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Accounting • Costing • Taxation • Financial Management
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CA. Naresh Aggarwal’s
Assignment - 6
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Accounting • Costing • Taxation • Financial Management
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1
Practice in Accountancy
CA. Naresh Aggarwal’s
Amalgamation,
Absorption
ACADEMY of
& ACCOUNTS
Accounting External
• Costing • Taxation
• Financial Management
Reconstruction
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Q-1: S Ltd. is absorbed by P Ltd. Calculate the purchase consideration from the
following information :
(a) The payment of cost of absorption as a part of purchase consideration not
exceeding Rs.25,000 (actual cost Rs.20,000).
(b) The payment of the existing 11% Debentures of Rs.3,00,000 at a premium of
10% by issue of 12% Debentures in new company issued at 96%
(c) Allotment of six equity shares of Rs.50 each fully paid for every four shares in
S Ltd. The number of shares of S Ltd. is eighty thousand of Rs.50 each fully
paid.
[Rs.60,00,000]
AoA
Q-2: The A Company Ltd. and The B Company Ltd. have agreed to amalgamate.
A new company The AB Company Ltd. had been formed to take over the combined
concerns as on 31.03.2011. After negotiations, the assets of the companies have
been agreed at as shown in the following balance sheets :
The A Company Ltd.
Liabilities
Issued Capital
1,00,000 Ordinary Shares
of Rs.20 each fully paid
Sundry Creditors
Profit and Loss Account
Amount
Assets
Amount
Land and Buildings
Machinery and Plant
20,00,000 Patents
1,60,000 Stock
1,00,000 Sundry Debtors
Cash at Bank
10,00,000
4,00,000
2,20,000
3,00,000
2,40,000
1,00,000
22,60,000
22,60,000
The B Company Ltd.
Liabilities
1,00,000 Ordinary Shares
of Rs. 10 each
Sundry Creditors
Reserve Fund
Profit and Loss Account
(undistributed balance)
Amount
10,00,000
1,00,000
1,00,000
1,00,000
13,00,000
Assets
Land and Building
Machinery and Plant
Goodwill
Stock
Sundry Debtors
Cash at Bank
Amount
6,00,000
5,00,000
1,00,000
40,000
40,000
20,000
13,00,000
According to AS-14 of ICAI Amalgamation in the nature of merger is an amalgamation which satisfy all the following conditions :
(a) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee
company.
(b) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than equity
shares already held therein by the transferee company or their nominees) become equity shareholders of the transferee
company.
(c) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to
become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity
shares in the transferee company, except that cash may be paid in respect of any fractional share.
(d) The business of the transferor company is intended to be carried on, after the amalgamation by the transferee company.
(e) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are
incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies
Dr.
Amalgamation in the nature of Merger (Pooling of Interest Method)
Amalgamation Adjustment A/c
To Statutory Reserves A/c (Given Amount)
Dr.
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
For Incorporation of Statutory Reserves :
AoA
Q-5: A Ltd. and B Ltd. propose to amalgamate. Goodwill is valued at Rs.3,00,000
for A Ltd. and Rs.1,20,000 for B Ltd. The stock of A Ltd. and B Ltd. is taken at
Rs.6,00,000 and Rs.4,50,000 respectively. Calculate the purchase consideration
payable to both the companies on the basis of net assets method. Their balance
sheets as on 31.03.2011 were as follows :
Liabilities
A Ltd.
B Ltd.
Rs.
Rs.
Equity Share of Rs.10 each
15,00,000
6,00,000
General Reserve
6,00,000
60,000
Profit and Loss Account
3,00,000
90,000
Creditors
2,40,000
1,20,000
Bills Payable
60,000
30,000
27,00,000
9,00,000
Assets
Buildings
6,00,000
4,50,000
Investments
9,00,000
Debtors
4,80,000
1,50,000
Stock
6,00,000
2,40,000
Cash in hand
45,000
15,000
Cash at Bank
75,000
45,000
27,00,000
9,00,000
[A Ltd.: Rs.27,00,000; B Ltd.: Rs.10,80,000]
Debenture Holders of Transferor Co. A/c (Due Amount)
Discount on Issue of Debentures A/c (if any)
To Debentures A/c (Paid up nominal value)
To Securities Premium A/c (if any)
Q-4: Sun Ltd. agrees to issue two shares of Rs.50 each for every three shares held
in the Moon Ltd.
Find the number and amount of shares to be issued by the purchasing company if
the vendor company has Rs.5,00,000 paid up capital of Rs.100 each, Rs.80 paid
up. The market value of shares of Sun Ltd. is Rs.60
[Total of Purchase Consideration: Rs.2,50,000;
Purchase consideration: 4,166 shares of Rs.50 each and Cash Rs.40]
Accounting • Costing • Taxation • Financial Management
Dr.
Dr.
Q-3: Y Ltd., the transferor company agrees to receive four shares of Rs.50, Rs.45
paid up for every three shares, in Z Ltd. the transferee company.
Find out the number and amount of shares to be issued by the vendee company if
the vendor company has Rs.15,00,000 paid up capital of Rs.100 each, Rs.50 paid
up.
[Existing No. of Shares of Y Ltd:30,000;
No. of Shares to be issued by Z Ltd: 40,000; Purchase Consideration: Rs.18,00,000]
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Debenture Holders of Transferor Co. A/c (Due Amount)
Discount on Issue of Debentures A/c (if any)
To Debentures A/c (Paid up nominal value)
To Securities Premium A/c (if any)
Show how the amount payable to each company is arrived at and prepare the
amalgamated balance sheet of the new company. The Purchase Consideration is
payable in equity shares.
[Amount payable to The A Ltd.: Rs.21,00,000; The B Ltd.- Rs.12,00,000]
31
Practice in Accountancy
For conversion of debentures of transferor company :
Amalgamation and Final Accounts of Companies
For conversion of debentures of transferor company :
2
Dr.
Dr.
Liquidators of Transferor Co. A/c (Purchase Consideration)
Discount on Issue of Shares/Debentures A/c (if any)
To Equity Share Capital A/c (Paid up nominal value)
To Preference Share Capital A/c (Paid up nominal value)
To Debentures A/c (Paid up nominal value)
To Securities Premium A/c (if any)
To Bank A/c (if any)
For discharge of Purchase consideration :
Dr.
Dr.
Sundry Assets A/c (Fair Values)
Goodwill A/c (Balancing Figure, if any)
To Sundry Liabilities A/c (Fair Value)
To Capital Reserve A/c (Balancing Figure, if any)
To Business Purchase A/c (Purchase Consideration)
For incorporation of Assets, Liabilities and Reserves :
Dr.
Business Purchase A/c (Purchase Consideration)
To Liquidators of Transferor Co. A/c
For Purchase Consideration Payable :
3
Practice in Accountancy
Dr.
Dr.
Liquidators of Transferor Co. A/c (Purchase Consideration)
Discount on Issue of Shares/Debentures A/c (if any)
To Equity Share Capital A/c (Paid up nominal value)
To Preference Share Capital A/c (Paid up nominal value)
To Debentures A/c (Paid up nominal value)
To Securities Premium A/c (if any)
To Bank A/c (if any)
For discharge of Purchase consideration :
Sundry Assets A/c (Book Values)
Capital Loss / P&L A/c etc. (Balancing Figure, if any)
To Sundry Liabilities A/c (Book Value)
To Reserves / Profit & Loss A/c (if any, upto extent)
To Business Purchase A/c (Purchase Consideration)
For incorporation of Assets, Liabilities and Reserves :
Dr.
