20 Net Aeset Method

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 24. Ram& Co. Ltd. Is absorbed by Krishnan & Co. Itd the consideration being:

1. Assumption of the liabilities

2. The discharge of the debentures at a premium of 7.5% by issue of 7.5%%
debentures in Krishnan & Co. Ltd.
3. A cash payment of Rs. 100/ share and the exchange of 12 shares of rs 20 each
for every share in Krishna & Co. Ltd. At an agreed value of Rs. 25 per share for
every share In Ram & Co. Itd.
Ram & Show the
4. THE Tiquidation expenses rs 8000 to be borne by co.

necessary entries in the books of both companies.

Balance sheet of Ram& co, on date of absorption:

ASSETS RS
LIABILITIES RS

Machinery 6,80,000
Capital: 5,00,000
10000 shares of rs. 200 each 20,00,000 Bulidings
Patents 1,50,0000
6%debentures 10,00,000
Goodwil1 2,00,000
Creditors 70,000
Stock 6,90,000
Staff pension fund 2,00,000
Accident compensation fund 1,00,0000 Debtors 3,60,000
(expected liability Rs.20000) Acci compensation invt. 60,000
3,00,000 Bank 11,20,000
General reserve
Contingency reserve 90,000

Solution:

Calculation of Purchase consideration:

= Rs 10,00,000
Cash :10000 shares x Rs 100.
= Rs 24,00,000
Share capital :10000 shares x 12X Rs 20
Share premium:10,000 shares x Rs 12 x Rs 5 Rs 6,00,000
Rs 40,00,000
Total:
 (o, o 0 o w
To seh 33, bo,o cd Py dibeu
To Paut 10,o

1 Recl / , oes PA nd doo,oed

2,00
P A
40, 7 9 , e o

S,90,oe S2,0w

auk ak
Te
T bat
bal 20oo By Rahjadi on. Fego

hnom L
To Peak
Byshf
KAtel
 In the books of Ram& Co. Ld:

Particulars F Debit Credit

Realization 7.60,000
To Sundry assets 37,60,000
6% dehentures Dr 10,00,000
Creditors Dr 70,000
Stafl pension fiund Dr 2.00,000
Acci Compensation fund Dr 20.000
To Realization 12,90,000
Krishnan co ltd Dr 40,00,000
To realization 40,00,000

Bank Dr 10,00,000
Fq shares of Krishnan co. Ltd Dr 30,00,000
To Krishnan Co. lid 40,00,000

Realisation Dr 8,000
To hank 8,000
Rcalisation Dr 15.22.000
To eq share holders 15,22,000
Share capital Dr 20,00,000
General reserve Dr 3,00,000
Contingency reserve Dr 90,000
Acci comp. fund D 80,000
To Eq share holders 24,70,000
8 Eq share holders Dr 39,92,000
To Bank 9,92,000
To Eq shares in Krishnan Co. Ltd 30,00,000

o,cv,oe
BArt 3eD,od
42,0.
To last
-etop
I192 lac IS,21,0

34.A2,0ov
2,2,0ca
 Krishnan & Co. Ltd:
In the books of

Credit
L.F.Debit
40,00,000
Particulars Dr 40,00,000
Business Purchase
1 6,80,000
& Co. Ltd
To Liq of Ram Dr
5,00,000
2 Machinery Dr 1.50,000 ->2uttlb,oSoe

Buildings Dr
18,05,000
Patents Dr
Goodwill Dr
6,90,000
3,60,000
Stock Dr
11,20,000
Debtors Dr
Bank Dr 60,000
Acci. Comp. invt
To 546-bebentures
67 D e b a u h m u
70,000
tepremman debonturesf
2,00,000
To creditors
20,000
To Staff pension Fund
40,00,000
To acci. Comp. fund
To business purchase
Dr 40,00,000
Itd 40,00,000
3 Liquidator of Ram co.

