CA NITIN GOEL AMALGAMATION (AS 14)

AMALGAMATION (AS 14)

“Go confidently in the direction of your dreams, Live the life you’ve imagined”.

Amalgamation refers to the process of merger of two or more companies into a single entity
or where one company takes over the other by outright purchase.
Therefore, the term ‘amalgamation’ contemplates two kinds of activities:
(i) 2 or more companies join to form a new company (Popularly known as Amalgamation)
(ii) absorption and blending of one by the other (Popularly known as Absorption).
This arrangement is sought by companies to receive various advantages such as economies
of large-scale production, avoiding competition, increasing efficiency, expansion, increase in
market share, etc.

RECONSTRUCTION

Internal
External
Reconstruction
Reconstruction

External Amalgamation Absorption

Reconstruction X Ltd. Y Ltd. Existing X Ltd. takes
X Ltd. → Y Ltd. (old) (old) over existing Y Ltd.
old new

Z Ltd. (New)

Basis Internal Reconstruction External Reconstruction

Liquidation The existing company is not The existing company is liquidated
liquidated
Formation No new company is formed but only A new company is formed to take over
the rights of shareholders and the liquidated company
creditors are changed
Reduction There is certain reduction of capital There is no reduction of capital. In fact
of Capital & sometimes outside liabilities like there is fresh share capital of the
debenture holders may have to company
reduce their claims
Legal Regulated as per provisions of Sec Regulated by Sec 232 of the Companies
Position 61 & 66 of the Companies Act, 2013. Act, 2013.
Legal It requires court’s confirmation and It can be affected without the court’s
Formalities other legal procedures before it interference and less time-consuming
can be implemented process.

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Basis Amalgamation Absorption External

Reconstruction
Meaning 2 or more companies An existing company A newly formed
are wound up and a new takes over the business company takes over
company is formed to of one or more existing the business of an
take over their business companies existing company
Minimum no.
of companies Atleast 3 Atleast 2 Only 2
involved
No. of new No new resultant
resultant Only 1 company is formed Only 1
company
Objective To cut competition & To cut competition & To reorganize the
reap the economies in reap the economies in financial structure of
the larger scale the larger scale the company

TOPIC 2A: PURCHASE CONSIDERATION (AS -14)

Purchase consideration is the aggregate of shares and other securities issued (i.e. any long
term security from the left side of the balance sheet including equity shares, preference
shares, debentures etc.) and payments made in the form of cash and other assets (anything
from the asset side) by the transferee company to the shareholders of transferor company.

METHODS OF COMPUTATION OF PURCHASE CONSIDERATION:

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TOPIC 2B: TYPES OF AMALGAMATION

Amalgamation in the Nature of Merger (Pooling of interest method)
As per AS-14 the following 5 conditions are to be fulfilled: -
1. All assets and liabilities are transferred.
2. Assets and liabilities are transferred at same value i.e. book value.
Exception - ‘Purchasing co.’ can change value of assets or liabilities to follow same
accounting policy.
3. Purchase consideration is discharged by issue of equity shares only to the equity
shareholders of transferor company.
Exception - ‘Purchasing company’ can pay cash for fractional part of the shares.
4. Same business is intended to be carried on by the purchasing company
5. Shareholders holding atleast 90% of face value of shares in the ‘vendor company’ becomes
the shareholders in the purchasing company.

Amalgamation in the Nature of Purchase (Purchase method)

If any of the 5 conditions discussed above (in merger) is violated, then it is called
amalgamation in the nature of purchase.

TOPIC 3: BOOKS OF PURCHASING / TRANSFEREE COMPANY

1. Record the acquisition of business from Vendor Company

Business Purchase A/c Dr. (with the Purchase Consideration)
To Liquidator of Vendor Company A/c

2. Taking over Assets & Liabilities of Vendor Company

A. Nature of Purchase
Assets A/c Dr. (Individually at taken over value)
Goodwill A/c Dr. (Difference)
To Liabilities A/c (Individually at taken over value)
To Business Purchase A/c (with the Purchase Consideration)
To Capital Reserve A/c (Difference)
B. Nature of Merger
Assets A/c Dr. (Individually at book value)
To Liabilities A/c (Individually at book value)
To Reserves A/c (All at book value & adjustment to be made in it)
To Business Purchase A/c (with the Purchase Consideration)

3. Making Payment to Vendor Company

Liquidator of Vendor Company A/c Dr.
Discount on Issue of Debentures A/c Dr.
To Equity share capital
To Preference share capital
To Debentures
To Securities Premium
To Bank A/c
(Only for Equity Shareholders and Preference shareholders)

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4. Record Issue of Debentures to discharge existing Debenture holders of Vendor Company

Debentures of Vendor Company A/c Dr.
Discount on Issue of Debentures A/c Dr.
To Debentures
To Securities Premium

5. Record Reimbursement of Liquidation expenses of the Vendor Company

A. Nature of Purchase
Goodwill/Capital Reserve A/c Dr.
To Bank A/c
B. Nature of Merger
P&L /General Reserve A/c Dr.
To Bank A/c

6. Eliminate unrealized profit included in the unsold stock/ stock reserve

A. Nature of Purchase
Goodwill/Capital Reserve A/c Dr.
To Stock A/c
B. Nature of Merger
P&L /General Reserve A/c Dr.
To Stock A/c

7. Elimination of Inter-company owing

Liability A/c Dr.
To Asset A/c
i.e.
Creditors A/c Dr.
To Debtors A/c

Bills Payable A/c Dr.

To Bills Receivable A/c

8. Record the Statutory Reserves of Vendor Company (Only in case of Purchase Method)
Amalgamation Adjustment Reserve A/c Dr.
To Statutory Reserve A/c

Note:
Statutory reserves are those reserves which are required to be maintained for specific
number of years in the balance sheet as per requirements of any statute like Income Tax Act,
Custom Act, Excise Act etc.
Examples of Statutory Reserves are:
• Investment Allowance Reserve
• Export Profit Reserve
• Foreign Project Reserve
• Shipping Reserve
Disclosure:
To be disclosed under the head ‘Reserves & Surplus’ on the Equity & Liabilities Side of the
Balance Sheet.

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TOPIC 4: BOOKS OF TRANSFEROR /VENDOR /OLD COMPANY

While closing the books, the general principles of closures shall apply. AS-14 does not deal
with the books of vendor company. Also the accounting treatment in the books of vendor is
exactly same whether it is in nature of merger or purchase.

1. Transfer of Assets to Realisation Account

Realisation A/c Dr.
To Sundry Assets A/c
➢ By Name of Individual Assets
➢ To be transferred at BOOK VALUE
➢ Do not transfer the following.
• Miscellaneous expenditure
• P & L debit balance
➢ Cash to be transferred only if taken over. If written ‘Purchasing company takes
over vendor company’, assume that cash and all assets are taken over.
➢ Asset not taken over shall also be transferred here.
➢ If any asset is such which is having corresponding provision, then gross value is
to be transferred.

2. Transfer of Outsider’s Liabilities to Realisation Account

Liabilities A/c Dr.
To Realisation A/c
➢ By Name of Individual Liabilities
➢ To be transferred at BOOK VALUE
➢ Do not transfer the following
• Equity share capital
• Preference share capital
• Reserves and surplus
➢ Liabilities not taken over shall also be transferred
➢ Any provision appearing on asset side is to be debited in this entry

3. Making Purchase Consideration Due

Purchasing Company A/c Dr.
To Realisation A/c
(With amount of Purchase Consideration)

4. Receiving Purchase Consideration (Discharge of Purchase Consideration)

Cash/Bank A/c Dr.
Equity Shares of ‘P’ Co. A/c Dr.
Preference Shares of ‘P’ Co. A/c Dr.
Debentures of ‘P’ Co. A/c Dr.
To Purchasing Company Account

5. Realize those assets which have not been taken over by Purchasing Company
Cash/Bank A/c Dr.
To Realisation A/c

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6. Paying off the liabilities which have not been taken over by Purchasing Company
Realisation A/c Dr.
To Cash/Bank A/c

7. Liquidation/Realisation Expenses:
Case 1: If expenses borne and paid by vendor company
Realisation A/c Dr.
To Cash/Bank A/c
Case 2: If expenses are to be reimbursed by the purchasing company
a) On Payment by Vendor Company:
Purchasing Company A/c Dr. (With Agreed Amount)
Realisation A/c Dr. (With Excess)
To Cash/Bank A/c (With the total)
b) On Reimbursement
Cash/Bank A/c Dr.
To Purchasing Company A/c

8. Discharge the Claims of Preference Shareholders

A: Making Claim Due
Preference Share Capital A/c Dr. (With Book Value)
Realisation A/c Dr. (With Difference)
To Preference Shareholders A/c (With amount actually payable)
To Realisation A/c (With Difference)
B: Making Payment
Preference Shareholders A/c Dr.
To Cash/Bank A/c
To Equity Shares of ‘P’ Co.
To Preference Shares of ‘P’ Co.
To Debentures of ‘P’ Co.

9. Ascertainment of Profit/Loss on Realisation Account

A: If Profit
Realisation A/c Dr.
To Equity Shareholders A/c
B: If Loss
Equity Shareholders A/c Dr.
To Realisation A/c

10.Transferring Equity Share Capital, Accumulated Profits/Reserves & Losses to Equity

Shareholders Account
A: For Transfer of Equity Share Capital, Accumulated Profits & Reserves
Equity Share Capital A/c Dr.
Reserves and Surplus A/c Dr. (All including Statutory Reserves)
To Equity Shareholders A/c
B: For Transfer of Accumulated Losses
Equity Shareholders A/c Dr.
To Misc. Expenditure A/c
To P & L A/c (Dr. balance)

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11. Make Final Payment to Equity Shareholders

Equity Shareholders A/c Dr.
To Cash/Bank A/c
To Equity Shares of ‘P’ Co.
To Preference Shares of ‘P’ Co.
To Debentures of ‘P’ Co.

TOPIC 5: INTRINSIC VALUE METHOD

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ASSIGNMENT QUESTIONS

TOPIC 2A: PURCHASE CONSIDERATION

Question 1 Pg no._____
Following is the balance sheet of BX Ltd. as on 31st March, 2020
A. Equity and Liabilities
1. Shareholders’ Fund
(a) Share Capital
12% preference shares of ₹ 100 each fully paid-up 15,00,000
Equity shares of ₹ 10 each fully called-up and paid-up 35,00,000 50,00,000
(b)Reserves & Surplus
General reserve 11,00,000
Securities premium 9,00,000 20,00,000
2. Non-Current Liabilities
13% Debentures 25,00,000
3. Current Liabilities 15,00,000
Total 1,10,00,000
B. Assets
1. Non-Current assets
(a) Property, Plant & Equipment 55,00,000
(b) Investments 25,00,000 80,00,000
2. Current Assets 30,00,000
Total 1,10,00,000
PQR Ltd. agreed to takeover assets & liabilities of BX Ltd. on the following terms & conditions:
(A) Discharge 13%debentures at a premium of 10% by issuing 14%debentures of PQR Ltd.
(B) Revalue — Property, Plant & Equipment at 10% above the book value; investments at
par value; current assets at a discount of 10%; and current liabilities at book value.
You are required to calculate the purchase consideration as per the net assets method.

Question 2 (ICAI Study Material) Pg no._____

S. Ltd. is absorbed by P. Ltd. S. Ltd. gives the following information on the date of
absorption:
Sundry Assets 13,00,000
Share Capital:
2,000 7% Preference shares of ₹ 100 each (fully paid-up) 2,00,000
5,000 Equity shares of ₹ 100 each (fully paid-up) 5,00,000
Reserves 3,00,000
6% Debentures 2,00,000
Trade payables 1,00,000
P. Ltd. has agreed:
a) to issue 9% Preference shares of ₹ 100 each, in the ratio of 3 shares of P. Ltd. for 4
preference shares in S. Ltd.
b) to issue to the debenture-holders in S. Ltd. 8% Mortgage Debentures at ₹ 96 in lieu of 6%
Debentures in S. Ltd. which are to be redeemed at a premium of 20%.
c) to pay ₹ 20 per share in cash and to issue six equity shares of ₹ 100 each (market value ₹
125) in lieu of every five shares held in S. Ltd.; and
d) to assume the liability to trade payables. Calculate Purchase Consideration.

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Question 3 (RTP May 2021) Pg no._____

Astha Ltd. is absorbed by Nistha Ltd.; the consideration being the takeover of liabilities, the
payment of cost of absorption not exceeding ₹ 10,000 (actual cost ₹ 9,000); the payment of
the 9% debentures of ₹ 50,000 at a premium of 20% through 8% debentures issued at a
premium of 25% of face value and the payment of ₹15 per share in cash and allotment of three
11% preference shares of ₹ 10 each and four equity shares of ₹10 each at a premium of 20%
fully paid for every five shares in Astha Ltd.
The number of shares of the vendor company are 1,50,000 of ₹ 10 each fully paid. Calculate
purchase consideration as per AS 14.

Question 4 (ICAI Study Material) Pg no._____

Following is the balance sheet of A Ltd. as on 31st March, 2021
Particulars Notes ₹ (000)
Equity and Liabilities
1 Shareholders’ funds
Share capital 1 22,50
Reserves and Surplus 2 9,00
2 Non-current liabilities
Long-term borrowings 3 7,00
3 Current liabilities
Trade Payables 5,00
Total 43,50
Assets
1 Non-current assets
Property, Plant and Equipment 4 32,50
Non-current investments 5 6,00
2 Current assets
Inventories 2,00
Trade receivables 2,00
Cash and Cash equivalents 1,00
Total 43,50

Notes to accounts
Share Capital ₹ in (‘000)
1 Equity share capital
1,50,000 Equity Shares of ₹ 10 each 15,00
7,500, 14% Preference Shares of ₹ 100 each 7,50
22,50
2 Reserves and Surplus
General reserve 9,00
3 Long-term borrowings
Secured
15% Debentures 7,00
4 Property, plant and Equipment
Land and Building 32,50
5 Non-current investments
Investments at cost 6,00
B Ltd agreed to take over the assets and liabilities on the following terms and conditions:

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a. Discharge 15% debentures at a premium of 10% by issuing 15% debentures of X Ltd.

b. PPE at 10% above the book value and investments at par value.
c. Current assets at a discount of 10% and Current liabilities at book value.
d. Preference shareholders are discharged at a premium of 10% by issuing 15% preference
shares of Rs.100 each.
e. Issue 3 equity shares of ₹ 10 each for every 2 equity shares in B Ltd. & pay balance in cash
Calculate Purchase consideration.

