WISDOM TUTORIAL

OF
COMMERCE AND MANAGEMENT
B.com 2nd Semester (NEP)
Unit – 4
Amalgamation of Companies
There are many forms of business combinations to obtain the economies of large-scale
production or to avoid the cut throat competition. They are amalgamation, absorption,
external reconstruction etc.
The term amalgamation is used when two or more existing companies go into
liquidation and a new company is formed to take over the business of liquidated companies.
The term absorption is used when an existing company takes over the business of one or
more existing companies which go into liquidation. In external reconstruction, one existing
company goes into liquidation and a new company is formed to take over the former
company.
Definitions as per Accounting Standard 14 (AS‐14)
a). Amalgamation – means an amalgamation pursuant to the provisions of the Companies Act
1956 or any other statute which may be applicable to companies.
b). Transferor Company – means the company which is amalgamated into another company.
c). Transferee Company – means the company to which a Transferor company is
amalgamated.
d). Reserve – means the portion of earnings, receipts or other surpluses of an enterprise
(whether capital or revenue) appropriated by the management for a general or a specific
purpose other than provision for depreciation or diminution in the value of assets or for a
known liability.
Types of Amalgamation
As per AS‐14 there are two types of amalgamation (1) Amalgamation in the nature of merger
and (2) Amalgamation in the nature of purchase.

OBJECTIVES OF AMALGAMATION
Amalgamation means the Merging of two or more than two companies for eliminating
competition among them or for growing in size to achieve the economies of scale.
Amalgamation is a broad term which includes mergers (uniting of two existing companies)
and acquisition (one company buying out another company). There are many objectives of
amalgamation. Some of the objectives are as follow: Let us discuss them in detail.
1. To have a better control over the market and also to increase the market share and
area of operations.
2. To eliminate the cut-throat competition and rivalry among competing the
amalgamating companies.
3. To enjoy the economies of large-scale production.
4. To utilize the services of professional experts.
5. To increase the availability of funds for the future investment plans.
6. To achieve all other advantages of combination.
RECONSTRUCTION
Reconstruction is entirely of different nature. The objective is not to bring about a
combination of companies but merely to reorganize a company which has suffered huge
losses which are to be written off. Reconstruction may be of two types:
External Reconstruction

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It is not exactly similar to amalgamation. In external reconstruction, existing company is
wound up by selling its business to newly formed company which is generally similar named
or owned by the same shareholders.

Internal Reconstruction
It is altogether a different form of business combination. In internal reconstruction, the
company continues with its legal entity and is only internally reorganized. In this,
rearrangement and reduction of share capital is done. Under internal reconstruction, the share
capital is reduced to its real worth and the same amount is used to eliminate the accumulated
losses, fictitious assets and to write down the overvalued assets of the company.
Some Important Terms in Amalgamation are as under
(1) Transferor Company: This means the company which is amalgamated into another
company.
(2) Transferee Company: It is a company in which transferor company amalgamate.
(3) Amalgamation: Amalgamation is basically of two types:
(i) Amalgamation in the nature of merger:
Amalgamation in the nature of merger is an amalgamation which satisfies all the following
conditions:
a) All the assets and liabilities of the transferor company become, after amalgamation,
the assets and liabilities of the transferee company.
b) Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than the equity shares already held therein, immediately
before the amalgamation by the transferee company or its subsidiaries or their
nominees) become equity shareholders of the transferee company by virtue of the
amalgamation.
c) The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agree to become equity shareholders of the transferee
company is discharged by the transferee company wholly by the issue of equity shares
in the transferee company, with the exception that cash may be paid only in respect of
fractional shares.
d) The business of the transferor company is intended to be carried on, after the
amalgamation, by the transferee company.
e) No adjustment is intended to be made to the book value of the assets and liabilities of
the transferor company when they are incorporated in the financial statements of the
transferee company except to ensure uniformity of the accounting policies.
(ii) Amalgamation in the nature of purchase:
Amalgamation in the nature of purchase is an amalgamation which does not satisfy any one
or more of the five conditions stated above.
(4) Assets purchased and Business purchased: If it is mentioned in the question that the
transferee company has purchased the assets of the Transferor company, it means that
Transferee Company has acquired all the assets including cash and not the liabilities of the
business of the transferor company. If it is mentioned that the Transferee company has
purchased the business of the transferor company, it means that Transferee Company has
acquired all the assets and liabilities of the transferor company.
(5) Liabilities and Trade liabilities: The term liabilities include trade creditors, Bills payable,
debentures, bank overdraft, outstanding expenses, pension fund, provident fund, workmen
profit sharing fund etc. The term trade liabilities include creditors and bills payable which are
associated with sale/purchase of goods and services.
METHODS OF ACCOUNTING FOR AMALGAMATION
There are two main methods of accounting for amalgamation:

