External Reconstructions CONTENTS 4.1 External Reconstruction Meaning - Causes of External Reconstruction, Objects of External Reconstruction, Advantages of External Reconstruction 4.1 External Reconstruction Meaning : In external reconstruction, a new company is formed to take the business of an existing company. (Which is normally loss making, sick company) For example, if the business of XYZ Ltd. (Vendor Company) is taken over by a new company PQR Ltd, (Purchasing co.) it is called external construction. Causes of External Reconstruction : ternal Reconstruction takes place due to the following causes if : 1) The existing company is over capitalised. 2) The existing company is facing the problem ofan inadequate working capital. 3) The existing company is suffering heavy losses due to inefficiency of the concern. 4) The existing company expeets to have or to increase the goodwill of the business. Objects of External Reconstruction : Following are the objects of External Reconstruction ; 1) To avoid the disadvantayes of over capitalisation in the business. 2) To have an adequate working capital in the business. 3) To increase the efficiency of the concem and to nun it profitably. 4) To have goodwill or the increase goodwill by accepting some social responsibilities. 5) Toavoid the losses in future, 6) To develop and expand the business activities in future. Advantages of External Reconstruction : 1) Efficient working : To avoid the losses in future, the concem will be run efficiently by proper dircetion of the efficient management. 2) Adequate Working C; ; H1empts will be made to raise the working capital of the concern and it will help to run the business smoothly 3) Development & Expansion : With the help of increased funds, it will possible to develop und expand the business activities. Advantages of large scale business activities can be achieved by the concern, Scanned with CamScanner4) Trading on Equity : By avoiding the position of over capitalisation, trading on equiry will be possible. 5 increase the goodwill of the busin Illustration - 1. The following is the Balance Sheet of Small Ltd. 5) Goodwill : As new concem will accept some social responsibilities, it will help to Liabilities Rs. | Assets Rs. Equity Share Capital 5,00,000 | Intangible Assets 50,000 Debentures 1,00,000 | Fixed Assets 4,20,000 Creditors 50,000 | Currents Assets 110.000 Profit & Loss A/c 70,000 6,50,000 6,50,000 » A new company Big Ltd was formed. The directors of Big Ltd issued 20,000 equity shares a's. 10 to public and decided to take over the business of Small Ltd. on the following terms, 2) Company agreed to takeover all assets and liabilities. 3) 4) 5) 6) Debentures of Small Ltd. were paid, by Big Lid. You are required to show: a) Purchase consideration b) Ledger accounts in the books of Small Ltd. The assets of Small Ltd. are to be considered to be worth Rs. 5,00,000. The Purchase price is to be paid one-quarter in cash and the balance in shares. Liquidation expenses amounted to Rs. 300 agreed to be paid by Small Ltd. Solution : Purchase Consideration (PC) Particulars Rs, Rs, Market value of assets taken over 5,00,000 Less : Liabilities taken over Creditors 50,000 Debentures 1,00,000| _1,50,000 |__3.50,000 Purchase Consideration is to be Discharged In Cash 1/4xRs. 3,50,000 87,500 In Shares 3/4xRs. 3,50,000 |__2.62,s00 3,50,000 Scanned with CamScannerIn the Books of Small Ltd, Realisation A/c De particulars Rs. | Particulars Cr Fy intangible Assets A/C 50,000 | By Debentures A/e rT nes nkived Assets Ae 4.20,000 | By Creditors A/c “00.000 a , . 