T.Y. B.

Com 2021-22
Advanced Accounting
Unit-I Chapter- 1. Accounting for Amalgamations
Amalgamation:
The term amalgamation is used when two or more existing companies go into liquidation and a new company is
formed to take over their business. The term absorption is used when one or more existing companies go into
liquidation & one existing company takes over or purchases their businesses. However this difference between
amalgamation & absorption has been dispensed with the Accounting Standard (AS-14) ‘Accounting for
Amalgamations’ issued by ICAI. Thus amalgamation means merging of one company with another company or
merging of two or more companies to form a new company or one company is taken over by the other. Hence
amalgamation includes absorption. In amalgamation the assets & liabilities of transferor company(ies) are
amalgamated with the transferee company.
AS-14 specifies the procedure of accounting for amalgamations and the treatment of any resultant goodwill or
reserves. The following terms are used in this standard with reference to amalgamation of companies.
a) Amalgamation means an amalgamation pursuant to the provisions of Companies Act, or any other statute,
which may be applicable to companies.
b) Transferor Company means the company, which is amalgamated into another company.
c) Transferee Company means the company into which Transferor Company is amalgamated.
d) Reserve means the portion of earnings, receipts or other surplus of an enterprise (whether capital or revenue)
appropriated by the management for a general or a specific purpose other than a provision for depreciation or
diminution in value of assets or for known liability.

Types of Amalgamation: Amalgamation for accounting purpose can be classified into two categories.
1. Amalgamation in the nature of merger and
2. Amalgamation in the nature of purchase.

Amalgamation in the nature of Merger: This is a type of amalgamation which satisfies all the following conditions.
1. All the assets and liabilities of the transferor company become after amalgamation, the assets and liabilities of
the transferee company.
2. Shareholders holding not less than 90% of the face value of the equity shares of the transferor company
become equity shareholders of transferee company by virtue of the amalgamation.
3. The consideration for the amalgamation receivable by those equity shareholders of transferor company who
agree to become equity shareholders of the transferee company is discharged by the transferee company
wholly by issue of equity shares in transferee company except that cash may be paid for in respect of any
fractional shares.
4. The business of the transferor company is intended to be carried on by the transferee company.
5. No adjustment is intended to be made to the book value of the assets and liabilities of Transferor Company
when they are incorporated in the accounts of Transferee Company, except to ensure that the accounting
policies are uniform.

Amalgamation in the nature of Purchase: Amalgamation may be considered in the nature of purchase when any
one or more of the five conditions specified for amalgamation in the nature of merger is not satisfied. These
amalgamations which are in effect a mode by which one company acquires another company & hence the equity
shareholders of the combining entities do not continue to have a proportionate share in the equity of the combined
entity or the business of the acquired company is not intended to be continued after amalgamation.

Purchase Consideration: According to AS-14, purchase consideration for the amalgamations means the
aggregate of the shares & securities issued and the payment made in the form of cash or other assets by the
transferee company to the shareholders of the transferor company. Purchase consideration does not include the
amount of liabilities taken over by the transferee company or the amount paid directly to the creditors of the
transferee company.

There are different methods in which consideration may be calculated:

1. Lump Sum method: This is the simplest method. The amount to be paid by Transferee Company as purchase
consideration may be stated in the problem as lump sum. In such case no calculation is required. For example it
may be stated that A Ltd. takes over the business of B Ltd. for Rs. 25,00,000. Hence the sum of Rs. 25,00,000
is purchase consideration.
2. Net Payment Method: Under this method, the purchase consideration is ascertained adding up the total
payments made by transferee in whatever form either in shares, debentures or in cash to the liquidator of the
transferor company for payment to equity shareholders and preference shareholders of the transferor company.
While ascertaining the purchase consideration, care should be taken of the following:
a) The value of assets and liabilities taken over by the transferee company are not to be considered.
b) The payments made by the transferee company for shareholders whether in cash or in shares or in
debentures must be taken into account.
c) Where the liabilities are taken over by the transferee company & subsequently discharged such amount
should not be added to purchase consideration.
d) When liabilities are taken over by transferee company they are neither deducted nor added to the amount
arrived at as purchase consideration.
e) Any payments made by transferee company to some other party on behalf of the transferor company are to
be ignored.
f) If the liquidation expenses of the transferor company are paid by the transferee company the same should
not be taken as a part of the purchase consideration.
g) If any liability is not taken over by the transferee the same should be excluded.
h) The term business will always mean both the Assets and Liabilities of the company.
3. Net Assets Method: Normally the net payment method is used to compute the purchase consideration.
However, it cannot be used if details of all payments are not available e.g. in case where the purchasing
company agrees to pay, say by way of 1,000 shares and the balance in cash, the purchase consideration is
determined by adding up the ‘agreed values of all assets taken over’ and deducting the ‘agreed value of all
liabilities taken over’. While determining the amount of purchase consideration under this method, care should
be taken of the following:
a) The term ‘Assets’ will always include cash in hand and cash at bank, unless otherwise stated but shall not
include any fictitious assets like preliminary expenses, underwriting commission, discount on issue of shares
or debentures, profit and loss account (debit balance), etc.
b) Asset not taken over by Transferee company should be excluded.
c) If there is goodwill or prepaid expenses, the same should be included in the assets taken over unless
otherwise stated.
d) The term ‘liabilities’ will mean all liabilities to third parties.
e) The term ‘trade liabilities’ will mean trade creditors and bills payable.
f) The term ‘liabilities’ shall not include any past accumulated profits and reserves such as general reserve,
reserve fund, sinking fund, dividend equalization fund, capital reserve, share premium account, capital
redemption reserve account, profit and loss account etc. These are payable to the shareholders and not to
the third parties.
g) If any fund or portion of any fund denotes liability to third parties the same must be included in Liabilities
such as staff provident fund, workmen’s savings bank account, workmen’s profit sharing fund, workmen’s
compensation fund (up to the amount of claim if any), etc.
h) If any liability is not taken over by the transferee the same should be excluded.
i) The term businesses will always means both the Assets and Liabilities of the Company.

