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1. Introduction

Simplicity and understandibility is one of the basic characteristics of Financial Statements.To Simplify thepresentation of Balance Sheet and Profit and Loss Account, The Central Government, in exercise of thepowers under section 641(1) of the Companies Act, 1956 has replaced the existing Schedule VI with therevised Schedule VI on the 28th February, 2011 pertaining to the preparation of Balance Sheet and Profit andLoss Account under the Companies Act, 1956.

This Revised Schedule is based on existing non-converged accounting standard notified by company ac-counting standard rule, 2006. However a close analysis of the form, content and terminology of RevisedSchedule VI is concerned, concept has been imparted from Indian Accounting Standard (Ind AS), approvedby 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 forindustry. As far as comparative of 31.3.2011 is concerned, question arise whether it should be presented asper old schedule VI or new schedule VI. The framework for preparation of financial statement prescribedcomparability as one of the essential qualitative characteristics. Accordingly it is better to present compara-tive 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 standardwill 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 thevarious items of income and expenses, assets and liabilities. It does not deal with recognition and measure-ment of various items of income and expenses, assets and liabilities. Recognition and measurement shouldbe 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 horizontalformat 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 thatconcept 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 separatelyand 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. 1,00,000whichever is higher.

7. Rounding Off

Revised norms of rounding off is as follows :

7. Applicability of Accounting Standards

As per general instruction no. 6 New Schedule VI contain both terminology accounting standards and IndianAccounting Standards. Since applicability date of Indian Accounting Standard is still to be notified hencebalance sheet and profit & loss account should contain the concept of accounting standard notified as percompany accounting standard rule 2006. As and when applicability date of Ind AS will be notified by TheGovernment 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 maybe taken from IAS / Ind AS 1 “Presentation of Financial Statements”.

Where turnover of the company in anyfinancial year is :

(i) less than Rs. 100 crores

(ii) Rs. 100 crores or more

Round off permissible

To the nearest hundreds, thousands, lakhs or millionsor decimals thereof

To the nearest lakhs or millions or crores or decimalsthereof

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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 understand-able. It is also important that balance sheet must present true and fair picture of state of affairs of the busi-ness. Ministry of Corporate Affairs has considered the similar requirement and prescribed form and content ofthe Balance Sheet. A specimen format of prescribed balance sheet is depicted below :

Particulars Notes Figure of Figure ofNo. Current year Previous Year

I. EQUITY AND LIABILITIES1. Share holder Fund

(a) Share Capital(b) Reserves and Surplus(c) Money received against share warrants

2. Share application money pending allotment3. Non-current liabilities

(a) Long-term borrowings(b) Deferred Tax Liabilities (Net)(c) Other Long term liabilities(d) Long term provisions

4. Current Liabilities(a) Short-term borrowings(b) Trade Payable(c) Short-term Provision

Total

II. ASSETS1. Non-current Assets

(a) Fixed AssetsTangible AssetsIntangible AssetsCapital work in progressIntangible under development

(b) Non-current Investment(c) Deferred Tax Assets (Net)(d) Long-term Loans and Advances(e) Other Non-current Assets

2. 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

Author Note :In case of consolidated financial statement minority interest should be presented in the head of shareholderfund.


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2. Profit and Loss Statement

Evaluator of Financial Statement is always concerned about the profit earned by the entities for investmentprospective in the entity and financial performance of the entities. Profit of the year consists of profit fromordinary activities, extraordinary activities, continuing operation and discontinuing operation. A part of profit isalso attributable to Government in current year and future year, therefore, it is necessary that detail of profitand loss should provide split of the profit from each and every activities. Ministry of Corporate Affairs hastherefore considered the requirement of evaluator profit and loss account and prescribed mandatory reportingformat of profit and loss statement which is depicted below :

Particulars Notes Figure of Figure ofNo. Current year Previous Year

I. Revenue from operationsII. Other income

III. Total Revenue (I + II)IV. Expenses :

Cost of materials consumedPurchases of Stock-in-TradeChanges in inventories of finished goodswork-in-progress and Stock-in-TradeEmployee benefits expenseFinance costsDepreciation and amortization expenseOther expenses

Total expenses

V. Profit before exceptional and extraordinary itemsand 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 continuingoperations (VII - VIII)

XII. Profit / (loss) from discontinuing operationsXIII. Tax expense of discontinuing operationsXIV. 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 presentedbelow the line or separate schedule can be prepared in notes to account below reserve and surplus.