50,000 to Current Ale 1,10,000 | By Big Lid (PC) Ave 3,50,000 qo Bank (Expenses) A’e 300 | By Equity Shareholders A/e 30,300 (Loss on Realisation) 5,80,300 saa De. Equity Shareholders A/e Cr Particulars Rs. | Particulars Rs. To Realisation A/c 80,300 | By Equity Share Capital A/c 5,00,000 To Profit & Loss A/e 70,000 | To Bank Ave 87,000 To Shares in Big Ltd A/e 2,62,500 3,00,000 5,00,000 Dr. Big Ltd. A/c Cr. Particulars Rs. | Particulars Rs. To Realisation A/c 3,50,000 | By Bank A/c 87,500 By Shares in Big Ltd, A/c 2,62,500 3,50,000 3,50,000 Dr. Bank A/c Cr Particulars Rs. | Particulars Rs. | To Big Ltd A/e 87,000 | By Realisation A/c 300 By Equity Shareholders A/c 87,500 87,500 87,500 Dr. Equity Shares in Big Ltd. Particulars Rs. | Particulars To Big Ltd. Ale 2,62,500 | By Equity Sharehalders A/c 2,62,500 Scanned with CamScannerMlustrati ; . n= 2, : have Method - without St (Problem on Business P Method) Ret a series of heavy lovses resolve to go into ome ea to ee ale a vompany under the wane New Ram Company, late of Fevonstruction the Balance Sheet of P.Campany as flows Ralance Sheet of P-Company — ——-——— R ‘lt a — esoF Rs. § | 10,00,000 | Buildings 3,92,5 anes ERS | I Machinery Motor | 2.39.009| E y a | | Sundry Creditors 30,000 | lorry Stock 19,400 Bank Loan 15,000 } Sundry Debtors Bank 91410 is c 0,000 P&LAI 1,09,100 Bilis Payable 10,0¢ a 2,00,000 10,55,000 The following 1 eme of reconstruction (a) The new company is to take over the Assets of the old company and not the Liabilities. (by (0 consist of 5,00,000 shares of Rs, 5 each. (cy pany is to issue share as paid up to the old e, Purchase consideration, | (2 The balance of Rs, 2.50 per share payable by the members of the new company is duly | received. Record the Journal Solution : 2,80,000 shares of Rs. $ each credited with R: 8. 2,50 per ‘ompany and to pay to it Rs, 1,00,000 in cash by way of ) Entries in the books of both the companies, (KBC NMU) 1) Calculation of Purchase Considerati Since the total payments made by P “Net Payments Method’ of cal Uirchasing Company to Vendor Company lating Purchase Consideration must be adopted. ment in Shares of New Company : is specified, Particulars Rs. [2.40.00 shares a Ra 2.50 each 7,00,000 Payment in Cash 1,00,000 PC, §,00,000 Discharge of Purchase Consideration In Shares of New Ram Compa y 7,00,000, In Cash 1,00,000 [ #.00,000 Scanned with CamScanner) : ; Closing the books of Vendor Com pany (P Journal Entrieg Companyy 7 Particulars SS aa Realisation A “Del Deni Ry, [ Credits To Buildings A/e 55,000, To Machinery A/e 392.500 To Motor Lorry Ave 239,000 Tw Stock Ne 19.400 To Sundry Debtors Ae OVA ToRank Ae 1.09,100 {Being Assets to Realisation A/e transfer at BLY.) 3.590 Sundry Creditors Ale Dr 30,000 Bank Loan Ac Dr. 15,000 Bills Payable Ac Dr. 10,000 To Realisation A/c 55,000 (Being habilities Transfer to realisation A/c) “Share Capital A’e Dr. 10,00,000 