Illustration 1

Given below are the extracts from the Balance Sheets of Y Ltd. as at 31st March, 2019
Particulars (in lacs)
Equity Share Capital of 10 each (100000 shares ... ... ... ... ... 10.00
*10)
8% Pref. Share Capital of 100 each ... ... ... ... ... 2.00
Reserves and Surplus ... ... ... ... ... 3.00
12% Debentures of 100 each ... ... ... ... ... 1.00
Current Liabilities ... ... ... ... ... 2.20
Non-Current Assets ... ... ... ... ... 12.80
Current Assets ... ... ... ... ... 5.40
X Ltd. absorbs Y Ltd. as on that date on the following terms
1. 12% Debentures of Y Ltd. are to be discharged by X Ltd. by issuing such number of its 15% Debentures of
100 each so as to maintain the same amount of interest.
2. The issue of such an amount of fully paid 9% Preference Shares in X Ltd. at 125% as is sufficient to discharge
8% Preference Shares in Y Ltd. at a premium of 20%.
3. The Equity Shareholders of Y Ltd. will receive the same number of Equity Shares of X Ltd. The Equity
Shares of X Ltd. are to be of a nominal value of 10 each credited as 8 paid up and valued at 15 per share.
4. The transferee company shall pay the cost of absorption which amounts to 1,00,000
Show the calculation and discharge of Purchase Consideration.

Illustration 2
A Ltd. took over B Ltd. and agreed to pay consideration as follows
1. to issue 5 equity shares of 10 each for every 7 equity shares held at 35 each
2. to pay Rs.10 per share in cash.
Calculate consideration for amalgamation, assuming that there are 100000 equity shares of 10 each.

Illustration 3
A Ltd. took over B Ltd. and agreed to pay consideration as follows
1. to issue necessary equity shares of A Ltd. Market Value of equity shares of A Ltd. is 35 per share and that
of B Ltd. is 25 per share.
2. to pay 10 per share in cash.
Number of equity shares of B Ltd. is 2,00,000 Calculate
consideration for amalgamation.
Illustration 4
Homer Ltd. and Illiad Ltd. propose to amalgamate.
Goodwill may be taken at 96,000 for Homer Ltd. and 38,000 for Illiad Ltd. The stock of Homer Ltd. and Illiad
Ltd. to be taken at 2,04,000 and 1,42,000 respectively. Other assets and liabilities are taken over at book value.
You are required to find out the purchase consideration receivable by both the companies on the basis of the
Net Assets Method. Their financial position as on December 31, 2012 were

Liabilities Homer Illiad Assets Homer Illiad

Share Capital : Fixed Assets 4,00,000 1,00,000
Equity Shares of 10 each 5,00,000 2,00,000 (at cost less depreciation)
Reserves & Surplus: Investment 1,00,000 -
General Reserves 2,00,000 20,000 Current Assets :
P & L A/c 1,00,000 30,000 Stock 2,00,000 1,30,000
Current Liabilities : Debtors 1,70,000 60,000
Creditors 1,00,000 50,000 Cash & Bank 30,000 10,000
9,00,000 3,00,000 9,00,000 3,00,000
 Illustration 5:
Chaitanya Limited is absorbed by New Wave Limited. Following are the Summary Balance Sheets of the above
two companies as on 31st March, 2012.

Capital & Liabilities Chaitanya New Assets Chaitanya New Wave

(S) Wave(P)
Share Capital : Sundry Assets 20,30,000 98,10,000
Paid up Share Capital Cash in hand 20,000 2,70,000
10,000 Equity Shares
of ` 100 each ` 70
paid up 7,00,000 -
1,00,000 Equity shares
of ` 100 each ` 75
per Share paid up - 75,00,000
Reserve Fund 8,50,000 22,00,000
Profit & Loss Account 3,00,000 2,00,000
Sundry Creditors 2,00,000 1,80,000
20,50,000 1,00,80,000 20,50,000 1,00,80,000
It was decided that the holder of every three shares in Chaitanya Limited was to receive five shares in New
Wave Limited, plus as much cash as is necessary to adjust the rights of Shareholders of both the companies
in accordance with the intrinsic value of shares as per respective balance sheets.
Calculate amount of purchase consideration and show how it will be discharged.

Illustration 6 : ( Home Work )

Given below is the Balance Sheet of AB Ltd. (S.CO) as on 31st March, 2019 on which date all its assets and
liabilities are taken over by CD Ltd (P.CO).

