SChedule VI

1
1.
Introduction
Simplicity and understandibility is one of the basic characteristics of Financial Statements.To Simplify the presentation of Balance Sheet and Profit and Loss Account, The Central Government, in exercise of the powers under section 641(1) of the Companies Act, 1956 has replaced the existing Schedule VI with the revised Schedule VI on the 28th February, 2011 pertaining to the preparation of Balance Sheet and Profit and Loss Account under the Companies Act, 1956. This Revised Schedule is based on existing non-converged accounting standard notified by company accounting standard rule, 2006. However a close analysis of the form, content and terminology of Revised Schedule VI is concerned, concept has been imparted from Indian Accounting Standard (Ind AS), approved by Ministry of Corporate Affairs without announcing applicability date. These 35 notified Indian Accounting Standard is based on International Financial Reporting Standards (IFRSs) issued by International Accounting Standard Board (IASB).
2.
Effective Date
New Schedule VI is applicable for Balance Sheet and Profit / Loss Account prepared on or after 1.4.2011 for industry. As far as comparative of 31.3.2011 is concerned, question arise whether it should be presented as per old schedule VI or new schedule VI. The framework for preparation of financial statement prescribed comparability as one of the essential qualitative characteristics. Accordingly it is better to present comparative of 31.3.2011 as per new schedule VI.
3.
Supermacy of Accounting Standards

Whenever conflict arise between accounting standard and new schedule VI in that case accounting standard will override the provision of Schedule VI as per general instructions number 1, 2 and 6. Case Decision : Simplex Concrete Piles (India) Ltd. vs. Union of India (2007) The Calcutta High Court held that Schedule VI to the Companies Act, 1956 deals with only presentation of the various items of income and expenses, assets and liabilities. It does not deal with recognition and measurement of various items of income and expenses, assets and liabilities. Recognition and measurement should be in accordance with the Accounting Standards notified vide the Companies (Accounting Standards) Rules, 2006. Thus, since AS and Schedule VI operate in different fields, the conflict between them should not arise. However, if they arise, then AS shall prevail.
4.
Compulsion of Vertical Form of Balance Sheet and Profit & Loss Account
New Schedule VI mandate vertical form of Balance Sheet and Profit & Loss Account, option of horizontal format like old Schedule VI has been deleted.
5.
Notes to Account in place of Schedules

New Schedule VI replace concept of preparing schedules for presentation of information, instead of that concept of notes to account has been introduced for presentation of detail relating to balance sheet, Profit & Loss Account and Summary of Accounting Policies.
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6.
Simplification of Disclosure
As per Old Schedule VI 1% of total revenue or Rs. 5,000 whichever is higher should be disclosed separately and not to be merged in the head of miscellaneous expense in profit and loss account. In the New Schedule VI the figure has been increased and it is now 1% of total revenue and Rs. 1,00,000 whichever is higher.
7.
Rounding Off
Revised norms of rounding off is as follows : Where turnover of the company in any financial year is : (i) (ii) less than Rs. 100 crores Rs. 100 crores or more Round off permissible To the nearest hundreds, thousands, lakhs or millions or decimals thereof To the nearest lakhs or millions or crores or decimals thereof
7.
Applicability of Accounting Standards

As per general instruction no. 6 New Schedule VI contain both terminology accounting standards and Indian Accounting Standards. Since applicability date of Indian Accounting Standard is still to be notified hence balance sheet and profit & loss account should contain the concept of accounting standard notified as per company accounting standard rule 2006. As and when applicability date of Ind AS will be notified by The Government concept of existing and Ind AS both will be applicable.
8.
Features of Notes to Account

Notes to account should contain (i) Narrative description or disaggregations of items recognised in those statement (ii) Information about item that do not qualify for recognition in those statement Author Note : Features of notes to account is totally based on IAS / Ind AS 1 hence for more detail cross reference may be taken from IAS / Ind AS 1 Presentation of Financial Statements.
1.
Balance Sheet
Balance Sheet of the entity present detail of Assets, Liabilities and Equities at the end of reporting period. Therefore, it is important that information provided in the balance sheet should be simple and understandable. It is also important that balance sheet must present true and fair picture of state of affairs of the business. Ministry of Corporate Affairs has considered the similar requirement and prescribed form and content of the Balance Sheet. A specimen format of prescribed balance sheet is depicted below : Particulars I. 1. EQUITY AND LIABILITIES Share holder Fund (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 Payable (c) Short-term Provision Total ASSETS Non-current Assets (a) Fixed Assets Tangible Assets Intangible Assets Capital work in progress Intangible under development (b) Non-current Investment (c) Deferred Tax Assets (Net) (d) Long-term Loans and Advances (e) Other Non-current Assets Current Assets (a) Current Investment (b) Inventories (c) Trade receivable (d) Cash and Cash equivalent (e) Short-term Loans and Advances (f) Other current assets Total Notes No. Figure of Figure of Current year Previous Year
2. 3.
4.
II. 1.
2.
Author Note : In case of consolidated financial statement minority interest should be presented in the head of shareholder fund.
2.
Profit and Loss Statement

Evaluator of Financial Statement is always concerned about the profit earned by the entities for investment prospective in the entity and financial performance of the entities. Profit of the year consists of profit from ordinary activities, extraordinary activities, continuing operation and discontinuing operation. A part of profit is also attributable to Government in current year and future year, therefore, it is necessary that detail of profit and loss should provide split of the profit from each and every activities. Ministry of Corporate Affairs has therefore considered the requirement of evaluator profit and loss account and prescribed mandatory reporting format of profit and loss statement which is depicted below : Particulars I. II. III. IV. Revenue from operations Other income Total Revenue (I + II) Expenses : Cost of materials consumed Purchases of Stock-in-Trade Changes in inventories of finished goods work-in-progress and Stock-in-Trade Employee benefits expense Finance costs Depreciation and amortization expense Other expenses Total expenses V. Profit before exceptional and extraordinary items and tax (III - IV) VI. Exceptional items VII. Profit before extraordinary items and tax (V - VI) VIII. Extraordinary Items IX. Profit before tax (VII - VIII) X Tax expense : (1) Current Tax (2) Deferred Tax XI. Profit (Loss) for the peirod from continuing operations (VII - VIII) XII. Profit / (loss) from discontinuing operations XIII. Tax expense of discontinuing operations XIV. Profit / (loss) from Discontinuing operations (after tax) (XII - XIII) XV. Profit (Loss) for the period (XI + XIV) XVI. Earnings per equity share : (1) Basic (2) Diluted Author Note : Format of appropriation is not available in the format prescribed by the Ministry hence it can be presented below the line or separate schedule can be prepared in notes to account below reserve and surplus. Notes No. Figure of Figure of Current year Previous Year
3.
Cash Flow Statement

Institute of Chartered Accountants of India has issued accounting standard 3 Cash Flow Statement which provides classification of activities and presentation of cash flow. Form and content of Cash Flow Statement has been prescribed in Accounting Standard 3. Ministry of Corporate Affairs has not prescribed the format for presentation of Cash Flow Statement hence, presentation of Cash Flow will be as per Accounting Standard 3.
4.
Notes to Account
As per general instruction no. 3 Notes to Account is required to be prepared for detail of information of item of balance sheet and profit & loss account. Ministry has prescribed the content of notes but presentation format has not been prescribed. Format for presentation of the notes should be prepared as per the requirement of the Industry. Based on content given by Ministry of Corporate Affairs specimen formats are detailed below for examination point of view. (1) Summary of Significant Accounting Policies (2) Share Capital Particulars Authorised Share Capital ............ equity shares @ ..... each. ............ Preference shares @ .... each Total Issued & Subscribed Share Capital ............ equity shares @ ..... each. ............ Preference shares @ .... each Total Paid-up Share Capital ............ equity shares @ ..... each. ............ Preference shares @ .... each Less : Calls unpaid by directors and other officers Add : Equity shares forfeited (Paid-up) Add : Calls in advance Total Note : (1) Reconciliation of Equity Shares and Preference shares at the beginning and end of the year is also required as follows Opening No. of Shares Add : No. of shares allotted as fully paid bonus shares Add : No. of Shares allotted for consideration other than cash Add : No. of share issued under ESOP & ESPP Add : No. of shares issued to public for cash Less : No. of share bought back / redeemed Less : Preference share converted into equity share during the year No. of shares at the end of the year xxx xxx xxx xxx xxx (xxx) (xxx) xxx xxx xxx xxx xxx xxx xxx Figure of Figure of Current year Previous Year
6 (2) (3) The rights, preferences and restrictions attaching to each class of shares incluidng restrictions on the distribution of dividends and the repayment of capital; shares in respect of each class in the compnay held by its holding company or its ultimate holding company including shares held by or by subsidiaries or associates of the holding company or the ultimate holding company in aggregate; shares reserved for issue under options and contracts/commitments for the sale of shares/disinvestment, icluding the terms and amounts; For the period of five years immediately preceding the date as at which the Balance Sheet in prepared : (3) Aggregate number and class of shares allotted as fully paid up pursuant to contract(s) without payment being received in cash. Aggregate number and class of shares allotted as fully paid up by way of bonus shares. Aggregate number and class of shares bought back.
(4) (5)
Reserves and Surplus Particulars Capital Reserves Capital Redemption Reserve Securities Premium Account Debenture Redemption Reserve Revaluation Reserve Share Options Outstanding Account General Reserve Dividend equalisation Reserve Taxation Reserve Reserve for contingent liability Subsidy Reserve Surplus of Profit and Loss Account Total Author Note : Negative Balance if any in Profit & Loss Account should be presented in the head of reserve and surplus is negative item. Similarly if there is negative balance in any reserve after adjustment then that reserve should be presented in the head also as negative item. Opening Bal. Addition Deletion Closing Bal.
(4)
Long-term Borrowing Particulars Bond and Debenture Term Loan from Bank Term Loan from Other Party Deferred Payment Liability Deposit Loans and Advances from relating party Long-term maturity of finance lease obligation Other Loans and advances Total Total Amount Secured Portion Unsecured Portion Rate of interest
7 Note : (1) Terms of payment of term loan and other loan shall also be disclosed. (2) Period and amount of continuing default should also be disclosed. (3) Redemption and issue during the year should also be disclosed. Author Note Detail of current year and previous year is required in the format prescribed above. (5) Deferred Tax Liabilities (Net) Particulars Deferred Tax Liabilities as per AS 22 Deferred Tax assets as per AS 22 Deferred Tax Liabilities (Net) (6) Other Long Term Liabilities Particulars Trade Payable not classified as current liabilities Others Total (7) Long-term Provision Particulars Employee Benefit as per AS 15 Premium on redemption of preference shares Total (8) Short-term Borrowing Particulars Working Capital Loan Loans and Advances from related party Loans and Advances from Bank Deposit Other Loans and Advances Total (9) Trade Payable Particulars Creditors Bills Payables Outstanding Expenses Total Figure of Figure of Current year Previous Year Total Amount Secured Portion Unsecured Portion Rate of interest Figure of Figure of Current year Previous Year Figure of Figure of Current year Previous Year Figure of Figure of Current year Previous Year
8 (10) Other Current Liabilities Particulars Current Maturity of Long term debt Current Maturity of Finance Lease obligation Interest accrued but not due Interest accrued due Income received in advance Unpaid and unclaimed dividend Sales tax payable Excise duty payable Service tax payable Other Payables Total (11) Short-term Provision Particulars Provision for Employee Benefit under AS 15 Provision for dividend including dividend distribution tax Provison for income tax Provision for wealth tax Provision for Legal Damages Other provisions Total (12) Fixed Assets - Tangible
Particulars 1. Land Owned Leased 2. Buildings Owned Leased 3. Plant & Equipment Owned Leased 4. Furniture & Fixtures Owned Leased 5. Vehicles Owned Leased 6. Office Equipments Owned Leased Total Gross Carrying Amount Accumulated Depreciation Net Carrying Amount Opening Addition Deletion Closing Opening Addition Deletion Closing Opening Closing
Figure of Figure of Current year Previous Year
Figure of Figure of Current year Previous Year
9 (13) Fixed Assets - Intangible