To Shareholders A/c 10,00,000 (Being Share capital transfer) Shareholders Ave Dr. 2,00,000 To Profit and Loss A/c 2,00,000 (Being P & L Alc transfer) New Ram Co. Ave Dr. 8,00,000 To Realisation A/c 8,00,000 (Being Purchase Consideration duc recorded) Realisation A/e Dr. 55,000 To Bank Aic 55,000 (Being Creditors Bank Loan and Bills payble not taken over, paid recorded) Shareholders A/c Dr $5,000 is 55,000 (Being loss on realisation transferred recorded) Shares in New Ram Co, A/c Dr. 7,00,000 Bank A/c 1,00,000 ‘To New Ram Co. A/e. 8,00,000 (Being Purchases Consideration recorded) Shareholders A/e Dr. 7,00,000 ‘To Shares in New Ram Co.A/e 7,00,000 (Being Purchase Consideration discharges recorded) Scanned with CamScannerDr 45,000 Shareholders A/c 45. 009 To Bank A/c . (Being balance paid recorded) 3) Opening Entries in the books of Purehasing Company (New Ram Co.) Particulars Lr} Debit Rs. | Credit Rs] Business Purchase A/c Dr. §,00,000 | To Liquidator of P Co. A‘e 8,00,000 (Being Purchase Consideration due Liquidator of P 1 8,00,000 To Share Capital Ave 700,000 To Bank Ac 1,00,000 (Being Purchase Consideration discharged recorded) Building A/c Dr. 3,92,500 Machinery Ae Dr. 2,39,000 Motor Lorry Ae Dr. 19,400 Stock Ave Dr. 91,410 Sundry Debtors A/c Dr. 1,09,100 Bank A/c Dr. 3,590 To Business Purchase A/e (PC.) 8,00,000 To Capital Reserve A/c (Balancing figure) 55,000 (Being assets and liabilities taken over, incorporated recorded) Share Call Ave Dr. 7,00,000 To Share Capital A/e 7,00,000, (Being the balance of Rs. 2, 50 per share due recorded) Bank A/c Dr. 7,00,000 To Share Call A’e 7,00,000 (Being call money received recorded) Illustration - 3. The following is the Balance Sheet of X Co. Ltd. as on 31.12.2019 Liabilities Rs. Assets Rs. Share Capital (Rs. 10 each) 1,20,000 | Land & Building 1,00,000 Creditors 30,000 | Plant & Machinery Bank O/D 28,000 | Stock Debtors P&LAC 1,000 1,78,000 1,78,000 ‘The company went into voluntary liqu jon and the assets were sold to Y Company Limited for Rs. 1,50,000 payable as to Rs. 60,000 in cash and Rs. 90,000 in the form of 12,000 Shares of Scanned with CamScannerzs, }o each of ¥ Company Ltd. at Rs, 7.50 per share Paid - up to uf tid = Up to the sh; 1d. . : The Creditors and Bank Overdraft are not lobe 2,000 to be paid by vendor company, In the bo account, Shareholders Account and Y Company A taken over, Thy © expenses of | : of liquids WOKS OF X ¢ ompany 14g Prep ation were CCOUNL, Also py Calisation sry Company “ss Opening eninies in the books solution ? Mode of Payment of Purchase Consideration, 1) 12.000 Equity Shares of Rs. 10 each 90,000 50 per share paid up (12,000 x 7,5) 60,000 Purchase Consideration 30,000" In the Books of X Limited (Vendor Company) Realisation A/c Particulars Rs. Particulars [__RS. To Land & Building A/c 1,00,000 | By Creditors A/e 30,000 To Plant & Machinery A/c 40,000 | By Bank O/D A/c 28.000 | To Stock A/c 15,000 | By Y Co. A/c (PC) 1,50,000 To Debtors A/c 22,000 | By Equity Shareholders A/c 29,000 To Cash A/c (Loss) (B.F.) Creditors 30,000 = Bank O/D 28,000 58,000 To Cash A/c (Expenses) 2,000 2,37,000 237,000 Equity Shareholder’s A/c Particulars Rs. Particulars Rs. ToP&LA/e 1,000 | By Equity Share Capital Ac 1,20,000 To Realisation