Particulars `
EQUITY AND LIABILITIES
Share Capital :
2,00,000 Equity Shares of 10 each fully paid up ... ... ... ... ... 20,00,000
General Reserve ... ... ... ... ... 5,00,000
12% Debentures (of 100 each) ... ... ... ... ... 6,00,000
Trade Payable ... ... ... ... ... 14,00,000
Other Liabilities ... ... ... ... ... 10,00,000
55,00,000
ASSETS
Plant and Machinery ... ... ... ... ... 10,00,000
Furniture ... ... ... ... ... 5,00,000
Stock ... ... ... ... ... 20,00,000
Trade Receivables ... ... ... ... ... 15,00,000
Cash and Bank ... ... ... ... ... 3,00,000
Discount on Issue of Debentures ... ... ... ... ... 2,00,000
55,00,000
CD Ltd. agreed to issue equivalent number of 12% debentures to the debentureholders of AB Ltd. at par.
Calculate consideration for amalgamation in each of the following cases :
Case I : Assets and liabilities are taken over at book values and CD Ltd. issues 2,00,000 equity shares of 10
each at par to the shareholders of AB Ltd. and the balance in cash.

Case II : Assets and liabilities are taken over at the following amounts : Plant and Machinery at ` 7,00,000,
Furniture at ` 4,00,000, Stock at ` 24,00,000, Trade Receivables at 90% of the book value, Trade Payables at
5% discount. CD Ltd. issues 1,50,000 Equity Shares of ` 10 each at par to the shareholders of AB Ltd. and
the balance of the purchase consideration is paid in cash.

Case III : Assets and liabilities are valued by CD Ltd. at book values. CD Ltd. issues 2,00,000 Equity Shares of
10 each at par and also pays ` 2 per share of AB Ltd. in cash to the shareholders of AB Ltd.
Case IV : Assets and liabilities are valued by CD Ltd. at the valuation mentioned in Case II. CD Ltd. issues
2,00,000 Equity Shares of ` 10 each at par to the shareholders of AB Ltd.
Illustration 7
The following are the Summary Balance Sheets as on 31-3-2012 of Nisha Ltd. and Usha Ltd.

Liabilities Nisha Usha Assets Nisha Usha

` ` ` `
Equity share capital Land & Building 70,000 --
(100 per share) 2,00,000 1,20,000 Plant & Machinery 2,20,000 1,00,000
15% Debentures 40,000 -- Stock 35,000 18,000
Reserve Fund 76,000 5,000 Debtors 25,000 16,000
Employee's provident fund 6,000 -- Bank 6,000 2,000
Sundry Creditors 30,000 16,000 Misc. Exp. not W/o
Profit & Loss A/c 4,000 -- Debenture Issue Exp. -- 5,000
3,56,000 1,41,000 3,56,000 1,41,000
The two companies agree to amalgamate and form a new company Ujala Ltd. which takes over the assets and
liabilities of both the companies.
1. The authorised capital of Ujala Ltd. is 20,00,000 consisting of 2,00,000 Equity shares of 10 each.
2. The assets of Nisha Ltd. are taken over at 90% of the book-value with the exception of land and building
which are accepted at book value.
3. Both the companies are to receive 10% of the net valuation of their respective business as Goodwill.
4. The purchase consideration is to be satisfied by Ujala Ltd. in its fully paid shares at 10% premium.
5. In return of Debentures of Nisha Ltd., Debentures of the same amount and denomination are to be issued
by Ujala Ltd.
Close the books of Nisha Ltd. and Usha Ltd. and show the Opening Balance Sheet of Ujala Ltd.

Illustration 8
BK Ltd. is formed to take over Bunty Ltd. and Kuber Ltd. Their Summary Balance Sheets on the date of
amalgamation are as below
Balance Sheets as on 31st March, 2012
Liabilities Bunty Kuber Assets Bunty Kuber
Share Capital of 10 each
Equity Shares 2,40,000 1,60,000 Goodwill — 25,000
11% Preference Shares 1,50,000 1,00,000 Buildings 1,50,000 1,40,000
General Reserve 45,000 40,000 Machinery 80,000 60,000
Profit & Loss A/c 30,000 21,000 Furniture 10,000 5,000
9% Debentures 1,00,000 1,00,000 Investments 1,40,000 80,000
Sundry Creditors 60,000 40,000 Debtors 1,65,000 60,000
Other Liabilities 40,000 24,000 Stock 75,000 90,000
Cash and Bank 13,000 8,000
Other Current Assets 20,000 10,000
Share issue Expenses 12,000 7,000
6,65,000 4,85,000 6,65,000 4,85,000

