.

•,n,i/~ 11(\ 1mr1111irs

......-""'"" :, '
1111hJh11Pt

. JII 7
tn tlit ah~tm:c of agreed values, lhe book values of
,.,l art ~1,nsil.kn·J ns agreed ,·n.lucs. assets unu h.1hililirs 11 , 1 • •
1 11 caring m the h.u,1n~e slwct or li<•ob ol .tt1.P11nl
ft ·t1tlous assets such as misn:lluncous cxpen 1.1
(I") ~ l I urcs not written off I055
nsider only outside liabilities taken over.[),,. llr or nrgJli\'r sur plus .irt' not to bt l!ln,11kreJ.
,·) Co
eir a11reeJ or ke over value , · • cL)Cnlures are outside.
l at th " tJ. . ,
~ ,.e., agreed values ut wh • h li.ibilili , l'k
es . . imJ bill$ r.iyal,lt• anJ are in, luJc:J
I c ucduors
them I Il C lransfere, (
pay · ic c pure ha.s ,ing) comr,iny has .igrccJ 10 settle or
pu.,:base consideration only in shares and c h . 1
111·) J ·h as . I means lha1 purrh . . . .
shares an cas · aSe tons1dcra1ton 1s lo be dm:hargcd only by issue of

n1ber of shares to be issued will be arrived at as un der:

fbtllu,..
ount of Purchase Consideration to be Discharg d b 1
~ e Y ssue of Shares
Issue Price of Shares
f.,saDlPle: The purchase consideration on' 5,58,000 is to disch O •
of shares to be issued in the follovri "g . artied by th e issue of shares oft l 0 each. Determine the
nUJllber ,u, cases.

(i) Issue of shares at par

(ii) Issue of shares at a premium of~ 2 per share
(iii) Issue of shares at a discount of I 0%

(iv) Issue of shares at ~ 14 per share.

Answer:
5,58,000
(i) When issued at par : - - - = 55,800 shares
10
5,58,000
(ii) When issued at f 12 (10 + 2) - - - = 46,500 shares_
12

(u"I) Wh en issue
. d at "', 9 (10 - 10% ): -
5,58,000
- - = 62,000 shares
9

(1v.) When issue

. d at,"' 14 per shares: -
5,58,000
- - = 39,857.143
14
• Number of shares to be issued = 39,857

• Cash against the fractional value at market price = .143 x 14 = f 2 only.

Illustration 1 (Purchase Consideration : Net Assets Method)
The following balances have been taken from the books of Bhavna Ltd. as at 31 March 2021 is given below:

Qpital
'
8,00,000
Debit Balances
Building 2,40,000 '
2.00,000 Plant and Machinery 5,10,000
Share Capital
. ~ 1,00,000 Furniture 1.15.000

l:';.~ 45,000 Investments (M.V. 90.000) l.20,000

Inventories Q(),000
48,000
12,000 Debtors 3,12,000
. . . . . UIII Account

::....-.-lion 56,000 Bills Receivable 45,000

.....
.........
Fund
35,000
2,25,000
1,10,000
Cash in hand
Cash at Bank
Goodwill
55,000
l,ll.000
45,000
Preliminary F.xpenses W,000
..... .. Tat 32.000
16,fl.3,000
16,63,000
to 1' /l,1 ,/, <.11tf•1•1,1t ,• 1', ,,, 1111 1111 .
f. / ,,, , u,,,1 ~
1
1 · I hi . intend:'< ti,
,,c ,\"'" f tl1'1• 11\"l'r thl' hu ~i ,w,s 1111 t1H' 1-uII ow1·11 1,, tam ·~und vn lunlion:
r.: 000·' Furniture al i 3 (1 ' 000·' ln v•·t
I\t11·1. .hnt1 ,,t '•{ 2 011 llllll · l'I 1111 ·111d M,1d1incry ot -,' ·1<u, . . at t
... 11'>r1c9
(,) 1. ,

" . " ' ' ' . l If

I)l' I,ti,!"\ ~\lbll'd t11 a provision of I 0% fort1illt) ti l · ' c, I lcht s· 1•omlwlll found to be nil. I
Thl'l\' w,,s a li,1h11i1 y nn 2<1,000 ,1g.1insl W11rkml'll Compensation htn<l.
1
( 11 )

(111) Allu,11 tax liabilit y is~ 40,000,

\ ir) Rcali~a, ion cx pcnsl's est imalcJ al { 15,000 lo be borne by Sakshi Ltd.
( 1•) Prefcren(c ~harcholdl'rs arc 10 be paid in cash.
( ,·i) Balance to be paid in equity shares of Shakshi Ltd. on I 00 share.
Solution
Calculation of Purchase Consideration

Assets taken over

Building
Plant and Machinery
Furniture
Investments
Stock
Debtors
3,12,000
Lw : Provision
31,200
Bills Receivable
Cash in hand
Cash at Bank

Less : Liabilities
Creditors
2,25,000
Bills Payable
35,000
Provident fund
1,10,000
Workmen Compensation Fund
26,000
Provision for Tax 40,000
10% Debentures
1,00,000

Purchase Consideration

Mode of Payment of Purchase Consideration

Ca!>h (for Preference Shareholders)

Equity Shares (' JOO)
2,00,000 '
6,66,800
8,66,800

TUTORIAL NOTES

(t) Realisation expenses though paid by transfree company is not part of the purchase consideration.
(ii) In case realisation expenses are payable by the transferor (vendor) company, the amount of cash to be transferred to
transferee company would be reduced accordingly.
 10 '-J
, ics
{ om,1trrlll .-~, c, ,,,,,,,11
1,,,,,,g_fr,f """ " .I!
"(/1 M ET HO M ET HO D
TO TA L PA YM EN TS DO R NET PAYMENTS
~••
Ju e J nf err 1rt y
od , th e pu rc ha se co n si d era tio n is ca 1c u 1ate d by ad d rng
·
up th e tot al am ou nt ( mo ne y va .
rty
_ cth kk n ( f!q u
11 the t ran s,e ree ( p urc I1 asi. ng ) co mp an y for the s ha re ho
c
ti1s 01 . an d ca sh( re ce ive d fro1
,.,J~•r t {i• ren ce sh are s c m pa ,
l
i. rcs,
rre c.: ce ) of th e tra ns i-e ro r ve nd or ) co 1y.
sr•11 referen
, 11 d r ma ris ed below:
Th e pr oc ed ur e is sum
e sha res . , N um ber of Sh ares x Iss ue Price
(a) Am ou nt of Pre fer enc i.e.
old ers
(b) Ca sh for pre fer enc e sha reh
_
y sha res i.e · Nu m b er of Eq uit y Sh are s x Iss ue Pri ce
(c) Am ou nt of Eq uit
ctionaJ sha res )
y sha reh old ers (fo r fra
(d) Ca sh for Eq uit
d ( )
tio n = To tal Pay me nts un er a + (b) + (c) +
(d)
Pu rch ase con sid era

Essential Po in ts ca re fu lly no ted :

wi ng ess en tia l po int s mo st be
en ts M et ho d, th e fo llo is ad de d. Un lik e
Under the To tal Pa ym the sh are ho lde rs of the ve nd or co mp an y
th ing co mp an y for
ed fro m e pu rch as
(;) W ha tev er is rec eiv, no th in g is de du cte d. any in an y
ne t ass ets me th od de by the tra ns fer ee (p ur ch as ing ) co mp
wi ll no t inc lud e the pa
ym en ts ma th e tra ns fe ro r
se co ns id er ati on Su ch lia bil itie s wi ll be tra ns fer red by
(ii) Th e pu rc ha s of lia bil itie s. e tak e ov er.
e de be nt ur eh ol de rs an d ot he r fo rm an d pa id by the lat ter co mp an y aft er th
for m to th ur ch as ing ) co mp an y
to th e tra ns fer ee (p
(ve nd or ) co mp an y
en ts Me th od )
id er at io n: To ta l or Ne t Pa ym
Illustration 2 (P ur ch
as e Co ns iti es ; th e pa ym en t
be ing the tak e ov er of lia bil
Lt d., the co ns ide rat ion 0) ; th e pa ym en t
is ab so rb ed by Va su nd ha ra ing t 20 ,00 0 (ac tua l co st t 17 ,00
Ra jni ga nd ha Ltd ·. ide rat ion no t ex ce ed ym en t of ~ 16 pe r
n as a pa rt of pu rc ha se co ns ntu res iss ue d at pa r; an d th e pa
of cost of ab so rp tio of 10 % in 9% de be 10 ea ch fu lly pa id
of ~ 1,0 0,0 00 at a pr em iu m ea ch an d 6 eq uit y sh are s of t
of the de be nt ur es ren ce sh are of t IO 0,0 00 of t 10 ea ch
al lo tm en t of on e 14 % pr efe of th e ve nd or co mp an y are 2,0
share in ca sh an d e nu mb er of sh are s ab so rp tio n in th e
4 sh ar es in Ra jn ig an dh a Li mi ted . Th co un tin g St an da rd -1 4 as su mi ng it is an
for ev ery ati on as pe r Ac
pu rc ha se co ns id er
fully pa id. Ca lcu lat e
nature of pu rc ha se .
-14
RA TIO N AS PER AS
Solution PU RC HA SE CO NS IDE
CA LC UL AT IO N OF
32 ,00 ,00 0
"'
0,0 00 x 16
t to Sh are ho lde rs 2,0

ft
~
to Sh are ho lde rs in

~ Sh are s of f IO
sh are s of pu rch asi ng
ea ch for ev ery
com pan y:

4
. _ he ld in Ra jni ga
nd ha , ( i.e ., 2, ~ OOO x fl O)
llltd 6Jln..'6.._ Sh are s of f 10 ea ch for ev ery 4 sha res 30 ,0U ,00 0
-- ,-..,-
00 x f 10 ) 67, 00, UO O
'-W1a ~ dh a. (i. e. ~x 2,0 0,0
4
- - - - - -~ ~. = =
~ r.- _._ . - - - - - -
tlo~n-----
"d on as pe r
rc ha se co ns J .e ra t1
~ ~~
-
~ be in clu de d in th e pu
no
t t0
Pi "- rs ar e
_...,•qents fi co st of ab so rp tio n an d de be nt ur eh ol de
·~- 14. or
1,1 '" /f,1 ,1, I,,,,,,,,,,,,. ,\,,,,,,,,,,,,.. I
' '., ,,,,J " .." '
lllmti atlon 3 (Purlhu, ConilJ,ratlon : Total or Net Payments Method)
\ l ,l I hi ,,,:11 n 111 1.,~ 1, II\ l'I I hi' b1t,llll'" nl y ( ·11 . I .td .: t 111• \ 1111 ,l d l'I ,11 ion hring I l:c .'1-.,11111pt1nn ot Ir Jde Ii b
' •\l ,\ltltl , llw p,l\·1H,·111111 tlw ""' 111 tlw llq11id 11ti1111 , l,IHIO, the 1t•dr n:plion _ 111}"l' 11 I >:·ltl'lllurcs 11f ~ 2,00,
.. 'heaat
~
I''' m111111 nl I 11·~ •• t hr d1,, h.11 g,· nl ', \' I11•li,·111 II I l'~ ( ,t,00 ,IIIHI ,11 a jll'l' Jlllll Ill 111 h l_iy Ili e """Ill' of I O''n f>t•hen~• •
tlw \ l " I hi .111d tlw I'·') 111l·111 nl ~ I (I pn ~h.11l' in c ,~h ,111d I he t·xd1,111~c 111 2 I ully p,,iJ { I II !>ht1rc~ in lh urea
I"' . ,II 1hr 111.11!..1'1 l'lhl' 111 ~ I> l'l'I' ~Ii .Il l' for l'Vl'l"Y sh.in: illy Co. I.Id. The share ,:.ipital of the vcndorcc:xc.
" ' ' ' ' " ' , 1 1 :n.111111 ~h.11 l', 111 ~ J~
1
, t'.ll h Iull y p,,id. """
Solution
PURCHASE CONSIDERATION AS PER AS-14

l'.1~011·111 ht ~h.11rh11ldrr~ (Cush): 2ll,0110 x 10

l'•)·mrnt h1 ~h.u d111ld1·1~ In ~h.ir<'s of pun.llJSing rnmpany i.t'., 20,000 x 2 x 15

Thl' tol11I l'Uri:h""" rnn11ldcrntlon 111 m11dc up of:

~h.in:~ in the rur~h.,~ins Wlllp,my
C.1~h

l\&)'mcnts for li<1uiJalion expenses and dcbcnturcholdcrs :ire not to be included in the purchase considcrati•
per AS-14.

Illustration 4 (Purchase Consideration : Total or Net Payments Method)

The folluwinA is thl' lt,lann: Shl'l'l of P Ltd. as on 31st March, 2021:

P11rllcul11rs Note No.

EQUITY ANL> LIAIHLITIES
l. Shareholder's Funds
(a) Share Capital
E4uity Share Capit,11 ({ 100 each)
l .l% l'n:li:rl'nl'e Share Capital (t 100 each)
(h) l{cmve und Surplus
Gener.ii Resl·rve
2. Non-Curren! Llabllllics
(a) Long-11.'rm Borrowings (14% Debentures)
3. Currc:nl LlublJllles
(a) TraJc Payables - Creditors
- Bills Payables
(h) Short -term Provisions (Current T.ix)
Total
II AS!\ETS
I. Non-Current Auele
(.1) Property, Piant & Equipment (Tangible)
(h) Nun -Current Investments
2. Currrnt Auel•
(.l) l11v1:111111il·~ (Stn~k-in -tr.idc)
(h) Twlc l<t·Lriv.iblci (l>ehton)
(c) C.u,h unJ C:.1~h 1:tJ11lvalrntK (Bank)

Total
 , ; 111 of Cr11np,111ir.<
-•/••fl'"'' ( . l () l I
·,r ~,if,. II
,iff4 ~
¥'# 1ormot1on :
,,o/ lfl .
.J#dO J .ll'cs
.L over P Ltd. on 15 Apnl 2020.
,,.. 1 .
fl). .
eference shareho lde1 s of p Ltd. are dischar ed at a
premium of I 0% by issuing J 4% preferen ce shares of
(ti)
3% pr g
1
1~l t 1oo each- . l .
assets value per equity s 1are of P Ltd. is t 250 d th .
rhe net h equity shareho lders of p Ltd on th· e b as1s . an_ at ofT Ltd. 1s ~ 400. T Ltd. will issue equity sharec;
· ·
· of mtr' · I d is
(d to sa 1 d
f sfy t e
the basis of par value only Th f . msic va ue. Howeve r, the purchas e consi erat1on
to be base on . e ace value of equity share of T Ltd. is 't 100.
.
eholder s of P Ltd. are to be discharg ed at a premrnm
pebentu r of 15% by issuing 14% Debent ures in T Ltd.
tdl urchase conside ration.
ute the p
cortlP

so111t1on
Calculat ion of Purchase Consideration

1W prerere11ce sharehol ders of P

. . .

Ud. "
11,00,000 .(11,000, 14% Preference Shares of T Ltd. oft 100 each. )
(fl ~ ty shareholders· of P Ltd.
{I) (l50/400 )( 50,00,000) X 100 31,25,000 (31,250 Equity Shares of T Ltd. off JOO each)
42,25,000

es of p Ltd. will be taken over by T Ltd. and then paid •

vebentur
EXCHANGE METHOD OR SWAP RATIO METHOD
r (vendor) compan y or compan ies
Some time the transfer ee (purchasing) compan y takes over the business of the transfero
ed for the shares of the transfer or
on the basis of the ratio in which the shares of the transferee compan y are to be exchang
compan y' share.
company. The Exchange Ratio or Swap Ratio is generally based on intrinsic value of each
Intrinsic value of shares means the value of shares based on net assets of the
company. In an examination problem,
it may be asked to calculate the intrinsic value of shares of the vendor compan
y and purchasing company respectively
and determine the ratio of exchange of the shares between the two said compan
ies.

This method is also known as Exchange Method or Swap Ratio Method.