A/c (Loss) 29,000 To Equity Share in Y Ltd. A/c 90,000 1,20,000 1,20,000 Cash A/c Particulars Rs. Particulars Rs. To ¥'s Co.A/e 60,000 | By Realisation A/c 58,000 (Crs. & O.D.) By Realisation A/c (Exp.) | = 60,000 50.0 Scanned with CamScanner_——_ Y Cor Re Particula co Fay bay Shaves im ¥ Ltd [90.000 To Realisation Nc = 1,s0,000] Hy Fe 60,000 By Cosh 1,500 1s0oo0} L000) In the Books of Y Limited (Purchasing Company) Journal Entries [eare) Debit Rs. | Credit Rs, Particulars 0 ~ — 150,000 Business Purchase. 6 Dr} 1.30.00 150,000 To Liquadator’s of X Ltd, Ae " purehave convideration Due) Land & Buikiing Ac oe Dr. 1,00,000 J Machinery Ae Dr.) 40,000 tock Ae . Dr.| 15,000 Debtors Ac Dr} — 22,000 To Business Pury 1,50,000 To Capital Reserve Ae (Balaneing figure) 27,000 sets and liabilities taken over Liguidator’s of X Lid. Ave Dr.| 1,50,000 To Equity Share in ¥ Ltd. Ave 90,000 To Cash Ac 60,000 _(Being payment of purchase consideration) Illustration - 4, Bharat Limited was absorbed by India Limited on 31.12.2019 on which date the Balance Sheet of Bharat Limited was as follows ; ___ Liabilities Rs, Assets Rs, Equity Share Capital 6.00,000 | Building 4.00,000 S¢, Preference Share Capital 4,00,000 | Plant 00,000 | Sundry Creditors 110,000 | Debtors 150,000 | Stock 50,000 | P& LAceount |__3.10,000 | | 0,900 | 11.10.00] India Limited took over buildings at Rs, 3.0000, Plant at Rs. 140,000 and Stock at ied by the issue of 8% Preference Shares aft Rs, 60,000 The purchuse consicleration is to be satis Rs. 100 cach and Equity Shares of Rs, 10 each in 3:2 ratio. The Preference Sharcholdery are to be settled in full by the allotment of ne Shares. Sundry debiors realised Rs. 1,50,000 and Rs, 1,00,000 was paid fo Sunt full settlement. Cost ol hquidation Rs, 10,000, er accounts in the books of Bharat Limited. Preference Creditors in Prepare necessary led Scanned with CamScanner-,qutio” king Notes: Worl Caleulati Purchase C 1) Caleutation of ¢ Consideration : (Ne Assets taken over values (Net Assets Method) Buildings Rs, 3.00.00, Plant ak 140,000 ; 7 60,000 Purchase consideration sm00r 2) Mode of payntent of purchase consideration : — (a) So Preference 3 $00,000 x z (b) Equity Shares of Rs. 10 each 2 7 Total §,00,000 x Shares of Rs. 100 each 3,00,000 2,00,000 In the Books of Bharat Limited Realisation A/c iz Particulars Rs. Particulars Rs. 7.00.00 | By Sundry Creditors A/e [110.000 2,00,000 | By India Lid. A’e (PC) §,00,000 To Debtors A/c 1 By Cash A/c (Debtors realised) 1,50.000 ock Nic 50,000 | By Preference Shareholders A/c 1,00,000 Jo Cash A’e (Creditors paid) 100,000 | By Equity Shareholders A/e (Loss) $0,000 | quity To Cash Ave (Expenses) 10,000 | 9,10,000 910,000 India Limited A/e Particulars Rs. Particulars Rs. To Realisation A/c 500,000 | By Preference Shares in India Lid. | 3.00.00 By Equity Shares in India Ltd. 2,00,000 5,00,000 5,00,000 Equity Shareholder's Ale = Particulars Rs. Particulars Rs. ToP&LAC T a . 