Particulars 1. Goodwill 2. Brands / Trade Marks 3. Computer Software Acquired Internally Generated 4. Mastheads 5. Mining Rights 6. Copyrights Acquired Internally generated 7. Patents Acquired Internally generated Total Gross Carrying Amount Accumulated Depreciation Opening Addition Deletion Closing Opening Addition Deletion Closing Net Carrying Amount Opening Closing
Author Note (i) Opening Balance, Addition, Deletion and Closing Balance of impairment loss if any is also required both for tangible and Intangible fixed assets.
(ii) Revaluation Reserve any write off of revaluation reserve in case of tangible fixed assets should also be disclosed. (14) Non-current investment Particulars 1. 2. 3. 4. 5. 6. 7. Investment Investment Investment Investment Investment Investment Investment Property in equity shares in pref. shares in Debenture or Bond in Mutual Fund in Government or Trust in Partnership firm Amount Trade Non-trade Permanent Remarks Decline
Total Note (i) In the column of remarks detail of investment in subsidiary, associate, joint venture and others should be disclosed along with paid up value. (ii) In case of investment in partnership firm name of partnership firm, percentage of profit total capital of the firm should also be disclosed. (iii) Quoted and Non-quoted investment should also be disclosed along with market value. (15) Long-term Loans and Advances Particulars 1. Capital advances 2. Security Deposit 3. Loans and Advances to related party 4. Loans and Advances to Director Secured Unsecured Doubtful Bad debts Net
10 (16) Other Non Current Assets Particulars 1. Long term trade receivable 2. Others (17) Current Investment Particulars 1. Investment 2. Investment 3. Investment 4. Investment 5. Investment 6. Investment Total Property in equity shares in pref. shares in Debenture or Bond in Mutual Fund in Government or Trust Amount Trade Non-trade Decline Remarks Secured Unsecured Doubtful Bad debts Net
Note (i) In the column of remarks detail of investment in subsidiary, associate, joint venture and others should be disclosed along with paid up value. (ii) Quoted and Non-quoted investment should also be disclosed along with market value. (18) Inventories Particulars Raw Material Work in Progress Finished Goods Stock acquired for Trading Stores and Spares Loose Tools Packing Material In Stock In Transit Total
(19) Trade Receivable Particulars 1. Trade receivable for more than 6 months 2. Others (20) Cash and Cash equivalent Particulars Balance with Bank Cheques, Draft in Hand Cash on Hand Short-term investment of upto 3 months Total Figure of Figure of Current year Previous Year Secured Unsecured Doubtful Bad debts Net
11 (21) Short-term Loans and Advances Particulars 1. Loans and advances to director 2. Loans and advances to related party (22) Other Current Assets Particulars Interest accrured and due on investment Other specially not covered in other category (23) Contingent Liability and Capital Commitment Particulars Claim against company not acknowledge Guarantee Other money for which company is contingently liable Bill discounted with bank Estimated amount of contract remaining to be executed on capital account and not provided for Others (24) Revenue from Operation Particulars Sales of Product Sale of Services Other Operating revenue Less : Excise Duty Total Note In case of finance company revenue from operation includes interest and other financial services. (25) Other Income Particulars Rental from investment property Dividend from subsidiary Interest from Government Securities Dividend from other companies Dividend on Mutual fund Interest from debenture Share of Profit in partnership firm Figure of Figure of Current year Previous Year Figure of Figure of Current year Previous Year Figure of Figure of Current year Previous Year Figure of Figure of Current year Previous Year Secured Unsecured Doubtful Bad debts Net
12 (26) Cost of Material Consumed Particulars Raw Material consumed Power and fuel consumed Stores, spares, chemicals and packing material consumed Processing Charge Repair of Plant and Machinery Repair of Factory Building Depreciation on factory building Total (27) Employee Benefit Expenses Particulars Salaries and Wages, Bonus, Gratuity and Allowances Contribution to PF, ESI and Superannuation fund Staff Welfare expense Total (28) Finance Cost Particulars Interest expenses Other Borrowing Cost Net Gain Loss on foreign currency cost Less : Amount capitalised under AS 16 Total (29) Depreciation and Amortisation Particulars Depreciation on tangible fixed assets Amortisation on intangible fixed assets Impairment of Tangible and Intangible Write off of cost of assets Total Figure of Figure of Current year Previous Year Figure of Figure of Current year Previous Year Figure of Figure of Current year Previous Year Figure of Figure of Current year Previous Year
13 (30) Other Expenses Particulars Rent Insurance Rates and Taxes, Other than taxes on Income Donation contribution to political party Donation to national defence fund Other Donation Payment to statutory Auditor as auditor Payment to statutory auditor for tax audit Payment to statutory auditor for certification Payment to statutory auditor for taxation Payment to statutory auditor for law matters Payment to statutory for management services Payment to statutory auditor for reimbursement of expenses Legal, Professional and consultancy charge Advertisement, Publicity and Sales Promotion Commission on Sales Downfall in the value of investment Director fees Net gain loss on foreign currency transactions Miscellaneous expenses Total (31) Detail of Extraordinary Item, Prior Period Item and Exception Item should also be disclosed. Author Final Comment : The above format and notes are only illustrative and not exhaustive. Further notes and format can be followed in examination as per the requirement of the questions. Figure of Figure of Current year Previous Year
14
1.
Introduction
New Schedule VI introduce concept of current and non current assets and liabilities which has been taken from Indian Accounting Standards. Therefore, it is important to understand the classification of assets and liabilities.
2.
Assets
(i) Definition of Current Assets If an asset satisfied any of the following condition the assets is classified as current assets. Condition 1 : It is expected to be settled in the companys normal operating cycle; Condition 2 : It is held primarily for the purpose of being traded; Condition 3 : It is due to be settled within twelve months after the reporting date (i.e. the balance sheet date); or Condition 4 : It is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date. (ii) Definition of Non-Current Assets Negative Definition has been provided for non current assets Assets not classified as current assets.
Analysis :(a) Operating Cycle :- As per Ind AS 1 Presentation of Financial Statement operating cycle in entity is time between the acquisition of assets for processing and their realization in cash and cash equivalent. Standard also prescribed that whenever operating cycle of an entity is not identifiable it is assumed to be of 12 months. In other ways operating cycle is calculated as follows : Average collection Period of trade receivable Add : Average time lage period for work-in-progress, raw material and finished goods Less : Average Payment Period of trade payable Net (b) xxx xxx (xxx) xxx
Additional Guidance :(i) A Finance lease receivable upto 12 months is classified as current assets. (ii) Loan receivable with specific interest upto 12 months is classified as current assets. (iii) Investment held primarily for trading purposes is also classified as current assets. Detailed guidelines is also available under Ind AS 39 and Accounting Standard 30 Recognition and Measurement of Financial Instrument.
15 (c) Example on Classification of Assets :Classify the following item into Current and Non-current Assets Item of Assets Debtor Bills Receivable Cash in Hand Demand deposit with bank Term Deposit in Bank Fixed Deposit Investment in Government Bond Investment in Reliance Shares Investment in Debenture of Tata Investment in Foreign currency designated bond Prepaid Expense Investment in Land Investment in Building Investment in Gold Property Plant and Equipment Goodwill Advertisement Right Know How Brand Deferred Tax Assets Advances to Director Advances to Related Party Capital work in progress Intangible under development Investment in Mutual fund of SBI Investment in Close ended scheme of Reliance Capital Advances to Subsidiary Lease receivable Investment in Pref. Shares Interest accrued on investment Goods in transit Security Deposit Investment in Partnership Firm Copyright ------------------------------------40 months 60 months 12 months 20 Years 6 months 3 months 10 months 5 years --------------------------------------------------------Trading Rental Inc. ------Trading --------------Trading 2 months 4 months ----24 months ------------11 months 25 months --------------------------------------Operating Cycle 9 months 8 months --------------Primary Purpose ------------Trading --Trading Settlement Cash & Cash Period 11 months 7 months ----48 months 60 months ------equivalent ----Cash Equivalent -----------
16 Ans. :Particulars Debtor Bills Receivable Cash in Hand Demand deposit with bank Term Deposit in Bank Fixed Deposit Investment in Government Bond Investment in Reliance Shares Investment in Debenture of Tata Investment in Foreign currency designated bond Prepaid Expense Investment in Land Investment in Building Investment in Gold Property Plant and Equipment Goodwill Advertisement Right Know How Brand Deferred Tax Assets Advances to Director Advances to Related Party Capital work in progress Intangible under development Investment in Mutual fund of SBI Investment in Close ended scheme of Reliance Capital Advances to Subsidiary Lease receivable Investment in Pref. Shares Interest accrued on investment Goods in transit Security Deposit Investment in Partnership Firm Copyright Classification Current Current Current Current Non Current Non Current Current Non Current Current Current Current Current Non Current Non Current Non Current Non Current Current Non Current Non Current Non Current Current Non Current Non Current Non Current Current Non Current Non Current Current Non Current Current Current Current Non Current Non Current Reason Condition 1 & 3 is satisfied Condition 1 & 3 is satisfied Condition 4 is satified Condition 4 is satisfied No Condition is satisfied No Condition is satisfied Condition 2 is satisfied No condition is satisfied Condition 2 is satisfied Condition 4 is satisfied Condition 3 is satisfied Condition 2 is satisfied For long term prospective No Condition is satisfied No Condition available No Condition available Condition 2 is satisfied No Condition is satisfied No condition is satisfied Already given in format Condition 3 is satisfied No Condition is satisfied Available in format Available in format Condition 2 is satisfied No Condition is satisfied No condition is satisfied Condition 3 is satisfied No Condition is satisfied Condition 3 is satisfied Condition 3 is satisfied Condition 3 is satisfied No Condition is satisfied No Condition is satisfied
Conclusion :- If any of the condition of current assets is not satisfied assets is called non current.
17 Q. (RTP, Nov. 2012) X Ltd. is a company engaged in the business of manufacturing white & rose wine. The process of manufacturing white & rose wine takes around 2 years. Due to this reason X Ltd. has prepared its financial statements considering its operating cycle as 2 years and accordingly classified the raw material purchased & held in stock for less than 2 years as current asset. Comment on the accuracy of the decision and the treatment of asset by X Ltd. as per Revised Schedule VI.
Ans. :- As per Revised Schedule VI, if any of the following condition are satisfied asset is classified as current other wise non current. Condition 1 : It is expected to be settled in the companys normal operating cycle; Condition 2 : It is held primarily for the purpose of being traded; Condition 3 : It is due to be settled within twelve months after the reporting date (i.e. the balance sheet date); or Condition 4 : It is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting date. In the given situation since operating cycle is 2 years hence, assets should be classified as current assets and contention of management is correct. Q. (RTP Nov. 2012 - Most Important) On 30th September, 2009 Beta Enterprises Ltd. was incorporated with an Authorised Capital of ` 50 lakhs. its first accounts were closed on 31st March, 2010 by which time it had become a listed company with an issued, subscribed and paid up capital of ` 40 lakhs in 4,00,000. Equity shares of ` 10 each. The company started off with two lines of business namely Engineering Division and Chemicals Division, with equal asset base with effect from 1st April, 2010. The Ceramics Division was added by the compay on 1st April, 2011. The following data is gathered from the books of account of Beta Enterprises Ltd.: Dr. --2,600 --4,300 --900 2,000 1,500 1,200 9,000 --400 440 160 ------22,500 ` in 000s Cr. 6,000 --8,000 --1,500 ----------1,500 ------500 4,000 1,000 22,500
Engineering Division sales Cost of Engineering division sales Chemicals division sales Cost of sales of Chemicals Division Ceramics Division Sales Cost of Sales of Ceramics Division Administration costs Distribution costs Dividend-Interim Fixed Assets at cost Depreciation on Fixed Assets Stock on 31st March, 2012 Trade Debtors Cash at Bank Trade Creditors Equity Share Capital in shares of ` 10 each Retained Profits
Additional Information : (a) Administration costs should be split between the Divisions in the ratio of 5:3:2. (b) Distribution costs should be spread over the Divisions in the ratio of 3 : 1 : 1. (c) Directors have proposed a Final Dividend of ` 800 thousands. (d) Some of the users of Ceramics Division are unhappy with the product and have lodged claims against the company for damages of ` 750 thousands. The claim is hotly contested by the company on legal advice. (e) Fixed Assets worth ` 3000 thousands were added in the Ceramics Division on 1.4.2011. (f) Fixed assets are written off over a period of 10 years on straight line basis in the books. However for income tax purposes depreciation at 20% on written down value of the assets is allowed by Tax Authorities. (g) Income tax rate may be assumed at 35%.
18 During the year Engineering Division has sold to Alpha Ltd. goods having a sales value of ` 2500 thousands. Mr. Gamma, the Managing Director of Beta Enterprises Ltd. owns 100% of the issued Equity Shares of Alpha Ltd. The sales made to Alpha Ltd. were at normal selling price of Beta Enterprises Ltd. You are required to prepare Profit and Loss Account lfor the year ended 31st March, 2012 and the Balance Sheet as at the date. Your answer should include notes and disclosures as per Accounting Standards. Ans. :(h) Beta Enterprises Ltd. Profit and Loss Account for the year ending 31st March, 2012 Particulars Note No. I. Revenue from opeations II. Total Revenue III. Expenses Cost of Sales Distribution costs Administration costs Total Expenses IV. Profit before tax V. Tax Expenses Current tax 1,239 Deferred tax 231 VI. Profit or Loss for the period Beta Enterprises Ltd. Balance Sheet as at 31st March, 2012 I. Particulars Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Current Liabilities Trade payables Other current liabilities Short term provisions Total Assets (1) Non-current assets Fixed assets Tangible (2) Current assets (a) Inventories (b) Trade receivables (c) Cash and Cash equivalents Total Note No. (`000) (` in crores) 15,500 15,500 (7,800) (1,500) (2,000) 11,300 4,200
1,470 2,730
1 2
4,000 1,187.8 500 1,573.2 1,239 8,500
3 4
II.
7,500 400 440 160 8,500
19 Notes to Accounts : (` 000) 1. Share Capital Authorised share capital 5,00,000 Equity shares of ` 10 each Issued and subscribed 4,00,000 shares of ` 10 each, fully paid up Reserves and Surplus Retained profit brought forward (` 1,000 - ` 210) Profit after tax of the current year Amount transferred to General Reserve (10% of ` 2,730) Amount transferred to CDT (16.2225% of ` 2,000) Dividends (` 1,200 + ` 800) Profit for the year Total Profit Reserves Other current Liabilities Proposed dividend Dividend distribution tax Deferred Tax Liability (` 210 + ` 231) Short term provisions Provision for tax Tangible assets Fixed Assets Gross Block Less : Depreciation (`000) 5,000 4,000 790 2,730 (273) (324.45) (2,000) 132.55 922.55 273 1,195.55 800 324.45 441
2.
3.
1,565.45 1,239
4. 5.
9,000 (1,500)
7,500
Disclosures 1. Segmental Disclosures (Business Segments) Engineering Chemical Ceramics Division Division Division 6,000 8,000 1,500 2,600 4,300 900 1,000 600 400 900 300 300 1,500 2,800 (100) 6,000 8,000 1,500 3,000 3,000 3,000 300 300 300 300 NIL 300 (` 000) Total 15,500 7,800 2,000 1,500 4,200 15,500 9,000 600 900
Sales Cost of Sales Administration Cost (5:3:2) Distribution cost (3:1:1) Profit / Loss Original Cost of Assets (Equal Capital Base) Depreciation @ 10% p.a. For the year ended 31.3.2011 For the year ended 31.3.2012
Note : Ceramics division is a reportable segment as per assets criteria. 2. Deferred Tax Liability (as per AS 22 on Accounting for Taxes on Income) (` in 000) Opening Timing Differnece on 1.4.2011 WDV of fixed assets as per books WDV of fixed assets as per Income Tax Act Difference Deferred Tax Liability @ 35% on ` 600 This has been adjusted against opening balance of retained profits. Current year (ended 31st March, 2012) Depreciation as per books Depreciation as per Income Tax Act (` 480 + ` 480 + ` 600) Difference Deferred Tax Liability @ 35% on ` 660 (to be carried forward) 5,400 4,800 600 210
900 1,560 660 231
20 3. 4. Contingent Liabilities not provided : Company is contesting claim for damages for ` 7,50,000 and as such the same is not acknowledged as debts. Related Party Disclosures : As per AS 18 Name of the related party Alpha Ltd. Nature of relationship Common director Nature of the transaction Sale of goods at normal commercial terms Volume of the transaction Sales to Alpha Ltd. worth ` 2500 thousandes
WN : Calculation of Tax Profit before tax for the year ended 31.3.2012 Add : Depreciation provided in the books (` 300 + ` 300 + ` 300) Less : Depreciation as per Income Tax Act (` 480 + ` 480 + ` 600) Taxable Income Tax at 35% on ` 3,540 (` in 000) 4,200 900 5,100 (1,560) 3,540 1,239
Examination Tips
(1) Fictitious Assets : In Revised Schedule VI there is no head to disclose fictitious assets. As per AS 26 following expenses are required to be written off in the first year of operation i.e. preliminary expense deferred revenue expenditure, startup cost, pre-operative expense and pre-opening expense. Accordingly such fictitious should be adjusted from reserve and surplus in the balance sheet. Alternatively, as some company is following practice to write off such fictitious as per income tax provision. Hence, such fictitious assets can also be disclosed as other current assets, if it can be written off within 12 months from the end of balance sheet and other non current assets. If written off after 12 months from the end of balance sheet date. Underwriting commission, discount on issue of shares and discount on issue of debenture are not covered under AS 26. Hence, can be disclosed as other current assets or other non current assets as the case may be. Amalgamation Adjustment account should be disclosed as other non current assets. If there is debit balance in P&L Account and there is no other reserve in that case it should be presented in the head of reserve and surplus as negative item. In holding company account following points should be considered. (a) Minority interest should be disclosed in separate head below shareholder fund. Do not disclose it below non current liability. (b) Cost of control should be calculated as usual. (c) Proposed dividend of holding company and minority interest in proposed dividend either equity or preference should be disclosed as other provision. (d) Reserve surplus should be calculated after taking into account consolidated profit and loss account, consolidated general reserve, consolidated other reserve and capital reserve on consolidation. Either separate note can be presented in notes to account or it can be clubbed in working note and directly disclosed. Notes to account should be prepared for those item having complex calculation and for which adjustment is given in the question. For other item it should be disclosed in balance sheet.
(2) (3) (4)
(5)
21
Q.1. AB Ltd. has 2 divisions - A and B. The balance sheet as at 31st October 2003 was as under : (in crores) A Fixed Assets Cost Depreciation W.D.V. Net current assets Current assets Less : Current liabilities Net current assets Total Financed by : Loan funds (secured by a charge on fixed assets) Own funds : Equity capital (fully paid up ` 10 shares) Reserves and surplus Total 600 (500) 100 400 (100) 300 400 --B 300 (100) 200 300 (100) 200 400 100 Total 900 (600) 300 700 (200) 500 800 100
? 400
? 400
50 650 800
It is decided to form a new company B Ltd., to take over the assets and liabilities of B division. Accordingly B Ltd. was incorporated to take over at balance sheet figures, the assets and liabilities of that division. B Ltd. is to allot 5 crores equity shares of ` 10 each in the company to the members of AB Ltd. in full settlement of the consideration. The members of AB Ltd. are therefore to become membes of B Ltd. as well without having to make any further investment. (a) You are asked to pass journal entries in relation to the above in the books of AB Ltd. and B Ltd. Also show the balance sheets of the 2 companies as on the morning of 1st November, 2003, showing corresponding previous year's figures. (b) The directors of the 2 companies, ask you to find out the net asset value of equity shares pre and post demerger. (c) Comment on the impact of demerger on 'shareholders wealth". [Nov.1999 -16 marks] Q.2. (RTP - Nov., 2011) The Balance Sheet of Z Ltd. as at 31st March, 2012 is given below. In its the respective shares of the company's two divisions namely S Division and W Division in the various assets and liabilities have also been shown. (All amounts in crores of Rupees) S Division Fixed Assets : Cost (-)Depreciation Written down value Investments Net Current assets : Current assets (-) Current Liabilities 875 360 515 W Division 249 81 168 Total
683 97
445 270 175
585 93 492
667 1,447 417 345 685 1,447
Financed by : Loan funds Own funds : Equity share capital : shares of ` 10 each Reserves and surplus
15
22 Loan funds included, inter alia, Bank Loans of ` 15 crore specifically taken for W Division and Debentures of the paid up value of ` 125 crores redeemable at any time between 1st October, 2011 and 30th September, 2012. On 1st April, 2012 the company sold all of its investmetns for ` 102 crore and redemed all the debentures at par, the cash transactions being recorded in the Bank Account pertaining to S Division. Then a new company named Y Ltd. was incorporated with an authorised capital of ` 900 crore divided into shars of ` 10 each. Al the assets and liabilities pertaining to W Division were transferred to the newly formed company; Y Ltd. allotting to Z Ltd.'s shareholders its two fully paid equity each at par for every fully paid equity share of ` 10 each held in Z Ltd. as discharge of consideration for the division taken over. Y Ltd. recorded in its books thefixed assets at ` 218 crore and all other assets and liabilities at the same values t which they appeared in the books of Z Ltd. You are required to : (i) Show the journal entries in the books of Z Ltd. (ii) Prepare Z Ltd.'s Balance Sheet immediately after the demerger and the initial Balance Sheet of Y Ltd. (Schedules in both cases need not be prepared). (iii) Calculate the intrinsic value of one share of Z Ltd. immediately before the demerger and immediately after the demerger; and (iv) Calculate the gain, if any, per share to the shareholders of Z Ltd. arising out of the demerger'. [May 2004 - 20 marks (Old Course)-16 marks] Q. 3. The following was th abridged Balance Sheet of X Co. Ltd., as at 31st March, 2012. Liabilities ` Assets ` Capital : Authorised : 10,000 equity shares of ` 100 each 10,00,000 Plant and Machinery at depreciated value 8,60,000 Issued and Paid up : Land 7,00,000 8,000 equity shares of ` 10 each, fully paid up 8,00,000 Current Assets 8,00,000 Reserve and Surplus : Patents, trade marks and copyrights 6,00,000 General Reserve 5,00,000 Share Premium 4,00,000 Profit and Loss 3,60,000 12,60,000 11% Debentures secured against the assets of the Co. 5,00,000 Sundry Creditors 4,00,000 29,60,000 29,60,000 The Company ran two district departments utilizing the trademarks and copyrights owned and generated by it. The assets and liabilities of one of the departments as on the date of Balance Sheet were : ` Plant and Machinery 4,00,000 Land (used for business) 2,00,000 Current Assets 2,00,000 Trademarks and copyrights 3,50,000 11,50,000 Sundry Creditors 2,50,000 9,00,000 Due to managerial constraints, X is unable to develop this department. An overseas buyer is interested to acquire this department and after due diligence, offers a consideration of ` 20,00,000 to the company for transfer of business. The buyer offered to discharge the purchase consideration immediately after 31st March, 2012, in the following manner : (i) Issue of equity shares of the buyers company for ` 10,00,000 at a premium of 20% over the face value; and (ii) Payment of the balance consideration of sterling. The exchange rate agreed upon is ` 80 per sterling. This amount will be retained in London, till the actual take over of the business is done by the buyer. (a) Expenses to put through the transaction come to ` 8,00,000 initially to be incurred by X but to be shared equally by the parties. (b) the balance value of trademarks, copyrights and patents left with X does not enjoy any market value and has to be written off. (c) the value of the balance of land in Xs possession will be taken at its market value in the books of accounts. Such a value, determined by an approved valuer, is 200 percent of the book value.
23 the parties agree that the date of legal ownership of the transferred business shall be 31st March, 2012, though certain formalities may have to be gone through and agree that the actual transfer to the buyer will be effected before 30th April, 2012. X Co. Ltd. to carry on the business in the normal course and account for the profits of the transferred department to the foreign buyer. X made a net profit of ` 2,40,000 from the whole business for April, 2012; 40 per cent of the net profit related to the business of the transferred department. (e) the shares of the overseas buyers company were quoted on the London Stock Exchange and on 30th April, 2012 were quoted at 95% of their face value. (f) the cash received by X at London was remitted by it to its Indian banking account on 30th April 2012 when the rupee-sterling was rate was ` 75 per UK sterling pound. Draw the Balance Sheet of X Co. Ltd. as at 30th April, 2012, after the transfer of the business to the overseas buyer. [May, 2012 - 16 Marks] Q.4. (Study Material - Important) Batliboi & Co. Ltd. carried on manufacturing business. Its products were sold to wholesales and the company had its own retail shop. Adhikary & Co., private ltd. carried on similar manufacturing business, but all goods produced were sold through the company's own retail shops. The summarised balance sheets of the two companies as at 31st March, 2012 were as follows : Batliboi & Co. Ltd. ` Share Capital Authorised Equity shares of ` 10 Issued & fullypaid up P & L A/c Creditors Adhikary & Co. Ltd. ` Fixed Assets : Freehold properties 6,00,000 at cost 6,00,000 Plant & machinery at 90,000 cost less depreciation 70,000 Current Assets : Stock Debtors Bank 7,60,000 Batliboi & Co. Ltd. ` Adhikary & Co. Ltd. ` (d)
40,00,000 25,00,000 3,40,000 4,20,000
10,00,000 13,00,000 23,00,000 4,80,000 2,30,000 2,50,000 32,60,000
2,50,000 1,00,000 3,50,000 1,20,000 80,000 2,10,000 7,60,000
32,60,000
The original cost of plant and machinery was : Batliboi & Co. Ltd. ` 26,00,000 Adhikary & Co. Ltd. ` 2,00,000 The following arrangements were made and carried out on April 1, 2012 : (1) Batliboi & Co. Ltd. purchased from the shareholders of Adhikary & Co. (P.) Ltd. all the issued shares @ ` 14 per share. (2) The shareholders of Adhikary & Co. (P.) Ltd. took over one of the freehold properties of Adhikary & Co. (Private) Ltd. for ` 60,000, at the book value of the same. It was agreed that the amount should be set off against the amount due to them under (1) above and the balance due to them to be satisfied by the issue of an appropriate number of equity shares in Batliboi & Co. Ltd. at ` 19.50 per share. The necessary transfer in regard to the setting off the price of the property taken over by the shareholders against the amount due to them from Batliboi & Co. Ltd. were made in the books of the two companies (3) All manufacturing was to be carried on by Batliboi and Co. Ltd. and all retail business is to be carried on by Adhikary & Co. (Private) Ltd. in this connection. (i) Batliboi & Co. Ltd. purchased the whole of Adhikary & Co. (P.) Ltd.'s plant and machinery for ` 1,50,000 and certain of their free-hold property (cost ` 1,00,000) at ` 1,20,000. (ii) Adhikary & Co. (P.) Ltd. purchased Batliboi & Co. Ltd's. freehold retail shop buildings (cost to Batliboi & Co. Ltd. ` 75,000) at ` 60,000 and took over the retail stock at ` 80,000 at the book value. (4) Adhikary & Co. Ltd. drew a cheque in favour of Batliboi & Co. (P.) Ltd. for the net amount due, taking into account all the matters mentioned above. (5) Immediately after the transfer of shares in (1) above, Adhikary & Co. (P. ) Ltd. declared and paid a dividend of ` 60,000 (ignore income-tax). You are required to prepare the Balance Sheets of Batliboi & Co. Ltd. and Adhikary & Co. (P.) Ltd. immediately after the completion of the above transaction.
24 Q.5. The following was the Balance Sheet of Bharat Construction Ltd., as on 31st December 2002 : Liabilities Authorised capital : 20,000 equityshares of ` 10 each Issued, subscribed and paid up capital 12,000 shares of ` 10 each Less : Calls in arrear (` 3 per share on 3,000 shares) Sundry creditors Provision for taxes ` Assets Goodwill 2,00,000 Land and Buildings Machinery Stock Book debts Cash at bank Profit and loss A/c Balance as per last Balance Sheet Less : Profit for the year Preliminary expenses ` 10,000 20,500 50,850 10,275 15,000 1,500
1,20,000
(9,000)
1,11,000 15,425 4,000 1,30,425
22,000 (1,200)
20,800 1,500 1,30,425
The directors have had a valuation made of the machinery and find it overvalued by ` 10,000. It is proposed to write down this asset to its true value and to extinguish the deficiency in the Profit and loss account and to write of goodwill and preliminary expenses, by the adoption of the following course : (1) Forfeit the shares on which the call is outstanding. (2) Reduce the paid up capital by ` 3 per share. (3) Reissue the forfeited shares at ` 5 per share. (4) Utilise the provision for taxes, if necessary. The shares on which the calls were in arrear were duly forfeited and reissued on payment of ` 5 per share. You are requested to draft the journal entries necessary and the balance sheet of the company after carrying out the terms of the scheme as set above. Q.6. (RTP, May 2012 - Important) The Balance Sheet as at 31st March, 2011 of Sick Ltd. was as under : Liabilities ` Assets ` Share Capital Fixed Assets 4,000 Equity shares of ` 100 each, Goodwill at cost ` 50 per share paid up 2,00,000 Others 4,25,000 2,000, 11% Cumulative Less : Depreciation 1,35,000 preference shares of ` 100 each, Investment fully paid up 2,00,000 Stock in trade Premium received on preference shares 20,000 Sundry Debtors General reserve 30,000 Cash and Bank balances Current Liabilities 1,55,000 6,05,000
` 20,000 2,90,000 12,500 1,05,000 1,27,500 50,000 6,05,000
Contingent Liability not provided : Preference dividend is in arrears for three years including the year ended 31st March, 2011. The funds of the Company are sufficient to discharge its liabilities including Preference Dividends in arrears. However, the Company does not want to deplete its resources. It would also like to reflect the values of some would also like to reflect the values of some of its assets in a realistic manner. The Board of Directors of the Company decided and proposed the following scheme of reconstruction to be effective from 1st April, 2011. (i) The cumulative preference shareholders are to be issued, in exchange of their holdings, 13% Debentures of the face value of ` 100 each at a premium of 10% Fractional holdings are to be paid off in cash. (ii) Arrears in preference dividends to be converted into equity shares of ` 100, ` 50 per share paid up. (iii) After the issue of the shares mentioned in (ii) above, the paid-up value of all the equity shares is to be reduced to ` 25 each. (iv) The face value of all the equity shares to be reduced to ` 50 each and the balance of the unpaid portion is to be called up fully. (v) Goodwill has lost its value and has to be written off. Market value of other fixed assets is determined, as at 31st March, 2011 at ` 2,50,000. (vi) Investments have no market value and have to be written off.
25 (vii) Stock-in-trade is to be valued at 110% of its book value and Sundry Debtors are to be discounted by 5%. The scheme, as approved by the Directors, is duly accepted by all the authorities and put into effect. During the the working for the half-year ended 30th September, 2011 it is noticed that the trading for the period has resulted in an increase of bank balances by ` 27,550. Sundry Debtors by ` 20,000, Trade Creditors by ` 13,000 and a decrease in stock by ` 4,000. Depreciation for the half year on fixed assets at 10% per annum is to be provided. The increase in the bank balances was prior to the company paying the half yearly interest on the debentures and redeeming one half of the debentures on 30th September, 2011. From the above information you required to prepare the Balance Sheet of Sick Ltd. as on 30th September, 2011. Q.7. (RTP - Nov. 2010) Paradise Limited which had experienced trading difficulties, decided to reorgianize its finances. On March 31, 2010 a final Trial Balance extracted from the books of the company showed the following position : Dr. (`) Cr.(`) Share Capital, Authorised and issued : 1,500 6% Cumulative Preference Shares of ` 100 each 1,50,000 2,000 Equity shares of ` 100 each 2,00,000 Capital Reserve 36,000 Profit and Loss Account 1,10,375 Preliminary Expenses 7,250 Goodwill at Cost 50,000 Trade Creditors 42,500 Debtors 30,200 Bank Overdraft 51,000 Leasehold Property at Cost 80,000 Provision for Depreciation on Leasehold Property 30,000 Plant and Machinery at Cost 2,10,000 Provision for Depreciation on Plant and Machinery 57,500 Stock-in-Trade 79,175 5,67,000 5,67,000 (a) (b) (c) (d) (e) (f) (g) The approval of the Court was obtained for the following scheme for reduction of Capital. The Preference Shares to be reduced to ` 75 per share. The Equity Shares to be reduced to ` 12,50 per share One ` 12.50 Equity share to be issued for each ` 100 of Gross Preference Dividend Arrears, the Preference Dividend had not been paid for three years. The balance in Capital Reserve Account to be utilized. Plant and Machinery to be written down to ` 75,000. The Profit and Loss Account balance and all intangible assets to be written off.
At the same time as the resolution to reduce capital was passed, another resolution was approved restoring the total Authorised Capital to ` 3,50,000 consisting of 1,500 6% Cumulative Preference Shares of ` 75 each and the balance in Equity shares of ` 12.50. As soon as the above resolutions had been passed 5,000 Equity shares were issued at par, for cash, payable in full as application money. The same were fully subscribed and paid. You are required : (i) To show the Journal entries necessary to record the above transactions in the Company's books, and (ii) To prepare the Balance Sheet of the Company, after completion of the reconstruction scheme.
26 Q.8. (Nov. 2005 - Important) Following is the Balance Sheet as at March 31, 2005 : Liabilities Share Capital : Equity share of ` 100 each Max Ltd. Mini Ltd. Assets Max Ltd. Goodwill 20 1,500 1,000 Other fixed assets 1,500 9% Preference shares of ` 100 each 500 400 Debtors 651 General Reserve 180 170 Stock 393 Profit and Loss account --15 Cash at Bank 26 Debentures of ` 100 each 600 200 Own debentures Sundry Creditors 415 225 (Normal value ` 2,00,000) 192 Discount on issue of debentures 2 Profit and Loss Account 411 3,195 2,010 3,195 (` 000) Mini Ltd. --760 440 680 130 ------2,010
On 1.4.2005, Max Ltd. adopted the following scheme of reconstruction : (i) Each equity share shall be sub-divided into 10 equity shares of ` 10 each fully paid up. 50% of the equity share capital would be surrendered to the company. (ii) Preference dividends are in arrear for 3 years. Preference shareholders agreed to wage 90% of the dividend claim and accept payment for the balance. (iii) Own debentures of ` 80,000 were wold at ` 96 cum-interest and remaining own debentures were cancelled. (iv) Debentureholders of ` 2,80,000 agreed to accept one machinery of book value of ` 3,00,000 in full settlement. (v) Creditors, debtors and stocks were vlaued at ` 3,50,000, ` 5,90,000 and ` 3,60,000 respectively. The goodwill, discount on issue of debentures and profit and loss (Dr.) are to be written off. (vi) The Company paid ` 15,000 as penalty to avoid capital commitments of ` 3,00,000. On 2.4.2005 a scheme of absorption was adopted. Max Ltd. would take over Mini Ltd. The purchase consideration was fixed as below : (a) Equity shareholders of Mini Ltd. will be given 50 equity shares of ` 10 each fully paid up in exchange for every 5 shares held in Mini Ltd. (b) Issue of 9% preference shares of ` 100 each in the ratio of 4 preference shares of Max Ltd. for every 5 preference shares held in Mini Ltd. (c) Issue of one 12% debentures of ` 100 each of Max Ltd. for every 12% debentures in Mini Ltd. You are required to give journal entries and prepare balance sheet in the books of Max Ltd. Q.9. (RTP, Nov. 2010) The following was the balance sheet of Diamond Ltd. as at 31st March, 2010. Liabilities 10% redeemable preference shares of ` 10 each, fully paid-up Equity shares of ` 10 each fully paid up Capital redemption reserve Securities premium General reserve Profit and loss account 9% Debentures Sundry creditors Sundry provisions Assets Fixed Assets Investment Cash at Bank Other current assets ` in lakhs 2,500 8,000 1,000 800 7,100 300 5,000 3,300 2,000 30,000 ` in lakhs 16,000 4,100 1,650 8,250 30,000
On 1st April, 2010 the company redeemed all its preference shares at a premium of 10% and bought back 25% of its equity shares @ ` 20 per share. In order tto make cash available, the company sold all the investments for ` 4,500 lakh and raised a bank loan amounting to ` 1,000 lakhs on the securityof the company's plant.
27 Pass journal entries for all the above mentioned transactions including cash transactions and prepare the company's balance sheet immediately thereafter. The amount of securities premium has been utilized to the maximum extent allowed by law. Q.10. (Important) X Co. Ltd. was incorporated on 1st July, 1993 to take over the business of Mr. A as and from 1st April, 1993, Mr. A's balance sheet, as at that date, was as under :Liabilities Trade Creditors Capital ` 36,000 1,94,000 Assets Building Furniture and fittings Debtors Stock Bank ` 80,000 10,000 90,000 30,000 20,000 2,30,000
2,30,000
Debtors and bank balance are to be retained by the vendor and creditors are to be paid off by him. Realisation of debtors will be made by the company on a commission of 5% on cash collected. The company is to issue A with 10,000 equity shares of ` 10 each, ` 8 per share paid up and cash of ` 56,000. The company issued to the public for cash 20,000 equity shares of ` 10 each on which by 31st March, 1994, ` 8 per share was called and paid up except in the case of 1,000 shares on which the 3rd call of ` 2 per share had not been realised. In the case of 2,000 shares, the entire face value of the shares has been realised. The share issue was underwritten for 2% commission, payable in shares fully paid up. In addition to the balances arising out of the above, the following balances were shown by the books of account of X Co. Ltd. on 31st March, 1994. ` Discount (including ` 1,000 allowed on vendor's debtors) 6,000 Preliminary Expenses 10,000 Director's Fees 12,000 Salaries 48,000 Debtors (including vendor's debtors) 1,60,000 Creditors 48,000 Purchases 3,20,000 Sales 4,60,000 Stock on 31st March, 1994 was ` 52,000. Depreciation at 10% on Furniture and Fittings and at 5% on building is to be provided. Collections from debtors belonging to the vendor were ` 60,000 in the period. Prepare the trading and profit and loss account for the period ended 31st March, 1994 of X Co. Ltd. and its balance sheet as at that date. [May, 1994 - 20 Marks & RTP- Nov. 2009]
28
Solutions of Corporate Restructuring

