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Amalgamation Of Cos.

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  • Mahesh S

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The above topic relates to a situation where one company acquires another company and i included in the attachment how to pass the accounting entries during this time. These notes are very significant to all those students who have subject called corporate accounting in Graduation Period. My compressed notes its guarantee to earn a very base knowledge on the subject and to get good marks on the accounts

  • 1
    Accounting Entries Areas Accounting aspects is in the point of view of 2 Cos. 1) Seller Co/Vendor Co/ Amalgamating Co. 2) Purchaser Co/Buyer Co/Amalgamated Co. Accounting Entries to be passed in the pt of view of seller is under following transactions:- :- Seller disposing it assets :- Seller closing its business :- Seller is transfering its liabilities :- Seller is Receiving the PC. :- Collecting PC, it has been distributing among Shareholders. Accounting Entries to be passed in the pt of view of buyer is under following transactions:- :- Taking over the assets/Liabilities :- Buyer is buying the Business. :- Giving the PC/Pur.Price for taking over the business, to the seller. X Ltd Seller/ Vendor/ Transferor/ Old co. Business Sells its business He pays PC to SH Represents Assets/Liabilities Pur.Consideration Price. Y Ltd Buyer/ Vendee/ Transferee/ New Co, Accounting in the books of seller (Old Co.)-i.e X Ltd :- Assets and Liabilities Tferred to New Co. :- Assets which are not transferred, shall to be sold to Outsiders. :- Liabilities which are not transferred, shall to be paid off by themselves. :- P.C is to be received & PC is distributed among SH. :- Books are to be Closed. Means: - There remains no balacne in the financial statements of an old Co. I.e All the B/S Items have to be "Nil" figure. Step-I : Liabilities ESC Every Figure shown in Given B/S to be transferred to Concerned a/c Transferrd a/c Assets ESH a/c Transferred a/c
  • 2
    PSC Sec.loan Un.Loan Cur,Liabilities Provisions Step-2 : 1) Receiving PC In Due Entry New co Dr To Realisation 2) Discharging PC Sec. In New Co Dr Cash Dr To New co Step-3 :- Step-4 :- step 5: Step 6 :- step 7 PSH a/c ESH a/c Invst CA (Except Cash/ Realisation a/c Bank) Realisation a/c Treatment Differs 2 possibilities T/o by New co. Realisation a/c Not T/O by New Cc Cash/Bank a/c Mis.Exp/P&L a/c ESH a/c Record PC xxx xxx Sale of Remaining Assets Cash Dr To Realisation (Pass entry for whatever amount Received) Payment of Remaining Liabilities Realisation Dr To Cash (Pass Entry for whatever amt paid) So don't bother about Pft/Loss Incurred on Realisation above 2 Cases. Expenses a/c Realisation Dr To Cash Payment to PSH PSH Dr To Sec, in New Co. To Cash Closing the ACS. PSH=> Realisation Thn balance Remains Realisation=> ESH.
