Financial Accounting – Part III (Amalgamation & Absorption of companies)

ILLUSTRATION ON AMALGAMATION
Prob.1) Given below are the Balance Sheet as on 31st March, 2007 of Alpha and Beta Ltd.
Which are amalgamated to form new company “Alpha Beta Ltd.” New Company took over
all assets and liabilities of both the companies at book value:

Balance Sheets

Particulars Alpha Ltd. (Rs) Beta Ltd (Rs.)

Liabilities :
Share Capital @Rs.10 each 1,00,000 2,00,000
Current Liabilities 1,20,000 20,000
Reserve & Surplus 80,000 50,000
3,00,000 2,70,000
Assets :
Building 30,000 25,000
Machinery 50,000 80,000
Furniture 5,000 10,000
Current Assets 2,05,000 1,49000
Preliminary Exp. 10,000 -
Profit & Loss A/c - 6,000
3,00,000 2,70,000

Authorised capital of Alpha Beta Ltd is Rs. 5,00,000 divided in equity shares of
Rs. 10 each. Purchase consideration of both the companies was paid in the form of equity
shares of Rs. 10 each in Alpha Beta Ltd.

Press the journal entries in the books of Alpha Beta Ltd. And draw up Opening
Balance Sheet of Alpha Beta Ltd. (N.U. Oct. 2009)

Prob.2) Jay Co. Ltd. and Ajay Co. Ltd. carrying on similar business enter into a contract to
amalgamate, a new Co. being formed to take over the assets and liabilities of each. The
following are the respective Balance sheets, showing the values of the assets as agreed in the
contract, and it is provided that fully paid shares of Rs. 50 each, shall be issued by the new
company which will be known as Vijay Co. Ltd., to the value of the net assets of each of the
old company:

Jay Co. Ltd.

Balance Sheet as at 31st March 1986

Liabilities Rs. Assets Rs.

Share capital 2,50,000 Land and Building 95,000
(2,500 Shares of Rs. 100 each) Machinery 90,000
Sundry Creditors 41,000 Stock 75,000
Cash at Bank 11,000

1|Page Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Profit & Loss Account 20,000

2,91,000 2,91,000
Ajay Co. Ltd.
Balance Sheet as at 31st March 1986

Liabilities Rs. Assets Rs.

Share capital 2,00,000 Land and Building 75,000
(2,000 Shares of Rs. 100 each) Machinery 1,00,000
Sundry Creditors 30,000 Stock 45,000
Reserve Fund 50,000 Debtors 35,000
Profit & Loss Account 10,000 Cash at Bank 35,000
2,90,000 2,90,000

Calculate the Purchase consideration of the two companies and give the opening
entries in the books of Vijay Co. Ltd. and its Balance Sheet.
(N.U. March 1987, 2001 & 2004)

Prob.3) Asawari Co. Ltd and Shreya Co. Ltd., Whose business are of similar mature, agreed
to amalgamate and form a new company to take over their assets and liabilities. The
following are respective Balance Sheets.

Balance Sheets

Particulars Asawari Shreya

Co. Ltd. Co. Ltd.
(Rs.) (Rs.)
Liabilities :
Share Capital:
7500 shares of Rs. 10 each fully paid 75,000 -
5,500 shares of Rs. 10 each fully paid - 55,000
Sundry Creditors 3,300 2,000
Reserve Fund 4,200 -
Profit & Loss A/c 4,800 5,000
87,300 62,000
Assets :
Goodwill 30,000 20,000
Freehold Property 14,000 13,450
Plant and Machinery 18,300 10,000
Stock 16,000 11,550
Sundry Debtors 7,500 6,000
Cash 1,500 1,000
87,300 62,000

The new company is to take over all the assets and liabilities of both the companies on
the issue of 7,000 shares of Rs. 10 each to Asawari Co. Ltd. and 5,000 shares of Rs. 10 each
to Shreya Co. Ltd. (market price being Rs. 12 each)

2|Page Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Calculate purchase consideration of each company and prepare Balance Sheet of new
company.
(N.U. Oct. 2007 New & March 2014 with figures 3 times)

Prob.4) Given below are the Balance Sheets as on 31-03-1997 of Raj Ltd. and Laxmi Ltd.
which are amalgamated to form a new company Rajlaxmi Ltd.

Balance Sheets

Particulars Raj Ltd. (Rs.) Laxmi Ltd. (Rs.)

Liabilities :
Share Capital (Rs. 10 each) 2,00,000 4,00,000
Capital Reserve 1,00,000 20,000
Loans 1,40,000 1,20,000
Creditors 40,000 1,00,000
Bills Payable 20,000 60,000
5,00,000 7,00,000
Assets :
Goodwill - 80,000
Building 60,000 50,000
Plant and Machinery 1,00,000 1,60,000
Furniture 10,000 20,000
Stock 1,50,000 1,80,000
Debtors 1,34,000 60,000
Bills Receivable 44,000 66,000
Cash 2,000 4,000
Profit and Loss A/c - 80,000
5,00,000 7,00,000

The shareholders in the amalgamating companies are to be allotted fully paid equity
shares of Rs. 10 each, in Rajlaxmi Ltd. for the amount of purchase consideration for which
purpose all assets and liabilities are to be taken at book values except goodwill of Laxmi Ltd.
which is considered worthless.

Give Journal entries in the books of Laxmi Ltd. and prepare the opening Balance
sheet of Raj-Laxmi Co. Ltd.
(N.U. March 1999 Oct. 2014 with figures doubled & March 2015)

Prob.5) A Ltd. and B Ltd. agreed to amalgamate by transferring their undertaking to a new
company viz. AB Ltd. formed for that purpose. On the date of amalgamation i.e. 31-03-2015
the Balance Sheets of both the companies were as under:

Liabilities A Ltd B Ltd. Assets A Ltd. B Ltd.

(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital 5,00,000 3,00,000 Sundry Assets 4,80,000 3,22,000
(Equity Shares of Rs.10 each) Freehold Property 2,00,000 1,00,000
5% Debentures 2,00,000 1,00,000 Investments 50,000 20,000
Reserve Fund - 50,000 Debtors 2,50,000 1,50,000
3|Page Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Profit & Loss A/c 30,000 20,000 Preliminary Exp. 20,000 8,000
Mortgage Loan 50,000 -
(Secured on Freehold Property)
Sundry Creditors 2,20,000 1,30,000
10,00,000 6,00,000 10,00,000 6,00,000
The purchase consideration consisted of

1) To discharge of Debentures in A Ltd. and B Ltd. bye the issue of equivalent amount
of 6% Debentures in AB Ltd.
2) The assumption of liabilities of both companies and
3) The issue of equity shares of Rs. 10 each in AB Ltd., at a premium of Rs. 2 per share.

For the purpose of amalgamation, the assets are to be revalued as follows:

A Ltd. (Rs.) B Ltd. (Rs.)

Goodwill 1,00,000 75,000

Sundry Assets 4,10,000 2,80,000
Freehold Property 2,60,000 1,40,000
Investments 51,000 20,000
Debtors 2,25,000 1,35,000

Journalise the above transactions in the books A Ltd., prepare necessary ledger
accounts I the books of B Ltd. and give the Opening Balance Sheet of AB Ltd. after
amalgamation.
(Shivaji University, April 2001)

Prob.6) The Jay Co. Ltd. and the Vijay Co. Ltd. agree to combine and form a new company
Jay-Vijay Co. Ltd. with a capital of Rs. 20,00,000 divided in Equity Share of Rs. 10 each.
The new company is to take over all the assets and liabilities of both the companies on a
consideration of issue of Vijay Co. Ltd. of Rs. 10,00,000 and Jay Co. Ltd. of Rs. 8,00,000 in
fully paid shares of Rs. 10 each.

The new company is to pay the liquidation expenses of the vendor companies viz.
Vijay Co. Ltd. Rs. 8,000 and Jay Co. Ltd. Rs. 11,000. Jay-Vijay Company’s incorporation
expenses amounted to Rs. 11,000.

On the date of amalgamation the balances in the books of vendor companies were as
follows:

Particulars Vijay Co. Ltd. Jay Co. Ltd.

(Rs.) (Rs.)
Issued and Paid-up Capital 9,00,000 7,00,000
Reserve fund 1,00,000 80,000
Creditors 75,000 60,000
Profit& Loss A/c (Cr.) 40,000 35,000
4|Page Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Goodwill 1,00,000 85,000

Land & Building 2,50,000 2,00,000
Plant & Machinery 6,70,000 5,30,000
Debtors 50,000 35,000
Stock-in-Trade 20,000 10,000
Bank Balance 25,000 15,000
The amalgamation is duly completed. Various assets and liabilities being taken over
at their book values.