Business Purchase A/c (Purchase Consideration)
To Liquidators of Transferor Co. A/c
For Purchase Consideration Payable :
Amalgamation in the nature of Merger
AoA
Amalgamation in the nature of Purchase
Journal Entries in the books of Purchasing Company (Transferee Company)
Dr.
Dr.
Amalgamation and Final Accounts of Companies
30
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Q-6: The following is the balance sheet of S Ltd. as on 31.03.2011 :
Balance Sheet
Liabilities
Amount
Assets
Equity Shares of Rs.100 each 18,00,000 Plant and Machinery
10% Preference Shares
Land and Building
of Rs.100 each
5,00,000 Furniture
General Reserve
3,00,000 Patents
12% Debentures
8,00,000 Investments
Creditors
4,00,000 Stock
Debtors
Bank
38,00,000
Amount
10,00,000
9,00,000
1,00,000
2,50,000
1,00,000
7,00,000
5,70,000
1,80,000
38,00,000
Additional Information :
(a) P Ltd. to take over S Ltd. on 31.03.2011.
(b) Debenture holders of S Ltd. are discharged by P Ltd. at 5% premium by issuing
15% Own Debentures of P Ltd.
(c) 10% Preference Shareholders are to be redeemed at a premium of 15% by
issuing necessary number of 11% Preference Shares of P Ltd. (Nominal value
Rs.50)
(d) Intrinsic value per share of S Ltd. is Rs.200 and that of P Ltd. Rs.150 (Nominal
value Rs.50). P Ltd. will issue equity shares to satisfy the equity shareholders
of S Ltd. on the basis of intrinsic value. However the entry is to be made at par
value only.
(e) Cost of absorption amounted to Rs.1,00,000 met by P Ltd. Calculate the
purchase consideration.
[Purchase Consideration: Rs.17,75,000; Capital Reserve: Rs.7,85,000]
[Hint: Cost of absorption is not a part of purchase consideration as per AS-14]
Q-7: P Ltd takes over the business of S Ltd. You are required to :
(a) Calculate Purchase Consideration.
(b) Give Journal Entries to close the books of S Ltd.
(c) Give journal entries in the books of P Ltd.
Add: in Closing Stock (Current Assets in Balance Sheet)
Add: in Closing Stock (Change in Inventoris) in St. of P&L
Other Current Assets in Balance Sheet
Less: in Extraordinary Item in Statement of Profit and Loss
Employee benefits expense in Statement of P&L
Other Current Liabilities in Balance Sheet
Extraordinary Item in Statement of Profit and Loss
Less: in Purchases (Trading A/c) or Trading A/c Cr.
Less: in Assets (Balance Sheet)
Show in Depreciation and amortization expense
Less: in Other Current Assets in Balance Sheet)
Sales A/c (selling price)
To Debtors A/c (selling price)
Stock A/c (cost amount)
To Trading A/c (cost amount)
Manager’s Commission
Sales on Approval
(If wrongly recorded as sales)
If not yet included in closing stock
or question is silent about that
18.
19.
Dr.
Dr.
Insurance Claim for
Loss by Fire / Theft
17.
Manager’s Commission A/c
To Manager (O/s Comm.) A/c
Loss by Earthquake
16.
Dr.
Deferred Expenditure
(eg. Preliminary Exp. etc.)
15.
Insurance Company’s A/c
To Insurance Claim A/c
Directors Remunaration
14.
Loss by Loss by Earthquake
Dr.
To Purchases A/c (for goods)
To Assets A/c (for other Assets)
Provision / Reserve for
Discount on Debtors
13.
Dr.
Provision / Reserve for
Bad Debts / Doubtful Debts
12.
Statement of Profit and Loss
To Expenditure (Name) A/c
Bad Debts A/c
To Debtors A/c
P Ltd. takes over S Ltd. on 01.04.2011 on the following terms and conditions :
(a) Debenture holders of S Ltd. are discharged by P Ltd. by issuing 11% Own
Debentures at a premium of Rs.30 each (nominal value of Debenture Rs.50)
(b) 12% Preference Shareholders of S Ltd. are to be discharged at a premium of
20% by issuing necessary number of 13% Preference Shares of P Ltd.
(c) Intrinsic value per share of S Ltd. is Rs.75 and that of P Ltd. Rs.150. P Ltd. will
issue equity shares to satisfy the equity shareholders of S Ltd. on the basis of
intrinsic value. However the entry should be made at par value only. The
nominal value of each equity share of P Ltd. is Rs.100.
You are required to :
(a) Calculate Purchase Consideration.
(b) Show necessary accounts to close the books of S Ltd.
Bad Debts or
Further Bad Debts
17,25,000
11.
17,25,000
5,00,000
4,50,000
1,05,000
50,000
2,30,000
2,40,000
1,50,000
Journal Entries
7,50,000 Land and Building
Plant and Machinery
2,50,000 Furniture
50,000 Investments
75,000 Stock
4,00,000 Debtors
2,00,000 Bank
Amount
S.N. Types of Adjustments
Assets
Directors Remunaration A/c
Dr.
To O/s Directors Remunaration
Dr.
AoA
Equity Shares of Rs.50 each
12% Preference Shares
of Rs. 100 each
Securities Premium
General Reserve
10% Debentures
Sundry Creditors
Amount
Statement of Profit and Loss
Dr.
To Prov. for Discount on Debtors
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Q-8: The following is the balance sheet of S Ltd. as on 31.03.2011 :
Liabilities
Other Expense in Statement of Profit and Loss
Other Current Liabilities in Balance Sheet
Accounting • Costing • Taxation • Financial Management
1,60,000
The P Ltd. agreed to take over all the assets at 10% less than book value (excepting
goodwill, one fixed asset for Rs.16,000 and cash Rs.4,000 included in the current
assets as shown in the balance sheet). The P Ltd. agreed to pay Rs.24,000 for
goodwill and to discharge the trade creditors and debentures. The purchase
consideration was to be discharged by the issue of 2,000 shares of Rs.20 each,
Rs.16 paid up at a market value of Rs.40 per share and the balance in cash. Cost
of liquidation amounted to Rs.1,600.
[Total Purchase Consideration: Rs.1,03,600; Cash Paid: Rs.23,600; Loss on Realisation: Rs.4,400]
Add: in Bad Debts in Other Expenses (Stat. of P&L)
Less: in Debtors (Current Assets in Balance Sheet)
ACADEMY of ACCOUNTS
Dr.
1,60,000
16,000
66,000
78,000
Statement of Profit and Loss
To Prov. for Doubtful Debts A/c
Goodwill
80,000 Fixed Assets
28,000 Current assets
40,000
12,000
Add: in Bad Debts in Other Expenses (Stat. of P&L)
Less: in Debtors (Current Assets in Balance Sheet)
Amount
Add: in Discount Allowed in Other Expenses (Stat. of P&L)
Less: in Debtors (Assets in Balance Sheet)
CA. Naresh Aggarwal’s
Assets
Effects
8,000 equity shares of
Rs.10 each fully paid
Accumulated profit
Debentures
Creditors
Amount
Less: in Sales in Revenue from Operation (Stat. of P&L)
Less: in Debtors (Curent Assets in Balance Sheet)
Balance Sheet of S Ltd.
Liabilities
29
Practice in Accountancy
Dr.
Amalgamation and Final Accounts of Companies
4
Amalgamation and Final Accounts of Companies
Dr.