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(a) The pooling of interest method; and
(b) The purchase method. The use of the pooling of interest method is confined to
circumstances which meet the criteria referred to in paragraph 3(e) for an amalgamation in
the nature of merger. The object of the purchase method is to account for the amalgamation
by applying the same principles as are applied in the normal purchase of assets. This method
is used in accounting for amalgamations in the nature of purchase.

The Pooling of Interests Method

Under the pooling of interest’s method, the assets, liabilities and reserves of the transferor
company are recorded by the transferee company at their existing carrying amounts (after
making the adjustments required). If, at the time of the amalgamation, the transferor and the
transferee companies have conflicting accounting policies, a uniform set of accounting
policies is adopted following the amalgamation. The effects on the financial statements of
any changes in accounting policies are reported in accordance with Accounting Standard
(AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Policies.
The Purchase Method
Under the purchase method, the transferee company accounts for the amalgamation either by
incorporating the assets and liabilities at their existing carrying amounts or by allocating the
consideration to individual identifiable assets and liabilities of the transferor company on the
basis of their fair values at the date of amalgamation. The identifiable assets and liabilities
may include assets and liabilities not recorded in the financial statements of the transferor
company.
Where assets and liabilities are restated on the basis of their fair values, the
determination of fair values may be influenced by the intentions of the transferee company.
For example, the transferee company may have a specialized use for an asset, which is not
available to other potential buyers. The transferee company may intend to effect changes in
the activities of the transferor company which necessitate the creation of specific provisions
for the expected costs, e.g., planned employee termination and plant relocation costs.

PURCHASE CONSIDERATION
Purchase Consideration is the amount which is paid by the transferee company for the
purchase of the business of the transferor company. In other words, consideration for
amalgamation means the aggregate of the shares and other securities issued and payment in
cash or other assets by the transferee company to the shareholders of the transferor company.
It should not include the amount of liabilities taken over by the transferee company, which
will be paid directly by this company. Payments made to debenture holders should not be
considered as part of purchase consideration. The calculation of purchase consideration is
very important and may be calculated in the following ways:

(1) Lump sum Payment Method: When the transferee company agrees to pay a fixed sum
to the transferor company, it is called a lump sum payment of purchase consideration. For
example, if A Ltd. purchases the business of B Ltd. and agrees to pay Rs. 25,00,000 in all, it
is an example of lump sum payment.

(2) Net Assets Method: According to this method, the purchase consideration is calculated
by calculating the net worth of the assets taken over by the Transferee Company. The net
worth is calculated by adding the agreed value of assets taken over by the transferee
company. Following points should be taken care of:
a) Value of only those assets is included which are acquired by the transferee company.

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 b) Value of only those liabilities will be deducted which have been taken over by the
Transferee Company.
c) Cash Balance is normally included in assets but if it is not taken over it will not be
included. Goodwill is an intangible but valuable asset and as such is included in
assets.
d) Fictitious assets not written off should not be added.
e) This method is used only when the Net Payment cannot be adopted.

