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Demerger Of Cos

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  • Mahesh S

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The attached notes help the students to have a very thorough knowledge on the entries to be passed in the Demerger of Cos. These notes gives best understand on the Demerger areas.

  • 1
    A ltd (Before) 'Pur.Consideration" to be paid to:- Entries in 1)Assets & Liabilities Tferred to B Ltd B Ltd a/c Dr Liabilities a/c Dr To Assets a/c To Capital Reserve (b/f) Discharge of P.C a) If received by A Ltd. Invsts in B Ltd. a/c Dr To B Ltd. b) If received by S.H's of A Ltd. Loss on Demerger a/c Dr To B Ltd. c) Write off the Loss on Demerger Reserve/P&L a/c Dr To Loss on Demerger Qn:-34 Page no:-54 Ltd JE in the books of "T&T Ltd IT ltd a/c Loan Funds (B.V) CL (B.V) Loss on Demerger(b/f) Seller Co's Books (A Ltd) xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx 50 (PC) 100 200 350
  • 2
    To CA To FA(net) Loss on Demerger a/c Dr To IT Ltd (Tfer of PC to loss on Dem. If member have given the sale value) W/off in Res in Surplus Res.& Surplus a/c Dr To Loss on Dem. (Res.650-400=250) JE in the books of "IT Ltd" Bus.Pur a/c Dr To Ltd F.A a/c Dr C.A a/c Dr To CL To Loan Funds To B.P To Cap.Reserve a/c Disc. Of Consideration Ltd a/c Dr To ESC Qn:-32 Page no:-52 Enterprise Ltd.. Ans:- JE in the Books of Enterprise Ltd. TR Ltd a/c Dr Loan Funds CL 300 400 50 50 400 400 50 50 400 300 200 100 50 350 50 50 . In Crs) 25 300 400 (Rs. In crs)
  • 3
    To CA To NE-A To Creserve(b/f) (125-25=100) Loss on Demerger a/c Dr To TR Ltd a/c Cap.Reserve Dr To Loss on Demerger 500 100 125 25 25 25 25
  • 4
    Qn:-33 Page no:-53 Z Ltd.. Ans:- Invsts sold CA a/c Dr To Invsts To Res.& Sur(b/f) Red of Deb Loan funds Dr To CA PC-(34.50 Y ltd Dr CL Dr Loan funds Dr To CA To NE-A To Cap.Res (bf) Loss on Demerger Dr To Y ltd Cap.Res Dr Res & Sur Dr To Loss on Dem 102 97 5 125 125 690 93 15 585 168 45 690 690 45 645 690
  • 5
    Qn:-31 Page no:-50 Diverse Ltd.. Diverse Ltd (Before Dem) FA Cost (-) PFD WDV CA wc In the books of Diverse Ltd-Relation to Khazana Ltd Khazana Dr Un.Loan Dr To Invst To Cap.Reserve (b/f) Loss on Dem. Dr To Khazana Cap. Reserve Dr To Loss on Dem. Khazana Ltd, Sunrise Ltd, Diverse Ltd (After Dem) Total 800 -200 600 3000 -2000 1000 200 600 200 200 Est.Div 200 -170 30 1500 -300 1200 400 400 200 200 New Pro.Div 600 -30 570 1500 -1700 -200 B/S of "Khazana Ltd before & after demerger Particulars Eq. & Liabilities 1 SH's Funds Rs. In Crs
  • 6
    ES of Rs.10 Each 2 Non-Cur.Liabilities Loan Funds 3 Cur.Liabilities Crs Assets 1 Non CA FA (net) Invsts 2 CA Dr/Bank/etc... Qn:-36 Page no:-56 Kshaa Ltd.. Tfers B Ltd=125 Crs (given) 200 200 600 800 800 800 Ksha Ltd Y a a Ltd Tfers A Ltd=140 Crs (given) In the books of Ksha Ltd B Ltd Loss making Co. tfers to Yaa Ltd T/o Div.B Entry Yaa Ltd Dr CL Dr LF Dr To NFA To CA To Cap.Reserve 125 750 200 160 900 15 (b/f)
