ABSORPTION - QUESTIONS

Q No 1
A Ltd. is absorbed by B Ltd.  The consideration being:
a. Assumption of liabilities
b. Discharge of debentures at a premium of 5% by the issue of 5% debentures in B Ltd.
c. A payment of cash of Rs.30 per share
d. To exchange 3 shares of Rs.10 each in B Ltd at an agreed value of Rs.15 per share,
for every share in A Ltd.
Balance Sheet of A Ltd as on 31.3.2015

Liabilities Amt Assets Amt

Share Capital (60000 shares of 30,00,000 Goodwill  2,50,000

Rs.50 each, fully paid)

General Reserve 3,20,000 Land and Building 7,65,000

P&L A/c 1,80,000 Plant and Machinery 22,00,000

5% Debenture 15,00,000 Patents 75,000

Creditors 2,00,000 Investments 50,000

Stock 10,60,000

Debtors 4,50,000

    Cash at bank 3,50,000

52,00,000 52,00,000

 Pass Journal Entries to close the books of A. Ltd together with necessary ledger accounts
under amalgamation in the nature of purchase method.

Q.No 2
The balance sheet of Amina Company on 1-4-2015 was as under;
                                      Balance sheet

Liabilities amount Assets Amount

Share Capital:   Buildings 7,00,000

50,000 preference share of Rs10 each 5,00,000

90,000 ordinary shares of Rs10 each 9,00,000 Patent 3,00,000

 5% debentures 1,00,000 Stock 2,25,000

Interest outstanding on above 20,000 Debtors 1,60,000

Sundry creditors 1,10,000 Cash 25,000

    P&L account 2,20,000

  16,30,000   16,30,000

 On 1-4-2015 “Pharma” company agreed to acquire “Amina” company on the following
terms;

a) Two shares of Rs5 each fully paid in Pharma company to be issued for every three shares
in Amina company

b) Six shares of Rs5 each fully paid in pharma company to be issued for every five preference
shares in Amina company

c) Debentures holders to be paid in full in ordinary shares of Rs5 each and for the interest
outstanding in cash.

d) The creditors to receive 75% of sums due to them in fully paid shares of Rs5 each and
25% of the balance in cash in full settlement.

Prepare Realization Account and Share Holders account in the books of Amina company, and
pass entries in the books of Pharma co. under business purchase method.

Q.No 3
ABC ltd. Sells its business to XYZ ltd. On 31-03-2015. On that date, its balance sheet was;
Liabilities Amount Assets Amount
2000 shares of 2,00,000 Goodwill 50,000
Rs100 each
Debentures 1,00,000 Premises 1,50,000
Trade creditors 30,000 Plant 83,000
Reserve fund 50,000 Stock 39,500
Profit and loss 20,000 Debtors 27,500
account
cash 50,000
4,00,000 4,00,000

XYZ ltd. Agreed to take over the assets (exclusive of cash and goodwill) at 10% less than the
book values, to pay Rs75000 for goodwill and to take over debentures.
The purchase consideration was to be discharged by the allotment of 1,500 shares of Rs100
each at a premium of Rs10 per share and the balance in cash.
Cost of liquidation amounted to Rs3,000 met by ABC ltd. Show the necessary accounts in the
books of ABC ltd. pass journal entries in the books of XYZ ltd.
 Q.No 4
The following is the balance sheet of Small ltd, as on 31-3-2015
Liabilities Amount Assets Amount
share capital: Goodwill 4,000
equity shares of Rs10 each 20,000
P&L account 7,000 Fixed assets 16,500
Debentures 10,000 Current assets 19,500
creditors 3,000
40,000 40,000
Big ltd. Agreed to take over the assets (exclusive of goodwill, fixed assets of Rs4,000 and
cash Rs1,000 included in current assets) at 10% less than the book value and to discharge the
trade creditors and to pay Rs6,000 for goodwill.
The purchase consideration was to be settled by the allotment of Rs2000 shares of Rs10 each,
Rs8 called up at a market value of Rs15 per share and the balance in cash. Liquidation
expenses amounted to Rs400.
a) Show the calculations of purchase consideration
b) Give journal entries in the books of small ltd.
c) Opening entries in the books of big ltd. Under the business purchase method.
Q.No 5
The balance sheet of Novelty Company as on 31-03-2015 was as follows;
Liabilities Amount Assets Amount
200 shares at Rs100 2,00,000 Goodwill 35,000
each
Reserve fund 20,000 Buildings 85,000
5% debentures 1,00,000 Machineries 1,60,000
Loan from X(A 40,000 Stock on hand 55,000
director)
creditors 80,000 Debtors 65,000
Cash in hand 34,000
Discount on 6,000
debentures
4,40,000 4,40,000

This company was agreed to be purchased by Marvel Company on the following;

a) Marvel company to acquire all assets at book value less 10% except cash, which is retained in
the novelty company. The goodwill is to be valued on the following lines;
The goodwill is to be valued at 4 year purchase of the excess average profit of 5 years over
8% of the combined share capital and reserve fund.
b) Marvel Company is to take over creditors at 5% discount.
c) The purchase consideration to be paid as to Rs1,50,000 in cash and the balance in shares of
Rs10 each, valued at Rs12.5 each.
The average profit for the last 5 years is Rs30,100, the expenses of realization are Rs4,000.
Prepare the necessary ledger accounts In the books of novelty company and journal entries in
the books of marvel company.