  • 3
    Qn-8 page no:-7 Saimukundan Shareholders p s Others SH( not held as mul tiple of 5) B/F-SH who held as multiple of 5 Total no: of shares held by B ltd SH Cash=Rs,5 per share held Shares Held Eq.swap 216 126 72 58 28 500 99500 100000 5 0.4 0.4 0.4 0.4 0.4 0.4 Shares Comp Fraction 86.4 50.4 28.8 23.2 11.2 200 39800 40000 198 39800 39998 Consdn 599970 199980 30 20 500000 0.4 0.4 0.8 0.2 0.2 2 2 ES=2 ES of Rs.10 each,issued at Rs.15 for every 5 shares held PS=I ES of Rs.10 each,issued at par for every 5 shares held PC Discharge In ES In PS In Cash 39998 ES of A Ltd of Rs.10 Each issued at Rs.15 as fully paid up 19998 PS Cum.PS of A ltd Rs 10 each issued at Par For Fractional For Fractional For IL @Rs.5
  • 4
    PC payable to B ltd. Qn no:-9 Page no:-8 Saimukundan Ans:- Part A:-Computation of Consn for Tfer Compn of NAV FA (Rev.Fig) G/w (given in addl information) CA-Net Less:-Sec Loans Less:-PSC NAV to ESH Num.of ES o/s Nav per share Swap Ratio Shares issued by Buying Co. Shares o/s in Selling Co 15 Crores*1.25=18.75 Crores. Consn for Tfer 18.75 Crores ES @Rs.10 each, issued at par as fully paid up (Selling Co) B Ltd 1300 200 300 -300 1500 15 100 1300000 (Pur.C0) S Ltd 775 185 450 -300 -150 960 12 80 Seller's Value per share Rs.100 Buyer's Value per share Rs.80 Post merger value o 2075 385 750 -600 -150 2460 30.75 80 1.25 187.5 Proving the accuracy of Working Existing SH of S LTd Existing SH of B LTd Before 12 Crores * Rs 80 After 12 Crores *80 Before 15 Crores * Rs 100 After 18.75 Crores * Rs 80 960 960 1500 (As SH of B Ltd) 1500 (As SH of S Ltd) Amalgamation in the nature of Merger has been followed since the Rev.figure of FA or G/w only for Computing And the FA is appeared in the books of Buying Co only at old figures. All assets & liabilities are t/o by Buying Cc Accounting for Merger Pooling of Interest Method=>Merger Method=>Combining the Books. All existing ledger accounts of selling Co will be incorporated in the books of Buying Co. Including=>Reserves/lntangible items/Assets/Liabilities etc. Net Balances Incorporated vs.Consn for transfer: If there is Surplus i.e Net balance T/O> Consn for Tfer If there is Deficit i.e Net balance T/O< Consn for Tfer JE in the Books of S Ltd Recognise in Cap.Reserve Debit "Free Reserves" of Selling C And then FR of Buying Co.
  • 5
    Bus.Purchase Dr To Liq of B Ltd Liq of B Ltd Dr To ESC To PSC To Cash To SP FA Dr CA Dr Res. Dr To SL To Reserves To BP Qn no:-10 Page no:-9 Saimukundan Compn of G/w NA before G/w NTA-RF G/w-as we comp. G,w ignore gw in statement CA-RF Less:-100/0 Debn-BV TC-BV NAV before G/w Avg Pfts=FMP AVg Pfts bfre Deb Int Less:-Dl Less:-Depn on Rev Gain Less:- Depn on Rev Loss Adj Pfts or FMP SP=FMP-NP G/w-4 yrs * SP Total NAV to ESH CE as Earlier+G/w 187.5 187.5 187.5 187.5 0 750 300 37.5 300 600 187.5 P Ltd Q Ltd 11 3.9 -2 -2 10.9 1.8 -0.2 -0.3 1.3 1.09 0.21 0.84 11.74 R Ltd 5 1.8 -1.5 5.3 1.4 0.1 1.5 0.53 0.97 3.88 9.18 7 0 0.7 -1 -1.3 5.4 1.1 -0.1 -0.2 (adj on the basis of I O (adj on the basis of I o. 0.54 0.26 1.04 6. 4 Total Consn for
  • 6