Q.1.Ans. :Particulars (1) Loan Funds Current Liabilities Provision for Depreciation Loss on reconstruction To Fixed Assets To Current Assets (being division B along with its assets and liabilities sold to Turnaround Ltd. for ` 25 Crores) Reserve & Surplus To Loss on reconstruction (Being allotment of 5 crore equity shares of ` 10 each to the members of AB Ltd. in full settlement of the consideration) Journal Entries in the books of B Ltd. Particulars (1) Fixed Assets Current Assets To Current Liabilities To Secured Loan To Equity Share Capital To Capital Reserve (being assets & liabilities of AB Ltd. taken over in consideration 5 crores equity shares of ` 10 each Balance Sheet of AB Ltd. Note No. (I) Equity and liabilities (1) Shareholders funds (a) Share Capital (b) Reserves and Surplus (2) Non-current liabilities Secured Loan (3) Current Liabilities Total Assets (1) Non-Current Assets (a) Fixed Assets (2) Current Assets Total Dr. Dr. Dr. (`) 200 300 100 100 50 250 Cr. (`) Dr. Dr. Dr. Dr. Journal Entries in the books of AB Ltd. Dr. (`) 100 100 100 300 300 300 Cr. (`)
(2)
Dr.
300 300
After Before Reconstruction Reconstruction
50 350 --100 500
50 650 100 200 1000
(II)
100 400 500
300 700 1000
29 Notes to Account After Resonstruction (1) Reserves and Surplus Balance sheet value Less : Loss on reconstruction Fixed Assets Balance Sheet value Less : Depreciation 650 (300) 350 600 (500) 100 Balance Sheet of B Ltd. Note No. (i) Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Non-current Liabilities Secured Loans (3) Current Liabilities Total Assets (1) Non-current assets Fixed Assets (2) Current Assets Total ` Before Reconstruction 650 --650 900 (600) 300
(2)
50 250 100 100 500
(ii)
200 300 500
(b) Net Assets value of an equity share Pre-demerger

Rs. 700 crores
Post-demerger
Rs. 400 crores 5 crores Rs. 300 crores = Rs. 60 = Rs. 80
Maxi Mini Ltd.
= Rs. 140
5 crores
Mini Ltd.
5 crores
(c)
Commentary on Demerger :Demerger into two companies has had no impact on net asset value of shareholding. Pre-demerger, it was ` 140 per share. After demerger, it is ` 80 plus ` 60 i.e. ` 140 per original share. It is only yield valuation that is expected to change because of separate focusing on two distinct businesses whereby profitability is likely to improve on account of demerger.
30 Q.2.Ans. :(i) Journal Entries in Z Ltd.s books Dr. (`) Bank Account (Current Assets) To Investments To Profit and Loss Account (Reserves and Surplus) (Sale of investments at a profit of ` 5 crores) Debentures (Loan Funds) To Bank Account (Current Assets) (Redemption of denentures at par) Current Liabilities Bank Loan (Loan Funds) Provision for Depreciation Reserves and Surplus (Loss on Demerger) To Fixed Assets To Current Assets (Assets and liabilities pertaining to W Division taken out of the books on transfer of the division of Y Ltd.) (ii) (a) (i) Z Ltd.s Balance Sheet after demerger Particulars Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserve and Surplus (2) Non-Current Liabilites Long-term borrowings (3) Current Liabilities Total Assets (1) Non-current assets Fixed Assets Tangible Assets (2) Current Assets Total Note No. (` in crores) Dr. 102 97 Cr. (`)
Dr.
125 125
Dr. Dr. Dr. Dr.
93 15 81 645 249 585
1 2
345 45 277 270 937
(ii)
515 422 937
Notes to Accounts : 1. Reserves and Surplus Balance as on 31st March, 2012 Add : Profit on sale of investments Less : Loss on demerger Balance shown in balance sheet after demerger Loan Funds Balance as on 31st March, 2012 Less : Bank Loan transferred to Y Ltd. Debetures redeemed Balance shown in balance sheet after demerger 685 5 690 (645) 45 417 15 125 (140) 277
2.
31
3.
Current Assets Balance as on 31st March, 2012 Add : Cash received from sale of investments Less : Cash paid to redeem debentures Balance in balance sheet after demerger
445 102 547 (125) 422
(b) Particulars (i) Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Non-current liabilities Long-term borrowings (3) Current Liabilities Total (ii) Assets (1) Non-current assets Fixed Assets (2) Current Assets Total Notes to Accounts :
Initial Balance Sheet of Y Ltd. Note No. (` in crores)
1 2 3
690 5 15 93 803
218 585 803
(` in crore) 1. Share Capital Authorised Capital 90 crores Equity shares of ` 10 each Issued and subscribed capital 69 crores Equity shares of ` 10 each (issued for consideration other than cash) Reserves and Surplus Capital Reserve Purchase consideration Less: Assets transferred Loan funds transferred Capital Reserve Long-term borrowing Loan Funds Calculate Intrinsic Value Before Recons. 683 644 (292) 1035 34.5 30
900 690
2.
690 710 (15) (695) 5 15
3.
(iii) Fixed Assets Current Assets : (-) Current Liabilities (-) Loan Funds Net Assets No. of Share Intrinsic Value
After Recons 515 152 (277) 390 34.5 11.30
32 (iv) (a) Fixed Assets Net Current Assets (-) Loan Fund Net Assets No. of Share Intrinsic Value (b) Pre-demerger wealth Post demerger Z Ltd. Y Ltd. Impact (gain) Statement of Gain / Loss 30 11.30 20.14 Intrinsic Value of Y Ltd. 218 492 (15) 695 69 10.07
31.44 1.44
Q.3. Ans. :(i) Balance Sheet Particulars I. Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Non Current Liabilities Long-term Borrowing (11% Debenture) (3) Current Liabilities Trade Payables (Creditors) Total II. Assets (1) Non-current assets (a) Fixed Assets (2) Current Assets (a) Current Investments (b) Cash & cash equivalents (c) Other Current Assets (8,00,000 - 2,00,000) Total Notes to Account
Note No.
(`)
8,00,000 20,54,000 5,00,000 1,50,000 35,04,000
14,60,000 9,50,000 4,94,000 6,00,000 35,04,000
(` in crore) 1. Reserve & Surplus Revaluation Reserve General Reserve Securities Premium Profit & Loss Account Total Fixed Assets Plant and Machinery Less Depreciation (8,60,000 - 2,00,000) Land Balance Sheet value Less : taken over by overseas buyer Add : Revaluation @ 100% 5,00,000 5,00,000 4,00,000 6,54,000 20,54,000 4,60,000 7,00,000 (2,00,000)
2.
5,00,000 5,00,000 10,00,000
33 WN 1 : Calculation of Profit Total Profit earned by X Co. Ltd. during the month of April, 2012 Less : 40% Profit of the sold department Profit of X Co. Ltd. on the retained department WN 2 : Calculation of Gain on Sale of Department Purchase consideration Less : Net Assets sold Gain WN 3 : Statement showing discharge of purchase consdideration Purchase Consideration given in question Less : Discharged by issue of Overseas Buyers Equity Shares of ` 10,00,000 at 20% premium Balance discharged in cash i.e. (8,00,000/80) = 10,000 WN 4 : Calculation of Patent, trademarks and copyrights written off Value as per Balance Sheet Less : Taken by overseas buyer Transfer to Profit and Loss Account WN 5 : Calculation of Loss on investment of equity share of overseas buyer Value of share discharge as purchase consideration Less : Market Value (10,00,000 x 95%) Transfer to Profit and Loss Account WN 6 : Calculation of Loss on foreign exchange translation Cash payment by overseas buyer 10,000 due on 31st March 2012 @ ` 80 per Exchange rate on 30th April, 2012 is ` 75 per Less : Amount remitted in Indian Currency (10,000 x ` 75) Transfer to P&L Account WN 7 : Cash Account Particulars To Cash from overseas buyer To Profit earned To Cash Reimbursed by overseas buyer ` 8,00,000 (7,50,000) 50,000 ` 12,00,000 (9,50,000) 2,50,000 ` 6,00,000 (3,50,000) 2,50,000 ` 20,00,000 (12,00,000) 8,00,000 ` 20,00,000 (9,00,000) 11,00,000 ` 2,40,000 (96,000) 1,44,000
Amount 7,50,000 2,40,000 4,00,000 13,90,000
Particulars By Expenses on sale of deptt. By Share of Profit given to buyer By Balance c/d (Bal. Fig.)
Amount 8,00,000 96,000 4,94,000 13,90,000
34 WN 8 : Profit and Loss Account Particulars To Expenses on Sale of Deptt. To Patent, trademark and copy written off To Decrease in value of investment To Loss on exchanged transaction
Amount 4,00,000 2,50,000 2,50,000 50,000 16,04,000
Particulars By Balance b/d By Profit on sale of deptt. By Profit Eanred By Balance c/d (bal. Fig.)
Amount 3,60,000 11,00,000 1,44,000 6,54,000 16,04,000
Note 1 - Investment is assumed short term Note 2 - Profit is assumed realized in cash. Q.4. Ans. :(i) Balance Sheet of Batliboi & Co. as on 31st March, 2012 Particulars Note No. I. Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Current Liabilities Trade Payables Total II. Assets (1) Non-current assets (a) Fixed Assets (b) Tangible Assets (c) Non-current Investments (2) Current Assets (a) Inventories (b) Debtors (c) Cash & Cash equivalents Total (ii) I. Balance Sheet of Adhikary & Co. (P.) Ltd. as on 31st March, 2012 Particulars Note No. Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Current Liabilities Trade Payables Total Assets (1) Non-current assets Fixed asset Tangible assets (2) Current Assets (a) Inventories (b) Debtors (c) Cash & Cash equivalents Total
(`)
29,00,000 7,05,000 4,20,000 40,25,000
24,95,000 7,80,000 4,00,000 2,30,000 1,20,000 40,25,000
(`)
6,00,000 1,00,000 70,000 7,70,000
II.
1,50,000 2,00,000 80,000 3,40,000 7,70,000
35 WN : Journal Entries in the books of Batliboi & Co.

