Problems on Purchase consideration
Q1. Following are the b/s of ‘A’ ltd and ‘B ’ltd
LIABILITIES A B ASSETS A
Shares of 10 each 50000 3000 Buildings 15000 -
6% debentures of 10000 - Machinery 55000 25000
100 each
Reserve funds 17000 - Stock 8000 4000
Employee provident 3500 - Debtors 7000 4500
fund
Trade creditors 5000 4000 Cash 1500 500
P&L a/c 1000 -
86500 34000 86500 34000
They agreed to amalgamate & form a new company called ‘C’ ltd which takes over the
assets and liabilities of both co’s.
The assets of ‘A’ ltd and ‘B’ ltd are taken over at a reduced valuation of 10%with the
exception of buildings which is accepted at book value. Both the co’s are to receive 5% of the
net valuation of their respective business as goodwill.
Calculate purchase consideration.
Q2. The following are the b/s of ‘X’ ltd and ‘Y’ ltd as on 31/3/2014
LIABILITIES X Y ASSETS X Y
Shares of 10 each 500000 400000 Fixed assets 400000 300000
reserves 100000 50000 Current assets 200000 150000
B/P 25000 25000 cash 27500 25000
creditors 5000 3000 Preliminary expenses 2500 3000
630000 478000 630000 478000
They agreed to amalgamate and the agreement provided:
1. fixed and current assets of both the company to be increased by 15% and 5%
respectively.
2. creditors of both the company are not to be taken over.
3. The purchase to be paid in fully paid equity shares of 10rs each in Z ltd
You are required to calculate purchase consideration and the number od shares issued
in Z ltd
Q3. Calculate purchase consideration from the following information.
Unfortunately, ltd which has goodwill Rs 100000, Fixed assets Rs 500000, current assets
400000 creditors 50000 pills payable 20000 debentures 100000 is taken over by the right
future ltd on the following terms
1. Assets to be taken over (exclusive of goodwill and one fixed asset of Rs 60000 and cash
30000 included in current assets) @15% less than book value.
2. To discharge the trade liabilities
3. To pay Rs 250000 for goodwill
Calculate the purchase consideration.
Q4. Calculate purchase consideration from the following information.
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ABC limited which as Goodwill 80000 fixed assets 330000 current assets 390000 sundry
creditors 60,000 is taken over by xyz limited on the following terms.
1. 1.SS to be taken over exclusive of goodwill and 1 fixed asset of 80000 and cash
20,000 included in current asset at 10% less than book value
2. To discharge trade liabilities
3. To pay 120000 rupees as goodwill.
Q5. Following is the b/s of Navya ltd as on 31.3.2017
LIABILITIES AMT ASSETS AMT
2000 shares of 100 each 200000 Goodwill 35000
Reserve 20000 Building 85000
Debentures 140000 Plant 160000
Creditors 80000 Stock 55000
Debtors 65000
Cash 400000
440000 440000
The business was taken over by Kavya ltd on the following terms:
To take over all the asset except cash at 10% less than the book value (except
goodwill). The goodwill is taken at 4 years purchase of super profits. Super
profit is the difference between 5 year average profits and 8% of the
combined capital and reserve.
To take over trade liabilities subject to 5% discount.
Purchase price has to be paid in cash to the extent of rs.150000 and the
balance in fully paid equity shares of rs. 10 valued at rs 12.50 per share.
The profits of the 5 years are:
31.3.2017 - rs.40500 31.3.2016- rs.29750 31.3.2015- rs.35125
31.3.2014 - rs.22100 31.3.2013 – rs.23025
Calculate the amount of the purchase consideration and show the mode of payment.
Q. 6
A and B ltd decided to amalgamate their b/s and form a new company called AB ltd with an
authorised capital of 1500,000 divided into shares of 10 each the following are the b/s of A
ltd and B ltd
LIABILITIES A B ASSETS A B
Share capital 300000 400000 Goodwill 50000 -
reserves 60000 - Machinery 350000 300000
surplus 40000 - Stock 80000 60000
Debentures 100000 - Debtors 40000 40000
creditors 50000 70000 Cash 30000 10000
P&L a/c - 60000
550000 470000 550000 470000
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The following where the terms of agreement:
1. The assets & liabilities of A ltd are to be taken over at book value except goodwill,
machinery, and stock which are to be valued at 100000, 320000, 90000 respectively.
2. The assets (except cash) of B ltd are valued at 10% less than book value and creditors
are taken over at book value.
Calculate purchase consideration of both the companies and prepare amalgamated b/s.
Q. 7 A and B is a company which sells its b/s to C and D company b/s
LIABILITIES AMT ASSETS AMT
Paid up capital: 200000 Goodwill 100000
Shares of 100 each
debentures 100000 Property 150000
Trade creditors 80000 Plant &machinery 83000
Reserve fund 50000 Stock 35000
P&L a/c 20000 B/R 4500
Debtors 27500
Cash at bank 50000
450000 450000
C & D Company agreed to taken over the assets (exclusive of cash & goodwill) at 10% less
than the book value to pay 75000 in super profit & to take over debentures.