BK Ltd. issued 10,000 equity shares of 10 each to the public at a premium of 10%. Bunty Ltd. and Kuber Ltd.
were taken over by BK Ltd. on the following terms.
Bunty Ltd.
(a) Equity Shareholders are to be issued 7 Equity Shares of 10 at par in BK Ltd. and are to be paid
Rs. 5 in cash for surrender of each 6 shares.
7 shares + Rs. 5 from BK ltd…given for every 6 shares of B Ltd.
(b) Preference shareholders are to be paid at 10% premium by 12.5% preference shares in BK Ltd. issued at
par.
Total payment 1.5 L *1.1 = 165000……by issuing 12.5 % shares at par
(c) All Assets and liabilities are valued at book value except Machinery which is valued at 10% below book
value and Debtors are worth 1,60,000.
(d) Liquidation expenses of 12,500 are to be borne by BK Ltd.
(e) Discharge the debentures of Bunty Ltd. at a discount of 10% by the issue of 13% Debentures of
100 each in BK Ltd.
Re : Kuber Ltd.
(a) Cash 3,000 is to be retained for liquidation expenses.
(b) Debtors and Investments are valued at 90% of cost. Goodwill is taken at par.
(c) Machinery and stock are valued at 10% above cost and other assets and liabilities are valued at book
 value except Fictitious Assets.
(d) Preference shareholders are to be paid at 10% premium by 12.5% preference shares in BK Ltd. issued at
par.
(e) Balance of Purchase consideration is payable in equity shares at par.
(f) Discharge the debentures of Kuber Ltd. at par by the issue of 13% Debentures of 100 each in 'BK' Ltd.
The Face value of Equity shares and preference shares in BK Ltd. is 10 each.
Show the necessary Ledger Accounts in the books of 'Bunty Ltd.' and 'Kuber Ltd.' Also calculate purchase
considerations.

Illustration 9
Following are the Summary Balance Sheets of Rohan Ltd. and Sohan Ltd. as on 31-3-2017

Liabilities Rohan Ltd Sohan Ltd. Assets Rohan Ltd. Sohan Ltd

Share Capital : Fixed Assets :

9% Preference Shares of Goodwill 1,50,000 1,50,000
100 each 6,00,000 9,00,000 Land & Building 6,00,000 7,50,000
Equity Shares of 10 each Plant & Machinery 4,50,000 6,00,000
Reserve & Surplus : 9,00,000 15,00,000 Computer 3,00,000 4,50,000
General Reserve Investments 1,50,000 1,50,000
Revaluation Reserve 75,000 90,000 Current Assets,
Export Profit Reserve 45,000 60,000 Loans & Advances :
Profit & Loss Account 30,000 45,000 Stock 3,00,000 4,50,000
Secured Loans : 15,000 30,000 Sundry Debtors 1,50,000 3,00,000
12% Debentures of Bills Receivables 75,000 1,50,000
100 each Bank 1,95,000 3,75,000
Term Loans 3,00,000 4,50,000
Current Liabilities & 1,50,000 75,000
Provisions :
Sundry Creditors
Bills Payable 2,25,000 1,80,000
30,000 45,000
23,70,000 33,75,000 23,70,000 33,75,000
Mohan Ltd. was formed to take over the business of Rohan Ltd. and Sohan Ltd. with an authorised share
capital of 30,00,000 consisting of 20,000, 13% Preference Shares of 100 each and 1,00,000 Equity Share of 10
each.
Terms of Amalgamation
(1) 9% Preference shareholders of both the companies are issued equal number of 13% Preference shares of
Mohan Ltd. at a price of 125 each.
(2) Mohan Ltd. will issue four Equity shares for three Equity shares of Rohan Ltd. and four Equity shares for
five Equity shares of Sohan Ltd. The shares are to be issued at 35 each. (FV10 +sp 25)
(3) 12% Debenture holders of both the companies are discharged by Mohan Ltd. by issuing such number of
its 15% Debentures of 100 each so as to maintain the same amount of interest.
(4) Mohan Ltd. agree to take over all assets and all liabilities at book values except the following :
(1) Tangible fixed assets at 10% more than book-values.
(2) Investments and Sundry Debtors at 90% of their book values.
(5) Export Profit Reserves are to be maintained for three more years. You are
required to :
(1) Compute purchase consideration
(2) Pass Journal entries after Amalgamation in the books of Mohan Ltd. applying Purchase Method.
(3) Prepare the Balance Sheet of Mohan Ltd. after amalgamation.
Illustration 10
Aqua Engineers Ltd., a newly formed company acquired business of Beeta Ltd. as on 31-03-2017. The
Summary Balance Sheet of Beeta Ltd. as on that date was as under
Liabilities ` Assets `
Equity Shares of 10 each fully Goodwill 20,000
paid 1,50,000 Land and Building 80,000
General Reserve 25,000 Plant 80,000
Export Profit Reserve 8,000 Investments 30,000
Profit and Loss Account 18,000 Stock 40,000
12% Debentures 60,000 Debtors 50,000
Sundry Creditors 37,000 Bills Receivable - Trade 8,000
Provision for Tax 30,000 Bank 20,000
3,28,000 3,28,000
Terms of Acquisition
1. Aqua Engineers Ltd. issued 25,000 equity shares of 10 each at 12 per share. Cap2.5 sp 50000

2. Aqua Engineers Ltd. paid Rs.4 in cash for each share of Beeta Ltd. 15000*4 =60000

3. Aqua Engineers Ltd. discharged 12% debentures of Beeta Ltd. at 10% premium by issue of its 15%
debentures at a discount of 12%.