    Distn of Consn for Tfer TCFT ESC (Dist between Debentures-b/f Part B-BaIance Sheet P Ltd Q Ltd 918000 855000 130 63000 300000 50000 R Ltd 6440 456000 150 188000 300000 50000 350000 350000 ot I 1174000 741000 433000 2736000 2052000 80 684000 Addl EC Required= For Settling Existing Debentures For PE Total Eq to be Issued Old Deb Dr- book PE Dr-not in Book To ESC Nature of Ama Pur G/w/ Cap Reserve Consn paid to SH includes Debn Assets are revalued, and qn is silent, we are to incorporate assets at Re G/w as computed earlier=> Cos for tfer -Net Assets B/S of T Ltd as at 31.3.After Amalgamation Particulars Eq. & Liabilities SHIS Funds ES of Rs.10 Each PSC Reserves Non-Cur.Liabilities Debn-PC Cur.LiabiIities Sun Crs Total Assets Non CA FA -old Figure G/w CA (Amt Rs) 2402000 (pc dist+Add ESC raised for settling Deb+PE) -50000 (Entry passed based on above)-No Reserves to be clu 684000 (Settled using ES issuing) 480000 3516000 2300000 576000 640000
  • 7
    Total Qn no:-ll Page no:-9 Saimukundan Ans:- Shares issued by Buying Co:- (Shares to be issued by Buying Co) Issue price per share Consn payable immediately:- Consn payable one year later:- 3516000 Swap Ratio of 1/2 * Shares held by Assenting SH 19700(20000-300) 9850 Rs 70 per share -MP per Rs.100 per share, Rs50 paid up 9850 ES of P Ltd of Rs.100 each, issued at Rs.70. per share, as Rs50 paid up In Cash In Shares (Addl shares,same Terms) Total Cons payable 65000 (given) 689500 Addl ES=> Only a liability to be settled => It is not a Cont.Liability as per AS 29. Cont, Liabi presupposes that outcome of the "Cont,Event" is not within our control. Our own performance or pftability is deemed to be within or control => Therefore there is no contingent liability JE in the books of Q ltd (Vendor) Co. Tfer of Assets Realisation Dr To FHP To To Inventories To Invsts To Trade Rvbles To Cash at Bank Tfer of Liabilities Crs Dr PFD Dr To Realisation Tfer of Capital,Reserves=Assenting SH ESC Dr RF Dr De To Assenting Sh Tfer of Capital=Dissenting SH ESC Dr To Dissenting Sh Discharge liability of Dissenting Sh Dissenting Sh Dr 2180000 850000 350000 300000 200000 430000 50000 (140000-90000) 175000 10000 185000 1379000 (19700shares*Rs.70) 325000 (Entire Reserves) 360000 2064000 21000 (300 shares*Rs.70) 21000 21000
  • 8
    Realisation Dr (bf) To Cash & Bank Realisation Exp & Tax Payment Realisation Dr To Cash&Bank 7500 (Excess payment=Loss) 28500 51500 (14000+37500) 51500 Balance Cash In hand after settlement of Tax, Real exp & Dissenting SH claims tfer to Buying Co. Realisation Dr To Cash&Bank 10000 10000 Consideration Due=OnIy to the extent R'ble and Distble Immediately P ltd Dr To Realisation Reciept of Consn Shares of P ltd Dr To P ltd Distn of Consn Assenting SH Dr To Shares of P ltd Loss on Realisation Tferred to Assenting SH a/c Assenting SH Dr To Realisation JE in the books of Buying Cos. Cons Due Bus.Pur Dr To Liq of Selling Co Consn Settled Liq of Selling Co Dr To ESC To SP To Def Consn Payable T/O of assets / liabilities FHP Dr Dr Inv Dr Invsmts Dr TR Dr Dr To PFD To Crs 689500 689500 689500 689500 689500 689500 1347500 1347500 1444000 1444000 1444000 492500 (9850*50) 197000 (9850*20) 754500 (other non current liabilities) 850000 350000 300000 200000 430000 60000 10000 175000
  • 9
    To BP To Capital Reserve-b/f Qn 12. Page no:-09 Saimukundan Selling Co Purchasing Co Tot.Shares held in G ltd Less:-Shares held by P ltd Shares held by Outsiders Shares issued to outsiders Issue Price= Intrinsic Value per share Details G/w-given in addl information Invsts in G ltd- Computed of IVPS = In Acquiring Co = In other Invsts CA Less:-Sec.Loans Unsec.Loans Cur.Liabilities & Provisions NAV Number of ES NAV per share Statement of Consn 3L ES of P Ltd of Rs.10 each issued at Rs.32.88 per share as fully paid up. JE in the books of Buying Co BP Dr To Liq of G Ltd Liq of G Ltd Dr To ESC To SP FA-Net Block Dr Other Invstmsts Dr CA Dr TO CL To Un.Loan To Se.Loan G Ltd P Ltd p ltd 1444000 561000 Inter-Co Holdings 30 (in lakhs) -24 (in lakhs)-Given 6 (issued by P ltd for Purchasing Co in the ratio 1:2 3 lakh shares G ltd 600 200 943.92 400 -300 -100 -100 1643.9 50 32.88 98.64 98.64 450 100 400 950 (RF) 180 Note:-Amalgamation in the naturc 100 400 -200 -100 -150 1180 30 3 .33 98.64 (pc in Lakhs) 98.64 30 (3L *Rs10 FV) 68.64 150 100 200