Example Lalita LtcL
Jaya Ltd.
(Purchasing Co.) (Vendor Co.)
55,00,000 82,50,000
(a) Net Assets
1,00,000 75,000
(b) No. of equity shares
55 llO
(c) Intrinsic value per share (A+ B) · 2
1
{d) Share Exchange Ratio or Swap Ratio
is I :2 i.e. for every I share in Lalita
Thus, the Share Exchan ge Ratio or Swap Ratio for shareho lders of Lalita Ltd.
ltd. th . h
' ell's arehold ers will get 2 shares in Jaya Ltd.
Procedure
Find out th L
I.CM . e CM of intrinsi c values of 55 and 110
IS 110.
D·
. ~=2
IVidc the LCM 110 by intrinsi c value of Jaya Ltd. i.e.
55

'l'hen, diVide LCM . , h . ll o

1'h 110 by intrinsi c value of Lal1ta s are 1.e. lJO = 1
Ug, one sh .
.\ccardin Ltd. is equal to 2 shares in Jaya Ltd.
are m Lalita
gly the holder of shares in Lalita Ltd. is entitled to 2 shares in Jaya Ltd.
 Basic Corporate A .
CCol.lnt ·
'ng: T;C:q
lO ll Q17<i
. ., Value of Shares) '\ss1
1·on s (Intrans•
g~'>i
I t
11 ustra · f . p t .k ·ha Ltd. and Nidhi Ltd. as on 3 1 M arch 202 1: '~.
t,t.,J.m~cs O nt ra I s
The ftllltnnng a.re l tlt' Pratiksha Ltd.

Debit Balances

~h.tan- l ·aruaJ : 2,00,000 Fixed Assets

~l.tlllllShMeS of t IO each Investments
2,50,000
lifont"ral Re.,erw Current Assets
l,50,000
Swplus l,75,000
Debentun:S
1,25,000
Current Li.abilities
9,00,000

Nidhi Ltd.

Debit Balances
Credit Balances
Share Capital :
90,000 Fixed Assets
9,000 Shares off 10 each
50,000 Current Assets 1,so.~
General Reserve
1,00,~
40,000
Profit and Loss Account
Current liabilities :
Creditors 50,000

Bills payable 20,000

2,50,000

Pratiksha Ltd. agrees to take over Nidhi Ltd. Find out the ratio of exchange of shares on the basis of the book values.

Solution
CALCULATION OF INTRINSIC VALUES OF ~HARES

Particulan Pratiksha Ltd. Nidhi Ltd.

t ?
(A) . Assets
Fixed Assets 3,50,000 1,50,000
Investments 2,50,000
3,00,000 1,00,000
Current Assets
9,00,000 2,50,000
(8) Less
External Liabilities
Debentures 1,75,000
Current Liabilities 1,25,000
3,00,000
Net Assets (A-B) 6,00,000

6, 00, 000 1,80,000

Intrinsic Value of Share = - - - = f30 9,000 = f.20 --------
----------------------------
20,000

Calculation of Ratio of Exchange

LCM of 30, and 20 (intrinsic values) of shares of two companies • .
is ~ 60
Therefore, 2 shares of Pratiksha Ltd. = f 60 and 3 s h ares o f N"dhi
l . Ltd. = ~ 60.

Illustration 6 (Calculation of Purchase Consideration)

The following balances are extracted from the bo0 ks o f y nnda

·
Ltd. :
 , " o( Co111p1m it:s
I ,,,irJ(l(l -
"' 11
.,,. ""''' g•
~•/rt!,~ c,edll Balances
. al of, 1oo shares 12,00.000
~
Debit l!alanc.cs ___.,.........
11 Goodwill 2,00 ,o()O
~c•P
~ ,eshart Land and Building 15,00,000

~,. . . ,
8,00,000
ie-~100 shares Plant and machin ery 3,00 ,000

~
50,000 Funiture 50,000
1,50,000

SO,~
, ~rve
~ fl~ 75,000
Stock
Debtors
4,00,000
1,60,000

-
SO,~ 5,00,000 Bills Receivable
gelld'n,res 30,000
%,~ 1,95,000 Cash at Bank 3, 10,000
60,000
~,.
~le
Preliminary Expenses
Discount on the Issue of Debentures
55,000
25,000
,%~ 30,30,000
~ 30,30,000

. taken
over by Radha Ltd.
P
any IS
~ - urchase consideration,
. . ~h . for the following terms and
t e agreement proVldes conditions:
c~culate p . . .
adha Ltd to take over the bus mess of Vrmda Ltd on the basis of the balance sheet.
(0 R
Ltd. agrees to take over only the assets of Vrinda Ltd.
(ii) Radha

(
Uij
:d dha Ltd. to take over the business of Vrinda Ltd at book values except goodwill, Land and Building and Plant
Machinery which are valued at 20%, 40% and 15% more than the book values respectively.
(iv) Radha Ltd. to take over the assets of Vrinda Ltd at 10% less than the book values except land and building and
liabilities at balance sheet figures.

·alues. (v) Radha Ltd. agrees to take over the business ofVrinda Ltd. at an agreed values of~ 15,50,000 payable in the form
of 10,000 equity shares on 100 each issued at ~ 125 each and balance in cash.
(vi) Radha Ltd. agrees to:
(a) discharge 12% debentures at a premium of 5% by issue of debentures in Radha Ltd.
i~ (b) issue 11 % preference shares of~ 100 each for every 8 shares in Vrinda Ltd.

rs: (c) Pay f 20 per equity shares in cash and to issue 6 equity shares oH 100 each at a premium of 10% for 5 equity
shares in Vrinda Ltd.
00,001
Solution
{i) In this case, the purchase.consideration is based on net assets method as under :

C
ro,OOo
f---:::'
10,00o
Agreed values of assets taken over except preliminary expenses and discount on issue
of debentures (30,30,000 - 80,000)
Less: Agreed value of the liabilities taken over (including)
29,50,000

c;::::::::::
(debentures) (5,00,000 + 1,95,000 + 60,000) 7,5 5,000
Purchase consideration payable to shareholders. 21,95 ,000
(iij On the b · f
as15 o only the assets of Vrinda Ltd : 't
Purchase consideration
· . except r.··
· d a Lt d(
is equal to the agreed values of the assets of Vnn 1cttttous assets )·.
(iii) (l0,3o,00o - 55,000 - 25,000) 29,50,000
Purchase consideration is calculated on the basis of Net Assets method as under:
GOOcf'Wil.l (2
I.an ,00,000 + 20%) == 2,00,000 + 40,000 2,40,000
~ and Building (15,00,000 + 40%) or (15,00,000 + 6,00,000) 21 ,00,000
Fh-t,and Machinery (3,00,000 + 15%) or (3,00,000 + 45,000) 3,45,000
- 111 ture
50,000
 ·~
t
,-....i
f',,,.. J,;f"\("l~•!,J,,

.,.,t, at Jll..n\
u•u,~ :
J~ l'c-tvntulT~
t ."'l•h'l'
tt,ll• f""' ' 11Nt>

ran.~ Comidtralion (.}6,JS,000 - 7,55,000)

(n l h1'.M~ ~idcration ii calculated on the basis of net assets method as under
,;._"'1--ill (l.00,000 - 20,000)
lanJ anJ Building (Book Valur)
Plant and Ma.:hincry (3,00,000 - 30,000)
Fumitu~ (S0,000 - 5,000)
Sto.:k. (4-,00,000 - 40,000)
Ddlton (1,60,000 - 16,000)
Bills R~civable (30,000 - 3,000)
Cash at Bank (Book Value)

AgITed Value of the

liabilities taken over :
Debentures
s,00,000
Creditors
Bills Payable
I,9s,ooo
~
Purchase consideration (28,36,000 - 7,55,000) ~
20,81,000
(v) In this case, the purchase consideration is given in lump sum. It is f 15,50,000 payable as follows: (
10,000 Equity shares at f 125 each 12,50,000
Cash·(Balancing Figure) 3,00,000
Purchase consideration payable to shareholders 15,50,000
( vi) ln this case, purchase consideration is to be calculated with the help of Net payments or Total Payments Methods as under:
I 0% Preference Sharehold.ers t

Total No. of Shares

8, 00, 000 = 8,000
100
Total No. of 11 % Preference Shares to be issued in
8,000
lladha Ltd. 1,000
8
1,00,000
Fac:e Value 1,000 X 100 =
Equity Shareholders

12,00,000
j Total No. of Shares - - - = 12,000
100
i Payment in ca.sh 12,000 X 20 =
2,40,000
#
i Payment lo equity 11hares of Radha Ltd.
j
12,000 6
i 5
X
= 14,400 shares
i
t..ue Pri.c.e : 'f 110
Ti,uJ V.tl'-"" • 14_.400 x 110

.J
1ot.J Pu"hau Cormderation
 lt GAL NOTE
to Jrhrnlun-hohlr n I~ lo hr u I I d f ~ tf
,,. r•r•nrn 1 . t Ill (' rnm thr p,1flha,f rnn,ld('Ution .ind to hf ,t,~1, wltlt ... P"•f ..
.,,,r ,-S ~ I R•Jha LtJ,
~-.- ~ ~ l l