(3) Net Payment Method: Under this method, purchase consideration is calculated by
adding the various payments in the form of shares, securities, cash, etc. made by the
transferee company. No amount of liabilities is deducted even if these are assumed by the
purchasing company. Thus, purchase consideration is the total of all the payments whether in
shares, securities, or cash. For example, X Ltd. agrees to give for every 10 shares of Y Ltd.
15 shares of Rs. 10 each, Rs. 8 paid up. X Ltd. agrees to pay Rs.15, 000 cash to discharge the
creditors. The purchase consideration is calculated as follows:
Shareholders of Y Ltd. will get: 6,000 ×15/10 = 9,000 shares of Rs. 10 each,
Rs. 8 paid up Rs. 72,000
Cash Paid Rs.15,000
Purchase Consideration Rs 87,000
But sometimes it is specifically mentioned that company issued requisite number of shares
and also gave balance amount in cash. But “this balance” could not be ascertained and the
total purchase consideration amount is also meet specified, then in such a case the company
has only option to go with the net asset’s method.
The following points are to be kept in mind:
• The assets and liabilities taken over by the transferee company are not to be considered.
• The payments made by the transferee company for the shareholders, whether in cash or
shares must be taken in account.
• If debentures and creditors are taken over by the transferee company and subsequently
discharged then such am discharged then such amount should not be deducted from the
purchase consideration.
(4) Intrinsic worth/value Method: This method is just an extension of net assets methods.
Under method, purchase consideration is required to be calculated on the basis of intrinsic
value of shares. The intrinsic value of a share is calculated by dividing the net assets available
for equity shareholders by the number of equity shares. This value determines the ratio of
exchange of shares between the transferor and transferee company. Suppose A Ltd. and B
Ltd. are two companies carrying on the business in the same line of activity. Their capital is
Rs. 6, 00,000 and Rs. 2, 00,000 (value of each share Rs. 10). The two companies decided to
amalgamate in C Ltd. If each share of A Ltd. and B Ltd. is valued at Rs. 15 and Rs. 25 per
share for the purpose of amalgamation. The purchase consideration will be as under:
A Ltd. 60,000 shares @ Rs. 15 each Rs. 9, 00,000
B Ltd. 20,000 shares @ Rs. 25 each Rs. 5, 00,000

Distinction between Amalgamation, Absorption and Reconstruction

Basis Amalgamation Absorption Reconstruction
Formation A new company is formed. No new company is Company is
formed. reconstructed.
Liquidation All the companies which go The company whose The company which is
for amalgamation are business is purchased by reconstructed goes into
liquidated. another company goes liquidation.
into liquidation.

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Financial Position Financial position of all the Financial position of the Financial position of the
of the Company involved companies is absorbing company is old company is bad and is
same comparatively sound usually considered as the
than the absorbed sick unit.
company.
Objective To eliminate the To expand the business To write off the
competition among the and to achieve the accumulated losses and
amalgamated companies economies of large-scale offering the real worth of
production. the business to the
shareholders.
Position of Shareholders of the Shareholders of the Most of the shareholders
shareholder in amalgamated companies selling company may of the old company
the company become the shareholders become the shareholders continue to be the
of the new company of the purchasing shareholders of the new
company company with the
proportionate share.

Difference between amalgamation in the nature of merger and amalgamation in the

nature of purchase
Basis of distinction Amalgamation in the Amalgamation in the
Nature of Merger Nature of purchase
a) Transfer of Asset and There is transfer of all assets There need not be transfer for
liabilities and liabilities. all Asset and liabilities
b) Share holder of the Equity shareholder holding Equity shareholder need not
transferor company 90% equity share in transferor become shareholder of
company become shareholder transferee company
of transferee company

c) Purchase considerationPurchase consideration is Purchase consideration need

discharge wholly by issue of not be discharge wholly by
equity share of transferee issue of equity shares
company (except cash only
for fractional shares)
d) Same business The same business of the The business of the transferor
transferor company is company need not be
intended to be carried on by intended to be carried on by
the transferee company the transferee company
e) Recording of assets & The asset and liabilities taken The asset and liabilities taken
liabilities over are recorded at their over are recorded at their
existing carrying amounts existing carrying amounts or
excepts where adjustments is the basis of their fair value
required to ensure uniformity
of accounting policies

f) Method of accounting Journal entries for recording Journal entries for recording
the merger are passed by the purchase of business are
pooling of interest method passed by purchase method.