Outstanding Interest A/c
To Interest on Loan A/c
Closing Stock or
Stock at the end
Accrude or Outstanding or
Due / Unpaid Expenses
Accrude or O/s Income or
Income due but not received
Prepaid/Advance Exp. or
Unexpired Expenses
Advance Income or
Unearned Income
Depreciation on Assets
Loss on Sale of Fixed Assets
Provision for E.P.F.
(Employees Provident Fund)
Interest on Loan/Debentures
(If Loan has Cr. Balance)
Interest on Loan/Investment
(If Loan has Dr. Balance)
2.
3.
4.
5.
6.
7.
8.
9.
10.
AoA
Other Current Assets in Balance Sheet
Add: in related income (Statement of Profit and Loss)
Finance cost in Statement of Profit and Loss
Other Current Liabilities in Balance sheet
Dr.
Loss on Sale of Fixed Assets A/c
To Fixed Assets (Name) A/c
Dr.
Dr.
Depreciation A/c
To Assets (Name) A/c
Interest on Loan/Debentures A/c
To Outstanding Interest A/c
Show in Depreciation and amortization expense
Less: in related Fixed Assets in Balance Sheet
Income (Name) A/c
Dr.
To Advance Income (Name) A/c
Employees Benefit Expense in Statement of Profit and Loss
Long Term Provisions (Non Current Liab.) in Balance Sheet
Less: in related Income (Statement of Profit and Loss)
Show as Other Current Liabilities in Balance sheet
Dr.
Prepaid / Unexpired Expense A/c
To Expense (Name) A/c
Contribution to E.P.F. A/c
Dr.
To Employees Provident Fund A/c
Short Term Loan and Advances in Balance Sheet
Less: in related Expense (Statement of Profit and Loss)
Dr.
O/s Income (Name) A/c
To Income (Name) A/c
Other Expense in Statement of Profit and Loss
Less: in related Fixed Asset (Balance Sheet)
Add: in related Expense (Statement of Profit and Loss)
Show as Other Current Liabilities in Balance sheet
Dr.
Expense (Name) A/c
To O/s Expense (Name) A/c
Other Current Assets in Balance Sheet
Add: in related income (Statement of Profit and Loss)
Current Assets in Balance Sheet
Less: From Change in Inventories
Stock A/c
Dr.
To Statement of Profit and Loss
5
Practice in Accountancy
CA. Naresh Aggarwal’s
1.
Effects
Journal Entries
S.N. Types of Adjustments
Adjustments
28
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
(c) Give journal entries in the books of P Ltd.
[Purchase consideration: Rs.10,50,000; Loss on Realisation: Rs.1,25000; Capital Reserve: Rs.75,000]
Q-9: The following are the balance sheets of P Ltd. and S Ltd. as on 31.03.2011 :
Liabilities
Equity Share Capital
(Rs.20 per share)
11% Preference Share
Capital (Rs.100 each)
General Reserve
Export Profit Reserve
Investment Allowance
Reserve
Profit and Loss A/c
13% Debentures
(Rs.100 each)
Trade Creditors
Other Current Liabilities
P Ltd.
S Ltd.
Assets
Land and Building
10,00,000 6,00,000 Plant and Machinery
Furniture and Fittings
4,40,000 3,40,000 Investments
1,00,000 50,000 Stock
60,000 40,000 Debtors
Bank
- 20,000
1,50,000 1,00,000
1,00,000
90,000
60,000
P Ltd.
S Ltd.
5,00,000
6,50,000
1,15,000
1,40,000
2,50,000
1,80,000
1,65,000
3,10,000
3,40,000
70,000
1,00,000
1,90,000
2,06,000
1,04,000
70,000
70,000
30,000
20,00,00013,20,000
20,00,000 13,20,000
P Ltd. takes over S Ltd. on 01.04.2011. The purchase consideration is discharged
as follows :
(a) Issued 35,000 equity shares of Rs.20 each at par to the equity shareholders of
S Ltd.
(b) Issued 12% preference shares of Rs.50 each to discharge the preference
shareholders of S Ltd. at 10% premium.
(c) The debenture holders of S Ltd. will be converted into equivalent number of
15% Debentures of P Ltd of Rs.100 each.
(d) The statutory reserves of S Ltd. are to be maintained for two more years.
Show the opening entries and the opening balance sheet of P Ltd. after
amalgamation on the assumption that :
(i) The amalgamation is in the nature of the merger
(ii) The amalgamation is in the nature of purchase
[Purchase consideration: Rs.10,74,000; Loss on Realisation: Rs.1,10,000;
Balance Sheet Totals : (i) - Rs.33,20,000; (ii) - Rs.33,80,000; Capital Reserve: Rs.76,000]
6
Amalgamation and Final Accounts of Companies
Q-10: Following are the Balance Sheets of P Ltd. and S Ltd.:
Balance Sheets as on 30.06.2011
Liabilities
P Ltd. (Rs.)
Equity Share Capital (Rs. 10 each)
25,00,000
12% Preference Share Capital (Rs. 100 each)
11,00,000
General Reserve
2,50,000
Export Profit Reserve
1,50,000
Profit and Loss Account
3,75,000
10% Debentures (Rs. 100 each)
2,50,000
Trade Creditors
2,25,000
Other Current Liabilities
1,00,000
49,50,000
Assets
Land and Building
12,50,000
Plant and Machinery
16,00,000
Furniture and Fittings
3,00,000
Investments
3,50,000
Stock
6,25,000
Debtors
4,50,000
Cash & Bank
3,75,000
49,50,000
Practice in Accountancy
27
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
S Ltd. (Rs.)
15,00,000
8,50,000
1,25,000
1,50,000
2,50,000
1,75,000
1,70,000
80,000
33,00,000
7,50,000
8,50,000
2,00,000
2,50,000
4,75,000
5,15,000
2,60,000
33,00,000
AoA
P Ltd. takes over S Ltd. on 01.07.2011. P Ltd. discharges the purchase consideration
and other term are as bellow :
(a) Issued 3,50,000 equity shares of Rs.10 each at par to the equity shareholders
of S Ltd.
(b) Issued 13% Preference Shares of Rs.100 each to discharge the preference
shareholders of S Ltd. at 10% premium.
(c) The debentures of S Ltd. will be converted into equivalent number of debentures
of P Ltd.
(d) The Export Profit Reserve of S Ltd. to be maintained for three more years.
You are required to :
(i) Make necessary accounts to close books of S Ltd.
(ii) Make Journal Entries and Prepare Balance Sheet in the books of P Ltd., if :
(a) The amalgamation is in the nature of the merger
(b) The amalgamation is in the nature of purchase
[Profit on Realisation: Rs.14,75,000; Purchase Consideration: Rs.44,35,000;
Balance Sheet Totals: (a) Merger: Rs.82,50,000; (b) Purchase: Rs.99,60,000]
Q-11: S Ltd. is absorbed by P Ltd. Given below are the balance sheets of the two
companies prepared after revaluation of their assets on a uniform basis :
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
•
•
•
•
•
•
•
•
Sundry Expenses
Payment to Auditors
Certification and Consulation Fees
Lease Rent
Loss on Foreign Exchange Transactions
Excise Duty paid
Charity and donations
Prior period expenses
8.
Exceptional Items
• Cost of restructuring
• Disposals of Fixed Assets
• Disposal of Long term investments
• Effect of retrospective legislation
• Legal settlements
• Reversal of Provisions
• Write down of inventories to Net Realizable Value
9.
Extra-ordinary Items
• Loss from Attachment of Property
• Loss from Earthquakes
• Profit from Insurance claim
10. Contingent Liabilities (Shown as Foot Note only)
• Claims against the company / disputed liabilities not acknowledge as debts.