.~ ~,,ouNTING TREATMENT IN THE BOOKS OF TRANSFEROR (VENDOR ) COMPANY

n tht following Necessary Accounts

J:Off
·,I n Jtea11s. ation Account
( . Shareholders' Account
II) fqu1t)'
( fi ence Shareholders' Account
,un pre er
Bank Account
(W)
unt of the Transferee (Purchasing) Company
(t') Acco
ity Shares in Transferee (Purchasing) Company Account
(t'i) Equ
eference Shares in Transferee (Purchasing) Company Account
(t'ii) Pr .
. (Closing of Assets Accounts :
§tep-11.
Transfer All Assets Accounts to the Debit Side of Realisation Account at Gross Book value and not net of
provisions
Realisation Account Dr.
To Individual Assets Accounts

TUTORIAL NOTES

(i) In the Schedule Ill Format Balance Sheet, Assets are required to be shown under Non-current Assets and Current Asseu
Accounts and accordingly would be transferred to Realisation Accounts from these new headings.
(n1 The assets, whether taken over or not by the transferee company, should be transferred to realisation account at their
respective gross book values, that is, without deducting provisions against them. Details may be obtained from Notes to
Accounts. Agreed values for takeover purpose are not to be considered. Even goodwill account is transferred to Realisation
Account.
(in1 It is clarified that assets are to be transferred individually not using main headings in the new format.
(iY) Provisions against assets such as, provision for bad and doubtful debts, provision for depreciation etc., should be separately
transferred {credited) to Realisation Account. Details are available either in the Notes to Accounts or Additional
Information.

(,) Fictitious assets such as discount on the issue of shares/debentures, negative balance of the profit and loss statement.
preliminary expenses and so on, are never transferred to Realisation Account even when the transferee (pure.ha.sing)
company takes over all the assets or business of the transferor (vendor) company.
(,i) Cash
in hand and cash at bank are transferred to Realisation Account only when these are taken over by the transferee
COlnpany in an amalgamation in the nature of purchase but in an amalgamation in the nature of merger, these two accounts
must be transferred.
IWI) Good .
will and other intangible assets like trade marks, patent rights, copyrights etc. are also transferred to Realisation Account.
S.,.111: Transfier all Iiab.li . to Rea1·1satton
1 bes . Account
Individual L'1ab'I· .
1 1ties Account Dr.
To Realisation Account

TUTORIAL NOTES

(I) liabilities should be transferred individually to the Realisation Account ut their resp«tive boo.II. \'alu<s.
(Ii) I
n th e Schedule Ill Format Balance Sheet, these liabilities ltems woulJ 11ppe;ir un,kr the new huJi ngs , Non-
current Liabilities and Current Liabilities and these woulJ be transft-rreJ to Reulisation A(count. AU liabilities
lecounta including debentures are transferred whether taken over by purchasing company or nor
 Basic Corpora te A.ccour,1 ;,,
g. ' exr
Q d~
11

10.30 •ld by new compa ny: The new co

Y r as arrears. o f d 1v1 ·
' 'd en d , c Iaims o f work mpany rnay alsO ,,,,,
· "'-._
Contln _Jtnt Uablllt y of th~IJold .:omp•n,u,h
(b) . h tc ho Id not b , 1 d . erS, royalt agr '
~-o ntinJl('n t liability of the o . ,ompan y ares e ·• sf hu_ Id e me u ed tn the Purchy etc. ·r-i. e~ tr, IL
;aafT("J to~ pa1J by th~ new c:ornpariy in cash or"
~ to Re
a1· · Acoun t o t e o compa ny ...,_
isation L d 'd ff by . ·
1
ne co nu ng
as '11~ "'
'cr1n.irr1~1'tic,. ·
Jt 1-houJJ also not be transfe rred O 1
cnt
01
l1a1, ''Y
•-.,,~_'•"~
= ,,rJ,J •• tal«n over In th• books of new compa ny an pai ' · ltt:111

•
EXTERNAL RECONSTRUCTION AND AMALGAMATION
. . e of reorga nisatio n as a whole-
The differe nce betwee n the two is to be fou_nd out by studyin g the schem
. mation two or rnor ·
(,') In externa l reconst ruction only one compan y is involved while in amalga b an~
d or taken overe comp
merged to form a new company or where one or more compa nies are merge
Y an et11r
. qt
company.
mated and the transferee ",
(i,1 In the case of amalgamation the assets and liabilities are amalga y h
ss carried on by a compcornpan. econi
with all such assets and liabilities. On the other hand, the busme
~
vested
. .
of the exist· any in SUhs
1s transfe rred not to an outside r but to anothe r compa ny emerg mg out . y ~ling
con,~
~ompa n:g cornpan
substantially of same shareholders with a view to being contin ued by the new

Ulustratlon 7 (calculation of Numb er of Debentures)

ef°; ~
each of the face valu 2
S Ltd. is to be taken over by R Ltd. S Ltd. has 9% debent ures of f 100
. h ers of S Ltd. are discharged by R Ltd.
. urehold
debent issuing such numbe r of its 15% debent res o " 100 2,SO,OOo. °"
u ,,
each so as to
mamta m t e same amoun t of interest.
Calcwa te the numbe r of debentu res to be issued by R Ltd.

Soluti on
Calcula tion of Present Interest
= 22,50,000 X 9%
= 2,02,500

Amount of Interest x
Calcul ation of Numbe r of Debent ures = New 1
Rate of Interest Face Value

2,02,500 I
x-
15% 100
I
= 13,50,00 0 X -
100
= 13,500 debentu res.

Illustr ation 8 (Absorption : Amalgam at·ion in . t he Nature of the Merge r)

.
The Balance Sheets of W Ltd. and S Ltd. as at 31st March , 2021 were as fio11ows:
WLtd. 5
Note No.
<') Ct)

L EQUITY ANl> LIABILITIES

1. Shareholder', Funds
(a) Share Capital 15,00.~
30,00,000
Equity Share Capital (shares of' 10 each)
Cb) Reaerve and Surplus
40,000
General Reserve
2. CW'ftD I LlaWlid a
2,00.00o
(a) Trade Payables (Credito n)
Total 32,40,00o
 , · '" ,,f ( ·,, mrnnif'{
,., ,~
' l •
A~g,r" 'il u

f It- " ("urnn t Anrh

J t, : ; rnir--11y. 1'1.1111 & t 1111ipmr111 ( fan~ihlc- )
tanJ and l\uilJln(l
rl•n• anJ Mai: hinrry
~ntA uet•
I, (tl tnvrntoric5 (Stock- in -lraJe) 2 .• - _;,-')
(b) Trade Receivables (Debtor~) 1 ,..·, ,)ll(i

(d Cash and Cash Equivalents (Bo1nk) 1 ,.•.. 1~ '.I'\

Total ~-,.....'-::·;;,- ~-.·; . , ·,,--..,-

~ ~ ...