TOPIC 3: BOOKS OF PURCHASING / TRANSFEREE COMPANY

Question 5 (ICAI Study Material) Pg no._____

The following were the summarized Balance Sheets of P Ltd. and V Ltd. as at 31st March, 2020:
P Ltd. V Ltd.
₹ (in lakhs) ₹ (in lakhs)
Liabilities
Equity Share Capital (Fully paid shares of ₹ 10 each) 15,000 6,000
Securities Premium 3,000 -
Foreign Project Reserve - 310
General Reserve 9,500 3,200
Profit and Loss Account 2,870 825
12% Debentures - 1,000
Bills Payable 120 -
Sundry Creditors 1,080 463
Sundry Provisions 1,830 702
33,400 12,500
Assets
Land and Buildings 6,000 -
Plant and Machinery 14,000 5,000
Furniture, Fixtures and Fittings 2,304 1,750
Stock 7,862 4,041
Debtors 2,120 1,020
Cash at Bank 1,114 609
Bills Receivable - 80
33,400 12,500
All the bills receivable held by V Ltd. were P Ltd.’s acceptances.
On 1st April 2020, P Ltd. took over V Ltd in an amalgamation in the nature of merger. It was
agreed that in discharge of consideration for the business P Ltd. would allot three fully paid
equity shares of ₹ 10 each at par for every two shares held in V Ltd. It was also agreed that
12% debentures in V Ltd. would be converted into 13% debentures in P Ltd. of the same amount
and denomination. Expenses of amalgamation amounting to ₹ 1 lakh were borne by P Ltd.
You are required to:
(i) Pass journal entries in the books of P Ltd. and
(ii) Prepare P Ltd.’s Balance Sheet immediately after the merger.

Question 6 Pg no._____
Hari Ltd. and Narayan Ltd. are to be amalgamated into Hari Narayan Ltd. The new company
is to take over all the assets & liabilities of the amalgamating companies.

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Assets & Liabilities of Hari Ltd. are to be taken over at book values in exchange of shares in
Hari Narayan Ltd. Three shares in the new company are to be issued at a premium of 20% for
every two shares of Hari Ltd.
The approved scheme for Narayan Ltd. is as follows:
1. 10% Preference shareholders are to be allowed two 15% Preference shares of ₹ 100 each
in Hari Narayan Ltd. for three Preference shares held in Narayan Ltd.
2. The Debentures of Narayan Ltd. are to be paid off at 5% discount by the issue of debentures
of Hari Narayan Ltd. at par.
3. The Equity shareholders of Narayan Ltd. are to be allowed as many shares at par in Hari
Narayan Ltd. as will cover the balance on their account and for this purpose, plant and
machinery is to be valued less by 15% and obsolete stock forming 10% of the overall stock
value is to be treated as worthless.

The summarised Balance Sheets of the two companies prior to amalgamation are as follows:
Liabilities Hari Ltd. Narayan Assets Hari Ltd. Narayan
Ltd. Ltd.
Equity shares of ₹10 6,40,000 12,50,000 Plant & 12,80,000 20,00,000
each Machinery
10% Preference - 7,50,000 Trade 1,52,000 1,25,000
shares of ₹ 100 each Receivables
General Reserves 8,80,000 - Inventory 1,00,000 1,50,000
Secured Debentures - 5,00,000 Cash & Bank 1,08,000 1,00,000
Trade payables 1,20,000 2,25,000 Profit & Loss A/c - 3,50,000
16,40,000 27,25,000 16,40,000 27,25,000
You are required to show the Journal Entries of the amalgamated company.

Question 7 (ICAI Study Material) Pg no._____

The following are the Balance Sheets of P Ltd. and Q Ltd. as at 31st March, 20X1:
Particulars Notes P Ltd Q Ltd
Equity and Liabilities
1 Shareholders’ funds
a Share capital 1 8,00,000 4,00,000
b Reserves and Surplus 3,00,000 2,00,000
2 Non-current liabilities
a Long-term borrowings 2 2,00,000 1,50,000
3 Current liabilities
a Trade Payables 2,50,000 1,50,000
Total 15,50,000 9,00,000
Assets
1 Non-current assets
a Property, Plant and Equipment 7,00,000 2,50,000
b Non-current investments 80,000 80,000
2 Current assets
a Inventories 2,40,000 3,20,000
b Trade receivables 4,20,000 2,10,000
c Cash and Cash equivalents 1,10,000 40,000
Total 15,50,000 9,00,000

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Notes to accounts
P Ltd. Q Ltd.
1 Share Capital
Equity shares of ₹ 10 each 6,00,000 3,00,000
10% Preference Shares of ₹ 100 each 2,00,000 1,00,000
8,00,000 4,00,000
2 Long term borrowings
12% Debentures 2,00,000 1,50,000
2,00,000 1,50,000
Details of Trade receivables and trade payables are as under:
P Ltd. Q Ltd.
Trade receivables
Debtors 3,60,000 1,90,000
Bills Receivable 60,000 20,000
4,20,000 2,10,000
Trade payables
Sundry Creditors 2,20,000 1,25,000
Bills Payable 30,000 25,000
2,50,000 1,50,000
Property, Plant & Equipment of both companies are to be revalued at 15% above book value.
Both companies are to pay 10% Equity dividend, Preference dividend having been already paid.
After the above transactions are given effect to, P Ltd. will absorb Q Ltd. on the following
terms:
(i) 8 Equity Shares of ₹ 10 each will be issued by P Ltd. at par against 6 shares of Q Ltd.
(ii) 10% Preference Shareholders of Q Ltd. will be paid at 10% discount by issue of 10%
Preference Shares of ₹ 100 each at par in P Ltd.
(iii) 12% Debentureholders of Q Ltd. are to be paid at 8% premium by 12% Debentures in P Ltd.
issued at a discount of 10%.
(iv) ₹ 30,000 is to be paid by P Ltd. to Q Ltd. for Liquidation expenses. Sundry Creditors of Q
Ltd. include ₹ 10,000 due to P Ltd.
(v) Inventory in Trade & Debtors are taken over at 5% lesser than their book value by P Ltd.
Prepare: (a) Absorption entries in the books of P Ltd.
(b) Statement of consideration payable by P Ltd

Question 8 Pg no._____
The financial position of 2 companies M/s. Abhay Ltd. & M/s. Asha Ltd. as on 31-3-2020 is as
follows:
Balance Sheet as on 31-3-2020
Abhay Ltd. (₹) Asha Ltd. (₹)
Sources of Funds
Share Capital – Issued and Subscribed
15,000 equity shares @ ₹ 100, fully paid 15,00,000
10,000 equity shares @ ₹ 100, fully paid 10,00,000
General Reserve 2,75,000 1,25,000
Profit & Loss 75,000 25,000
Securities Premium 1,50,000 50,000
Contingency Reserve 45,000 30,000
12% Debentures, @ ₹ 100 fully paid 2,50,000
Sundry Creditors 55,000 35,000
21,00,000 15,15,000

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Application of Funds
Land and Buildings 8,50,000 5,75,000
Plant and Machinery 3,45,000 2,25,000
Goodwill 1,45,000
Inventory 4,20,000 2,40,000
Sundry Debtors 3,05,000 2,85,000
Bank 1,80,000 45,000
21,00,000 15,15,000
They decided to merge & form new company M/s Abhilasha Ltd. as on 1-4-2020 on the
following terms:
(1) Goodwill to be valued at 2 years purchase of the super profits. The normal rate of return
is 10% of the combined share capital and general reserve. All other reserves are to be
ignored for the purpose of goodwill. Average profits of M/s. Abhay Ltd. is ₹ 2,75,000 and
M/s. Asha Ltd. is ₹ 1,75,000.
(2) Land and Buildings, Plant and machinery and Inventory of both companies to be valued at
10% above book value and a provision of 10% to be provided on Sundry Debtors.
(3) 12% debentures to be redeemed by the issue of 12% preference shares of M/s. Abhilasha
Ltd. (face value of ₹ 100) at a premium of 10%.
(4) Sundry creditor to be taken over at book value. There is an unrecorded liability of ₹ 15,500
of M/s. Asha Ltd. as on 1-4-2020.
(5) The bank balance of both companies to be taken over by M/s. Abhilasha Ltd. after
deducting liquidation expenses of ₹ 60,000 to be borne by M/s. Abhay Ltd. & M/s. Asha Ltd.
in the ratio of 2:1.
You are required to :
(i) Compute the basis on which shares of M/s. Abhilasha Ltd. are to be issued to shareholders
of existing company assuming that nominal value per share of M/s. Abhilasha Ltd. is ₹ 100.
(ii) Draw Balance Sheet of M/s. Abhilasha Ltd. as on 1-4-2020 after the amalgamation.

Question 9 Pg no._____
X Ltd. and Y Ltd. were amalgamated on and from 1st April, 2020 and formed a new company Z
Ltd. to takeover the business of X Ltd. and Y Ltd.
The summarized Balance Sheets of X Ltd. and Y Ltd., as on 31st March, 2020 are as follows:
(₹ in Crores) (₹ in Crores)
Liabilities X Ltd. Y Ltd. Assets X Ltd. Y Ltd.
Equity share capital (₹ 10 per 50 45 Land & Building 38 25
share)
10% Preference share capital 20 14 Plant & Machinery 24 17
(₹ 100 each)
Revaluation Reserve 10 6 Investments 10 6
General reserve 12 8 Stock 22 15
Investment allowance reserve 5 4 Debtors 25 20
Profit and loss account 8 6 Bills receivable 5 4
15% Debentures (₹ 100 each) 4 5 Cash at Bank 16 13
Trade creditors 19 7
Bills payables 12 5
140 100 140 100

Additional Information:
(1) Z Ltd. will issue 6 equity shares for 10 equity shares of X Ltd. & 2 equity shares for 5 equity
shares of Y Ltd. The shares are issued @ ₹ 30 each having face value of ₹ 10 per share.

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(2) Preference shareholders of two companies are issued equivalent number of 15%
preference shares of Z Ltd. at a price of ₹ 120 per share (face value ₹ 100).
(3) 15% Debentureholders of X Ltd. and Y Ltd. are discharged by Z Ltd. issuing such number of
its 18% Debentures of ₹ 100 each so as to maintain the same amount of interest.
(4) Investment allowance reserve is to be maintained for 4 more years.
Prepare Balance Sheet of Z Ltd. after amalgamation. The amalgamation took place in the
nature of purchase.

Question 10 (ICAI Study Material) Pg no._____

Neel Ltd. and Gagan Ltd. amalgamated to form a new company on 1.04.2020.
Following is the Draft Balance Sheet of Neel Ltd. and Gagan Ltd. as at 31.3.2020:
Note Neel Gagan
A. Equity and Liabilities
1. Shareholders’ Fund
(a) Share Capital 7,75,000 8,55,000
2. Current Liabilities 6,23,500 5,57,600
Total 13,98,500 14,12,600
B. Assets
1. Non-current assets
(a) PPE & Intangible Assets
i. Property, Plant & Equipment 1 12,35,000 12,54,000
2. Current Assets 1,63,500 1,58,600
Total 13,98,500 14,12,600

Notes to Accounts
Neel Gagan
1. Property, Plant & Equipment
Building 7,50,000 6,40,000
Plant & Machinery 4,85,000 6,14,000
12,35,000 12,54,000
Following are the additional information:
(i) The assets of Neel Ltd. and Gagan Ltd. are to be revalued as under:
Neel Gagan
Plant & Machinery 5,25,000 6,75,000
Building 7,75,000 6,48,000
(ii) The purchase consideration is to be discharged as under
a. Issue 24,000 equity shares of ₹ 25 each fully paid up in the proportion of their
profitability in the preceding 2 years
b. Profits for the preceding 2 years are given below:
Neel Gagan
1 Year
st
2,62,800 2,75,125
2nd Year 2,12,200 2,49,875
4,75,000 5,25,000
c. Issue 12% preference shares of ₹ 10 each fully paid up at par to provide income
equivalent to 8% return on net assets in the business as on 31.3.2020 after
revaluation of assets of Neel Ltd. and Gagan Ltd. respectively.
You are required to compute the
(i) equity and preference shares issued to Neel Ltd. and Gagan Ltd.,
(ii) Purchase consideration

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TOPIC 3 & 4: BOOKS OF PURCHASING COMPANY & VENDOR COMPANY

Question 11 (ICAI Study Material) Pg no._____
Wye Ltd. acquires business of Z Ltd. whose summarized balance sheet on 31st Dec., 2019 is as:
Note Amount
A. Equity and Liabilities
1. Shareholders’ Fund
(a) Share Capital 1 12,00,000
(b) Reserves & Surplus 2 1,58,000
2. Non-current Liabilities
(a) Long Term Borrowings 3 2,00,000
3. Current Liabilities
(a) Trade Payables 1,20,000
(b) Other Current Liabilities (Interest payable on debentures) 12,000
Total 16,90,000
B. Assets
1. Non-current assets
(a) Property, Plant & Equipment & Intangible Assets
i. Property, Plant & Equipment 4 10,00,000
ii. Intangible Assets 5 2,90,000
2. Current Assets
(a) Inventories 1,50,000
(b) Trade Receivables 1,80,000
(c) Cash & Cash Equivalents 70,000
Total 16,90,000
Notes to Accounts
Amount
1. Share Capital
Equity Share Capital (₹ 100 each) 8,00,000
6% Preference Share Capital (₹ 100 each) 4,00,000
12,00,000
2. Reserves and Surplus
Capital Reserve 1,00,000
Profit & Loss A/c 50,000
Workmen Compensation Reserve
(Expected liability 5,000) 8,000
1,58,000
3. Long Term borrowings
6% Debentures 2,00,000
4. Property, Plant & Equipment
Land & Building 4,00,000
Plant & Machinery 6,00,000
10,00,000
5. Intangible Assets
Goodwill 2,40,000
Patents 50,000
2,90,000
Wye Ltd. was to take over all assets (except cash) and liabilities (except for interest due on
debentures) and to pay following amounts:

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(i) ₹ 2,00,000 7% Debentures (₹ 100 each) in Wye Ltd. for the existing debentures in Zed Ltd.;
for the purpose, each debenture of Wye Ltd. is to be treated as worth ₹ 105.
(ii) For each preference share in Zed Ltd. ₹ 10 in cash and one 9% preference share of ₹ 100
each in Wye Ltd.
(iii) For each equity share in Zed Ltd. ₹ 20 in cash and one equity share in Wye Ltd. of ₹ 100
each having the market value of ₹ 140.
(iv) Expense of liquidation of Zed Ltd. are to be reimbursed by Wye Ltd. to the extent of ₹
10,000. Actual expenses amounted to ₹ 12,500.
Wye Ltd. valued Land & building at ₹ 5,50,000 Plant & Machinery at ₹ 6,50,000 and patents at
₹ 20,000. Pass the necessary journal entries in the books of both the companies.