4. Intrinsic worth/ Share Exchange Method: In this method, purchase consideration is ascertained on the basis
of the ratio in which the shares of the transferee company are to be exchanged for the shares of the transferor
company. The exchange ratio is generally determined on the basis of the intrinsic value of each company
shares.
Methods of Accounting for Amalgamations:
According to AS 14 there are two methods of accounting for amalgamations:

1. Pooling of Interests Method: This method issued in case of amalgamation in nature of merger. The accounting
is done in the following manner.
a. The assets, liabilities, profit & loss account and reserves (whether capital, revenue or revaluation reserves) of
the transferor company are recorded in the books of the transferee company at the same values and in the
same form as at the date of amalgamation. This reflects the fact that the entries are simply merged together. No
goodwill account should be accounted for.
b. If at the time of amalgamation, the transferor and transferee companies have conflicting accounting policies, a
uniform set of accounting policies should be adopted following amalgamation.
c. The difference between the amounts recorded as share capital issued (plus any additional consideration in the
form of cash or other assets) and the amount of share capital of Transferor Company should be adjusted
against reserves of Transferee Company.
2. Purchase Method: This method is used for amalgamation in nature of purchase. The application of method
involves the following:
a) The assets and liabilities of the transferor company should be incorporated in the books of transferee
company on the basis of their agreed values (i.e. either book values or the fair values).
b) The reserves (whether capital, revenue or revaluation reserves) of the transferor company other than the
statutory reserves should not be included in the financial statements of the transferee company.
c) Any excess of the purchase consideration over the value of net assets of the transferor company should be
treated as goodwill and debited to goodwill account. On the other hand if purchase consideration is lower
than the value of net assets acquired, the difference should be credited to capital reserve. AS-14
recommends that goodwill arising on amalgamation should be amortized over a period of five years unless a
somewhat longer period can be justified.
d) No reserves, other than statutory reserves, of the transferor company should be incorporated in the financial
statements of the Transferee Company. Statutory reserves of the transferor company should be
incorporated in the balance sheet of the transferee company by way of the following journal entry.
Amalgamation Adjustment A/c .................................. Dr.
To Statutory Reserves A/c
When the above statutory reserves will no longer be required to be maintained by transferee company, such
reserves will be eliminated by reversing the above entry.
Journal Entries in the Books of Transferor Company:
1 Assets Transfer : 8 For Disposing assets not taken over by
Transferee Co :
Realisation A/C Dr Cash / Bank A/C Dr
To Assets A/C To Realisation A/C
2. Transfer of Liabilities taken over by 9. For payment of liabilities not taken over by
transferee company : Transferee company :
Liabilities A/c Dr Liabilities A/C Dr
To Realisation A/c To Cash / Bank A/C
3. Transfer preference share capital to 10 For liquidation expenses :
preference share holder : . a. Paid by Transferor Company
Preference share capital A/C Dr Realisation A/C Dr
To preference share holder A/C To Cash / Bank A/C
4. Transfer of Equity Cap. & Reserves : b. Paid by Transferee Company
Equity Share Capital A/C Dr No Entry
Reserves & Surplus A/C Dr c. Paid first by Transferor and later recovered
To Equity Share holder A/C Transferee Co A/C Dr.
To Cash A/C
Cash A/C Dr.
To Transferee Co A/C
5. Transfer of Acc. Losses or Fictitious Assets 11. Payment of Preference shareholders :
Equity Shareholders A/C Dr Preference share holder A/C Dr
To Accumulated Loss/Ficti. Assets A/C To Equity/Pref Sh. in Transferee Co/ Cash /Bank A/C
6 For Purchase Consideration Due: 12 To close Realisation Accounts :
Transferee Company A/c Dr a In Case of Profit :
To Realisation A/C Realisation A/C Dr
To Equity share holder A/C
7 For Purchase Consideration received: b In Case of Loss :
Cash / Bank A/C Dr Equity share holder A/C Dr
Equity Shares / Preference Shares / Deb. In To Realisation A/C
Transferee Co A/C Dr
To Transferee Co A/C 13 Close Equity Share Holder Accounts :
Equity shareholders A/C Dr
To Equity share / Preference Share / Cash/Bank A/C
 Journal Entries in the Books of Transferee Company
Amalgamation in Nature of Merger Amalgamation in Nature of Purchase
1. For taking over Business: 1. For taking over Business:
Business Purchase A/C Dr Business Purchase A/C Dr
To Liquidator of Transferor Company To Liquidator of Transferor Company A/C
A/C
2. For taking over Assets, Liabilities & 2. For taking over various Assets, Liabilities:
Reserves :
Assets A/C Dr Assets A/C Dr
Profit & Loss A/C Dr To Liabilities A/C
To Liabilities A/C To Business Purchase A/C
To Reserves A/C Note: The Difference between Net Assets and
To General Reserves / P& L A/c Purchase Consideration is to be adjusted to
To Business Purchase A/C Goodwill or Capital Reserve A/c
3. Payment of Purchase Consideration : 3. Payment of Purchase Consideration :
Liquidator of Transferor Company A/C Dr Liquidator of Transferor Company A/C Dr
To Equity Share Capital / Pref. To Shares / Cash / Bank / Debentures A/C
Capital To Securities Premium A/c
To Security Premium A/c
4. Discharging the liabilities taken over : 4. Discharging of any Liability taken over
Deb. / Other Liab. of Transferor Co. A/C Deb. / Other Liab. of Transferor Co. A/c Dr
Dr
To Debentures/ Cash /Shares A/C To Debentures / Cash / shares A/c
5. For any Formation Expense incurred : 5. For any Formation Expense incurred :
Preliminary Expense A/C Dr Preliminary Expense A/C Dr
To Cash / Bank A/C To Cash / Bank A/C
6. For payment of Liquidation / winding 6. For payment of Liquidation / winding up expense of
up expense of Transferor Company : Transferor Company :
Profit & Loss A/C or Gen. Reserves A/c Goodwill / Capital Reserve A/c Dr
Dr
To Cash / Bank A/C To Cash / Bank A/C
7. For Maintaining statutory reserve of Transferor
Company
Amalgamation Adjustment A/C Dr
To Statutory Reserves A/C

