MODULE II

AMALGAMATION AND ACQUISITION

INTRODUCTION
For the purpose of enjoying the economies of scale and to reduce the cut throat competition,
two or more than two joint stock companies may combine their undertakings and become one
joint stock company. It can be done either by one of the existing joint stock companies taking
over the other combining company or companies, the latter being dissolved or by standing a
new joint stock company, which takes over all the combining joint stock companies. It is being
done either by Amalgamation or Absorption.

MEANING:
Amalgamation: When two or more companies same in all respects go into liquidation and the
new company is formed to take over their business is called amalgamation.

For example, if a new company C Ltd. is formed to take over A Ltd. and B Ltd. which are
existing companies, it is an example of amalgamation.

Absorption: Under absorption, no new company is formed, whereas an existing company

purchases another existing company, it is called absorption.

OBJECTIVES OF AMALGAMATION
Amalgamation means the merging of two or more than two companies for eliminating
competition among them or for growing in size to achieve the economies of scale.
Amalgamation is a broad term which includes mergers (uniting of two existing companies) and
acquisition (one company buying out another company).There are many objectives of
amalgamation. Some of the objectives are as follow: Let us discuss them in detail.44

(i) To have a better control over the market and also to increase the market share and area
of operations.
(ii) To eliminate the cut-throat competition and rivalry among competing the
amalgamating companies.
(iii) To enjoy the economies of large scale production.
(iv) To utilize the services of professional experts.
(v) To increase the availability of funds for the future investment plans. (vi) To achieve
all other advantages of combination.

TERMS IN AMALGAMATION :
Some Important Terms in Amalgamation are as under
(1) Transferor Company: This means the company which is amalgamated into another
company.
(2) Transferee Company: It is a company in which transferor company amalgamate.

3) TYPES OF AMALGMATION
Amalgamation: Amalgamation is basically of two types:

(i) Amalgamation in the nature of merger: Amalgamation in the nature of merger is an

amalgamation which satisfies 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 the equity shares already held therein, immediately before the
amalgamation by the transferee company or its subsidiaries or their nominees) become equity
shareholders of the transferee company by virtue of the amalgamation.

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, with the exception that cash may be paid only in respect of fractional shares.

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 value 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 the accounting policies.

ii) Amalgamation in the nature of purchase: Amalgamation in the nature of purchase is an

amalgamation which does not satisfy any one or more of the five conditions stated above.

(4) Assets purchased and Business purchased: If it is mentioned in the question that the
transferee company has purchased the assets of the Transferor company, it means that
Transferee Company has acquired all the assets including cash and not the liabilities of the
business of the transferor company. If it is mentioned that the Transferee company has
purchased the business of the transferor company, it means that Transferee Company has
acquired all the assets and liabilities of the transferor company.

(5) Liabilities and Trade liabilities: The term liabilities includes trade creditors, Bills payable,
debentures, bank overdraft, outstanding expenses, pension fund, provident fund, 7 workmen
profit sharing fund etc. The term trade liabilities include creditors and bills payable which are
associated with sale/purchase of goods and service

METHODS OF AMALGMATION
There are two main methods of accounting for amalgamation:
(a) The pooling of interest method; and
b) The purchase method.
The use of the pooling of interest method is confined to circumstances which meet the
criteria referred to in paragraph 3(e) for an amalgamation in the nature of merger. The object
of the purchase method is to account for the amalgamation by applying the same principles as
are applied in the normal purchase of assets. This method is used in accounting for
amalgamations in the nature of purchase.

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

b) Purchase Method : Under the purchase method, the transferee company accounts for the
amalgamation either by incorporating the assets and liabilities at their existing carrying
amounts or by allocating the consideration to individual identifiable assets and liabilities of the
transferor company on the basis of their fair values at the date of amalgamation. The
identifiable assets and liabilities may include assets and liabilities not recorded in the financial
statements of the transferor company.
Where assets and liabilities are restated on the basis of their fair values, the
determination of fair values may be influenced by the intentions of the transferee company. For
example, the transferee company may have a specialized use for an asset, which is not available
to other potential buyers. The transferee company may intend to effect changes in the activities
of the transferor company which necessitate the creation of specific provisions for the expected
costs, e.g. planned employee termination and plant relocation costs.
Difference between Pooling Interest method and Purchase method