Question 12 Pg no._____
The following was the Balance Sheet of V Ltd. as on 31st March, 2020:
Note ₹ ( In Lacs)
A. Equity and Liabilities
1. Shareholders’ Fund
Share Capital 1 1,150
Reserves & Surplus 2 (87)
2. Non-Current Liabilities
Long Term Borrowings 3 630
3. Current Liabilities
Trade Payables 170
Total 1,863
B. Assets
1. Non-Current assets
Property, Plant & Equipment & Intangible Assets
Property, Plant & Equipment 4 1,152
2. Current Assets
Inventories 380
Trade Receivables 256
Cash & Cash Equivalents 5 75
Total 1,863
Notes to Accounts
Amount
1. Share Capital: Issued, Subscribed & paid up
80 lakh Equity Shares of ₹ 10 each, full paid up 800
35 lakh 12% Cumulative Preference Shares of ₹10each, fully paid up 350
Total 1,150
2. Reserves and Surplus
Debit Balance of Profit and Loss Account (87)
3. Long Term borrowings
10% Secured Cumulative Debentures of ₹ 100 each, fully paid up 600
Outstanding Debenture Interest 30
630
4. Property, Plant & Equipment
Land & Buildings 445
Plant & Machinery 593
Furniture, Fixtures and Fittings 114
1,152

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5. Cash and Cash Equivalents

Balance at Bank 69
Cash in hand 6
75

On 1st April, 2020, P Ltd. took over the entire business of V Ltd. on the following terms: V
Ltd.'s equity shareholders would receive 4 fully paid equity shares of P Ltd. of ₹ 10 each issued
at a premium of ₹ 2.50 each for every five shares held by them in V Ltd. Preference
shareholders of V Ltd. would get 35 lakhs 13% Cumulative Preference Shares of ₹ 10 each
fully paid up in P Ltd., in lieu of their present holding.
All the debentures of V Ltd. would be converted into equal number of 10.5% Secured
Cumulative Debentures of ₹ 100 each, fully paid up after the take over by P Ltd., which would
also pay outstanding debenture interest in cash.
Expenses of amalgamation would be borne by P Ltd. Expenses came to be ₹ 2 lakhs. P Ltd.
discovered that its creditors included ₹ 7 lakhs due to V Ltd. for goods purchased.
Also P Ltd.'s stock included goods of the invoice price of ₹ 5 lakhs earlier purchased from V
Ltd., which had charged profit @ 20% of the invoice price.
You are required to:
(i) Prepare Realisation A/c in the books of V Ltd.
(ii) Pass journal entries in the books of P Ltd. assuming it to be an amalgamation in the
nature of merger.

Question 13 Pg no._____
P Ltd. and Q Ltd. were carrying on the business of manufacturing of auto components. Both
companies decided to amalgamate and a new company PQ Ltd. is to be formed with an
Authorized Capital of ₹ 10,00,000 divided into 1,00,000 equity shares of ₹ 10 each.
P Limited
Balance Sheet as at 31.03.2020
Amount (₹)
A. Equity and Liabilities
1. Shareholders’ Fund
(a) Share Capital 1,40,000
(b) Reserves & Surplus
Profit & Loss A/c 30,000
2. Non-Current Liabilities
8 % Secured Debentures 1,10,000
3. Current Liabilities
Trade Payables 54,000
Total 3,34,000
B. Assets
1. Non-Current assets
(a) Property, Plant & Equipment (Tangible)
Building at cost less Depreciation 1,00,000
Plant & Machinery at cost less Depreciation 25,000
2. Current Assets
(a) Inventories 1,35,000
(b) Trade Receivables 44,000
(c) Cash & Cash Equivalents 30,000
Total 3,34,000

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Q Limited
Balance Sheet as at 31.03.2020
Amount (₹)
A. Equity and Liabilities
1. Shareholders’ Fund
(a) Share Capital 2,50,000
(b) Reserves & Surplus
General Reserve 1,20,000
Profit & Loss A/c 35,000
2. Current Liabilities
Trade Payables 1,40,000
Total 5,45,000
B. Assets
1. Non-Current assets
(b) Property, Plant & Equipment (Tangible)
Building at cost less Depreciation 1,90,000
Plant & Machinery at cost less Depreciation 80,000
Furniture & Fixture at cost less depreciation 25,000
2. Current Assets
(a) Inventories 50,000
(b) Trade Receivables 1,42,000
(c) Cash & Cash Equivalents 58,000
Total 5,45,000
The assets and liabilities of the existing companies are to be transferred at book value with
the exception of some items detailed below:
(i) Goodwill of P Ltd. was worth ₹ 50,000 and of Q Ltd. was worth ₹ 1,50,000.
(ii) Furniture & Fixture of Q Ltd. was valued at ₹ 35,000.
(iii) The debtors of P Ltd. are realized fully and bank balance of P Ltd. are to be retained by
the liquidator and the sundry creditors are to be paid out of the proceeds thereof.
(iv) The debentures of P Ltd. are to be discharged by issue of 8% debentures of PQ Ltd. at
premium of 10%.
You are required to:
(i) Compute the basis on which shares in PQ Ltd. will be issued at par to the shareholders
of the existing companies.
(ii) Draw up a Balance Sheet of PQ Ltd. as at 1st April, 2020, the date of completion of
amalgamation,
(iii) Write up journal entries including bank entries for closing the books of P Ltd.

Question 14 Pg no._____
Exe Limited was wound up on 31.3.2020 and its Balance Sheet as on that date was given below:
Balance Sheet of Exe Limited as on 31.3.2020
Liabilities ₹ Assets ₹
Share capital: Property, Plant & Equipment 9,64,000
1,20,000 Equity shares of ₹10 12,00,000 Current Assets:
each
Reserves and surplus: Stock 7,75,000
Profit prior to incorporation 42,000 Sundry debtors 1,60,000
Contingency reserve 2,70,000 Less: Provision for
bad and doubtful debt 8,000 1,52,000
Profit and loss A/c 2,52,000 Bills receivable 30,000

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Current liabilities: Cash at bank 3,29,000

Bills payable 40,000
Sundry creditors 2,26,000
Provisions:
Provision for income tax 2,20,000
22,50,000 22,50,000
Wye Limited took over the following assets at values shown as under:
Property, Plant & Equipment ₹12,80,000, Stock ₹7,70,000 and Bills Receivable ₹30,000.
Purchase consideration was settled by Wye Limited as under:
₹ 5,10,000 of the consideration was satisfied by the allotment of fully paid 10% Preference
shares of ₹100 each. The balance was settled by issuing equity shares of ₹10 each at ₹ 8 per
share paid up.
Sundry debtors realised ₹ 1,50,000. Bills payable was settled for ₹38,000. Income tax
authorities fixed the taxation liability at ₹2,22,000. Creditors were finally settled with the cash
remaining after meeting liquidation expenses amounting to ₹ 8,000.
You are required to:
(i) Calculate the number of equity shares and preference shares to be allotted by Wye
Limited in discharge of purchase consideration.
(ii) Prepare the Realisation account, Cash/Bank account, Equity shareholders account and
Wye Limited account in the books of Exe Limited.
(iii) Pass journal entries in the books of Wye Limited.

Question 15 Pg no._____
The summarized Balance Sheet of Srishti Ltd. as on 31st March, 2020 was as follows:
Liabilities Amount Assets Amount
(₹) (₹)
Equity Shares of ₹10 fully paid 30,00,000 Goodwill 5,00,000
Export Profit Reserves 8,50,000 Property, Plant & Equipment 30,00,000
General Reserves 50,000 Stock 10,40,000
Profit and loss Account 5,50,000 Debtors 1,80,000
9% Debentures 5,00,000 Cash & Bank 2,80,000
Trade Creditors 1,00,000 Preliminary Expenses 50,000
50,50,000 50,50,000
ANU Ltd. agreed to absorb the business of SRISHTI Ltd. with effect from 1st April, 2020.
a. The purchase consideration settled by ANU Ltd. as agreed:
i. 4,50,000 equity Shares of 10 each issued by ANU Ltd. by valuing its share @ 15 per share.
ii. Cash payment equivalent to ₹ 2.50 for every share in SRISHTI Ltd.
b. The issue of such an amount of fully paid 8% Debentures in ANU Ltd. at 96% as is sufficient
to discharge 9% Debentures in SRISHTI Ltd. at a premium of 20%.
c. ANU Ltd. will take over Property, Plant & Equipment at 100% more than book value, Stock
at ₹ 7,10,000 and Debtors at their face value subject to a provision of 5% for doubtful Debts.
d. The actual cost of liquidation of SRISHTI Ltd. was ₹ 75,000. Liquidation cost of SRISHTI Ltd.
is to be reimbursed by ANU Ltd. to the extent of ₹ 50,000.
e. Statutory Reserves are to be maintained for 1 more year.

You are required to:

(i) Close the books of SRISHTI Ltd. by preparing Realisation Account, ANU Ltd. Account,
Shareholders Account and Debenture Account, and
(ii) Pass Journal Entries in the books of ANU Ltd. regarding acquisition of business.

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Question 16 (RTP Nov 2018) (Similar) / (ICAI Study Material) Pg no._____

The financial position of two companies Hari Ltd. and Vayu Ltd. as at 31st March, 2021 was as
under:
Particulars Notes Hari Ltd. Vayu Ltd.
Equity and Liabilities
1 Shareholders’ funds
a Share capital 1 11,00,000 4,00,000
b Reserves and Surplus 2 70,000 70,000
2 Non-current liabilities
a Long term provisions 3 50,000 20,000
3 Current liabilities
a Trade Payables 1,30,000 80,000
Total 13,50,000 5,70,000
Assets
1 Non-current assets
a Property, Plant and Equipment 4 8,00,000 2,50,000
b Intangible assets 5 50,000 25,000
2 Current assets
a Inventories 2,50,000 1,75,000
b Trade receivables 2,00,000 1,00,000
c Cash and Cash equivalents 50,000 20,000
Total 13,50,000 5,70,000

Notes to accounts
Hari Ltd. Vayu Ltd.
1 Share Capital
Equity shares of ₹ 10 each 10,00,000 3,00,000
9% Preference Shares of ₹ 100 each 1,00,000 --
10% Preference Shares of ₹ 100 each -- 1,00,000
11,00,000 4,00,000
2 Reserves and Surplus
General reserve 70,000 70,000
70,000 70,000
3 Long term Provisions
Retirement gratuity fund 50,000 20,000
50,000 20,000
4 Property, plant and Equipment
Land and Building 3,00,000 1,00,000
Plant and machinery 5,00,000 1,50,000
8,00,000 2,50,000
5 Intangible assets
Goodwill 50,000 25,000
50,000 25,000
Hari Ltd. absorbs Vayu Ltd. on the following terms:
a. 10% Preference Shareholders are to be paid at 10% premium by issue of 9% Preference
Shares of Hari Ltd.
b. Goodwill of Vayu Ltd. is valued at ₹ 50,000, Buildings are valued at ₹ 1,50,000 and the
Machinery at ₹ 1,60,000.

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c. Inventory to be taken over at 10% less value and Provision for Doubtful Debts to be created
@ 7.5%.
d. Equity Shareholders of Vayu Ltd. will be issued necessary Equity Shares @ 5% premium.
Prepare necessary Ledger Accounts to close the books of Vayu Ltd. and show the acquisition
entries in the books of Hari Ltd. Also draft the Balance Sheet after absorption as at 31st March,
2021.

Question 17 (RTP Nov 2019) Pg no._____

The following is the summarized Balance Sheet of A Ltd. as at 31st March, 2020:
Liabilities ₹ Assets ₹
8,000 Equity shares of ₹ 100 8,00,000 Goodwill 1,30,000
each
10% debentures 4,00,000 Buildings 3,40,000
Loans 1,60,000 Machinery 6,40,000
Sundry creditors 3,20,000 Stock 2,20,000
General Reserve 80,000 Sundry debtors 2,60,000
Cash at bank 1,36,000
Share Issue Expenses 34,000
17,60,000 17,60,000
B Ltd. agreed to absorb A Ltd. on the following terms and conditions:
(1) B Ltd. would take over all assets, except bank balance at their book values less 10%.
Goodwill is to be valued at 4 year’s purchase of super profits, assuming that the normal
rate of return be 8% on the combined amount of share capital and general reserve.
(2) B Ltd. is to take over creditors at book value.
(3) The purchase consideration is to be paid in cash to the extent of ₹ 6,00,000 and the balance
in fully paid equity shares of ₹ 100 each at ₹ 125 per share.
The average profit is ₹ 1,24,400. The liquidation expenses amounted to ₹ 16,000. B Ltd.
sold prior to 31st March, 2020 goods costing ₹ 1,20,000 to A Ltd. for ₹ 1,60,000. ₹ 1,00,000
worth of goods are still in stock of A Ltd. on 31st March, 2020. Creditors of A Ltd. include
₹ 40,000 still due to B Ltd.
Show Ledger Accounts to close books of A Ltd. & prepare Balance Sheet of B Ltd. after
takeover.

Question 18 (ICAI Study Material) Pg no._____

The following are the summarised Balance Sheets of X Ltd. and Y Ltd :
X Ltd. Y Ltd.
Liabilities
Share Capital 1,00,000 50,000
Profit & Loss A/c 10,000 (10,000)
Creditors 25,000 5,000
Loan from X Ltd. - 15,000
1,35,000 60,000
Assets
Sundry Assets 1,20,000 60,000
Loan to Y Ltd. 15,000 -
1,35,000 60,000
A new company XY Ltd. is formed to acquire the sundry assets and creditors of X Ltd. and Y
Ltd. and for this purpose, the sundry assets of X Ltd. are revalued at ₹ 1,00,000. The debt due
to X Ltd. is also to be discharged in shares of XY Ltd. Show the Ledger Accounts to close the
books of X Ltd.

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Question 19 Pg no._____
The Abridged Balance Sheet (Draft) of Cyber Ltd. as on 31st March, 2020 is as under:
Liabilities ₹ Assets ₹
24,000, Equity shares of ₹ 10 each 2,40,000 Goodwill 5,000
5000, 8% cumulative preference 50,000 Property, Plant & 2,57,000
shares of ₹ 10 each Equipment
8% Debentures 1,00,000 Inventories 50,000
Interest accrued on debentures 8,000 Trade receivables 60,000
Trade payables 1,00,000 Bank 1,000
Profit & Loss Account 1,25,000
4,98,000 4,98,000
The following scheme is passed and sanctioned by the court:
(i) A new company Mahal Ltd is formed with ₹ 3 lacs divided into 30,000 Equity shares of ₹10
each
(ii) The new company will acquire the assets & liabilities of Cyber Ltd. on the following terms:
a. Old company's debentures are paid by similar debentures in new company and for
outstanding accrued interest, shares of equal amount are issued at par.
b. The trade payables are paid for every ₹ 100, ₹ 16 in cash and 10 shares issued at par.
c. Preference shareholders are to get equal number of equity shares at par. For arrears
of dividend amounting to ₹ 12,000, 5 shares are issued at par for each ₹ 100 in full
satisfaction.
d. Equity shareholders are issued one share at par for every three shares held.
e. Expenses of ₹ 8,000 are to be borne by the new company.
(iii) Current Assets are to be taken at book value (except Inventory, which is to be reduced
by ₹ 3,000). Goodwill is to be eliminated; balance of purchase consideration being
attributed to fixed assets.
(iv) Remaining shares of the new company are issued to public at par and are fully paid.
You are required to show:
(a) In the old company's books:
a. Realisation Account b. Equity Shareholder's Account
(b) In the new company's books:
a. Bank Account b. Summarised Balance Sheet

TOPIC 5: INTRINSIC VALUE METHOD

Question 20 Pg no._____
Y Ltd. decides to absorb X Ltd. X Ltd. gives you following information on the date of absorption:
₹
Net assets 2,90,000
Profit & Loss Account (Dr. Balance) 70,000
Share Capital: 3,000 Equity shares of ₹ 100 each (fully paid) 3,00,000
Preference shares 60,000
Y Ltd. agrees to take over the net assets of X Ltd. The terms of the purchase consideration
payable is as follows:
1) An equity share in X Ltd., for purposes of absorption, is valued @ ₹ 70. Y Ltd. shall issue
equity shares at value of 120 each for the equity shareholders of X Ltd.
2) Y Ltd. agrees to pay ₹ 60,000 in cash for payment to preference shareholders.
Calculate purchase consideration to be paid by Y Ltd. and how will it be discharged?