Given necessary Journal Entries in the books of Vijay Co. Ltd. and also opening
Balance Sheet of the new Company.
(N.U. Oct. 1999, March 2008 & Oct. 2013 with figures 2 times)

Prob.7) Ram Ltd. and Shyam Ltd. agreed to combine and form a new company
Radhakrishna Ltd. with an authorized capital of Rs. 10,00,000 divided into shares of Rs. 10
each. The new company took over the assets and liabilities of both the companies; the
consideration being Rs. 6,00,000 in fully paid up shares to the Ram Ltd. and 20,000 fully
paid up shares of Rs. 10 each ad Rs. 50,000 I cash to Shyam Ltd. The liquidation expenses of
Rs. 5,000 were also paid by the new company. The formation expenses amounted to
Rs. 10,000.

The balances at the date of amalgamation were:

Particulars Ram Ltd. Shyam Ltd.

Dr. (Rs.) Cr. (Rs.) Dr. (Rs.) Cr. (Rs.)
Share Capital - 4,00,000 - 2,00,000
Sundry Assets 5,00,000 - 2,75,000 -
7% Debentures - 50,000 - 50,000
Bank 1,75,000 - 15,000 -
Genera Reserve - 2,00,000 - 40,000
Profit and Loss A/c - 25,000 - -

Show the journal entries required to close the books of Ram Ltd. and Shyam Ltd. and
to record the opening journal entries in the books of the new company. Also prepare Balance
Sheet of Radhakrishna Ltd. (N.U. 1986, Summer)

Prob.8) ‘A’ Ltd. and ‘B’ Ltd. agreed to amalgamate and form a new company called ‘C’
Company. The Balance Sheet on the date of amalgamation were as under:

Liabilities A Ltd B Ltd. Assets A Ltd. B Ltd.

(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital 1,00,000 1,40,000 Fixed Assets 1,20,000 1,80,000
Reserves 1,70,000 1,00,000 Stock 60,000 1,10,000
Creditors 40,000 90,000 Debtors 80,000 1,30,000
Bank Loan - 90,000 Cash 50,000 -
3,10,000 4,20,000 3,10,000 4,20,000

5|Page Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

The consideration was to based on the net assets of the company but subject to an
addition to compensate Rs. 90,000 to ‘A’ Ltd. for its super profits. The shares in ‘C’ Ltd were
to be issued to ‘A’ Ltd. and ‘B’ Ltd. at the premium and in proportion to the agreed net
assets. ‘C’ Ltd. proceeded to issue 12,000 shares of Rs. 10 each at a price of Rs. 15 per share:

You are required to:

(i) Calculate the number of share issued to ‘A’ Ltd. and ‘B’ Ltd.;
(ii) Pass journal entries in the books of ‘A’ Ltd.
(iii) Opening entries in the books of ‘C’ Ltd. and Balance Sheet after amalgamation.

Prob.9) The following are the Balance Sheets of Ram Co. Ltd. and Laxman Co. Ltd. as on
31st March 2006:

Balance Sheets

Liabilities Ram Ltd Laxman Assets Ram Ltd. Laxman

(Rs.) Ltd. (Rs.) (Rs.) Ltd. (Rs.)
Equity Shares of Rs. 10 Each 20,00,000 12,00,000 Goodwill 2,00,000 50,000
General Reserve 1,60,000 65,000 Premises 11,55,000 9,60,000
Profit & Loss A/c 85,000 49,000 Machinery 6,40,000 4,90,000
Debentures 4,00,000 6,00,000 Furniture 1,60,000 98,000
Creditors 2,26,000 1,85,000 Stocks 4,50,000 3,80,000
Bank Overdraft 1,50,000 1,60,000 Debtors 2,60,000 1,85,000
Provision for Taxation 84,000 1,10,000 Cash & Bank 1,84,000 2,06,000
Preliminary Exp. 56,000 -
31,05,000 23,69,000 10,00,000 6,00,000

It was decided that these companies be amalgamated into ‘Ram-Laxman Co. Ltd.’ on
the following terms:

(a) The ‘Ram-Laxman co. Ltd.’ to take over all the assets and liabilities including
Debentures of Ram Co. Ltd. and Laxman Co. Ltd.
(b) The purchase price is Rs. 24,00,000 to Ram Co. Ltd. and Rs. 14,50,000 to Laxman
Co. Ltd. in fully paid equity shares of Rs. 100 each.
(c) Ram-Laxman Co. Ltd. decided to value of Machinery, Stocks and Debtors as below:

Ram Co. Ltd Laxman Co. Ltd.

(Rs) (Rs)

Machinery 5,80,000 4,40,000

Stock 3,90,000 3,60,000

Debtors 2,40,000 1,60,000

(i) Give Journal entries in the books of Ram Co. Ltd. and Ram-Laxman Co. Ltd.

6|Page Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

(ii) Prepare Balance Sheet in the books of Ram-Laxman Co. Ltd. after amalgamation.

[N.U. Oct. 2008]

Prob.10) The following are the balance sheets as on 31st December, 2003 of ‘X’ Ltd. and ‘Y’
Ltd.

Particulars ‘X’ Co. Ltd. ‘Y’ Co. Ltd.

(Rs.) (Rs.)
Liabilities:
Equity shares capital (Rs. 10 per share) 1,00,000 60,000
6% Debentures of Rs.100 each 20,000 -
Reserve Fund 34,000 -
Dividend Equalisation Fund 4,000 -
Employee’s Provident Fund 3,000 -
Trade Creditors 10,000 8,000
Profit and Loss Account 2,000 -
1,73,000 68,000
Assets: 30,000 -
Land and Building 1,10,000 50,000
Plant and Machinery 16,000 8,000
Stock 14,000 9,000
Debtors 3,000 1,000
Cash 1,73,000 68,000

The two companies agree to amalgamate and form a new company called ‘Z’ Ltd.,
which takes over the assets and liabilities of both the companies. The authorised capital of ‘Z’
Ltd. is Rs. 10,00,000 consisting of 1,00,000 equity shares of Rs. 10 each.

The assets of ‘X’ Ltd. are taken over at a reduced valuation of 10% with the exception
of Land and Buildings which are accepted at Book Value.

Both the companies are to receive 5% of the net valuation of their respective business
as goodwill. The entire purchase price is to be paid by ‘Z’ Ltd. in fully paid equity shares. In
return for Debentures in ‘X’ Ltd. Debentures of the same amount and denomination are to be
issued by ‘Z’ Ltd.

Prepare the necessary ledger accounts in the books of ‘X’ Ltd. and show the opening
Balance Sheet of ‘Z’ Ltd.
(N.U. March 2011 Old with figures 5 times)

Prob.11) Radha Co. Ltd. and Shyam Co. Ltd. were in financial crisis. Shareholders of both
the companies agreed to amalgamate and form a new company with authorised share capital
of Rs.20 Lacs divided in equity shares of Rs. 10 each. The new company will have the name
7|Page Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Radheshyam Co. Ltd. Shareholders of the Radha Co. Ltd. ad Shyam Co. Ltd. are to be
satisfied by issue of 4 shares in new company against 5 shares in original company.

Radha company’s debenture holders are to be given 8% debentures of the same

amount and Shyam company’s debenture holders are to be satisfied by paying cash for 50%
of their holdings and fully paid shares in new company for the balance. In addition to this
Shareholders of Radha Co. Ltd. were to get Rs. 2 per share held by them in Radha Company.

Formation expenses Rs.10,000 of Radheshyam Co. Ltd. Liquidation expenses of

Radha Co. Ltd. and Shyam Co. Ltd., Rs.3000 and Rs.2000 respectively were to be borne by
Radheshyam Co. Ltd.

Above scheme was implemented on 31-03-1995 and Radheshyam Co. Ltd. took over
assets and liabilities of Radha co. Ltd. & Shyam Co. Ltd.

Following balances were draw from the books of Radha Co. Ltd. & Shyam Co. Ltd.
on 31-03-1995:

Particulars Radha Co. Ltd. Shyam Ltd.

Dr. (Rs.) Cr. (Rs.) Dr. (Rs.) Cr. (Rs.)
Share Capital @ Rs.10 per Share - 4,00,000 - 2,00,000
Sundry Assets 5,00,000 - 2,60,000 -
7% Debentures - 50,000 - 50,000
Bank 1,75,000 - 15,000 -
Genera Reserve - 2,00,000 - 40,000
Profit and Loss A/c - 25,000 15,000 -
6,75,000 6,75,000 2,90,000 2,90,000

Assume that formation expenses, Liquidation expenses and goodwill were charged
against Capital Reserve.

Give opening entries in the journal of Radheshyam Co. Ltd. and the opening Balance
Sheet of Radheshyam Co. Ltd.
(N.U. Oct. 1997)

Prob.12) Two companies carrying on similar business decided to amalgamate from 1st April,
1990 into Dasgupta Co. Ltd. The following are their respective Balance Sheets as on that
date:

Balance Sheet of Das Co. Ltd.

Liabilities Rs. Assets Rs.