Investment in Adhikari To Member of Adhikari No entry Member of Adhikari To Adhikari Ltd. Member of Adhikari To Equity Share Capital To Securities Premium Plant and Machinery Freehold Property To Adhikari Dr. 60,000 60,000 Dr. 7,80,000 4,00,000 3,80,000 Dr. 1,50,000 Dr. 1,20,000 2,70,000 Batliboi Dr. 2,70,000 Accumulated Dep. Dr. 1,00,000 To Plant and Machinery 2,00,000 To Freehold Property 1,00,000 To Capital Reserve (bal. fig.) 70,000 Freehold Property Stock To Batliboi Bank To Batliboi P&L A/c To Proposed dividend Bank A/c To Investment in adhikari Dr. 60,000 60,000 Proposed dividend To Bank Dr. Dr. 60,000 80,000 1,40,000 Dr. 1,90,000 1,90,000 Dr. Dr. 60,000 60,000 60,000 60,000 Dr. 8,40,000 8,40,000 Member of Adhikari To Freehold Property Batliboi To Member of Adhikari No Entry Dr. Dr. 60,000 60,000 60,000 60,000 No Entry
Adhikari & Co.
Adhikari Capital Reserve To Freehold Property To Stock Adhikari To Bank
Dr. 1,40,000 Dr. 15,000 75,000 80,000 Dr. 1,90,000 1,90,000
Q.5.Ans. :Journal Entries S. No. Particulars (i) Equity Share Capital A/c To Share forfeiture To Calls in arrear (Being share forfeited) Equity share capital [9,000 x10] To equity share capital To Capital Reconstruction (Being share redeemed) Bank A/c (3000 x 5) Share forfeiture To Equity share capital (3,000 x 7) Share forfeiture A/c To Capital reserve (Being amount of forfeiture transferred to capital reserve) Capital Reconstruction A/c Capital Reserve A/c Provision for tax To Machinery To P & L A/c To Preliminary exp. To Goodwill (Being assets revised & written off) Dr. (Dr. `) 30,000 21,000 9,000 Dr. 90,000 63,000 27,000 Dr. Dr. Dr. 15,000 6,000 21,000 15,000 15,000 Dr. Dr. Dr. 27,000 15,000 300 10,000 20,800 1,500 10,000 (Cr. `)
(ii)
(iii)
(iv)
(v)
36 (i) I. Balance sheet of Bharat Construction (as reduced) as at 31.12.2002 Particulars Note No. Equity and Liabilities (1) Shareholders Funds : (a) Share Capital 1 (2) Current Liabilities Trade Payable 2 Other current liability 3 Total Assets (1) Non-current Assets Tangible Fixed Assets 4 (2) Current Assets Inventories 5 Trade Receivable 6 Cash and Cash equivalent 7 Total
(` in Crores)
84,000 15,425 3,700 1,03,125
II
61,350 10,275 15,000 16,500 1,03,125
Notes to Account (` in crore) 1. 2. 3. Share Capital 12,000 equity share @ 7 Trade Payable Sundry Creditors Other Current Liability Provision for taxes Reconstruction adjustment Tangible Fixed Assets Land and Building Machinery Reconstruction adjustment Inventories Stock Trade Receivable Book Debts Cash and Cash equivalent Cash at Bank Cash from issue of shares 84,000 15,425 4,000 (300) 20,500 50,850 (10,000)
3,700
4.
61,350 10,275 15,000
5. 6. 7.
1,500 15,000
16,500
37 Q.6. Ans. :Balance sheet of Sick Limited as at 30.9.2011 Particulars Equity and Liabilities (1) Shareholders Funds : (a) Share Capital (b) Reserve and Surplus (2) Non - Current Liabilities Long-term borrowing (3) Current Liabilities Trade Payable Total Assets (1) Non-current Assets Tangible Fixed Assets (2) Current Assets Inventories Trade Receivable Cash and Cash equivalent Total Note No. (` in Crores)
I.
1 2 3 4
2,66,000 73,038 90,900 1,68,000 5,97,938
II
5 6 7 8
2,37,500 1,11,500 1,41,125 1,07,813 5,97,938
Notes to Account (` in crore) 1. Share Capital 4,000 equity share @ 50 each 1320 equity share issued in lieu of Pref. Dividend Reserve and Surplus Securities premium Premium on issue of debenture General Reserve Profit and Loss A/c (from working note) Long term borrowings 13% debenture isued to 11% cumulative PSC Redeemed during year (50%) Current Liability Current Liability in Balance Sheet Increase during year Tangible Fixed Assets Fixed Assets balance sheet Reconstruction adjustment year depreciation Inventories Stock as per balance sheet Reconstruction adjustment Decrease during year Trade Receivable Debtor as per balance sheet Reconstruction adjustment Increase during the year Cash and Cash equivalent Cash at Bank (from working note) 2,00,000 66,000 20,000 18,180 28,625 6,233 1,81,800 (90,900) 1,55,000 13,000 2,90,000 (40,000) (12,500) 1,05,000 10,500 (4,000) 1,27,500 6,375 20,000
2,66,000
2.
73,038
3.
90,900
4.
1,68,000
5.
2,37,500
6.
1,11,500
7.
1,41,125 1,07,813
8.
38 WN 1 : Journal Entries S.No. Particulars (i) 11% Cumulative Preference Share Capital A/c To 13% Debentures A/c To Premium on issue of Debentures A/c To Cash (ii) Capital Reduction A/c To Equity Share Capital (iii) Equity Share Capital A/c To Capital Reduction Ac Equity Share capital A/c To Equity Share Capital (` 50) (iv) Cash and Bank A/c To Equity Share Capital A/c (v) Capital Reduction A/c To Goodwill To Investment To Fixed Assets A/c To Sundry Debtors A/c (vi) Stock A/c To Capital Reduction A/c (vii) General Reserve A/c To Capital Reduction A/c WN 2 : Profit and Loss Account Particulars Increase in Creditors Decrease in Stock Increase in Depreciation Profit (bal. fig.)
Dr.
Dr. (`) 2,00,000
Cr.(`) 1,81,800 18,180 20
Dr. Dr. Dr. Dr. Dr.
66,000 66,000 1,33,000 1,33,000 1,33,000 1,33,000 1,33,000 1,33,000 78,875 20,000 12,500 40,000 6,375
Dr. Dr.
10,500 10,500 1,375 1,375
` 13,000 48,000 12,500 18,050 47,550
Particulars Increases in Cash & Bank Increase in Debtors
` 27,550 20,000
47,550
WN 2 : Cash and Bank Account Particulars To Balance b/d To Increase
` 1,82,980 27,550 2,10,530
Particulars By Interest By Debentures (1,81,000/2) By Balance c/d
` 11,817 90,900 1,07,813 2,10,530
39 Q.7. Ans. :Journal Entries Dr. Dr. (`) 1,50,000 Cr.(`) 1,12,500 37,500 Dr. 2,00,000 25,000 1,75,000 Dr. Dr. Dr. Dr. 3,375 3,375 36,000 36,000 77,500 77,500 1,67,625 1,10,375 7,250 50,000 Dr. Dr. 62,500 62,500 62,500 62,500
S.No. Particulars (i) 6% Cumulative Preference Share Capital (` 100 each) A/c To 6% Cumulative Pref. Share Capital (` 75 each) A/c To Capital Reduction A/c (ii) Equity Share Capital (` 100 each) a/c To Equity Share Capital (` 12.50 each) A/c To Capital Reduction A/c (iii) Capital Reduction A/c To Equity share capital A/c (iv) Capital Reserve A/c To Capital Reduction A/c (v) Capital Reduction A/c To Plant & Machinery A/c (vi) Capital Reduction A/c To Profit & Loss A/c To Preliminary Expenses To Goodwill (vii) Bank a/c To Share Application & Allotment A/c (viii) Share Application and Allotment A/c To Equity Share Capital A/c Balance sheet of Paradise Ltd. as at 31.3.2010 Particulars Equity and Liabilities (1) Shareholders Funds : (a) Share Capital (2) Current Liabilities Trade Payable Total Assets (1) Non-current Assets Tangible Fixed Assets (2) Current Assets Inventories Trade Receivable Cash and Cash equivalent Total
Note No.
(` in Crores)
I.
2,03,375 42,500 2,45,875
II
1,25,000 79,175 30,200 11,500 2,45,875
40 Q.8. Ans. :Date In the books of Max Ltd. Particulars Dr. ` Dr. 15,00,000 Cr. ` 15,00,000
1.4.2012 Equity share capital A/c To Equity Share Capital A/c (Being sub-division of one share of ` 100 each into 10 shares of ` 10 each) Equity share capital A/c To Capital reduction A/c (Being reduction of capital by 50%) Capital reduction A/c To Bank A/c (Being payment in cash of 10% of arrear of preference dividend) Bank A/c To Own debentures A/c To Capital reduction A/c (Being profit on sale of own debentures transferred to capital reduction A/c) 12% Debentures A/c To Own debentures A/c To Capital reduction A/c (Being profit on cancellation of own debentures transferred to capital reduction A/c) 12% Debentures A/c Capital reduction A/c To Machinery A/c (Being machinery taken up by debentureholders for ` 2,80,000) Creditors A/c Capital reduction A/c To Debtors A/c To Stock A/c (Being assets and liabilities revalued) Capital reduction A/c To Goodwill A/c To Discount on debentures A/c To Profit and Loss A/c (Being the balance of capital reduction transferred to capital reserve account) Capital reduction A/c To Bank A/c (Being penalty paid for avoidance of capital commitments) Capital reduction A/c To Capital reserve A/c (Being penalty paid for avoidance of capital commitments) 2.4.2012 Business Purchases A/c To Liquidators of Mini Ltd. (Being the purchase consideration payable to Mini Ltd.) Fixed Assets A/c Stock A/c Debtors A/c Cash at Bank A/c To Sundry Creditors A/c To 12% Debentures A/c of Mini Ltd. To Profit and Loss A/c To General reserve A/c (` 1,70,000 + 80,000) To Business purchase A/c (Being the take over of all assets and liabilities of Mini Ltd. by Max Ltd.)
Dr.
7,50,000 7,50,000
Dr.
13,500 13,500
Dr.
78,400 76,800 1,600
Dr.
1,20,000 1,15,200 4,800
Dr. Dr.
2,80,000 20,000 3,00,000
Dr. Dr.
65,000 29,000 61,000 33,000
Dr.
4,33,000 20,000 2,000 4,11,000
Dr.
15,000 15,000
Dr.
2,45,900 2,45,900
Dr. 13,20,000 13,20,000 Dr. Dr. Dr. Dr. 7,60,000 6,80,000 4,40,000 1,30,000 2,25,000 2,00,000 15,000 2,50,000 13,20,000
41
Liquidators of Mini Ltd. A/c To Equity Share Capital To 9% Preference Share Capital (Being the purchase consideration discharged) 12% Debentures of Mini Ltd. A/c To 12% Debentures A/c (Being Max Ltd. issued their 12% Debentures in against of every Debentures of Mini Ltd.) Balance sheet of Max Ltd. Particulars Equity and Liabilities (1) Shareholders Funds : (a) Share Capital (b) Reserve and Surplus (2) Non-current Liabilities Long term borrowing (12% Debenture) (3) Current Liabilities Trade Payable Total Assets (1) Non-current Assets Tangible Fixed Assets (2) Current Assets Inventories Trade Receivable Cash and Cash equivalent Total
Dr. 13,20,000 10,00,000 3,20,000 Dr. 2,00,000 2,00,000
Note No.
(` in Crores)
I.
1 2
25,70,000 6,90,900 4,00,000 5,75,000 42,35,900
II
19,60,000 10,40,000 10,30,000 20,05,900 42,35,900
Notes to Account (` in crore) 1. Share Capital Equity Share Capital Preference Share Capital Reserve and Surplus Profit and Loss Account General Reserve Capital Reserve 17,50,000 8,20,000 15,000 4,30,000 2,45,900
25,70,000
2.
6,90,900
WN : Calculation of Purchase Consideration Equity Share Capital (10,000 x 50 x 10)/ 5 Pref. Share Capital (4,000 x 4 x 100) / 5 Total
10,00,000 3,20,000 13,20,000
42 Q.9. Ans. :Journal Entries S.No. Particulars (i) Bank A/c To Investment A/c To Profit and Loss A/c (Being sale of investments and profit thereon) Bank A/c To Bank loan A/c (Being loan taken from bank) 10% Redeemable preference share capital A/c Premium on redemption of preference shareholder A/c To Preference shareholders A/c (Being redemption of preference shares) Preference shareholders A/c To Bank A/c (being payment of amount due to preference shareholders) Securities premium A/c To Premium on redemption of preference shares (Being use of securities premium to provide premium on redemption of preference shares) Equity Shares bought back A/c To Bank A/c (Being buy back of equity shares) Equity share capital A/c Securities premium A/c (800 - 250) General Reserves A/c [(200x20) - 2000 - 550] To Equity shares bought back A/c (Being buy back of equity shares) General reserves A/c To Capital redemption reserve (2000 + 2500) (Being creation of capital redemption reserve to the extent of the face value of preference share redeemed and equity shares bought back) Dr. Dr. (`) 4,500 4,100 400 Dr. 1,000 1,000 Dr. Dr. 2,500 250 2,750 Dr. 2,750 2,750 Dr. 250 250 Cr. (`)
(ii)
(iii)
(iv)
(v)
(vi)
Dr.
4,000 4,000
(vii)
Dr. Dr. Dr.
2,000 550 1,450 4,000
(viii)
Dr.
4,500 4,500
I.
II
Balance sheet of Paradise Ltd. as at 31.3.2010 Particulars Note No. Equity and Liabilities (1) Shareholders Funds : (a) Share Capital (b) Reserve and Surplus (1,000 + 800 + 7,100 + 300 + 400 - 250 - 550 - 1,450) (2) Non Current Liabilities (a) 9% Debenture (b) Bank Loan (2) Current Liabilities (a) Trade Payable (b) Sundry Provision Total Assets (1) Non-current Assets Tangible Fixed Assets (2) Current Assets (a) Cash and Cash equivalent (1,650 + 4,500 + 1,000 - 2,750 - 4,000) (b) Other Current Assets Total
(` in Crores)
6,000 7,350 5,000 1,000 3,300 2,000 24,650
16,000 400 8,250 24,650
43 Q.10. Ans. :Particulars To Opening Stock To Purchase To Gross Profit (bal.fig.) Total Trading Account ` Particulars 30,000 By Sales 3,20,000 By Closing Stock 1,62,000 5,12,000 Profit & Loss Account Particulars To Salaries To Directors Fee To Discount To Depreciation : Building Furniture To Pre-incorporation Profit transferred to Capital Reserve To Net Profit Pre Profit Post Profit 12,000 36,000 --12,000 1,250 3,750 1,000 250 26,000 --40,500 3,000 750 --69,000 1,24,500 Particulars By Gross Profit By Commission Pre Profit 40,500 --Post Profit 1,21,500 3,000 ` 4,60,000 52,000 5,12,000
40,500
1,24,500
I.
II
Balance Sheet Particulars Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserve and Surplus (2) Current Liabilities Trade Payable Total Assets (1) Non-current Assets Tangible Fixed Assets (80,000 - 4,000 + 10,000 - 1,000) (2) Current Assets (a) Inventory (b) Trade Receivable (c) Cash and Cash equivalent (WN 1) (d) Other Current Assets (underwriting commission) Total
Note No.
(` in Crores)
1 2
2,46,000 69,000 48,000 3,63,000
85,000 52,000 1,31,000 91,000 4,000 3,63,000
Notes to Account (` in crore) 1. Share Capital Equity Share Capital (30,000 equity share of 10 each 8 called up) Less : Calls in arrear Add : Share issue to underwriter Add : Calls in advance Reserve and Surplus Capital Reserve Less : Goodwill written off Profit and Loss Account Less : Preliminary expense (Note) 2,40,000 2,000 4,000
2,42,000 4,000 2,46,000
2.
26,000 16,000
10,000 69,000 (10,000) 69,000
44 WN 1 : Debtor Account Particulars To Balance b/d To sales
` --4,60,000 4,60,000
Particulars By Discount By Cash By Balance c/d
` 5,000 3,24,000 1,31,000 4,60,000
WN 2 : Creditor Account Particulars To Cash (b/f) To Balance c/d
` 2,72,000 48,000 3,20,000
Particulars By Purchase
` 3,20,000 3,20,000
WN 3 : Cash Account Particulars To Share Capital To Debtor To Commission
` 1,62,000 3,24,000 3,000
Particulars By creditors By Purchase Consideration By Preliminary expense By Director fee By salary By Balance c/d (b/f)
4,89,000 WN 4 : Calculation of Purchase Consideration 10 share @ 10 each paid up Cash Total WN 5 : Calculation of Goodwill / Capital Reserve Purchase Consideration paid Less : Net Assets acquired Goodwill
` 2,72,000 56,000 10,000 12,000 48,000 91,000 4,89,000
80,000 56,000 1,36,000
1,36,000 1,20,000 16,000
Note : As per AS 26 Preliminary expense should be written off hence we have adjusted it from reserve and surplus.
45
Q.1. (Important)The summarised Balance Sheet of R Ltd. and P Ltd. for the year ending on 31.3.2004 are as under : R Ltd. ` Equity share capital (in shares of ` 10 each) 8% Preference share capital (in share of ` 10 each) 10% preference share capital (in shares of ` 10 each) Reserves Current liabilities 24,00,000 8,00,000 --30,00,000 18,00,000 80,00,000 The following information is provided : (1) (a) (b) (c) (d) (2) (3) Profit before tax Taxation Preference dividend Equity dividend P Ltd. ` 12,00,000 --4,00,000 24,00,000 10,00,000 50,00,000 80,00,000 50,00,000 R Ltd. ` 10,64,000 4,00,000 64,000 2,88,000 P Ltd. ` 4,80,000 2,00,000 40,000 1,92,000 Fixed assets Current assets R Ltd. P Ltd. ` ` 55,00,000 27,00,000 25,00,000 23,00,000
The equity shares of both the companies are quoted in the market. Both the companies are carrying on similar manufacturing operations. R Ltd. proposes to absorb P Ltd. as on 31.3.2004. The terms of absorption are as under : (a) Preference shareholders of P Ltd. will receive 8% preference shares of R Ltd. sufficient to increase the income of preference shareholders of P Ltd. by 10%. (b) The equity shareholders of P Ltd. will receive equity shares of R Ltd. on the following basis : (i) The equity shares of P Ltd. will be valued by applying to the earnings per share of P Ltd. 75% of price earnings ratio of R Ltd. based on the results of 2003-2004 of both the companies. (ii) The marke price of equity shares of R Ltd. is ` 40 per share. (iii) The number of share to be issued to the equity shareholders of P Ltd. will be based on the above market value. (iv) In addition to equity shares, 8% preference share of R Ltd. will be issued to the equity shareholders of P Ltd. to make up for the loss in income arising from the above exchange of shares based on the dividends for the year 2003-2004.
(4)
The assets and liabilities of P Ltd. as on 31.3.2004 are revalued by professional valuer as under : Fixed asets Current assets Current Liabilities Increased by 1,00,000 ------Decreased by ---2,00,000 40,000
(5) For next two yar, no increase in the ratio of equity dividend is expected You are required to calculate purchase consideration and a Balance Sheet (journal not required). [Nov. 2000 - 16 marks]
46 Q.2. (Important) Dawn Ltd. was incorporated to take over Arun Ltd., Brown Ltd. and Crown Ltd. Balance Sheets of all the three companies as on 31.3.2012 are as follows : Particulars Liabilities : Equity Share Capital (Share of ` 10 each) Reserve 10% Debenture Other Liabiliies Total Assets : Net Tangible Block Goodwill Other Assets Total Arun Ltd. 1,800 300 600 600 3,300 2,400 --900 3,300 ` in 000 Brown Ltd. Crown Ltd. 2,100 150 --450 2,700 1,800 150 750 2,700 900 300 300 300 1,800 1,500 --300 1,800
From the following information you are to : (a) Work out the number of Equity shares and Debentures to be issued to the shareholders of each company. (b) Prepare the Balance Sheet of Dawn Ltd. as on 31.3.2012. Information : (i) Assets are to be revalued and the revalued amount of Tangible Block and other Assets are as follows : Arun Ltd. Brown Ltd. Crown Ltd. (ii) (iii) Tangible Block ` 30,00,000 ` 15,00,000 ` 18,00,000 Other Assets ` 10,50,000 ` 4,20,000 ` 2,40,000
Normal Profit on capital employed is to be taken at 10%. Average amount of profit for three years before charging interest on Debentures are : Arun Ltd. ` 5,40,000 Brown Ltd. ` 4,32,000 Crown Ltd. ` 3,12,000 Goodwill is to be calculated at three years' purchase of average super profits for three years, such average is to be calculated after adjustment of 10% depreciation on Increase / Decrease on revaluation of Fixed Assets (Tangible Block). Capital employed being considered on the basis of net revaluation of Tangible Assets. Equity shares of ` 10 each fully paid up in Dawn Ltd. are to be distributed in the ratio of average profit after adjustment of depreciation on revaluation of Tangible Block. 10% Debenture of ` 100 each fully paid up are to be issued by Dawn Ltd. for the balance due. The ratio of issue of Equity shares and debentures of Dawn Ltd. are to be maintained at 3:1, towards the take over companies. The amount required for preliminary expenses of ` 1,50,000 and for payment to existing Debenture holders, were provided by issuing Equity shares of ` 10 each in Dawn Ltd. [Nov. 2008 - 16 marks - New Course]
(iv)
(v) (vi) (vii) (viii) (ix)
47 Q.3. (RTP - May 2006) The financial position of two companies Hans Ltd. and Varun Ltd. as on 31st March, 2005 was as under : Assets Hans Ltd. (`) Varun Ltd. (`) Goodwill 50,000 25,000 Building 3,00,000 1,00,000 Machinery 5,00,000 1,50,000 Stock 2,50,000 1,75,000 Debtors 2,00,000 1,00,000 Cash at Bank 50,000 20,000 Preliminary Expenses 30,000 10,000 13,80,000 5,80,000 Liabilities Share Capital : Hans Ltd. (`) Varun Ltd. (`) Equity Shares of ` 10 each 10,00,000 3,00,000 9% Preference shares of ` 100 each 1,00,000 --10% Preference shares of ` 100 each --1,00,000 General Reserve 1,00,000 80,000 Retirement Gratuity fund 50,000 20,000 Sundry Creditors 1,30,000 80,000 13,80,000 5,80,000 Hans Ltd. absorbs Varun Ltd. on the following terms : (a) 10% Preference Shareholders are to be paid at 10% premium by issue of 9% Preference Shares of Hans Ltd. (b) Goodwill of Varun Ltd. is valued at ` 50,000, Buildings are valued at ` 1,50,000 and the Machinery at ` 1,60,000. (c) Stock to be taken over at 10% less book value and Reserve for Bad and Doubtful Debts to be created @ 7.5%. (d) Equity shareholders of Varun Ltd. will be issued Equity Shares of Hans Ltd. @ 5% premium. Prepare necessary Ledger Accounts to close the books of Varun Ltd. and show the acquisition entries in the books of Hans Ltd. Q.4. (Study Material - Important) AX Ltd. and BX Ltd. amalgamated on and from 1st January 2012. A new company ABX Ltd. was formed to take over the businesses of the existing companies. Balance Sheet as on 31.12.2011 Liabilities AX Ltd. Share Capital : Equity shares of ` 10 each 60,00 General reserve 15,00 P&L A/c 10,00 Investmetn allowance reserve 5,00 Export profit reserve 50 12% debentures 30,00 Sundry creditors 10,00 130,50 BX Ltd. Assets Sundry fixed assets Investment Stock Debtors Cash & Bank AX Ltd. 85,00 10,50 12,50 18,00 4,50 BX Ltd. 75,00 5,50 27,50 40,00 4,00
70,00 20,00 5,00 1,00 1,00 40,00 15,00 152,00
130,50
152,00
ABX Ltd. issued requisite number of shares to discharge the claims of the equity shareholders of the transferor companies. Prepare a note showing purchase consideration and discharge thereof and draft the Balance Sheet of ABX Ltd.
48 Q.5. (Most Important) M Ltd. is engaged in the manufacture of nuts and nails. It has two wholly owned subsidiaries, Nuts Ltd.and Nails Ltd. which have never traded. The draft financial statement of parent company shows : Balance Sheet as on 30th June, 2012 Liabilities Share Capital Reserves & Surplus Secured Loan Sundry Creditors Owing to Subsidiaries Proposed Dividend ` 4,00,000 4,88,000 1,20,000 9,00,000 2,00,000 40,000 Assets Fixed Assets Investment in Nuts Ltd. Investment in Nails Ltd. Current Assets Stock & Work-in-Progress Sundry Debtors Cash at Bank ` 2,14,000 1,00,000 1,00,000 4,34,000 9,36,000 3,64,000 21,48,000
21,48,000 Profit & Loss Account for the year ended 30th June, 2012 Net Profit Dividend Paid Transfer to Reserve
3,72,000 40,000 3,32,000
The two managing directors Mr. Rajan & Mr. Singh who own 40% and 60% respectively of the share capital of M Ltd., will become individually concerned with Nuts and Nails Ltd. respectively in order to allow them to develop their own interests. They have agreed to a scheme of reconstruction whereby the respective trade and assets apart from cash at bank and liabilities will be transferred to the two subsidiaries. The resulting inter-company debts will be waived, and M Ltd. will be placed into liquidation. The liquidator will retain ` 52,000 of the cash at bank to meet the costs of liquidation and reorganisation and pay dividend. He will distribute the remaining cash at bank and shares in two subsidiaries to M Ltd.'s shareholders Mr. Rajan and Mr. Singh. As far as his ash distribution pool permits, each director will then purchase, at net assets value, those shares in his own company distributed by the liquidator to his former colleague. It has been agreed Nuts Ltd. will receive a first trench of the assets of M Ltd. comprising stock and work in progress of ` 1,50,000. Nail Ltd. will take over the liability for the Secured Loan. The remainder of the net assets will be transferred to the subsidiary companies in the ratio of 75% to Nuts Ltd. and 25% to Nail Ltd. with the group freehold property included in the fixed assets at ` 1,50,000 being revalued at the open market value of ` 4,20,000 and being transferred to Nails Ltd. as a part of its share. You are required to : (a) Produce the proforma balance sheet of the two former subsidiary companies immediately after reorganization. (b) Calculate the final share holdings in each of the two companies. [Nov. 1992 - 20 marks] Q.6.(Important) The Balance Sheet of Big Ltd. and Small Ltd. as on 31.3.2012 were as follows :Balance Sheet as on 31.3.2012 Big Ltd. Small Ltd. ` ` 8,00,000 3,00,000 ---3,00,000 2,00,000 2,00,000 2,00,000 1,00,000 1,00,000 3,00,000 Big Ltd. Small Ltd. ` ` 2,00,000 1,00,000 5,00,000 3,00,000 1,00,000 60,000 60,000 1,50,000 3,50,000 90,000 50,000 15,00,000 ---1,90,000 2,50,000 70,000 30,000 10,00,000
Equity Share Capital (`10) 10% Preference Share Capital (` 100) General Reserve Profit and Loss Account Creditors
Building Machinery Furniture Investment 6,000 shares of Small Ltd. Stock Debtors Cash and Bank Preliminary Expenses
15,00,000
10,00,000
49 Big Ltd. has taken over the entire undertaking of Small Ltd. on 30.9.2012 on which date the position of current assets except Cash and Bank balances and Current Liabilities were as under : Big Ltd. ` 1,20,000 3,80,000 1,80,000 Small Ltd. ` 1,50,000 2,50,000 2,10,000
Stock Debtors Creditors
Profits earned for the half year ended on 30.09.2012 after charging depreciation at 5% on building, 15% on machinery and 10% on furniture, are : Big Ltd. ` 1,02,500 Small Ltd. ` 54,000 On 30.08.2012 both Companies have declared 15% dividend for 2011 - 2012. Goodwill of Small Ltd. has been valued at ` 50,000 and other Fixed Assets at 10% above their book values on 31.3.2012. Preference shareholders of Small Ltd. are to be allotted 10% preference shares of Big Ltd. and equity shareholders of Small Ltd. are to receive requisite number of equity shares of Big Ltd. valued at ` 15 per share in satisfaction of their claims. Show the Balance Sheet of Big Ltd. as of 30.09.2012assuming absorption is through by that date. Q.7. (RTP, May 2012) The summarised balance sheets of A Ltd. and its subsidiary B Ltd. as on 31.3.2001 are as follows : A Ltd. Shares of ` 10 each Reserves and surplus Secured loans Current liabilities Fixed assets Investments in B Ltd. Sundry debtors Inventories Cash and bank ` 1,00,00,000 1,40,00,000 40,00,000 60,00,000 3,40,00,000 1,20,00,000 7,40,000 70,00,000 60,00,000 82,60,000 3,40,00,000 B Ltd. ` 20,00,000 60,00,000 --20,00,000 1,00,00,000 35,00,000 --10,00,000 50,00,000 5,00,000 1,00,00,000
A Ltd. holds 76% of the paid up capital of B Ltd. The balance shares in B Ltd. are held by a foreign collaborating company. A memorandum of understanding has been entered into with the foreign company providing for the following (a) The shares held by the foreign company will be sold to A Ltd. The price per share will be calculated by capitalizing the yield at 16%. Yield, for this purpose, would mean 40% of the average of pre-tax profits for the last 3 years, which were ` 35 lakhs, ` 44 lakhs and ` 65 lakhs. The actual cost of shares to the foreign company was ` 2,40,000 only. The profit that would accrue to them would be taxable at an average rate of 30%. The tax payable be deducted from the proceeds and A Ltd. will pay it to the government. Out of the net consideration, 50% would be remitted to the foreign company immediately and the balance will be an unsecured loan repayable after one year. It was also decided that A Ltd. would absorb B Ltd. simultaneously by writing down the fixed assets of B Ltd. by 5%. The balance sheet figures included a sum of ` 1,50,000 due by B Ltd. to A Ltd.
(b)
(c)
The entire arrangement was approved by all concerned for giving effect to on 1.4.2001. You are required to show the Balance Sheet of A Ltd. as it would appear after arrangement is put through on 1.4.2001. [May 1991 - 20 marks, Nov 2001 - 16 marks]
50 Q.8. (Important) AB Ltd. and MB Ltd. decide to amalgamate and to form a new company AM Ltd. The following are their balance sheets as at 31.3.1998 : Liabilities Share capital : (` 100) each General reserve Investment Investment allow. reserve 12% debentures (` 100 each) Sundry creditors AB Ltd. 1,000 100 40 300 60 1,500 MB Ltd. 600 50 30 100 20 800 Assets Fixed assets : Investment 1500 shares in MB 4,000 Sh. in AB Current Assets AB Ltd. 750 350 400 1,500 500 100 800 (` '000) MB Ltd. 200
Calculate the amount of purchase consideration of AB Ltd. and MB Ltd. and draw up the balance sheet of AM Ltd. after considering the followings : (a) (b) (c) (d) Assume amalgamation is in the nature of purchase. Fixed assets of AB Ltd. are to be reduced by ` 50,000 and that of MB Ltd. are to be taken at ` 3,00,000. 12% debenture holders of AB Ltd. and MB Ltd. are discharged by AM Ltd. by issuing such number of its 15% debentures of ` 100 each so as to maintain the same amount of interest. Shares of AM Ltd. are of ` 100 each.
Also show, how the investment allowance reserve will be treated in the Financial Statement assuming the Reserve will be maintained for 3 years. Q.9.The following are the balance sheet of RS Ltd. and XY Ltd. as on 31.3.2002. Liabilities Share Capital Equity share of ` 100 each fully paid up Reserves and surplus 10% debentures Loan from financial institutions Bank overdraft Sundry creditors Proposed dividend RS Ltd. 2,000 800 500 250 --300 200 4,050 XY Ltd. 1,000 ----400 100 300 --1,800 Assets Fixed Assets (net of depreciation) Investments Sundry debtors Cash and bank Profit and loss A/c RS Ltd. 2,700 700 400 250 --XY Ltd. 850 150 --800
4,050
1,800
It was decided that XY Ltd. will acquire the business of RS Ltd. for enjoying the benefit of carry forward of business loss. After acquisition, XY Ltd. will be renamed as XYZ Ltd. The following scheme has been approved for the merger (i) XY Ltd. will reduce its shares to ` 10 and then consolidate 10 such shares into one share of ` 100 each (new share). (ii) Financial institutions agreed to waive 15% of the loan of XY Ltd. (iii) Shareholders of RS Ltd. will be given one new share of XY Ltd. in exchange of every share held in RS Ltd. (iv) RS Ltd. will cancel 20% holdings of XY Ltd. investments were held at ` 250 thouands. (v) After merger, the proposed dividend of RS Ltd. will be paid to the shareholders of RS Ltd. (vi) Authorised capital of XY Ltd. will be raised accordingly to carry out the scheme. (vii) Sundry creditors of XY Ltd. includes payables to RS Ltd. ` 1,00,000. Pass the necessary entries to implement the scheme in the books of RS Ltd. and XY Ltd. and prepare a balance sheet of XYZ Ltd. [May 2003 - 16 marks]
51 Q.10. The following are the Balance Sheets of Andrew Ltd. and Barry Ltd., as at 31.12.2007 : Andrew Ltd. (in ` '000s) Liabilities Share capital 3,00,000 equity shares of ` 10 each 10,000 preference shares of ` 100 each General Reserve Secured loans (secured against pledge of stocks) Unsecured loans Current liabilities 3,000 1,000 400 16,000 8,600 13,000 42,000 Barry Ltd. (in `'000s) Liabilities Share capital 1,00,000 equity shares of ` 10 each General reserve Secured loans Current liabilities Assets Fixed assets 1,000 Current assets 2,800 8,000 4,600 16,400 6,800 9,600 42,000 Assets Fixed assets Stock (pledged with secured loan creditors) Other current assets Profit and Los Account 3,400 18,400 3,600 16,600
16,400
Both the companies go into liquidation and Charlie Ltd., is formed to take over their businesses. The following information is given : (a) All current assets of two companies, except pledged stock are taken over by Charlie Ltd. The realisable value of all Current assets are 80% of book values in case of Andrew Ltd. and 70% for Barry Ltd. Fixed assets are taken over at book value. (b) The break up of Current liabilities is as follows : Andrew Ltd. ` Statutory liabilities (including ` 22 lakh in case of Andrew Ltd. in case of a claim not having been admitted shown as contingent liability) Liability to employees The balance of Current liability is miscellaneous creditors. (c) (d) Secured loans include ` 16,00,000 accrued interest in case of Barry Ltd. 2,00,000 equity shares of ` 10 each are allotted by Chalie Ltd. at par against cash payment of entire face value to the shareholders of Andrew Ltd. and Barry Ltd. in the ratio of shares held by them in Andrew Ltd. and Barry Ltd. (e) Preference shareholders are issued equity shares worth ` 2,00,000 in lieu of present holdings. (f) Secured loan creditors agree to continue the balance amount of their loans to Charlie Ltd. after adjusting value of pledged security in case of Andrew Ltd. and after waiving 50% of interest due in the case of Barry Ltd. (g) Unsecured loans are taken over by Charlie Ltd. at 25% of Loan amounts. (h) Employees are issued fully paid Equity shares in Chalie Ltd. in full settlement of their dues. (i) Statutory liabilities are taken over by Charlie Ltd. at full values and miscellaneous creditors are taken over at 80% of the book value. Show the opening Balance Sheet of Charlie Ltd. Workings should be part of the answer. Ans. :- Goodwill - ` 9,470. [Nov. 1979 and 2008 - 16 marks - Old Course] Barry Ltd. `
72,00,000 30,00,000
10,00,000 18,00,000
52 Q.11. (Study Material - Important) Rich Ltd. and Poor Ltd. decided to amalgamate their business with a view to a public share issue. A holding company, Mix Ltd., is to be incorporated on 1st May 2011 with all authorised capital of ` 60,000,000 in ` 10 ordinary shares. The company will acquire the entire ordinary share capital of Rich Ltd. and of Poor Ltd. in exchange for an issue of its own shares. The consideration for the acquisition is to be ascertained by multiplying the estimated profits available to the ordinary shareholders by agreed price earnings ratio. The following relevant figures are given : Rich Ltd. ` Issued share capital Ordinary shares of ` 10 each 6% Cumulative Preference shares of ` 100 each 5% Debentures, redeemable in 2010 Estimated annual maintainable profits, before deduction of debenture interest & taxation Price/earning ratio 30,00,000 Poor Ltd. ` 12,00,000 10,00,000 8,00,000 2,40,000 10
6,00,000 15
The shares in the holding company are to be issued to members of the subsidiaries on 1st June 2011, at a premium of ` 2.50 a share and thereafter these shares will be marketable on the Stock Exchange. It is anticipated that the merger will achieve significant economics but will necessitate additional working capital. Accordingly, it is planned that on 31st December 2011, Mix Ltd. will make a further issue of 60,000 ordinary shares the public for cash at the premium of ` 3.75 a share. These shares will not rank for dividends until 31st December 2011. In the period ending 31st December 2011, bank overdraft facilities will provide funds for the payment by Mix Ltd. of preliminary expenses estimated at ` 50,000 and management etc. expenses estimated at ` 6,000. It is further assumed that interim dividends on ordinary shares, relating to the period from 1st June to 31st December 2011 will be paid on 31st December 2011 by Mix Ltd. at 3 % by Rich Ltd. at 5% and by Poor Ltd. at 2%. You are required to project, as on 31st December 2011 for Mix Ltd., (a) the Balance Sheet as it would appear immediately after fully subscribed share issue, and (b) the Profit and Loss Account for the Period ending 31st December 2011. Assume the rate of corporation tax to be 40% you can make any other assumption you consider relevant. Q.12. (Important)The Balance Sheets of Strong Ltd. and Weak Ltd. as on 31st March, 2007 are as below : Balance Sheet as on 31.03.2012 Liabilities Equity Share capital (` 100 each) Reserve P/L A/c Creditors Strong Ltd. 50,00,000 4,00,000 6,00,000 5,00,000 65,00,000 Weak Ltd. 30,00,000 2,00,000 4,00,000 3,00,000 39,00,000 Assets Fixed assets other than goodwill Stock Debtors Cash & Bank Preliminary Exp. Strong Ltd. Weak Ltd. 30,00,000 8,00,000 14,00,000 12,00,000 1,00,000 65,00,000 20,00,000 6,00,000 9,00,000 3,50,000 50,000 39,00,000
Strong Ltd. takes over Weak Ltd. on 01.07.12. No. Balance Sheet of Weak Ltd. is available as on that date. It is however estimated that Weak Ltd. earns estimated profit of ` 2,00,000 after charging proportionate depreciation @ 10% p.a. on fixed assets, during April-June, 2012. Estimated profit of Strong Ltd. during these 3 months is ` 4,00,000 after charging proportionate depreciation @ 10% p.a. on fixed assets. Both the companies have declared and paid 10% dividend within this 3 months' period. Goodwill of Weak Ltd. is valued at ` 2,00,000 and Fixed Assets are valued at ` 1,00,000 above the estimated book value. Purchase consideration is to be satisfied by Strong Ltd. by shares at par.
53 Ignore Income-tax. You (i) (ii) (iii) (iv) (v) are required to calculate the following : No. of shares to be issued by Strong Ltd. to Weak Ltd. against purchase consideration; Net Current Asses of Strong Ltd. and Weak Ltd. as on 01.07.2012; P/L A/c balance of the Strong Ltd. as on 01.07.2012; Fixed assets as on 01.07.2012; Balance Sheet of Strong Ltd. as on 01.07.2012 after takeover of Weak Ltd. [Nov. 2007 - 16 marks]
54
Solutions of Amalgamations
Q.1. Ans. :R Ltd. Balance Sheet as at 31st March, 2004 (after absorption) Particulars I. Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Current Liabilities Total Assets (1) Non-current Assets (a) Fixed assets (i) Tangible Assets (ii) Intangible Assets (2) Current Assets Total Note no. Amount (`)
1 2 3
57,90,000 51,60,000 27,60,000 1,37,10,000
II.
4 5 6
83,00,000 8,10,000 46,00,000 1,37,10,000 `
Notes to Accounts ` 1. Share Capital 3,12,000 Equity Shares of ` 10 each (of the above shares, 72,000 Equity shares are allotted as fully paid up for consideration other than cash) 2,67,000 8% Preference Shares of ` 10 each (of the above, 1,87,000 are allotted as fully paid up for consideration other than cash) Reserves and Surplus Reserves (As per last Balance Sheet) Securities Premium Current Liabilities As per last balance sheet Taken over on absorption of P Ltd. (10,00,000 - 40,000) Tangible Assets As per last Balance Sheet Taken over on absorption of P Ltd. Intangible Assets Goodwill Current Assets As per last Balance Sheet Taken over on absorption of P Ltd. (23,00,000 - 2,00,000)
31,20,000 26,70,000 30,00,000 21,60,000 18,00,000 9,60,000 55,00,000 28,00,000 57,90,000
2.
51,60,000
3.
27,60,000
4.
83,00,000 8,10,000
5. 6.
25,00,000 21,00,000
46,00,000
(i)
Statement of Purchase Consideration Beneficiaries Preference share holders Mode 8% PSC Working
4,00,000 x 10% x 110% 8%
Amount 5,50,000
Equity Share Holder
ESC
1,20,000 x 24 x 40 40
1,05,600 8%
28,80,000
Equity Share Holder
8% PSC
13,20,000 47,50,000
55 (ii) PBT (-) Tax PAT (-) Preference dividend (a) Earning for equity (b) No. of share (c) EPS (a/b) (iii) P/E Ratio = P/E Ratio = (iv) (i) Dividend Rate of R =
MPS EPS
Calculation of EPS R Ltd. 10,64,000 (4,00,000) 6,64,000 (64,000) 6,00,000 2,40,000 2.5 Calculation of PE Ratio of R Ltd. P Ltd. 4,80,000 (2,00,000) 2,80,000 (40,000) 2,40,000 1,20,000 2
40 = 16 2.5
Calculation of Dividend Rate
2,88,000 24,00,000 1,92,000