  • 10
    To To Gen Reserve To BP To Invsts in G lltd BS of P Ltd after Merger Particulars Eq. & Liabilities SHIS Funds ES of Rs.10 Each Reserves Non-Cur.Liabilities Sec Loan Un.Loan Cur.Liabilities Sun Crs Total Assets Non CA FA -BV G/w Other Invsts CA Total 1.36 (balance adj against the P&l a/c) 100 98.64 300 530 401.36 68.64 1000 500 200 250 1950 Ledger a/cs in the books of buyng Co. 1050 Business Purchase Amt (Rs.) 100 To Liq in B Ltd 800 To liabilities T/o Trade Payable 1950 To 13% Deb (100+80/0 premium/O.90) To Invst in B ltd To LE-borne by Purchaser To Cap Res.Gain or Total Liquidator of B Ltd Cr 284000 By Assets T/o 160000 Inventories 20000 Drs 120000 BR Cash at bank 60000 20000 39000 703000 Cr 194000 By Bus.Pur Dr To ESC-Dis of PC To PSC-Disc of PC Total Amt (Rs.) 90000 284000 Investment A/c (in shares of B Ltd) Dr To bal b/d Amt (Rs.) Cr 60000 By BP-Cancellations
  • 11
    Total Cash/ Bank a/c Dr To bal bld To Div.lncome fror To Bus.Purc Total Notes:- 3 Additional Adj. Mutual Bills 60000 Amt (Rs.) Cr 90000 By Div.Paid 4000 By LE By BP-Settlement oi 13000 on Amalgamation By Bal c/d-B/s 107000 MB, if not discounted, can be cancelled against each other. If they are discounted, it implies the amount is payable to the banker. Due to Amalgamation, the drawer & the drawee, both are the same. The bill automaticaly stands cancelled => Resulting Bankers demanding Settlement. BP Dr To Cash & Bank Mutual Drs/Crs Total value of goods tferred by A to B ltd Stk still in Altd of B ltd Pft of A ltd included thereabve Dr To Inventory Dr To Stock Reserve 20000 20000 30000 (=cost to B ltd /sp to A ltd) 15000 2500 (15000*20/120) 2500 2500 2500 2500
  • 13
    Amalgamation of Companies Following Certain A/cs to be prepared in Selle A/Cs to be Opened Realisation A/c :- Cash/Bank A/c :- To Know the "Pft/Loss It Clearly shows what Eq.SH's a/c of Old Co:- Below a/cs are opened but not Compulsory in PSH a/c of Old co:- New Co:- Securities in New Co:-
  • 14
    Conceptual Clarity Amalgamation, Absorption , Reconstn C.R.Nature Amalgamation Absorption Recostn External 1st Possibility Merger All assets & liabilities are T/O :- Includes R&S except "Share Capital". At Book Value-No Revalued Figure Eq.SHs must be paid by ES only.Cash can be allowable for fractional shares. PSH can be given anything. Atleast 90% of ESH must be continue in New Co. Business must be continued Ex:- Restaurant, Textile Mill, Cement Factory. Before A ltd+B ltd (Both winding Up) A ltd-Seller Co. (Closed) B ltd=Pur.Co. (Contiues in Existence) All the assets & Liabilities tferrred A ltd (Loss making Co.-lt winds Up (Old co) Amalgamation in 2 possibilities 2nd Possibi Purchase Any one Co it will be ca Purchase Consideration PC is the price paid to the SHS of Closed Co, that means PC is distributed among the ESH/PSH of Old co. 1) Lumpsum Method 2) Payment Method 3) Net Asset Method 1) Lumpsum Method Ex:- Y ltd took over Business of X ltd for 10 crores.