4. Aqua Engineers Ltd. paid absorption expenses 3,000.

5. Aqua Engineers Ltd. revalued Land and Building at 1,00,000, Plant at 10% below book value, Stock at
35,000 and Debtors subject to 5% provision for doubtful debts.
6. Beeta Ltd. sold one-fifth of the shares received from Aqua Engineers Ltd. at 13.00 per share.
7. Aqua Engineers Ltd. issued 10,000 equity shares of 10 each at 12 each to the public. The issue was fully
subscribed and paid for
8. Export Profit Reserve is to be maintained for next three years. You are
required to :
(i) Compute Purchase Consideration.
(ii) Prepare Realization Account, Aqua Engineers Ltd. Account, Equity Shareholders Account, Equity Shares
in Aqua Engineers Account and Bank Account in the books of Beeta Ltd.
(iii) Prepare Balance Sheet of Aqua Engineers Ltd. after acquisition under purchase method.
Illustration 11 :
Following is the Summary Balance Sheet of Prakash Ltd. as on 31-3-2017.

Liabilities ` Assets `
Equity Shares of 10 each fully Land and Building 3,85,000
paid up 4,00,000 Furniture and Fittings 80,000
Capital Reserve 25,000 Stock 40,000
Profit and Loss Account 75,000 Trade Receivables 75,000
Export Profit Reserve 60,000 Cash and Bank Balance 2,20,000
Revaluation Reserve 1,50,000
Trade Payables 90,000
8,00,000 8,00,000
On the above date, Akash Ltd. is formed to takeover the business of Prakash Ltd. (including cash and Bank
Balance), on the following terms and conditions
1. Stock is taken over at 75% of its book value.
2. Furniture and fittings are taken over at 70,000.
3. Trade receivables are taken over, subject to reserves for bad debts of 5,000.
4. Land and Building is taken over by Akash Ltd. at 10,00,000.
5. Statutory reserve is required to be maintained for 1 more year.
6. Goodwill is valued and taken over at 250% of the book value of furniture and fittings.
7. 90% purchase consideration is settled by issuing equity shares in Akash Ltd., of 10/- each at
15/- each, to the equity shareholders of Prakash Ltd. 10% of the purchase consideration is settled in cash.
8. Akash Ltd. issued, 12%, 40,000 Preference shares of 10/- each at 9/- each fully paid up. All these preference
shares were fully subscribed for by public and issued accordingly by the company.

You are required to

1. Calculate Purchase Consideration.
2. Prepare Balance Sheet of Akash Ltd. after amalgamation.
Illustration 12 HW
Following are the Balance Sheets of Black Ltd. and White Ltd. as on 31st March 2015

Liabilities Black Ltd. White Ltd. Assets Black Ltd. White Ltd.

12% Preference Shares Goodwill 75,000 -

of 100 4,50,000 - Land and Building - 4,20,000
Equity Shares of 10 10,50,000 6,00,000 Plant and Machinery 8,25,000 5,40,000
Security Premium 62,500 15,000 Other Fixed Assets 6,50,000 1,20,000
CRR A/c 2,00,000 - Debtors 5,50,000 3,50,000
General Reserve 2,00,000 3,00,000 Bank 3,50,000 1,50,000
Profit and Loss A/c 97,500 - Stock 5,00,000 2,20,000
14% Debenture of 100 3,00,000 3,50,000 Discount on Debentures 10,000 5,000
Creditors 4,00,000 4,50,000
Bills Payable 2,00,000 90,000
29,60,000 18,05,000 29,60,000 18,05,000
On 1-4-2015 they decided to amalgamate and to form a new company named Nitu Ltd. Terms of amalgamation
are as under
(a) Nitu Ltd. will issue 3,000, 15% Debentures of 100 each to the Debenture holders of Black Ltd.
(b) The debenture holders of White Ltd. agreed to the allotment of Equity shares in Nitu Ltd. Accordingly,
30,000 Equity shares of 10 each are issued at par to them.
(c) Preference shareholders of Black Ltd. were allotted 4,500, 15% Redeemable Preference Shares of ` 100
each in Nitu Ltd.
(d) Equity shareholders of Black Ltd. are allotted 10 Equity shares of ` 10 each in Nitu Ltd. for every 7 Equity
shares held in Black Ltd. at a premium of ` 2 per share.
(e) Plant and Machinery of Black Ltd. were valued at ` 12,00,000. Other tangible assets and liabilities were to
be taken at book values.
(f) Assets and Liabilities of White Ltd. were valued as under :
Assets : Goodwill ` 1,20,000; Land and Building ` 7,80,000; Plant and Machinery ` 4,50,000; Other Fixed
Assets ` 60,000; Stock was to be undervalued by ` 20,000 and Debtors were to be undervalued by `
30,000.