(ii) (v) Dividend Rate of P =
x 100 = 12%
x 100 = 16%
12,00,000
1,92,000 86,400 1,05,600
Calculation of loss arising in dividend due to Absorption (i) Present dividend receivable (ii) Dividend receivable after absorption Loss
(vi) PC paid (-) Net Asets acquired Fixed Assets Current Assets (-) Current Liabilities Goodwill Q.2.Ans. :I.
Calculation of Goodwill / Capital Reserve 47,50,000 28,00,000 21,00,000 (9,60,000)
(34,40,000) 8,10,000
Balance Sheet of Dawn Ltd. as at 31.3.2012 Particulars Equity and Liabilities (1) Shareholders Funds (a) Share capital (b) Reserves and Surplus (2) Non-current Liabilities Long-term borrowings (3) Current Liabilities Total Assets (1) Non-current Assets Fixed Assets (a) Tangible Assets (b) Intangible Assets (2) Current Assets Total Note No. `
1 2 3
66,25,500 (1,50,000) 18,58,500 13,50,000 96,84,000
II.
63,00,000 16,74,000 17,10,000 96,84,000
56 Notes to Accounts ` 1. Share Capital Equity share capital 6,62,550 shares of ` 10 each, fully paid up (including 5,57,550 shares of ` 10 each issued for consideration other than cash) Reserves & Surplus Profit or Loss A/c (Loss) Long term Borrowings Secured - 18,585, 10% Debentures of ` 100 each Intangible Assets Goodwill Discharge of Purchase Consideration Particulars Equity [4.2 : 4.62 : 2.52] Debentures (b/f) Total (2) (a) Statement of FMP Average Profit Additional / Saving in Dep. (-) Interest on debentures FMP (b) Statement of Capital Employed Net tangible block Other assets (-) Other Liabilities (-) 10% debenture Capital employed Normal Profit @ 10% (c) Calculation of Super Profit & Goodwill Arun Total Profit (FMP) Normal Profit Super Profit No. of year purchase Goodwill (3) Capital employed Goodwill Total Combine PC 4,20,000 2,85,000 1,35,000 3 4,05,000 Arun 28,50,000 4,05,000 32,55,000 Calculation of Purchase Consideration Brown 14,70,000 9,45,000 24,15,000 74,34,000 Crown 14,40,000 3,24,000 17,64,000 Brown 4,62,000 1,47,000 3,15,000 3 9,45,000 Crown 2,52,000 1,44,000 1,08,000 3 3,24,000 Arun 30,00,000 10,50,000 (6,00,000) (6,00,000) 28,50,000 2,85,000 Brown 15,00,000 4,20,000 (4,50,000) --14,70,000 1,47,000 Crown 18,00,000 2,40,000 (3,00,000) (3,00,000) 14,40,000 1,44,000 Arun 5,40,000 (60,000) (60,000) 4,20,000 Brown 4,32,000 30,000 --4,62,000 Crown 3,12,000 (30,000) (30,000) 2,52,000 Total 55,75,500 18,58,500 74,34,000 Arun 20,65,000 11,90,000 33,55,000 Brown 22,71,500 1,43,500 24,15,000 Crown 12,39,000 5,25,000 17,64,000
66,25,500 (1,50,000) 18,58,500 16,74,000
2. 3. 4.
(1)
Calculation of Goodwill
57 (4) Proportion of Equity & Debt : 3 : 1 Total purchase consideration Equity =