SL.NO POOLING INTEREST METHOD PURCHASE METHOD

1 Applied in case of amalgamation in Applied in case of
the nature of merger amalgamation in the nature of
purchase
2 Reserves of Transferor company are Reserves and profits of
recorded in the book of transferee Transferor company are not
company transferred to the books of
transferee company
3 The difference between purchase The difference between the
consideration and share capital of purchase consideration and
transferor company is adjusted in net asset of transferor
general and other reserves company is treated as goodwill
or capital reserve
 4 All kinds of reserves are transferred Only statutory reserves are
to the books of transferee company transferred by opening
amalgamation adjustment
account no other reserves are
transferred.
5 All the assets and liabilities are All the assets and liabilities
recorded at book values taken over by transferee
company are recorded at fair
values.
6 Amalgamation expenses paid by Expenses paid by transferee
transferee company is debited to company are charged to
reserves or p & L account goodwill account

Distinguish between Merger and Purchase of amalgamation

SL.NO MERGER PURCHASE
1 There is pooling interest of both There is acquisition of business
shareholders and the companies and their and therefore their interests
respective interests are represented in the are not represented
combined balance sheet proportionately in the
amalgamated balance sheet
2 All the assets and liabilities are All the assets and liabilities
transferred without revaluation need not be taken over by the
transferee company and assets
may be revalued in the books of
transferee company
3 Not less than 90% of equity shareholders The share holders of transferee
of transferor company become the equity company need not be equity
shareholders of transferee company shareholders of transferee
company
4 Purchase consideration shall be paid in Purchase consideration may be
equity share s only in equity shares, preference
share, debentures, cash etc or in
any combination of these
5 The business of the transferor company The business of the transferor
should be continued after amalgamation company need not be continued
after amalgamation
6 Accounting method adopted is based on Accounting method adopted is
pooling interests in the books of purchase method.
transferee company

What are the differences between amalgamation and absorption

SL.NO AMALGAMATION ABSORPTION
1 It involves the formation of a new It does not involve the
company formation of a new company
2 It does not involve the formation of a One of the existing
new company companies itself takes over
 the business of another
existing company
3 In this case all the existing companies In this case all except one of
go into liquidation the existing companies go
into liquidation
4 In this case the companies which go In this case such companies
into liquidation will loose their identity which go into liquidation will
and are known by the name of the new also loose their identity and
company after amalgamation are known by the name of
the new company after
absorption
5 Amalgamation is a wider term and it Absorption is a restricted
may be called pure amalgamation of term as compared to
companies amalgamation and hence it is
called as absorption of
companies

TREATMENT OF RESERVES IN AMALGMATION

If the amalgamation is an ‘amalgamation in the nature of merger', the identity of the reserves
is preserved and they appear in the financial statements of the transferee company in the same
form in which they appeared in the financial statements of the transferor company. Thus, for
example, the General Reserve of the transferor company becomes the General Reserve of the
transferee company; the Capital Reserve of the transferor company becomes the Capital
Reserve of the transferee company and the Revaluation Reserve of the transferor company
becomes the Revaluation Reserve of the transferee company. As a result of preserving the
identity, reserves which are available for distribution as dividend before the amalgamation
would also be available for distribution as dividend after the amalgamation. The difference
between the amount recorded as share capital issued (plus any additional consideration in the
form of cash or other - assets) and the amount of share capital of the transferor company is
adjusted.
If the amalgamation is an ‘amalgamation in the nature of purchase', the identity of the
reserves, other than the statutory reserves dealt above, is not preserved. The amount of the
consideration is deducted from the value of the net assets of the transferor company acquired
by the transferee company. If the result of the computation is negative, the difference is debited
to goodwill arising on amalgamation and dealt with in the manner stated in above. If the result
of the computation is positive, the difference is credited to Capital Reserve.