•
•
•
•
Guarantees (e.g. to banks against credit facilities extended to third parties)
Other money for which the company is contingently liable
(e.g. Bills discounted with banks)
Amount of contracts remaining to be executed
Uncalled liability on Shares and other Investments which are partly paid
26
5.
6.
7.
Amalgamation and Final Accounts of Companies
Finance Costs
• Interest on Borrowing / Loans / Debentures
• Interest on Bank Overdraft
• Finance charges on Lease Financing
• Other Borrowing costs :
(a) Loan processing charges
(b) Gurantee charges.
(c) Loan facilitation charges
(d) Discount/premium on borrowings
(e) Amortization of borrowing costs
• Amortization of Discount / Premium /Expenses on Debentures and Shares
Depreciation and Amortization Expenses
• Depreciation on All Fixed Assets
• Goodwill written off
• Preliminary Expenses written off
• Discount on Issue of Shares / Debentures written off
• Underwritting Commission written off
• Expense on Issue of Shares / Debentures written off
AoA
Other Expenses
• Consumption of spare parts
• Power and Fuel
• Rent
• Dicount Allowed
• Repairs
• Insurance
• Administration Expenses
• Telephone Expenses
• Delivery Expenses
• Freight
• Rates and Taxes
• Bad Debts written off
• Duty, Octroi and Cess
• Commission Paid
• Advertisement
• Legal charges
• Trade Expenses
• Office Expenses
• Provision for bad debts
• Carriage Inwards / Carriage Outwards
• Printing and stationery
• Directors Fees / Remunaration
• General Expenses
• Establishment expenses
• Loss on sale of Assets
• Selling Expenses
7
Practice in Accountancy
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Balance Sheet of S Ltd.
Liabilities
Authorised Share Capital:
9,000 Equity Shares of
Rs.150 each
Paid up Share Capital
9,000 Equity Shares of
Rs.150 each, Rs.135
paid up
General Reserve
Profit and Loss Account
Sundry Creditors
Amount
Assets
Sundry Assets
Cash in hand
Amount
16,85,000
3,500
13,50,000
12,15,000
4,03,500
15,000
55,000
16,88,500
16,88,500
Balance Sheet of P Ltd.
Liabilities
Authorised Share Capital
60,000 Equity Shares of
Rs.75 each
Paid up Share Capital :
40,000 Equity Shares of
Rs.75 paid up
General Reserve
Profit and Loss Account
Sundry Creditors
Amount
Assets
Sundry Assets
Cash in hand
Amount
43,57,500
27,500
45,00,000
30,00,000
12,85,000
35,000
65,000
43,85,000
43,85,000
The holder of every three shares in S Ltd. was to receive five shares in P Ltd. plus
as much cash as is necessary to adjust the rights of the shareholders of both the
companies in accordance with the intrinsic values of the shares as per respective
balance sheets. Pass necessary journal entries in the books of P Ltd. assuming it
to be an amalgamation in the nature of merger and prepare the balance sheet
giving effect to the above scheme of absorption. Entries are to be made at par
value only.
[Purchase consideration: Rs.11,38,500; Intrinsic value of share S Ltd.: Rs.181.50; P Ltd.: Rs.108]
8
Amalgamation and Final Accounts of Companies
Q-12: On 31 March, 2011, S Ltd. was absorbed by P Ltd., the later taking over all
the assets and liabilities of the former at book values. The consideration for the
business was fixed at Rs.8,00,000 to be discharged by the transferee company in
the form of its fully paid equity shares of Rs.10 each, to be distributed among the
shareholders of the transferor company, each shareholder getting two shares for
every share held in the transferor company. The balance sheets of the two
companies as on 31 March, 2011 stood as under :
Liabilities
P Ltd. (Rs.)
S Ltd. (Rs.)
Share Capital:
Authorised
30,00,000
10,00,000
Issued and Subscribed
Equity Shares of Rs.10 each fully paid
18,00,000
4,00,000
General Reserve
3,60,000
1,00,000
Profit and Loss Account
40,000
25,000
Workmen Compensation Fund
24,000
18,000
Sundry Creditors
1,20,000
60,000
Staff Provident Fund
20,000
7,000
Provision for Taxation
26,000
10,000
23,90,000
6,20,000
Assets
Building
8,00,000
1,80,000
Plant and Machinery
4,20,000
1,20,000
Furniture
1,60,000
60,000
Stock in trade
5,50,000
90,000
Sundry Debtors
4,00,000
80,000
Prepaid insurance
5,000
Income Tax Refund Claim
8,000
Cash in hand
25,000
27,000
Cash at Bank
35,000
50,000
23,90,000
6,20,000
AoA
Amalgamation expenses amounting to Rs.10,000 were paid by P Ltd. You are
required to :
(i) Show the necessary ledger accounts in the books of S Ltd.
(ii) Show the necessary journal entries in the books of P Ltd.
(iii) Prepare the balance sheet of P Ltd. after the amalgamation assuming it to be
on merger basis.
[Purchase Consideration: Rs.8,00,000; Balance Sheet Total: Rs.30,00,000
Profit in Realisation A/c: Rs.2,57,000
Q-13: The following is the Balance Sheet of S Ltd. as on 31.03.2011, the day on
which PLtd. takes over the business of S Ltd. and you are required to show :
(i) Ledger accounts in the books of S Ltd.
(ii) Opening entries in the books of P Ltd.
Practice in Accountancy
25
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
PROFARMA NOTES TO ACCOUNTS
1.
Revenue From Operation
(a) Sale of Products (Gross)
Less: Returns
(b) Sale of Services (Net)
(c) Other Operating Revenues (eg. Sale of Manufacturing scrap)
Note : If Gross Profit is given in the trial balance, assume it as Revenue from Operations
2.
Other Income
• All types of Interest Income
• Dividend Income (Gross)
• Rent Received
• Discount Received
• Transfer Fees
• Sundry Creditors written back
• Profit on sale of investments
Less: Loss on sale of investments (if any)
• Profit on sale of fixed assets
• Excess provision for bad debts written back
• Prior period income
3. Expenses
• Cost of materials consumed (Opening Stock of Raw Material + Purchases
of Raw Material - Closing Stock of Raw Material)
• Purchase of components
• Purchase of Stock in Trade
Less : Returns
• Changes in Inventories :
(a) Finished Goods (Opening Stock - Closing Stock)
(b) Work in Progress (Opening Stock - Closing Stock)
(c) Stock in Trade (Opening Stock - Closing Stock)
4.
Employees Benefit Expenses
• Salaries
• Wages
• Staff Welfare Expenses
• Contribution to Provident Fund, Gratuity Fund etc.
• Expenses on Employees Stock Option Scheme / Purchase Plan
Amalgamation and Final Accounts of Companies
24
PART II – Form of STATEMENT OF PROFIT AND LOSS
Name of the Company…………………….
Profit and loss statement for the year ended ………………………
9
Practice in Accountancy
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
Particulars
Note
No.
Figures as
Figures as
at the end of at the end of
current year previous year
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Balance Sheet of S Ltd.
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
XII.
XIII.
XIV.
XV.
XVI.