Note: The study material is not exhaustive. The questions are given to save time in dictation. Students are
required to refer reference books.

Examples:
Ex: 1
Amar Limited agreed to acquire the business of Kumar Limited as on 31 st March, 2020. Following are Assets and
Liabilities of Kumar Limited as on 31st March 2020

Liabilities Amount(Rs)
Equity Share Capital (Rs.10 each fully paid up) 3,00,000
General Reserve 80,000
Workmen Compensation Fund 5,000
Profit & Loss Account 55,000
6 % Debentures 50,000
Creditors 10,000
TOTAL 5,00,000
Assets
Goodwill 50,000
Land & Building 3,20,000
Stock In Trade 84,000
 Debtors 18,000
Cash & Bank Balance 28,000
TOTAL 5,00,000

Other Information:

The consideration payable by Amar Limited was agreed as under:

1. Cash Payment equivalent to Rs. 2.5 for every share of Rs. 10 in Kumar Limited.
2. Issue of 45,000 Rs. 10 shares fully paid, in Amar Ltd. having an agreed value of Rs.15 per share.
3. Issue of such an amount of fully paid 5% debentures of Amar Limited at 96% as is sufficient to discharge the 6%
debentures of Kumar Limited at a premium of 20%.

While arriving at the agreed consideration, the directors of Amar Limited valued Land and Building at Rs.6,
00,000, the stock in trade at Rs. 71,000 and the debtors at their book-value subject to an allowance of 5% to cover
doubtful debts. The cost of liquidation of Kumar Limited was Rs. 2,500 paid by Amar Ltd.

On the date of acquisition, Kumar Ltd. had a liability towards workmen for compensation against injury. The amount
was ascertained at Rs. 3,000. The company paid the compensation in cash to the worker.

Amar Limited also issued to the public 5,000 shares of Rs. 10 each at Rs. 15 per share. The shares were fully
subscribed and paid for.

You are required to draft journal entries and prepare ledger accounts in the books of Kumar Limited. Also
pass the opening journal entries in the books of Amar Limited

Ex:2
Following are the Assets and Liabilities of Alpha Ltd. and Beta Ltd. as on 31st March, 2020. (Amt in Rs.)

Liabilities Alpha Ltd. Beta Ltd.

Share Capital (Rs.10 per Equity Share) 15,00,000 6,00,000
Securities Premium 1,50,000 -
Capital Reserve - 15,000
General Reserve 4,70,000 -
Profit & Loss 1,89,360 -
10 % Debentures (Rs. 100 each) - 2,00,000
Creditors 2,33,070 5,100
Total 25,42,430 8,20,100
Assets
Land and Building 5,60,000 -
Plant 9,42,000 3,60,000
Furniture 1,01,500 89,500
Stock 5,37,340 2,52,410
Debtors 2,80,630 97,850
Cash at Bank 1,20,960 20,340
Total 25,42,430 8,20,100

Other Information:
The two companies agreed to amalgamate and form new company called Gamma Ltd. which takeover all assets
and liabilities of both companies on 1st April, 2020.The consideration is agreed at Rs.19,50,000 and Rs.6,80,000 for
Alpha Ltd. and Beta Ltd. respectively and the entire amount being payable by Gamma Ltd. in the form of its fully
paid equity shares of Rs.10 each. Beta Ltd.’s 10 % Debentures are converted into identical number of Gamma Ltd.’s
11 % Debentures for Rs. 2, 00,000. Expenses of amalgamation amounting to Rs.15, 000 are borne by Gamma Ltd.

