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 Assets Tangible fixed assets - Cost less Dep Goodwill Other Assets Total Liabilities Issued equity Share capital P&L A/c 10% Debentures Sundry Creditors Total Average Annual profits before Debenture interst (July 2003 to June 2004 inclusive) professional valuation of tangible assets as of 30 June 2004 620000 480000 400000 150000 70000 80000 700000 90000 130000 740000 120000 500000 110000 200000 700000 500000 400000 60000 280000 740000 M Ltd N Ltd

O Ltd 300000 85000 385000

250000 60000 40000 35000 385000 50000 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 Assets Tangible Assets Other Assets Total Assets Liabilties 10% Debentures Sundry Creditors Total Liabilities Net assets 12% Debentures to be issued

M Ltd

N LTd

O Ltd

620000 30000 650000 70000 80000 150000 500000 500000

480000 280000 760000

360000 85000 445000 40000 35000 75000 370000 370000

130000 130000 630000 630000

net assets of

he capitalized

ate is Established

a

a

s

a

s

a

s

a

s

a

s

a

s

a

s

a

s

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