Revenue from operations
Other income
Total Revenue (I + II)
Expenses:
Cost of materials consumed [For Manufacturing]
Purchases of Stock-in-Trade
Changes in inventories
Employee benefits expense
Finance costs
Depreciation and amortization expense
Other expenses
Total expenses
Profit before exceptional and extraordinary items and tax (III-IV)
Exceptional items
Profit before extraordinary items and tax (V - VI)
Extraordinary Items
Profit before tax (VII- VIII)
Tax expense:
(1) Current tax
(2) Deferred tax
Profit (Loss) for the period from continuing operations (VII-VIII)
Profit/(loss) from discontinuing operations
Tax expense of discontinuing operations
Profit/(loss) from Discontinuing operations (after tax) (XII-XIII)
Profit (Loss) for the period (XI + XIV)
Earnings per equity share:
(1) Basic
(2) Diluted
xx
xx
xxx
xx
xx
xxx
xx
xx
xx
xx
xx
xx
xx
xxx
xxx
xx
xxx
xx
xxx
xx
xx
xx
xx
xx
xx
xx
xxx
xxx
xx
xxx
xx
xxx
xx
xx
xxx
xx
xx
xxx
xxx
xx
xx
xxx
xx
xx
xxx
xxx
xx
xx
xx
xx
AoA
Liabilities
Equity Share Capital
General Reserve
Statutory Reserve
Bank Loan
Debentures
Creditors
Amount
8,00,000
2,00,000
40,000
60,000
1,20,000
1,00,000
Assets
Intangible Assets
Fixed Assets
Current Assets
Profit & Loss Account
13,20,000
Amount
1,00,000
8,40,000
2,20,000
1,60,000
13,20,000
P Ltd. agreed to absorb S Ltd. on the following terms :
(a) P Ltd. agreed to take over all the assets and liabilities.
(b) The assets of S Ltd. are to be considered to be worth Rs.10,00,000.
(c) The purchase price is to be paid one-quarter in cash and the balance in
shares which are issued at the market price.
(d) Liquidation expenses amounted to Rs.5,000 agreed to be paid by S Ltd.
(e) Market value of share of Rs.10 each of P Ltd. is taken as Rs.12 per share.
(f) Debentures of S Ltd. were paid.
[Purchase consideration: Rs.7,20,000; Loss on Realisation: Rs.1,65,000; Capital Reserve: Rs.60,000]
Q-14: P Ltd. agreed to acquire the business of S Ltd. as on 31.03.2011. The
Balance Sheet of S Ltd. as on that date was as under:
Balance Sheet of S Ltd.
Liabilities
Share Capital:
6,000 Equity Shares of
Rs.20 each fully paid
General Reserve
Profit and Loss Account
6% Debentures
Sundry Creditors
Amount
1,20,000
30,000
26,000
20,000
4,000
2,00,000
Assets
Goodwill
Building
Machinery
Stock
Book Debts
ICICI Bank A/c
Amount
20,000
60,000
68,000
33,600
7,200
11,200
2,00,000
Amalgamation and Final Accounts of Companies
10
The considerations payable by P Ltd. was agreed at as follows :
(a) Cash payment equal to Rs.5 per share in S Ltd.
(b) Issue of 18,000 Equity Shares of Rs.10 each of P Ltd. having an agreed value
of Rs.15 per share.
(c) Issue of such an amount of fully paid 5% Debentures of P Ltd. at Rs.96 each as
is sufficient to discharge 6% Debentures of S Ltd. at 20% premium.
(d) While computing purchase consideration, P Ltd. valued building and machinery
at Rs.1,20,000 each, stock at Rs.28,400 and Book Debts subject to 5% provision
for doubtful debts.
(e) The cost of liquidation of S Ltd. was Rs.4,000 met by dissolving co.
(f) Issue of 5,000 Equity Shares of Rs.10 each to the public at Rs.15 per share.
You are required to show :
(i) Ledger accounts in the books of S Ltd.
(ii) Opening entries in the books of P Ltd.
[Purchase Consideration: Rs.3,00,000; Profit on Realisation: Rs.1,20,000; Goodwill: Rs.41,560]
Q-15: On 31.06.2011, S. Ltd. was absorbed by P Ltd. the latter taking over all the
assets and liabilities of the former at book values. The consideration for the business
was fixed at Rs.2,80,000 to be discharged by P Ltd. in the form of its fully paid
equity shares of Rs.10 each, to be distributed among the shareholders of S Ltd.
The Balance Sheets of the two companies as at 31.06.2009 were as under:
Liabilities :
P Ltd. (Rs.)
S Ltd. (Rs.)
Share Capital:
Authorised
15,00,000
5,00,000
Issued & Subscribed :
Equity Shares of Rs.10 each fully paid up
9,00,000
2,00,000
General Reserve
1,80,000
1,00,000
Profit & Loss Account
20,500
12,900
Sundry Creditors
70,570
39,450
Bills Payable
10,200
4,000
Provision for Taxation
12,300
5,000
11,93,570
3,61,350
AoA
Assets :
Goodwill
Plant and Machinery
Furniture
Stock in Trade
Sundry Debtors
Prepaid Insurance
Income Tax Refund Claim
Cash in Hand
Cash at Bank
2,00,000
4,12,000
80,000
2,65,500
2,21,200
870
14,000
11,93,570
60,000
1,00,000
30,000
60,000
46,000
700
6,000
350
58,300
3,61,350
23
Practice in Accountancy
PART I – Form of BALANCE SHEET
CA. Naresh Aggarwal’s
Name of the Company …………………….
Balance Sheet as at ………………………
ACADEMY of ACCOUNTS
Particulars
Note• Figures
as at the
Figures as at the
Accounting • Costing • Taxation
Financial
Management
No.
end of current
end of previous
West Patel Nagar, New Delhi. Ph:8800215448. Website:
www.academyofaccounts.org
reporting
period
reporting period
(I)
(1)
(2)
(3)
(4)
(II)
(1)
(2)
EQUITY AND LIABILITIES
Shareholders funds
(a) Share capital
(b) Reserves and surplus
(c) Money received against share warrants
Share application money pending allotment
Non-current liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Other Long term liabilities
(d) Long-term provisions
Current liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
TOTAL
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx .
xxx
xxx
xxx
xxx .
xxxx .
xxxx .
ASSETS
Non-current assets
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (Net)
(d) Long-term loans and advances
(e) Other non-current assets
Current assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short-term loans and advances
(f) Other current assets
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx .
xxx
xxx
xxx
xxx
xxx
xxx .
TOTAL
xxxx .
xxxx .
Amalgamation and Final Accounts of Companies
22
Creditors
Sales
General Reserve
Bad Debts Provision
40,000
4,15,000
25,000
3,500
Goodwill
Cash at Bank
Calls-in-arears
Interim Dividend Paid
Purchases
Preliminary Expenses
Wages
General Expenses
Salaries
Bad Debts
Debenture Interest Paid
12,46,750
25,000
40,650
7,500
39,250
1,85,000
5,000
97,980
6,835
20,225
2,110
18,000
12,46,750
Additional Information :
(a) Depreciate plant by 15%.
(b) Write off Rs.500 from preliminary expenses.
(c) Half-year debenture interest is due.
(d) Create 5% provision on debtors for doubtful debts.
(e) Provide for income tax at 35%.
(f) Stock on 31.03.2011 was Rs.95,000.
(g) A claim of Rs.2,500 for workman compensation is being disputed by the
company.
Prepare Trading and Profit and Loss Account for the year ended 31.12.2011 and
the Balance sheet as on that date.