Share capital : Cash at Bank 18,100
(2,000 Shares of Rs. 100 each, Goodwill 13,700
Rs.80 paid up) 1,60,000 Debtors 8,400
Debentures 29,000 Stock 27,800
8|Page Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Bills Payable 5,000 Machinery 50,000

Creditors 10,000 Car 20,000
Profit & Loss Account 24,000 Building 70,000
General Reserve 2,000 Patents 15,000
Bills Receivable 7,000
2,30,000 2,30,000

Balance Sheet of Gupta Co. Ltd.

Liabilities Rs. Assets Rs.

Share capital : Cash at Bank 19,300
(3,000 shares of Rs.100 each, Debtors 13,700
Rs.40 paid) 1,20,000 Bills Receivable 14,000
Debentures 40,000 Stock 40,000
Creditors 32,000 Building 67,000
Bills Payable 14,000 Machinery 42,000
Profit and Loss A/c 10,000
2,06,000 2,06,000

Share Capital Dasgupta Co. Ltd. consisted of 4,000 shares of Rs.100 each fully paid.

Das Company’s Goodwill was not taken at Book value and was to be valued at two
times the average profit earned by the company during the last three years. Its profits for last
3 years was Rs.20,400; Rs.21,400 and Rs.26,000 respectively. Value of Machinery and Car
was to be reduced by Rs.15,000 and Rs.2,000 respectively. Patents were valued at 50% and
stock was valued at Rs.34,800.

Building and Machinery of Gupta Co. Ltd. were valued at Rs. 85,000 and Rs.40,000
respectively. Nothing was payable in respect of Goodwill.

Dasgupta Co. was to pay its fully paid up shares against the purchase consideration to
Das Co. Ltd. while 1,200 fully paid up shares and balance in cash was payable to Gupta co.
Ltd.

Pass the Journal entries in the books of Das Co. Ltd. and show the opening balance
Sheet of Dasgupta Co. Ltd.
(N.U. Oct. 1990)

Prob.13) Given below are the balance sheets of two companies as on 31st March 2009:

Balance Sheet of Alpha Ltd.

Balance Sheet of Das Co. Ltd.

9|Page Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Liabilities Rs. Assets Rs.

Share capital : 7,50,000 Goodwill 75,000
(Shares of Rs.10 fully paid) Freehold Property 2,00,000
Share Premium 2,250 Machinery 1,75,000
General Reserve 50,000 Stock 3,41,000
Profit & Loss A/c 82,825 Debtors 1,29,250
8% Debentures 1,75,000 Bank 1,68,750
Sundry Creditors 28,925
10,89,000 10,89,000

Balance Sheet of Beta Ltd.

Liabilities Rs. Assets Rs.

Share capital : 1,95,000 Goodwill 25,000
(Shares of Rs.10 fully paid) Freehold Property 90,000
10% Debentures 35,000 Machinery 50,000
Bank Overdraft 3,000 Stock 81,000
Sundry Creditors 1,28,000 Debtors 47,500
Profit and Loss A/c 68,000
3,61,500 3,61,500

The two companies decided to amalgamate their business as on the date of Balance
Sheet and a new company called Gama Ltd. was formed with an authorised capital of
Rs. 12,50,000 in shares of Rs.10 each. The terms of amalgamation were:

Alpha Ltd.:

(a) 6 shares of Rs.10 each fully paid in the new company in exchange for 5 shares in
Alpha Ltd. and Rs. 5,000 in cash.
(b) The debenture holders were to be allotted such debentures in the new company
bearing interest at 7% p.a. as would bring the same amount of interest.

Beta Ltd.:

(a) One share of Rs. 10 each fully paid in the new company in exchange for 3 shares in
Beta Ltd. and Rs. 2,500 in cash.
(b) The debenture holders would be allotted such debentures in the new company bearing
interest at 7% p.a. would bring the same amount of interest.
The new company took over all the assets and liabilities of both the companies.
Calculate the purchase consideration, pass journal entries in the books of the new
company and prepare Balance Sheet after amalgamation.

Prob.14) Abha Ltd. and Prabha Ltd. agreed upon an amalgamation. Their Balance Sheets as
on 31st March, 1998 were as follows:

10 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Liabilities Abha Prabha Assets Abha Prabha

Ltd. (Rs.) Ltd. (Rs.) Ltd. (Rs.) Ltd. (Rs.)
Issued Share Capital 6,00,000 4,80,000 Plant & Machinery 1,80,000 1.26,000
Reserve - 30,000 Debtors 2,88,000 3,60,000
Profit and Loss A/c - 72,000 Bank 3,67,200 2,44,800
Sundry Creditors 2,58,000 1,48,800 Profit & Loss A/c 22,800 -
8,58,000 7,30,800 8,58,000 7,30,800

The assets of Abha Ltd. are taken at book values except Plant & Machinery which is
to be written down by Rs. 61,200; those of Prabha Ltd. are to be taken at book values, except
that the debtors are to be considered worth Rs. 1,98,000. Liabilities of both the companies are
taken at book values.

The share capital of the Prabha (new) Co. Ltd. is to be 48,000 Preference Shares of
Rs.10 each fully paid and 91,200 Equity Shares of Rs. 5 each fully paid.

The allocation of the shares is equal except that the surplus capital of Abha Ltd. is to
be satisfied in Preference Shares.

Calculate the purchase consideration of both companies with details of the exchange
of shares and give opening Balance Sheet of Prabhat co. Ltd.

(N. U. Oct. 2000)

Prob.15) Touch Ltd. and Run Ltd. carry on business of a similar nature and its agreed that
they should amalgamate. A new company ‘Touch & Run Ltd.’ is to be formed to which the
assets and liabilities of the existing companies with certain exceptions are to be transferred.
On 31st March, 1999 the Balance Sheets of both the companies were as follows:

Balance Sheet of Touch Ltd.

Liabilities Rs. Assets Rs.

Issued Share capital : 1,50,000 Freehold Property 1,05,000
(15000 Shares of Rs.10 each) Plant & Machinery 25,000
General Reserve 80,000 Motor Vehicle 10,000
Profit & Loss A/c 20,000 Stock 60,000
Sundry Creditors 75,000 Debtors 82,000
Cash 43,000
3,25,000 3,25,000

Balance Sheet of Run Ltd.

Liabilities Rs. Assets Rs.

Issued Share capital : 80,000 Freehold Property 60,000
(8,000 Shares of Rs.10 each) Plant & Machinery 15,000
11 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Profit & Loss A/c 20,000 Stock 78,000

8% Debentures 60,000 Debtors 21,000
Sundry Creditors 32,000 Cash 18,000
1,92,000 1,92,000

Assets and liabilities are taken over at book value with the following exceptions:

i) Goodwill for Touch Ltd. and of Run Ltd., is to be valued at Rs.82,000 and
Rs.32,000 respectively.
ii) Motor vehicles of Touch Ltd. are to be valued at Rs.30,000.
iii) Debentures of Run Ltd. are to be discharged by the issue of 8% debentures in
‘Touch & Run Ltd. at a premium of 5%.
iv) The debtors and cash of Run Ltd. are to be retained by the liquidator and Sundry
creditors are to be paid out the proceeds thereof.
v) The cost of liquidation amounting Rs.4,000 is to b paid by existing both the
companies equally.
vi) The shareholders of Touch Ltd. and Run Ltd. are to be allotted fully paid shares of
Rs.10 each at par for the amount of purchase consideration.

You are required to compute the basis on which Shares in ‘Touch & Run Ltd.’ will be
issued to shareholders in the existing companies, necessary ledger accounts in the books
of Run Ltd. and draw up the balance Sheet of the new company after amalgamation.
(N. U. March 1974)

Prob.16) Given below are the balance sheets of two companies as on 31st March, 1998:

Balance Sheet of Sagar Ltd.

Liabilities Rs. Assets Rs.

Share capital : Goodwill 1,50,000
(Rs.10 each fully paid) 15,00,000 Freehold Property 4,00,000
Share Premium A/c 4,500 Plant & Machinery 3,50,000
General Reserve 1,00,000 Stock 6,82,000
Profit & Loss A/c 1,65,650 Sundry Debtors 2,58,500
8% Debentures 3,50,000 Bank 3,37,500
Sundry Creditors 57,850
21,78,000 21,78,000

Balance Sheet of Parag Ltd.

Liabilities Rs. Assets Rs.

Share capital : 3,90,000 Goodwill 50,000
(Rs.10 each fully paid) Freehold Property 1,80,000
10% Debentures 70,000 Plant & Machinery 1,00,000
Bank overdraft 6,000 Stock 1,62,000
12 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Sundry Creditors 2,57,000 Sundry Debtors 95,000

Profit & Loss A/c 1,36,000
7,23,000 7,23,000

Above the companies decided to amalgamate, as on 31st March, 1998 and a new
company called Sangam Ltd. was formed with an authorised capital of Rs.25,00,000 in shares
of Rs.10 each. The terms of amalgamation were as follows:

Sagar Ltd.:

i) 6 Shares of Rs. 10 each fully paid in the new company in exchange for every 5
shares in Sagar Ltd., and Rs.10,000 in each.
ii) The debenture holders were to be allotted such debentures in the new company
bearing interest at 7% per annum as would bring the same amount of interest.