To Krishnan co. Ltd

767 Debadins tamfbo

To 7:S
PuuduyLsa (Sectuuie
Pemuum a l
 absorbed by Kanpur Ltd. On the TolOwing
1. The trade creditors are to be taken over

2. Buildings, machinery and investments were taken over at book values,

The debtors at Rs. 70,000 and goodwill for Rs. 62,000.
was payable in 1000 equity shares of
Rs 100 each
3, The purchase price
at par and balance in cash.

The balance sheet of Agra Ltd. Was as follows:

ASSETSS RS
LIABILITIES RS
80,000
Eqity share capital Rs 10 each 2,00,000 Buildings
1,50,000 Machinery 2,50,000
8% debentures
Debtors 80,000
Creditors 50,000
Sinking fund 40,000 S.F. investments 40,000
Cash 2,000
P&L alc 22,000
Preliminary expenses 10,000

4,62,000 | 4,62,000

Solution:

Purchase consideration:

Net assets method:

80,000
Building 2,50,000
Machinery 70,000
Debtors
Investments
40,000
Cash 2,000
Goodwill 62,000
Total
5,04,000
- creditors 50,000

Consideration
4,54,000

Net payments method:

1000 shares Rs 100 1,00,000
Equity shares x
=

3,54,000
Cash
Total 4,54,000
 In the books of Agra Ltd:

redit
IEDehit
452,00n
Particular 4,52,000
Realization
To Sundry assets $0,000
0,000
Creditors
To Realization A54.000
Kanpr t d 4.54,000
To realization 54,000
Rank 1,00,000
D
Fq shares of Krishnan co ltd 4.54,000
To Kishmen n 4 Ryudel 2,00,000D
Dr
Share capital Dr 40,000
Sinking fund Dr 22.000
P&I ac 2.52,000

To Fq sharc holders 10,000

Topreliminary experises Dr 52.000
Realization 52,000
To Fq sharc hoiders 3,04,000
Dr
q share hoiders 2,04,000
To Bank 1,00,000
To Eq shares of Kanpur ltd
(ash1c yNOT REND
54Do

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2o4teD
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S
22eea
Kaupul 20h0oBy Pal
T Baut1.
 Ltd:
In the books of Kanpur

L.F. | Debit Credit

Particulars Dr 4,54,000
Business Purchase 4.54,000
1
To Liquidator of Agra Ltd Dr 2,50,000
2 Machinery Dr 80,000
Buildings Dr 62,000
Goodwill1 Dr 70,000
Debtors Dr 2,000
Cash Dr 40,000
S.F invt 50,000
To creditors 4.54,000
To business purchase Dr 4,54,000
3 Liquidator of Agra ltd 3,54,000
To Bank 1,00,000
Tosharecapital_
 assets excluding cash as o n 31.12.1981 of Y c o Ltd.
26. X Itd. Agreed to acquire the
co

The balance sheet of Y c o Itd as on

that date w a s :

ASSETS RS
RS
LIABILITIES 60,000
Equity share capital Rs 10 3,00,000Goodwil
nd&Buildings 1,20,000
Land & Buildings
each 2,00,000
1,50,000 Plant&Machinery
Debentures 80,000
10,000 Stock
Creditors 30,000
General reserve 80,000 Debtors
10,000
P&L a/c 60,000 Cash

5,00,000
5,00,000

The consideration was as follows:

A cash payment of Rs.4 for every
share of Y Itd
a.
value of Rs 12.50 in
b. of Rs 10 each at market
The issue of one share
X co Ltd for every share in Y Itd.
50 each in X co Ltd to enable
C. The issue of 1,100 debentures of Rs
of 10%
Y ltd to discharge its debentures at premium
a
to Rs 4,000 were to be met
d. The expenses of liquidation amounting
by themselves.

Pass necessary journal entries.