  • 7
    Bus.Pur Dr To Yaa Ltd NE-A Dr (Revalued) CA Dr To CL To LF To Cap.Reserve (b/f) Yaa Ltd a/c Dr To 15% Loan B/S of "Kshaa Ltd before & after demerger Particulars Eq. & Liabilities Ski's Funds ES of Rs.10 Each (CR+RR+Sur) Non-Cur.Liabilities Loan Funds Loan Cur.LiabiIities Crs Assets Non CA FA (net) Invts CA Dr/Bank/etc... NAV per share TFA Less:-NCL+CL NAV No:- of ES Intrinsic Value per share 140 140 325 800 700 250 140 35 15 15 Before 300 750 1050 250 1300 2600 600 2000 2600 2600 -1550 1050 30 35 After 300 800 1100 300 15 1250 2665 765 1900 2665 2665 -1565 1100 30 36.67
  • 8
    Master Richie Ltd No:- 0F ES NAV of Master Richie Ltd (b4 & Ater) Q.no:-29 Page no:-49 X ltd & Y ltd X ltd Pur.Co Computation of Intrinsic Value per share Particularss GW (Rev) Mach(Rev) st(BV) Drs Bank Less:-Crs NAV No:-of Es NAV per share Value of share o/s in Y Ltd NAV per share of X ltd No:-of shares to be issued by "X" ltd Fraction of shares Total Value of share ESC Cash for Fction of shares Qn-37 Page no:-57 Walwaker Particulars Assets Land & Buil Sk Sun.Drs 288300 86490 10 374800 100000 200000 200000 50000 1750000 Y ltd Selling Co X-Amt (Rs.) 50000 200000 40000 210000 60000 -40000 520000 40000 13 Balance sheet Items (Rev.Fig) 400000 160000 160000 Cash Input 50000 1833500 Y-Amt (Rs.) 40000 90000 64800 120000 90000 -30000 374800 30000 12.49 374,800.00 13.00 28830.76923 0.7692 374790 Cash Reduction
  • 9
    Liabilities ESC 6% PSC Debentures Trade Crs-Paid Exp. Crs-Paid Directors Bring Eq.CapitaL Estd Expenditure incurred Particulars Eq. & Liabilities Ski's Funds ES of Rs.2.50 Each Directors ES brought PS of Rs.200 Each R&S-Cap.Redn Non-Cur.Liabilities 13.5% Deb Cur.Liabilities Crs-Trade & Exp Total Assets Non CA Cash & Bank Balances Invsts CA Stock Debtors 600000 150000 200000 100000 (6%PSC) (12% PSC) 300000 200000 (9%Deb) (13.5% Deb) 400000 320000 50000 40000 B/S of Alts as at 31.3.2008 (After Recn) 150000 80000 100000 50000 380000 200000 360000 940000 400000 200000 20000 160000 160000 30000 100000 130000 80000 10000 20000 20000 130000 Qn no:-38 Page no:-58 Sickness Ltd. Assets Liabilities 11% Cum,PS
  • 10
    Qn-38 Page no:-60 Walwaker Enry for 1st point 11% PSC Dr To 13% Deb. To Sec.Premium To Cash Enry for 2nd point Cap.Redn Dr To ES (100,50 fully- Paid up) Enry for 3rd point Cap.Redn Dr To ES (SC 3rd Criteria) (Partly paid up) Enry for 4th point ESC (old) To ESC (New) Final Call Dr To ESC Bank Dr To Final Call Enry for 5th,6th,7th point Cap.Redn Dr To G/w To Assets To Invsts To Sun.Drs BV 940000 400000 132000 266000 266000 266000 266000 157750 MV 580000 500000 363600 36360 40 132000 266000 266000 266000 266000 40000 80000 25000 12750 Pt-l Pt-2 PD Arrears PD Arrears Converted to Fully ES No:- of ES ES in books PD Arrears-ES o/s CurESC Cap,Redn Rev.ESC (3rd pt) Cap,Redn Rev.ESC (4th pt) Cap. Redn Dr 132000 157750 289750