74,34,000 x 3 4
74,34,000 55,75,500 18,58,500
Debentures =
74,34,000 x 1 4
Q.3.Ans. :In the books of Varun Ltd. (a) Realisation Account Particulars To Detail To Preference Shareholders (Premium on Redemption) To Equity Shareholders (Profit on realisation) ` 5,70,000 10,000 50,000 6,30,000 Particulars By Gratuity Fund By Sundry Creditors By Hans Ltd.(Purchase Consideration) ` 20,000 80,000 5,30,000 6,30,000
(b)
Equity Shareholders Account Particulars To Preliminary Expenses To Equity shares of Hans Ltd. ` 10,000 4,20,000 Particulars By Share Capital By General Reserve By Realisation Account (Profit on realisation) ` 3,00,000 80,000 50,000 4,30,000
4,30,000 (c) Preference Shareholders Account Particulars To 9% Pref. Shares of Hans Ltd. ` 1,10,000 Particulars By Pref. Share Capital By Realisation Account (Premium on Redemption of Pref. shares)
` 1,00,000 10,000 1,10,000
1,10,000 (d) Hans Ltd. Account Particulars To Realisation Account ` 5,30,000 5,30,000 Particulars By 9% Preference Shares By Equity Shares
` 1,10,000 4,20,000 5,30,000
58 In the books of Hans Ltd. Journal Entries Particulars Goodwill Account Building Account Machinery Account Stock Account Debtors Account Bank Account To Gratuity Fund Account To Sundry Creditors Account To Provision for Doubtful Debts Account To Liquidators of Varun Ltd. Account (Being Assets and Liabilities takenover as per agreed valuation) Liquidators of Varun Ltd. Account To 9% Preference Share Capital Account To Equity Share Capital Account To Securities Premium Account (Being Purchase Consolidation satisfied as above) WN : Purchase Consideration : Goodwill Building Machinery Stock Debtors Cash at Bank Less : Liabilities : Gratuity Sundry Creditors Total Purchase consideration 1,100, 9% Preference Shares of Hans Ltd. [10% premium] Equity shareholders of Varun Ltd. to be satisfied by issue of 40,000 equity shares of Hans Ltd. at 5% premium ` 50,000 1,50,000 1,60,000 1,57,500 92,500 20,000 6,30,000 20,000 80,000 5,30,000 1,10,000 4,20,000 5,30,000 Dr. Dr. Dr. Dr. Dr. Dr. Dr. 50,000 1,50,000 1,60,000 1,57,500 1,00,000 20,000 20,000 80,000 7,500 5,30,000 Dr. 5,30,000 1,10,000 4,00,000 20,000 Cr.
59 Q.4. Ans. :Balance Sheet of ABX Ltd. as on 1.1.2012 Particulars Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Non-Current Liabilities Long-term borrowings (3) Current Liabilities (a) Trade Payables Total Assets (1) Non-current Assets (a) Fixed Assets Tangible Assets (85,00 + 75,00) (b) Non-current investments (10,50 + 5,50) (2) Current Assets (a) Stock (12,50 + 27,50) (b) Trade Receivables (18,00 + 40,00) (c) Cash & Cash equivalents (4,50 + 4,00) Total Note No. `
I.
1 2 3
130,00 57,50 70,00 25,00 282,50
II.
160,00 16,00 40,00 58,00 8,50 282,50
Notes to Accounts (` 000) 1. 2. Share Capital 13,00,000 Equity Shares of ` 10 each Reserves and Surplus General Reserves Profit & Loss Investment Allowance Reserve Export Profit Reserve Long term Borrowings 12% Debentures (Assumed that new debentures were issued in exchange of the old series) (` 000) 130,00 35,00 15,00 6,00 1,50
57,50
3.
70,00
Step I : Calculation of Net Assets Total of Assets Side of Balance Sheet (-) Sundry Creditors (-) 12 % Debenture Net Assets Step II : Calculation of PC Net Assets as per Step I (-) Export profit reserve (-) Investment allowance reserve (-) Profit loss account (-) General Reserve PC Step III : Allocation of PC (i) (ii) To AX Ltd. To BX Ltd.
1 3 0 ,00 x 9 0,50 187,50
1 3 0 ,0 0 x 9 7 , 0 0 187,50 =
AX 130, 50 (10,00) (30,00) 90,50 AX 90,50 (50) (500) (10,00) (15,00) 60,00
BX 152,00 (15,00) (40,00) 97,00 BX 97,00 (100) (100) (5,00) (20,00) 70,00
= 62,75
67,25
60 Q.5. Ans. :1. Proforma Balance Sheet of Nut Ltd. as at 30 June, 2012 Note No. Shareholder Fund (a) Share Capital (b) Reserves and Surplus Current Liabilities Trade Payable - Creditor Non-current Assets Tangible Fixed Assets Current Assets Stock & WIP Debtor Proforma Balance Sheet of Nail Ltd. as at 30 June, 2012 Note No. Shareholder Fund (a) Share Capital Non-current Liabilities Secured Loan Current Liabilities Trade Payable - Creditor Non-current Assets Tangible Fixed Assets Intangible - Goodwill ` 1,00,000 6,53,000 6,81,000 14,34,000 64,000 4,34,000 9,36,000 14,34,000 ` 1,00,000 1,20,000 2,19,000 4,39,000 4,20,000 19,000 4,39,000 Nut Ltd. 1,50,000 6,03,000 7,53,000 ` 1,50,000 2,70,000 64,000 4,34,000 1,50,000 Nail Ltd. (1,20,000) 2,01,000 81,000 `
2.
1. 2.
1. 2. 2.
1.
WN 1 - Calculation of Purchase Consideration Stock in trade Secured Loan Remaining Net Assets in the ratio of 75 : 25 Total WN 2 - Calculation of Remaining Net Assets Particulars Fixed Assets Add : Increase due to revaluation Others (2,14,000 - 1,50,000) Stock and work-in-progress Less : Separately taken by Nut Ltd. Sundry Debtors Less : Sundry Creditors Total WN 3 - Calculation of Goodwill / Capital Reserve PC Paid Less : Net assets represented by share capital Goodwill / Capital Reserve Nut Ltd. 7,53,000 1,00,000 6,53,000 Nail Ltd. 81,000 1,00,000 19,000
4,84,000 2,84,000 9,36,000 (9,00,000) 8,04,000
61 Q.6.Ans. :Balance Sheet of Big Ltd. As at 30th September, 2012 Particulars Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Current Liabilities Trade Payables Total Assets (1) Non-current assets (a) Fixed Assets (b) Tangible Assets (2) Current Assets (a) Inventories (b) Debtors (c) Cash & Cash equivalents Total Note No. (` in 000s) (`)
I.
1 2
12,96,000 5,90,500 3,90,000 22,76,500
II.
12,30,500 2,70,000 6,30,000 1,46,000 22,76,500
Notes to Accounts ` 1. Share Capital 1,09,600 Equity Shares of ` 10 each 10% Preference shares (of above shares, 29,600 equity shares and all preference shares are allotted as fully paid up for consideration other than cash) Reserves and Surplus Capital Reserve Securities Premium Account General Reserve Profit & Loss Account Less : Preliminary expenses Tangible Assets Building Less : Depreciation Add : Taken over Machinery Less : Depreciation Add : Taken over Furniture Less : Depreciation Add : Taken over 10,96,000 2,00,000 12,96,000 1,000 1,48,000 3,00,000 1,91,500 50,000 1,41,500 5,90,500 `
2.
3.
2,00,000 (5,000) 1,07,500 5,00,000 (37,500) 3,07,500 1,00,000 (5,000) 63,000
3,02,500
7,70,000
1,58,000 12,30,500
62 WN - 1 Equity Share Capital Pref. Share capital General Reserve Profit and Loss A/c Creditors Updated Balance Sheet on 30 Sept. 1995 Big Ltd. Small Ltd. 8,00,000 3,00,000 Building --2,00,000 Machinery 3,00,000 1,00,000 Furniture 1,91,500 89,000 Investment 1,80,000 2,10,000 Stock Debtor Cash (b/f) Prel. Exp. 14,71,500 8,99,000 Calculation of Profit & Loss Big Ltd. 2,00,000 1,02,500 (1,20,000) 9,000 1,91,500 Small Ltd. 1,00,000 54,000 (45,000) (20,000) --89,000
Total WN - 2
Big Ltd. 1,95,000 4,62,500 95,000 60,000 1,20,000 3,80,000 1,09,000 50,000 14,71,500
Small Ltd. 97,500 2,77,500 57,000 --1,50,000 2,50,000 37,000 30,000 8,99,000
Opening Balance Profit for the period (-) Equity Dividend (-) Dividend on Preference Shares (+) Dividend income Total Note : (1) It is assumed that profit does not include dividend income. (2) It is also assumed that entire dividend is post acquistion.
WN - 3 Calculation of Purchase consideration Goodwill Building add 10% Less Depreciation 2500 Machinery add 10% Less Depreciation 22500 Furniture add 10% Less Depreciation 3000 Stock Debtor Cash (-) Creditors Total PC WN - 4 Beneficiary Pref. share holder Equity Share holder Total WN - 5 Statement showing discharge of PC Mode 10% pref. share capital Equity Share Capital Calculation ---5,55,000 x 80% /15 x 15
50,000 1,07,500 3,07,500 63,000 1,50,000 2,50,000 37,000 (2,10,000) 7,55,000
Amount 2,00,000 4,44,000 6,44,000
Calculation of Goodwill / Capital Reserve PC paid (+) Value of investment loss (-) Net Assets acquired excluding goodwill Capital Reserve 6,44,000 60,000 7,05,000 1,000
63 Q.7. Ans. :(i) Calculation of Price per Share