  • 15
    2) Payment Method Y ltd T/O Business of X ltd. Y ltd gave ES of 3 crs, PS of 2 Crs , Cash 1 Cr 6 (in Crs) 3) Net Asset Method Y ltd T/O Business of X ltd. Assets=15 Crs, Liabilities= 6 Crs NAV=15-6 9 Assets/Liabilities which should T/O only be considered & at revalued figure if given. Exc below items Fictitous Assets Preliminary Exp. Res.& Sur Losses Pref.Swap Shares Computed Fraction 0.2 0.2 0.2 0.2 0.2 0.2 43.2 25.2 11.6 5.6 100 19900 20000 98 19900 19998 0.2 0.2 0.4 0.6 0.6 2 2
  • 16
    f S Ltd. (12+18.75) r, NAV. o. B/S of S Ltd as at 31.3.After Amalgamation Particulars Eq. & Liabilities SH's Funds ES of Rs.10 Each PSC Reserves Non-Cur.Liabilities Sec.Loan Cur.Liabilities Sun Crs Total Assets Non CA FA -old Figure G/w CA-CL Total 307.5 150 1042.5 1500 600 2100 1350 750 2100
  • 17
    Debited in Reserve a/c an 5 PM Page no:-18 B/S of A Ltd & B Ltd Before Absorption & A ltd B/S after Absorption Tfer Particulars Eq.& Liabilities 1.Sh's Funds Eq.Share cap. Rs.10 Each 10%PSC-Rs.100/- 12%PSC-Rs.100/- S.R 2.Non Cur.Liabilities Deb Deb 3.Cur Liabilities S.Crs Particulars Assets 1.Non-CA Invsts Before A Ltd 3600000 1200000 100000 2500000 7400000 500000 1080000 20000 9000000 5000000 500000 B Ltd 1800000 600000 100000 1700000 4200000 500000 1280000 20000 6000000 3000000 500000
  • 18
    (to be distribu 2.CA (3:1) (3:1) Sk Drs 360 1800000 1500000 50000 150000 9000000 1200000 1200000 10000 90000 6000000 v.figures bbed amal on basis of purchase nature)
  • 19
    689500 (9850shares*70) 754500 1444000
  • 21
    Qn 13. Page no:-10 Saimukundan Part A:- B/S of both Cos as on the date of T/O (Amalgamation B/S as at 30.09 Particulars Eq. & Liabilities Ski's Funds ES of Rs.10 Each PSC Reserves A/C-WN Non-Cur.Liabilities Cur.Liabilities Sun Crs Total Assets Non CA Building Machinery Furniture Investments CA Stock Debtors C&B-b/f Total L ltd 1000000 o 400000 322500 180000 1902500 292500 555000 190000 60000 120000 380000 255000 50000 1902500 N ltd Computation of P&L a/c Opg balance in P&L Add:-Pfts for 6 mths Less:-ED @ Clg Balance P&L 300000 222500 -200000 322500 500000 200000 200000 354000 210000 1464000 195000 Depn-6 mths 370000 Depnn-6 mths 152000 Depn-6 mths 150000 250000 317000 30000 1464000 200000 254000 -100000 354000 Pref.Dividends are assumed to be paid as at 31st march itself for FY ending on 31st March Dividends distributed by N ltd, and Received by L ltd , is already received and accounted by L ltd as part of its income. Hence, already included in the pfts for the 6 mths given in the question Qn 16. Page no:-12 Saimukundan
  • 22