  • 11
    Enry for 7th point Sk Dr To Cap.Redn Gen.Reserve Dr To Cap,Redn Liab. TC P&L a/c (bf.) Further Adj. Deb.lnterest paid Red. Half of Debn Particulars Eq. & Liabilities Shi's Funds ES of Rs.50 Each Cum.PS of Rs.100 each Gen.Res Sec.Premium-PS+Debn P&L-Debint+6 mths B/S Non-Cur.Liabilities 13.5% Deb Cur.LiabiIities Crs Total Assets Non CA FA -others 21000 21000 2750 2750 6 mth working Preforma B/S Amt (Rs.) Asset 26000 Bank 36100 Sun Drs Stk 62100 (Int.for Half year) 23634 (Tfer to P&L a/c -Dedn)- (Bank Outflow) 181800 (1/2*363600) (Dedn-Deb,Bank outflow) B.S of Sickness Ltd as at 31.03.2009 532000 57250 76360 12466 678076 181800 336000 1195876 475000 Amt (Rs.) Opg -25000 55100 40000 -8000 62100 Cash/Bank Further Call at Bank inc 100000 266000 55100 421100
  • 12
    Invsts CA Stock SunDrs Bank Total Qn-41 Page no:-60 Walwaker 223000 282250 215626 1195876 Debit G/w-pt-7 PFD-pt-7 P&L-No pt Amt (Rs.) 624000 12000 2064000
  • 13
    Qn-40 Page no:-60 Walwaker Basic Data Analytical Statement Particulars ESC PSC Particulars Eq. & Liabilities Ski's Funds ES of Rs.100 Each 8% PS of Rs.100 each a/c Non-Cur.Liabilities Bf.Reconstn Af.Recontn Dr 2000000 500000 (20000ES@Rs.100) (20000ES@Rs.25) 1000000 800000 (IOOOOES@Rs.100) B.S of X Ltd as at 31.03.2006 2000000 1000000 -205000 2795000 Cap.Rec Cr 105000 800000 700000 300000 1905000 1500000 200000 205000 1905000 (Partly paid converted to fully paid af
  • 14
    Deb Cur.Liabilities Crs Total Assets Non CA Invsts CA Total 1000000 1000000 4795000 1800000 2995000 (Including Final Call Figure) 4795000
  • 15
    Demerger A ltd tfers some assets to B ltd for doing a new business for a consideration for itself or SHIS its B Ltd (after) A Ltd (after) Entries in Continues without stopping its business Seller/Old Co/A Ltd Shareholders of Seller Co. Buyer Co's Books (A Ltd) Bus.Purchase a/c Dr To A Ltd Assets a/c Dr (Agreed Value) G/W (b/f ) a/c Dr, if Cr side greater To Liabilities (Agreed Value) To Bus.Purchase To Cap.Reserve, if Dr side greater xxx xxx B/S of "T&T Ltd before & after demerger Particulars Eq. & Liabilities 1 Ski's Funds ES of Rs.10 Each xxx xxx Before (Inl+lnter) 50 Purchase Consideration Recognise (Recognised as "Invsts in New Co. (Recognised as "Loss on Demerger xxx xxx xxx After 50
  • 16
    (650-400) 2 Non-Cur.Liabilities Loan Funds 3 Cur.Liabilities Crs Total Assets 1 Non CA FA (net) 2 CA Dr/Bank/etc... Total 650 700 100 400 1200 500 700 1200 B/S of IT Ltd after Demerger (New Co.) 1 Eq.& Liabilities ESC R&S-Capital Reserve SHI's Funds 2 Non-Cur Liabilities Loan Funds 3 Cur.Liabilities Assets 1 Non-Current Assets FA (net) 2 Current Assets JE in the books of Turnaround Ltd B.P a/c Dr To TR Ltd CA Dr 25 500 250 300 O (Takn over) 200 (Takn over) 500 100 (Takn over) 400 (Takn Over 500 50 350 400 100 200 700 400 300 700 25