3.10,000 | By Equity Share Capital Ae 6,00,000 To Realisation A/c (Loss) 50.000 To Equity Shares in India Ltd Zoo'o00 To Cash Ave (Balancing figure 2.004 alaneing figure) 40,000 _ . [| _ = 6,00,000 $.00,000 so Scanned with GamcannerPreference Shareholders A/c Particulars Rs, Particulars Rs. To 8% Preference Share Capital A/c | 3.00,000| By 5% Preference Share Capital A/e 4,00,000 To Realisation A/e (BF) 100,000 |—____ 4,00,000 _ 4.00,000 Cash Ave Particulars Rs. Particulars : Rs. | To Realisation Ac (Debtors) 1,50,000 | By Realisation A/c (Creditors) 1,00,000 By Realisation A/e (Expenses) 10,090 By Equity Shareholders A/c |__ 40,000 | 1,50,000 1,50,000 Mlustration - 5. . The Balance Sheet of H. Ltd. was as follows on 31-12-2019 Liabilities Rs. Assets | Rs. | Authorised and Issued Capital Goodwill 40,000 | 5.000 6°o preference Shares of Sundry Other Assets 1,64,500. Rs. 10 cach fully paid 50,000 | Patents 15,000 | 15,000 ordinary shares of Rs.10 Cash 500 h fully paid 1,50,000 | Profit & Loss A/c 28,000 | 9° Debentures, 30,000 | Preliminary Expenses 2,000 Investment Allowance Reserve 10,000 Creditors 10,000 Preference dividend is in arrears : for + years 2,50,000 2,50,000 A Scheme of extemal reconstruction was agreed upon as follows. a) (2) (3) (4) (5) (6) 7) Anew company called J Ltd. was formed with an authorised capital of Rs. 3,25,000 all in ordinary shares of Rs. 10. One ordinary share, Rs, 5 paid, in new company to be issued to each ordinary share held in H. Lid. . Two ordinary shares, Rs. 5 paid, in the company to be issued for each preference share in H. Ltd. Arrears to be cancelled. Debenture holders are to get 3,000 ordinary shares in the new company credited as fully paid. Creditors to be taken over by new company, The new company to take over the old company’s assets except patents, subject to writing down “Sundry assets" by Rs, 35,000, Scanned with CamScannerPatents were realised by Hl Ltd. for Rs. 1,000, ) o Investment allowance Reserve ic. Statutory Reserve Cont show : (i) Realisation Account (ii) Equity Holders Accounts iNT con if 1) TL. Account in H Lad. J golution # EBC} paths (KE ation of Purchase C ‘onsideration py Caleut payments made to cach item of liability are. 5) cally giver rey payments Method’ of ealeutating 1s Conideclion mua te ated payment to Preference Shareholders ; Rs. adopted In Equity Shares of J Ltd. (5,000 Pret. shares x 2 Equity shares per 50,000 pret stares RSS) Payment to Kquity Shareholders : In Equity Shares of J Ltd (15,000 Equity Shares x 1] Equity share per share x Rs. 5) 75,000 Purchase Consideration 125,000 I) Discharge of Purchase Consideration Rs. In Partly paid Equity Share of J Ltd. 1,25,000 T,25,000 IID) Closing the books of vendor Company Books of H Ltd. Realisation A/c Particulars = Rs. Particulars Rs. | To Goodwill Aic 40,000 | By 9% Debentures A/c 30,000 | 1,64,500 | By Investment Allowance Reserve io.00| Io Sundry Assets A/e To Pa To cash ents A/c 15,000 | By Creditors A/c 10,000 500 | By J Ltd. A/e (P.C.) By Bank Ae (Patents realised) 1,25,000 By Shareholders A/e 1,000 (Balancing figure-loss) 2,20,000 Ale 2,20,000 mT JLtd, Ave isation Ave Rs. Particulars | Rs. | (rurchase Consideration) 1,25,000 | By Equity Shares in J Ltd Ave 125,000 a _ 125,000 1,25,000 Scanned with CamScannerity Shareholder Ale Rs Particulars a jeulars se | ras Canial’Ale : To Prot Patti 28,000 | By Equity Share Capital A/c 1,50,009 © Profit & Loss Ae an Y To Preliminary Expenses Ave 2.000 To Equity Shares in J Ltd. Ave 75.000 To Realisation A ¢ (loss) 44.000 