Pass Opening journal entries in the books of Gamma Ltd. and prepare its balance sheet immediately after
the amalgamation. (Home work) Pass journal entries and prepare important ledger accounts to close the
books of Alpha Ltd. and Beta Ltd

EX.3
A Ltd & B Ltd were amalgamated on 31st March, 2020. A new company C Ltd formed to take over the business of
the existing companies. Their Balance Sheet as on 31st March, 2020 stood as follows: (Rs in lacs)
Liabilities A Ltd B Ltd
Equity Share Capital(Rs.100 each fully paid up) 800 750
12 %, preference shares of Rs.100 each 300 200
Revaluation Reserve 150 100
General Reserve 170 150
Export Profit Reserve 50 50
Profit & Loss Account 50 30
10 %,Debentures of Rs.100 each 60 30
Sundry Creditors 270 120
Bills Payable 150 70
TOTAL 2,000 1,500
Assets A Ltd B Ltd
Land & Building 550 400
Plant & Machinery 350 250
Investments 150 50
Stock 350 250
Debtors 250 300
Bills receivable 50 50
Cash & Bank 300 200
TOTAL 2,000 1,500

Additional Information:
1. 10 %, Debenture holders of A Ltd & B Ltd are discharged by C Ltd by issuing such number of its 15 %,
Debentures of Rs.100 each so as to maintain the same amount of interest.
2. Preference shareholders of both companies are issued equivalent number of 15% preference shares of C Ltd at
price of 150 per share(Face Value Rs.100)
3. C Ltd will issue 5 equity shares for each equity share of A Ltd & 4 equity shares for each equity share of B Ltd.
The shares to be issued at Rs.30 each having face value Rs.10 per share.
4. Export profit reserve is to be maintained for next 5 years.

Pass the opening entries in the books of C ltd and Prepare the Balance Sheet of C Ltd after amalgamation.
Also prepare necessary ledger accounts in the books of A ltd and B ltd. (Home work) to close their books of
account

Ex.4. The financial position NK Ltd. as on 31st March 2019 was as under:

Liabilities NK Ltd
Equity shares of Rs 10 each fully paid up 3,00,000
10% Preference shares of Rs. 10 each fully paid up 2,00,000
General Reserve 1,60,000
Statutory Reserve (Export Profit Reserve) 55,000
Profit and loss account balance 65,000
12% Debentures of Rs. 100 each 2,00,000
Creditors 80,000
Total 10,60,000
Assets
Building 4,01,000
Plant and Machinery 2,64,000
Furniture 85,000
Investments – long term 1,07,000
Stock 89,000
Debtors 54,000
Cash at Bank 60,000
Total 10,60,000
 On 1.4.2019 KC Ltd. took over the entire business of NK Ltd on following terms & conditions:
1. KC ltd to take over:
- Building at 110% & Plant and Machinery at 95 % of their book value.
- Furniture at Rs. 70,275 & Investment at its Market value which is 5% less the book value.
- Stock at the realizable value of Rs.86, 000 & Debtors subject to provision for bad-debts at 5%
2. The preference shares of Transferor company to be discharged at 10% premium by issuing 9%
preference shares of Rs. 10 each fully paid up in KC Ltd.
3. Export profit reserve to be maintained for 5 more years.
4. The realization expenses to the extent of Rs 10,000 are paid by KC ltd. The actual realization expenses
amounted to Rs. 12,000.
5. 12% Debenture holders of NK Ltd. to be discharged by issuing 15% Debentures amounting Rs. 1,60,000.
6. Equity shareholders of NK Ltd. to be issued necessary number of equity shares of Rs 10 each in KC ltd at
5% premium.
7. One of the Unrecorded Assets of NK Ltd having realizable value of Rs. 3,000 was not taken over by KC
ltd. The same was sold by liquidator of NK ltd.

Pass necessary journal entries (only) in the books of KC Ltd. Also prepare necessary ledger Accounts to
close the books of NK Ltd.