Parag Ltd.:

i) 1 Share of Rs.10 each fully paid in the new company n exchange for every 3
shares in Parag Ltd., and Rs.5,000 in cash.
ii) The debenture holders were to be allotted such debentures in the new company
bearing interest at 7% per annum as would bring the same amount of interest.

The new company took over all the assets and liabilities of the two existing companies.

The amount of bank overdraft has been paid off immediately after amalgamation.

Show the journal entries in the books of Sangam Ltd. and prepare its opening Balance
Sheet.

Prob.17) Sindh Ltd. and Hind Ltd. agreed to amalgamate by transferring the
undertakings to a new company, Bharat Ltd. formed for that purpose. On the date of the
transfer their Balance Sheets were as under:

Liabilities Sindh Hind Assets Sindh Hind

Ltd. (Rs.) Ltd. (Rs.) Ltd. (Rs.) Ltd. (Rs.)
Authorised & Issued Sundry Assets 6,00,000 3,10,000
Capital (equity shares 7,50,000 2,50,000 Freehold Property 30,000 -
of Rs.10 each) Debtors 1,80,000 50,000
8% Debentures - 30,000 Investments 1,30,000 30,000
Reserve - 20,000 Bank 1,00,000 20,000
Mortgage Loan (On 50,000 -
Freehold Property)
Sundry Creditors 40,000 1,00,000
Profit and Loss A/c 2,00,000 10,000
10,40,000 4,10,000 10,40,000 4,10,000

13 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

The purchase consideration consisted of:-

i) The assumption of the liabilities of both companies.

ii) To discharge of the 8% Debentures in Hind Ltd. by the issue of Rs.35,000,
6% debentures in Bharat Ltd.
iii) Issue at premium of Rs.5 per share of equity shares of Rs.10 in Bharat Ltd. for the
purpose of transfer the assets are to be revalued as under:

Particulars Sindh Hind

Ltd. (Rs.) Ltd. (Rs.)
Sundry Assets 6,50,000 3,50,000
Freehold Property 50,000 -
Debtors 1,71,000 45,000
Investments 1,49,000 40,000
Goodwill 1,10,000 40,000

Formation expenses of Bharat Ltd. came to Rs.8,000. Bharat Ltd. formed with an
authorised capital of Rs.50,00,000 divided into shares of Rs.10 each.

Pass the Journal entries in the books of Hind Ltd. and Bharat Ltd. Also preparing
opening Balance Sheet of Bharat Ltd.

(N. U. Oct. 2010 & Oct. 2015)

Prob.18) ‘A’ ltd. and ‘B’ ltd. would be agreed to amalgamate and form a new company, ‘C’
ltd., which will take over all the assets and liabilities of following two companies.

In Case of ‘A’ Ltd.:

The assets and liabilities are to be taken over at book value for shares in C Ltd. at the
rate of 5 shares in C Ltd. of Rs.10 each at 10% premium for every 4 shares in A Ltd.

In Case of ‘B’ Ltd.:

(i) The debentures of B Ltd. would be paid off by the issue of an equal number of
debentures in C Ltd. at a discount of 10%.
(ii) The holders of 6% Preference Shares of B Ltd. would be allotted 4, 7% Preference
Shares of Rs.100 each in C Ltd. for every 5 Preference Shares in B Ltd.
(iii) The equity shareholders would be allotted sufficient shares in C ltd. to cover the
balance on their accounts after adjusting asset values by reducing Plant and
Machinery by 10% and providing 5% on Sundry Debtors. Equity Shares to ‘B’
Ltd. were issued at 10% premium.

The summarized Balance Sheets of the two companies at the date of amalgamation were
as follows:

Liabilities ‘A’ Ltd. ‘B’ Ltd. Assets ‘A’ Ltd. ‘B’ Ltd.

14 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

(Rs.) (Rs.) (Rs.) (Rs.)

Equity share capital Plant & Machinery 8,00,000 8,00,000
of Rs.10 each 4,00,000 5,00,000 Stock 65,000 60,000
6% Preference Share Debtors 95,000 50,000
capital of Rs.100 each - 3,00,000 Profit & Loss A/c - 1,40,000
4% Debentures - 2,00,000 Bank 65,000 40,000
Profit and Loss A/c 5,00,000 -
Contingency Reserve 50,000 -
Creditors 75,000 90,000
10,25,000 10,90,000 10,25,000 10,90,000

Calculate purchase consideration for both the companies and pass the journal entries
in the books of B Ltd. Also prepare Balance Sheet of C Ltd.
(N.U. March 2002 & Oct. 2007)

Prob.19) The Balance Sheet of Anita Ltd. and Babita Ltd. at 31st December, 2008 contain the
following:

Particulars Anita Babita

Ltd. (Rs.) Ltd. (Rs.)
Authorised and Issued Share Capital (Rs.10 each) 5,00,000 3,00,000
Creditors 1,40,000 1,60,000
5% Debentures 1,00,000 -
Debentures Redemption fund 50,000 -
Profit & Loss A/c 90,000 70,000
(Cr.) (Dr)
Fixed Assets 5,10,000 3,70,000
Current Assets 3,34,000 50,000
Leasehold Redemption fund - 30,000
Investment in Babita Ltd. 36,000 -
(3,000 shares at Cost)

Kavita Ltd. is formed to amalgamate the business. The purchase consideration for
assets payable in cash is agreed at Rs. 10,00,000 for Anita Ltd. (Excluding Shares of Babita
Ltd) and Rs. 4,50,000 for Babita Ltd. in addition, the new company agree to issue of Rs.
1,00,000; 4.5% Debentures in exchange for the Rs.1,35,000 and Rs.1,58,000 respectively.

Prepare:
(i) Realisation A/c,
(ii) Kavita Ltd. A/c,
(iii) Shareholders A/c,

15 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

(iv) Debenture holders A/c (for Anita Co. only) in the books of Vendor Co. (for both
the companies).
(N. U. March 2010, Old)

ILLUSTRATION ON ABSORPTION
Prob.20) The following are the summarised Balance Sheets of ‘X’ ltd. and ‘Y’ ltd. as on 31st
March, 2007.

Liabilities ‘X’ Ltd. ‘Y’ Ltd. Assets ‘X’ Ltd. ‘Y’ Ltd.
(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital 1,00,000 50,000 Sundry Assets 1,35,000 60,000
Profit and Loss A/c 10,000 - Profit & Loss A/c - 10,000
Creditors 25,000 20,000
1,35,000 70,000 1,35,000 70,000

X Ltd. acquired the Sundry Assets and Creditors of Y Ltd. and for this Purpose, the
sundry assets of Y Ltd. are valued at Rs.50,000.

Equity shares of Rs.10 each are issued by X Ltd. for the payment of purchase
consideration.

Write Realisation A/c in the books of Y Ltd. and prepare Balance Sheet of X Ltd.
after absorption. (N.U. March 2009)

Prob.21) Following is the Balance Sheet of Abhijit Co. and Rishi Co.

Balance Sheets
16 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

as on 31st March, 2005

Liabilities Abhijit Rishi Co. Assets Abhijit Rishi Co.

Co. (Rs.) (Rs.) Co. (Rs.) (Rs.)
Paid up Capital 1,20,0000 96,0000 Plant 36,000 25,200
Profit and Loss A/c 15,600 2,400 Debtors 60,100 72,000
Bank Overdraft - 12,000 Bank 75,500 48,960
Creditors 36,000 35,760
1,71,600 1,46,160 1,71,600 1,46,160

Abhijit Company absorbed Rishi Company. Assets including cash and liabilities of
Rishi Company are taken over at book value but the debtors are to be considered worth Rs.
39,600.

Purchase consideration is to be satisfied by issue of shares of Rs. 10 each fully paid at

market value of Rs. 15 per share

Calculate purchase consideration and prepare Balance Sheet of Abhijit Company after
absorption.

(N.U. Oct. 2006 & March 2011 with figures 1 ½ times)

Prob.22) Summarised Balance Sheet of ‘S’ Ltd. as on 1st April, 2012 was as follows:

Liabilities Rs. Assets Rs.

Equity Shares of Rs.10 each 3,00,000 Plant & Machinery 3,00,000
14% Debentures 1,00,000 Stock 70,000
Profit & Loss A/c 50,000 Sundry Debtors 1,00,000
General Reserves 25,000 Cash 32,500
Sundry Creditors 37,500 Preliminary Exp. 10,000
5,12,500 5,12,500

On the above date ‘S’ Co. Ltd. sold its business to ‘M’ Co. Ltd. for purchase
consideration of Rs.4,95,000 payable Rs.1,25,000 in cash and the balance in the form of fully
paid equity shares of Rs.10 each in ‘M’ Co. Ltd. The Debenture holders of ‘S’ Co. Ltd. were
to be paid off at a premium of 10% ‘M’ Co. Ltd. took over all the assets and liabilities of ‘S’
Co. Ltd.