Liabilities were accepted as under

Creditors at 10% discount and Bills payable at book value.
(g) Nitu Ltd. was to issue necessary number of Equity shares of ` 10 each at par to White Ltd. for the Equity
shareholders.
You are requested to :
1. Calculate Purchase consideration of both the companies.
2. Pass Journal Entries of White Ltd.
3. Also prepare Balance Sheet of New Company after giving Journal Entries.

Illustration 13
Ram Limited and Shyam Limited carry on business of a similar nature and it is agreed that they should
amalgamate. A new company, Ram and Shyam Limited, is to be formed to which the assets and liabilities of
the existing companies, with certain exception, are to be transferred. On 31st March, 2013 the Balance Sheets
of the two companies were as under
Ram Limited
Balance Sheet as at 31st March, 2013

Liabilities ` Assets `
Issued and Subscribed Freehold Property, at cost 2,10,000
Share Capital : Plant and Machinery, at cost
30,000 Equity shares of 10 each, less depreciation 50,000
fully paid 3,00,000 Motor Vehicles, at cost
General Reserve 1,60,000 less depreciation 20,000
Profit and Loss Account 40,000 Inventory 1,20,000
Trade Payables 1,50,000 Trade Receivables 1,64,000
Cash at Bank 86,000
6,50,000 6,50,000
 Shyam Limited
Balance Sheet as at 31st March, 2013

Liabilities Assets
Issued and Subscribed Freehold Property, at cost 1,20,000
Share Capital : Plant and Machinery, at cost
16,000 Equity shares of 10 each, fully less depreciation 30,000
paid 1,60,000 Inventory 1,56,000
Profit and Loss Account 40,000 Trade Receivables 42,000
6% Debentures 1,20,000 Cash at Bank 36,000
Trade Payables 64,000
3,84,000 3,84,000
Assets and Liabilities are to be taken at book-value, with the following exceptions
(a) Goodwill of Ram Limited and of Shyam Limited is to be valued at 1,60,000 and 60,000 respectively.
(b) Motor vehicles of Ram Limited are to be valued at 60,000.
(c) The debentures of Shyam Limited are to be discharged by the issue of 6% Debentures of Ram and Shyam
Limited at a premium of 5%.
(d) The trade receivables of Shyam Ltd. realised fully and bank balance of Shyam Ltd. are to be retained by
the liquidator and the trade payables of Shyam Ltd. are to be paid out of the proceeds thereof.
You are required to
(i) Compute the basis on which shares in Ram and Shyam Limited will be issued to the shareholders of the
existing companies assuming that the nominal value of each share in Ram and Shyam Limited is 10.
(ii) Draw up a Balance Sheet of Ram and Shyam Limited as of 1st April, 2013, the date of completion of
amalgamation.
(iii) Write up journal entries, including bank entries, for closing the books of Shyam Limited.
(iv) Follow Purchase Method

Illustration 14
The financial position of two companies M/s. Abhay Ltd. and M/s. Asha Ltd. as on 31-3-2015 is as follows
Balance Sheet as on 31-3-2015

Particulars Abhay Ltd. Asha Ltd.

Sources of Funds
Share Capital - Issued and Subscribed
15,000 Equity Shares @ 100, fully paid ... ... ... ... ... 15,00,000
10,000 Equity Shares @ 100, fully paid ... ... ... ... ... 10,00,000
General Reserve ... ... ... ... ... 2,75,000 1,25,000
Profit & Loss ... ... ... ... ... 75,000 25,000
Securities Premium ... ... ... ... ... 1,50,000 50,000
Contingency Reserve ... ... ... ... ... 45,000 30,000
12% Debentures @ 100 fully paid ... ... ... ... ... 2,50,000
Sundry Creditors ... ... ... ... ... 55,000 35,000
21,00,000 15,15,000
Application of Funds
Land and Buildings ... ... ... ... ... 8,50,000 5,75,000
Plant and Machinery ... ... ... ... ... 3,45,000 2,25,000
Goodwill ... ... ... ... ... 1,45,000
Inventory ... ... ... ... ... 4,20,000 2,40,000
Sundry Debtors ... ... ... ... ... 3,05,000 2,85,000
Bank ... ... ... ... ... 1,80,000 45,000
21,00,000 15,15,000
They decided to amalgamate and form a new company M/s. Abhilasha Ltd. as on 1-4-2015 on the following
terms

