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Accounting for

Amalgamations
or
ns
Computation of
Purchase
consideration
of

n
a
National Company LTD was incorporated on 1st July 2004 for purpose of acquiring M LTD , N LTD and O Ltd .
a
The Balancesheets of These Companies are as follows

Particulars M Ltd N Ltd O Ltd


Assets
Tangible fixed assets - Cost less Dep 500000 400000 300000
Goodwill 60000
Other Assets 200000 280000 85000

Total 700000 740000 385000

Liabilities
Issued equity Share capital 400000 500000 250000
P&L A/c 150000 110000 60000
10% Debentures 70000 40000
Sundry Creditors 80000 130000 35000
Total 700000 740000 385000

Average Annual profits before Debenture interst 90000 120000 50000


(July 2003 to June 2004 inclusive)
professional valuation of tangible assets as of 30 June 2004 620000 480000 360000

1. The Directors in their negotiations agreed that


i. Recorded goodiwll of N Ltd is valueless
ii. The other Asses of M Ltd are worth Rs 30000
iii. The Valuation on 30th June 2004 in respect of tangible Fixed assets should be accepted.
iV. Valuation on adjustments are to be made by the individual companies before completion of acquisition

2. The Acquisition agreement provides for the issue of 12% unsecured debentures to the value of net assets of
companies M Ltd , N Ltd & O Ltd and for the issuance of Rs. 10 Nominal value equity shares for the capitalized
average profit of each acquired company in excess of net assets contributed . The capitalization rate is Established
at 10%

You are required to Compuate


a. Purchase consideration
b.Show the discharge of purchase consideration
Solution :

Compuation of Purchase consideration

Wn 1 Consideration in form of 12% debentures

particulars M Ltd N LTd O Ltd

Assets
Tangible Assets 620000 480000 360000
Other Assets 30000 280000 85000

Total Assets 650000 760000 445000


Liabilties
10% Debentures 70000 40000
Sundry Creditors 80000 130000 35000

Total Liabilities 150000 130000 75000

Net assets 500000 630000 370000

12% Debentures to be issued 500000 630000 370000


net assets of
he capitalized
ate is Established
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