You are required to show Capital Reserve or Goodwill and prepare Realisation A/c in
the books ‘S’ Co. Ltd.

Prob.23) The Balance Sheet of Namrata Ltd. as on 31st March, 2006 was as follows:

Balance Sheet
Liabilities Rs. Assets Rs.
Share capital: 20,00,000 Fixed Assets 20,00,000
17 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

(20,000 Equity Shares of Stock 10,00,000

Rs.100 each fully paid up) Debtors 12,50,000
10,000; 8% Preference Shares 10,00,000 Bank 2,50,000
of Rs.100 each
Profit & Loss A/c 3,00,000
General Reserve 2,00,000
Creditors 7,50,000
Bills Payable 2,50,000
45,00,000 45,00,000

Namrata Ltd. received the under-mentioned offers. Calculate purchase consideration

in each of the following offers:

(A) Smita Ltd. desires to take over the entries business for Rs.10,00,000 in cash, 10,000
Equity Shares of Rs.100 each and 5,000; 5% Preference Shares of Rs.200 each.
(B) Bharati Ltd. desires to take over the assets on the following terms:
(i) Equity shareholders to be issued 7,500 preference shares of Rs.200 each of
Bharati Ltd.
(ii) Preference shareholders to be issued one preference share of Rs.200 each of
Bharati Ltd. for every 10 preference shares in Namrata Ltd.
(iii) Creditors and Bills Payable to be discharged by cash payment subject to 5%
discount.
(C) Asha Ltd. is ready to take over on the under mentioned terms:
(i) Fixed Assets to be accepted at 20% more than the book value.
(ii) Stock to be reduced by 10%, Debtors subjects to a provision of 8% for bad
debts.
(iii) Bank balance to be taken over.
(iv) External liabilities to be accepted at their book values.
(N. U. March 2007 New)

Prob.24) The following is the Balance Sheet of Alpha Trading Co. Ltd. as on March 31,
1997:

Liabilities Rs. Assets Rs.

Capital: 1,20,000 Land & Buildings 1,00,000
(12,000 Shares of Rs.10 each Plant and Machinery 40,000
fully paid) Stock in trade 15,000
Sundry Creditors 40,000 Sundry Debtors 20,000
Bank Overdrafts 16,000 Profit & Loss A/c 1,000

1,76,000 1,76,000

The company went into liquidation and the assets were sold to the Delta Co. Ltd. for
Rs. 1,47,000, Payable as to Rs.57,000 in cash (which is sufficient to discharge the creditors
18 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

and the bank and pay the costs of winding up Rs.1,000) and as to Rs.90,000 by the allotment
12,000 shares of Rs.10 of Delta Co. Ltd., Rs.7.50 paid to the shareholders of the Alpha Co.
Ltd.

Prepare the accounts in the books of Alpha co. ltd. and pass the journal entries in the
books of Delta Co. Ltd.

(N. U. March 1980, 2010, Old & March 2012)

Prob.25) Nagpur Co. Ltd. agreed to acquire the business of Green Ltd. as on 31st March,
1985. The summarised Balance Sheet of Green Ltd. on that date was as follows:

Balance Sheet

Liabilities Rs. Assets Rs.

Share capital in fully paid 6,00,000 Goodwill 1,00,000
shares of Rs.10 each Land, building & Plant 6,40,000
General Reserve 1,70,000 Stock in Trade 1,68,000
Profit & Loss A/c 1,10,000 Debtors 36,000
5% Debentures 1,00,000 Cash 56,000
Creditors 20,000
10,00,000 10,00,000

The consideration payable by Nagpur Co. Ltd. was agreed as follows:

1) A cash payment equivalent to Rs.2.50 for every share of Rs.10 in Green Ltd.
2) The issue of 90,000 Shares of Rs.10 each fully paid, in Nagpur co. Ltd., having
market value of Rs.15 per share.
3) 5% Debentures of Green Ltd. are to be paid at 20% premium by issuing 6%
Debentures of Nagpur co. Ltd.

When computing the agreed consideration the Directors of Nagpur Co. Ltd. valued the
Land, Buildings and Plant at Rs.12,00,000 the stock in trade at Rs.1,42,000 and the
debtors at their face value subject to an allowance of 5% to cover doubtful debts. The cost
of liquidation of Green Ltd. came to Rs.5,000.

Pass the Journal Entries in the books of the both the companies and prepare a
Realisation A/c and Shareholders A/c in the books of Green Ltd.
(N.U. Oct. 1986 & March 2006 & 2008 & Oct. 2013 with figures 5 times)

Prob.26) The following is the balance sheet of Small Co. Ltd. as on 31st March, 2009:

Balance Sheet

19 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Liabilities Rs. Assets Rs.

Share Capital (Rs.10 each) 2,00,000 Goodwill 40,000
Profit & Loss A/c 70,000 Fixed Assets 1,65,000
Debentures 1,00,000 Current Assets 1,95,000
Trade Creditors 30,000
4,00,000 4,00,000

Big Ltd. agreed to take over the assets (exclusive of goodwill, a Fixed Asset of
Rs.40,000 and cash Rs.10,000 included in Current Assets) at 10% less than book value and to
discharge the trade creditors and to pay Rs.60,000 for Goodwill.

The purchase price was to be settled by the allotment of 20,000 shares of Rs.10 each,
Rs.8 called-up at a market value of Rs.15 per share and the balance in cash. Liquidation
expenses amounted to Rs.4,000.

Prepare the necessary ledger accounts in the books of small Co. Ltd. and opening
journal entries in the books of big co. Ltd.

Prob.27) The Engineering co. ltd. sells its business to the Scientific Co. Ltd. on 31st March,
2007 on which date its Balance Sheet was as follows:

Balance Sheet

Liabilities Rs. Assets Rs.

Paid up Capital 2,00,000 Goodwill 50,000
(2,000 shares of Rs.100 each) Freehold Property 1,50,000
6%, 100 Debentures of 1,00,000 Machinery 83,000
Rs.1,000 each Stock 35,000
Sundry Creditors 30,000 Bills Receivable 4,500
Reserve Fund 50,000 Sundry Debtors 27,500
Profit & Loss A/c 20,000 Cash at Bank 50,000
4,00,000 4,00,000

The Scientific Co. Ltd. agreed to take over all assets (exclusive of cash and goodwill)
at 10% less than the book values, to pay Rs.75,000 for goodwill and to take over the
debentures only.

The purchase consideration was to be discharged by the allotment to the Engineering

Co. Ltd. of 1,500 shares of Rs.100 each of a premium of Rs.10 per share and the balance in
cash.
20 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

The cost of liquidation amounted to Rs.3,000 borne by the Engineering co. ltd.

Prepare Realisation A/c and Equity Shareholder’s A/c in the books of engineering co.
Ltd. to record the above transactions.
(N.U. Oct. 2008& Oct. 2010, Old, March 2013 & March 2015)

Prob.28) B Ltd. agreed to take over the business of A ltd. on the following terms:

(i) Taking over the assets and the liabilities at book value.
(ii) Discharge of Debentures of A Ltd. are to be satisfied at 9% Debentures in B. Ltd.
@ Rs.105.
(iii) The equity shareholders of A Ltd. are to be satisfied by the issue of 5 equity
shares of Rs.100 each in exchange for 4 equity shares of A Ltd. at an agreed value
of Rs.110 each.

The cost of liquidation of Rs.4,000 be paid by B Ltd.

Following is the Balance Sheet of A Ltd. on the date of acquisition:

Balance Sheet as at 31st March, 2016

Liabilities Rs. Assets Rs.

Share Capital: 4,00,000 Building 2,50,000
(Equity Shares of Rs.100 each) Machinery 1,00,000
Surplus 20,000 Furniture 25,000
Accident Compensation Fund 5,000 Investments 5,000
9%, Debentures (Rs.100 each) 1,00,000 Stock 80,000
Creditors 40,000 Debtors 65,000
Cash at Bank 40,000
5,65,000 5,65,000

You are required to prepare:

(1) Realisation A/c,
(2) Shareholders A/c,
(3) Debenture holders A/c and
(4) Purchasing Co. A/c in the books of A Ltd. and show opening entries in the books of
‘B’ Ltd.

Prob.29) Balram & Company decided to absorbs Ram & Company:

1) It was decided that Balram & Company will take over all the assets and liabilities at
book value.
2) It was agreed to pay 6% Debentures at Rs.105 each to discharge 5% Debentures of
Ram & Company.
3) Balram & Company will issue 3 shares of Rs.10 each for every share in Ram &
company of Rs. 20 each and Rs. 10 in cash.
21 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Balance Sheet of Ram & Company

as on 31st March, 1988

Liabilities Rs. Assets Rs.