1. Goodwill to be valued at 1,95,000 for Abhay Ltd. and 1,25,000 for Asha Ltd.

2. Land and Buildings, Plant and Machinery and Inventory of both companies to be valued at 10% above
book value and a provision of 10% to be provided on Sundry Debtors.
3. 12% debentures to be redeemed by the issue of 12% preference shares of M/s. Abhilasha Ltd. (face value
 of 100) at a premium of 10%.
4. Sundry Creditor to be taken over at book value. There is an unrecorded liability of 15,500 of M/s. Asha Ltd.
as on 1-4-2015.
5. The bank balance of both companies to be taken over by M/s. Abhilasha Ltd. after deducting liquidation
expenses of 60,000 to be borne by M/s. Abhay Ltd. and M/s. Asha Ltd. in the ratio of 2:1.
You are required to
1. Compute the basis on which shares of M/s. Abhilasha Ltd. are to be issued to the shareholders of the
existing company assuming that the nominal value of per share of M/s. Abhilasha Ltd. is
100.
2. Draw Balance Sheet of M/s. Abhilasha Ltd. as on 1-4-2015 after the amalgamation.

Illustration 15 (Homework)
R Ltd. and S Ltd. decide to amalgamate and to form a new company T Ltd. The following are the summarised
Balance Sheets of R Ltd. and S Ltd. as at 31-3-2017

Liabilities R Ltd. S Ltd. Assets R Ltd. S Ltd.

` ` ` `
Share Capital : Fixed Assets :
Equity Shares of Land and Building 45,00,000 40,00,000
100 each 80,00,000 75,00,000 Plant & Machinery 30,00,000 20,00,000
12% Preference Shares Currents Assets,
of 100 each 30,00,000 20,00,000 Loans & Advances:
Investment Allowance Stock 35,00,000 30,00,000
Reserve 5,00,000 5,00,000 Sundry Debtors 54,00,000 36,00,000
General Reserve 13,00,000 10,00,000 Cash and Bank 2,00,000 1,00,000
Profit & Loss Account 7,00,000 4,00,000
10% Debentures 6,00,000 3,00,000
(100 each)
Sundry Creditors
25,00,000 10,00,000
1,66,00,000 1,27,00,000 1,66,00,000 1,27,00,000

Additional Information
1. T Ltd. will issue 5 equity shares for each equity share of R Ltd. and 4 equity shares for each share of S
Ltd. @ 30 each, having a face values of 10 per share.
2. Preference Shareholders of the two companies are issued equivalent number of 15% preference shares of
T Ltd., at a price of 150 per share (face value of 100).
3. 10% Debenture holders of R Ltd. and S Ltd. are discharged by T Ltd. issuing such number of its 15%
Debentures of 100 each, so as to maintain the same amount of interest.
4. Investment allowance reserve to be maintained for 3 more years.
Calculate the amount of purchase consideration for R Ltd. and S Ltd. and draw up the Balance Sheet of T Ltd.
as on 1st April, 2017 after the amalgamation has been carried on the basis of amalgamation in the nature of
purchase.

llustration 16
The following are the Summary Balance Sheets of Fat Ltd. and Thin Ltd. as at 31st December, 2012.

Particulars Fat Ltd. Thin Ltd.

in Lakhs In Lakhs
Share Capital:
Equity Shares of 10 each fully paid 50 20
6% Preference Shares of 100 each fully paid - 50 15 35
Reserves and Surplus :
Shares Premium .... ... ... ... 10 5
Capital Reserve .... ... ... ... 15 10
Other Reserves 40 65 15 30
Secured Loans (Long Term) .... ... ... ... 20 10
Unsecured Loans (Long Term) .... ... ... ... 15 5
Loan from Fat Ltd. .... ... ... ... - 5
Total 150 85
Fixed Assets :
Cost .... ... ... ... 40
90
Less: Depreciation .... ... ... ... 60 15 25
30
Investments in Madhyam Ltd. at Cost - 30
Loan to Thin Ltd. .... 5 -
Net Current Assets .... ... ... ... 85 30
Total 150 85
On that day Fat Ltd. absorbed Thin Ltd. on the following terms
(a) All the assets and liabilities of Thin Ltd. other than Investments in Madhyam Ltd. are taken over for 40
lakhs.
(b) Thin Ltd. to receive from Fat Ltd. 15% Debentures of 12 lakhs at par and Equity Shares of the par value
of 10 each at a premium of 4 per share for the balance.
(c) The Preference Shareholders of Thin Ltd. are to be allotted the debentures received from Fat Ltd. and
10,000 Equity Shares of Fat Ltd. in full discharge of their interest in Thin Ltd.
(d) The balance of Equity Shares received from Fat Ltd. and the Investments in Madhyam Ltd. are to be
allotted to the Equity shareholders of Thin Ltd.
(e) The Directors of Fat Ltd. revalued the fixed assets taken over from Thin Ltd. at 41,00,000. You are
asked to :
(i) Show the relevant ledger accounts in the books of Thin Ltd.
(ii) Show the Balance Sheet of Fat Ltd., after giving effect to the above transactions as at 31st December,
2012.