_..,.l to absorb the business of S Ltd. on the follow·

mg terms :
. J. ag~"
w.J,t wLt d· would acquire all assets and liabilities of s Ltd · at boo k v al ue.
1" d . . h f'I'
(0
ct (Ill Wud. agree to ~ssue SIX s ~es o " 10 each for every five shares of S l td.
ng
es of absorption amountmg to ~ 30,000 were paid by w. Ltd.
~~~
ts (merga ) method IDd rrer.iu ,u ~ ,_e:
pass journal entrie~ in the books of W Ltd. according to pooling of interes
s1ittt after absorption.
I\
to soiution
Purchase Consideration

1 x 1,50,000 x
Equity Shares = ~ 10 = 18,00.000

In The Books of W Ltd.

Journal Entries
Particulars Dcbit (t } Cn'lli tttl

Dr. 18.00.000
(4 Business Merger Account HUJlt._.._:,o
To Liquidators of S Ltd.
(Being the purchase consideration for taking over the business of S Ltd.)
Dr. 9,0(\ 000
Land & Building Account
Dr. 6,00,000
Plant & Machinery Account
Dr. 150..000
Sundry Debtors Account
Dr. l.95.00 0
Stock Account
Dr. l.05.000
Cash at Banlc Account l ~ l-_,,L'tt.lU
'.fo Business Merger Account ~\.,,o
To Sundry Creditors Account Oi),l)t\)
To General Reserve Account (Balancing Figure)
(Being the transfer of all assets and all liabilities including reserves; the
n difference is the balancing figure of general reserve)
Uquidators of S Ltd.
Dr. I 8.,IA).t\)()
l i,l'c.\. llf11)
To Equity Share Capital Account
(Being payment of purchase price)
Dr. 30,000
liquidation Expenses Account _'-.\l'II.~
To Bank Account
(Being payment of liquidation expenses)
flr. ~.,ltll)
General Reserve Account \ll,lllll\
To Liquidation Expenses Account
Cletng Uquidation expenses transferrtd to general ttserve)
 IOJ2

I Ql'fTT .ANll I 1.u1tmts

I. SMrthcJdtn' fund,
(a} Shart urital
(b) RtM"l'\'tS anJ Surplus
Sub-Total

2. Cumnt U.bWtlte 3
lrade Payables
Total Equality and Liabilities

II. ASSETS
J. Non-current Assets
(a) Property, Plant & Equipment
4
(i) Tangible Assets

2. Current Awts
5
(a) Inventories
(b) Trade Receivables 6
(c) Cash and Cash Equivalents 7
Sub Total
Total Assets

Notes to Accounts

Share Capital
Equity Share Capital
Issued, subscribed and fully paid
4,80,000 Shares off IO each.
2. Reserves and Surplus 48,00,000
General Reserves :
Balance b/d
Add: S Ltd. portion 40,000
60,000
Less : Liquidation Expenses 1,00,000
30,000
3. Trade Payables 70,000_
Creditors for Goods
4. Tangible Assets 2,90,000
Land and Building
Plant and Machinery 24,00,000
15,00,000
s. Inventories
39,00,000
Stock of Goods
6. Trade Receivables
Dtbtor1 for Gooda
7.
Cuh and C..h Equivalent.
Cash at Bank
 I an11.ll10rt ~rcc m1p mt1 l'S
lfl n
(<If ,,t,rltl g

fl>',,,, . ACCOUNTING NOTES

oin ted by ICAI :
.-lin8 to the Exp ert Com mit tee app
f
n the sha re cap ital of tnu tser
,-~ ~ .. a:.~ nce bet wee . orc omp. any an dhl e share capital issued by the
tran sfe r com pan y on
'fbeOIJ •-- n sh ouldb e trea td e as cap ital rese rve wh • h ..
tll _1...,matio b ic ts not availabl e f or d'1stn.but1. on as drn den d. )
aJll llle - . ehv een the shar e ca 'ta).
_.....aingly the diff eren ce 1
P issued and th amount of the share capital of the tran sfer or (Ve ndo r
anr·
(~) ,-cc~
b d . as shown belo w . e
sho uld e trea te as cap ital loss
CO: cap ital issu ed by W Ltd
·
1s ,00 ,00 0
f-:
eapilal
share cap ital of S Ltd (Ve
toss
ndo r Com pan y) 15,0 0,00 0
3,0 0,0 00
sted against the ca 'taJ
hi capital loss sho uld be firs t adju is : revenue reserve.
(fill !o ~e era l res enres pi rese n•e and then against the
net pos itio n of gen
40, 000
General Reserves of W Ltd. 3,6 0,0 00
Add: Gen eral Reserves of S Ltd. 4,00 ,000
3,00 ,000
Less : Cap ital Loss 1,00 ,000
30, 000
Less: Llq uid atio n exp ens es 70,0 00
the Balance Sheet
(General Reserve) To be sho wn in

(Am alg am ati on in the Natur

e of Purchase)
illustration 9
:
of A Ltd. and B Ltd. as on 31st March, 2021
The following are the Balance Sheets "

A Ltd. B Ltd .
Note No.
m ro :

Shareholder's Funds
(a) Sha re Cap ital 4,50,000 3,00 ,000
)
Equ ity Sha re Capital ~ 10 each 2,70,000 1,70,000
~ 100 each)
1396 Preference Share Cap ital(
(b) Reserve and Sur plus 50,000 25,0 00
General Reserve 30,000 20,0 00
Export Profit Reserve 10,0 00

Inv estm ent Allowance Reserve 75,000 50,0 00

Sur plus Acc oun t

Non-CDJTent Lia bili ties
35,0 00
(a) Lon g-te rm borrowings 50,000
40,0 00
14% Deb ent ure s~ 100 each) 45,000
9,70,000 6,50 ,000
Current Liabilities
Total

Non-Gorrent Assets
ent (Tangible) 2,60,000 1,45 ,000
(a) Property, Plan t & Equipm
Land & Buildings 3,15,000 l,80 ,000
Plant & Machinery 59,500 35,0 00

Furnitue 1,23,000 97,0 00

85,000 88,000
A.uets n.soo 67,000
"-.otortes (stock-in-trade) 50.000 38,000
1hde Receivables (Debtors) 9,70,000 6,50 ,000
Caab and Cash Equivalents (Bank)
Total
 R,uic Corpor<l/e A
.. 4 1ng•. '}'iex1
"""'' '
\0 1
A Ltd.
· Iakcs owr ll l t,\, "" I Arril, 102 I. A Ltd. disdior~cs
I I he pu
' t rchosc
I · I consid
I I eration
· a, hclow."" As;i, 1
,..,
1
I. lssucJ .I 1,1100 cquil y ,lwcs uf t IO cnch al par 10 ,c cq u, Ys ,are
w ' crs ol 8. Ltd ·
l . lma·J 1\"i> rickrcnce shares of{! oo each 10 discharge the prefere
n ce sharch,,I d:r,
\'lrllllU lll . .
r,f fi 1,trj . at
The Jcbrntum ofB Ltd. will be converted into equivalent number of deben
tures of A Ltd, Ir,\
The ,t al uIory reserves 6 fB Ltd, (export profit reserve and investment allowa
. 2 more years, nce reserve) a
tor
re lo he llla1n1a
.
\ou are required to show the Balance Sheet of A Ltd. assuming that the
rurchase, amalgamaf . e natu '•~
IOO IS in th
Solution
re 01
Calculation of Purchase Consideration

Particulars
l. Equity Shareholders :
35 ,ooo Equity Shares oHl0 each 3,SO,Q%
2. Preferen ce Shareholders : .
t1,s7o IS% Preference Shares oH 10 each
~ l,70,000 + 10% Premium) . ··

-
-~-P- urch__a_se_c_o_n_si_de::.ra:::t:::io::_n_ _ _ _~---'-~-;:;----------------l=l,87,00o
A Ltd.
Balance Sheet As At 1 April 2021

,-.:Particulars ·, .
EQUITY AND LIAB.ILITIES
l. Shareholders' Funds
(a) Share capital 1 12,57,000
(b) Reserves and Surplus
2 2,23,000
Sub-Total .
14,80,000
2. Non-current Liabilities .
(a) Long-term Liabilities
3 85,000
3. Current Liabilities
85,000
Total Equity and Liabilities
16,50,000
II. ASSETS
l. Non-current Assets
(a) Property
. , Plant & EqUipment
. .
( 1) Tangible ··
4 9,94,500
(b) Non-current Investments
2,20,000
(c) Other Non- current assets
30,000
5
Sub-Total
12,44,500

2. . Current Assets
(a) Inventories
1,73,00o
(b) Trade Receivables 6
(c) Cash and cash equ·1vaIents 7
Sub-Total 8