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Question 21 Pg no._____
Below are summarized balance sheets of Vasudha Ltd. & Vaishali Ltd as at 31st March, 2020
Liabilities Vasudha Vaishali Assets Vasudha Vaishali
Ltd. Ltd. Ltd. Ltd.
Share capital: Factory Building 2,10,000 1,60,000
Equity shares of ₹ 10 each 5,40,000 4,03,300 Debtors 2,86,900 1,72,900
General Reserves 86,000 54,990 Stock 91,500 82,500
Profit & Loss A/c 66,000 43,500 Goodwill 50,000 35,000
Sundry Creditors 44,400 58,200 Cash at Bank 98,000 1,09,590
7,36,400 5,59,990 7,36,400 5,59,990
Goodwill of Vasudha Ltd. and Vaishali Ltd. is to be valued at ₹ 75,000 & ₹ 50,000 respectively.
Factory Building of Vasudha Ltd is worth ₹1,95,000 and of Vaishali Ltd ₹ 1,75,000. Stock of
Vaishali has been shown at 10% above of its cost. It is decided that Vasudha Ltd will absorb
Vaishali Ltd, by taking over its entire business by issue of shares at the Intrinsic Value.
Prepare balance sheet of Vasudha Ltd after takeover assuming assets & liabilities of Vaishali
Ltd. were incorporated in Vasudha Ltd at fair value and assets & liabilities of Vasudha Ltd.
have been carried at carrying values only.

Question 22 (ICAI Study Material) Pg no._____

Let us consider the Balance Sheet of X Ltd. as at 31st March, 2021:
Particulars Notes ₹ (000)
Equity and Liabilities
1 Shareholders’ funds
a Share capital 1 100,00
b Reserves and Surplus 2 12,50
2 Non-current liabilities
a Long-term borrowings 3 40,00
3 Current liabilities
a Trade Payables 20,00
Total 172,50
Assets
1 Non-current assets
a Property, Plant and Equipment 4 105,50
b Non-current investments 5 5,00
2 Current assets
a Inventories 23,00
b Trade receivables 24,00
c Cash and Cash equivalents 15,00
Total 172,50
Notes to accounts
₹ in (‘000)
1 Share Capital:
7,50,000 Equity Shares of ₹ 10 each 75,00
25,000, 14% Preference Shares of ₹ 100 each 25,00
100,00
2 Reserves and Surplus
General reserve 12,50
12,50

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3 Long-term borrowings
Secured: 14% Debentures 40,00
40,00
4 Property, plant and Equipment
Land and Building 50,00
Plant and machinery 45,00
Furniture 10,50
105,50
5 Non-current investments
Investments at cost 5,00
5,00
Other Information:
a. Y Ltd. takes over X Ltd. on 10th April, 2021.
b. Debenture holders of X Ltd. are discharged by Y Ltd. at 10% premium by issuing 15% own
debentures of Y Ltd.
c. 14% Preference Shareholders of X Ltd. are discharged at a premium of 20% by issuing
necessary number of 15% Preference Shares of Y Ltd. (Face value ₹ 100 each).
d. Intrinsic value per share of X Ltd. is ₹ 20 & that of Y Ltd. ₹ 30. Y Ltd. will issue equity shares
to satisfy the equity shareholders of X Ltd. on the basis of intrinsic value. However, entry
should be made at par value only. The nominal value of each equity share of Y Ltd. is ₹ 10.
Compute the purchase consideration.

Question 23 Pg no._____
Following are the summarized Balance Sheets of A Ltd. and B Ltd. as at 31.3.2020:
A Ltd. (₹) B Ltd. (₹)
Liabilities
Share capital: Equity shares 10 each (fully paid up) 10,00,000 6,00,000
Securities premium 2,00,000 -
General reserve 3,00,000 2,50,000
Profit and loss account 1,80,000 1,60,000
10% Debentures 5,00,000 -
Secured loan - 3,00,000
Trade payables 2,60,000 1,70,000
24,40,000 14,80,000
Assets
Land & Building 9,00,000 4,50,000
Plant & Machinery 5,00,000 3,80,000
Investment 80,000 -
Inventory 5,20,000 3,50,000
Trade receivables 4,10,000 2,60,000
Cash at Bank 30,000 40,000
24,40,000 14,80,000
The companies agree on a scheme of amalgamation on the following terms:
(i) A new company is to be formed by name AB Ltd.
(ii) AB Ltd. to take over all the assets and liabilities of the existing companies.
(iii) For the purpose of amalgamation, the shares of the existing companies are to be valued
as under: A Ltd. = ₹ 18 per share B Ltd. = ₹ 20 per share
(iv) A contingent liability of A Ltd. of ₹ 60,000 is to be treated as actual existing liability.
(v) The shareholders of A Ltd. and B Ltd. are to be paid by issuing sufficient number of shares
of AB Ltd. at a premium of ₹ 6 per share.

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(vi) The face value of shares of AB Ltd. are to be of ₹ 10 each.

You are required to:
(i) Calculate purchase consideration (i.e., number of shares to be issued to A Ltd. & B Ltd.).
(ii) Pass journal entries in the books of A Ltd. for the transfer of assets and liabilities.
(iii) Prepare the Balance Sheet of AB Ltd.

Question 24 (ICAI Study Material) Pg no._____

The following Balance Sheets are given as at 31st March, 2021:
Particulars Best Ltd. Better Ltd.
(in lakhs) (in lakhs)
Equity and Liabilities
1 Shareholders’ funds
a Share capital (shares of ₹ 100 each, fully paid) 20 10
b Reserves and Surplus 10 8
2 Current liabilities 20 2
Total 50 20
Assets
1 Non-current assets
a Property, Plant and Equipment 25 15
b Non-current investments 5 -
2 Current assets 20 5
Total 50 20
The following further information is given:
a. Better Limited issued bonus shares on 1st April, 2021, in the ratio of one share for every
two held, out of Reserves and Surplus.
b. It was agreed that Best Ltd. will take over the business of Better Ltd., on the basis of the
latter’s Balance Sheet, consideration taking the form of allotment of shares in Best Ltd.
c. The value of shares in Best Ltd. was considered to be ₹ 150 and the shares in Better Ltd.
were valued at ₹ 100 after the issue of the bonus shares. The allotment of shares is to be
made on the basis of these values.
d. Liabilities of Better Ltd., included ₹ 1 lakh due to Best Ltd., for purchases from it, on which
Best Ltd., made profit of 25% of the cost. The goods of ₹ 50,000 out of the said purchases,
remained in stock on the date of the above Balance Sheet.
Make the closing ledger in the Books of Better Ltd. and the opening journal entries in the
Books of Best Ltd., and prepare the Balance Sheet as at 1st April, 2021 after the takeover.

Question 25 (ICAI Study Material) Pg no._____

K Ltd. and L Ltd. amalgamate to form a new company LK Ltd. The financial position of these
two companies as at the date of amalgamation was as under:
Particulars Notes K Ltd. L Ltd.
1 Equity and Liabilities
Shareholders’ funds
a Share capital 1 12,00,000 6,00,000
b Reserves and Surplus 2 3,71,375 1,97,175
2 Non-current liabilities
a Long-term borrowings 3 2,00,000 2,00,000
3 Current liabilities
a Trade Payables 1,00,000 2,10,000
Total 18,71,375 12,07,175

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Particulars Notes K Ltd. L Ltd.

Assets
1 Non-current assets
a Property, Plant and Equipment 4 11,30,000 8,20,000
b Intangible assets 5 80,000 -
2 Current assets
a Inventories 2,25,000 1,40,000
b Trade receivables 2,75,000 1,75,000
c Cash and Cash equivalents 6 1,61,375 72,175
Total 18,71,375 12,07,175

Notes to accounts
K Ltd. L Ltd.
1 Share Capital
Equity shares of ₹ 100 each 8,00,000 3,00,000
7% Preference Shares of ₹ 100 each 4,00,000 3,00,000
12,00,000 6,00,000
2 Reserves and Surplus
General reserve - 1,00,000
Profit and loss account 3,71,375 97,175
3,71,375 1,97,175
3 Long-term borrowings
5% Debentures 2,00,000 -
Secured loan - 2,00,000
2,00,000 2,00,000
4 Property, plant and Equipment
Land and Building 4,50,000 3,00,000
Plant and machinery 6,20,000 5,00,000
Furniture and fittings 60,000 20,000
11,30,000 8,20,000
5 Intangible assets
Goodwill 80,000 -
80,000 -
6 Cash and Cash Equivalents
Cash at Bank 1,20,000 55,000
Cash in hand 41,375 17,175
1,61,375 72,175
The terms of amalgamation are as under:
(A)
1) The assumption of liabilities of both the Companies.
2) Issue of 5 Preference shares of ₹ 20 each in LK Ltd. @ ₹ 18 paid up at premium of ₹ 4
per share for each preference share held in both the Companies.
3) Issue of 6 Equity shares of ₹ 20 each in LK Ltd. @ ₹ 18 paid up at a premium of ₹ 4 per
share for each equity share held in both the Companies. In addition, necessary cash
should be paid to the Equity Shareholders of both the Companies as is required to
adjust the rights of shareholders of both the Companies in accordance with the
intrinsic value of the shares of both the Companies.
4) Issue of such amount of fully paid 6% debentures in LK Ltd. as is sufficient to discharge
the 5% debentures in K Ltd. at a discount of 5% after takeover.

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 CA NITIN GOEL AMALGAMATION (AS 14)

(B)
1) The assets and liabilities are to be taken at book values inventory and trade receivables
for which provisions at 2% and 2 ½ % respectively to be raised.
2) The trade receivables of K Ltd. Include ₹ 20,000 due from L Ltd.
(C) The LK Ltd. is to issue 15,000 new equity shares of ₹ 20 each, ₹ 18 paid up at premium of
₹ 4 per share so as to have sufficient working capital.
Prepare ledger accounts in the books of K Ltd. and L Ltd. to close their books.

Question 26 (RTP Nov 2022) Pg no._____

The balance sheets of Truth Limited and Myth Limited as at 31.03.2021 is given below. Myth
Limited is to be amalgamated with Truth Limited from 1.04.2021. The amalgamation is to be
carried out in the nature of purchase.
Particulars Note No. Truth Ltd. (₹) Myth Ltd. (₹)
(1) Equity and Liabilities
1. Shareholders’ Funds
(a) Share Capital 1 10,00,000 4,00,000
(b) Reserves and Surplus 2 11,35,000 4,13,000
2. Non -Current Liabilities 3 - 1,50,000
3. Current Liabilities 4 1,40,000 1,82,000
Total 22,75,000 11,45,000
(2) Assets
1. Non -Current Assets
(a) Property, Plant & Equipment 15,75,000 6,80,000
(b) Investments 1,87,500 1,00,000
2. Current Assets 5 5,12,500 3,65,000
Total 22,75,000 11,45,000

Note Particulars Truth Limited Myth Limited

No. (₹) (₹)
1 Share Capital
Equity shares of ₹ 10 each 10,00,000 4,00,000
2 Reserves & Surplus
General Reserve 5,05,000 2,30,000
Profit & Loss A/c 4,45,000 1,58,000
Export Profit Reserve 1,85,000 25,000
11,35,000 4,13,000
3 Non- Current Liabilities
14% Debentures --- 1,50,000
4 Current Liabilities
Trade Payables 90,000 1,42,000
Other Current Liabilities 50,000 40,000
1,40,000 1,82,000
5 Current Assets
Inventory 2,15,000 85,000
Trade Receivables 2,02,500 1,75,000
Cash and Cash equivalents 95,000 1,05,000
5,12,500 3,65,000

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CA NITIN GOEL AMALGAMATION (AS 14)

Truth Limited would issue 12% debentures to discharge the claim of the debenture holders of
Myth Limited so as to maintain their present annual interest income. Non-trade investment,
which constitute 80% of their respective total investments yielded income of 20% to Truth
Limited and 15% to Myth Limited. This income is to be deducted from profits while computing
average profit for the purpose of calculating goodwill.

Profit before tax of both the companies during the last 3 years were as follows:
Truth Limited (₹) Myth Limited (₹)
2018-2019 8,20,000 2,55,000
2019-2020 7,45,000 2,15,000
2020-2021 6,04,000 2,14,000

Goodwill is to be calculated on the basis of simple average of three years profit by using
Capitalization method taking 18% as normal rate of return. Ignore taxation. Purchase
consideration is to be discharged by Truth Limited on the basis of intrinsic value per share.
Prepare Balance Sheet of Truth Limited after the amalgamation.

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 CA NITIN GOEL AMALGAMATION (AS 14)

TOPIC 6: THEORY QUESTIONS

Question 1
Briefly explain the methods of accounting for amalgamation as per Accounting Standard-14.

Solution
As per AS 14 on ‘Accounting for Amalgamations’, there are two main methods of accounting
for amalgamations:

(i) The Pooling of Interest Method: Under this method, the assets, liabilities and reserves of
the transferor company are recorded by the transferee company at their existing carrying
amounts (after making the necessary adjustments). If at the time of amalgamation, the
transferor and the transferee companies have conflicting accounting policies, a uniform
set of accounting policies is adopted following the amalgamation. The effects on the
financial statements of any changes in accounting policies are reported in accordance with
AS 5 on ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Policies’.

(ii) The Purchase Method: Under the purchase method, the transferee company accounts for
the amalgamation either by incorporating the assets and liabilities at their existing
carrying amounts or by allocating the consideration to individual identifiable assets and
liabilities of the transferor company on the basis of their fair values at the date of
amalgamation. The identifiable assets and liabilities may include assets and liabilities not
recorded in the financial statements of the transferor company
Where assets and liabilities are restated on the basis of their fair values, the determination
of fair values may be influenced by the intentions of the transferee company.

Question 2 (Inter Jan 2021) (5 Marks)

List the conditions to be fulfilled as per Accounting Standard 14 for an amalgamation to be in
the nature of merger, in the case of companies.

Solution
An amalgamation should be considered to be an amalgamation in the nature of merger if the
following conditions are satisfied:
(i) All the assets and liabilities of the transferor company become, after amalgamation, the
assets and liabilities of the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than the equity shares already held therein, immediately
before the amalgamation, by the transferee company or its subsidiaries or their
nominees) become equity shareholders of the transferee company by virtue of the
amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agree to become equity shareholders of the transferee company
is discharged by the transferee company wholly by the issue of equity shares in the
transferee company, except that cash may be paid in respect of any fractional shares.
(iv) The business of the transferor company is intended to be carried on, after the
amalgamation, by the transferee company.
(v) No adjustment is intended to be made to the book values of the assets and liabilities of
the transferor company when they are incorporated in the financial statements of the
transferee company except to ensure uniformity of accounting policies.