Illustration 17
Following are the Summary Balance Sheets of Galaxy Ltd. and Gemini Ltd. as on 31st March 2017:

Liabilities Galaxy Gemini Assets Galaxy Gemini

Share Capital (10 each) 50,000 1,00,000 Fixed Assets 60,000 1,25,000
Reserve Fund 20,000 30,000 Loan to Gemini Ltd. 5,000 -
Foreign Projects Reserve 5,000 - Debtors 15,000 10,000
Creditors 15,000 20,000 Stock 10,000 15,000
Loan from Galaxy Ltd. - 5,000 Cash at Bank - 5,000
90,000 1,55,000 90,000 1,55,000
Gemini Ltd. agreed to absorb Galaxy Ltd. on the following terms:
1. Gemini Ltd. shall give one share of 10 each at 35 per share for every 3 shares held in Galaxy Ltd.
2. The amount for the fraction of shares shall be paid in cash calculated as per the market price of the share
of Gemini Ltd.
3. Stock of Galaxy Ltd. includes goods worth 7,500 purchased from Gemini Ltd. which has a profit margin of
20% on cost.
4. Debtors of Gemini Ltd. includes 2,500 being, amount due from Galaxy Ltd. but the Creditors of Galaxy
Ltd. include 2,000 only being the amount due to Gemini Ltd. The difference between the Debtors and
Creditor's is due to cash in transit.
5. The shares of Gemini Ltd. are quoted in the market at 45 per share.
You are requested to pass the journal entries in the books of Gemini Ltd. and prepare the Balance Sheet after
the absorption, assuming that the Foreign Projects Reserve is still to be maintained for 3 years.
Assume that the amalgamation is in the nature of Purchase.

Problems on External Reconstruction

18. The following was the Summary Balance Sheet of DT Ltd. as on 31-3-2017.

Liabilities ` Assets `
2,500, 8% Cumulative Preference Goodwill 25,000
Shares of 100 each 2,50,000 Fixed Assets 12,85,000
12,000 Equity Shares of 100 each 12,00,000 Stock 3,03,000
9% Debentures 5,00,000 Debtors 2,50,000
Interest Accrued thereon 45,000 Banks Balance 7,000
Creditors 5,00,000 Share issue Expenses 25,000
Profit and Loss A/c 6,00,000
Total 24,95,000 Total 24,95,000
 Note: Preference dividend was in arrears 40,000.
The following scheme of Reconstruction is duly sanctioned:
(1) A new company TD Ltd. is formed with 15,00,000 as Authorized share capital divided into 1,50,000
Equity Shares of 10 each.
(2) The company will acquire DT Ltd. on the following conditions:
(a) Old Companies Debentures will be paid by similar debentures in the new company. For the arrears of
interest, equivalent amount of equity shares will be issued.
(b) The creditors will be paid for every 100 of their claim, sixteen cash and ten equity shares in the new
company.
(c) Preference shareholders are paid ten equity shares in the new company for each shares held by
them in the old company. They will not be paid for their dividend arrears.
(d) Equity shareholders will be given ten equity shares in the new company for three shares held in the old
company.
(e) Expenses of 20,000 will be borne by the new company.
(3) The new company will take the current assets at their book value, except stock which will be reduced by
15,000. Intangible assets are not to appear in the new balance sheet, appropriate adjustment being made
in the values of fixed assets.
(4) 30500 equity shares in the new company are issued to the public and are fully paid. Your are required
to prepare:
(a) In the books of DT Ltd.
(1) Realisation Account. (2) DT Equity Shareholders A/c.
(b) In the books of TD Ltd..
(1) Journal Entries (2) Balance Sheet.

19. The following is the Summary Balance Sheet of Vikrant Ltd :

Liabilities ` Assets `
Issued and Paid-up Intangible Assets 50,000
Equity Share Capital 5,00,000 Fixed Assets 4,20,000
Statutory Reserve (to be maintained 10,000 Current Assets 1,10,000
for 3 more years) Profit & Loss A/c 80,000
Debentures 1,00,000
Creditors 50,000
6,60,000 6,60,000
Virat Ltd. agreed to absorb Vikrant Ltd. on the following terms :
(1) Virat Ltd. agreed to take over all the assets and liabilities.
(2) The assets of Vikrant Ltd. are to be considered to be worth 5,00,000.
(3) The purchase price is to be paid one-quarter in cash and the balance in shares which are issued at the
market price.
(4) Liquidation expenses amounted to ` 300 agreed to be paid by Vikrant Ltd.
(5) Market value of share of ` 10 each of Virat Ltd. is ` 12 per share.
(6) Debentures of Vikrant Ltd. were paid.
(7) The amalgamation is in the nature of purchase. You are
required to show :
(a) Purchase consideration
(b) Ledger accounts in the books of Vikrant Ltd.
(8) Opening entries in the books of Virat Ltd.