40%
Yield =
LM 3 5 + N
44 + 65 3
OP Q
16%
= 120
Price per share = 120L / 2Lakhs = ` 60 (ii) Share held by foreign company in B Ltd. No. of share of B Ltd. Held by Foreign Co. Total consideration [48,000 x 60] (-) Cost of Foreign Co. Capital Gain Capital gain tax @ 30% Net Consideration Amount payable to Foreign Company Total consideration (-) Paid to Govt. Calculation of PC Beneficiary Foreign Company Foreign Company Govt. (v) Calculation of Goodwill / Capital Reserve PC paid Value of investment lost Total Net Assets acquired Fixed Assets Debtor Inventory Cash (-) Creditors Capital Reserve Mode Cash Loan Cash Working 20,88,000/2 20,88,000/2 --Amt. 10,44,000 10,44,000 7,92,000 28,80,000 28,80,000 7,40,000 36,20,000 33,25,000 10,00,000 50,00,000 5,00,000 (20,00,000) 2,00,000 48,000 28,80,000 2,40,000 26,40,000 7,92,000 18,48,800 28,80,000 (7,92,000) 20,88,000
2,00,000 x 24%
(iii)
(iv)
78,25,000 42,05,000
Q.8.Ans.:Balance Sheet of AM Ltd. as at 31st March, 2012 Particulars I. Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Non-current Liabilities Long-term borrowings (3) Current Liabilities Trade Payables Total Note No. Amount (`)
1 2 3
10,99,000 70,000 3,20,000 80,000 15,69,000
64
II.
Assets (1) Non-current Assets (a) Fixed Assets (b) Other non-current assets (2) Current Assets Total
4 5
10,00,000 70,000 4,99,900 15,69,900 ` 10,99,000
Notes to Accounts ` 1. Share Capital 10,999 shares of ` 100 each (All the above shares are allotted as fully paid up for consideration other than cash) Reserves and Surplus Investment Allowance Reserve Long Term Borrowings 15% Debentures Other non-current assets Amalgamation Adjustment Account Current Assets Current Assets Less : Purchase consideration paid in cash ` (33+67)
2. 3. 4. 5.
70,000 3,20,000 70,000 5,00,000 (100)
4,99,900
(i)
Statement of Net Assets other than investments Sundry Fixed Assets Current Assets (-)Current Liabilities (-) Debenture Net Assets Value AB 7,00,000 4,00,000 (60,000) (2,40,000) 8,00,000 MB 3,00,000 1,00,000 (20,000) (80,000) 3,00,000
(ii)
Calculation of Total Net Assets Net Assets of AB Ltd. = 8,00,000 + of MB Ltd. ----- (i) Net Assets of MB Ltd. = 3,00,000 + 2/5 of AB Ltd. ---- (ii) Solving the equation AB Ltd. = 9,72,222 and MB Ltd. 6,88,889
(iii)
Statement of Purchase Consideration Total Consideration Less : Inter company investment Net PC payable AB 9,72,222 (3,88,889) 5,83,333 MB 6,88,889 (1,72,222) 5,16,667
(iv)
Statement showing discharge of Purchase Consideration In Shares of ` 100 each In Cash for fractional portion AB 5,83,300 33 MB 5,16,600 67
(v)
Calculation of Goodwill Capital Reserve Purchase Consideration paid Less : Net Assets acquired AB Ltd. MB Ltd. Net
11,00,000 (8,00,000) (3,00,000) Nil
65 Q.9. Ans. :Journal Entries in the books of RS Ltd. Dr. Rs. 10% Debentures Account Loan from financial institutions account Sundry Creditors Account Proposed Dividend Account Realisation Account To Fixed Assets Account To Investments Account To Sundry Debtors Account To Cash and Bank Account (Transfer of assets and liabilities to realisation account) Share Capital Account Reserve and Surplus Account To Equity Shareholders Account (Transfer of share capital, reserve and surplus to shareholders accont) Equity Shareholders Account To Realiation Account (Cancellation of 20% holding of XY Ltd. held as investments) Shares in XYZ Ltd To Realisation Account (Issue of shares by XYZ Ltd. in the ratio of 1:1) Equity Shareholders Account To Realisation Account (Transfer of loss on realisation) Equity Shareholders Account To Shares in XYZ Ltd. (Distribution of shares of XYZ Ltd. among the shareholders) Journal Entries in the books of XY Ltd. Dr. Rs. 1,000 (Rs. 000) Cr. Rs. 100 900 Dr. 100 100 Dr. Dr. Dr. Dr. Dr. 500 250 300 200 2,800 2,700 700 400 250 Dr. Dr. 2,000 800 2,800 Dr. 250 250 Dr. 2,000 2,000 Dr. 550 550 Dr. 2,000 2,000 (Rs.000) Cr. Rs.
Equity Share Capital (Face value - Rs. 100) Account To Equity Share Capital (Face Value - Rs. 10) Account To Reconstruction Account (Face value of equity shares of Rs. 100 each reduced to Rs. 10 each) Equity Share Capital (Face Value - Rs. 10 each) A/c To Equity Share Capital Account (Face Value - Rs. 100 each) (Consideration of 10,000 equity shares of Rs. 10 each to 1,000 equity shares of Rs. 100 each) Loan from Financial Institutions Account To Reconstruction Account (Waiver of 15% of loan by financial institutions) Reconstruction Account (900 + 60) To Profit and Loss Account To Capital Reserve (Utilisation of Reconstruction account balance to write off the Profit and Loss Account) Proposed Dividend Account To Bank Account (Payment of proposed dividend to shareholders of RS Ltd.)
Dr.
Dr.
60 60
Dr.
960 800 160
Dr.
200 200
66 Fixed Assets Account Other Investments Account Sundry Debtors Account Cash and Bank Account To Reserves Account To 10% Debentures Account To Loan from Financial Institutions Account To Sundry Creditors Account To Proposed Dividend Account To Business Purchase Account (Incorporation of various asses and liabilities acquired from RS Ltd. after cancellation of investment held by Rs Ltd. in XY Ltd., profit on acquisition credited to Reserves Account) Business Purchase Account To Liquidator of RS Ltd. (Consideration Payable on business acquired from RS Ltd.) Liquidator of RS Ltd. To Equity Share Capital of XYZ Ltd. (Discharge of purchase consideration in the form of equity shares of XYZ Ltd.) Sundry Creditors Account To Sundry Debtors Account (Cancellation of intercompany owings) Dr. Dr. Dr. Dr. 2,700 450 400 250 570 500 250 300 200 1,980
Dr.
1,980 1,980
Dr.
1,980 1,980
Dr.
100 100
Balance Sheet of XYZ Ltd. as on 31st March, 2012 (immediately after acquisition) Particulars Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Non-Current Liabilities Long-term borrowings (3) Current Liabilities (a) Short term borrowings (b) Trade Payables Total Assets (1) Non-current Assets (a) Fixed Assets Tangible Assets (b) Non-current investments (2) Current Assets Trade receivables Total Note No. (Rs. in 000s) (Rs.)
I.
1 2 3 4
2,080 730 1,090 50 500 4,450
II.
3,550 450 450 4,450
67 Notes to Accounts (Rs. in 000s) (Rs. in 000s) 1. Share Capital 2,56,000 Equity Shares of Rs. 10 each fully paid (1,06,000 shares allotted as fully paid without payment being received in cash) Reserves and Surplus Securities Premium Reserves Profit and Loss Account Less : Preliminary expenses Tangible Assets Other Fixed Assets (Rs. 12,50,000 + Rs. 8,75,000) Less : Depreciation Intangible assets Goodwill 25,60,000
2.
5,30,000 4,15,000 3,60,000 (25,000) 3,35,000 21,25,000 (1,06,250) 12,80,000
3.
20,18,750 1,20,000
4.
WN - Calculation of Purchase Consideration (i) Original share capital of Bat Ltd. [1,000 x 1000 / 100] x 100 (ii) Capital Reduction [1,000 x 1,000 / 100] x 909,00,000 (iii) Total share capital after reduction (iv) No. of share = 1,00,000 / 10 (v) Consolidated share = 10,000 x 10 / 100 (vi) Inter company investment in share [1,000 x 20%] (vii) Amount of Consideration : (20,000 200) x 100 = 19,80,000 Q.10.Ans. :-
10,00,000 1,00,000 10,000 1,000 200
I.
II.
Projected Balance Sheet of Mix Ltd. as on December 31, 2011 Particulars Note No. Equity and Liabilities (1) Shareholders Funds (a) Share Capital 1 (2) Non Current Liabilities Long-term borrowings 2 (3) Current Liabilities (7,200 + 1,000 + 4,000 +1,440) Total Assets (1) Non-current assets (a) Fixed Assets Tangible Assets (3,400 + 6,800) Intangible Assets (WN 2) (2) Current Assets (2,000 + 2,880 + 6,720) Total
7,000 10,630 13,640 31,270
10,200 9,470 11,600 31,270
Notes to Accounts Rs. 1. Share Capital Issued, subscribed & Paid up : 7,00,000 equity shares of Rs. 10 each, fully paid up (of the above 5,00,000 shares have been issued for consideration other than cash) Long Term Borrowings Secured Loan (1,280 + 7,200) Unsecured Loans (25% of Rs. 8,600)
7,000
2.
8,480 2,150
10,630
68 WN 1 : Calculation of Net Assets Fixed Assets (Book Value) Current Assets (80% & 70%) Less : Statutory Liabilities Less : Liabilities to Employee Less : Miscellaneous Creditor Less : Secured Loan Less : Unsecured Loan @ 25% Net Assets WN 2 : Calculation of Goodwill / Capital Reserve PC Paid Net Assets acquired Goodwill / (Capital reserve) Net Goodwill for Balance Sheet (11,550 - 2,080) = 9,470 Andrew Ltd. 200 11,350 11,550 Barry Ltd. --(2,080) (2,080) Andrew Ltd. 3,400 2,880 (7,200) (3,000) (4,000) (1,280) (2,150) (11,350) Barry Ltd. 6,800 6,720 (1,000) (1,800) (1,440) (7,200) --2,080
Q.11.Ans. :Projected Balance Sheet of Mix Ltd. as on December 31, 2011 Particulars Note No. Equity and Liabilities (1) Shareholders Funds (a) Share Capital 1 (b) Reserves and Surplus 2 Total Assets (1) Non-current assets Non Current Investments 3 (2) Current Assets Cash & Cash equivalents Total `
I.
54,00,000 13,75,000 67,75,000
II.
60,00,000 7,75,000 67,75,000
Projected Profit and Loss Account for the Period ending December 31, 2011 Particulars Other Income Total Revenue Expenses Management Expenses II. Total Expenses Net Profit before Tax I. II. I. Note No (`) 1,74,000 1,74,000 6,000 6,000 1,68,000
69 Notes to Accounts (`) 1. Share Capital Authorised : 6,00,000 Equity Shares of ` 10 each Issued : 5,40,000 Equity Shares of ` 10 each Reserves and Surplus Securities Premium Account Less : Preliminary Expenses written off Profit and Loss Deduct Dividend (3/2 percent on ` 48,00,000) paid on December 31,2011 Non Current Investments Subsidiary Companies shares at cost Calculation of Profit PBIT (-) Interest PBT (-) Tax @ 40% (-) Pref. Dividend (a) Total (b) P/E Ratio (c) Total consideration (a x b) (d) No. of Share (2) (a) Rich Ltd. with Mix. : Beneficiary ESH ESH (b) Poor with Mix : Beneficiary ESH ESH (3) To Equity Share Capital To Security Premium To Dividend Mode ES Security Premium Bank A/c 6,00,000 By Mgt. Exp. 2,25,000 By dividend 1,74,000 By Preliminary Exp. By Balance c/d 9,99,000 6,000 1,68,000 50,000 7,75,000 9,99,000 Working 48,000 x 10 48,000 x 2.5 Amount 4,80,000 1,20,000 6,00,000 Mode ES Security P. Working 4,32,000 x 10 4,32,000 x 2.5 Amt. 43,20,000 10,80,000 54,00,000 Rich 6,00,000 --6,00,000 (2,40,000) --3,60,000 15 54,00,000 4,32,000 Calculation of Purchase Consideration Poor 2,40,000 (40,000) 2,00,000 (80,000) (60,000) 60,000 10 6,00,000 48,000 60,00,000 54,00,000 14,25,000 (50,000) 1,68,000 (1,68,000) (`)
54,00,000
2.
13,75,000 --13,75,000 60,00,000
3.
(1)
70 Q.12. Ans. :(i) Statement of No. of Share to be issued Goodwill Stock Fixed Assets (19,50,000 + 1,00,000) Debtors Cash & Bank Creditors Net Assets Price of Shares No. of Shares (ii) Stock Debtors Cash & Bank Creditors Statement of Net Current Assets Strong 8,00,000 14,00,000 11,75,000 (5,00,000) 28,75,000 (iii) Balance Sheet Value Current Year Profit Dividend Paid Net (iv) Balance Sheet value Depreciation Net Calculation of Bank Balance Balance Sheet value Profit During the year Depreciation (Non-cash) Dividend Paid Strong 12,00,000 4,00,000 75,000 (5,00,000) 11,75,000 Weak 3,50,000 2,00,000 50,000 (3,00,000) 3,00,000 Profit & Loss Account as on 1.7.07 Strong 6,00,000 4,00,000 (5,00,000) 5,00,000 Statement of Fixed Assets as on 1.7.2012 Strong 30,00,000 (75,000) 29,25,000 Weak 20,00,000 (50,000) 19,50,000 Weak 4,00,000 2,00,000 (3,00,000) 3,00,000 Weak 6,00,000 9,00,000 3,00,000 (3,00,000) 15,00,000 2,00,000 6,00,000 20,50,000 9,00,000 3,00,000 (3,00,000) 37,50,000 100 37,500
(v) I.
Balance Sheet of Strong Ltd. as on 1.7.2012 (after take over) Particulars Note No. Equity and Liabilities (1) Shareholders Funds (a) Share Capital 1 (b) Reserves and Surplus 2 (2) Current Liabilities Trade Payables 3 Total
(`)
87,50,000 8,00,000 8,00,000 1,03,50,000
71 II. Assets (1) Non-current assets (a) Fixed Assets (i) Tangible Assets (ii) Intangible Assets (2) Current Assets (a) Inventories (b) Trade receivables (c) Cash and cash equivalents Total
4 5
49,75,000 2,00,000 14,00,000 23,00,000 14,75,000 1,03,50,000
Notes to Accounts : ` 1. 2. Share Capital 87,500 (50,000 + 37,500) Equity shares of ` 100 each Reserves and Surplus Reserves Profit and Loss Account [as computed in (iii)] Trade Payables Creditors (` 5,00,000 + ` 3,00,000) Tangible Assets Fixed Assets [as computed in (iv)] Intangible assets Goodwill ` 87,50,000 4,00,000 4,00,000
8,00,000 8,00,000 49,75,000 2,00,000
3. 4. 5.
72
Q.1. (Important) Consider the following summarised balance sheets of subsidiary B Ltd : 2010 ` Share-Capital Issued & subscribed 5,000 equity shares of ` 100 each Reserves & Surplus Revenue reserves Current Liabilities & Provisions : Sundry Creditors Bank Overdraft Provision for taxation 2011 ` Fixed Assets Cost Less : Accumulated dep. 2010 ` 3,20,000 (48,000) 2,72,000 --5,97,000 5,94,000 72,000 51,000 15,86,000 2011 ` 3,20,000 (96,000) 2,24,000 4,00,000 7,42,000 8,91,000 48,000 3,000 23,08,000
5,00,000
5,00,000
2,86,000 4,90,000 --3,10,000
7,14,000 4,94,000 1,70,000 4,30,000
Investments at cost Current Assets : Stock Sundry Debtors Prepaid Expenses Cash at Bank
15,86,000 23,08,000
Consider also the following information : (a) B Ltd. is a subsidiary of A Ltd. Both the companies follow calendar year as the accounting year. (b) A Ltd. values stocks on LIFO basis while B Ltd. used FIFO basis. To bring B Ltd.s values in line with those of A Ltd. its value of stock is required to be reduced by ` 12,000 at the end of 2010 and ` 34,000 at the end of 2011. (c) Both the companies use straight line method of depreciation. However A Ltd. charges depreciation @ 105. (d) B Ltd. deducts 1% from sundry debtors as a general provision against doubtful debts. (e) Prepaid expenses in B Ltd. include advertising expenditure carried forward of ` 60,000 in 2010 and ` 30,000 in 2011, being part of initial advertising expenditure of ` 90,000 in 2010 which is being written off over three years. Similar amount of advertising expenditure of A Ltd. has been fully written off in 2010. Restate the balance sheet of B Ltd. as on 31st December, 2011 after considering the above information for the purpose of consolidation. Such restatement is necessary to make the accounting policies adopted by A Ltd. and B Ltd. uniform. Q.2. (RTP Nov. 2011 - Important) Harsh Ltd. acquired control in Sukh Ltd. a few years back when Sukh Ltd. had ` 25,000 in Reserve and `14,000 profit in Profit and Loss Account. Plant Account (book value ` 66,000) of Suk Ltd. was revalued at ` 62,000 on the date of acquisition. Equity dividend of ` 7,500 was received by Harsh Ltd. out of pre-acquisition profit and the amount wa correctly treated by Harsh Ltd. Debenture interest has been paid up to date. Following are Balance Sheets of Harsh Ltd. and Sukh Ltd. Balance Sheet as on 30.9.2011 Harsh Ltd. Sukh Ltd. Liabilities ` ` Equity Capital (` 10) 5,00,000 1,00,000 6% Preference Share Capital (` 100) 1,00,000 50,000 General Reserve 30,000 30,000 Profit and Loss Account 40,000 12,000 6% Debentures Nil 1,00,000 Sundry Creditors 90,000 60,000 Due to Sukh Ltd. 10,000 Nil Bills Payable 20,000 25,000 Total 7,90,000 3,77,000
73 Assets Goodwill Building Plant & Machinery Stock in trade Sundry Debtors Bills Receivable Due from Harsh Ltd. Bank Investments in Sukh Ltd. 300 Preferences Share Capital 7,500 Equity Shares Debentures (Face Value ` 50,000) Total 1. 2.
50,000 2,00,000 1,05,000 1,30,000 90,000 30,000 Nil 27,000 28,000 85,000 45,000 7,90,000
30,000 50,000 1,00,000 1,00,000 50,000 10,000 12,000 25,000 Nil Nil Nil 3,77,000
Cheque of ` 2,000 sent by Harsh Ltd. to Sukh Ltd. was in transit. Balance Shet of Sukh Ltd. was prepared before providing for 6 months dividend on Preference Shares. Dividend for the first half has already been paid. 3. Both the Companies have proposed preference dividend only, but no effect has been given in accounts. 4. Stock of Harsh Ltd. includes ` 6,000 stock purchased from Sukh LTd. on which Sukh Ltd. made 20% profit on cost. Stock of Sukh Ltd. includes stock of ` 10,000 purchased from Harsh Ltd. on which Harsh Ltd. made 10% profit on selling price. 5. Since acquisition, Sukh Ltd. has written off 30% of the book value of Plant as on date of acquisition by way of depreciation. 6. Bills Receivable of Sukh Ltd. is due from Harsh Ltd. Prepare Consolidated Balance Sheet as on 30.09.2011. Q.3. The following are the summarized Balance Sheets of PD Co. and SD Co. Ltd. as on 31.3.2004 : Liabilities PD Co. Ltd. SD Co. Ltd. ` ` Share Capital : Authorised 70,00,000 30,00,000 Issued and Subscribed Capital Equity shares of ` 10 each fully paid 50,00,000 20,00,000 Capital Reserve 5,00,000 3,10,000 Revenue Reserve 8,50,000 75,000 Profit and Loss Account 4,00,000 2,80,000 Sundry Creditors 2,50,000 2,25,000 Bills Payable 1,00,000 10,000 71,00,000 29,00,000 Assets Land and Building Plant and Machinery Furniture Investment Stock Sundry Debtors Bills Receivable Bank 20,00,000 20,00,000 5,00,000 16,10,000 3,40,000 3,60,000 50,000 2,40,000 71,00,000 15,20,000 8,00,000 1,60,000 --1,00,000 2,00,000 40,000 80,000 29,00,000
PD Ltd. acquired 80% share of SD Ltd. on 30.9.2003 at a cost of ` 18,10,000. On 1.10.03 SD Ltd. declared and paid dividend on Equity shares. PD Ltd. appropriately adjust its share of dividend in Investment Account.
74 On 1.4.2003, the Capital Reserve and Profit and Loss Account stood in the books of SD Ltd. at ` 50,000 and ` 2,75,000 respectively. Land and Buildings standing in the books of SD Ltd. at ` 16,00,000 on 1.4.2003 revalued at ` 20,00,000 on 1.10.03 Furniture, which stood in the books at ` 2,00,000 on 1.4.2003 revalued at ` 1,50,000 on 1.10.03. In both the cases the effects have not yet been given in the books. SD Ltd. bought an item of machinery from PD Ltd. on hire-purchase basis. The following are the balances in respect of this machinery in the books on 31.3.2004 : ` Installment due 20,000 Installment not due 8,000 Hire-purchase stock reserve 1,600 The above items stood included under appropriate heads in Balance Sheet. Prepare a Consolidated Balance Sheet of PD Ltd. and its subsidiary SD Ltd. as at 31.3.2004, Complying with the requirements of AS - 21. [Nov. 2004& May 1994 - 16 marks] Q.4. (Important) From the following balance sheets of Hanish Ltd. and is subsidiary Sunil Ltd. drawn up at 31st March, 2010, prepare a consolidated balance sheet as a that date, having regards to the following : 1. 2. Reserve and Profit and Loss Account of Sunil Ltd. stood at ` 25,000 and ` 15,000 respectively on the date of acquisition of its 80% shares by Hanish Ltd. on 1st April, 2009. Machinery (Book-value ` 1,00,000) and Furniture (Book value ` 20,000) of Sunil Ltd. were revalued at ` 1,50,000 and ` 15,000 respectively on 1.4.2009 for the purpose of fixing the price of its shares. (Rates of depreciation : Machinery 10% Furniture 15%). Balance Sheet of Hanish Ltd. as on 31st March, 2010 Liabilities Share capital Share of ` 100 each Reserve Profit & Loss A/c Creditors Hanish Ltd. 6,00,000 2,00,000 1,00,000 1,50,000 10,50,000 Sunil Ltd. 1,00,000 75,000 25,000 57,000 2,57,000 Assets Hanish Ltd. Machinery 3,00,000 Furniture 1,50,000 Other Assets 4,40,000 Shares in Sunil Ltd. : 800 shares at ` 200 each 1,60,000 10,50,000 Sunil Ltd. 90,000 17,000 1,50,000
2,57,000
Q.5. The draft Balance Sheets of 3 Companies as at 31st March, 2007 are as below : Liabilities Share Capital - shars of ` 100 each Reserves P/L A/c (1.4.06) Profit for 2006-07 Loan from Morning Ltd. Creditors Assets Investments : 1,60,000 shares in Evening 75,000 shares in Night Loan to Evening Ltd. Sundry Assets Morning Ltd. 40,000 1,800 1,500 7,000 --2,500 52,800 Evening Ltd. 20,000 1,000 2,000 3,800 5,000 1,000 32,800 (In ` 000's) Night Ltd. 10,000 900 800 1,800 --1,400 14,900
18,000 8,000 5,000 21,800 52,800
------32,800 32,800
------14,900 14,900
Following additional information is also available : (a) Dividend is proposed by each company at 10%. (b) Stock transferred by Night Ltd. to Evening Ltd. fully paid for was ` 8 lacs on which the former made a profit of ` 3 lacs. On 31st March, 2007, this was in the inventory oof the latter.
75 (c) Loan referred to is against 8% interest. Neither Morning Ltd. nor Evening Ltd. has considered the interest. (d) Reserves as on 1.4.2006 of Evening Ltd. and Night Ltd. were ` 8,00,000 and ` 7,50,000 respectively. (e) Cash-in-transit from Evening Ltd. to Morning Ltd. was ` 1,00,000 as on 31.3.2007. (f) The shares of the subsidiaries were all acquired by Morning Ltd. on 1st April, 2006. Prepare consolidated Balance Sheet as on 31st March, 2007. Working should be part of the answer. [Nov. 2007 - 16 marks] Q.6. (Study Material- Important) On April 01, 2010 A Ltd. acquired 25% shares of C Ltd. for ` 5,00,000 and subscribed for 100% shares of a new company B Ltd. promoted by the manaement of A Ltd. Following are the summarized balance sheet of all the three companies : Summarised Balance Sheet as on April 01, 2010 (Fig. in '000) Liabilities A Ltd. B Ltd. C Ltd. Assets A Ltd. B Ltd. C Ltd. ` ` ` ` ` ` Equity shares of ` 10 each 5,000 1,000 1,000 Fixed Assets 7,000 -2,500 Profit & Loss A/c 6,500 --2,300 Investment 1,500 -2,000 Current Liabilities 2,500 --3,700 Current Assets 5,500 1,000 2,500 14,000 1,000 7,000 14,000 1,000 7,000 You are required to prepare Consolidated Balance Sheet as on 1.4.2010. Q.7. (Study Material - Important) The Trial Balances of H Ltd. and S Ltd. as on 31st December, 2011 were as under. H Ltd. Dr. ` Equity Share Capital (Share of ` 100 each) 7% Preference Share Capital (Share of ` 100 each) Reserves 6% Debentures Sundry Debtors / Creditors P&L A/c balance Purchases / Sales Wages & Salaries Debenture Interest General Expenses Preference dividend up to 30.6.2011 Stock (31.12.2011) Cash at Bank Investment in S Ltd. Fixed Assets Cr. ` 10,00,000 --3,00,000 2,00,000 90,000 20,000 9,00,000 --Dr. ` S Ltd. Cr. ` 2,00,000 2,00,000 1,00,000 2,00,000 60,000 15,000 9,50,000
80,000 5,00,000 1,00,000 12,000 80,000
50,000 6,00,000 1,50,000 12,000 60,000 7,000 50,000 6,000 --7,90,000 17,25,000
3,500 1,00,000 13,500 5,28,000 11,00,000 25,13,500
25,13,500
17,25,000
Investment in S Ltd. were acquired on 1.4.2011 and consisted of 80% of Equity Capital and 50% of Preference Capital. Depreciation on fixed assets is written off @ 105 p.a. After acquiring control over S Ltd., H Ltd. supplied to it goods at cost plus 20%, the total invoice value of such goods being ` 60,000; 1/4 of such goods was still in stock at the end of the year. Prepare the Consolidated Profit and Loss Account for the year ended on 31st December, 2011.
76 Q.8. (Study Material - Important) A Ltd. a UK based company entered into a joint venture with B Ltd. in India, wherein B Ltd. will sell import the goods manufactured by A Ltd. on account of joint venture and sell them in India. A Ltd. and B Ltd. agreed to share the expenses & revenues in the ratio of 5:4 respectively whereas profits and distributed equally. A Ltd. invested 49% of total capital but has equal share in all the assets and is equally liable for all the liabilities of the joint venture. Following is the trail balance of the joint venture at the end of the first year : Particulars Purchases Other Expenses Sales Fixed Assets Current Assets Unsecured Loans Current Liabilities Capital Closing stock was valued at ` 1,00,000. You are required to prepare the Consolidated Financial Statement. Q.9. (Study Material - Important) The Balance Sheet of three companies showed the following positions as on 30th June, 2006. Star Ltd. ` Fixed Assets : Land and Building at cost Furniture and Fittings at cost Less: Depreciation upto June 30, 2006 Shares in Blue Ltd. at cost Shares in Green Ltd. at cost Current Assets : Stock-in-trade Debtors Bank Balance Share Capital : Authorised and Issued Equity Shares of ` 10 each fully paid Reserve and Surpluses: Capital Reserve Revenue Reserve Current Liabilities and Provisions : Creditors Income-tax Proposed Dividends ` 1,60,000 1,50,000 70,000 80,000 2,40,000 1,25,000 50,000 26,000 ` Blue Ltd. ` 60,000 24,000 84,000 1,60,000 42,400 82,390 1,30,400 6,20,190 50,300 46,610 22,350 3,63,260 61,200 44,300 77,750 2,94,250 46,000 15,000 Green Ltd. ` ` 80,000 31,000 1,11,000 Dr. (`) 9,00,000 3,06,000 6,00,000 2,00,000 2,00,000 1,00,000 4,01,000 Cr. (`)
13,05,000
2,50,000 40,000 77,496 80,194 72,500 1,00,000
1,00,000 --61,420 90,940 60,900 50,000
1,50,000 30,000 32,425 16,340 35,485 30,000
6,20,190 3,63,260 2,94,250 You also obtain the following information : (1) Blue Ltd. acquired 12,000 shares in Green Ltd. in 2002-2003 when the balance on Capital Reserve had been ` 20,000 and on Revenue Reserve ` 22,000. (2) Star Ltd. purchased 7,500 shares in Blue Ltd. in 2002-2003 when the balance on the Consolidated Revenue Reserve had been ` 25,000. The balance on Capital Reserve in Green Ltd. at that time was ` 30,000. (3) Star Ltd. purchased a further 1,500 shares in Blue Ltd. in 2004-2005 when the balance on the consolidated Revenue Reserve had been ` 40,000. (4) Proposed dividends from subsidiary companies have been included in the figure for debtors in the accounts of parent companies. You are required to prepare the Consolidated Balance Sheet of Star Ltd. and its subsidiaries as on 30th June, 2006 together with your consolidation schedule.
77
Solutions of Holding Company

