Problems on Amalgamation, Absorption and External Reconstruction

Amalgamation
Problem No.1: (MGP-1/5.24)
The following is the Balance sheet of Anita Ltd. and Sunita Ltd. as on 31st March 2014.
Balance Sheet as on 31st March 2014
Liabilities Anita Sunita Assets Anita Sunita
Ltd. Ltd Ltd. Ltd
Rs. Rs. Rs. Rs.
Share Capital Building 80,000 --

 Shares of Rs. 10 1,20,000 40000 Machinery 46,000 42,000

each
Stock 80,000 10,000
8% Debentures 20,000 ---
Debtors 40,000 12,000
General Reserve
30,000 ---
Development Cash 20,000 6,000
Equlisation Reserve 42,000 ---

Employee’s Provident 4,000 -----

Fund

Creditors 50,000 30,000

TOTAL 2,66,000 70,000 TOTAL 2,66,000 70,000

The above companies have agreed to amalgamate and a new company Vanita Ltd. is formed.
Vanita Ltd. Takes over assets and liabilities of both the companies on the following terms:
1) Building of Anita Ltd. is accepted at book value and Machinery at Rs. 40,000. The other
assets are taken over at 10% depreciation.
2) All assets and liabilities of Sunita Ltd. are taken over at book value.
3) Both the companies to receive 10% of net valuation of their respective business as
Goodwill.
The entire purchase price of both the companies paid in Equity Shares of Rs. 10 each.
Close the books of Anita Ltd. and Sunita Ltd. and also give the opening journal entries in the
books of Vanita Ltd.

Problem No.2: (MGP-2/5.27)

The following are the Balance sheets of A Ltd. and B Ltd. as on 31st March 2014.
Balance Sheet of A Ltd.as on 31st March 2014
Liabilities Rs. Assets Rs.
6,000 Equity Shares of Rs. 100 6,00,000 Land and Building 2,00,000
each Plant and Machinery 3,00,000
1,000 7% Preference Shares of 1,00,000 Furniture 20,000
Rs. 100 each Stock 70,000
Contingency Reserve 20,000 Debtors 90,000
Creditors 70,000 Cash at Bank 15,000
Unclaimed Dividend 5,000 Preliminary Expenses 20,000
Discount on issue of Shares 5,000
Profit and Loss 75,000
Contingent Liability for Bills
discounted Rs. 4,000
TOTAL 7,95,000 TOTAL 7,95,000
Balance Sheet of B Ltd.as on 31st March 2014
Liabilities Rs. Assets Rs.
7,000 Equity Shares of Rs. 100 7,00,000 Freehold Premises 4,00,000
each Plant and Machinery 2,10,000
General Reserve 18,000 Stock 29,000
Profit and Loss 40,000 Debtors 1,90,000
Workmen’s Compensation Fund 10,000 Cash at Bank 11,000
Creditors 72,000

TOTAL 8,40,000 TOTAL 8,40,000

A Ltd. and B Ltd. amalgamated as on 31st March 2014 and a new company C Ltd. was formed
with an authorized capital of 20,000 Equity Shares of Rs.100 each. The amalgamation was
agreed on the following terms:--
1) C Ltd. took all the assets of A Ltd.at book value and creditors of A Ltd. The purchase
consideration was discharged by issuing 3,000 Equity Shares of Rs. 100 each at Rs.
120 per share and the balance in cash.
2) C Ltd. took all the assets of B Ltd.at book value except cash and creditors of B Ltd. The
purchase consideration was discharged by issuing 6,000 Equity Shares of Rs. 100 each
at Rs. 120 per share and the balance in cash.
3) A Ltd. paid its Preference Share Capital back with arrears of preference dividend for last
two years.
4) Liability for Bills Discounted was settled at Rs. 2,500.
5) Out of unclaimed dividend, Rs. 2,000 was paid to the rightful shareholders. The
remaining unclaimed was time-barred.
6) Liability for workmen’s compensation of B Ltd. amounted to Rs. 7,500.
7) The cost of liquidation of A Ltd. was Rs. 5,000 and that of B Ltd. was Rs. 6,000.
You are required to prepare :--
a) Necessary ledger accounts in the books of A Ltd.
b) Opening entries in the books of C Ltd.
c) Balance sheet of C Ltd.

Problem No.3: (MGP-6/5.41)

X Ltd. and Y Ltd.are two companies carrying on business in the same line.
Their Balance sheet as on 31st March 2014 are given below.
Balance Sheet as on 31st March 2014
Liabilities X Ltd. Y Ltd Assets X Ltd. Y Ltd
Rs. Rs. Rs. Rs.
Fully paid Equity Land and Building 1,00,000 --
Shares of Rs. 10 each 6,00,000 2,00,000
Plant and Machinery 7,00,000 3,00,000
General Reserve 4,00,000 2,00,000
Investment 1,00,000 --
Secured Loans 6,00,000 1,00,000
Stock 9,00,000 4,00,000
Current Liabilities 6,00,000 4,00,000 Debtors 3,00,000 1,00,000
Cash at Bank 1,00,000 1,00,000
TOTAL 22,00,000 9,00,000 TOTAL 22,00,000 9,00,000
The above companies have agreed to amalgamate into XY Ltd.
a) X Ltd. holds 8,000 shares in Y Ltd. at Rs. 12.50 each.
b) All the assets and liabilities of the two companies, except Investments are taken over.
c) Each share in Y Ltd. is valued at Rs. 25/- for the purpose of amalgamation.
d) Each share in X Ltd. is valued at Rs. 15/- for the purpose of amalgamation.
e) Shareholders in X Ltd. and Y Ltd., are paid off by issuing to them sufficient number of
Equity Shares of Rs. 10/- each in XY Ltd., as fully paid at par.