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 Practical Problems
Amalgamation and Absorption: In the nature of merger and purchase – Calculation of
purchase consideration – Treatment in the books of transferee (as per Accounting Standard 14,
excluding Inter – company holdings).

According to AS – 14, amalgamation may be divided into two categories, namely,

‘amalgamation in the nature of merger’ and ‘amalgamation in the nature of purchase’.

Prob. No. 1. The following balance sheets are presented by X. Ltd. and Y. Ltd. as on 31st December,
2014 which amalgamate and formed Z. Ltd.

Liabilities X. Co. Y. Co. Assets X. Co Y. Co.

Eq. Share of RS. 10 each 1,00,000 1,50,000 Goodwill 40,000 50,000
General Reserve 10,000 10,000 Land 30,000 60,000
Profit & Loss A/c. 10,000 5,000 Plant & Machinery 50,000 60,000
Capital Reserve 20,000 Nil Stock 30,000 40,000
Unsecured Loans 20,000 65,000 Debtors 30,000 40,000
Sundry Creditors 40,000 30,000 Cash & Bank 20,000 10,000
2,00,000 2,60,000 2,00,000 2,60,000
Additional Information:

a) The shareholders of X. Ltd. be allocated 20,000 Equality Share of Rs. 10 each;

b) The shareholders of Y. Ltd. be allocated 10,000 Equality Share of Rs. 10 each.

Prepare the opening Balance Sheet in the books of Z. Ltd assuming that

a) Amalgamation is in the nature of Merger,

b) Amalgamation is in the nature of Purchase.

Prob.2. X. Ltd. agreed upon an amalgamation. The Balance Sheets are:

Balance Sheet as at 30 - 06 – 2009.

Liabilities X. Ltd. Y. Ltd. Assets X. Ltd. Y. Ltd.

Issued Capital 30,000 24,000 Furniture 9,000 6,300
Reserved …. 1,500 Debtors 14,400 18,000
Profit & Loss A/c …. 3,600 Bank 18,360 12,240
Sundry Creditors 12,900 7,440 Profit & Loss A/c 1,140 ….
42,900 36,540 42,900 36,540

The assets of the X. Ltd. are taken over at book values expect Furniture which is to be written
down by Rs. 3,060; those of Y. Ltd. are to be taken at book values, expect that debtors are to be
considered worth Rs. 9,900. The share capital of the combined company is to be 2,400 Pref. Shares
of Rs. 10 each, fully paid and ordinary share of ₹ 5 each, fully paid. The allocation of the shares is
equal expect that the surplus capital of X. Ltd. is to be satisfied by Pref. Shares.

Show the Balance Sheet of the new company and details of the exchange of shares.

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 Prob.3. The Summarised Balance Sheets of A Ltd. and B Ltd. are presented below as on 31st March,
2019.

Balance Sheet as at 31st March, 2019.

Liabilities A Ltd. B Ltd. Assets A Ltd. B Ltd.

Eq. Shares of Rs. 10 each 4,00,000 2,00,000 Fixed Assets 6,40,000 3,45,000
12% Pref. Shares of Rs. 100 _ 50,000 Current Assets 2,75,000 1,80,000
each
General Reserve 1,05,000 87,500
Profits & Loss A/c. 95,000 40,000
Capital Reserve 1,75,000 12,500
Export Project Reserve 80,000 27,500
10% Debentures …. 62,500
(Rs. 10 each)
Creditors 60,000 45,000
9,15,000 5,25,000 9,15,000 5,25,000
A Ltd. took over the business of B Ltd. on 1 - 4 – 2019 on the following conditions:

i. A Ltd. will issue 22,500 Equity Shares, of Rs. 10 each, to the Equity shareholders of B Ltd.
and will also issue 600, 10% Pref. Shares of Rs. 100 each to the Pref. Shareholders of B Ltd.
ii. Debentures of B Ltd. will be converted into same number of 12% mortgage debentures of
Rs. 100 each at par of A Ltd.
iii. The current assets of B Ltd. include stock-in-trade Rs. 27,500 valued at 10% above cost
(market price being 20% higher than cost). The stock of A Ltd. however, valued at actual
cost.