--'--- ----- -~1i ~o1t talal AHeta
 I,, 1-;

- - - - - - - - - - -- - - Notes to Accoun L,
Particulars ------.:.:.:__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
~Capital
~ c e Share Capital
•· ~td, subs.:ribed and fully paid .
t,S;"O, 15% preference shares of 'f 100 each.
nccoed for consideration other than cash t l,87,000
,- o vendors on amal
..._ 2,700 preference shares 'f 100 each gamation)
13
Eqllity Share Capital 2,70.000

1s5ued subscribed and fully paid 4,57,000

so.oOO Equity shares oH 10 each

8,00,000
(of these 35,000 Equity shares oH 10 each allotted t 0
tball cash on amalgamations) ve nd0rs for consideration other
12,57,000
JleSel"VCS and Surplus
J.
(i) Capital Reserve:
Assets taken over on amalgamation
· 6,50,000
Less: Liabilities Assumed on amalgamation:
14% Debentures (35,000)
Current Liabilities (40,000) (75,000)
Net Assets taken over 5,75,000
Less: Purchase consideration (5,37,000) 38,000
(ii) Export Profit Reserve bid 30,000
Add: Taken over on amalgamation 20,000 50,000

(ill) Investment Allowance Reserve (taken over on amalgamation) 10,000

(iv) Surplus as per statement of Profit and Loss 75,000
Add: on aD;1algamation 50,000 1,25,000
2,23,000

J. Long-term Borrowings
85,000
149ft Debentures (Secured)
Tangible Assets
4,05,000
Land and Building
4,95,000
Plant and Machinery
94,500
Furniture
9,94,500

Other Non-current Assets

Amalgamation Adjustment Reserves 20,000
For: Export Profit Reserve 10,000
Investment Allowance Reserve 30.000

' laventories
Stock of Goods in hand
1,73,000

Tnde Receivables l,44.500

Debtors for Goods

' Cub and Cuh Equivalenta

Caabat Bank.
88.000
 Basic Co rporate Acco .
10 .36 unt, 11g: i c
Xtanc1
__
, Amalg amat 1on In th• Natur e of Purch ase]
I\J5 ,
g~"i
Illustr ation 10 [Absorpt 1on ' "11,
21 I tl1 · · r n I Sh
-
Shubh a Ltd. a'1sor~cJ sush . t J wll I, cfti.•(l I.m m ·t st Ant ri l, 20 ' w ,en e1 n o a nee ce ts on 3 J
nhl .t · st
v:ere as un,kt:
' f'vtarch
• io~ I
Particulars Note No.
Shubba Ltd. ~
t
I fQU\T Y AND UABIUTI.ES
l. Shareholder's funds
(a) Share Capital
-- ~
(t) S11•h-. ~

11 % Preference Shares of't l 00 each 2,00,000

Equity Shares ofi 100 each s ,00,000 2,oo,Ooo
(b) Reserve and Surplus 2,00,0oo
Revaluation Reserve 20,000
Export Profit Reserve 40,000
20,00o
-
Genera l Reserve 2,00,000
Non-Current Liabilities 60,00o
2.
(a) Long-term borrowings
10% Debent ures t 100 each
- 1.20,000
15% Debent ures oH 100 each 80,000
3. Current Liabilities -
(a) Trade Payables (Creditors) 1,60,000
2,00,000
Total 12,00,000
8,00,000
ll ASSETS -
l. Non-Current Assets
(a) Propert y, Plant & Equipm ent (Tangible) .
Land & Buildings 2,20,000 l,40,000 I
Plant & Machin ery 4,20,000 2,60,000
(b) Non-C urrent Investm ents

I
2~ Current Assets
(a) Invento ries (Stock-in-trade )
2,90,000 1,60,000
I
(h) Trade Receivables - Debtor s
1,20,000 1,40,000
- Bills Receivable 1,30,000 90,000 '
(c) Cash and Cash Equivalents (Bank) 10,000
20,000
Total 12,00,000 8,00,~

Terms ofAmalg amatio n:

1. Shubh a Ltd. will issue 8 equity shares for 5 equity shares in Sushm
a Ltd.
2. 11 % prefer ence shareholders-of Sushm a Ltd. will be issued equal
numb er of equity shares in Shubh a Ltd,
3. 10% deben tureho lders of Sushm a Ltd. are discharged by Sushm
a Ltd. by issuin g equal numbe r 0 fits 15%
deben tures oft 100 each.
4. All the assets and liabilities of Sushm a Ltd. are taken over at book
values excep t the following:
Fixed assets at 10% more than book values. Stock at~ 1,44,000.
Debto rs at t 1,25,000. Bills Receivables at t 81 ,000.
5. Expor t Profit Reserve is to be kept for 3 years.
You are requir ed to:
(i) Comp ute Purch ase Consi deration.
 . ,.,0 ,natior1 of Com('11111c.,
ft!' ""'"'"' ,n P
_t r ~ p-pare LcJgcr Accollnl s 111 do~c ,1 1 ·A
··) ,... , ll' iook s 1
(11 . . Cl ~ Ullltll 111 ... I11
ass Journal Enlncs and prepare Bal . , u, 11,1 I td
P, h Od ' anu.~ Shcc1 afl c ,
(1ji} r am,ilgarnation in the n11ok'l . of \h11hhit I.rd i1pply1n~
purchase Mel ·

lnthcBooksof S h
us ma Ltd .
Realisation Account
Cr

.- :...i1•auJldlnl
,... ..--
...,. ••....hinery
'
1,40,000
2,60,000 Creditors
Particulars
l0% Debentures
f
1,20,000
2,00,000

---
1,60,000 Shubha Ltd. 5,20,000
1.40,000 (Purchase Consideration)
- ~ble 90,000
10,000 .
, ,,., Shareholders (Profit) 40,000
8,40,000 8,40,000

Shubha Ltd. Account

~ t
I
Jd)isation Account 5,20,000 Equity Shares in Shubha Ltd 5,20,000
r,-masc Consideration)
~
5,20,000 5,20.000

DL Equity Shares in Shubha Ltd. Account Cr.

,lluhha Ltd. Account 5,20,000 11 % Preference Shareholders A/c 2,00,000

! 5,20,000
Equity Shareholders Account 3,20,000
5,20,000

Dr. 11 % Preference Shareholders Account Cr.

11 % Preference Capital Account 2,00,000

2,00,000
2,00,000
2,00,000

Dr. Equity Shareholders Account Cr.

l
Equity Share Capital Account 2,00,000
-~Sbarcs in
3,20,000 Export Profit Reserve Account 20,000
,-,. tad.Account
I>
General Reserve Account 60,000

Realisation Account 40,000

3.,10,000
3,20,000

Statement of Purchase Consideration

, Form

2,00,000 2,ooo Equity Shares of~ 100 each

3,20,000 3 ,200 Equity Shares of l 100 each
~-aldtt11 Account
5,20,000
 Rnsic Corporate Acco unt,ng:
. ·re
Xt and
Ass·
'g~
Journal Entries
"''~1
10.38 f Sbubha Ltd,
In the Boo ks
O

part1cular s~----------- -;-:-i--:-

Dr.

Business Purchase Account t

(i) To Liquidators of Sushina Ltd, Accoun
Dr. 1,54,000
(Being business purchased) Dr. 2,86,000
Land and Building Account Dr. 1,44,000
(ii) Dr.
Plant and Machinery Account 1,25,000
Stock Account Dr. 81,000
Debtors Account Dr. 10,000
Bills Receivable Account Dr. 40,000
Bank Account
Goodwill Account (Balancing figure) 1,20,00o
To 10% Debentures Account 2,00,0Qo
To Creditors Account 5,20,00o
To Business Purchases Account Dr. 5,20,000
Llquidator of Sushma Ltd. Account 5,20,00o
(iii)
To Equity Share Capital Account
(Being purchase consideration discharged) Dr. 1,20,000

(iv) 10% Debentures 1,20,00o

To 15% Debentures Account
(Being debentures exchanged) Dr. 20,000
Amalgamation Adjustment Account 20,00o
. (v)
To Export Profit Reserve Account
(Being statutory reserve brought forward)
Shubha Ltd.
Balance Sheet As at 31 March 2021
Note No.
Particulan
I..
EQUITY AND LIABILITIES
I. Shareholders' funds
1 12,20,000
(a) Share capital
2 2,80,000
(b) Reserves and Surplus
15,00,000
Sub-Total
2. Non-current Liabilities
3 2,00,000
(a) Long-term borrowings
4 3,60,000
3. Current Liabilities
20,60,000