TREATMENT OF GOODWILL ARISING ON AMALGMATION

Goodwill arising on amalgamation represents a payment made in anticipation of future income
and it is appropriate to treat it as an asset to be amortized to income on a systematic basis over
its useful life. Due to the nature of goodwill, it is frequently difficult to estimate its useful life
with reasonable certainty. Such estimation is, therefore, made on a prudent basis. Accordingly,
it is considered appropriate to amortize goodwill over a period not exceeding five years unless
a somewhat longer period can be justified.
BALANCE OF PROFIT AND LOSS ACCOUNT
In the case of an 'amalgamation in the nature of merger', the balance of the Profit and Loss
Account appearing in the financial statements of the transferor company is aggregated with the
corresponding balance appearing in the financial statements of the transferee company.
Alternatively, it is transferred to the General Reserve, if any. In the case of an ‘amalgamation
in the nature of purchase', the balance of the Profit and Loss Account appearing in the financial
statements of the transferor company, whether debit or credit, looses its identity

PURCHASE CONSIDERATION
Purchase Consideration is the amount which is paid by the transferee company for the purchase
of the business of the transferor company. In other words, consideration for amalgamation
means the aggregate of the shares and other securities issued and payment in cash or other
assets by the transferee company to the shareholders of the transferor company. It should not
include the amount of liabilities taken over by the transferee company, which will be paid
directly by this company. Payments made to debenture holders should not be considered as
part of purchase consideration. The calculation of purchase consideration is very important and
may be calculated in the following ways:
(1) Lump sum Payment Method: When the transferee company agrees to pay a fixed sum
to the transferor company, it is called a lump sum payment of purchase consideration.
For example, if A Ltd. purchases the business of B Ltd. and agrees to pay Rs. 25,00,000 in all,
it is an example of lump sum payment.

(2) Net Assets Method: According to this method, the purchase consideration is calculated
by calculating the net worth of the assets taken over by the Transferee Company. The
net worth is calculated by adding the agreed value of assets taken over by the transferee
company. Following points should be taken care of:
 Value of only those assets is included which are acquired by the transferee company.

 Value of only those liabilities will be deducted which have been taken over by the
Transferee Company.
 Cash Balance is normally included in assets but if it is not taken over it will not be
included. Goodwill is an intangible but valuable asset and as such is included in assets.
 Fictitious assets not written off should not be added.
 This method is used only when the Net Payment cannot be adopted.

(3) Net Payment Method: Under this method, purchase consideration is calculated by
adding the various payments in the form of shares, securities, cash, etc. made by the
transferee company. No amount of liabilities is deducted even if these are assumed by
the purchasing company. Thus, purchase consideration is the total of all the payments
whether in shares, securities, or cash.
 For example, X Ltd. agrees to give for every 10 shares of Y Ltd. 15 shares of Rs. 10
each, Rs. 8 paid up. X Ltd. agrees to pay Rs.15, 000 cash to discharge the creditors. The
purchase consideration is calculated as follows:
Shareholders of Y Ltd. will get:
6,000 ×15/10 = 9,000 shares of Rs. 10 each, Rs. 8 paid up Rs. 72,000
10 Cash Paid Rs. 15,000
Purchase Consideration Rs. 87,000
But sometimes it is specifically mentioned that company issued requisite number of
shares and also gave balance amount in cash. But “this balance” could not be
ascertained and the total purchase consideration amount is also meet specified, then in
such a case the company has only option to go with the net assets method

The following points are to be kept in mind

:  The assets and liabilities taken over by the transferee company are not to be
considered.  The payments made by the transferee company for the shareholders,
whether in cash or shares must be taken in account.
 If debentures and creditors are taken over by the transferee company and
subsequently discharged then such am discharged then such amount should not be
deducted from the purchase consideration

(4) Intrinsic worth/value Method: This method is just an extension of net assets methods.
Under method, purchase consideration is required to be calculated on the basis of
intrinsic value of shares. The intrinsic value of a share is calculated by dividing the net
assets available for equity shareholders by the number of equity shares. This value
determines the ratio of exchange of shares between the transferor and transferee
company.
Suppose A Ltd. and B Ltd. are two companies carrying on the business in the same line
of activity. Their capital is Rs. 6, 00,000 and Rs. 2, 00,000 (value of each share Rs. 10).
The two companies decided to amalgamate in C Ltd. If each share of A Ltd. and B Ltd.
is valued at Rs. 15 and Rs. 25 per share for the purpose of amalgamation. The purchase
consideration will be as under: A Ltd. 60,000 shares @ Rs. 15 each Rs. 9, 00,000 B
Ltd. 20,000 shares @ Rs. 25 each Rs. 5, 00,000

PROBLEMS ON PURCHASE CONSIDERATION

1. Calculate Purchase consideration to be discharged by Y ltd to X Ltd from the
following information.
The assets of X Ltd are valued at Rs. 100000
The liabilities of X Ltd are valued at Rs. 40,000
Rs. 20,000 cash is paid to shareholders of X ltd
Balance is discharged by issue of shares of Rs. 20 each.