Give ledger accounts of X Ltd. and Y Ltd.

Absorption
Problem No.4: (MGP-5/5.38)
Balance Sheet of B Co. Ltd.as on 31st March 2014
Liabilities Rs. Assets Rs.
Share Capital Goodwill 2,00,000
50,000 Equity Shares of Rs. 50,00,000 Fixed Assets 83,00,000
100 each Current Assets 69,00,000
Capital Reserve 10,00,000 Investments 17,00,000
General Reserve. 36,00,000
Unsecured Loans 22,00,000
Sundry Creditors 42,00,000
Provision for Taxation 11,00,000
TOTAL 1,71,00,000 TOTAL 1,71,00,000
B Co. Ltd. is absorbed by Bee Sons Ltd. as on 31st March 2014, on which date the Balance
sheet of Bee Sons Ltd. is as follows.
Balance Sheet of Bee Sons Ltd. as on 31st March 2014
Liabilities Rs. Assets Rs.
Share Capital Fixed Assets 1,60,00,000
8,00,000 Equity Shares of Rs. 80,00,000 Current Assets 1,68,00,000
10 each
General Reserve. 1,00,00,000
Secured Loans 40,00,000
Sundry Creditors 46,00,000
Provision for Taxation 52,00,000
Provision for Dividend 10,00,000

TOTAL 3,28,00,000 TOTAL 3,28,00,000

For the purpose of absorption, the Goodwill of B Co. Ltd. is considered valueless. There
are also arrears of depreciation in B Co. Ltd. amounting to Rs. 4, 00,000. The shareholders
in B Co. Ltd., are allotted in full satisfaction of their claims, shares in Bee Sons Ltd., in the
same proportion as the respective intrinsic values of the shares of the two companies bear
to one another.
Pass the Journal Entries in the books of both the companies to give effect to the above.

Problem No.5: (MGP-2/5.46)

The Balance sheet of Marson Ltd. as on 31st March 2014 is as follows.
Balance Sheet of Marson Ltd.as on 31st March 2014
Liabilities Rs. Assets Rs.
Share Capital Land and Building 2,10,000
6,000 Shares of Rs. 100 each 6,00,000 Plant and Machinery 1,60,000
6% Debentures 20,000 Vehicles 1,00,000
Creditors 60,000 Stock 80,000
Outstanding Expenses 4,000 Debtors 60,000
Cash 64,000
Underwriting Commission 10,000
TOTAL 6,84,000 TOTAL 6,84,000

Nicholas Ltd. absorbed, Marson Ltd. on the following terms.

a) Nicholas Ltd. acquired only the assets of Marson Ltd., except cash.
b) The purchase consideration was fixed as 5 Equity Shares of Rs.100 each at Rs. 140
per share for every 7 shares of Marson Ltd., and 700, 6% Preference Shares of Rs.
100 each.
c) Realisation expenses amounted to Rs.12,000 and were paid by Marson Ltd.
d) The liquidator of Marson Ltd., transferred the Preference Shares to Creditors in full
satisfaction of their claim.
e) Debentures were paid at a premium of 10%.
f) Outstanding Expenses were paid and in addition Marson Ltd., had to pay rs. 4,200
as compensation to the worker.
g) Nicholas Ltd., valued Land and Building, Plant and Machinery at 10% appreciation,
Vehicles at 10% depreciation, Stock was reduced to its market valueRs.64,000,
Debtors were taken over subject to 5 % RDD.

Prepare necessary ledger accounts in the books of Marson Ltd. and pass opening journal
entries in the books of Nicholas Ltd.