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 CA NITIN GOEL AMALGAMATION (AS 14)

Question 3
Briefly describe the disclosure requirements for amalgamation including additional
disclosure, if any, for different methods of amalgamation as per AS 14. Or
What disclosures should be made in first financial statements following the amalgamation?

Solution
The disclosure requirements for amalgamations have been prescribed in paragraphs 43 to
46 of AS 14 on Accounting for Amalgamation.
For all amalgamations, the following disclosures should be made in the first financial
statements following the amalgamation
a. names and general nature of business of the amalgamating companies;
b. the effective date of amalgamation for accounting purpose;
c. the method of accounting used to reflect the amalgamation; and
d. particulars of the scheme sanctioned under a statute.
For amalgamations accounted under the pooling of interests method, the following additional
disclosures should be made in the first financial statements following the amalgamation:
a. description and number of shares issued, together with the percentage of each company’s
equity shares exchanged to effect the amalgamation; and
b. the amount of any difference between the consideration and the value of net identifiable
assets acquired, and the treatment thereof.
For amalgamations, accounted under the purchase method, the following additional
disclosures should be made in the first financial statements following the amalgamation;
a. consideration for the amalgamation and a description of the consideration paid or
contingently payable; and
b. the amount of any difference between the consideration and the value of net identifiable
assets acquired, and the treatment thereof including the period of amortization of any
goodwill arising on amalgamation.

Question 4
A Ltd. is amalgamating with B Ltd. They are undecided on the method of accounting to be
followed. You are required to advice the management of B Ltd. on the method of accounting
that can be adopted under AS-14.

Solution
An amalgamation may be either – an amalgamation in the nature of merger, or an
amalgamation in the nature of purchase. The selection of method of accounting for
amalgamation (pooling of interests or purchase method) is to be judged after considering the
intentions of the both the companies.
If genuine pooling of all assets, liabilities, shareholders’ interest is intended; separate
businesses of both the companies are continued and their amalgamation scheme satisfies all
the conditions necessary for merger as specified in AS 14 Accounting for Amalgamations,
pooling of interests method is adopted.
However, if B Ltd. or A Ltd. wants to acquire the other company, then purchase method needs
to be adopted. In that case, the shareholders of the acquired company don’t continue to have
proportional share in equity of the combined company and the business of the acquired
company is not intended to be continued. The object of purchase method is to account for the
amalgamation by applying same principles as are applied in the normal purchase of assets.
Thus choice of accounting method depends on the fact whether B Ltd. wants to continue its
business or not.

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 CA NITIN GOEL AMALGAMATION (AS 14)

Question 5 (ICAI Study Material)

X Co. Ltd. having share capital of ₹ 50 lakhs divided into equity shares of ₹ 10 each was taken
over by Y Co. Ltd. Y Co. Ltd. issued 11 equity shares of ₹ 10 each for every 10 shares of X Co.
Ltd. Explain how the difference will be adjusted in the books of Y Co. Ltd. for the shares issued
under the ‘Pooling of interests method’ of amalgamation as per AS 14.

Solution
Purchase consideration = 5,00,000 × 11/10 = 55,000 shares of ₹ 10 each 55,00,000
Less: Share capital of X Co. Ltd. (50,00,000)
Difference Adjusted through General Reserve 5,00,000

Question 6
How are the balances in profit and loss account treated in the books of transferee company?

Solution
(i) When amalgamation is in the nature of merger
Balance in Profit and Loss Account of the transferor company is
a. Aggregated with the corresponding balance appearing in financial statements of the
transferee company; Or
b. Transferred to the general reserve, if any.

(ii) When amalgamation is in the nature of purchase

Balance in profit and loss account of the transferor company, whether debit or credit, loses
its identity.

Question 7 (Inter May 2019) (5 Marks)

Distinguish between Amalgamation, Absorption and External Reconstruction of Company

Solution
Basis Amalgamation Absorption External
Reconstruction
Meaning 2 or more companies are An existing company A newly formed
wound up and a new takes over the business company takes over
company is formed to of one or more existing the business of an
take over their business companies existing company
Minimum no. Atleast 3 Atleast 2 Only 2
of companies
involved
No. of new Only 1 No new resultant Only 1
resultant company is formed
company
Example A Ltd. and B Ltd. A Ltd. takes over the B Ltd. is formed to
amalgamate to form C business of another take over business of
Ltd. existing company B Ltd. an existing company
A Ltd

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 CA NITIN GOEL AMALGAMATION (AS 14)

PRACTICE QUESTIONS

TOPIC 2A: PURCHASE CONSIDERATION

Question 1 (RTP Nov 2020) Pg no._____
Som Ltd. agreed to takeover Dove Ltd. on 1st April. Terms & conditions were as follows:
a) Som Ltd. issued 56,000 equity shares of ₹ 100 each at a premium of ₹ 10 per share to the
equity shareholders of Dove Ltd.
b) Cash payment of ₹ 1,00,000 was made to equity shareholders of Dove Ltd.
c) 20,000 fully paid preference shares of ₹ 70 each issued at par to discharge the preference
shareholders of Dove Ltd.
You are required to calculate amount of purchase consideration as per provisions of AS-14
(Ans: 76,60,000)
Question 2 Pg no._____
A Ltd. decides to absorb B Ltd. The draft Balance Sheet of B Limited is as follows:
Liabilities
Share Capital:
5,000 9% Preference shares of ₹ 100 each (Fully paid up) 5,00,000
12,500 Equity shares of ₹ 100 each (Fully paid up) 12,50,000
Reserves 7,50,000
6% Debentures 5,00,000
Trade payables 2,50,000
Total 32,50,000
Assets
Sundry Assets 32,50,000
Total 32,50,000
A Ltd. has agreed:
(i) To pay ₹ 20 per share in cash to equity shareholders of B Ltd. and will issue six equity
shares of ₹ 100 each (Market value ₹ 125) in lieu of every five equity shares held in B Ltd.
(ii) To issue 9% Preference shares of ₹ 100 each, in the ratio of 3 shares of A Ltd. for 4
Preference shares in B Ltd.
(iii) To issue 8% debentures at ₹ 96 in lieu of 6% debentures in B Ltd. which are to be redeemed
at a premium of 20%. You are required to calculate the purchase consideration.
(Ans: 25,00,000)
Question 3 (Inter Dec 2021) (5 Marks) Pg no._____
Moon Limited is absorbed by Sun Limited.; the consideration being the takeover of liabilities,
the payment of cost of absorption not exceeding ₹ 10,000 (actual cost ₹ 9,000); the payment
of 9% debentures of ₹ 50,000 at a premium of 20% through 8% debentures issued at a premium
of 25% of face value; the payment of ₹18 per share in cash; allotment of two 11% preference
shares of ₹ 10 each and one equity share of ₹10 each at a premium of 30% fully paid for every
three shares in Moon Ltd. respectively. The number of shares of the vendor company is
1,50,000 of ₹ 10 each fully paid. Calculate purchase consideration as per AS 14.
(Ans: 43,50,000)
Question 4 (ICAI Study Material) Pg no._____
A Ltd. take over B Ltd. on April 01, 2021 and discharges consideration for the business as
follows:

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 CA NITIN GOEL AMALGAMATION (AS 14)

(i) Issued 42,000 fully paid equity shares of ₹ 10 each at par to equity shareholders of B Ltd.
(ii) Issued fully paid up 15% preference shares of ₹ 100 each to discharge the preference
shareholders (₹ 1,70,000) of B Ltd. at a premium of 10%.
(iii) It is agreed that the debentures of B Ltd. (₹ 50,000) will be converted into equal number
and amount of 13% debentures of A Ltd.
Determine the amount of Purchase Consideration as per AS 14. (Ans: 6,07,000)

Question 5 (Inter Nov 2022) (5 Marks) Pg no._____

Star Limited agreed to take over Moon Limited on 1st April,2022. The terms and conditions of
takeover were as follows:
a) Star Limited issued 70,000 Equity shares of ₹ 100 each at a premium of ₹ 10 per share
to the equity shareholders of Moon Limited.
b) Cash payment of ₹ 1,25,000 was made to the equity shareholders of Moon Limited.
c) 25,000 fully paid Preference shares of ₹ 70 each issued at par to discharge the
preference shareholders of Moon Limited.
You are required:
i. to give the meaning of "consideration for the amalgamation' as per AS-14, and
ii. Calculate the amount of purchase consideration.
(Ans: Purchase Consideration 95,75,000)

TOPIC 3: BOOKS OF PURCHASING / TRANSEREE COMPANY

Question 6 (Inter Nov 2018) (5 Marks)/ (ICAI Study Material) Pg no._____
On 1st April, 2020, Tina Ltd. take over the business of Rina Ltd. and discharged purchase
consideration as follows:
a) Issued 50,000 fully paid Equity shares of ₹ 10 each at a premium of ₹ 5 per share to the
equity shareholders of Rina Ltd.
b) Cash payment of ₹ 50,000 was made to equity shareholders of Rina Ltd.
c) Issued 2,000 fully paid 12% Preference shares of ₹ 100 each at par to discharge the
preference shareholders of Rina Ltd.
d) Debentures of Rina Ltd. (₹ 1,20,000) will be converted into equal number and amount of 10%
debentures of Tina Ltd.
Calculate the amount of Purchase consideration as per AS-14 and pass Journal Entry relating
to discharge of purchase consideration in the books of Tina Ltd.
(Ans: 10,00,000)
Question 7 (ICAI Study Material) Pg no._____
Consider the following summarized balance sheets of X Ltd. and Y Ltd. as at 31st March, 2020
Note X Ltd. Y Ltd.
(000) (000)
A. Equity and Liabilities
1. Shareholders’ Fund
(a) Share Capital 1 72,00 47,00
(b) Reserves & Surplus 2 15,50 10,50
2. Non-current Liabilities
(a) Long Term Borrowings 3 5,00 3,50
3. Current Liabilities
(a) Trade Payables 4,50 3,50
(b) Other Current Liabilities 2,00 1,50
Total 99,00 66,00

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 CA NITIN GOEL AMALGAMATION (AS 14)

B. Assets
1. Non-current assets
(a) PPE & Intangible Assets
i. Property, Plant & Equipment 4 63,25 36,00
(b) Non Current Investments 5 7,00 5,00
2. Current Assets
(d) Inventories 12,50 9,50
(e) Trade Receivables 9,00 10,30
(f) Cash & Cash Equivalents 7,25 5,20
Total 99,00 66,00
Notes to Accounts
X Ltd. (000) Y Ltd. (000)
1. Share Capital
Equity Share Capital (₹ 10 each) 50,00 30,00
14% Preference Share Capital (₹ 100 each) 22,00 17,00
72,00 47,00
2. Reserves and Surplus
General Reserve 5,00 2,50
Export Profit Reserve 3,00 2,00
Investment Allowance Reserve - 1,00
Profit & Loss Account 7,50 5,00
15,50 10,50
3. Long Term borrowings
13% Debentures of 100 each 5,00 3,50
4. Property, Plant & Equipment
Land & Building 25,00 15,50
Plant & Machinery 32,50 17,00
Furniture 5,75 3,50
63,25 36,00
5 Non Current Investments
Investments at cost 7,00 5,00
X Ltd. takes over Y Ltd. on 1st April, 2020. X Ltd. discharges purchase consideration as below:
(i) Issued 3,50,000 equity shares of ₹ 10 each at par to the equity shareholders of Y Ltd.
(ii) Issued 15% preference shares of ₹ 100 each to discharge the preference shareholders of
Y Ltd. at 10% premium.
(iii) The debentures of Y Ltd. will be converted into equivalent number of debentures of X Ltd.
The statutory reserves of Y Ltd. are to be maintained for 2 more years.
Show the balance sheet of X Ltd. after amalgamation on the assumption that:
(a) the amalgamation is in the nature of merger.
(b) the amalgamation is in the nature of purchase
(Ans (i) Purchase Consideration 5370 & Balance Sheet Total 16,500 (ii) Capital Reserve 380)
Question 8 (ICAI Study Material) Pg no._____
Super Express Ltd. and Fast Express Ltd. were in competing business. They decided to form
a new company named Super Fast Express Ltd. The balance sheets of both the companies
were as under:
Particulars Notes Super Express Fast Express
Ltd. Ltd.
Equity and Liabilities
1 Shareholders’ funds

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CA NITIN GOEL AMALGAMATION (AS 14)

a Share capital 1 20,00,000 10,00,000

b Reserves and Surplus 2 1,00,000 2,60,000
2 Non-current liabilities
a Long term provisions 3 1,00,000 --
3 Current liabilities
a Trade Payables 60,000 40,000
Total 22,60,000 13,00,000
Assets
1 Non-current assets
a Property, Plant and Equipment 4 14,00,000 11,00,000
b Intangible assets 5 -- 1,00,000
2 Current assets
a Inventories 3,00,000 40,000
b Trade receivables 2,40,000 40,000
c Cash and Cash equivalents 6 3,20,000 20,000
Total 22,60,000 13,00,000

Notes to accounts
Super Express Ltd. Fast Express Ltd.
1 Share Capital
Equity shares of ₹ 100 each 20,00,000 10,00,000
2 Reserves and Surplus
Insurance reserve 1,00,000 --
Employee profit sharing reserve -- 60,000
Reserve account -- 1,00,000
Surplus -- 1,00,000
1,00,000 2,60,000
3 Long term provisions
Provident fund 1,00,000 --
Total 1,00,000 --
4 Property, Plant and Equipment
Land and Building 10,00,000 6,00,000
Plant and machinery 4,00,000 5,00,000
14,00,000 11,00,000
5 Intangible assets
Goodwill -- 1,00,000
-- 1,00,000
6. Cash and Cash Equivalents
Cash at Bank 2,20,000 10,000
Cash in hand 1,00,000 10,000
3,20,000 20,000
The assets and liabilities of both the companies were taken over by the new company at their
book values. The companies were allotted equity shares of ₹ 100 each in lieu of purchase
consideration amounting to ₹ 30,000 (20,000 for Super-Fast Express Ltd and 10,000 for Fast
Express Ltd.).
Prepare opening balance sheet of Super Fast Express Ltd. considering pooling method.
(Ans: Balance Sheet Total 35,60,000)

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 CA NITIN GOEL AMALGAMATION (AS 14)

Question 9 Pg no._____
X Co. Ltd. having share capital of ₹50 lakhs divided into equity shares of ₹10 each was taken
over by Y Co. Ltd. X Co. Ltd. has General Reserve of ₹10,00,000 and Profit and Loss account
Cr. ₹5,00,000. Y Co. Ltd. issued 11 equity shares of ₹10 each for every 10 shares of X Co. Ltd.
How the Journal entry would be passed in the books of Y Co. Ltd. for the shares issued under
the ‘pooling of interest method’ of amalgamation. (Ans: Purchase Consideration 55,00,000)