To Bank Ae 1.000 (Balancing figure) 150,000 | 1.50.00] eee ____—___|_ 1.80000] re’s In J Ltd. Ale Rs. Particulars Rs. 1,25,000 | By Equity Shareholders A/e 75,000 | By Preference Shareholds A/e 50,000 | 1,25,000 1,25,000 Bank A/c ir Particulars Rs, Particulars “Rs. ] To Realisation Ac 1,000 | By Equity Shareholders Ave 1,000 (Patents realised) _| | 1,000 1,000 Note : Arrears of Preference dividend Is not a recorded item. Hence, there is no entry for its cancellation, : Mlustration - 6, Aqua Engineers Ltd. an 31-03-2020 The Summ: [ Liabitities lewly formed com, pany acquired the business ary Balance Sheet of Be: of Beeta Ltd, as on eta Ltd. as on that date w: ‘as as under, Rs. | Assets Rs. Equity Shares of Rs. 10 each Goodwill 22,000 Fully paid 1,50,000 | Land and Building 80,000 General Reserve 33,000 | Plant 18,000 | Investments 60,000 | Stock 39,000 | Debtors 30,000 | Bills Receivable - Trade Bank Profit and Loss Account 12% Debentures Sundry Creditors Provision for Tax 80,000 30,000 40,000 50,000 —— _|3.28,000 ps 3.28,000 Terms of Acquisition : r each at Rs. 12 1. Aqua Engineers Ltd, issued 25,000 equity shares of Rs. 10 each at Rs, 12 Beeta Ltd, Per share to Scanned with CamScannerAqua neers Lid, diseh So debentures a issue of book value, Stock at Rs, Beeta Ltd. sold one: pershare gincers Ltd. paid Rs, 4 in cash tor each ed 12% debentures of Beet ‘ adiscount of 12%, 4. Aqua Fogineers Ld, revitlued land and Building 35,000 and Debtors subject to MH Of the shares received from Aqua share of 3 ta Lad, 1d, 210% premium by BERS. 1,00.000, Plant at 1¢ Provision for doubtful Engineers Ltd, rclow debts, at Rs. 13.00 Your are required to: i) Compute Purchase Consideration, ji) Prepare necessary ledger the books of Beeta Ltd. (M, University solution = a Aqua Engineers Ltd, Statement of Purchase Consideration (Net Payment Method) Particulars “1, Equity Shares (25,000 x 12) 3,00,000 12. Cash (15,000 x 4) 60,000 3,60,000 | (ii) In The Books of Beeta Ltd. Dr. Realisation A/e Cr [Particulars Rs. | Particulars Rs, “To Goodwill Ale 22,000] By 12% Debentures A/c 60,000 | To Land and Building A/e 80,000 | By Sundry Creditors A/c 39,000 To Plant A’e 80,000 | By Provision for Tax 30,000 To Investments A/e 30,000 | By Aqua Engineers Ltd, A/c 3,60,000 To Bank Ave 20,000 | (P.C.) Ta Stock A/e 40,000] By Equity Shares in Aqua | To Debtors A/e 50,000 | Engineers A/c 5,000 To Bills Receivable A/c 8,000 | (Profit on sales of Shares) | To Equity Shareholders A/e 164,000 | (Profit on Realisation) L 4,94,000, 494,000 Dr. Equity Shareholders A/c Cr. Partictlars Rs. | Particulars Rs. chenne in Aqua By Equity Share Capital 150,000 To Cash Hank Are 2,40,000 | By General Reserve 33.000 1.25.000 | By Profit and Loss A/e 18,000 |__| By Realisation A’e (Profit) 164,000, 365,000 365,000 Scanned with CamScanneria Aqua Engineers Lt. Ale a = Rs, | Particu To Realisation ie 3,600,000 | By Equi Engineers A/c re By Cash/Bank L__60,0%4) res in Aqua Or. Equity s Engineers Ltd. A/e ; {Particutary Rs, | Particulars [ Toy | To Aquat naineers Lid, Alc 3,00,000 | By Bank Ave (25,000x 1/5x 13) 65,00 | To Realisation A/c (Profit 5,000 | By Equity Shareholders Ade 240.000 | | (Bal.) L 3,05,000 | Dr Cash/Bank A/c Particulars | Rs. | Particulars | To Balance bd 20,000 | By Realisation 20,000 To Aqua Engineers Ltd, A/c 60,000 | By Equity Shareholders A/c 125,000 To Equity Shares in Aqua Ltd. 000 1.45,000] Mlustration - 7, The following was the Summary Balance Sheet of Dhule Ltd. as on 31° March 2020 12,000 Equity Shares of Rs. 100 cach 9% Debentures Creditors Liabilities Rs, | Assets Rs, | 2.500, 8% Cumulative Preference 2.50,000 | Goodwill 25.000 Shares of Rs, 100 each Fined Assets 12,85,000 12,00,000 | Stock 5,453,000 | Debtors 2,50,000 5,009,000 } Banks Balance 7,000 Share issue Expesenses 25,000 Profit and Loss A/ss 24,95,000 The following scheme of Reconsturetion is duly sanctioned: 1) Anew company Pune Ltd is formed with Rs.15,00,000 divided into 1,500,000 Equity Shares of Rs. 10 each. 2) ‘The company will acquire Dhule Ltd. on the following conditions; a) Old Companies Debentures will be paid by similar debentures in the new company. b) The creditors will be paid for every Rs.100 of their claim, Rs. 16 cash and ten equity shares in the new company. » Preference shareholders are paid ten equity shares in the new company for cach shares c) Dublinatione 93.000 as Authorised share capital Scanned with CamScannerhold by them in the old company, a) Equity shareholders will be giv en ten equily share: held in the old company. Ss inthe new company fp three sf den y ee shares c) Expenses of Rs.20,000 will be home by the new e« mpany " ompany, a) The new company will take the current assets at their book r will be reduced by Rs, 15,000, Intangible eae ASSeLS are not to DY Stock which sheet, appropriate adjustment being made in the values of fixed eg ne DEY Palace You are required to prepare: Assets, a) Inthe books of Dhule Lid. : 1) Realisation Ave 2) Dhule Equity Share by Inthe books of Pune Ltd. 1) Journal Entries AMY Shareholders Aic solution: Ledger of Dhule Ltd. Dr Realisation A/e c f. (particulars Rs. | Particulars R qo Goodwill Ave 25,000 | By 9% Debentures Ave | $45,000 | To Fixed Ale 12,85,000 | By Creditors A/c 5.00,000 | [To Stock A’e 3,03,000 | By Pune Ltd. (P.C.) 650,000 | To Debtors A/e 2,50,000 | By Equity Shareholders A/c 1,75,000 | To Bank A/e 7,000 | (Loss) 18,70,000 Dr. Equity Shareholders A/c | Particulars Rs. | Particulars To Share issue Expenses 25,000 | By Equity Share Capital Ave 12,00,000 To Profit & Loss A/e 6,00,000 To Realisation A/c (loss) 1,75,000 To Equity Shares in Pune Ltd. 4,00,000 12,00,000 12,00,000 Journal of Pune Ltd. . Particulars Lf | Dr.Rs. [Cr Rs. Business Purchase A/e Dr. 6,50,000 To Liquidator's of Dhule Ltd. A/c 6,50,000 (Being acquisition of bu 2 business of Dhule Ly J Stock A/c (3.03,000 - 15,000) Dr Debtors A/c Dr. ages Dr. 7,000 Fixed Assets A/e (Bal. Fig.) Dr. 12,30,000 To 9% Debentures in Dhule Lid, A/e ~~ To Creditors Ave Fae To Business Purchase A/c 650.000 (Being assets and liabilities taken over) 4 — ws + chee 11 OS Scanned with CamScannerDr iquidator’s of Dhule Lud Ae Yo Fquity Share Captial A/c (Being discharge of purchase consideration) Creditors Ae Dr To Equity Shi To Bank Ae (Being settle Captial Ale 10,000 x 16/100) ent of creditors) 99 Debentures in Dhule Ltd, Ale Dr. To 9%» Debentures Ave (Being settlement of debentures) Goodwill Ae To Bank Ale (Being ‘\penses of old company