journal entries in the books of S.S Ltd.
Prepare Balance sheet of S.S Ltd after implementation of the scheme of external
reconstruction