Question 10 (Inter May 2019) (10 Marks) / (RTP May 2013) Pg no._____
Following are the summarized Balance Sheet of VT Ltd. and MG Ltd. as on 31st March, 2020:
Particulars VT Ltd. MG Ltd.
Equity & Liabilities
Equity share of ₹ 10 each 12,00,000 6,00,000
10% Pref. Shares of ₹ 100 each 4,00,000 2,00,000
Reserves and Surplus 6,00,000 4,00,000
12% Debentures 4,00,000 3,00,000
Trade Payables 5,00,000 3,00,000
31,00,000 18,00,000
Assets VT Ltd. MG Ltd.
Property, Plant & Equipment 14,00,000 5,00,000
Investment 1,60,000 1,60,000
Inventory 4,80,000 6,40,000
Trade Receivables 8,40,000 4,20,000
Cash at Bank 2,20,000 80,000
31,00,000 18,00,000
Details of Trade receivables and trade payables are as under:
VT Ltd. MG Ltd.
Trade receivables
Debtors 7,20,000 3,80,000
Bills Receivable 1,20,000 40,000
8,40,000 4,20,000
Trade payables
Sundry Creditors 4,40,000 2,50,000
Bills Payable 60,000 50,000
5,00,000 3,00,000
Property, Plant & Equipment of both companies are to be revalued at 15% above book value.
Both companies are to pay 10% equity dividend, Preference dividend having been already paid.
After the above transactions are given effect to, VT Ltd. will absorb MG Ltd. on following terms:
(i) VT Ltd. will issue 16 Equity Shares of ₹ 10 each at par against 12 Shares of MG Ltd.
(ii) 10% Preference Shareholders of MG Ltd. will be paid at 10% discount by issue of 10%
Preference Shares of ₹ 100 each, at par, in VT. Ltd.
(iii) 12% Debenture holders of MG Ltd. are to be paid at 8% premium, by 12% Debentures in VT
Ltd., issued at a discount of 10%.
(iv) Inventory in Trade and Debtors are taken over at 5% lesser than their book value.
(v) ₹ 60,000 is to be paid by VT Ltd. to MG Ltd. for Liquidation expenses.
(vi) Sundry Debtors of MG Ltd. includes ₹ 20,000 due from VT Ltd.
You are required to prepare:
(1) Journal entries in the books of VT Ltd.
(2) Statement of consideration payable by VT Ltd.
(Ans: Purchase Consideration 9,80,000 & Capital Reserve 1,61,000)

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 CA NITIN GOEL AMALGAMATION (AS 14)

Question 11 (ICAI Study Material) Pg no._____

A Ltd. and B Ltd. were amalgamated on and from 1st April, 2021. A new company C Ltd. was
formed to take over the business of the existing companies. A Ltd. and B Ltd. have the
following ledger balances as on 31st March, 2021:
A Ltd. (₹ in lakhs) B Ltd. (₹ in lakhs)
Land and Building 550 400
Plant and Machinery 350 250
Investments (Non-current) 150 50
Inventory 350 250
Trade Receivables 300 350
Cash and Bank 300 200
Share Capital:
Equity Shares of ₹ 100 each 800 750
12% Preference shares of ₹ 100 each 300 200
Reserves and Surplus:
Revaluation Reserve 150 100
General Reserve 170 150
Investment Allowance Reserve 50 50
Profit and Loss Account 50 30
Secured Loans:
10% Debentures (₹ 100 each) 60 30
Trade Payables 420 190
Additional Information:
a. 10% Debenture holders of A Ltd. and B Ltd. are discharged by C Ltd. issuing such number
of its 15% Debentures of ₹ 100 each so as to maintain the same amount of interest.
b. Preference shareholders of the two companies are issued equivalent number of 15%
preference shares of C Ltd. at a price of ₹ 150 per share (face value of ₹ 100).
c. C Ltd. will issue 5 equity shares for each equity share of A Ltd. and 4 equity shares for
each equity share of B Ltd. The shares are to be issued @ ₹ 30 each, having a face value
of ₹ 10 per share.
d. Investment allowance reserve is to be maintained for 4 more years.
Prepare the Balance Sheet of C Ltd. as on 1st April, 2021 after the amalgamation has been
carried out on the basis of Amalgamation in the nature of purchase.
(Ans: Purchase Consideration 1,650 Lakhs & 1,200 Lakhs & Balance Sheet Total 3,520 Lakhs)
Question 12 (Inter Nov 2020) (15 Marks) Pg no._____
High Ltd. and Low Ltd. were amalgamated on and from, 1st April, 2020. A new company Little
Ltd. was formed to take over the business of the existing Companies. The summarized
Balance sheets of High Ltd. and Low Ltd. as on 31st March, 2020 are as under:
(₹ In Lakhs) (₹ In Lakhs)
Liabilities High Low Assets High Low
Ltd. Ltd. Ltd. Ltd.
Share Capital: PPE:
Equity Shares of ₹ 100 each 1000 850 Land and Building 670 385
14% Pref. shares of 100 each 320 175 Plant & Machinery 475 355
Reserves and Surplus Investments 95 80
Revaluation Reserve 225 110 Current Assets, Loans
& Advances
General Reserve 360 240 Stock 415 389

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 CA NITIN GOEL AMALGAMATION (AS 14)

Investment Allowance Reserve 80 40 Sundry Debtors 322 213

Profit and Loss Account 85 82 Bills Receivable 35 -
Secured Loans Cash and Bank 303 166
13% Debentures (₹ 100 each) 100 56
Unsecured Loans (Public 50 -
Deposits)
Current Liabilities & Provisions
Sundry Creditors 65 35
Bills Payable 30 -
2315 1588 2315 1588
Other Information:
(1) 13% Debenture holders of High Ltd. & Low Ltd. are discharged by Little Ltd. by issuing
such number of its 15% Debentures of 100 each so as to maintain same amount of interest.
(2) Preference Shareholders of the two companies are issued equivalent number of 15%
Preference shares of Little Ltd. at a price of ₹ 125 per share (Face Value ₹ 100)
(3) Little Ltd. will issue 4 Equity Shares for each Equity Share of High Ltd. & 3 equity shares
for each Equity Share of Low Ltd. The shares are to be issued at ₹ 35 each having a face
value of ₹ 10 per share
(4) Investment Allowance Reserve is to be maintained for two more years.
Prepare the Balance sheet of Little Ltd. as on 1st April, 2020 after the amalgamation has been
carried out in basis of in the nature of Purchase.
(Ans: Purchase Consideration 1800 Lakhs & 1111.25 Lakhs & Balance Sheet Total 3,903 Lakhs)
Question 13 (Inter Dec 2021) (15 Marks) Pg no._____

Dark Ltd. and Fair Ltd. were amalgamated on and from 1st April,2021. A new company Bright
Ltd. was formed to take over the business of the existing companies. The Balance sheets of
Dark Ltd. and Fair Ltd. as at 31st March 2021 are given below:
Particulars Note Dark Ltd. Fair Ltd.
No. (₹ in Lakhs) (₹ in Lakhs)
I Equity & Liabilities
(1) Shareholder’s Funds
(a) Share Capital 1 1,650 1,425
(b) Reserve & Surplus 2 630 495
(2) Non-Current Liabilities
(a) Long term Borrowings
10% Debentures of 100 each 90 45
(3) Current Liabilities
(a) Trade Payables 630 285
Total 3000 2250
II Assets
(1) Non-Current Assets
(a) Property, Plant & Equipment 1,350 975
(b) Non-Current Investments 225 75
(2) Current Assets
(a) Inventories 525 375
(b) Trade Receivables 450 525
(c) Cash & Cash Equivalents 450 300
Total 3,000 2,250
Notes to Accounts:

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Dark Ltd. Fair Ltd.

(₹ in Lakhs) (₹ in Lakhs)
1 Share Capital
Equity shares of 100 each 1,200 1,125
14% Preference shares of 100 each 450 300
1,650 1,425
2 Reserves & Surplus
Revaluation Reserve 225 150
General Reserve 255 225
Investment Allowance Reserve 75 75
Profit & Loss Account 75 45
630 495

Additional Information:
i. Bright Ltd. will issue 5 equity shares for each equity share of Dark Ltd. and 4 equity
shares for each equity share of Fair Ltd. The shares are to be issued @ ₹35 each having
a face value of ₹10 per share.
ii. Preference shareholders of the two companies are issued equivalent number of 16%
Preference Shares of Bright Ltd. at the price of ₹ 160 per share (face value ₹100)
iii. 10% Debentureholders of Dark Ltd. & Fair Ltd. are discharged by Bright Ltd., issuing such
number of 16% Debentures of ₹ 100 each so as to maintain the same amount of interest.
iv. Investment Allowance Reserve is to be maintained for 4 more years.
v. Liquidation expenses are for the Dark Ltd. ₹ 6,00,000 and for Fair Ltd. ₹ 3,00,000. It is
decided that these expenses would be born by Bright Ltd.
vi. All the assets & liabilities of Dark Ltd. and Fair Ltd. are taken over at Book value.
vii. Authorised equity share capital of Bright Ltd. is ₹ 15,00,00,000 divided into equity shares
₹10 each. After issuing required number of share to the Liquidators of Dark Ltd. and
Fair Ltd., Bright Ltd. issued balance shares to the Public. The issue was fully subscribed.
You are required to prepare Balance sheet of Bright Ltd. as at 1st April 2021 after amalgamation
has been carried out on the basis of amalgamation in the nature of purchase.
(Ans: Purchase Consideration 2820 Lakhs & 2055 Lakhs & Balance Sheet 7449.375 Lakhs)

Question 14 (ICAI Study Material) Pg no._____

Sun and Neptune had been carrying on business independently. They agreed to amalgamate
and form a new company Jupiter Ltd. with an authorised share capital of ₹ 4,00,000 divided
into 80,000 equity shares of ₹ 5 each.
On 31st December, 2019, summarized Balance Sheets of Sun and Neptune were as follows
Sun (₹) Neptune (₹)
Share Capital 3,65,000 3,52,500
Current Liabilities 5,97,000 1,80,250
Property, Plant & Equipment 6,35,000 3,65,000
Current Assets 3,27,000 1,67,750
Additional Information:
(a) Revalued figures of Property, Plant & Equipment and Current Assets were as follows:
Sun (₹) Neptune (₹)
Property, Plant & Equipment 7,10,000 3,90,000
Current Assets 2,99,500 1,57,750
(b) The Trade receivables and Trade payables—include ₹ 43,350 owed by Sun to Neptune

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The purchase consideration is satisfied by issue of the following shares and debentures:
(i) 60,000 equity shares of Jupiter Ltd., to Sun and Neptune in the proportion to the
profitability of their respective business based on the average net profit during the last
three years which were as follows:
Sun (₹) Neptune (₹)
2017 Profit 4,49,576 2,73,900
2018 (Loss)/Profit (2,500) 3,42,100
2019 Profit 3,77,924 3,59,000
(ii) 15% debentures in Jupiter Ltd., at par to provide an income equivalent to 8% return on
capital employed in their respective business as on 31st December, 2019 after revaluation
of assets.
You are requested to:
(1) Compute the amount of debentures and shares to be issued to Sun and Neptune.
(2) A Balance Sheet of Jupiter Ltd., showing the position immediately after amalgamation.
(Ans: Purchase Consideration 3,57,500 & 3,58,500 & Balance Sheet Total 15,13,900)
TOPIC 3&4: BOOKS OF PURCHASING COMPANY & VENDOR COMPANY

Question 15 (Inter Jan 2021) (20 Marks) Pg no._____

Galaxy Ltd. and Glory Ltd., are two companies engaged in the same business of chemicals. To
mitigate competition, a new company Glorious Ltd, is to be formed to which the assets and
liabilities of the existing companies, with certain exception, are to be transferred. The
summarized Balance Sheet of Galaxy Ltd. and Glory Ltd. as at 31st March, 2020 are as follows:
Galaxy Ltd. Glory Ltd.
(I) Equity & Liabilities
(1) Shareholders' fund
Share Capital
Equity shares of ₹ 10 each 8,40,000 4,55,000
Reserves & Surplus
General Reserve 4,48,000 40,000
Profit & Loss A/c 1,12,000 72,000
(2) Non-current Liabilities
Secured Loan
6% Debentures - 3,30,000
(3) Current Liabilities
Trade Payables 4,20,000 1,83,000
Total 18,20,000 10,80,000
(II) Assets
(1) Non-current assets
Property, Plant & Equipment
Freehold property, at cost 5,88,000 3,36,000
Plant & Machinery, at cost less depreciation 1,40,000 84,000
Motor vehicles, at cost less depreciation 56,000
(2) Current Assets
Inventories 3,36,000 4,38,000
Trade Receivables 4,62,000 1,18,000
Cash at Bank 2,38,000 1,04,000
Total 18,20,000 10,80,000
Assets and Liabilities are to be taken at book value, with the following exceptions:

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(i) The Debentures of Glory Ltd. are to be discharged, by the issue of 8% Debentures of
Glorious Ltd. at a premium of 10%.
(ii) Plant and Machinery of Galaxy Ltd. are to be valued at ₹ 2,52,000.
(iii) Goodwill is to be valued at:
Galaxy Ltd. ₹ 4,48,000 Glory Ltd. ₹ 1,68,000
(iv) Liquidator of Glory Ltd. is appointed for collection from trade debtors and payment to
trade creditors. He retained the cash balance and collected ₹ 1,10,000 from debtors and
paid ₹ 1,80,000 to trade creditors. Liquidator is entitled to receive 5% commission for
collection and 2.5% for payments. The balance cash will be taken over by new company.
You are required to:
(2) Compute the number of shares to be issued to the shareholders of Galaxy Ltd. and Glory
Ltd, assuming the nominal value of each share in Glorious Ltd. is ₹ 10.
(3) Prepare Balance Sheet of Glorious Ltd., as on 1st April, 2020 and also prepare notes to
the accounts as per Schedule III of the Companies Act, 2013.
(Ans: Purchase Consideration 19,60,000 & 7,20,000 & Balance Sheet Total 34,30,000)
Question 16 Pg no._____
The Balance Sheet of Reckless Ltd. as on 31st March, 2020 is as follows:
₹
Assets:
Freehold premises 2,20,000
Machinery 1,77,000
Furniture & fittings 90,800
Stock 3,87,400
Trade Receivables 95,000
Less : Provision for doubtful debts (4,000) 91,000
Cash in hand 2,300
Cash at bank 1,56,500
11,25,000
Liabilities:
60,000 Equity shares of ₹ 10 each 6,00,000
Pre–incorporation profit 21,000
Contingency reserve 1,35,000
Profit and loss account 1,26,000
Trade Payables 1,33,000
Provision for income–tax 1,10,000
11,25,000
Trade receivables consist of debtors amounting ₹ 80,000 and bill receivables worth ₹ 15,000.
Trade payables consist of creditors amounting to ₹ 1,13,000 and acceptances worth ₹ 20,000.
Careful Ltd. decided to take over Reckless Ltd. from 31st March, 2020 with the following assets
at value noted against them:
₹
Bills receivable 15,000
Freehold premises 4,00,000
Furniture and fittings 80,000
Machinery 1,60,000
Stock 3,45,000
¼of the consideration was satisfied by the allotment of fully paid preference shares of ₹ 100
each at par which carried 13% dividend on cumulative basis. The balance was paid in the form
of Careful Ltd.’s equity shares of ₹ 10 each, ₹ 8 paid up.