The purchase consideration to be discharged by the issue of 1500 shares of 100 each at a
premium of 10 each &the balance in cash
Calculate purchase consideration.
Q. 8 Given below is the balance sheet of 2 companies
LIABILITIES A B ASSETS A B
Shares of 10 each 1500000 390000 Goodwill 150000 80000
Securities premium 4500 - Freehold property 400000 180000
Reserve 265650 - Machinery 1032000 262000
8% debentures 350000 70000 Debtors 258500 95000
Creditors 30000 296000 Bank 33750 -
Rebate reserve 27850 57000 P&L a/c - 16000
2178000 723000 2178000 723000
The 2 companies decided to amalgamate their b/s & a new company called C ltd was formed
with an authorised capital of 2500000 in shares of 10 each.
A ltd
1. 6 shares of 10 each fully paid in new company in exchange for every 5 shares in A
ltd & 10000 in each
2. Debentures holders where to be allotted such debentures in new company with
interest at 7% p.a as would bring the same amount of interest.
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B ltd
1. 1 share of 10 each fully paid in new company in exchange for every 3 shares of B ltd
& 5000 in cash.
2. Debentures holders where allotted such debentures in new company with interest at
7% as would bring the same amount of interest.
Calculate purchase consideration & also show how the debentures are discharged in the new
company.
Q. 9 Calculate the purchase consideration from the following information:
1. Equity share capital of old company is 1200000 shares of 10each.
2. The new company is to pay 1000000 in cash & has agreed to allot 2 fully paid equity
shares of 10 each at market price of 12.50 in exchange for every 3 shares in old
company.
Q 10
A ltd B ltd carrying on similar business decided to amalgamate and for this purpose a new
company being formed to take over assets and liabilities of both the companies and it is
agreed that fully paid shares of Rs. 100 each shall be issued by the new company for the
value of assets of each of the old companies.
Balance sheet of companies as on 31.03.2009
Liability A B Assets A B
Share capital 50000 40000 Goodwill 5000 2000
General reserve 20000 - Land and building 17000 10000
P&L a/c 3000 - Plant and machinery 24000 16000
Sundry creditors 4000 8000 Furniture and fittings 5000 7500
Bills payable 4000 - Stock 100000 7500
Bank overdraft - 8000 Debtors 12000 7000
Cash & bank 8000 300
P &L a/c - 5700
81000 56000 81000 56000
Following is the accepted scheme of valuation of the business of the two companies
A ltd :
1. To provide for reserve for bad debts @ 5% on debtors.
2. Write off Rs. 400 from stock
3. Write off 331/3% from plant and machinery
B ltd :
1. Eliminate its goodwill and P & L a/c debit balance
2. Write off bad debts to the amount of Rs. 1000 and to provide reserve of 5% on the
balance of debtors.
3. To write off Rs. 1400 from the value of stock
4. To write down plant and machinery at the rate of 10%
You are required to computer the purchase consideration
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Q 11 Balance sheet of X and Y ltd as at 31.03.2009 are given below
Liability X Y Assets X Y
Authorized and issued capital 400000 360000 Goodwill - 120000
shares of Rs 100 each
General reserve 75000 - Debtors 80000 160000
P&L a/c 38000 - Stock 300000 90000
Sundry creditors 72000 120000 Bank 85000 75000
P&L a/c - 35000
Premises 120000 -
585000 480000 585000 480000
A new company XY ltd was formed to take over the business on following terms
X ltd :
1. Premises to be revalued at Rs 150000
2. Sundry debtors to be taken over @ 90% and stock @ Rs 315000
V ltd :
1. Goodwill to be taken over at Rs 160000
2. Sundry debtors at Rs 150000
3. Stock at Rs 75000
It was decided that capital of XY ltd would consist of both preference and equity share of the
face value Rs 10 each. Preference share would be of the order of Rs 400000 and the balance
would be in equity shares, both the companies would be issued shares of both the types in
equal number except the surplus capital of X ltd will be fully discharged in preference share.
Calculate the amount of consideration and indicate the number of shares to be issued to each
of the Amalgamating companies.
Q 12 Following is the balance sheet of A Co. Ltd as on 31-12-2012
Liabilities Rs Assets Rs.
5000 shares of Rs. 10 each 50,000 Machinery 55,000
100, 6% debentures 10,000 Buildings 15,000
Reserve fund 15,000 Stock 8,000
Dividend Equalization Fund 4,000 Debtors 7,000
Employees’ PF 1,500 Cash 1,500
Trade Creditors 5,000
P&L A/c 1,000
86,500 86,500
The company absorbed by B Co Ltd on the above date. It takes over the assets and liabilities
of A Co Ltd. assets are taken over at reduced valuation of 10% with the exception of
buildings which is accepted at book value. A Co Ltd. is to receive 5% of the net valuation of
its business as goodwill. Entire purchase price is to be paid by B Co. Ltd in fully paid shares
of Rs. 10 each. In return for debentures of A Co. Ltd. debentures of the same amount and
denomination are to be issued by B Co Ltd.
Calculate purchase consideration payable to A Co Ltd.
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