[Net Profit: Rs.23,400; Balance Sheet: Rs.8,35,500]
AoA
Q-12: Pass Journal Entries of the following adjustments in Final Accounts:
1. A new Machine purchased was not recorded as no payment is made.
2. Goods worth Rs.15,000 dispatched and sold but not recorded.
3. A bill of Rs.7,500 is dishonored.
4. A bill of Rs.4,500 endorced to creditors is dishonored.
5. A bill of Rs.2,500 discounted from Bank is dishonored.
6. Debtors of Rs.5,000 are proved to be bad debts. Make 5% Provision for doubtful
debts. [Balance in debtors A/c is Rs.85,000 out of which debtors of Rs.20,000
cosidered certainly good]
7. Annual Insurance premium of Rs.6000 paid on 01.07.2014 [Financial year
ends on 31.03.2015]
8. One fifth of stationery remain unused at the end of the year. [During the year
stationery were purchased for Rs.10,000]
•••••••••••••••••••••••••
11
Practice in Accountancy
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Amalgamation expenses amounting to Rs.200 were paid by P Ltd. You are required
to show:
(i) The necessary ledger accounts in the books of S Ltd.
(i) The necessary journal entries in the books of P Ltd. assuming amalgamation
in the nature of merger.
(ii) The Balance Sheet of P Ltd. after the amalgamation.
[Purchase consideration: Rs.2,80,000; Adjustment in General Reserve: Rs. 32,900;
Total of Balance Sheet: Rs.15,54,720]
Q-16: The following was the Balance Sheet of Star Ltd. as on 31.12.2011 :
Liabilities
12,000 Equity Shares of
Rs.100 each
2,500 8% Cumulative Pref.
Shares of Rs.50 each
9% Debentures
Interest Accrued thereon
Creditors
Amount
Assets
Goodwill
6,00,000 Fixed Assets
Stock
1,25,000 Debtors
2,50,000 Bank Balance
90,000 Preliminary Expenses
2,50,000 Profit and Loss Account
13,15,000
Amount
12,500
6,42,500
1,51,500
1,25,000
3,500
80,000
3,00,000
13,15,000
Contingent Liability: Preference dividend Arrears Rs.40,000
A new company Super Star Ltd. is formed with Rs.15,00,000 as authorised share
capital divided into 1,50,000 Equity Shares of Rs.10 each and the following scheme
of Reconstruction is duly sanctioned to acquire Star Ltd. :
(a) Debentures will be paid by similar debentures in the new company. For the
arrears of interest, equivalent amount of equity shares will be issued.
(b) The creditors will be paid for every Rs.100 of their claim, Rs.16 cash and ten
equity shares in the new company.
(c) Preference shareholders are paid ten equity shares in the new company for
each shares held by them in the old company. They will not get anything for
their dividend arrears
(d) Equity shareholders will be given ten equity shares in the new company for
three shares held in the old company.
(e) Expenses of Rs.20,000 will be borne by the new company.
12
Amalgamation and Final Accounts of Companies
(f) The new company will take the current assets at their book value, except stock
which will be reduced by Rs.15,000. Intangible assets are not to appear in the
new balance sheet.
(g) Remaining equity shares in the new company are issued to the public and are
fully paid.
You are required to show :
(a) The necessary ledger accounts in the books of S Ltd.
(b) The necessary journal entries in the books of P Ltd.
(c) The Balance Sheet of P Ltd. after the amalgamation.
[Purchase Consideration: 6,50,000; Goodwill: Rs.3,92,500; Balance Sheet: 17,50,000;
No. of Shares issued to Public: 51,000; Profit on Realisation: 1,80,000;]
Q-17: Following are the Balance Sheets of S Ltd. and P Ltd. as on 31.03.2011 :
Liabilities
S Ltd.
P Ltd.
Rs.
Rs.
Share Capital (Rs. 10 each)
1,50,000
3,00,000
Reserve Fund
60,000
90,000
Foreign Projects Reserve
15,000
Creditors
45,000
60,000
Loan from S Ltd.
15,000
2,70,000
4,65,000
Assets
Fixed Assets
180,000
3,75,000
Loan to P Ltd.
15,000
Debtors
45,000
30,000
Stock
30,000
45,000
Cash at Bank
15,000
2,70,000
4,65,000
AoA
P Ltd. agreed to absorb S Ltd. on the following terms :
(a) P Ltd. shall give one share of Rs.10 each at Rs.35 per share for every three
shares held in S Ltd. the amount for the fraction of shares shall be paid in cash
calculated as per the market price of the share of P Ltd. which is Rs.45.
(b) Stock of S Ltd. includes goods worth Rs.22,500 purchased from P Ltd. which
has a profit margin of 20% on cost.
(c) Debtors of P Ltd, includes Rs.7,500 being amount due from S Ltd. but the
Creditors of S Ltd. include Rs.6,000 only being the amount due to P Ltd. The
difference between the Debtors and Creditors is due to cash in transit.
You are requested to pass the journal entries in the books of P Ltd. and the Balance
Sheet after the absorption, assuming that the Foreign Projects Reserve is still to be
maintained for three years. Assume that the amalgamation is in the nature of
Purchase.
[Purchase Consideration: Rs. 1,75,000; Loss on Realisation: Rs.50,000; Balance Sheet : Rs. 7,25,250
Capital Reserve: Rs.46250; Fair Value of Stock: Rs.26250]
••••••••••••••••••••••
21
Practice in Accountancy
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Machinery
Rent and Taxes
Purchases
Director’s Fees
Office Expenses
Bad Debts
Bad Debts Reserve
Bills Payable
Discount
Furniture and Fixtures
Goodwill
Opening Stock
Wages
Interest on Debentures
Cash at Bank
Sundry Debtors
2,40,000
5,700
5,38,200
9,390
10,170
1,830
8,760
90,000
1,05,000
4,56,900
4,500
1,02,390
57,000
4,200
46,000
8,510
-
18,86,730
18,86,730
Adjustments :
(a) Provide interest on debentures for half year.
(b) Maintain bad debts reserve at 5% on debtors.
(c) Unexpired insurance amounted to Rs. 500.
(d) Depreciate leasehold by 5% machinery by 10% and motor lorry by 20%.
(e) Out of profit, transfer Rs.50,000 to reserve fund and a dividend of 15% to be
declared on ordinary share capital.
(f) The closing stock is valued at Rs.1,05,810.
(g) Corporate Dividend Tax is 10%
[Net Profit: Rs.1,21,690; Balance Sheet: Rs. 7,46,510]
Q-11: The following is the trial balance of Best Ltd. as on 31.03.2011 :
Credit Balance
Share Capital
12% Debentures
Profit and Loss A/c
Bills Payable
Rs. Debit Balance
4,00,000
3,00,000
26,250
37,000
Premises
Plant
Stock
Debtors
Rs.
3,07,200
3,30,000
75,000
87,000
Amalgamation and Final Accounts of Companies
20
Share capital
Debtors and creditors
Plant and machinery
Cash at bank
General reserve
Patents and trade marks
Bills receivable and Bills payable
27,500
29,000
46,200
4,800
5,000
1,00,000
17,500
15,500
7,000
5,08,000
5,08,000
Prepare trading account, profit and loss account, and profit and loss appropriation
account for the year ended 31.03.2010 and a Balance Sheet at that date, take into
consideration the following adjustments:
(a) Closing Stock was valued at Rs.88,000.
(b) Make a provision for income tax @ 50%.
(c) Depreciate plant and machinery @ 15% furniture and fittings @ 10% and
patents and trade marks @ 5%.
(d) Outstanding rent amounted to Rs.800 while outstanding salaries totalled
Rs.900.
(e) The Directors propose a dividend @ 15% per annurn for the year ended
31.03.2010 after the minimum transfer to general reserve as required by law.
(f) Make a provision for doubtful debts amounting to Rs. 510
(g) Provide for managerial remuneration @ 10% of the net profits before tax.