Accounting for Amalgamations- Solution (Ex. 1-4)

Ex.1
Case of Absorption Amar Ltd- Transferee Company Kumar Ltd – Transferor Company
Amalgamation is in nature of Purchase
Working Note No. 1
Purchase Consideration: (Net Payment method)
Cash (Rs. 2.5 x 30,000) = 75,000
45,000 equity of Rs. 10 each @ Rs. 15 each (45000 x 15) 6,75,000
Total Purchase Consideration 7,50,000
Working Note No. 2
Agreed value of Assets taken over
Land and Building 6,00,000
Stock in trade 71,000
Debtors 18,000
Cash and Bank balance 28,000
TOTAL(a) 7,17,000
Liabilities taken over
6% Debentures (at 20% premium) 60,000
Creditor 10,000
Provision for bad-debt (5% x 18,000) 900
TOTAL(b) 70,900
Net Assets (c) 6,46,100
Purchase Consideration (d) 7,50,000
PC>NA = Goodwill (d-c) 1,03,900
Working Note no.3
No of debentures to be issued by Amar ltd.
Agreed value of Debentures of Kumar ltd taken over Rs. 60,000
Face value of Debentures issued = 60,000/96 x 100= Rs. 62,500
No of debentures issued = 62,500/ 100 = 625 debentures
Entries in Books of Amar Ltd.
No Particulars Debit Credit
1. Business Purchase Account……….Dr 7,50,000
To liquidator of Kumar Ltd account 7,50,000
(Being Business taken over)
2. Land and Building 6,00,000
Stock in trade 71,000
Debtors 18,000
Cash and Bank balance 28,000
Goodwill 1,03,900
 To Creditors a/c 10,000
To 6% Debentures a/c 60,000
To provision for bad-debts a/c 900
To Business Purchase a/c 7,50,000
(being Assets and Liabilities taken over )
3. Liquidator of Kumar ltd account.. Dr 7,50,000
To Equity share Capital 4,50,000
To cash 75,000
To Security Premium 2,25,000
(Being Discharge of Purchase Consideration )
4. 6% Debentures a/c ………………………Dr 60,000
Discount on Issue of Debentures a/c 2,500
To 5% Debentures a/c 62,500
(Being Debentures Discharged by issue of 5% 625 debentures of
Rs. 100 each )
5 Goodwill a/c………………………………Dr. 2,500
To cash a/c 2,500
(being liquidation expenses paid )
6. Bank account ………………………………Dr 75,000
To Equity Share Capital a/c 50,000
To security Premium 25,000
Ledger Accounts in books of Kumar Ltd.
Realisation Account
To Goodwill a/c 50,000 By 6% Debentures 50,000
To land and building a/c 3,20,000 By Creditors 10,000
To stock in trade a/c 84,000 By Amar ltd account 7,50,000
To Debtors a/c 18,000
To Cash and Bank balance a/c 28,000
To Equity Shareholders account 3,10,000
Total 8,10,000 Total 8,10,000
Equity Shareholder account
To equity shares in Amar Ltd a/c 6,75,000 By Equity share capital a/c 3,00,000
To cash account 72,000 By General Reserve a/c 80,000
By Workmen Comp. Fund a/c 2,000
By Profit and loss account 55,000
By Realisation account 3,10,000
Total 7,47,000 Total 7,47,000
Amar Ltd Account
To Realization account 7,50,000 By Cash account 75,000
By Equity shares in Amar ltd.a/c 6,75,000
7,50,000 7,50,000
Cash Account
To Amar Ltd account 75,000 By Workers Liability account 3,000
By Equity shareholders a/c 72,000
75,000 75,000

Entries in the Books of Kumar Ltd.

No Particulars Debit Credit

1. Realisation a/c ………………..dr 5,00,000
To Goodwill a/c 50,000
To land and building a/c 3,20,000
To stock in trade a/c 84,000
To Debtors a/c 18,000
To Cash and Bank balance a/c 28,000
(Being Assets transferred)
2. 6% Debentures a/c…………….Dr 50,000
Creditors a/c……………………Dr 10.000
To Realisation account 60,000
(Being Liabilities transferred)
3. Equity Share Capital a/c ….Dr 3,00,000
To Equity shareholders a/c 3,00,000
(Being Equity share capital transferred)
4. General Reserve account … Dr 80,000
Workmen Comp. Fund account … dr 2,000
Profit and loss account …..dr 55,000
To Equity shareholder account 1,37,000
(Being Reserve and Surplus transferred )
5. Workmen Comp. Fund account Dr. 3,000
To Workers liability account 3,000
(Being Workers Liability due )
6. Amar Ltd. account ….Dr 7,50,000
To Realisation account.. 7,50,000
(Being Purchase Consideration due)
7. Cash Account ….Dr 75,000
Equity shares in Amar Ltd. account ….Dr 6,75,000
To Amar Ltd . account 7,50,000
(Being Purchase consideration received )
8. Workers Liability account……Dr 3,000
To cash account 3,000
(Being liability toward worker discharged)
9. Realisation account ….Dr 3,10,000
To Equity shareholders account 3,10,000
(Being Realisation gain transferred)
10. Equity shareholder account …..Dr 7,47,000
To equity shares in Amar ltd account 6,75,000
To cash account 72,000
(Being equity shareholders dues paid)

Ex. 2
Case of Amalgamation, Alpha ltd & Beta Ltd- Transferor Co. Gamma Ltd- Transferee Co.
Amalgamation in nature of Merger

Purchase Consideration: (LUMPSUM METHOD)

Liquidator of Alpha Ltd: Rs. 19,50,000
Liquidator of Beta Ltd: Rs. 6,80,000
Total Purchase Consideration Rs. 26,30,000