47,500 Shares of Rs.20 each 9,50,000 Goodwill 7,00,000
5% Debentures (Rs.100 each) 2,40,000 Buildings 3,13,000
Reserve 3,00,000 Plant 64,000
Profit & Loss A/c 99,000 Furniture 17,000
Creditors 1,53,000 Debtors 2,20,000
Stock 93,000
Investments 2,93,000
Cash 42,000
17,42,000 17,42,000

Liquidation expenses of Ram & co. came to Rs.6,000, which is paid by Balram & co.
along with purchase consideration.
Pass the journal entries in the books of both the companies. (N.U. Oct. 1989)

Prob.30) Khetan Ltd. is absorbed by Ashoka Ltd. The consideration being-

(i) Assumption of liabilities.

(ii) Discharge of Debentures at a premium of 5% by the issue of 8% Debentures in
Ashoka Ltd.
(iii) A payment of cash of Rs.30 per share.
(iv) The exchange of three shares of Rs.10 each in Ashoka ltd. at on agreed value of
Rs.15 per share for every share in Khetan Ltd.

Balance Sheet of Khetan Ltd.

As on 31st March, 2015

Liabilities Rs. Assets Rs.

Share Capital (30,000 Shares of 15,00,000 Goodwill 1,25,000
Rs.50 each fully paid) Land & Building 3,82,000
General Reserve 1,60,000 Plant & Machinery 11,00,000
Profit & Loss A/c 15,000 Patents 25,000
Workmen’s Profit Sharing Fund 50,000 Patterns & Drawings 12,500
Accident Fund 25,000 Accident fund Investments 25,000
6% Debentures 7,50,000 Work-in-Progress 5,30,000
Creditors 1,00,000 Debtors 2,25,000
Bank 1,75,000
26,00,000 26,00,000

Prepare necessary ledger accounts to close the books of Khetan Ltd. and open the
books of Ashoka Ltd.

22 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Prob.31) The following is the balance sheet of Apurva Co. Ltd. on March 31, 2009:

Balance Sheet

Liabilities Rs. Assets Rs.

Share Capital: 2,00,000 Land & Buildings 1,20,000
(20,000 Shares of Rs.10 each) Plant & Machinery 1,50,000
8%, Debentures 1,00,000 Work-in-Progress 30,000
Reserve Fund 25,000 Stock 60,000
Workmen’s compensation Fund 10,000 Furniture & Fittings 2,500
Dividend Equalisation Fund 10,000 Sundry Debtors 25,000
Profit & Loss A/c 5,000 Cash at Bank 12,500
Depreciation Fund 20,000
(Land & Building)
Sundry Creditors 22,000
Bills Payable 8,000
4,00,000 4,00,000

Apurva Company is absorbed by Prutha Co. Ltd. on he above date. The consideration
for the absorption is the discharge of the debentures at a premium of 5% in cash, taking over
the trade liabilities and a payment of Rs.7 in cash and one share of Rs.5 in Prutha Co. Ltd. at
the market value of Rs.8 per share in exchange for one share in Apurva co. Ltd. the cost of
liquidation Rs.500 is to be met by the purchasing company along with consideration.

Pass the journal entries in the books of both the companies.

Prob.32) The position of A Co. Ltd. and B Ltd. as follows on April 1, 2009:

Balance Sheet of A Co. Ltd.

Liabilities Rs. Assets Rs.

Authorised Capital 5,00,000 Fixed Assets 3,00,000
(50,000 Shares of Rs.10 each) Stock & Debtors 3,50,000
Issued & Paid up capital 5,00,000 Goodwill 1,00,000
(50,000 shares of Rs.10 each) Profit & Loss A/c 1,50,000
5%, Debentures (Rs.100 each) 1,00,000
Creditors 3,00,000
9,00,000 9,00,000

Balance Sheet of B Co. Ltd.

Liabilities Rs. Assets Rs.

Authorised Capital 10,00,000 Fixed Assets 5,00,000
(1,00,000 Shares of Rs.10 each) Stock & Debtors 1,00,000
Issued & Paid up capital 7,00,000 Cash at Bank 1,00,000
(70,000 shares of Rs.10 each) Goodwill 3,50,000
Creditors 2,00,000
Profit & Loss A/c 1,50,000
23 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

10,50,000 10,50,000

‘B’ Company agreed to acquire ‘A’ company on the following terms:

(i) The shares of A company are to be considered as worth Rs.6 each, and shares of B
Company are to be considered as worth Rs.12.50 each, which are taken as the
basis for calculating purchase consideration.
(ii) When paying the purchase consideration, the B Company agreed to pay ¼ in the
form of cash and the balance in shares of company B.
(iii) It was decided to issue along with purchase consideration, 6% Debentures of
Rs.95 each for every 5% Debentures of Rs.100 each in company A.

Show the journal entries in the books of A co. ltd. and the Balance Sheet in the books of
B. Co. Ltd. after absorption.

Prob.33) The following is the Balance Sheet of the Nagpur co. ltd. as on 31st March 2004
which is absorbed by the Mumbai co. ltd. on the under noted terms:

a) Debentures to be discharged at a premium of 5% by the issue of 5% debentures in the

Mumbai Co. Ltd.
b) All Assets and liabilities of the Nagpur Co. Ltd. should be accepted on book value.
c) Liquidation charges Rs.5,000 will be borne by the Mumbai Co. Ltd.
d) The shareholders are to be paid two fully paid shares of Rs.10 each valued at a market
price of Rs.11 per share in exchange of every three of Nagpur Co. Ltd.

Balance Sheet of Nagpur Co. Ltd.

Liabilities Rs. Assets Rs.

Shares Capital: 45,00,000 Land & building 27,00,000
(4,50,000 shares of Rs.10 each) Plant & Machinery 20,00,000
1,000 Debentures of Rs.1,000 each 10,00,000 Shares of subsidiary Company 8,00,000
General Reserve fund 1,50,000 Investment 2,50,000
Sundry Creditors 1,50,000 Stock 1,50,000
Employee’s Saving Bank 3,00,000 Sundry Debtors 4,00,000
Loan on Mortgage 2,50,000 Cash at Bank 2,45,000
Profit & Loss A/c 2,00,000 Cash in hand 5,000
65,50,000 65,50,000

Give the journal entries in the books of Nagpur Co. Ltd. and Mumbai Co. Ltd.

(N.U. Oct. 2006 & March 2010 with figures 2 times)

Prob.34) Balance Sheet of Anant Co. Ltd. as on 1st April, 2004 was as follows:

24 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Liabilities Rs. Assets Rs.

Shares Capital: 2,50,000 Land & building 94,500
(25,000 shares of Rs.10 each) Plant 2,03,000
1,500 Mortgage Debentures of 1,50,000 Stock 70,000
Rs.100 each Sundry Debtors 75,000
Sundry Creditors 60,000 Cash at Bank 19,500
Profit & Loss A/c 2,000
4,62,000 4,62,000

Best Co. Ltd. purchased the business of Anant Co. Ltd. on the above date on the
following conditions:

i) Every shareholder of Anant Ltd. to get one share of Best Ltd. each of Rs.10,
Rs.7.50 as fully paid, for every share held.
ii) To discharge the debenture holders of Anant Ltd. by issuing the same number of
debentures in Best Ltd. face value being Rs.90.

Calculate purchase consideration and give journal entries in the books o Anant Ltd. to
record the closure of books of the company.

[N.U. March 1995, Old, Oct. 2012 with figures 2 ½ times & March 2014 with figures 4 times]

Prob.35) Navbharat Co. Ltd. acquired assets of Continental Co. Ltd. on following
conditions:

i) To pay Rs.100 in cash for each share in Continental company.

ii) To pay Rs. 600 in cash for each debentures of the Continental company. Which
the debenture-holders will accept in full settlement of their debts.
iii) Three shares of Rs.100 each at the market price of Rs.160 per share in exchange
of one share in continental company.
Balance Sheet of Continental Company is as follows:

Liabilities Rs. Assets Rs.

Shares Capital: 3,00,000 Land & building 11,00,000
(6000 shares of Rs.500 each) Furniture 2,50,000
1,300 Debentures of Rs.500 each 6,50,000 Plant 18,00,000
Sundry Creditors 2,50,000 Work-in-Progress 8,15,000
Employee’s Saving A/c’s 2,00,000 Stock 1,85,000
Insurance Fund 2,75,000 Sundry Debtors 2,70,000
25 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Profit & Loss A/c 1,25,000 Bank 80,000

45,00,000 45,00,000

Vendor Company discharged its liabilities.

Pass necessary Journal entries in the books of the Continental Company.

(N.U. March 2004, 2010 & Oct. 2010 Old)

Prob.36) On 31st March, 2012 balance sheets of Medha Co. Ltd. and Nilam Co. Ltd. were as
given below:
Balance Sheet of Medha Co. Ltd.