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Sundry Debtors realised ₹ 79,500. Acceptances were settled for ₹ 19,000. Income–tax
authorities fixed the taxation liability at ₹ 1,11,600. Creditors were finally settled with the
cash remaining after meeting liquidation expenses amounting to ₹ 4,000.
You are required to :
a) Calculate the number of equity shares and preference shares to be allotted by Careful Ltd.
in discharge of consideration.
b) Prepare the important ledger accounts in the books of Reckless Ltd.; and
c) Pass journal entries in the books of Careful Ltd. with narration
(Ans: Purchase Consideration 10,00,000 Payment to Creditors 1,03,700 & Realisation Profit
1,18,000)
Question 17 Pg no._____
The following was the Balance Sheet of Rashmi Limited as on 31st March, 2020:
Balance Sheet as at 31.03.2020
Note No. Amount (₹)
A. Equity and Liabilities
1. Shareholders’ Fund
(a) Share Capital 1 18,00,000
(b) Reserves & Surplus 2 8,40,000
2. Non-Current Liabilities
Long term Borrowings 3 2,85,000
3. Current Liabilities
Trade Payables 75,000
Total 30,00,000
B. Assets
3. Non-Current assets
(a) Property, Plant & Equipment & Intangible Assets
(i) Property, Plant & Equipment 4 18,00,000
(ii) Intangible Assets 1,40,000
(b) Non Current Investments 5 1,60,000
4. Current Assets
(a) Inventories 6,24,000
(b) Trade Receivables 1,08,000
(c) Cash & Cash Equivalents 1,68,000
Total 30,00,000

Note No. Particulars Amount

1. Share Capital: Issued, Subscribed and Paid up
1,80,000 share of ₹ 10 each fully paid up 18,00,000
Total 18,00,000
2. Reserve and Surplus:
General Reserve 4,10,000
Profit & Loss A/c 1,30,000
Less: Preliminary Exp. (30,000) 1,00,000
Export Profit Reserve 2,50,000
Investment Allowance Reserve 80,000
Total 8,40,000
3. Long term Borrowing:
9% Secured Debenture of ₹ 100 each fully paid up 2,85,000
Total 2,85,000

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4. Property, Plant & Equipment:

Freehold Property 12,40,000
Plant & Machinery 5,60,000
Total 18,00,000
5. Non-Current Investments:
Other Investments 1,60,000
(Current Market value ₹ 1,30,000)
Total 1,60,000
On 1st April, 2020 Nitin Ltd. agreed to absorb the business of Rashmi Ltd. on the following
terms and conditions:
(i) The purchase consideration would be settled by Nitin Ltd. as under:
(1) 3,00,000 equity shares of 10 each issued by Nitin Ltd. by valuing its share at 12 per share
(2) Cash payment equivalent to ₹ 5 for every share in Rashmi Ltd.
(ii) The issue of such an amount of fully paid 10% debentures in Nitin Ltd. at 95% as is
sufficient to discharge 9% debenture in Rashmi Ltd. at a premium of 25%.
(iii) Nitin Ltd. will takeover the Freehold property at 120% more than the book value and Plant
& Machinery at 10% less than the book value. Inventories at ₹ 5,20,000 and Trade
receivables at their book value subject to a provision of 8% for doubtful debts.
Investments will be taken over at current market value. Nitin Ltd. will take over trade
payables at book value.
(iv) Liquidation expenses are to be reimbursed by Nitin Ltd. to the extent of ₹ 30,000. The cost
of liquidation: ₹ 50,000.
(v) Statutory reserves are to be maintained for 2 more years.
You are required to:
(a) Prepare the Realisation Account, Nitin Ltd. Account, Shareholders Accounts and
Debenture Account in the book of Rashmi Ltd. and
(b) Write up journal entries in the books of Nitin Ltd. regarding acquisition of business.
(Ans: Purchase Consideration 45,00,000 Realisation Profit 18,60,000 Goodwill (bal. fig.)
8,01,890)
Question 18 (Inter May 2018 (20 Marks) / RTP Nov 2020) Pg no._____
The financial position of X Ltd. and Y Ltd. as on 31st March, 2020 was as under:
X Ltd. Y Ltd.
Equity and Liabilities
Equity Shares of ₹ 10 each 30,00,000 9,00,000
9% Preference Shares of ₹ 100 each 3,00,000 -
10% Preference Shares of ₹ 100 each - 3,00,000
General Reserve 2,10,000 2,10,000
Retirement Gratuity Fund (long term) 1,50,000 60,000
Trade Payables 3,90,000 2,40,000
Total 40,50,000 17,10,000
Assets
Goodwill 1,50,000 75,000
Land & Buildings 9,00,000 3,00,000
Plant & Machinery 15,00,000 4,50,000
Inventories 7,50,000 5,25,000
Trade Receivables 6,00,000 3,00,000
Cash and Bank 1,50,000 60,000
Total 40,50,000 17,10,000
X Ltd. absorbs Y Ltd. on the following terms:

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a) 10% Preference Shareholders are to be paid at 10% premium by issue of 9% Preference

Shares of X Ltd.
b) Goodwill of Y Ltd. on absorption is to be computed based on two times of average profits
of preceding three financial years (2018-19 : ₹ 90,000; 2017-18 : ₹ 78,000 and 2016-17: ₹
72,000). The profits of 2016 -17 included credit of an insurance claim of ₹ 25,000 (fire
occurred in 2015-16 and loss by fire ₹ 30,000 was booked in Profit and Loss Account of that
year). In the year 2017 -18, there was an embezzlement of cash by an employee amounting
to ₹ 10,000.
c) Land & Buildings are valued at ₹ 5,00,000 and the Plant & Machinery at ₹ 4,00,000.
d) Inventories are to be taken over at 10% less value and Provision for Doubtful Debts is to be
created @ 2.5%.
e) There was an unrecorded current asset in the books of Y Ltd. whose fair value amounted
to ₹ 15,000 and such asset was also taken over by X Ltd.
f) The trade payables of Y Ltd. included ₹ 20,000 payable to X Ltd.
g) Equity Shareholders of Y Ltd. will be issued Equity Shares @ 5% premium.
You are required to
a) Prepare Realisation A/c in the books of Y Ltd.
b) Show journal entries in the books of X Ltd.
c) Prepare the Balance Sheet of X Ltd. after absorption as at 31st March, 2020.
(Ans: Purchase Consideration 15,90,000 Realisation Profit 1,50,000 Balance Sheet Total
59,20,000)
Question 19 (ICAI Study Material) Pg no._____
The following are the summarized Balance Sheets of A Ltd. and B Ltd. as on 31.3.2020:
(₹ Thousands)
Liabilities A Ltd. B Ltd.
Share capital:
Equity shares of 100 each fully paid up 2,000 1,000
Reserves 1,000 -
Profit & Loss (Dr. balance) - (800)
10% Debentures 500 -
Loans from Banks 250 450
Bank overdrafts - 50
Trade payables 300 300
Total 4,050 1,000
Assets
Property, Plant & Equipment 2,700 850
Non Current Investments 700 -
Trade receivables 400 150
Cash at bank 250 -
Total 4,050 1,800
B Ltd. has acquired the business of A Ltd. The following scheme of merger was approved:
(i) Banks agreed to waive off the loan of ₹ 60 thousands of B Ltd.
(ii) B Ltd. will reduce its shares to ₹ 10 per share and then consolidate 10 such shares into
one share of ₹ 100 each (new share).
(iii) Shareholders of A Ltd. will be given one share (new) of B Ltd. in exchange of every share
held in A Ltd.
(iv) Trade payables of B Ltd. includes ₹ 100 thousands payable to A Ltd.
Pass necessary entries in the books of B Ltd. and prepare Balance Sheet after merger
(Ans: Capital Reduction (bal. fig.) 160 Purchase Consideration 2,000 Balance Sheet total 4,950)

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Question 20 (ICAI Study Material) Pg no._____

Following are summarised Balance Sheets of Yes Ltd. and No Ltd. as on 31st October, 2019:
Yes Ltd. No Ltd.
₹ (in crores) ₹ (in crores)
Equity & Liabilities:
Share capital: Authorised 25 5
Issued and Subscribed:
Equity Shares of ₹ 10 each fully paid 12 5
Reserves and surplus 88 10
Unsecured loan from Yes Ltd. - 10
Current Liabilities 33 15
133 40
Assets:
Property, Plant & Equipment: Cost 70 30
Less: Depreciation 50 24
Written down value 20 6
Investments at cost: 30 lakhs equity shares of 10 each 3
Long-term loan to No. Ltd. 10
Current Assets 100 34
133 40
On that day Yes Ltd. absorbed No Ltd. The members of No Ltd. are to get one equity share of
Yes Ltd. issued at a premium of ₹ 2 per share for every five equity shares held by them in No
Ltd. The necessary approvals are obtained. Pass journal entries in the books of the two
companies to give effect to the above if the amalgamation is in the nature of merger.
(Ans: Purchase Consideration 1.20 crores)
Question 21 (RTP May 2021) Pg no._____
Mohan Ltd. gives you the following information as on 31st March, 2020:
Share Capital:
Equity shares of ₹ 10 each 3,00,000
6,000, 9% cumulative preference shares of ₹ 10 each 60,000
Profit and Loss Account (Dr. balance) 1,70,000
10% Debentures of ₹ 100 each 2,00,000
Interest payable on Debentures 20,000
Trade Payables 1,50,000
Property, Plant and Equipment 3,40,000
Goodwill 10,000
Inventory 80,000
Trade Receivables 1,10,000
Bank Balance 20,000
A new company Ravi Ltd. is formed with authorised share capital of ₹ 4,00,000 divided into
40,000 Equity Shares of ₹ 10 each. The new company will acquire the assets and liabilities of
Mohan Ltd. on the following terms:
(i)
a. Mohan Ltd.'s debentures are paid by similar debentures in new company & for outstanding
accrued interest on debentures, equity shares of equal amount are issued at par.
b. The trade payables are paid by issue of 12,000 equity shares at par in full and final
settlement of their claims.

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c. Preference shareholders are to get equal number of equity shares issued at par. Dividend
on preference shares is in arrears for 3 years. Preference shareholders to forgo dividend
for 2 years. For balance dividend, equity shares of equal amount are issued at par.
d. Equity shareholders are issued 1 share at par for every 3 shares held in Mohan Ltd.
(ii) Current Assets are to be taken at book value (except inventory, which is to be reduced by
10%). Goodwill is to be eliminated. Property, plant & equipment is taken over at ₹ 3,08,400.
(iii) Remaining equity shares of the new company are issued to public at par fully paid up.
(iv) Expenses of ₹ 5,000 to be met from bank balance of Mohan Ltd. This is to be adjusted
from the bank balance of Mohan Ltd. before acquisition by Ravi Ltd.
You are required to prepare:
(a) Realisation account and Equity Shareholders' account in the books of Mohan Ltd.
(b) Bank Account and Balance Sheet with notes to accounts in the books of Ravi Ltd.
(Ans: Real. Loss 30,000; Purchase Consideration 1,65,400 & Balance sheet total 6,00,000)

TOPIC 5: INTRINSIC VALUE METHOD

Question 22 Pg no._____
Summarized Balance Sheet of A Limited and B Limited as at 31st March, 2020 are as follows:
Liabilities A Ltd. B Ltd. Assets A Ltd. B Ltd.
Equity share of ₹ 10 each 20,00,000 12,00,000 Sundry Assets 30,00,000 18,00,000
General reserve 4,00,000 2,20,000
Trade payables 6,00,000 3,80,000
30,00,000 18,00,000 30,00,000 18,00,000
Sundry assets of B Ltd. includes long term investment of ₹ 4,00,000, the market value of
which is now ₹ 4,80,000. A Ltd. absorbed B Ltd. on the basis of intrinsic value of the shares.
The purchase consideration is to be discharged in fully paid-up equity shares. A sum of ₹
1,00,000 is owed by A Ltd. to B Ltd., also included in the Inventory of A Ltd. is ₹ 1,20,000 goods
supplied by B Ltd. at cost plus 20%.
Give Journal entries in the books of both the companies, if entries are made at intrinsic value.
Also prepare Balance Sheet of A Ltd. after absorption.
(Ans: Purchase Consideration 15,00,000 Balance Sheet total 47,60,000)

Question 23 (Inter May 2022) (20 Marks) Pg no._____

The summarized Balance Sheet of A Ltd. and B Ltd. as at 31st March,2022 are as under:
A Ltd. (in ₹) B Ltd. (in ₹)
Equity shares of ₹10 each, fully paid up 30,00,000 24,00,000
Securities Premium Account 4,00,000
General Reserve 6,20,000 5,00,000
Profit and Loss Account 3,60,000 3,20,000
Retirement Gratuity Fund Account 1,00,000
10% Debentures 20,00,000
Unsecured Loan (including loan from A Ltd.) 6,00,000 8,20,000
Trade Payables 1,00,000 3,40,000
71,80,000 43,80,000
Land and Buildings 28,00,000 21,00,000
Plant and Machinery 20,00,000 7,60,000
Long term advance to B Ltd. 2,20,000
Inventories 10,40,000 7,00,000
Trade Receivables 8,20,000 5,20,000

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Cash and Bank 3,00,000 3,00,000

71,80,000 43,80,000
B Ltd. is to declare & pay ₹ 1 per equity share as dividend, before the following amalgamation
takes place with Z Ltd.
Z Ltd. was incorporated to take over the business of both A Ltd. and B Ltd.
a) The authorized share capital of Z Ltd. is ₹ 60 lakhs divided into 6 lakhs equity shares
of ₹ 10 each.
b) As per Registered Valuer the value of equity shares of A Ltd. is ₹ 18 per share and of
B Ltd. is ₹ 12 per share respectively and agreed by respective shareholders of the
companies.
c) 10% Debentures of A Ltd. to be issued 12% Debentures of Z Ltd. at par in consideration
of their holdings.
d) A contingent liability of A Ltd. of ₹ 2,00,000 is to be treated as actual liability.
e) Liquidation expenses including Registered Valuer fees of A Ltd.₹ 50,000 and B Ltd. ₹
30,000 respectively to be borne by Z Ltd.
f) The shareholders of A Ltd. and B Ltd. is to be paid by issuing sufficient number of fully
paid up equity shares of ₹ 10 each at a premium of ₹ 10 per share.
Assuming amalgamation in the nature of purchase, you are required to pass the necessary
journal entries (narrations not required) in the books of Z Ltd. and Prepare Balance Sheet of
Z Ltd. immediately after amalgamation of both the companies.
(Ans: Purchase Consideration 54,00,000 & 28,80,000 Balance Sheet total 1,22,20,000)
Question 24 (RTP May 2020) Pg no._____
P Ltd. and Q Ltd. agreed to amalgamate and form a new company called PQ Ltd. The summa
rized balance sheets of both the companies on the date of amalgamation stood as below:
Liabilities P Ltd. Q Ltd. Assets P Ltd. Q Ltd.
Share Capital: Goodwill 1,00,000 80,000
Equity Shares of ₹ 8,20,000 3,20,000 Land & Building 4,50,000 3,40,000
100 each
9% Pref. Share of 3,80,000 2,80,000 Plant & Machinery 6,20,000 4,50,000
₹100 each
8% Debentures 2,00,000 1,00,000 Furniture & Fittings 1,00,000 50,000