 Solution:

(Net payment method)

consideration:
Calculation of purchase
- Rs 1,20.,000
Rs 4
30000 shares x
Rs 3.00,000
Cash- Rs 10
30000 shares x
- Rs 75,000
Shares Rs 2.50
30000 shares x
Securities premium- 4,93,000
Csecltag haf au o ee.
Jbeu
ULediettle
(lash notasts, o , 55ood
In the books of Y co. Ltd: (selling company)

L.F. Debit Credit

Particulars Dr 4,90,000
1 Realization 1,20,000
To land & building 2,00,000
To Plant & machy 80,000
To stock 30,000
To debtors 60,000
To Goodwill Dr 50,000
2 Debentures 50,000
To Realization Dr 4,95,000
3 X co Ltd 4,95,000
To realization
1,20,0000
Cash Dr 3,75,000
Dr
Eq of Xco. Ltd
shares
4,95,000
ToX Co.Ltd Dr 4,000
Realization (Un expeme)
4,000
To Bank Dr 3,00,000
6 Share capital
General reserve Dr 80,000
P&L a/c Dr 60,000
To Eqshare holders 4,40,000
7 Realization Dr 51,000
To Eqshare holders 51,000
8 Eq share holders Dr 4,91,000
To share capital 3,75,000
To Cash |1,16,000
9 Creditors Dr 10,000
To bank 10,000
sh /Boml ali
Tobalblol tpeo Byaljoion 4oooX
Pp)
By u c l t o l,eeo
betu u Pp
Note: auh teot stll to pay
LESH foAeoR Ha d e
 In the books of X( purchasing company) :

L.F Debit Credit

Particulars Dr 4.95,000
Business Purchase
A,95,000
ToLiquidator of Y Lid Dr 1,20,000-(Lot4tk)
Goodwill
Dr 1,20,0000
Land & building
Plant& machy Dr 2,00,0000
Stock Dr 80,000
Debtors Dr 30,000
To Debentures 50,000 s
To business purchase 4,95,000

To premium on debentures 5,000

3 Liquidator of Y Itd Dr 4,95,000)
To Bank 1,20,000
To share capital 3,00,000
Tosecurities premium 75,000
Debentures Dr 50,000
Premium on redemption Dr 5,000
To debentures 55.000

By Esc
t s h in 2,7S,oeq
be v D
BypaL
To Cas 51, 6 D
o Cas ,/6,Peot alizahfa
A e 0 .

A10-

seb.f y d 55eev

t_ Acbeustuas 5 0 O9C

70 SPcwihu Peniu 5e-e-

 SoLUTI ON
29.
MADURAI TRADERS LTD
IN THE BOOKS OF
REALISATION A/C

Particulars Rs.
Particulars Rs
To buildings A/c 15,000 By creditors A/c 4,200
20,000 By debenture A/c 6,000
To machinery A/c
1,000 By Madras traders Itd A/c 40,000
To furniture A/c
To stock A/c 10,000 By equity shareholder A/c
To debtors A/c 9,000 (realisation loss) 5,000
To cash A/c 200

55,200
55,200

EQUITY SHAREHOLDERS A/C

Particulars Rs. Particulars Rs.

To Madras traders ltd A/c 40,000 By share capital Ac 40,000
To realisation loss A/e 5,000 By profit & loss A/c 1,000
By capital redemption | 4,000
reserve A/c

45,000 45,000

MADRAS LTD A/C

Particulars Rs. Particulars Rs.

To realisation A/c 40,000 By equity shareholders A/c 4,00,0000

40,000 40,000
 TRADERS
LTD
MADRAS
B0OKS OF
IN THE Debit (Rs.) Credit(Rs.)|

Particulars 40,000
Date Business purchase A/c 40,000
madurai
of
To liquidator
traders Itd A/e
price payable)
(Being purchase
15,000
Buildings A/c 20,000
Machinery A/c
1,000
Furniture Alc
10,000
Stock A/c 9,000
Debtors ANe 200
Cash A/c 6,600
To debenture A/c
4,200
To creditors Alc 40,000
To business purchase A/c
Alc
4,400
To capital reserve
assets and
liabilities taken
(Being
over) traders Itd
Liquidator of madurai
Dr 40,000
Alc 40,000
To equity share capital A/c
(Being payment of purchase
consideration).