2. X Ltd is acquired by Y Ltd agrees to make following payment

a) Cash at Rs. 5 per share for 10,000 shares of Rs. 10 each held by X Ltd
 b) Issue two shares of Rs. 20 each for every 5 shares held in X Ltd
c) Discharge of Rs. 1,00,000 12% debentures of X Ltd at a premium of 10% by
issuing 13% debentures in Y ltd
d) 50,000 cash to creditors of X ltd in final settlement.
Determine the amount of Purchase consideration.

3. Bhoomika Ltd is taken over by Chaitra Ltd on following terms

a) Assets and liabilities of Bhoomika Ltd shall be valued at Rs. 30,00,000 and
10,00,000 respectively
b) Rs. 5000 shall be paid in the form of cash and Balance of consideration shall be
discharged by issue of shares of Rs. 10 each at a premium of 50%
Show the calculation of Purchase consideration and also state the number of shares
issued. To shareholders of Bhoomika Ltd.

4. Following is the balance sheet of X co Ltd

Liabilities Amount Assets Amount
Share capital 6,00,000 Goodwill 1,00,000
General reserve 3,00,000 Plant and Machinery 5,00,000
Profit and Loss account 1,00,000 Furniture 1,00,000
10% Debentures 3,00,000 Stock 6,00,000
Sundry creditors 3,20,000 Debtors 2,00,000
Bank 1,00,000
Preliminary Expenses 20,000
16,20,000 16,20,000

Y ltd take over the business of X Ltd on the following terms

a) Goodwill valued at Rs. 2,00,000 while other assets considered at book value
only
b) Y ltd does not takeover the balance of bank
c) X ltd agree to redeem debenture itself
d) Consideration is to be discharged in the form of 90000 fully paid equity shares
of Rs. 10 each valued at par and balance in cash.
5. Calculation of purchase consideration by net worth method Balance sheet of A Ltd
Liabilities Amount Assets Amount
Share capital Goodwill 28,000
60000 equity shares of Rs. 60,000
10 each
5% Debenture 10,000 Land and Building 16,000
Sundry Creditors 6,000 Plant and machinery 28,000
General Reserve 4,000 Stock 16,000
Surplus account 29,000 Debtors 8,000
Cash 4,000
1,00,000 1,00,000
 B Co takes over the business of A Co The value agreed for various assets are :
Goodwill 22,000 Land and Building 25,000 Plant and Machinery 24,000
Stock 13,000 Debtors 8000
B Co does not take over cash but agrees to assume all the liabilities of sundry
creditors at Rs. 5000

6. A Co Ltd and B Co ltd agreed to amalgamate AB Co Ltd had been formed to take
over the combined concern as on 31/3/2021 after negotiation the assets of the
company have been agreed at a shown in the following balance sheet.
Liabilities A Co B Co Ltd Assets A Co B Co Ltd
Ltd Ltd
Equity shares 20,00,000 10,00,000 Land and 10,00,000 6,00,000
capital Building
Reserve fund ----- 1,00,000 Plant and 4,00,000 5,00,000
Machinery
Sundry 1,60,000 1,00,000 Goodwill and 2,20,000 1,00,000
creditors patent
Profit and loss 1,00,000 1,00,000 Stock 3,00,000 40,000
a/c
Sundry Debtors 2,40,000 40,000
Cash at bank 1,00,000 22,000
22,60,000 13,00,000 22,60,000 13,00,000
Show how much amount of purchase consideration will be paid to each company