Liabilities Rs. Assets Rs.

Shares Capital: 50,00,000 Goodwill 4,00,000
(5,00,000 shares of Rs.10 each) Land 8,00,000
Debentures 20,00,000 Building 30,00,000
Creditors Machinery 20,00,000
Profit & Loss A/c 6,00,000 Debtors 10,00,000
16,00,000 Stock 16,00,000
Cash 4,00,000
92,00,000 92,00,000

Balance Sheet of Nilam Co. Ltd.

Liabilities Rs. Assets Rs.

Shares Capital: 32,00,000 Land 4,00,000
(3,20,000 shares of Rs.10 each) Building 10,00,000
General Reserve 2,00,000 Machinery 4,00,000
Creditors 4,00,000 Furniture 2,00,000
Debtors 8,00,000
Stock 10,00,000
38,00,000 38,00,000

Medha Co. Ltd. agreed to purchase the following Assets of Nilam co. Ltd. at prices
determined:

Land and Building at book value, Machinery at 10% less, Furniture Rs.1,80,000,
Debtors at 5% less and Stock at 20% less.

Medha Co. Ltd. agreed to pay Rs. 16,00,000 as goodwill to Nilam Co. Ltd.

Purchase consideration is to be paid by Medha Co. Ltd. in the form of 4,00,000

Shares of their own at Rs.12.50 per share and the balance in Cash.

Nilam Co. Ltd. paid off the creditors for themselves.

26 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

i) Give journal entries in the books of Nilam Co. Ltd. and Medha Co. Ltd. and
ii) Prepare the Balance Sheet of Medha Co. Ltd. after absorption.

(N.U. March 1993, 2008 with figures 1 ½ times & Oct. 2011, New)

Prob.37) Following are the balance sheets of Rahul Limited and Yogesh Limited. as on 31st
March, 1998:

Particulars Rahul Ltd. Yogesh Ltd.

(Rs.) (Rs.)
Liabilities:
Equity shares capital (Rs. 10 each) 5,00,000 2,00,000
8% Preference Share Capital (Rs.10 each) 1,00,000 1,00,000
9% Debentures (Rs.100 each) 1,00,000 1,00,000
General Reserve 20,000 10,000
Sundry Creditors 60,000 30,000
7,80,000 4,40,000
Assets:
Goodwill 30,000 10,000
Building 2,00,000 1,00,000
Other Assets 5,10,000 3,15,000
Cash at Bank 30,000 10,000
Preliminary expenses 10,000 5,000
7,80,000 4,40,000

Rahul Ltd. absorbs Yogesh Ltd. on the following terms:

a) Equity shareholders are to be given 6 equity shares of Rs.10 each of Rahul Ltd. issued
at Rs.15 each against each 4 shares surrendered.
b) 8% Preference Shareholders are to be paid at 5% premium by 8% preference shares of
Rs.10 each of Rahul Ltd. issued at par.
c) 9% Debenture holders are to be paid at 8% premium by 9% Debentures of Rahul Ltd.
issued at 10% discount.
d) Rs. 5,000 cash is retained by Yogesh Ltd. for liquidation expenses.
e) Building of Yogesh Ltd. is taken over for Rs.1,50,000.

Show Realisation A/c, Equity shareholder’s A/c, Preference Shareholder’s A/c and
Debenture holders A/c in the books of Yogesh Ltd. and pass the journal entries regarding
business purchase in the books of Rahul Ltd.
(N. U. March 1999 & 2008)

Prob.38) Usha Co. Ltd. agrees to acquire, as a going concern, the business of Nisha Co. Ltd.
on the basis of Vendor’s Balance Sheet at 31st March, 1998 which is as under:

27 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Liabilities Rs. Assets Rs.

Paid up Capital 6,00,000 Land & Building 1,80,000
(12,000 shares of Rs.50 each) Plant & Machinery 1,25,000
Reserve Fund 1,20,000 Stock 2,50,000
Creditors 75,000 Debtors 2,90,000
Profit & Loss A/c 65,000 (-) Provision for R.D.D. 10,000 2,80,000
Cash at Bank 25,000
8,60,000 8,60,000

Usha Co. Ltd. took over all the assets and liabilities of the vendor company, subject to
the retention of Rs.10,000 cash to provide for cost of liquidation, income-tax etc. and to
satisfy any dissenting shareholders.

To consideration for the sale is allotment to the shareholders in the vendor company
of one share Rs.100 (Rs.90 paid up) in the Usha Co. Ltd. for every two shares in the Nisha
Co. Ltd.

The liquidator of the vendor company has paid out of Rs.10,000 retained; cost of
liquidation amount to Rs.1,200, income-tax Rs.1,000 and dissenting shareholders of 100
shares at Rs.70 per share.

The sale and purchase were carried through on terms of the agreement.

Pass the necessary journal entries in the books of Nisha Co. Ltd. ad Usha Co. Ltd.

[N.U. Oct. 2000]

Prob.39) The following is the Balance Sheet of Suresh Ltd. as on 31st March, 1991:-

Liabilities Rs. Assets Rs.

Share Capital 5,00,000 Land & Building 1,00,000
(50,000 shares of Rs.10 each Goodwill 95,000
fully paid) Plant & Machinery 2,20,000
General Reserve 40,000 Patents & Trade Mark 15,000
Contingency Reserve 15,000 Stock 1,05,000
Workmen’s Compensation Fund 25,000 Sundry Debtors 90,000
Profit & Loss A/c 35,000 Less: Provisions 6,000 84,000
Sundry Creditors 80,000 Cash at Bank 66,000
Preliminary Expenses 10,000
6,95,000 6,95,000

28 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Suresh Company is acquired by Naresh Co. Ltd. for Rs.7,00,000 in all, Rs.6,00,000 in
fully paid Rs.10 Shares and the balance in cash.

There was a contingent liability in respect of claim for compensation under the
workmen’s Compensation Act. The claim was not take over by the Naresh Co. Ltd. and
Suresh Co. Ltd. had to pay, ultimately a sum of Rs.10,000 against the claim.

The expenses of the liquidation of Suresh co. Ltd. came to Rs.5,000. These were met
by Naresh Co. Ltd.

Give journal entries in the books of Suresh Co. Ltd.

(N.U. March 1991 & March 2011 New with figures 70% above)

Prob.40) The following is the Balance Sheet of A Co. Lt., as on 31st March, 1999:

Liabilities Rs. Assets Rs.

Share capital 2,50,000 Land & Building 50,000
(25,000 shares of Rs.10 each Goodwill 47,500
fully paid) Plant & Machinery 1,10,000
General Reserve 27,500 Stock 60,000
Profit & Loss A/c 17,500 Debtors 45,000
Workmen’s compensation Fund 12,500 (-) R.D.D. 3,000 42,000
Creditors 40,000 Cash at Bank 38,000
3,47,500 3,47,500

B Co. Ltd., took over the business of A Co. Ltd., for Rs.3,50,000 to be payable in
30,000 shares of Rs.10 each, fully paid and the balance I cash. Since there was a dispute of a
claim under Workmen’s Compensation Act, regarding compensation, the claim was not
accepted by B company Ltd., ultimately A Co. Ltd. had to pay Rs.5,000 therefore.

The Balance Sheet of B Co. Ltd., as on the above date was as under:

Liabilities Rs. Assets Rs.

Share Capital 5,00,000 Land & Building 1,50,000
(50,000 shares of Rs.10 each Goodwill 55,000
fully paid) Plant & Machinery 2,00,000
General Reserve 50,000 Stock 1,25,000
Profit & Loss A/c 25,000 Debtors 75,000
6% Debentures 1,00,000 Cash at Bank 1,10,000
Creditors 40,000
7,15,000 7,15,000

29 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Liquidation expenses of A Co. Ltd. amounting to Rs. 2,500 were paid by the B Co. Ltd.

Pass the journal entries in the books of A Co. Ltd. and consolidated Balance Sheet of
B Co. Ltd. (N.U. March 1990 & 2007, Old)

Prob.41) The Balance Sheets of Ram Co. Ltd. and Shyam Co. Ltd. as on 31st March, 1997
were as follows:

Particulars Rahul Ltd. Yogesh Ltd.

(Rs.) (Rs.)
Liabilities:
Share Capital
4,500 Shares of Rs.100 each, Rs.54 paid up 2,43,000 -
20,000 Shares of Rs.100 each, Rs.30 paid up - 6,00,000
General Reserve 54,500 1,64,000
Profit & Loss A/c 43,600 1,42,000
Creditors 73,300 36,000
4,14,400 9,42,000
Assets:
Fixed Assets 4,11,000 9,30,000
Cash 3,000 12,000
4,14,400 9,42,000

It was decided that Ram Co. Ltd. should be absorbed by Shyam Co. Ltd. and the
following agreement was accepted by them:-

The holder of every 3 shares of Ram Co. Ltd. was to receive 5 shares of Shyam Co.
Ltd. plus as much cash is necessary to adjust the rights of shareholders of both the companies
in accordance with the intrinsic value of shares as per their Balance Sheet.