20 Summary Balance Sheet of North Sick Ltd. as on 31-03-2012 is as below :

Liabilities Rs Assets Rs.
5000 8% Preference Shares of Office Premises
10/- each fully paid up 50,000 At Goregaon 1,00,000
25,000 Equity Shares of 10/- At Borivli 60,000
each fully paid up 2,50,000 Furniture 40,000
10% Debentures 50,000 Current Assets 1,90,000
Creditors 40,000
Total 3,90,000 Total 3,90,000
A new Company namely West Healthy Ltd. was formed with Authorised Capital of 50,000 equity shares of 10/-
each. The directors of the Company
(a) Issued 10,000 equity shares at premium of 10% to the public for cash. The issue was fully subscribed
 and paid for.
(b) Paid underwriting commission of 5,000/- to the underwriters ICICI Bank Ltd.
(c) Paid 10,000/- to M/s. ANIC & Co. Chartered Accountants, as professional fees for Co. formation.
(d) Decided to take over the business of North Sick Ltd. on the following terms :
(i) to issue 6 equity shares of 10/- each at 10% premium for every 5 equity shares in North Sick Ltd.
(ii) to issue 5000 equity shares of 10/- each at 10% premium to the preference shareholders of North Sick
Ltd.
(iii) to revalue Goregaon Office at 1,50,000/- and Borivli Office at 90,000/-.
(iv) to take over 10% debentures of North Sick Ltd. at face value. Then, debentureholders of North Sick
Ltd. shall be issued 12% debentures of the face value 55,000/- in West Healthy Ltd.

You are required to :

(a) Write necessary journal entries in the books of West Healthy Ltd. to record the above transactions.
(b) Prepare Balance Sheet of West Healthy Ltd. as on 1-4-2012, after take-over.

21 On 31st March, 2012, the Balance Sheet of H Ltd. was as follows

Particulars Note Amount

I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
a. Share Capital 1 20,00,000
b. Reserves and Surplus 2 (3,00,000)
2. Non-Current Liabilities
Long Term Borrowings 3 3,00,000
3. Current Liabilities
2,00,000
Trade Payables
22,00,000
Total
II. ASSETS
1. Non-current Assets
Property, Plant and Equipment 9,00,000
– Tangible Assets 5,50,000
– Intangible Assets
2. Current Assets 4,90,000
2,55,000
a. Inventories
5,000
b. Trade Receivables
22,00,000
c. Balance with Bank
Total
II. EQUITY AND LIABILITIES
1. Shareholders’ Funds
a. Share Capital 1 20,00,000
b. Reserves and Surplus 2 (3,00,000)
4. Non-Current Liabilities
Long Term Borrowings 3 3,00,000
5. Current Liabilities
2,00,000
Trade Payables
22,00,000
Total
III. ASSETS
1. Non-current Assets
Property, Plant and Equipment 9,00,000
– Tangible Assets 5,50,000
– Intangible Assets
2. Current Assets 4,90,000
2,55,000
d. Inventories
5,000
e. Trade Receivables
22,00,000
f. Balance with Bank
Total
Note : Preference dividends in arrears for 3 years.

Notes to Accounts `
1. Share Capital
Issued, subscribed & fully paid Shares :
1,50,000 Equity Shares of 10 each, fully paid up ... ... ... ... ... 15,00,000
50,000, 12% Cumulative Preference Shares
of 10 each, fully paid up ... ... ... ... ... 5,00,000
Total ... ... ... ... ... 20,00,000
2. Reserves and Surplus
a. Preliminary Expenses ... ... ... ... ... (8,000)
b. Discount on Issue of Debentures ... ... ... ... ... (12,000)
c. Debit Balance of Statement of Profit and Loss ... ... ... ... ... (2,80,000)
Total ... ... ... ... ... (3,00,000)
3. Long-Term Borrowings
10% Debentures ... ... ... ... ... 3,00,000

The following scheme of external reconstruction was agreed upon

1. A new company to be formed called J Ltd. with an authorised capital of 32,50,000 in Equity shares of 10
each.
2. One Equity share, Rs.5 paid up, in the new company to be allotted for each Equity share in the old
company.
3. Two Equity shares, Rs.5 paid-up, the new company to be allotted for each Preference share in the old
company.
4. Arrears of Preference Dividends to be cancelled.
5. Debentureholders to receive 30,000 Equity shares in the new company credited as fully paid.
6. Trade Payables to be taken over by the new company.
7. The remaining unissued shares to be taken up and paid for in full by the directors.
8. The new company to take over the old company' assets except patents, subject to writing down Plant
and Machinery by 2,90,000 and Inventories by 60,000.
9. Patents were realised by H Ltd. for 10,000.
Show important Ledger accounts in the books of H Ltd. and open the books of J Ltd. by means of Journal
entries and give the initial Balance Sheet of J Ltd. Expenses of H Ltd. came to 10,000.