7. B Ltd had following balance sheet as on 31/3/2021. C Ltd is acquiring B Ltd

Liabilities amount Assets amount

50000 shares of Rs. 100 each 50,00,000 Fixed assets 83,00,000
Capital reserve 10,00,000 Current assets 69,00,000
General reserve 36,00,000 Investment 17,00,000
Unsecured loan 22,00,000 Goodwill 2,00,000
Sundry creditors 42,00,000
Provision for taxation 11,00,000
1,71,00,000 1,71,00,000
For the purpose of amalgamation goodwill of B Ltd is considered value less. There are
also arrears of Depreciation in B ltd amounting to Rs.4,00,000. Calculate purchase
consideration on net asset basis
8. Bindu Ltd was agreed to acquired by Hindu Ltd as on 31/3/2024 on the date, the balance
sheet of Bindu ltd was as follows:
Liabilities amount Assets amount
5000 shares of Rs. 100 each 5,00,000 Fixed assets 9,00,000
General reserve 2,00,000 Current assets 2,00,000
Profit and Loss a/c 1,50,000
5% debenture 1,20,000
Sundry creditors 1,30,000
11,00,000 11,00,000
Hindu Ltd agree to acquire fixed assets @10% more than book value but current assets
were valued only @ 1,50,000 the purchase consideration was paid 50% in equity share
of Rs. 10 each and balance in cash
Determination of PC and discharge of PC

Equity shares (4,45,000/10= 44500) 4,45,000

Cash 4,45,000
8,90,000
Problems on amalgamated balance sheet:
9. The following are the balance sheet of week and Meek ltd as on 31-3-2024 on which
date they have agreed to amalgamate and form a new company called strong Ltd
Liabilities Week Meek Assets Week Meek
ltd ltd ltd ltd
Equity shares of 2,00,000 3,00,000 Goodwill 20,000 ----
Rs. 100 each
Reserve Fund 30,000 Building 1,50,000 1,85,000
Profit and Loss a/c 10,000 Machinery 60,000 1,00,000
Creditors 60,000 60,000 Stock 30,000 20,000
Debtors 15,000 10,000
Bank 25,000 5,000
Profit and loss 40,000
3,00,000 3,60,000 3,00,000 3,60,000
The strong Co Ltd is incorporated with an authorised capital of Rs, 10,00,000 divided
into 1,00,000 equity shares of Rs. 10 each.
10. Sun Ltd and Moon Ltd decided to amalgamate their business and form a new company
called sunshine Ltd with an authorised capital of Rs. 15,00,000 dividend into shares of
Rs, 10 each the following are the balance sheets
Liabilities Sun ltd Moon Assets Sun ltd Moon
ltd ltd
Equity shares 3,00,000 4,00,000 Goodwill 50,000
Reserve Fund 60,000 Machinery 3,50,000 3,00,000
Surplus 40,000 Stock 80,000 60,000
Debentures 1,00,000 60,000 Debtors 40,000 40,000
Creditors 50,000 70,000 Cash 30,000 10,000
 Profit and loss 60,000
5,50,000 4,70,000 5,50,000 4,70,000
The following are the terms of agreement:
i) The assets and liabilities of Sun Ltd are to be taken over at book value except
goodwill, machinery and stock. Which are to be valued at 1,00,000 Rs. 3,20,000
and 90,000 respectively.
ii) The assets except cash of Moon ltd are valued at 10% less than book value and
creditors are taken over at book value. Prepare amalgamated balance sheet.
11. Hubli Co Ltd and Bangalore Co Ltd decided to amalgamate their business and form a
new company called Karnataka Co Ltd which will taken over all the assets and
liabilities of both the companies or the basis of the following balance sheet.

Liabilities Hubli Banglore Assets Hubli Banglore

ltd ltd ltd ltd
Equity shares 1,00,000 2,00,000 Goodwill 30,000 20,000
Of Rs. 100 each
General Reserve 30,000 20,000 Machinery 90,000 1,00,000
Profit and Loss 20,000 10,000 Patents 25,000 -----
Creditors 50,000 40,000 Stock 35,000 80,000
Debtors 15,000 60,000
Cash 5,000 10,000

2,00,000 2,70,000 2,00,000 2,70,000

i) The purchase consideration of Hubli Co Ltd is agreed at Rs. 1,60,000 payable
in full paid shares of Rs. 10 each
ii) The purchase consideration of Bangalore Ltd is agree for an exchange of of 12
shares of Rs. 10 each fully paid in Karntaka co for every share in Banglore Co
Ltd.
Prepare amalgamated Balance sheet.