Pass necessary journal entries in the books of Shyam Co. Ltd. and prepare balance
sheet after absorption.
(N.U. March 1982 & 1998)

Prob.42) Given below are the Balance Sheets of External Co. Ltd. and International Co. Ltd.
prepared after revaluation of their assets on a uniform basis:

Balance Sheet of External Co. Ltd.

Liabilities Rs. Assets Rs.

Authorised Share Capital 13,50,000 Sundry Assets 16,85,000
(9,000 Equity Shares of Rs.150 Cash in hand 3,500

30 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

each)
Paid up Share Capital 12,15,000
(9,000 Equity Shares of Rs.150
each, Rs.135 paid up) 4,03,500
General Reserve 15,000
Profit & Loss A/c 55,000
Sundry Creditors 16,88,500 16,88,500

Balance Sheet of International Co. Ltd.

Liabilities Rs. Assets Rs.

Authorised Share Capital 45,00,000 Sundry Assets 43,57,500
(60,000 Equity Shares of Rs.75 Cash in hand 27,500
each)
Paid up Share Capital
(40,000 Equity Shares of Rs.75 30,00,000
each, Rs.75 paid up)
General Reserve 12,85,000
Profit & Loss A/c 35,000
Sundry Creditors 65,000
43,85,00 43,85,000

The external Company is absorbed by International Co. Ltd. on the following terms:-

The holders of every three shares in External Company was to receive five share of
International Co. Ltd. plus as much cash as in necessary to adjust the rights of shareholders of
both the companies in accordance with the intrinsic value of the share as per the respective
Balance Sheets.

Pass necessary journal entries in the books of International Co. Ltd. and prepare
Balance Sheet giving effect to the above scheme of absorption show working.

[N. U. March 2005 & Oct. 2010]

Prob.43) Vidarbha Stores Ltd. was absorbed by Bombay stores Ltd., on 31st March, 1993.
Following is the Balance Sheet of Vidarbha Stores Ltd. as on that date:

Liabilities Rs. Assets Rs.

Share Capital Building 46,000
(10,000 Shares of Rs.25 each 1,00,000 Motor 13,000

31 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Rs.10 paid up) Bills Receivable 6,000

6% Debentures 1,00,000 Debtors 45,000
General Reserve 30,000 Advance to employees 2,000
Creditors 45,000 Goodwill 32,000
Profit & Loss A/c 14,000 Securities 64,000
Deposits from employees 21,000 Stock 87,000
Workmen’s Compensation Fund 9,000 Patents 20,000
Bills Payable 3,000 Cash in hand 15,000
Investment Fluctuation Fund 8,000
3,30,000 3,30,000

Following were the terms of absorption:

a) Debenture holders of Vidarbha Stores Ltd. will be satisfied by issue of 6% Debentures

of Bombay Stores Ltd. of Rs.1,20,000.
b) Employee’s deposits be refunded by issuing 500 shares fully paid in Bombay Stores
Ltd. of Rs.50 each.
c) All the assets of Vidarbha Stores Ltd. be accepted for Rs.3,00,000. Purchase
consideration be paid by issue of fully paid 1,000 shares in Bombay Stores Ltd. at
Rs.50 per share and 2,000 Debentures of Rs.100 each of Bombay Stores Ltd. Balance
if any is to be paid in cash.
d) Vidarbha Stores Ltd. satisfied its creditors and Bill payable by paying Rs.40,000 and
Rs.3,000 respectively.

Pass the journal entries in the book of Vidarbha Stores Ltd.

(N.U. March 1994 & M.Com. Oct. 2011)

Prob.44) The Balance Sheet of Tately Tea Ltd. as on 31st March, 2011 was as follows:

Liabilities Rs. Assets Rs.

Share Capital Goodwill 70,000
(3,800 Shares of Rs.100 each 3,80,000 Land & Building 1,90,000
fully paid) Plant & Machinery 3,00,000
Reserve Fund 60,000 Stock 1,40,000
8% Debentures 2,00,000 Debtors 1,00,000
Loan from Mr. Rao (Director) 80,000 Cash at Bank 68,000
Sundry Creditors 1,60,000 Discount on issue of Debentures 12,000
8,80,000 8,80,000

The business of Tately Tea Ltd. is taken over by Tata Tea Ltd. as on that date, on the
following terms:

(i) Tata Tea Ltd. to take over the assets except cash, to the value the assets at their
book values less 10% except Goodwill which was to be valued at Rs.1,00,000.
32 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

(ii) Payment made in cash to the Debenture holders and to the Director Mr. Rao.
(iii) Tata Tea Ltd. to take over trade creditors which were subject to a discount of 5%.
(iv) The purchase consideration was to be discharged by cash to the extent of
Rs.3,00,000 and balance in fully paid equity shares of Rs.10 each valued at
Rs/12.50 per share.

Liquidation expenses of Rs.8,000 paid by Tately Tea Ltd.

Calculate purchase consideration and prepare Realisation A/c, Tata Tea Ltd. A/c, 8%
Debenture holders A/c, Shareholders A/c and Bank A/c in the books of Tately Tea Ltd.
and pass the journal entries in the books of Tata Tea Ltd.
[N. U. March 2012]

Prob.45) The Balance Sheet of Lipton Tea Ltd. as on 1st March, 1999 was as follows:

Liabilities Rs. Assets Rs.

Share Capital Goodwill 35,000
(2,000 Shares of Rs.100 each 2,00,000 Land & Building 85,000
fully paid) Plant & Machinery 1,60,000
Reserve Fund 20,000 Stock 55,000
5% Debentures 1,00,000 Debtors 65.000
Loan from Mr. Mehata (Director) 40,000 Cash at Bank 34,000
Sundry Creditors 80,000 Discount on issue of debentures 6,000
4,40,000 4,40,000

The business of Lipton Tea Ltd. is taken over by the Tata Tea Ltd. as on that date, on
the following terms:

1) Tata Tea Ltd. to take over the assets except cash, to the value the assets at their book
values less 10% except Goodwill which was to be valued at 4 years purchase of the
excess of average (five years) purchase of the excess of average profits over 8% of the
combined amount of Share Capital and Reserve.
2) Tata Tea Ltd. to take over trade creditors which were subject to a discount of 5%.
3) The purchase consideration was to be discharged by cash to the extent of Rs.1,50,000
and balance in fully paid equity shares of Rs.10 each valued at Rs.12.50 per share.

An average profit of last five years was Rs. 30,100.

Expenses of liquidation of Lipton Tea Ltd. are to be reimbursed by Tata Tea Ltd. to the
extent of Rs.4,000. The actual expenses amounted to Rs.5,000.

Prepare the necessary accounts in the books of Lipton Tea Ltd. and pass the journal
entries in the books of Tata Tea Ltd. (Pune Uni. 1970 adapted)

Prob.46) Big Ltd. has agreed to acquire goodwill and assets (except investments) of
Small Ltd. as at 31st March, 2003. The Balance Sheet of Small Ltd. as on that date was as
follows:
33 | P a g e Dr. P.S. Dange, HOD (Commerce)
S. S. Jaiswal College Arjuni/Mor.
 Financial Accounting – Part III (Amalgamation & Absorption of companies)

Liabilities Rs. Assets Rs.

Share Capital (Rs.100 1,60,000 Goodwill 20,000
General Reserve 25,000 Land & Building 80,000
Profit & Loss A/c 18,000 Plant 80,000
8 % Debentures 60,000 Investments 30,000
Creditors 37,000 Stock 40,000
Provision for Taxation 20,000 Debtors 50,000
Bank 20,000
3,20,000 3,20,000

Big Ltd. will:

1) Discharge the Debentures @ 8% premium by issue of 7% Debentures in Big. Ltd. at

10% discount.
2) Issue 3 Shares of Big Ltd. at market price of Rs.11 for 2 Shares of Small Ltd.
3) Pay Rupees 2 in cash for each share of Small Ltd.; and
4) Pay absorption expenses Rs.3,000.

Small Ltd. sells the Investments for Rs.32,000, one third of the shares received from Big
Ltd. are sold @ Rs.10.50 each. Tax liability is determined at Rs.24,000. Before transfer Small
Ltd. declares and pays 10% dividend.

Big Ltd. values Land & Building at Rs.1,00,000. Plant at 10% below book value. Stock at
Rs.35,000 and Debtors subject to 5% provision.

Show :

i) Realisation A/c, Big Ltd. A/c, 8% Debenture holders A/c, Shareholders A/c,
Provision for Taxation A/c and Bank A/c in the books of Small Ltd.
ii) Journal entries in the books of Big Ltd.

34 | P a g e Dr. P.S. Dange, HOD (Commerce)

S. S. Jaiswal College Arjuni/Mor.