ng notes:
siness consideration:

ash-800*20 Rs.16,000.
nare-800*3*10- Rs.24,000,
Total Rs.40,000
 31. In the books Y Itd

REALISATION A/C
Particulars Rs. Particulars Rs.
To land & building A/c 1.80,000 By creditors A/c 75,000
To machinery A/c 1.25,000 By X Itd A/c 5,40,000
To stock A/c 2.50,000 By reserve for bad debts A/c 10,000
To debtors A/c 2,90,000 By equity shareholders A/c 2,38,000
To cash (25,000-10,000) 15,000 (realisation loss)
To bank A/c 3,000

8.63,000 8,63,000

EQUITY SHAREHOLDERS AC

Particulars Rs. Particulars Rs.

To X ltd A/c 54,000 By share capital A/c 6,00,000
To bank A/c 78,000 By reserve fund A/c 1,20,000
To realisation A/c 2,38,000 Byprofit & loss A/c 6,50,000

7,85,000 7,85,000

XLTD AC

Particulars Rs. |Particulars Rs.

To realisation A/c 5,40,000 By equity 5,40,000
shareholders A/c

5,40,000 5,40,000
 31 In the books Y Itd

REALISATION A/C
Particulars Rs.
To land& Particulars Rs.
building A/c 1,80,000 By creditors Alc 75,000
Tomachinery A/ce 1.25.0000 By X Itd A/c 5,40,000
To stock A/c
2.50,000 By reserve for bad debts A/c 10,000
To debtors A/c
2,90,000 By equity shareholders A/e 2,38,000
To cash (25,000-10,000)
15,000 (realisation loss)
To bank A/c
3,000

8.63,000 8,63,000

EQUITY SHAREHOLDERS A/C

Particulars Rs.
To X Itd A/c Particulars RS.

To bank A/c
54,000 By share capital Ac 6,00,000D
78,000 By reserve fund A/c 1,20,000
To realisation A/c
2,38,000 |By profit & loss A/c 6,50,000

7,85,000
7,85,000

XLTD A/C

Particulars Rs. Particulars Rs.

To realisation A/c 5,40,000 By equity 5,40,000
shareholders A/c

5,40,000 5,40,000
 IN THE BOOKS OF X LTD

Date Particulars |Debit(Rs.) Credit (Rs.)

Business purchase Ale Dr 5,40,000
To liquidator of Y ltd A/c 5,40,000
(Being purchase consderation
payable)
Land&building A/c Dr 1,80,000
Machinery A/c Dr 1,25,000
Stock A/c Dr 2,50,000
Debtors A/c Dr 2,90,000
Cash at bank A/c Dr 15,000
To reserve dor bad debts A/c 10,000
To creditors Alc 75,000
To business purchase A/c 5,40,000
To capital reserve Alc 2,35,000
(Being assets and liabilities taken
over)
Liquidator of Y Itd A/c Dr 5,40,000
To equity share capital A/c 5,40,000
(Being payment of purchase
consideration)

Working notes:
Purchase consideration:
Equity share capital: 12,000*90/2= Rs. 5,40,000
 32.IN THE BOOKS OF A LTD

REALISATION A/C
Particulars Rs. Particulars Rs.
To fixed asset A/c 3,00,000 By creditors A/c 3,00,000
To debtors A/c 3,50,000 By debenture A/c 1,00,000
To goodwill A/c 1,00,000 By B Itd A/c 3,00,000
By cquity shareholder A/c
(realisation loss) 50,000

7,50,000 7,50,000

EQUITY SHAREHOLDERS A/C

Particulars Rs. Particulars Rs.