(h) Corporate Dividend Tax is 10%.
[Net profit: Rs.28,350; General Reserve: Rs.1,418; Balance Sheet: Rs.2,10,700;
Balance in Surplus: Rs.25,432; Corporate Dividend Tax: Rs.1,500;
Manager’s Commission: Rs.6,300; Provision for Taxation: Rs.28,350]
AoA
Q-10: The following is the Trial Balance of XYZ Company Ltd. as on 31.12.2011.
Prepare Trading and Profit and Loss Account for the year ended 31.12.2011 and
the Balance sheet as on that date :
Particulars
Dr. (Rs.)
Cr. (Rs.)
Ordinary Share Capital
6% Debentures
Leasehold Premises
Salaries
Carriage Inwards
Insurance
Motor Lorry
Sales
Sundry Creditors
Profit and Loss Appropriation Account
Postage and Telegram
1,50,000
56,700
9,300
1,560
33,000
6,330
3,60,000
1,50,000
12,53,700
60,360
3,960
-
13
Practice in Accountancy
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Final Accounts of Companies
Maintenance of General Reserve
Rate of Dividend declared
: Minimum transfer to Reserve required
Exceeds 10% but not 12.5%
: 2.5% of Current Year’s Net Profit
Exceeds 12.5% but not 15%
: 5% of Current Year’s Net Profit
Exceeds 15% but not 20%
: 7.5% of Current Year’s Net Profit
Exceeds 20%
: 10% of Current Year’s Net Profit
Presentation of Surplus / (Deficit) in Notes of Balance Sheet
Particulars
Opening balance of Surplus / (Deficit)
Add: Profit / (Loss) for the year
Amounts transferred from:
General reserve
Other reserves (give details)
Less: Interim dividend
Dividends proposed to Equity shareholders
Dividends proposed to Preference shareholders
Tax on dividend
Transferred to:
General reserve
Capital redemption reserve
Debenture redemption reserve
Other reserves (give details)
Closing balance
Figures as
Figures as
at the end of at the end of
current year previous year
xxxx
xx
xxxx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xxxx
xx
xx
xx
xx
xxxx
14
Amalgamation and Final Accounts of Companies
Q-1: A limited company has an authorised capital of Rs.30,00,000 divided into
40,000 Equity Shares of Rs.50 each and 10,000, 12% Preference Shares of Rs.100
each out of which 30,000 Equity Shares and 6,000 Preference Shares were issued
as fully paid up. The profit for the year amounted to Rs.5,00,000 after income tax.
The directors decided to declare a dividend of 18% on the equity share capital
after Statutory minimum transfer to general reserve. Corporate Dividend Tax is
15% plus 2% education cess plus 1% education cess for higher education.
Prepare Profit and Loss Appropriation Account.
[General Reserve: Rs.37,500; Preference Dividend: Rs.72,000; Equity Dividend: Rs.2,70,000;
Corporate Dividend Tax: Rs.52,839; Balance of profit: Rs.67,661]
Q-2: For the year ending 31 March, 2007, the profit of A Ltd. before charging
depreciation on fixed assets and managerial remuneration amounted to
Rs.30,00,000. Depreciation for the year amounted to Rs.2,50,000 and a commission
of 10% of the profit, before charging such commission, was payable to the manager.
The paid up capital of the company consisted of Rs.1,00,00,000 divided into 50,000,
8% preference shares of Rs.100 each and 1,00,000 equity shares of Rs.50 each.
Interim dividend of Rs.3 per share was paid during the year. There was a credit
balance of Rs.3,20,000 in the profit and loss account brought from the previous
year. The following appropriations were proposed by the Board and subsequently
passed at the annual general meeting of the company
(i) Pay yearly dividend on preference shares
(ii) Pay a final dividend on equity shares at Rs.7 per share to make total dividend
of Rs. 10 per share for the year.
(iii) Provide taxation at 30% of the net profit
(iv) Transfer to General Reserve as per the statutory obligation.
(v) Carry forward the balance to the balance sheet
(vi) Dividend distribution tax is 10% plus 2% education cess plus 1% education
cess for higher education.
Show the profit and loss appropriation account.
[Managerial Remuneration: Rs.2,75,000; Provision for Tax: Rs.7,42,500; Net Profit: Rs.17,32,500;
General Reserve: Rs.1,29,938; Preference Dividend: Rs.4,00,000; Final Equity Dividend: Rs.7,00,000;
Interim Dividend: Rs.3,00,000; Corporate Dividend Tax: Rs.1,44,200; Balance of profit: Rs.3,78,362]
AoA
Q-3: For the year ending 31 March, 2007, the profit of XYZ Ltd. before charging
depreciation on fixed assets and managerial remuneration amounted to
Rs.25,20,000. Depreciation for the year amounted to Rs.4,00,000 and a commission
of 6% of the profit, after charging such commission, was payable to the manager.
The paid up capital of the company consisted of Rs.50,00,000 divided into 20,000,
10% preference shares of Rs.100 each and 3,00,000 equity shares of Rs.10 each.
Interim dividend of Rs.1 per share was paid during the year. There was a credit
balance of Rs.2,70,000 in the profit and loss account brought from the previous
year. The following appropriations were proposed by the Board and subsequently
passed at the annual general meeting of the company
19
Practice in Accountancy
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
Plant and machinery
7,50,000 Engineering tools
1,50,000
Bank overdraft
7,57,000 Sundry creditors
2,40,500
Goodwill
3,75,000 Sundry debtors
2,66,000
Bills receivables
1,34,500 Sales
36,17,000
Advertisement
15,000 Rent (Cr.)
30,000
Commission and brokerage
67,500 Transfer fees
6,500
Profit and loss Account (Cr.)
67,000 Bad debts
25,500
Business expenses
56,000 Repairs
46,500
Additional Information :
Closing stock was Rs.7,08,000. Outstanding liabilities for wages Rs.25,000 and
for business expenses Rs.25,000. Dividend declared @ 10% on paid up capital.
Charge depreciation on plant and machinery @ 5%; engineering tools @ 20%;
patterns @ 10%; furniture and fixtures @ 10%. Provide 2% on debtors as doubtful
debts after writing off Rs. 21,500 as bad debts. Create debentures redemption
reserve 50,000. Provide Rs.2,40,000 for income tax. Write off preliminary expenses.
Ignore Corporate Dividend Tax.
Prepare : Profit and Loss Account and a Balance Sheet as on that date.
[Net Profit Rs.1,85,610; Surplus Balance: Rs.3,610; Balance Sheet: Rs.40,40,110]
Q-9: The following is the trial balance of Apex Ltd. as at 31.03.2010 :
Particulars
Opening Stock
Purchases returns
Purchases and sales
Wages
Discount
Carriage inwards
Furniture and fittings
Salaries
Rent
Sundry expenses
Profit and loss appropriation account,
Dividend paid
Debit
Credit
75,000
2,45,000
30,000
950
17,000
7,500
4,000
7,050
9,000
10,000
3,40,000
3,000
15,000
-
18
Amalgamation and Final Accounts of Companies
Prepare Trading and Profit and Loss Account and Balance Sheet.
[Net Profit: Rs.19,770; Balance Sheet: Rs.5,61,770]
Q-7: Sun Ltd. is a company with an authorised capital of Rs.5,00,000 divided into
10,000 shares of Rs.50 each. On 31.12.2010, 5,000 shares were fully called up.