Opening journal entries in the book of Transferee Company:

Purchase Method Merger Method
Purchase Business Purchase A/c___Dr Business Purchase A/c___Dr
consideration To Liquidator’s of Transferor To Liquidator’s of Transferor Company
Due Company
Incorporation of Assets A/c (Agreed All Assets A/c (Book Value)_____Dr
Assets and Value)_____Dr Loss on Merger A/c(B/F) ___________Dr
Liabilities Goodwill To All Liabilities (Book value)
A/c(B/F)___________Dr To All Reserve
To Liabilities (Agreed value) To Business Purchase
To Business Purchase To Profit on Merger A/c (B/F)
To Capital Reserve (B/F)
 Profit or loss on No Entry Write off Losses
Merger General Reserve A.c_________Dr
Profit and Loss A/c _________Dr
To Loss on Merger A/c
Transfer of Profit
Profit on Merger A/c_________Dr
To General reserve A/c
To Profit and Loss A/c
Discharge of Liquidators of Transferor Co __Dr Liquidators of Transferor Co __Dr
Purchase To Cash A/c To Equity shares A/c
Consideration To Equity shares A/c To Security Premium A/c
To Security Premium A/c To Preference shares
To Preference shares4
To Debentures
Transfer of Amalgamation Adjustment No Entry
Capital Reserve A/c___Dr
To Capital Reserve A/c
Issue of % Debentures A/c__________Dr % Debentures A/c__________Dr
Debentures in To % Debentures A/c (New) To % Debentures A/c (New
New company
Payment of Goodwill A/c/ Capital Reserve General Reserve/ P and L a/c__Dr
liquidation ______________Dr To cash A/c
Expenses To Cash A/c
Payment of Preliminary Expenses A/c____Dr Preliminary Expenses A/c____Dr
preliminary To cash A/c To cash A/c
Expenses

Problems on opening Journal Entries:

12. Calculate the purchase consideration and pass opening entries in the book of purchasing
company.
Value of assets as per balance sheet 50,43,140
Value of assets taken over 36,43,140
Liabilities as per balance sheet 6,43,140
Liabilities not taken over 43,140
Purchase consideration can be discharged in equity shares of Rs. 10 each
13. The following is the balance sheet of A Co Ltd as on 31/3/2023
Liabilities amount Assets amount
Equity shares of Rs 10 each 3,00,000 Land and building 2,00,000
Creditors 60,000 Machinery 1,00,000
Bank over draft 40,000 Furniture 10,000
Debtors 20,000
Stock 20,000
Cash in hand and bank 50,000
4,00,000 4,00,000

The above company was liquidated and all the assets and liabilities were sold to B co
Ltd for a total Purchase consideration of Rs. 4,00,000 which is paid in
a) Cash 1,00,000
b) 20,000 equity shares of Rs.10 each at a premium of Rs, 5 per share
Pass the opening entries in the book of B co Ltd assuming that 20,000 liquidation
expenses was paid by purchasing company.
14. The assets of the going company Ltd were purchased by surviving Co Ltd the Purchase
consideration was as follows;
a) A payment in cash at Rs. 40 for every share in the Going Company Ltd
b) An exchange of 4 Shares in the surviving Company Ltd of Rs. 50 as the market
value of Rs. 80 for every share in going co ltd.
A further payment in cash of Rs. 110 for every Debenture in the going Company
Ltd
Liabilities amount Assets amount
1000 equity shares of Rs. 200 2,00,000 Building 75,000
each
1000 Debentures of Rs. 100 1,00,000 Machinery 1,50,000
each
Creditors 30,000 Stock 90,000
Reserve 65,000 Debtors 80,000
Workmen saving Bank 10,000 Bank 35,000
Profit and loss account 25,000
4,30,000 4,30,000
Calculate PC and Pass Opening entries in the book of Surviving Company