    Realisation a/c Amt (Rs.) Dr 420000 To FA-200/0 above-Befor To Inventories Consn for ESH ES o/s in Selling Co 20000 (2L/10) -4000 (As per A's B/s-lnvst) Less:-Shares held in Buying Co Shares held by O/s 16000 swap Ratio 1.4 No:-of shares to- 22400 for distn to outsiders SH be issued to A ltd -3000 Less:-Already held- by Seller in Buyer Co New ES issued by 19400 A ltd For Settlement of PSH Amt payable to PSH Existing par value Rs1L-10% Dis Settled by issue of Rs.100 11% PS at par No:-of PS issued Consn for Transfer 900 11% PS of A ltd of Rs.100 each, fully paid up 19400Es as computed above, Rs 10 each Consn for Transfer Ledger a/cs in the books of Selling Co. 90000 By PSC 90000 100 900 90000 194000 284000 170000 To TR 90000 To BR 10000 To Cash 13000 To Cash SH a/cs Dr 703000 ESH a/c -Liq Exp -bal from Cash Amt (Rs.) Cr 420000 By SC 170000 By BP 90000 By Deb By A ltd-Cons. 20000 By Cash-Liq E) 13000 To PSH- To loss on Ræ Cr By ESC 274000 By Rev.Res By Gen Res 10000 723000 Amt (Rs.) 403000 Amt (Rs.) 10000 100000 Amt (Rs.) 160000 20000 100000 284000 20000 10000 129000 723000 Amt (Rs.) 200000 70000 133000 To ES.0f A ltd To Cash/Bank (b/f) Amt (Rs.) 284000 To Realisation loss 284000 PSH a/c Dr To PS.0f A ltd Amt (Rs.) To settlement Diff- 60000 Realisation 129000 (1.50L+DR 0.03- DR 0.20L) Cr 403000 Amt (Rs.) 100000 100000
  • 23
    60000 Dr 284000 By ESC Amt (Rs.) 50000 Dr 20000 Mutual Buying CO-A ltd To Rea-Cons due Cash/Bank a/c To bal b/d To Dv Income (3000* IOFV* 10%) Amt (Rs.) 284000 Amt (Rs.) Realis cash fr 20000 To Liq.Exp- 17000 107000 ES of A ltd -Invst Dr To bal b/d To A ltd Cr BY PSC Cr 30000 By DP-2L*100/ 3000 By Liq.Exp-Re, By Rea,j- 20000 T/o 53000 Amt (Rs.) CE 80000 To ESH (b/f) 194000 274000 Amt (Rs.) 194000 90000 284000 Amt (Rs.) 20000 20000 13000 53000 Amt (Rs.) 274000 274000 BS of A Ltd after Merger Particulars Eq. & Liabilities Ski's Funds ES of Rs.10 Each PS of Rs.100 Each Reserves Non-Cur.Liabilities 13%Deb+Own Debn Cur.Liabilities Sun Crs Total Assets Non CA G/w CA Stock Drs 694000 190000 310500 220000 470000 20000 1904500 1140000 467500 220000 60000
  • 24
    Cash at bank Total Total 17000 1904500
  • 25
    These 3 accounts are compulsory.
  • 26
    After AB ltd (New Co, Comes into Picture) B ltd. to B ltd. A (New) Ltd-Starts nditions not fullfilled, then Iled as "Amalgamation in the nature of Purchase".
  • 29
    Computation of PC PSC After A Ltd 600000 Add:- PC -PSC Portion Valn of ES of B ltd No:-of ES PE Ratio % Appln Value of ESC of MP 180000 EPS MPS/EPS 0.6 32 72000 120% 86400 0.1 864000 20 4320000 No:- of shares to be issued 135000 1350000 2 540000 600 ESC Issue of PS PED Less:-Exp Div frm A ltd Shortfall is covered by Issuing PS PS 1350000 2970000 4320000 270000 -135000 135000 1350000
  • 30
    Add:-LE-with PC Qn:-6 Page no:-25 PM Weak Ltd Com.of PC G/w-RF FA-RF Less:-Prop Add:-App Sk Drs Add:-PADepn 2000000 -50000 1950000 100000 350000 200000 50000 -300000 Less:- Less:- Depn adde Dividend D Crs-bV 200000 2050000 600000 900000 300000 -300000 3750000 16000 6550000 7434000 0.75 5575500 0.25 1858500

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