Q.1.Ans. :Balance Sheet of B Ltd. Note No. (i) Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (WN 1) (2) Current Liabilities (a) Short Term borrowing (bank overdraft) (b) Trade Payable (c) Other Current Liabilities (Provision for tax) Total (ii) Assets (1) Non-current assets (a) Tangible Fixed assets (3,20,000 - 64,000) (b) Non Current Investment (2) Current Assets (a) Inventory (b) Trade Receivable (c) Cash & cash equivalent (d) Other current assets (Prepaid expense) Total Working Note : Calculation of Adjusted Profit Rs. Revenue reserves as given Add : Depreciation over charged (Rs. 16,00 x 2) Add : Provision for doubtful debts Less : Reduction in stock-in-trade Less : Advertising expenditure to be written off Adjusted revenue reserve Q.2. Ans. :(i) Balance Sheet of Harsh Ltd. Note No. Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (WN 4) (2) Minority Interest (WN 2) (3) Non Current Liabilities (a) Long term borrowing - Debenture (1,00,000 - 50,000) (4) Current Liabilities (a) Trade Payable (Creditors + Bills Payable) (b) Other Provision (Minority interest in preference propose) (c) Inter Company Balance Sheet (10,000 - 10,000) Total ` 32,000 9,000 34,000 30,000 Rs. 7,14,000 --41,000 7,55,000 (64,000) 6,91,000 `
5,00,000 6,91,000 1,70,000 4,94,000 4,30,000 22,85,000
2,56,000 4,00,000 7,08,000 9,00,000 3,000 18,000 22,85,000
6,00,000 84,675 54,175 50,000 1,95,000 600 --9,84,950
78 (ii) Assets (1) Non-current assets (a) Tangible Fixed assets (2,00,000 + 50,000 + 1,05,000 + 1,00,000 - 4,000 + 1,200) (b) Intangible Assets (WN 3) (2) Current Assets (a) Inventory (1,30,000 + 1,00,000 - 1,000) (b) Trade Receivable (90,000 + 50,000 + 30,000 + 10,000) (c) Cash & cash equivalent (27,000 + 25,000 + 2,000 cheque in transit) (d) Inter company balance sheets (12,000 - 12,000) Total
4,52,000 69,250 2,29,000 1,80,000 54,000 --9,84,450
WN 1 : Analysis of Profit of Sukh Ltd. Particulars General Reserve Profit & Loss A/c Total (+) Dividend Paid Equity Capital Revenue P&L 25,000 14,000 39,000 ---(2,000) Revenue GR 5,000 ---(2,000) Total 30,000 12,000 5,000
LM 7,500 x 100 OP N 75 Q
------39,000 (10,000) ---(4,000) ---------25,000 6,250 18,750
10,000 1,500 9,500 ---(1,500) ---1,200 (1,000) (1,500) 6,700 1,675 5,025
------5,000 ------------------5,000 1,250 3,750
Pref. [50,000 x 6% x 6 month] Total (-) Dividend paid Equity Pref. [Current Year] (-) Revaluation Loss (Note 1) (+) Saving in depreciation [4,000 x 30%] (-) Stock Reserve [6,000 x 20/100] (-) Pref. Proposed dividend para 27 (Note 2) [50,000 x 6% x 1/2] Total MIT 25% Harsh 75%
Note 1 : Calculation of Revaluation Profit and Loss Market Value on DOA 62,000 (-) Book value on DOA (66,000) Revaluation Loss (4,000) Note 2 : Under Para 27 only 6 month Pref. proposed dividend is considered because 6 month has been paid.
WN 2 : Calculation of Minority Interest Share in equity share capital Share in Pref. Share capital Share in Profit Total
25,000 20,000 9,175 54,175
79 WN 3 : Calculation of Cost of Control Cost of investment in equity share Cost of investment in Pref. Share Less : Capital Profit Less : Share in equity share capital Less : Share in Pref. Share capital Capital Reserve Add : Balance Sheet goodwill Net Goodwill WN 4 : Calculation of Reserve & Surplus Own Balance Add : Share in subsidiary Add : Share in Preference proposed dividend Add : Profit on cancellation of debenture (50,000 - 45,000) Total Q.3. Ans. :Balance Sheet of B Ltd. Note No. (i) Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (12,48,000 + 8,50,000 + 4,91,600) (2) Minority Interest (2) Current Liabilities and Provision (a) Creditors (2,50,000 - 2,25,000 - 28,000) (b) Bills Payable (1,00,000 + 10,000) Total (ii) Assets (1) Non-current assets (a) Tangible Fixed assets (2) Current Assets (a) Inventories (b) Trade Receivables (c) Cash & cash equivalent Total ` General Reserve 30,000 3,750 Profit & Loss 40,000 5,025 900 5,000 50,925 Total
85,000 28,000 (18,750) (75,000) (30,000) 10,750 80,000 69,250
33,750
84,675
5,00,000 25,89,600 6,13,400 4,47,000 1,10,000 87,60,000
1 2 3
73,76,400 4,33,600 6,30,000 3,20,000 87,60,000
80 Notes to Accounts :1. Tangible Fixed Assets :Land & Building PD Ltd. SD Ltd. (+) Revaluation Profit (-) Additional Depreciation Plant & Machinery PD Ltd. SD Ltd. (-) Unrealised Profit on H.P. Furniture PD Ltd. SD Ltd. (-) Revaluation Loss (+) Saving in Depreciation
20,00,000 15,20,000 4,40,000 (11,000) 20,00,000 8,00,000 (5600) 5,00,000 1,60,000 (30,000) 3,000
39,49,000
27,94,400
6,33,000 73,76,400
2.
Inventories Stock PD Ltd. SD Ltd. (+) Cancellation of Stock Reserve (-) Cancellation of Contra Trade Receivable Debtors PD Ltd. SD Ltd. (-) Contra B/R PD Ltd. SD Ltd.
3,40,000 1,00,000 1,600 (8,000)
4,33,600
3.
3,60,000 2,00,000 (20,000) 50,000 40,000
5,40,000 90,000 6,30,000
WN 1 : Analysis of Profit Particulars Profit & Loss A/c Capital Reserve Revenue Reserve Total (+) Dividend Paid Total Time Adjustment Total Revaluation Profit/Loss (4,40,000 - 30,000) (-) Additional Depreciation (11,000 - 3,000) Total Minority @ 20% PD Ltd. @ 80% Capital Revenue P&L 2,75,000 50,000 75,000 4,00,000 5,000 ----5,000 --4,00,000 2,57,500 6,57,500 4,10,000 --8,17,500 1,63,500 6,54,000 Revenue GR --2,60,000 --2,60,000 2,50,000 Total 2,80,000 3,10,000 75,000
FG18,10,000 - 16,10,000IJ H K 80%
---
FG 2,55,000 x 6IJ H 12 K
2,55,000
FG 2,60,000 x 6IJ H 12 K
2,60,000
1,27,500 --(8,000) 1,19,500 23,900 95,600
1,30,000 ----1,30,000 26,000 1,04,000
81 WN 2 : Calculation of Revaluation Profit and Loss Particulars Market value on 30.9.03 (-) Book value on 30.9.03 Land & Building Furniture & Fixture 20,00,000 15,60,000 1,50,000 1,80,000
Rb1,60,000 - 5%g x 6 U Rb2,00,000 - 20%g x 6 U S V S V 12 W T 12W T

Revaluation Profit / Loss Additional Depreciation 4,40,000 4,40,000 x 5% x
6 12
(30,000) 30,000 x 20% x

6 12
11,000 Depreciation Rate
3,000
FG 16,00,000 - 15,20,000IJ x 100 F 2,00,000 - 1,60,000I x 100 GH 2,00,000 JK H 16,00,000 K

5% 20%
WN 3 : Calculation of Cost of Control Cost of investment (-) Share in share capital (-) Share in Capital Profit C/R (+) Own Capital Reserve (+) Share in Post C/R Net Capital Reserve WN 4 : Calculation of Minority Interest Share in share capital Add : Share in Minority Interest WN 5 : Calculation of Consolidated P&L Own Balance Add : Share in Subsidiary Less : Unrealised Profit on H.P. transaction (28,000 x 20%) Add : Cancellation of stock reserve Total 4,00,000 95,600 (5,600) 1,600 4,91,600 Pre Profit Post Profit 4,00,000 1,63,500 49,900 6,13,400 16,10,000 (16,00,000) (6,54,000) 6,44,000 5,00,000 1,04,000 12,48,000
Note : Since dividend has been recorded properly by PD Ltd. hence amount of dividend has not been rectified in cost of control.
82 Q.4.Ans. :Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at 31st March, 2012 Particulars Note No. Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus 1 (2) Minority Interest (3) Current Liabilities (a) Trade Payables 2 Total Assets (1) Non-current Assets (a) Fixed Assets (i) Tangible Assets 3 (ii) Intangible Assets 4 (b) Other non-current assets 5 Total Analysis of Profit Capital Reserve P&L Total Time Adjustment Total (+)Revaluation Projection (-) Depreciation Total Minority Interest (20%) H Ltd. (80%) W.N. 2 Market Value Book value Revaluation / Profit / Loss Additional / Saving W.N. 3 25,000 15,000 40,000 --40,000 45,000 85,000 17,000 68,000 Revaluation Adjustment Machinery 1,50,000 1,00,000 50,000 (5000) Furniture 25,000 20,000 (5,000) 750 P&L --10,000 10,000 --10,000 (4,250) 5,750 1,150 4600 Reserve 50,000 --50,000 --50,000 --50,000 10,000 40,000 Total 75,000 25,000 1,00,000
(` in crores)
I.
6,00,000 3,44,600 48,150 2,07,000 11,99,750
II.
5,97,750 12,000 5,90,000 11,99,750
W.N. 1
28,150
Calculation of Cost of Control Cost of Investment 1,60,000 (-) Share in Share capital (1,00,000 x 80%) (80,000) (-) Share in Capitla Profit (68,000) Goodwill 12,000 Calculation of Minority Interest Share in Share Capital (1,00,000 x 20%) Share in Profit (17,000 + 1,150 + 10,000) Total 20,000 28,150 48,150
W.N. 4
W.N. 5 Own Share in Subsidiary
Calculation of Consolidated P&L / GR P&L 1,00,000 4,600 1,04,600 Reserve 2,00,000 40,000 2,40,000
83 Q.5.Ans. :Consolidated Balance Sheet of Morning & Group Particulars Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (8,745 + 2,072.5 + 902.50) (2) Minority Interest (3) Current Liabilities (a) Trade Payables (b) Other Provision (4,000 + 400 + 250) Total Assets (1) Non-current Assets (a) Fixed Assets (i) Tangible Assets Total Note No. (` in crores)
I.
40,000 11,720 7,930 4,900 4,650 69,200
II.
69,200 69,200
Notes to Account Morning Ltd. Evening Ltd. Less : Unrealized profit Night Ltd. Night Ltd. (i) Analysis of Profit of Evening Ltd. Particulars General Reserve Profit & Loss A/c Total (-) Interest on Loan [5,000 x 8%] Total Minority Interest : 20% Morning Ltd. : 80% (ii) Analysis of Profit of Night Ltd. Particulars General Reserve Profit & Loss Total (-) Stock Reserve Total Minority Interest : 25% Morning Ltd. : 75% Calculation of Cost of Control Cost of investment [18,000 + 8,000] (-) Capital Profit - Evening Night (-) Share in share capital - Evening Night Capital Reserve 26,000 (2,240) (1162.5) (16,000) (7,500) 902.50 Capital 800 2,000 2,800 --2,800 560 2,240 Rgr 200 --200 --200 40 160 Rpl --3,800 3,800 (400) 3,400 680 2,720 Total 1,000 5,800 21,800 32,800 (300) 32,500 14,900 69,200
Capital 750 800 1,550 --1,550 387.5 1162.5
Rgr 150 --150 --150 37.5 112.5
Rpl --1,800 1,800 (300) 1,500 375 1125
Total 900 2,600
(iii)
84 (iv) Calculation of Consolidated Profit & Loss & Reserve Own Balance (+) Share in Evening (+) Share in Night (+) Unrecorded Interest (-) Proposed dividend of holding Total (v) Calculation of Minority Interest Share in share capital : Evening [20,000 x 20%] Night [10,000 x 25%] (+) Share in Profit : Evening [560 + 40 + 680] Night [387.5+ 37.5 + 375] (-) Minority interest in proposed dividend : Evening [20,000 x 10% x 20%] Night [10,000 x 10% x 25%] Total Q.6.Ans. :Consolidated Balance Sheet as on 1 April, 2010 I. Particulars Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Current Liabilities Total Assets (1) Non-current Assets (a) Fixed Assets (b) Non Current Investment (2) Current Assets Total Note No. (` in crores) 4,000 2,500 1,280 800 (400) (250) 7,930 Profit & Loss 8,500 2,720 1,125 400 (4,000) 8,745 Reserve 1,800 160 112.5 ----2,072.5
50,00,000 65,00,000 25,00,000 1,40,00,000
II.
70,00,000 5,00,000 65,00,000 1,40,00,000
Notes to Account I. Investment in Associates Less : Capital Reserve Net 8,25,000 (3,25,000) 5,00,000
WN 1 : Calculation of Value of Investment Equity Share Capital Profit and Loss Account Net Assets Value of Investment @ 25% WN 2 : Calculation of Goodwill / Capital Reserve Cost of Investment Less : Share in Net Assets Capital Reserve 5,00,000 (8,25,000) 3,25,000 10,00,000 23,00,000 33,00,000 8,25,000
85 Q.7.Ans. :Consolidated Profit and Loss Account of H Ltd. and S Ltd. for the year ended 31st December, 2011 Particulars Revenue from opeations Total Revenue Expenses Cost of Material purchased / consumed Changes of Inventories of finished goods Employee benefit expense Finance Cost Depreciation and amortization expense Other expenses Total expenses IV. Profit before Tax (II - III) Profit transferred to Consolidated Balance Sheet Profit after Tax Preference dividend Preference dividend payable I. II. III. Less : Minority Interest Capital Reserve Investment Account - dividend for 3 months (prior to acquisition) Stock reserve Profit to be transferred to consolidated Balance Sheet Q.8.Ans. :Consolidated Profit & Loss Account Particulars Revenue from operations Total Revenue (A) Less : Expenses Purchases Other expenses Changes in inventories of finished goods Total Expenses (B) Profit Before Tax (A - B) Consolidated Balance Sheet Note No. I. Equity and Liabilities 1. Shareholders Funds : Share Capital Reserves and Surplus 2. Non-current liabilities Long term borrowings 3. Current Liabilities Total Assets Non Current Assets Fixed Assets Current Assets Inventories Other curent assets ` Note No. 1 (` in crores) 13,05,000 13,05,000 9,00,000 3,06,000 (1,00,000) 11,06,000 1,99,000 Note No. (` in crores) 17,90,000 17,90,000 10,40,000 2,50,000 24,000 1,89,000 1,40,000 16,43,000 1,47,000 1,47,000 3,500 3,500 7,000 1,40,000 7,000 7,000 1,750 2,500 1,21,750
2 3 4
5 6 7 8
4,01,000 1,99,000 2,00,000 1,00,000 9,00,000
II.
9 10 11
6,00,000 1,00,000 2,00,000 9,00,000
86 Notes to Accounts Particulars 1. Revenue from operations Sales : A Ltd. B Ltd. 2. Purchases A Ltd. B Ltd. 3. Other Expenses A Ltd. B Ltd. 4. Closing Stock A Ltd. B Ltd. 5. Share Capital : A Ltd. B Ltd. 6. Reserves and Surplus Profit & Loss Account : A Ltd. B Ltd. 7. Long Term Borrowings Unsecured Loans : A Ltd. B Ltd. 8. Current Liabilities : A Ltd. B Ltd. 9. Fixed Assets : A Ltd. B Ltd. 10. Inventories A Ltd. B Ltd. 11. Other Current Assets : A Ltd. B Ltd. (`)
7,25,000 5,80,000 5,00,000 4,00,000 1,70,000 1,36,000 50,000 50,000 1,96,490 2,04,510
13,05,000
9,00,000
3,06,000
1,00,000
4,01,000
99,500 99,500
1,99,000
1,00,000 1,00,000 50,000 50,000 3,00,000 3,00,000 50,000 50,000 1,00,000 1,00,000
2,00,000
1,00,000
6,00,000
1,00,000
2,00,000
87 Q.9.Ans. :Consolidated Balance Sheet as on 1 April, 2010 I. Particulars Equity and Liabilities (1) Shareholders Funds (a) Share Capital (b) Reserves and Surplus (2) Minority Interest (3) Current Liabilities & Provision (a) Trade Payable (80,194 + 90,940 + 16,340) (b) Tax Provision (c) Other Provision (Proposed Dividend) Total Assets (1) Non-current Assets (a) Fixed Assets Tangible Intangible (2) Current Assets (a) Inventories (b) Trade Receivable (c) Cash & Cash equivalent Total Note No. (` in crores)
2,50,000 1,55,530 60,261 1,87,474 1,68,885 1,11,000 9,33,150
II.
4,35,000 9,450 1,53,900 1,04,300 2,30,500 9,33,150
Notes to Account Trade Receivable Debtor Star Blue Green Less : Dividend Rectification Blue Green 82,390 46,610 44,300
1,73,300 (24,000) (45,000) 1,04,300
WN 1 : Analysis of Profit of Green Ltd. Revenue Reserve Capital Reserve Total (+) Proposed Dividend Total Minority Interest @ 20% Minority interest @ 80% Capital 22,000 20,000 42,000 --42,000 8,400 33,600 Rr/r 10,425 --10,425 30,000 40,425 8,085 32,340 Rc/r --10,000 10,000 --10,000 2,000 8,000 Total 32,425 30,000
88 WN 2 : (a) Analysis of Profit of Blue Ltd. (with reference to first date of acquisition) Capital 25,000 ----25,000 --8,000 33,000 24,750 Revenue 36,420 (24,000) 50,000 62,420 32,340 --94,760 71,070 Total 61,420
Revenue Reserve Rectification of Proposed Dividend Proposed Dividend Total (+) Transfer from Green Revenue Reserve Capital Reserve Total Share of Star Ltd. @ 75%
(b) Analysis of Profit of Blue Ltd. (with reference second date of acquisition) Revenue Reserve Rectification of Proposed Dividend Proposed Dividend Transfer from Revenue Reserve Transfer from Capital Reserve Total Minority Interest @ 10% Star Ltd @ 15% Share from first acquisition Total WN 3 : Calculation of Cost of Control Cost of Investment Less : Capital Profit B G Share in Share Capital B G Goodwill WN 4 : Calculation of Minority Interest Share in Share Capital B G Share in Profit B G Less : Minority of equity proposed B (50,000 x 10%) G (30,000 x 20%) 10,000 30,000 12,776 18,485 (5,000) (6,000) 60,261 2,85,000 (31,950) (33,600) (90,000) (1,20,000) 9,450 Capital 40,000 ------8,000 48,000 4,800 7,200 24,750 31,950 Revenue 21,420 (24,000) 50,000 32,340 --79,760 7,976 11,964 71,070 83,034 Total 61,420
WN 5 : Calculation of Consolidated Reserve Own Balance (Revenue Reserve) Add : Share in Blue Less : Rectification Proposed Dividend (50,000 x 90%) Own Capital Reserve Total
77,496 83,034 (45,000) 40,000 1,55,530

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1

Supermacy of Accounting Standards

Notes to Account in place of Schedules

Applicability of Accounting Standards

Features of Notes to Account

Profit and Loss Statement

Cash Flow Statement

Figure of Figure of Current year Previous Year

Figure of Figure of Current year Previous Year

9 (13) Fixed Assets - Intangible

4,000 1,187.8 500 1,573.2 1,239 8,500

7,500 400 440 160 8,500

900 1,560 660 231

(2) (3) (4)

445 270 175

667 1,447 417 345 685 1,447

40,00,000 25,00,000 3,40,000 4,20,000

10,00,000 13,00,000 23,00,000 4,80,000 2,30,000 2,50,000 32,60,000

2,50,000 1,00,000 3,50,000 1,20,000 80,000 2,10,000 7,60,000

1,11,000 15,425 4,000 1,30,425

20,800 1,500 1,30,425

` 20,000 2,90,000 12,500 1,05,000 1,27,500 50,000 6,05,000

Solutions of Corporate Restructuring

After Before Reconstruction Reconstruction

50 350 --100 500

50 650 100 200 1000

100 400 500

300 700 1000

50 250 100 100 500

200 300 500

(b) Net Assets value of an equity share Pre-demerger

Maxi Mini Ltd.

Dr. Dr. Dr. Dr.

93 15 81 645 249 585

345 45 277 270 937

515 422 937

445 102 547 (125) 422

Initial Balance Sheet of Y Ltd. Note No. (` in crores)

218 585 803

690 710 (15) (695) 5 15

After Recons 515 152 (277) 390 34.5 11.30

8,00,000 20,54,000 5,00,000 1,50,000 35,04,000

14,60,000 9,50,000 4,94,000 6,00,000 35,04,000

5,00,000 5,00,000 10,00,000

Amount 7,50,000 2,40,000 4,00,000 13,90,000

Amount 8,00,000 96,000 4,94,000 13,90,000

Amount 4,00,000 2,50,000 2,50,000 50,000 16,04,000

Amount 3,60,000 11,00,000 1,44,000 6,54,000 16,04,000

29,00,000 7,05,000 4,20,000 40,25,000

24,95,000 7,80,000 4,00,000 2,30,000 1,20,000 40,25,000

6,00,000 1,00,000 70,000 7,70,000

1,50,000 2,00,000 80,000 3,40,000 7,70,000

35 WN : Journal Entries in the books of Batliboi & Co.

Adhikari & Co.

Adhikari Capital Reserve To Freehold Property To Stock Adhikari To Bank

Dr. 1,40,000 Dr. 15,000 75,000 80,000 Dr. 1,90,000 1,90,000

84,000 15,425 3,700 1,03,125

61,350 10,275 15,000 16,500 1,03,125

61,350 10,275 15,000

2,66,000 73,038 90,900 1,68,000 5,97,938

2,37,500 1,11,500 1,41,125 1,07,813 5,97,938

Dr. (`) 2,00,000

Cr.(`) 1,81,800 18,180 20

Dr. Dr. Dr. Dr. Dr.