15. A Ltd agrees to absorb the business of B Ltd as on 31-3-2024 to take over the assets
and liabilities at the balance sheet values and to issue fully paid shares of Rs. 10 each
The following are the balance sheets of two companies:
Liabilities A Ltd B Ltd Assets A Ltd B Ltd
Share capital 3,00,000 1,00,000 Goodwill 60,000 10,000
General Reserve 50,000 20,000 Building 90,000
 Profit and Loss 20,000 10,000 Machinery 80,000 45,000
A/c
Creditors 30,000 40,000 Stock 70,000 65,000
Bills payable 15,000 Debtors 50,000 40,000
Cash 50,000 25,000
4,00,000 1,85,000 4,00,000 1,85,000
Pass the closing entries and show the necessary ledger accounts in the books of B Ltd
and pass the opening entries in the books of A ltd and show the balance sheet. (Apply
Merger Method)
16. Star Ltd agrees to absorb the business of Light Ltd as on 31-3-2024 and to take over
the assets and liabilities in exchange for which it is to issue 7 shares of Rs 10 each fully
paid for every share of Rs. 50 each in the light Ltd. The expenses of absorption of Rs.
5000 are paid by star Ltd The following is the balance sheet of Light Ltd as on 31-3-
2024
Liabilities amount Assets amount
4000 shares of Rs. 50 each 2,00,000 Building 1,50,000
fully paid
Reserve fund 30,000 Machinery 60,000
Profit and Loss account 15,000 Stock 50,000
Contingency Reserve 10,000 Sundry Debtors 40,000
Sundry creditors 40,000 Bills receivable 15,000
Employee saving bank 25,000 Cash 5,000
deposit
3,20,000 3,20,000
pass the journal entries to record the above transactions in the books of star Ltd. Assume
conditions of amalgamation in the nature of merge have been fulfilled.

JOURNAL ENTIRES IN THE BOOK OF TRANSFERROR COMPANY:

1. Transfer of all assets (Except fictitious assets)
Realisation A/c ___________________Dr
To Sundry Assets.

2. Transfer of all liabilities

Sundry Liabilities A/c _______________Dr
To Realisation A/c

3. Transfer Equity general reserve and profit and loss

Equity Share Capital A/c___________Dr
General Reserve A/c_______________Dr
Profit and loss A/c_________________Dr
To equity shareholders A/c

4. Transfer of fictitious Assets

 Equity Shareholders A/c____________Dr
To Fictitious Assets.

5. Transfer preference share capital

Preference share capital A/c____________Dr
To preference share capital

6. Purchase consideration due

Transferee Company A/c____________Dr
To Realisation A/c

7. Purchase consideration received

Equity shares a/c_________________Dr
Preference shares A/c______________Dr
Debenture A/c____________________Dr
Cash A/c________________________Dr
To Transferee company A/c

8. Assets not taken over

Bank A/c_________________________Dr
To Realisation A/c

9. Liabilities not taken over

Realisation A/c_______________________Dr
To Bank A/c

10. Payment of realisation expenses by Transferee A/c

Realisation A/c_________________Dr\
To Bank A/c

11. Payment made to preference shareholders

Preference shareholders A/c______________Dr
To preference shares transferee company
To Debentures in transferee company
To cash A/c

12. For Transfer of premium to preference shareholders

Realisation A/c__________________________Dr
To Preference shareholders a/c

13. Payment made to equity shareholders

Equity shareholders A/c__________________Dr
To Equity shares A/c
To Debentures A/c
 To cash A/c

14. Close realisation Account

If profit
Realisation A/c___________________________Dr
To Equity Shareholders A/c

If Loss
Equity shareholders a/c ___________________Dr
To Realisation A/c

17. The following is the balance sheet of Y Ltd as on 31-3-2024

Liabilities amount Assets amount
Share capital 10,000 equity 2,00,000 Machinery 90,000
shares of Rs. 20 each
Debentures 50,000 Stock 60,000
Creditors 20,000 Debtors 80,000
Cash 10,000
Profit and loss A/c 30,000
2,70,000 2,70,000
X ltd took over the assets and liabilities of Y ltd on the following terms
a) The shareholders of Y Ltd were to be allotted 2 shares of Rs. 10 each as Rs. 6 per
share paid up in X Ltd for every shares fully paid up in Y ltd
b) X Ltd pay the cash for the debentures in Y Ltd to be repaid at 10% discount
Pass journal entires and show the ledger account in the book of Y Ltd.