To profit & loss A/e 1,50,000 By share capital A/e 5,00,000
To B ltd Alc 3,00,000
To realisation loss A/Vc 50,000

5,00,000 5,00,000

BLTD A/C
Particulars Rs. Particulars
To realisation A/c
Rs.
3,00,000 By equity shareholders A/c 3,00,000

3,00,000 3,00,000
 IN THE BOOKS OF BLTD

Date Particulars Debit (Rs.) Credit(Rs.)

Business purchase A/e Dr 3,00,000
To liquidator of A ltd A/c 3,00,000
(Being purchase price payable)

Fixed assets A/c Dr 3,00,000

Debtors & stock A/c Dr 3,50,000
Goodwill A/c (B/1) Dr 45,000
To creditors A/c 3,00,000
To debentures A/c 95,000
To business purchase A/c 3,00,000
(Being the assets and the liabilities
taken over)

Liquidator of A ltd A/Vc Dr 3,00,000

To equity share capital A/c 3,00,000
(Being payment of purchase price)

7% debentures A/c Dr 95,000

To 5% debentures A/c 95,000
(Being Rs.95 of 7% debentures
taken over for every Rs.100 of 5%
debentures held in A Itd )

BALANCE SHEET OF BLTD AS ON --/--f-

Liabilities Rs. Assets Rs.

PA So9,ocoD

%D,ocd

S e o D

To deben 1SeovD

So0o
S oco

ToCl

3
 Equity share capital Fixed assets 8,00,000
1,00,000 shares of Rs.10| Debtors & stock 4,50,000
each 10,00,000 Cash 1,00,000
7% debentures 95,000 Goodwill 3,95,000
Creditors 5,00,000
Profit& loss A/e 1.50,000

17,45,000 17,45,000

Working notes:
Business purchase: 50.000*6= Rs. 3,00,000.

33. In the books of Grey lItd

- - - -

Date Particulars Debit Credit

(Rs.) (Rs.)
Business purchase A/c Dr 1,50,000 50,000
31/3/- Itd A/c 1,50,000
To liquidator of Remy
(being purchase price payable)
Fixed assets A/c Dr 1,20,000
31/3/ Dr 1,40,000
Current assets A/c
Goodwill A/c (B/F) Dr 10,000
To creditors A/c 1,20,000
To business purchase Alc
1,50,000
assets and liabilities taken
(Being
over)

Liquidator of Remy Itd A/c

1,50,000
31/3/ To equity share capital A/c 1,50,000

(Being payment of purchase price)

Itd. as on 1/4/--
Balance sheet of Grey
Rs.
Assets Rs.
Liabilties
 10,000
Goodwill
4,20,000
Share capital: 5,50,000 Fixed assets 3,50,000
55,000 shares of Rs. 10 each 1,60,000
Current assets

Creditors 70,000
Profit & loss A/c

7,80,000
7,80,000

Working notes:
Purchaseconsideration (net payments method):
Share capital: 30,000*5= Rs. 1,50,000
 4000 x 2 x 65 5,20,000
4000 x 2 8,000

Purchase consideration 5,28000

b. Realisation A/c.

Rs. Rs
4,28,000 12 4oo
To land & building 1,70,000 By Creditors
To Pl&machinery 4,00,000 By Debentures 2,50,000
To Stock 80,700 By Big Ltd. -

cash 8,000
To Cash 16,500 By Share capital 5,20,000
To Debtors 1,40,500
To Investment (loss) 5,600
To Loss on sale of shares 4,000
To Equity Shareholders 89460
(Real Profit)
9,06,000 9,0600

Bank A/c.

Rs Rs.
To balanced 16,500 By Realisation 16,500
To Investment 45,000 By Equity Share capital 1,79,000
(Balance fig.)
To Shares oooX6 |A,26,000
To Big Ltd. 8,0008,000
1,95,500 1,95,500

Equity Share Holders A/c.

 3

Rs Rs
To Bank L79,000 By Capital 4,00,000
To Big Ltd. (6000 x 65) 3,90,0000 By General reserve 50,000
By DebenturesDi s-fV 24,000
By Profit & Loss 5,600
By Realisation 89.400
5,69,000 5,69,000