General Reserve 1,50,000 50,000 Debtors 3,25,000 1,50,000

Profit & Loss Account 3,52,000 2,05,000 Stock 2,33,000 1,05,000
Creditors 88,000 1,60,000 Cash at Bank 1,08,000 95,000
Unsecured Loan - 1,75,000 Cash in hand 54,000 20,000
19,90,000 12,90,000 19,90,000 12,90,000
PQ Ltd. took over the assets and liabilities of both the companies at book value after creatin
g provision @ 5% on Stock and Debtors respectively and depreciating Furniture & Fittings by
@ 10%, Plant and Machinery by @ 10%. The debtors of P Ltd. include ₹ 25,000 due from Q Ltd.
PQ Ltd. will issue:
(1) 5 Preference shares of ₹ 20 each @ ₹ 18 paid up at premium of ₹ 4 per share for each
preference share held in both the Companies.
(2) 6 Equity shares of ₹ 20 each @ ₹ 18 paid up at a premium of ₹ 4 per share for each equity
share held in both the Companies.
(3) 6% debentures to discharge the 8% debentures of both the companies
(4) 20,000 new equity shares of ₹ 20 each for cash @ ₹ 18 paid up at premium of ₹ 4 per share

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PQ Ltd. will pay necessary cash to the Equity Shareholders of both the Companies in order to
adjust the rights as per the intrinsic value of the shares of both the Companies
Prepare ledger accounts in the books of P Ltd. and Q Ltd. to close their books
(Ans: Purchase Consideration 16,02,100 & 7,92,250 Realisation Loss 1,37,900 & 90,750)
Question 25 (RTP May 2019) Pg no._____
P Ltd. and Q Ltd. decided to amalgamate as on 01.04.2020 Their summarised Balance Sheets
as on 31.03.2020 were as follows:
Liabilities P Ltd. ₹ (‘000) Q Ltd. ₹ (‘000)
Share capital: Equity shares 10 each (fully paid up) 300 280
9% Preference share Capital (₹ 100 each) 60 40
Investment allowance Reserve 10 4
Profit and Loss Account 68 68
10% Debentures 100 60
Trade Payables 50 30
Tax provision 14 8
602 490
Assets
Building 120 100
Plant and Machinery 160 140
Investments 80 50
Trade receivables 90 70
Inventories 72 80
Cash and Bank 80 50
602 490
From the following information, you are required to prepare the Balance Sheet as on
01.04.2020 of a new company, R Ltd., which was formed to take over the business of both the
companies and took over all the assets and liabilities:
a) 50 % Debenture are to be converted into Equity Shares of the New Company.
b) Investments are non- current in nature.
c) Fixed Assets of P Ltd. were valued at 10% above cost and that of Q Ltd. at 5% above cost.
d) 10% of trade receivables were doubtful for both companies. Inventories to be carried at cost
e) Preference shareholders were discharged by issuing equal number of 9% preference
shares at par.
f) Equity shareholders of both the transferor companies are to be discharged by issuing
Equity shares of ₹ 10 each of the new company at a premium of ₹ 5 per share.
Give your answer on the basis that amalgamation is in the nature of purchase.
(Ans: Purchase Consideration 4,57,000 & 3,97,000 Balance Sheet total 11,15,985)
Question 26 (RTP May 2018) Pg no._____
Given below are the Balance Sheet of two companies as on 31st December, 2019.
A Limited
Liabilities ₹ Assets ₹
Share Capital: Patent 1,00,000
Issued and fully paid up Building 5,40,000
50,000 8% Cumulative 5,00,000 Plant and Machinery 15,10,000
Preference Shares of ₹ 10 each
1,50,000 Equity shares of 10 each 15,00,000 Furniture 75,000
General Reserve 7,65,000 Investment 1,55,000
Profit and Loss account 1,25,000 Stock 3,58,000

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Sundry Creditors 60,000 Sundry Debtors 72,000

Cash and Bank 1,40,000
29,50,000 29,50,000
B Limited
Liabilities ₹ Assets ₹
Share Capital: Goodwill 62,000
Issued and fully paid up Motor Car 1,26,000
50,000 Equity shares of 10 each 5,00,000 Furniture 58,000
Profit and Loss account 45,000 Stock 2,40,000
Sundry Creditors 31,000 Sundry Debtors 70,000
Cash and Bank 20,000
5,76,000 5,76,000
It has been agreed that both these companies should be wound up and new company AB Ltd.
should be formed to acquire assets of both companies on the following terms & conditions:
a) AB Ltd. is to have an authorized capital of ₹ 36,00,000 divided into 60,000, 8% cumulative
preference shares of ₹ 10 each and 3,00,000 equity shares of ₹ 10 each.
b) AB Ltd. to purchase the whole of the assets of A Ltd. (except cash and Bank balances) for
₹ 28,25,000 to be settled as to ₹ 5,75,000 in cash and as to the balance by issue of 1,80,000
equity shares, credited as fully paid, to be treated as valued at ₹ 12.50 each.
c) AB Ltd. is to purchase the whole of the assets of B Ltd. (except cash and bank balances)
for ₹ 4,91,000 to be settled as to ₹ 16,000 in cash and as to the balance by issue of 38,000
equity shares, credited as fully paid, to be treated as valued at ₹ 12.50 each.
d) A Ltd. and B Ltd. both are to be wound up, the two liquidators distributing the shares in AB
Ltd. in kind among the equity shareholders of the respective companies.
e) The creditors of A Ltd. and B Ltd. are considered to be paid by the liquidators of the
respective companies and not taken over by AB Ltd.
f) The liquidator of A Ltd. is to pay the preference shareholders ₹ 12 in cash for every share
held in full satisfaction of their claims.
g) AB Ltd. is to make a public issue of 60,000, 8% cumulative preference shares at a premium
of 10% and 30,000 equity shares at the issue price of ₹ 12.50 per share, all amount payable
in full on application.
It is estimated that the cost of liquidation (including the liquidators' remuneration) will be ₹
10,000 in case of A Ltd. and ₹ 5,000 in case of B Ltd. and that the preliminary expenses of AB
Ltd. will amount to ₹ 24,000· exclusive of the underwriting commission of ₹ 38,900 payable
on the public issue.
You are required to prepare the initial Balance Sheet of AB Ltd. on the basis that all assets
other than goodwill are taken over at the book value and preliminary expenses and
underwriting commission are to be written off.
(Ans: Purchase Consideration 28,25,000 & 4,91,000 Balance Sheet total 37,36,000)
Question 27 (RTP May 2018 / RTP Nov 2021) Pg no._____
P Ltd. & Q Ltd. agreed to amalgamate their business. The scheme envisaged a share capital
equal to the combined capital of P Ltd. & Q Ltd. for the purpose of acquiring the assets,
liabilities and undertakings of the two companies in exchange for share in PQ Ltd. The Balance
Sheets of P Ltd. & Q Ltd. as on 31st March, 2020 (the date of amalgamation) are given below:
Summarized Balance Sheet as at 31-03-2020
Equity & Liabilities P Ltd. Q Ltd. Assets P Ltd. Q Ltd.
Shareholder Funds: Non Current Assets:
Share Capital 6,00,000 8,40,000 Fixed Assets 7,20,000 10,80,000
(excluding Goodwill)

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Reserves 10,20,000 6,00,000 Current Assets:

Current Liabilities: Inventories 3,60,000 6,60,000
Bank Overdraft - 5,40,000 Trade Receivables 4,80,000 7,80,000
Trade Payables 2,40,000 5,40,000 Cash at Bank 3,00,000 -
18,60,000 25,20,000 18,60,000 25,20,000
The consideration was to be based on the net assets of the companies as shown in the above
balance sheet, but subject to an additional payment to P Ltd. for its goodwill to be calculated
as its weighted average of net profits for the 3 years ended 31st March, 2020. The weights for
this purpose for the years 2017-18, 2018-19 and 2019-20 were agreed as 1, 2 & 3 respectively.
The profit has been: 2017-18 ₹ 3,00,000; 2018-19 ₹ 5,25,000 and 2019-20 ₹ 6,30,000
The shares of PQ Ltd. were to be issued to P Ltd. & Q Ltd. at a premium & in proportion to the
agreed net assets value of these companies.
In order to raise working capital, PQ Ltd. increased its authorized capital by ₹ 12,00,000 and
proceeded to issue 72,000 shares of ₹ 10 each at the same rate of premium as issued for
discharging purchase consideration to P Ltd. & Q Ltd. You are required to:
(a) Calculate the number of shares issued to P Ltd. & Q Ltd.
(b) Prepare the Balance sheet of PQ Ltd. as per Schedule III after recording its journal entries
(Ans: Purchase Consideration 21,60,000 & 14,40,000 Balance Sheet total 61,80,000)
Question 28 (Inter July 2021) (10 Marks) Pg no._____
The summarized Balance Sheets of Black Limited and White Limited as on 31st March, 2020
is as follows:
Particulars Notes Black Limited White Limited
(₹ In 000) (₹ In 000)
Equity and Liabilities
Shareholders' Funds
(a) Share Capital 1 6,000 3,600
(b) Reserves and Surplus 2 1,080 660
Current Liabilities
Trade payables 600 360
Total 7,680 4,620
Assets
Non-Current assets
Property, Plant and Equipment 3,600 2,400
Current assets
(a) Inventories 960 720
(b) Trade receivables 1,680 1,080
(c) Cash and Cash Equivalents 1,440 420
Total 7,680 4,620

Note No. Particulars Black Limited White Limited

(₹ in 000) (₹ in 000)
1. Share Capital 6,000 3,600
Equity Shares of ₹100 each
Reserves and Surplus
2. General Reserve 360 180
Profit and Loss Account 720 480
Total 1,080 660
Black Limited takes over White Limited on 1st July, 2020.

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No Balance Sheet of White Limited is available as on that date. It is, however estimated that
White Limited earned profit of ₹ 2,40,000 after charging proportionate depreciation @ 10% p.a.
on Property Plant and Equipment, during April-June, 2020.
Estimated profit of Black Limited during these 3 months was ₹ 4,80,000 after charging
proportionate deprecation @ 10% p.a. on Property Plant and Equipment
Both the companies have declared and paid 10% dividend within this 3 months' period.
Goodwill of White Limited is valued at ₹ 2,40,000 and Property Plant and Equipment are valued
at ₹ 1,20,000 above the depreciated book value on the date of takeover.
Purchase consideration is to be satisfied by Black Limited by issuing shares at par.
Ignore income tax.
You are required to:
a) Compute No. of shares to be issued by Black Limited to White Limited against purchase
consideration.
b) Calculate balance of Net Current Assets of Black Ltd. & White Ltd. as on 1st July, 2020
c) Give balance of Profit or Loss of Black Limited as on 1st July, 2020
d) Give balance of Property Plant and Equipment as on 1st July, 2020 after takeover.
[Ans: a) 45,000 shares; b) 34,50,000 & 18,00,000; c) 6,00,000 d) 59,70,000]
Question 29 (RTP May 2022) Pg no._____
The following are Balance Sheets of Aakash Limited and Ganga Limited as at March 31, 2021:
Particulars Note Aakash Limited Ganga Limited
No. (₹) (₹)
I. Equity and Liabilities:
(1) Shareholder's Funds:
(a) Share Capital 1 80,00,000 20,00,000
(b) Reserves and Surplus 2 (3,24,00,000) 56,00,000
(2) Non-Current Liabilities:
(a) Secured Loans 3 3,20,00,000 1,60,00,000
(b) Unsecured Loans 4 1,72,00,000 -
(3) Current Liabilities:
(a) Trade Payables 56,00,000 36,00,000
(b) Other Current Liabilities 5 2,04,00,000 56,00,000
Total 5,08,00,000 3,28,00,000
II. Assets:
(1) Non-Current Assets:
Property, Plant & Equipment 68,00,000 1,36,00,000
(2) Current Assets:
(a) Inventories 3,68,00,000 -
(b) Other Current Assets 72,00,000 1,92,00,000
Total 5,08,00,000 3,28,00,000
Notes to Accounts:
Aakash Limited Ganga Limited
(₹) (₹)
1. Share Capital
Authorized, Issued, Subscribed & Paid up :
6,00,000 Equity Shares of ₹ 10 each 60,00,000 -
20,000 Preference Shares of ₹ 100 each 20,00,000 -
2,00,000 Equity Shares of ₹ 10 each - 20,00,000
80,00,000 20,00,000

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2. Reserves and Surplus

General Reserve 8,00,000 56,00,000
Surplus (3,32,00,000) -
(3,24,00,000) 56,00,000
3. Secured Loans
(Secured Loans of Aakash Limited are secured 3,20,00,000 1,60,00,000
against pledge of Inventories)
4. Unsecured Loans 1,72,00,000 -
5. Other Current Liabilities
Statutory Liabilities 1,44,00,000 20,00,000
Liability to Employees 60,00,000 36,00,000
2,04,00,000 56,00,000
Both the companies go into liquidation and a new company ‘AakashGanga Limited’ is
formed to take over their business. The following information is given:
(i) All Current Assets of two companies, except pledged inventory are taken over by
AakashGanga Limited. The realizable value of all the Current Assets (including pledged
inventory) is 80% of book value in case of Aakash Limited and 70% for Ganga Limited.
(ii) Property, Plant and Equipment of both the companies are taken over at book value by
AakashGanga Limited.
(iii) Secured Loans include ₹ 32,00,000 accrued interest in case of Ganga Limited.
(iv) 4,00,000 Equity Shares of ₹ 10 each are allotted by AakashGanga Limited at par against
cash payment of entire face value to the shareholders of Aakash Limited and Ganga
Limited in the ratio of shares held by them in Aakash Limited and Ganga Limited.
(v) Preference Shareholders in Aakash Limited are issued Equity Shares in AakashGanga
Ltd. worth ₹ 4,00,000 in lieu of their present holdings.
(vi) Secured Loan agree to continue the balance amount of their loans to AakashGanga
Limited after adjusting realizable value of pledged asset in case of Aakash Limited and
after waiving 50% of interest due in the case of Ganga Limited.
(vii) Unsecured Loans are taken over by AakashGanga Limited at 25% of loan amounts.
(viii) Employees are issued fully paid Equity Shares in AakashGanga Limited in full
settlement of their dues.
(ix) Statutory Liabilities are taken over by AakashGanga Limited at full value and Trade
Payables are taken over at 80% of the book value.
You are required to prepare the opening Balance Sheet of AakashGanga Limited as at 1.4.2021.
(Ans: Balance Sheet total 5,90,20,000)

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