Total Equity and Liabilities
II ASSETS
1. Non-current Assets
5 10,80,0CMl
(a) Property, Plant & Equipment (Tangible)
40,000
(b) Intangible 6
20,000
(c) Other non-current assets 7
11,40,000
Sob-Total
2. Current Assets
4,34,000
(a) Inventories 8
2,45,DOO
(b) Trade Receivable · 9
30,00o
(c) Cash and cash Equivalents 10
(d) Short-term Loans and Advances 11
Sub-Total
Total Assets
 Noles lo tu:counls

~ital
Partkulars
-
SIJ#1' 1,scribed and fully paid
10
..-;';~ preference share cnpitnl
2.00.000
(s) 2,()()(), 11% preference shares of~ 100 each
ultf shares capitnl
6 10.20,00 0
(I,) :.200 Equity shares on' 100 each
1
(of these 5,200 Equity shares issued to vendors (Sushm Ltd) 12,20,00 0
consideration on amalgamation) a · as purchase

J l ~ and Surplus 2,00,000

(i) General Reserve 20.000
(ii) Re'\laluation Reserve
40,000
(Iii) Export Profit Reserve b/d 60,000
20,000
;.dd: from vendor company to be kept for three years 2,80,000
Total
Long-term Borrowings 80,000
• " (Secured) debentures 1,20,000
~ Issued to vendor company 2,00,000
Total

4,
current Liabilities 1,60,000
Creditors 2,00,000
Taken over from vendor company 3,60,000
Total

5. Tangible Assets 2,20,000

(i) Land and Building 1,54,000
Taken over from vendor company 3,74,000
Total
4,20,000
(ii) Plant and Machinery 2,86,000 7,06,000
Taken over from vendor company 10,80,00 0
Total
Intangible Asset 40,000
Goodwill (on account of amalgamation)
Other Non-current Assets 20,000
Amalgamation Adjustment Account: [Export Profit Reserves (From Vendor Co.))
lmentories 2,90,000
h.ckofG oods 1,44,000
Prom Vendor Company 4,34,000
Total
Trade Receivables 1,20,000
Debtors for Goods 1,25,000
•IQQa vendors 2.45,000
Total
c..a. aad Cuh Equivalents 20,000
c..i atBank 10,000
'-- 'tendon 30,000
~ Total
IGJa -tern. Loans and Advances 1,30,000
'lleceivables 81,000
'teat vendors 2,l l,000
Total
tn 4.1

- A
~
11111/, C-m1w111r A
,,,,,,,,,
, ' •~ ,. ~,
UtustJ ati,,n , 1 (Amatgamiatlon In tht Naturt of Pur,hase: Net uets Method) ,,,,, ,\ ,,
~h',
L,'1,,,, 111 ~ arc th\'.' n.~Lmd' ~lwd~ nfRalml Lill. anJ Mchul Lt<l. ns on 31st ~lm:h,
202J: '\
·7-·~ --t'a~t,ulm
Note ~ ~ ---
___ ,.;I ·--------
I
j

l Ql'lH A~ll ll\811.ll lLS

-- ~
Ull.td,
(~)
'
... ~
~.~ ',,
.., ,14.,
l. ~ba.n:hnlJcr'I, runJs ·-..... ', i,.,
la} ~hare ( 'ap1tal 1

[quily ~ham( ''' 10 ra(h, fully p.iid

l 0"'1 rrckrrn~ c Shares of, \ 00 each, fully paid s,00,000
121\o Prdrrcn(e Shares off l 00 each, fully paid
(h) Rcsm·e and Su.rrlus 3.,oo,ooo
- 3,!XJ~
2,0oo
·~
·'-1)
General Reserve
1,00,000 '
Surplus
1.2,fii
Statutory Reserve so,ooo
20,000
·~
2. Non-Current Liabilities 40~
(a) Long-term borrowings (9% Debentures) IQ,~

3. Current Liabilities 1,so,000

1.5(),~
(a) Trade Payables (Creditors)
1,00,000
(b) Other current liabilities
_ 60,0oo 59,r»J
Total 40,r»J
_ 12,so;ooo
11. ASSETS
1. Non-Current Assets
~
~
(a) Property, Plant & Equipment
"
Tangible- Building
3,00,000
Machinery 4,00,000
1,00,000
Furniture 90,00J
20,000
(b) Intangible Assets (Goodwill) 10,000
(c) Non-Current Investments - 50,(X)J
2,00,000 50,00J
2. Current Assets
(a) Inventories (Stock-in-trade)
·l,00,000 1,00,000
(b) Trade Receivables (Debtors)
3,00,000 1,50,00)
(c) Cash and Cash Equivalents (Bank)
30,000 20,00)
{d) Other Current Assets
2,30,000 50,00)
Total 12,80,000 9,20,00)
On the above date Rahul Ltd. takes over the business of Mehul Ltd. on the followin
g terms and conditions:
(i) All fixed Assets (other than Goodwill) are to be taken over at 20%
above book values and current assets (olber
than cash & bank balance) are valued at 15% below book values.
(ii) Goodwill to be considered as worth~ 1,50,000.
(iii) Equity Shareholders of Mehul Ltd. are to be issued, 8 Equity
Shares of~ 10 each in Rahul Ltd. at t 12 each,for
every 5 Equity Shares in Mehul Ltd. Balance of Purchase Consideration to
be paid in cash. .
{ iv) J0% Preference Share holders of Mehul Ltd. are to be paid at fi
10% premium by issue of 12% Pre ere nee Shares ~
Rahul Ltd. at par.
(v) Investments of Mehul Ltd. represent investments in own debentures chased at p.U,
of face value { 50,000 pur
which are to be cancelled before the company is taken over by Rahul Ltd.
. .
ch ,~
.
(vi) Investments of Rahul Ltd. mclude investments m 9%. Debentures of Mehul Ltd. of face value { 1'00,000 pur a.
at f 95,000.
(vii) Sundry Debtors of Rahul Ltd. include t 5,000 due from Mehul
Ltd.
(viii) Statutory Reserves are to be maintained for two more years.
 .... -~,._,,,./.r,,m,,111•11 ,., , ,,,,,r,,,,,,.,
~,.-
~·· ~11i1'l.J "
1
;

,.,,,,- ·I · c·~nn s-·1J cr,1 11·011

~ (·,,,nrtit ".. PurL 1asc .
1
. Ol'1.f!'isary Journal Entries in th e hooks O f 1{ahul 1.tJ.
• raSj
,.. . .
are Balance Sheet of Rahul Ltd . aft c r ,llna
,. rt"fr 1ga1nJt ion

Mehul Ltd.
Purchase Consider ation

,,,,,,. ~ Over
Qlllfwill 1.50.000
-,111111 4,80,000
~ 1,08.000

-
fllOilllff 12.000
l)dllGr1 1.27,500
85,000
Odaer Current Assets 42,500
lank 20,000
l,m: 10.25.00 0
u.1,illties taken over
11.--tures (1,50,000 - 50,000 (own debentures)] 1,00,000

s.lryCre ditors 59,000

40,000 ( 1.99.00())
Olllr.r Liabilities
8.26..000

Settlement of Purchas e Conside ration

• Preference Shareholders: 2,200 x 100

2.20.000 '
5..76,UOO
'llquity Shareholders: 30,000 + 5 x 8 x 12 30,UOO
r..h (Balaoce: 8,26,000 - 7,96,000 ) 8,.!b.(Mtl)

In the books of Rahul Ltd.

Journal Entrie~
Debitm Cftdil( t)
Particulars 8.26,000
Dr.
8,lb,001)
BU&iness purchas e Account
To Liquida tor of Mehul Ltd.
(Being purchas ed business of Mehul Ltd.) Dr. l.50,000
Dr. 4,80,000
Goodwill Accoun t l,08..000
Dr.
Building Accoun t 12.tX.1'>
Dr.
Machinery Accoun t ()J. U7..Sll0
Pu.rniture Accoun t Pr. s-..0t-.i
Debtors Account Dr. c .~
Stock Accoun t llr. ,?t),llt.lU
Other Current Assets Account 5~.000
Bank Account 1.00,000
To Sundry Creditor s Au:uunt ..o.uuo
8•.!a,000
To 9% Debentu res Account
To Other Liabilities Account

J
·• To Business Purchas e Aci.:uunl
· taken over of Asi,ets & J·iahilitles)
(B ting
 fl,, .~ ii C'p1 f' t1r,l/r A( .I ll/ 111/
'''>t "rrt1 n11t1 ~
Pr. ' 'R ~"i-~
tUr,,ooo 4•'1
Ill 42
t iq1111l,11,,, ,,1 M.-1111I t ril A,, ,111111 1~,1,
(iii) ,,, t q111 I) ~\l ,ll f 1',11'11,11 .i\~llllllll
C ,,,11 ,1 l,lr1,/'
. ~, /\l ( Lllllll
~
10 l 1'\, l'1 r h 11' lll r :, i,,,c ' '
I
lf,t,
~
fo S1'\ 1111IIC~ 1'rc111i11ni ,\LLlllllll If, r,
q
fo l-.-~h Dr.
\ lk1n11 Sc1tkn1cnt ,,i Pun:ha~e consiJl•ral Ion) 1.00,000

--~:,, l k hcntun.'S llf ~khul uJ. A((llUIII 9,

lb~