paid) 6,530,000 6,50,009 5,80,000 5,00,000 80,000 5,45,000 5,45,000 20,000 20,000 Working Not Purchase Consideration: a) Payable to Equity Shareholders 40,000 (10 / 3 x 12,000) Share of Rs.10 cach 4,00,000. b) ble to Preference Shareholders 25,000 Shares of Rs. 10 each, 2,50,000 650,000 Mlustration - 8, The following was the balance sheet af X Ltd, as on 31" Dec. 2019, Liabilities Rs. | Assets Rs, Share capital (Rs. 10 each) 2,00,000 | Premises 1,00,000 Debentures 50,000 | Computer systems and Bank loan 27,000 | office appliances 40,000 Trade payable 10,000 | Inventories 15,000 ‘Trade Receivables 22,000 Cash 10,000 Profit and Loss A/c 100.000 287,000 | 2.87.00] The company was reconstructed by farming a new company na following terms: 1) Antex Ltd, took overall and liabilities (except cash) 2) Share holders in X Ltd. received equal number of shares in Artex Ltd, of Rs, 4 paid up in their fall consideration. 3) Cost of restructuring to X Ltd. amounted Rs.5,000 4) After restructuring debentures were converted into "New debentures" 5) Preliminary EXpenses of Artex Ltd. amounted to Rs.3,000 were pi of inventories of RS.5,000, Close the ledgers of X Ltd. and Pass journal entries in Artex Ltd. med Artex Lid. on the Rs. 10 each at at90% aid out of sale Proceeds ——. Scanned with CamScannerIn the books of X Ltd cqlutiom® Realisation Ave J ——— particulars _ —— Rs. | Partie ——_ sy atty Assets premises 100,000 By sundry liabilities + sgqyputer Syste and Debentures | | co 50,00) | | attic’ Appliances 40,000 Bank foan 27000 | jpventories 15,000 Trade payable 10,000 $7,000 jade receivables 22,000 | 1,77,000 | By Arlex Lid. (PC) 20 000 jo cash We _ 50,000 | By shareholders A/c (bal. fig.) 15,000 1,82,000 | (loss) 1,82.000 Artex Ltd, A/e [particulars Rs, | Particulars Rs.| jation A/c 80,000 | By Shares in Artex Ltd. Ave $80,000 (p.c. due) | 80,000 80,000 Shareholders A/c | Particulars Rs, | Particulars Rs. To Profit and Loss A/c 1,00,000| By Share capital A/c 2,00,000 To Shares in Artex Lid. 80,000 To Realisation Ale 15,000 To Cash Ave (Bal. fig.) 5,000 | 2,00,000 2,00,000 Cash A/e [Particulars Rs. | Particulars Rs. | To Balance bid 10,000 | By Realisation A/x (Exp.) 5,000 By Shareholder A/e 5,000 __ _ _— 10,000 10,000 Scanned with CamScannerJournal Entries in the books of Artex Ltd, (Being expenses paid) Particulars Lit} DrRs. | CrRs Business Purchase Ve Dr. 80,000 To Liquidator’s af X Lad. Ale 40,000 (Being purchase consideration agreed) Premises Ac Dr. 1,00,000 Computer system and office Appliances Ave Dr. 40,0000 Inventones Ave Dr. 15,000 Trade Receivables Ave Dr. 22,000 To Debentures Ale $0,000 To Bank loan Aj 27,000 To Trade payables A/c 1,00,000 To Business purchase A/e 80,000 To Capital reserve A/c (Bal. Fig.) 10,600 (Being various assets and liabilities taken over) Liquidator’s of X Lid. Ale Dr. 80,000 To Share Capital A/c 80,000 (Being purchase consideration discharge) Debentures A/e Dr. $0,000 To Capital Reserve Ale 5,000 To New Debentures A/c 45,000 (Being Debentures converted) Cash Ale Dr. 5,000 To Inventories A/c 5,000 (Being Inventories sold) Preliminary Expenses A/c Dr. 3,000 To Cash A/c 3,000 Working Notes 1: Calculation of P.C. P.C, = 20,000 shares x Rs. 4 = s. 80,000 Scanned with CamScanner