Mode of Payment:
2,63, 000 Equity shares of Rs. 10 each fully paid in Gamma ltd.
Pooling of Interest Method:
Purchase Consideration Rs. 26,30,000
Existing Share Capital (Equity share Capital of Alpha and Beta Ltd) Rs. 21,00,000
Difference to be adjusted against reserves and surplus of Gamma ltd Rs. 5,30,000

Particulars Balance Available Balance Adjusted Remaining Balance

General Reserve 4,70,000 4,70,000 Nil
Profit and loss account 1,89,360 60,000 1,29,360 Cr. Bal.
Entries in Books of Gamma Ltd:
1. Business Purchase account ….Dr 26,30,000
To Liquidator of Alpha Ltd account 19,50,000
To Liquidator of Beta ltd. account 6,80,000
(Being Business Taken over )
2. Land and Building account ………………….dr 5,60,000
Plant account ………………………………….dr. 13,02,000
Furniture account ……………………………..dr. 1,91,000
Stock account …………………………………dr. 7,89,750
Debtors account……………………………….dr. 3,78,480
Cash and Bank account ……………………..dr. 1,41,300
To 10% Debentures account 2,00,000
To creditors account 2,38,170
To Security Premium account 1,50,000
To capital Reserve 15,000
To Profit and Loss account 1,29,360
To Business Purchase account 26,30,000
(Being Asset and Liabilities and Reserves taken over)
3. Liquidator of Alpha Ltd account …………….dr 19,50,000
Liquidator of Beta ltd account ,………………dr 6,80,000
To Equity share Capital account 26,30,000
(Being discharge of Purchase consideration to liquidator of
Transferor companies )
4. 10% Debentures account …………………..dr. 2,00,000
To 11% Debentures account 2,00,000
(Being Debentures of Beta ltd being discharged )
5. Profit and Loss account …………………….dr. 15,000
To Cash and Bank account 15,000
(Being liquidation expenses)
1.Share Capital
Authorized Share Capital -
Issued and Paid Up Capital
2,63,000 equity shares of Rs. 10 each fully paid up 26,30,000
(All the above shares are issued for consideration other than Cash )
2.Reserves and Surplus
Security Premium account 1,50,000
Capital Reserve 15,000
Profit and Loss account (1,29,360-15,000) 1,14,360
Total 2,79,360
3.Long Term Liabilities
11% 2,000 Debentures of Rs.100 each 2,00,000
(Issued to Debenture holders of Alpha ltd)
Total 2,00,000
4. Trade Payables
Creditors 2,38,170
TOTAL 2,38,170
5. Tangible Assets
Land and Building account 5,60,000
Plant account. 13,02,000
Furniture account. 1,91,000
Total 20,53,000
6.Inventories
Stock 7,89,750
TOTAL 7,89,750
7. Trade Receivables
Debtors 3,78,480
Total 3,78,480
8.Cash and bank balance
Cash and bank balance (1,41,300-15,000) 1,26,300
Total 1,26,300
 BALANCE SHEET OF GAMMA LTD AS ON 1.4.2020
Equity and Liabilities
Shareholders Fund
Share Capital 1 26,30,000
Reserve & Surplus 2. 2,79,360

Non-Current Liabilities
Long Term Borrowing 3. 2,00,000

Current Liabilities
Trade Payable 4. 2,38,170
Total 33,47,530
Assets
Non-Current Assets
Fixed Assets
Tangible Assets 5. 20,53,000
Current Assets
Inventories 6. 7,89,750
Trade Receivables 7. 3,78,480
Cash and Cash Equivalents 8. 1,26,300
Total 33,47,530
Ledger Accounts in the Books of Alpha Ltd.
Dr Cr
Realisation Account
To Land and Building account 5,60,000 By Creditors 2,33,070
To Plant account 942,000 By Gamma ltd 19,50,000
To furniture 1,01,500 By Equity shareholders account 3,59,360
To stock account 5,37,340
To Debtors 2,80,630
To Cash and Bank 1,20,960
Total 25,42,430 Total 25,42,430
Equity Shareholders account
To Realisation account 3,59,360 By Equity share capital account 15,00,000
To equity shares in Gamma ltd a/c 19,50,000 By Security Premium 1,50,000
By General Reserve 4,70,000
By Profit and Loss account 1,89,360
Total 23,09,360 Total 23,09,360
Gamma Ltd Account
To realization account 19,50,000 By equity shares in Gamma ltd 19,50,000
Total 19,50,000 Total 19,50,000

Ledger Accounts in books of BETA Ltd.