Problem No.6: (MGP-4/5.51)

Given below are the Balance sheets of two companies A Ltd. and B Ltd. as on 31st March 2014.
Balance Sheet of A Ltd.as on 31st March 2014
Liabilities Rs. Assets Rs.
Share Capital Fixed Assets 3,20,000

 Equity Shares of Rs.10 2,00,000 Investment 24,000

each fully paid (2,000 shares in B ltd.)
 6% Preference Shares 2,00,000 Current Assets 2,00,000
of Rs.100 each
44,000
Reserve
1,00,000
Current Liabilities

TOTAL 5,44,000 TOTAL 5,44,000

Balance Sheet of B Ltd.as on 31st March 2014

Liabilities Rs. Assets Rs.
Share Capital Fixed Assets 2,40,000
Current Assets 68,000
 16,000 Equity Shares
of Rs.10 each 1,60,000
 400, 6% Preference
Shares of Rs.100 40,000
each

Reserve 40,000
400, 7% Debentures of Rs.
40,000
100 each

Current Liabilities 28,000

TOTAL 3,08,000 TOTAL 3,08,000

A Ltd. absorbs B Ltd. on the following terms:-

a) A Ltd. will issue 7 Equity Shares of Rs. 10 each at a premium of 20% and cash payment
of Rs. 5 for 5 Equity Shares in B Ltd.
b) Preference shareholders of B Ltd., are to be given @ one 6% Preference Share in A
Ltd., at a premium of 5% for every share held by them.
c) 7% Debentures of B Ltd., are to be redeemed at 8% premium by issue of 7%
Debentures in A Ltd., at 10% discount.
d) Liquidation expenses amounted to Rs. 5,000 to be paid by A Ltd.
e) Fixed Assets of B Ltd., are to be valued at Rs. 3,20,000/-
Close the books of B Ltd. and pass journal entries in the books of A Ltd. and prepare
Balance sheet of A Ltd. after absorption.
External Reconstruction
Problem No.7: (MGP-3/5.67)
Green Ltd. went into voluntary liquidation for its reconstruction on 31st March 2014, when its
Balance Sheet was as follows.

Balance Sheet of Unfortunate Ltd.as on 31st March 2014

Liabilities Rs. Assets Rs.
Share Capital Freehold Property 4,15,000
3,000, 6% Preference Shares Plant and Machinery 2,15,000
of Rs. 100 each 3,00,000 Vehicle 40,000
7,000 Equity Shares of Rs. Stock 1,75,000
100 each 7,00,000 Debtors 50,000
Less: R.D.D. -5,000 45,000
Share Premium 10,000 ----------
Unsecured Loan 50,000 Bills Receivable 10,000
Bills Payable 30,000 Cash 4,000
Creditors 70,000 Profit and Loss 2,56,000
TOTAL 11,60,000 TOTAL 11,60,000

A new company White Ltd. was formed to take over the following assets and liabilities of the
Green Ltd.
Freehold Property at Rs. 3, 60,000; Plant and Machinery at Rs. 2, 00,000; Vehicles at
Rs. 45,000; Stock at Rs. 1, 50,000. White Ltd. also took over Unsecured Loan and Creditors at
the book value.
The Purchase Consideration was satisfied in 2,350, 7%, Preference Shares of Rs. 100
each and 10,000 equity Shares of Rs. 100 each, Rs. 40 paid-up. There was a contingent liability
for a Repair bill amounting to Rs. 1,700 for which White Ltd. issued 11 Equity Shares of Rs. 100
each fully paid in full satisfaction of their claim.
The Preference shareholders of Green Ltd., accepted Preference Shares of White Ltd.,
in full satisfaction of their claim and partly paid Equity Shares of White Ltd., were allotted to the
Equity Shareholders of Green Ltd.
The Debtors and Bills Receivables of Green Ltd., realized Rs. 48,000 and Rs. 8,000
respectively. Bills Payable were fully paid. The winding up expenses were Rs. 4,500.
White Ltd. immediately made a call of Rs. 60 on partly paid Equity Shares to pay the
Unsecured Loan and Creditors.
Preliminary expenses of White Ltd. amounted to Rs. 10,000.
Close the books of Green Ltd. and prepare necessary ledger accounts and journal
entries in the books of White Ltd.

Problem No.8: (MGP-26/5.75)

Balance Sheet of Unfortunate Ltd.as on 31st March 2014

Liabilities Rs. Assets Rs.
Share Capital Fixed Assets
2,500 Equity Shares of Rs. Land and Building 1,30,000
100 each 2,50,000 Plant and Machinery 75,000
Current Assets
Creditors 1,25,000 Stock 50,000
Debtors 57,000
Cash 1,000
Misc. Expenses
Preliminary Expenses 5,500
Profit & Loss 56,500
TOTAL 3,75,000 TOTAL 3,75,000
The shareholders of the company resolved to take the company into voluntary liquidation and to
form Fortunate Ltd., a new company with an authorised share capital of Rs. 10 lakhs to take
over the business on the following terms:--
a) Preferential Creditors of Rs. 15,000 are to be paid in full.
b) Unsecured Creditors to receive 50 paisa in a rupee in full settlement of their claims or at
parvalue in 7% Debentures of Fortunate Ltd.
c) 2,500 Equity Shares of Rs. 100 each, Rs. 60 paid, to be distributed pro-rata to existing
shareholders.

Half the Unsecured Creditors opted to be paid in Cash, and the funds for this purpose
were found by calling up the balance of Rs. 40 per share. Cost of liquidation amounted
to Rs. 3,500 was paid by Fortunate Ltd. to Unfortunate Ltd.

Compute the Purchase Consideration and prepare the Balance Sheet of the new
company assuming that all assets are taken over at book value except Building, which is
also taken over.

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