Show the entries in the books of A Ltd. and its resultant Balance Sheet assuming that

a) The amalgamation is in the nature of Merger;

b) The amalgamation is in the nature of Purchase.

Prob. No. 4. Y Ltd. was absorbed by X Ltd. on 31st March 2008 on the following terms:

i. X Ltd. took over all the assets and liabilities at book values.
ii. The consideration being Rs. 5,00,000 to be discharged by the issue of fully paid shares of
Rs. 10 each of the transferee company and the same allotted to the shareholders of Y Ltd.
in the form of 2 shares for every share of the transferor company. Amalgamation expenses
amounted to Rs. 2,000 paid by X Ltd.

The Balance Sheet of the two companies stood as under as on 31st March 2008:

Liabilities X Ltd. Y Ltd. Assets X Ltd. Y Ltd.

Authorised Shares 15,00,000 5,00,000 Goodwill 3,00,000 50,000
Capital Land & Building 4,00,000 80,000
Issued & Subscribed Plant & Machinery 3,00,000 60,000
Equity Shares of Rs. 10 10,00,000 2,50,000 Furniture & Fittings 20,000 10,000
each Stock 80,000 50,000
General Reserve 2,20,000 40,000 Debtors 90,000 30,000
Profit & Loss A/c 30,000 10,000 Prepaid Insurance …. 30,000
Cash 45,000 5,000
Workmen’s Bank 1,00,000 20,000
Compensation Fund 20,000 10,000

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 Sundry Creditors 50,000 20,000
Provision for Taxation 15,000 5,000
13,35,000 3,35,000 13,35,000 3,35,000

You are required to:

a) Show the entries in the book of Y Ltd. and prepare Realisation Account and Equity
Shareholders Account.
b) Pass the necessary entries in the books of X Ltd.

Prepare the Balance Sheet in the books of X Ltd. assuming that the amalgamation is in the nature
of merger.

Prob. 5. The following Balance Sheets are prepared by X Ltd. and Y Ltd. for the year ended 31st
March, 2014.

Balance Sheet as at 31st March, 2014

Liabilities X Ltd. Y Ltd. Assets X Ltd. Y Ltd.

Equity Shares of Rs. 10 16,000 6,000 Fixed Assets 22,000 9,460
each Current Assets 8,000 3,940
10% Pref. Shares __ 2,000
Capital (Rs. 100)
General Reserve 9,220 1,960
Profit & Loss A/c. 1,126 710
Statutory Reserve 780 250
10% Debentures ___ 500
Current Liabilities 2,874 1,980
30,000 13,400 30,000 13,4000
On 1st April 204, X Ltd. takes over Y Ltd. on the following terms:
i. X Ltd. will issue 7,00,000 Equity Shares of Rs. 10 each at par to the Equity
Shareholders of Y Ltd.
ii. X Ltd. will issue 22,000, 10% Pref. Shares of Rs. 100 each at par to the Preference
Shareholders of Star Ltd.
iii. The debentures of Y Ltd. will be converted into an equal number of 12% Debentures
of the same denomination.
You are also informed that the statutory reserves of Y Ltd. are to be maintained for two
more years
Show the balance sheet of X Ltd. assuming that
a) Amalgamation is in the nature of Merger;
b) Amalgamation is in the nature of Purchase.

Q6. Following are the liabilities and asset of A Ltd and B ltd as at 31st March 2017
Liabilities A. Ltd B ltd Asset A ltd B Ltd
Equity share capital 24,000 9,000 Fixed assets 33,000 14,190
of ₹ 10 each
12% pref. share ---- 3,000 Current Assets 12,000 5,910
capital of ₹ 100
each
General reserve 3,830 2,940