Realisation Account
To Plant Account 3,60,000 By 10% Debentures 2,00,000
To Furniture Account 89,500 By Creditors 5,100
To Stock Account 2,52,410 By Gamma Ltd 6,80,000
To Debtors 97,850
To cash and bank 20,340
To Equity Shareholder Account 65,000
Total Total 8,85,100
Equity Shareholders account
Equity shares in Gamma Ltd account 6,80,000 By Equity share Capital 6,00,000
By Capital Reserve 15,000
By Realisation account 65,000
Total 6,80,000 Total 6,80,000
 Gamma Ltd Account
To Realisation account 6,80,000 By Equity shares in Gamma ltd 6,80,000
Total 6,80,000 Total 6,80,000

Ex. 3
Transferee Co- C Ltd Transferor Co- A ltd and B ltd
Amalgamation in nature of Purchase
Working Note No.1
Purchase Consideration: (Net Payment Method)
(Rs. In lacs)
Claimant Mode of Payment A ltd (Rs) B ltd.(Rs)
12% Pref. Shareholders 3,00,000 15% Pref. Shares in C 450 -
ltd @ 150 each of Rs. 100 each
2,00,000 15% pref. shares in C - 300
ltd.@ 150 each of Rs. 100 each
Equity share holders Equity shares in C ltd.
- (8,00,000 x5) x 30 1,200
- (7,50,000 x4) x 30 900
Total 1,650 1,200
Total Purchase Consideration 2,850

Working Note No.2

Agreed Value of Debentures Taken over

A ltd. Existing Amount of Interest = 60,00,000x 10% = Rs 6,00,000

Therefore Principal amount of Debentures at
15% yielding Interest of Rs, 6,00,000 = 6,00,000/15 x100 = Rs. 40,00,000

B ltd. Existing Amount of Interest = 30,00,000 x 10% = Rs. 3,00,000

Therefore Principal amount of Debentures at
15% yielding Interest of Rs. 3,00,000 = 3,00,000/ 15 x 100 = Rs.20,00,000
Working Note No.3

1 Asset taken over (A+B) (Rs in Lacs)

Land and Building 950
Plant and Machinery 600
Investment s 200
Stock 600
Debtors 550
Bills Receivable 100
Cash and Bank 500
Total (a) 3,500
2 Less Liabilities taken over
10% Debentures (40+20) 60
Sundry Creditors 390
Bills Payable 220
Total (b) 670
Net Assets (a-b) 2,830
3 Purchase Consideration 2,850
PC > NA = Goodwill (2,850-2830) 20

Entries in Books of C ltd (Rs. Lacs)

1. Business Purchase Account ….Dr 2,850
To Liquidator of A ltd account 1,650
To Liquidator of B ltd Account 1,200
(Being Business taken over )
2 Land and Building a/c ….. Dr. 950
Plant and Machinery a/c ….. Dr. 600
Investment s a/c ….. Dr. 200
Stock a/c ….. Dr. 600
Debtors a/c ….. Dr. 550
Bills Receivable a/c ….. Dr. 100
Cash and Bank a/c ….. Dr. 500
Goodwill a/c ….. Dr. 20
To 10% Debentures a/c 60
To sundry Creditors a/c 390
To Bills Payable a/c 220
To Business Purchase a/c 2,850
(Being Assets and Liabilities taken over )
3. Liquidator of A ltd a/c …. Dr 1,650
Liquidator of B ltd account …Dr 1,200
To 15% Preference Share Capital (500000 x 100) 500
To Equity Share Capital ( 70,00,000 x 10) 700
To Security Premium (250+1400) 1,650
(Being P.C discharged )
4 10% Debentures account … Dr. 60
To 15% Debentures account 60
(Being Debentures of A ltd and B ltd. Discharged)
5. Amalgamation Adjustment a/c …..Dr 100
To Export Profit Reserve 100
(Being Statutory Reserve maintained for 5 years)
Notes: (Rs. In lakhs)
1.Share Capital
Authorized Share Capital -
Issued and Paid Up Capital
70,00,000 equity shares of Rs. 10 each fully paid 700
15% 5,00,000 Preference Shares of Rs. 100 each fully paid 500
(All of the above shares are issued for consideration other than cash ) 1,200
Total
2.Reserves and Surplus
Security Premium 1,650
Export Profit Reserve 100
Total 1,750
3.Long Term Liabilities
15% 60,000 Debentures of 100 each 60
Total 60
4. Trade Payables
Creditors 390
Bills Payable 220
Total 610
5. Tangible Assets
Land and Building account 950
Plant account. 600
.Total 1,550
6.Intangible Assets
Goodwill 20
Total 20
7. Non-current Investment
Investments 200
Total 200
8. Other Non-current Assets
Amalgamation Adjustment Account 100
Total 100
 9.Inventories
Stock 600
TOTAL 600
10. Trade Receivables
Debtors 550
Bills Receivable 100
Total 650
11.Cash and Cash Equivalents
Cash and bank balance 500
Total 500
Balance Sheet of C ltd as on 1.4.2020
Equity and Liabilities
Shareholders Fund
Share Capital 1 1,200
Reserve & Surplus 2. 1,750