\n l
To lnn-slll\l' III S i\LLOUIII S,fJ,.)
r,, Capit.11 Rl·scn·c Ai:count
(!ki n~ Pun:hascJ 9'!1, nchcnturcs of .Mchul Ltd.) Dr. 10,000

Am.1l~am.1tion AJjustntcnl Ai:wunt 10.~

T,, StatutMYRcsl'rve Account
(Being S1.11uwy Reserve brought into books) Dr. 5,000

Creditor Account 5.otxJ

To Debtors Account
(Being adjusted Inter-Co. Debt) Dr. 5,000

(vii)
Capital Reserve Account s.~
To Goodwill Account
(Being transferred Capital Reserve to Goodwill Account)
Rahul Ltd.
Balance Sheet As At 1 April 2021
Note
Particulars

EQUITY AND LIABILITIES

I. Shareholders' Funds l 15,00,000
(a) Share capital 2 2,i6,000
(b) Reserves and Surplus 17,76,000
Sub Total
2. Non-current Liabilities 3 1,50,000
Long-term borrowings
3. Current Liabilities 4 1,54,000
(a) Trade Payables 5 1.00,000
(b) Other Current Liabilities 2,54,000
Sub Total 2!,80,000
Total Equality and Liabilities

II ASSETS
1· Non-current Assets 10,20.000
6
(a) Property, Plant & Equipment (Tangible) l,45,000
7
(b) Intangible Assets
8
(c) Non-current Investments
9
(d) Other Non-current Assets
Sub Total
2. Current Assets 1,85,~
(a) Inventories 10 4,2!51K)
(b) Trade Receivables 11 20,lllKl
(c) Ca1sh and cash equivalents 12

(d) Ol her cum:nt assets 13

Sub Total
Total Aneta
 lf l ,i I

Notes to Ac1:ounh
-
.•' t
Pa.rticulars
---
'
~~
,re
I•
~ . shart Capital
rere""e
bS ·ribcd and fully paid up
~SU "
• preference shares oH 100 each 5,20,000
-, 1lllo .
sJl 0 }2% Preference shares issued to vendors t
of t)lese 2•20 '
.d .
or cons1 eratton other
~,asb)

iqlll;
. share Capital

Is&ll su
I
bscribed and fully paid
9,80.000
E uitv shares oft 10 each
93,00o q ' . . 15,00,000
(of these 48,000 equity shares issued to vendors for consideration other than cash)
serves and surplus
Ile
.. (a)
Securities Premium Account
. 96,000
(On equity shares issued to vendors for consideration other than cash)
1,00.000
(b) General Reserve
10,000
(c) Statutory Reserve 30,000
For Vendor Company 20,000
50,000
Surplus (Statement of Profit and Loss)
(d)
Total 2,76,000

Long-term Borrowings
J. l,50,000
9"' Debentures (secured)

t Trade Payables
1,00,000
Creditors for goods
59,000
From vendors
(5,000) 54,000
Less: Common Debt
1,54,000
Total
s. Other Current Liabilities
60,000
Balance b/d
40,000
From Vendors Total
1,00,000

Tangible Fixed Assets

(a) Building:
3,00,000
Balance b/d
4,80,000 7,80,000
From vendor
(b) Machinery
1,00,000
Balance b/d
l,08,000 2,08,000
From vendors
(c) Furniture

Balance b/d 20,000

Frorn vendors 12,000 32,000

10,20,000
Total
latanaible Assets
l Good\¥ill
)I._ on Amalgamation l,45,000

lal.n-CUrrtnt Investments
, c, btd 2,00,0U0
 , l\'- ., .. r,o~ ,{ \h:1-.ul t.1J.
I m ~,n,y,~;"':;(::~~ t!'1 · ." f,,w1-~' \ ,
Tlll&l

Othfr noo"'llfflnt Ar.ICU

.\r.1~·i1:r.;.t;\,n A.! ui.tmenl A.:,,lllllt.:
._ , _ J t tbaollmonths)
(Sututorr Rn<l''f 10 bf f'fWIKU ,or more
10. ID\"'tnlorin
St\Xl. of G\,x..Js
fo'.'m Mehul UJ.. (\'tnJ1Jrs )
Tolil
11. Tr•de RKeinbles
Cxbtors for G\.lOOS
From \"endors

12. Cash and Cash tqninlents

Cash at B.mk
30//J.j
Paid to Liquidators
(30.1)';;,
From \"endors

20.(((i

13. Other Current Assets (2,30,000 +42,500)

Illustration 12 (Absorption: Net Payment Method: Inter Co. Debt, Unreali

sed Profit on Stock etc.)
The following are the Balance Sheets of Alpha Ltd. and Beeta Ltd. as on 31st March,
2021:
Particulars Note No. Alpha Ltd.
i
I . m
Betta W.
m
-
I EQUITY AND UABJLITIF.S
1. Shareholder's Funds
(a) Share Capital
7% Preference Shares off l 00 each 4,50,000 6,00,00J

Equity shares oH 100 each 8,00,000 12,00,0Cil

(b) Reserve and Surplus

70,000 80,0Cil
General Reserve
45,000 62,IXXI
Surplus Account
48,0CIJ
StaMory Reserves 27,000
2. Non-Current Liabilities
84,0CIJ
(a) Long-term borrowings (10% Debentures) 1,50,000

3. Current Liabilities
1)0.~
(a) Trade Payables- Creditors 75,000
Bills Payable 25,000 I~
16,42,000 ~
II ASSETS
Total
- I

I. Non-Current Assets
(a) Property, Plant & Equipment (Tangible) j,ifJ.rJIJ
Premises 6,50,000
6)°'~
Plant & Machinery 4,80,000
 . •11 ,,, f 'pmr,1111r ~
f

/
"" ....~",.."" C.ompul eri ;z_11fl t 'if>I'/
t .lf> nno
t'

(1') lntt11ntti'11e A11!'c-t ,-Gontlwill ,.,} (1110 I."" rii,n

c:urrent ,'\11eU
.z . ~,n_tlf!O
J. (al Inventories (StnLk -in -tradc) 1,1w_ooo
(b) n-ade Receivables - Debtors .l . I ,;Jlf lfl
1. 10.000
- Bills Receivables lll.0110
,o.ooo
(c) Cash and Cash F.qulvalcnls (Bank) 12.000
H .noo
Total ~-- ---r-- P. 2~oo_
- ,.. ::·:.:-::..-::::=
I h,42.')00 +.==--_.:...:
_ _ _ _ _ _ _ _ _ __ _ _ __j__- 1:::== =::==
• L,td, takesover Alpha Ltd. on 1 April, 2021 on the following terms:
att' Ltd discharg ed purchas e conside ration as under··
eeta ·
(i) B
(a) Issued 10,000 equity shares of~ 100 each at a premium of 5%
for the equity shareho lders of Alph4 Ltd.
shareho lders of Alpha Ltd. at
(b) Issued 8% preferen ce shares of~ 100 each at par to discharge the preferen ce
IO% premium .
res of Beeta Ltd.
e Debentures of Alpha Ltd. to be convert ed into equivalent number of debentu
(il1 Th
(iii) Sundry debtors of Beeta Ltd. include ~ 25,000 being amount due
from Alpha Ltd.

(iv) Bills payable of Alpha Ltd. include s~ 7,000 being the amount of
bills accepted in favour of Beeta Ltd. but the bills
Alpha Ltd.
receivable of Beeta Ltd. include s~ 5,000 only being the amount of bills due from
(v) The stock of Beeta Ltd. include s~ 30,000 worth of goods purchas
ed from Alpha Ltd. on which Alpha Ltd. made
a profit of 25% on cost.
(vi) Statutory reserves are to be maintai ned for two more years.
You are required to:
L Calculate purchas e conside ration.

2. Pass Journal Entries in the books of Beeta Ltd. assumin g that amalgam
ation is in the nature of purchas e.

3. Prepare Balance Sheet of Beeta Ltd. after amalgam ation.

Solution
Calculation of Purchase Consider ation:
~
l. For Equity Shareho lders
l0,50.00 0
10,000 Equity Shares in Beeta Ltd. of~lOO each at a premium of 5%
2- For 7% Preference Shareho lders:
4,950, 8% Preferenc e Shares in Beeta Ltd. of~ 100 each at par 4.95 ,000
15.45,00 0

In the Books of Beeta Ltd.

Journal Entries
Debltro Credlt (t)
Particula rs
Dr. lS.45,000
Business Purchase s Account
15,-lS.OOO
To Liquidat ors of Alpha Ltd.
(Being purchase consider ation of business) ·
Dr. 2,lJ,000
Goodwil] Account (Balanci ng Figure)
Dr. 6,50.000
Premi1e1 Account
Dr. 4.S0.000
Plant and Machine ry Account l ..!0,000
Dr.
Computer Account
Dr. 1.80,llOO
Stock Account
llr. l, IIJ,000
Sundry Debtc,rs Account