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Statutory Reserve 1,170 375
Surplus A/c 1,689 1,065
13% debenture ------ 750
Current liabilities 4,311 2,970
45,000 20,100 45,000 20,100
st
On 1 April 2016. A takes over B ltd on the following terms:
1. A ltd will issue 10,50,000 equity share of ₹ 10 each at par to the equity shareholder of
B Ltd
2. A ltd will issue 33,000 12% preference share of ₹ 100 each at par to the preference
shareholder of B Ltd
3. The debenture of B Ltd will be converted into equal number of 14% debenture of the
same denomination
You are informed that the statutory reserve of B Ltd are to be maintained for two more
years. You are required to show the balance sheet of A Ltd immediately after above
mentioned scheme of Amalgamation has been implemented assuming that

a) Amalgamation is in the nature of Merger;

b) Amalgamation is in the nature of Purchase.
Q7. A Ltd and B ltd carrying on similar business decided to amalgamate and for this purpose
a new company being formed to take over asset and liabilities of both companies and it is
agreed that fully paid share of ₹ 100 each shall be issued by the new company to the value of
the net asset of each of the old companies.
Liabilities A ltd B ltd Asset A Ltd B Ltd
Share capital of ₹ 50,000 40,000 Goodwill 5,000 2,000
50 each
General reserve 20,000 ------- Land and Building 17,000 10,000
Surplus 3,000 (-) 5,700 Plant and Machinery 24,000 16,000
Dr Bal
Sundry Creditor 4,000 8,000 Furniture and fitting 5,000 7,500
Bills payable 4,000 ------ Stock 10,000 7,500
Bank Overdraft ------- 8,000 Debtor 12,000 7,000
Cash 8,000 300
81,000 50,300 81,000 50,300
Following is the accepted scheme of valuation of the business of the companies:
A Ltd
a) To provide for provision for bad debts at the rate of 5% on debtor
b) To write off ₹ 400 from stock and
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c) To write of 333% from plant and Machinery
B Ltd
a) To eliminate its Goodwill and surplus account balance
b) To write off Bad Debt to the amount of ₹ 1,000 and to provide for provision for Bad
Debt of 5% on the balance of Debtors
c) To write down plant and Machinery at the rate of 10% and
d) To write off ₹ 1,400 from the value of stock
You are required to compute purchase consideration and present balance sheet of AB
company Ltd.

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Q8. The following are the summarised Balance sheet of A ltd and B ltd as on 31-03-21
In thousand
Liabilities A ltd B ltd
Share capital:
Equity shares of 100 each fully paid up 2,000 3,000
Reserve 1,000 ……
10% debenture 500 ……
Loans from Banks 250 450
Banks overdraft ….. 50
Trade payable 300 300
Total 4,050 1,800
Assets
Tangible assets/fixed assets 2,700 850
Investments 700 …..
Trade receivable 400 150
Cash at bank 250 …..
Accumulated loss ….. 800
4,050 1,800

B ltd has acquired the business of A ltd. The following scheme of merger was approved:

1. Banks agreed to waive off the loan of ₹ 60 thousand of B ltd.

2. B ltd will reduce its share to ₹ 10 per share and then consolidate 10 such share into
one share of ₹ 100 each (new share)
3. Share of A ltd will be given one share (new) of B ltd in exchange of every share held
in A ltd
4. Trade payable of B ltd. include ₹ 100 thousand payable to A ltd.
Pass necessary entries in the books of B ltd and prepare Balance sheet after merger.

Q9. A ltd and B ltd were amalgamated on an from 1st April 2013. A new company Ab Ltd was form to
take over the business of existing company, liabilities and Assets of A ltd and b ltd as on 31st march
2013 are given below:

Liabilities A B Assets A B
Share capital: 2400 1600 Fixed Asset: 4800 3200
Equity shares of ₹ Less: Depn. 800 600
10 each 4000 2600
12% pref. Share of
₹ 100 each 1200 800
Reserve & surplus: Investment 1600 600
Capital reserve 800 600
General reserve 1200 600
Surplus a/c 400 200
Secured loan 1600 800
Current liabilities : Current Assets:
Trade creditors 1200 400 Stocks 1200 600
Tax provision 800 200 Debtor 1600 800
Cash and bank balance 1200 600
9600 5200 9600 5200