Non-Current Liabilities
Long Term Borrowing 3. 60

Current Liabilities
Trade Payable 4. 610
Total 3,620
Assets
Non-Current Assets
Fixed Assets
Tangible Assets 5. 1,550
Intangible Assets 6. 20
Non-Current Investment 7. 200
Other Non-current Assets 8. 100
Current Assets
Inventories 9. 600
Trade Receivables 10. 650
Cash and Cash Equivalents 11. 500
Total 3,620
Ledger Accounts in Books of A ltd
Realisation Account
To Land and Building a/c 550 By 10% Debentures a/c 60
To Plant and Machinery a/c 350 By Creditors a/c 270
To Investments a/c 150 By Bills Payable a/c 150
To stock a/c 350 By C ltd a/c 1,650
To Debtors a/c 250 By Equity Share holders a/c 20
To bills receivables a/c 50
TO Cash and Bank balance a/c 300
To 12% Pref. shareholders a/c 150
Total 2,150 Total 2,150
Equity Shareholders account
To Realisation a/c 20 By Equity Share Capital a/c 800
To equity shares in C ltd a/c 1200 By Revaluation Reserve a/c 150
By General Reserve a/c 170
By Export Profit Reserve a/c 50
By Profit and loss account a/c 50
1220 1,220
12% Preference Shareholders account
To 15% Pref.Shares in C ltd a/c 450 By 12% Pref. Share Capital a/c 300
By Realization a/c 150
450 450
 C Ltd. Account
To Realisation account 1,650 By 15% Pref. Sh in C ltd a/c 450
By equity shares in C Ltd.a/c 1,200
Total 1,650 Total 1,650
Ex.4- Solution
Transferee company- KC Ltd, Transferor company –NK Ltd Amalgamation in Nature Of Purchase
Purchase Consideration –Net Asset Method
Assets Taken over
Building 4,41,100
Plant and Machinery 2,50,800
Furniture 70,275
Investment –long term 1,01,650
Stock 86,000
Debtors 54,000
Cash and Bank 60,000
Total 10,63,825
Liabilities taken over
12% Debentures 1,60,000
Creditors 80,000
Provision for Bad-debts (5% x 54000) 2,700
Total 2,42,700
Net Assets (Purchase Consideration ) 8,21,125
Mode of Payment
10% Pref. Shareholders - 9% pref. shares in KCLTD 2,20,000
Equity Shareholders – Equity shares of Rs. 10 each at Rs. 10.5 6,01,125
(601125/10.5 = 57250 equity shares of Rs 10 each at Rs.10.5)
Entries in Books of KC Ltd.
1. Business Purchase account Dr 821125
To Liquidator of NK ltd account 821125
(Being purchase consideration due)
2. Building a/c Dr. 4,41,100
Plant and Machinery a/c Dr. 2,50,800
Furniture a/c Dr. 70,275
Investment –long term a/c Dr. 1,01,650
Stock a/c Dr. 86,000
Debtors a/c Dr. 54,000
Cash and Bank a/c Dr. 60,000
To12% Debentures a/c 1,60,000
To Creditors a/c 80,000
To Provision for Bad-debts a/c 2,700
To Business Purchase account 8,21,125
(Being Assets and Liabilities taken over)
3. Liquidator of NK Ltd account dr 8,21,125
To 9% pref. share Capital account 2,20,000
To Equity share Capital (57250x10) 5,72,500
To security Premium account 28,625
(Being Purchase Consideration discharged)
4. 12% Debentures account Dr 1,60,000
To 15% Debentures account 1,60,000
(Being Debenture holders liability discharged)
5. Goodwill account Dr 10,000
To cash account 10,000
(Being Realisation Expenses paid)
6. Amalgamation Adjustment account Dr 55,000
To Export Profit Reserve 55,000
(Being Statutory Reserve to be maintained for 5 years)
Ledger Accounts in books of NK Ltd.
Realisation Account
To Building a/c 4,01,000 By 12% Debentures a/c 2,00,000
To Plant and Machinery a/c 2,64,000 By Creditors a/c 80,000
To Furniture a/c 85,000 By KC ltd a/c 8,21,125
To Investments a/c 1,07,000 By Cash (Unrecorded Asset) a/c 3,000
To Stock a/c 89,000
To Debtors a/c 54,000
To Cash at Bank a/c 60,000
To Cash account (Expenses) 2,000
To Pref. Shareholders account 20,000
To equity shareholder account 22125
Total 1104125 Total 1104125
Equity Shareholders account
To equity shares in Kc ltd. account 6,01,125 By Equity Share Capital a/c 3,00,000
To cash account 1,000 By General Reserve a/c 1,60,000
By Statutory Res (Export Profit 55,000
Reserve) a/c
By Profit and loss a/c 65,000
By Realisation a/c 22,125
Total 6,02,125 Total 6,02,125
10% Preference Shareholders account
To 9% Preference Shares in Kc ltd a/c 2,20,000 By 10% Pref. Share Capital a/c 2,00,000
By Realisation a/c 20,000
Total 2,20,000 Total 2,20,000
KC LTD Account
To Realisation account 8,21,125 By 9% pref. shares in Kc ltd a/c 2,20,000
By Equity shares of in Kc ltd a/c 6,01,125
8,21,125 8,21,125
Cash Account
To realization (Unrecorded Asset) a/c 3,000 By realization a/c (Exp) 2,000
By Equity shareholders a/c 1,000
Total 3,000 Total 3,000

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