  • 17
    NFA Dr G/w Dr To LF To CL To B.P B/S of "Enterprise Ltd before & after demerger Particulars Eq. & Liabilities 1 Sid's Funds ES of Rs.10 Each 2 Non-Cur.Liabilities Loan Funds 3 Cur.Liabilities Crs Assets 1 Non CA FA (net) 2 CA Dr/Bank/etc... (b/f) Before 25 75 100 300 425 825 125 700 825 100 125 300 400 25 After 25 175 200 25 225 25 200 225 B/S of "Turnaround Ltd (new Co) after demerger Particulars Eq. & Liabilities 1 Ski's Funds ES of Rs.10 Each R&S-Capital Reserve 2 Non-Cur.Liabilities Loan Funds 3 Cur.Liabilities Demerger 25 0 25 300
  • 18
    Crs Assets 1 Non CA FA (net) G/w 2 CA Dr/Bank/etc... B/S of "Z Ltd before & after demerger Particulars Eq. & Liabilities 1 Ski's Funds ES of Rs.10 Each R&S-Capital Reserve 2 Non-Cur.Liabilities Loan Funds 3 Cur.Liabilities Crs Assets 1 Non CA FA (net) Invsts 2 CA Dr/Bank/etc... invsts CA Less:- CL Loan 400 725 100 125 500 725 Bef Dem 345 685 1030 417 363 1810 683 97 1030 1810 Aft Dem 345 45 390 277 270 937 515 422 937 Com of Intrinsic Value of share Z ltd Before 683 97 1030 -363 -417 After 515 422 -270 -277 Y ltd After 218 585 803 -93 -15
  • 19
    NAV No:- of ES Int.Value per share For Every share no:- of eq.shares obtained Value per share 1030 34.5 29.86 1 29.86 29.86 -20.14 -11.3 -1.58 390 34.5 11.3 1 11.3 695 69 10.07 2 20.14 Benefit to ESH for Value per share Before Dem After Dem After Dem Z ltd Y ltd Z ltd Benefit to ESH for Value per share Authorised Sunrise 1000 (b/f) Invsts Un.Loan Pur.Cons. No:- of ES Pur.Cons. No:- of ES Khazana Ltd discharge the PC 800 -600 200 (in crs) 10 20 Sunrise Ltd discharge the PC 10 (in Crs) 10 1 In the books of Diverse Ltd-Relation to Sunrise Ltd Sunrise Dr Sec.Loan Dr (300+100) To NFA To NWC To Cap.Reserve Invsts in Sunrise Ltd To Sunrise Ltd Invts in 15% deb Dr To Bank Rev.Reserve Dr To Bonus to ESC 10 400 10 500 250 570 -200 40 (Issue eq.shares to the company) 10 500 ( in perspective of Diverse Ltd) (Gen.Case) 250
  • 20
    Bonus to ESC Dr To ESC 250 (Gen.Case) 250 (1 bonus issue to every eq.shares held in Dive B/S of "Sunrise Ltd before & after demerger Particulars Eq. & Liabilities SH's Funds ES of Rs.10 Each Non-Cur.Liabilities Deb. Sec.Loan Cur.Liabilities Crs Assets Non CA FA (net) CA Dr/Bank/etc... In the books of Yaa Ltd Bus.Pur Dr To Ksha Ltd NFA Dr (Revalued) CA Dr To CL To LF To Bus.Pur 10 10 500 400 1700 2610 570 40 2000 2610 125 125 200 900 750 200 125 40 B/S of "Diverse Ltd bed Particulars Eq. & Liabilities Ski's Funds ES of Rs.10 Each Cap Reserve Rev. Reserve Non-Cur.Liabilities Deb. Loan Funds Cur.Liabilities Crs Assets Non CA FA (net) Invsts Invsts in Sunrise Ltd (inc amt of issue of del Invsts in Debnture CA Dr/Bank/etc...