The following are the balances extracted from the ledger of the company on
31.12.2010 :
Particulars
Amount Particulars
Amount
Stock
50,000 Advertising
14,300
Sales
4,25,000 Printing and Stationery
2,400
Purchase
3,00,000 Debtors
38,700
Wages
70,000 Creditors
35,200
Discount allowed
4,200 Plant and Machinery
80,500
Discount received
3,150 Furniture
17,100
Annual Insurance (upto 31.03.2011) 6,720 Cash at Bank
1,34,700
Office Expenses
6,500 General Reserve
25,000
Salaries
12,000 Loan from Managing
Rent
6,000 Director
15,700
General Expenses
8,950 Bad Debts
3,200
Calls in arrear
5,000 Profit and Loss Account
6,220
AoA
You are required to prepare Trading and Profit and Loss Account for the year
ended 31.12.2010 and the Balance Sheet as on that date. The following further
information is supplied to you
(i) Closing stock is Rs.91,500
(ii) Depreciation to be charged on plant and furniture at 15% and 10% respectively.
(iii) Outstanding Liabilities were Wages Rs.5,200; Salaries Rs.1,200; Rent Rs.600
(iv) Tax rate is 50%
[Net profit: Rs. 8,137; Balance in Surplus: Rs.14,357; Balance Sheet: Rs.3,50,395]
Q-8: ABC Ltd. have authorised capital of Rs.50,00,000; divided into 2,50,000
equity shares of Rs.20 each. Their books show the following balances as on
31.03.2010 :
Particulars
Amount Particulars
Amount
Opening Stock
6,65,000 Bank Current Account
20,000
Discounts and rebates
30,000 Cash in hand
8,000
Carriage inwards
57,500 Debenture interest (Half year)
10,000
Patterns
3,75,000 Bank Interest
91,000
Rates, taxes and insurance
55,000 Preliminary expenses
10,000
Furniture an fixtures
1,50,000 Calls-in-arrears
10,000
Materials purchased
12,32,500 Equity share capital
20,00,000
Wages
13,05,000 4% Debentures
5,00,000
Coal and coke
63,000 Freehold land
12,50,000
15
Practice in Accountancy
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
(i) Pay yearly dividend on preference shares
(ii) Pay a final dividend on equity shares at Rs.1.50 per share to make total dividend
of Rs.2.50 per share for the year.
(iii) Provide taxation at 35% of the net profit
(iv) Transfer to General Reserve as per the statutory obligation.
(v) Carry forward the balance to the balance sheet
(vi) Dividend distribution tax is 15% plus 10% surcharge plus 2% education cess.
Show the profit and loss appropriation account.
[Managerial Remuneration: Rs.1,20,000; Provision for Tax: Rs.7,00,000; Net Profit: Rs.13,00,000;
General Reserve: Rs.1,30,000; Preference Dividend: Rs.2,00,000; Final Equity Dividend: Rs.4,50,000;
Interim Dividend: Rs.3,00,000; Corporate Dividend Tax: Rs.1,59,885; Balance of profit: Rs.3,30,115]
Q-4: The following is the trial balance of India Ltd. as on 31.03.2010 :
Particulars
Opening Stock
Sales
Purchases
Wages
Discount
Furniture and Fittings
Salaries
Rent
Sundry Expenses
Profit and Loss App. Account
Dividends Paid
Share Capital
Debtors and Creditors
Plant and Machinery
Cash at Bank
Reserve
Patents and Trade Marks
Debit (Rs.)
Credit (Rs.)
1,50,000
7,00,000
4,90,000
1,00,000
10,000
34,000
15,000
9,900
14,100
30,000
18,000
75,000
58,000
33,000
2,00,000
35,000
31,000
9,000
10,06,000
10,06,000
Prepare Trading Account, Profit and Loss Account, Profit and Loss Appropriation
Amalgamation and Final Accounts of Companies
16
Account and Balance Sheet at that date. Take into consideration the following
adjustments
(a) Closing stock was valued at Rs.1,64,000
(b) Depreciation on fixed assets at the rate of 10%
(c) Make a provision for Income Tax at the rate of 50%.
(d) Corporate Dividend tax at 10%
[Provision for Taxation: Rs.42,450; Net Profit: Rs.42,450;
Balance in Surplus: Rs.52,650; Total of Balance Sheet: Rs.3,62,900]
[Hint: Since the amount of dividend is less than 10% there is no need to transfer any profit to reserve]
Q-5: From the following Trial Balance, prepare the Trading & Profit and Loss
Account and Balance Sheet of Best Ltd. as on 31.03.2010 :
Particulars
Discount
Carriage
Patterns
Rates and Taxes
Patents and Trade
Marks
Stock on 01.04.2009
Purchases
Wages
Fuel
Land and Building
Plant and Macinery
Goodwill
Debtors
Advertising
Trade Expenses
Bad Debts
Cash
Debenture Interest (half year)
Bank Charges
Directors Fees
Amount
6,000
11,500
75,000
11,000
Particulars
40,000 Ordinary Shares
of Rs.20 each, Rs.10
per share called up
9% 1,000 Debentures of
Rs.100 each (Issued in 2008)
Bank Overdraft
Creditors
Sales
Profit and Loss A/c
14,33,540
CA. Naresh Aggarwal’s
ACADEMY of ACCOUNTS
Accounting • Costing • Taxation • Financial Management
West Patel Nagar, New Delhi. Ph:8800215448. Website: www.academyofaccounts.org
(f) Company proposed 11% dividend on Shares.
(g) Corporate Dividend Tax is 10%.
[Net Profit: Rs.73,657; Balance Sheet: Rs.7,88,297;
General Reserve: Rs.1841; Balance in Surplus: Rs.44,116]
Amount
Q-6: The following is the Trial Balance of XYZ Ltd. as on 31.12.2010 :
Particulars
4,00,000
AoA
30,000
1,33,000
2,46,500
2,61,000
12,600
1,50,000
2,50,000
1,05,000
80,100
16,500
20,500
5,100
3,600
4,500
1,640
10,000
17
Practice in Accountancy
1,00,000
1,41,340
48,100
7,23,400
20,700
Opening Stock
Buildings
Purchases
Wages
Salaries
Taxes and Insurance
Interest on Debentures
Goodwill
Commission
Carriage
Bad Debts
General Expenses
Repairs
Cash
Machinery
Preliminary Expenses
Sundry Debtors
Amount
1,00,000
1,20,000
1,97,000
60,000
22,000
14,800
3,000
50,000
20,000
8,900
1,000
11,200
3,000
4,400
1,60,000
8,000
1,21,000
9,04,300
14,33,540
(a) The Authorised Capital of the Company is Rs.10,00,000.
(b) Stock on 31.03.2010 was Rs.1,41,600.
(c) Write off depreciation on Plant and Machinery at 10% and on Patterns and
Patents and Trade Marks at 20%.
(d) Provide for doubtful debts at 2.5%.on Debtors.
(e) Rates and Taxes are prepaid to the extent of Rs.1,000.
Particulars
Pref. Share Capital
of Rs. 100 each
Equity shares (Rs.100 each)
Discount
6% Debentures
Transfer fees
Rent
Sales
Sundry Creditors
Bad Debts Reserve
Amount
1,20,000
2,80,000
280
1,00,000
3,400
3,120
3,57,000
39,000
1,500
9,04,300
Adjustments :
(a) Provide depreciation on machinery at 10% and maintain a reserve of 3% on
Debtors for doubtful debts.
(b) Unexpired insurance is Rs.1,200 and an amount of Rs.800 is receivable on
account of Rent.
(c) Write off 50% of preliminary expenses.
(d) Closing Stock is Rs.1,20,000.
(e) Ignore Corporate Dividend tax.