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Additional information:

1. Pref shareholder of the two companies are issued equivalent number of 15% perf. share of
AB ltd at an issued price of 125 per share
2. AB ltd will issued 1 equity share of ₹ 10 each for every share of A ltd and B ltd. The share are
issued at a premium of ₹ 5 per share

Prepare AB ltd on the assumption that the amalgamation is in the nature of merger

Q10. Following is the statement of asset and liabilities of X co ltd as on 31 march 2013

liabilities ₹ Assets ₹
12000 shares of ₹ 10 each fully paid 1,20,000 Land and building 90,000
Sundry creditors 30,000 Machinery 50,000
Bank overdraft 28,000 Stocks 17,000
Sundry debtors 20,000
Preliminary expenses 1000
178000 1,78,000
The company went into voluntary liquidation and asset were sold to Y company ltd for ₹ 1,50,000
payable as to 60,000 in cash (which is to discharge a creditor and bank overdraft and pay the
realisation exp ₹ 2000) and as to ₹ 90,000 by the allotment of ₹ 12000 shares of ₹ 10 each of Y co ltd,
₹ 7.50 per share paid up to the shareholder of X co ltd.

Draw up the journal entries and the necessary ledger account to close the books of X company ltd
and journal entries for recording this transaction in the books of Y co ltd on the basis of
amalgamation in the Nature of purchase.

Q11. Following are the liabilities and asset of M/s Kapil brother as on 31st March 2017

Liabilities ₹ Assets ₹
Capital 42,500 Freehold premises 25,000
Bank loan 20,000 Furniture 3500
Bills payable 6,700 Motor vehicle 12,800
Creditors 10,800 Stock 13,200
Bills receivable 5400
Debtor 18,700
Cash 1400
80,000 80,000
On the above date the entire business was taken over by Raj ltd. The purchase consideration was
paid as under:

1. 3000 fully paid ₹ 10 per share

2. Balance in cash

While recording the assets the company valued the premises and stock at 10% and the 20% above
their book value respectively. Find out the purchase consideration and pass necessary journal entries
in the books of the Raj ltd and show the balance sheet after taking over of the business.

Q12. Following is the balance sheet of Bharat company ltd as at 31st March 2017

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Liabilities ₹ Assets ₹
Share capital 2,40,000 Building 2,00,000
24000 shares of ₹ 10 each fully
paid
Bank loan 52,000 Plant and Machinery 80,000
Current liabilities 60,000 Stock 30,000
Sundry debtor 42,000
3,52,000 3,52,000
The company went into liquidation and asset was sold to Shankar ltd for ₹ 2,94,000. The
consideration was payable as follow:

Rs 114000 in cash (which is to discharged the liabilities and to pay the cost of realisation expenses of
₹ 2000) and the balance sheet ₹ 1,80,000 by the allotment of 24000 shares of ₹ 10 each. ₹ 7.50 per
share paid up to the shareholder of Bharat company ltd

Prepare ledger account to closed the books of Bharat ltd and give necessary journal entries for
recording the transaction in the books of Shankar ltd.

Q13. X ltd and Y ltd decided to amalgamate and a new company namely XY ltd is form to take over
both the companies as on 31st March 2017 Following are the balance sheet of the company as on
that date:

In lakh

Liabilities X ltd Y ltd

1. Shareholders fund:
a) Share capital:
Share capital of ₹ 10 each fully paid 50 30
b) Reserve and surplus:
Reserve fund 20 15
Dividend equalisation fund 10
Workmen compensation fund 2
Surplus 3 5
2. Current liabilities:
Bank overdraft 5
Sundry creditor 10 12
Bills payable 5 3
90 90
Assets
Land and building 25 19
Plant and machinery 20 20.50
Patent and trade mark 5.25
Goodwill 10 8
Stock 20 15
Sundry debtor 10 5
Bills receivable - 2
Cash and bank 5 0.25
90 80
Show how the amount payable to each company is arrived at end. Prepare the amalgamation
balance sheet of X and Y ltd assuming amalgamation is done in the nature of purchase

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