  • 21
    To Cap.Reserve(b/f) Loan Dr To Ksha Ltd T/o Div.A Entry Ksha ltd Dr CL Dr LF Dr Loss on Demerger Dr (b/f) To NFA To CA Cap.Reserve Dr To Loss on Demerger 15 25 15 140 700 250 10 10 B/S of "Yaa Ltd before & after demerger Particulars Eq. & Liabilities Ski's Funds ES of Rs.10 Each (CR+RR+Sur) Non-Cur.Liabilities Loan Funds Cur.Liabilities Crs Assets Non CA FA (net) Invsts CA Dr/Bank/etc... NAV per share TFA Less:-NCL+CL NAV No:- of ES Intrinsic Value per share Before 200 450 650 350 900 1900 400 0 1500 1900 1900 -1250 650 20 32.5 30000 300 800 10 After 200 465 665 300 950 1915 300 15 1600 1915 1915 -1250 665 20 33.25 30000
  • 22
    NAV of Master Richie Ltd (b4 & Ater: NAV (Bef=Kshaa+Yaa) NAV (Aft=Kshaa+Yaa) Benefit (Aft>Bef) (Revised-90% of BV) Cash Value of Fraction of shares 975000 2725000 2831000 106000 997500 13 10 Capital Redn Dr.side 40000 40000 9.9996 Rs.10 374800 Cr.side 300000 820000 (p&l balance written off)
  • 23
    27000 13.5 50000 (b/f) 450000 100000 100000 950000 950000 (b/f) B.V 400000 Cash Cr Cap.Redn Dr Rev/Ex of any other item Cash Dr 400000 (13% Deb)
  • 24
    Computation 11% Pref.Shares 13% Deb @Rs.110/- 13% Deb @Rs.100/- 13% Deb @Rs.10/- 13% Deb @Rs.10/- 400000 3636.364 363600 Deb a/c 36360 Sec.Prem a/c 40 44000 3 132000 8000 2640 10640 532000 266000 266000 532000 (Unrecorded liability, discharged in ES) 50 (Rs100 FV, 50 Fully paid up) 2640 (132000/50) Paid up Value Rev.Paid up Value (b/f-Tfer to Cap.Redn) (FV.IOO, Rs.25/- partly paid up) (FV 50,Rs.25/-partly paid up) Cr 266000 21000 50 25 ESC Cap,Redn Rev ESC 1064000 (FV=IOO) 532000 532000 (FV=50) 2750 (b.f tfer to Gen. Reserve) 289750
  • 25
    Fract deb DI paid Rep.Debn 40 23634 181800 215626 (b.f) 421100
  • 26
    Capital Redn Credit EH p- pt-6 o/s Dl-pt-3 o/s Exp-pt-5 Amt (Rs.) 500000 120000 80000
  • 27
    ESC (old) Dr PSC (old) Dr Cap.Redn Dr Cap.Redn Dr Cap.Redn Dr Cap.Redn Dr To ESC (new) To PSC (new) To Cash-Pf.Dividend To FA -Rev fig. Less To P&L written off To G/w written off To Cap.Redn To Cap.Redn Unrecorded liability paid-Entry passed, for sacrifice no entry passed Debit balance of Cap,Redn to be debited to Gen.Res a/c or P&L a/c as negative figure :ter making a final Call)
  • 29
    ;elf receive the money. d in Various Cases PC computed:- 50 (in Crores)
  • 30
    After TA(CA+NFA) Less:-NCL+CL Net Asset Value No:- of ES (5 Crores) Intrinsic Value per share Before 1200 -500 700 5 140 500 -200 300 5 60 New Co 700 -300 400 5 80
  • 31
    Computation of NAV per share (Enterprise Ltd-Selling co) Particulars TA Less:-NCL+CL NAV No:-of ES Intrinsic Value p.s Holding shares Total Value Pre-Merger Post-Merger 825 -725 100 25 4 0.0005 0.002 2 lakhs Turnaround Ltd (New co) Post-Merger Computation of NAV per share Particulars TA Less:-NCL+CL NAV No:-of ES Intrinsic Value p.s Holding shares Total Value Turnaround Ltd (New co) Post-Merger Computation of NAV per share Particulars TA Less:-NCL+CL NAV No:-of ES Intrinsic Value p.s 225 -25 200 25 8 0.0005 0.004 4 lakhs Amt (Rs.) 725 -700 25 25 1 0.0005 0.0005 Amt (Rs.) 725 -700 25 25 1 Turnaround Ltd (New co) Post-Merger 0.004 0.0005 0.0045 -0.002 0.0025 Benefit
  • 32
    B/S of "Y Ltd after demerger Aft Dem 690 695 15 93 803 218 585 803 108 690 798 803
  • 33
    Capital Khazana 500 (in crs)
  • 34
    rse Ltd) fore & after demerger 500 (250+250 Bonus Issue) 240 (200+40) 500 1240 300 1540 30 (Est.Div) 10 500 1000 (3000-1500-500) 1540

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