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3. Cash Flow Statement

Institute of Chartered Accountants of India has issued accounting standard 3 “Cash Flow Statement” whichprovides classification of activities and presentation of cash flow. Form and content of Cash Flow Statementhas 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 itemof balance sheet and profit & loss account. Ministry has prescribed the content of notes but presentationformat has not been prescribed. Format for presentation of the notes should be prepared as per the require-ment of the Industry.

Based on content given by Ministry of Corporate Affairs specimen formats are detailed below for examinationpoint of view.(1) Summary of Significant Accounting Policies

(2) Share Capital

Particulars Figure of Figure ofCurrent year Previous Year

Authorised Share Capital............ equity shares @ ..... each............. Preference shares @ .... each

Total xxx xxx

Issued & Subscribed Share Capital............ equity shares @ ..... each............. Preference shares @ .... each

Total xxx xxx

Paid-up Share Capital............ equity shares @ ..... each............. Preference shares @ .... each Less : Calls unpaid by directors and other officersAdd : Equity shares forfeited (Paid-up)Add : Calls in advance

Total xxx xxx

Note :

(1) Reconciliation of Equity Shares and Preference shares at the beginning and end of the year is alsorequired as follows

Opening No. of Shares xxxAdd : No. of shares allotted as fully paid bonus shares xxxAdd : No. of Shares allotted for consideration other than cash xxxAdd : No. of share issued under ESOP & ESPP xxxAdd : No. of shares issued to public for cash xxxLess : No. of share bought back / redeemed (xxx)Less : Preference share converted into equity share during the year (xxx)

No. of shares at the end of the year xxx


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(2) The rights, preferences and restrictions attaching to each class of shares incluidng restrictions on thedistribution of dividends and the repayment of capital;

(3) shares in respect of each class in the compnay held by its holding company or its ultimate holdingcompany including shares held by or by subsidiaries or associates of the holding company or the ulti-mate holding company in aggregate;

(4) shares reserved for issue under options and contracts/commitments for the sale of shares/disinvest-ment, icluding the terms and amounts;

(5) For the period of five years immediately preceding the date as at which the Balance Sheet in prepared :

� Aggregate number and class of shares allotted as fully paid up pursuant to contract(s) withoutpayment 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.

(3) Reserves and Surplus

Particulars Opening Bal. Addition Deletion Closing Bal.

Capital ReservesCapital Redemption ReserveSecurities Premium AccountDebenture Redemption ReserveRevaluation ReserveShare Options Outstanding AccountGeneral ReserveDividend equalisation ReserveTaxation ReserveReserve for contingent liabilitySubsidy ReserveSurplus of Profit and Loss Account

Total

Author Note :Negative Balance if any in Profit & Loss Account should be presented in the head of reserve andsurplus is negative item. Similarly if there is negative balance in any reserve after adjustment then thatreserve should be presented in the head also as negative item.

(4) Long-term Borrowing

Particulars Total Secured Unsecured Rate ofAmount Portion Portion interest

Bond and DebentureTerm Loan from BankTerm Loan from Other PartyDeferred Payment LiabilityDepositLoans and Advances from relating partyLong-term maturity of finance lease obligationOther Loans and advances

Total

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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)


Deferred Tax Liabilities as per AS 22

Deferred Tax assets as per AS 22

Deferred Tax Liabilities (Net)

(6) Other Long Term Liabilities


Trade Payable not classified as current liabilities

Others

Total

(7) Long-term Provision


Employee Benefit as per AS 15

Premium on redemption of preference shares

Total

(8) Short-term Borrowing

Particulars Total Secured Unsecured Rate ofAmount Portion Portion interest

Working Capital LoanLoans and Advances from related partyLoans and Advances from BankDepositOther Loans and AdvancesTotal

(9) Trade Payable


CreditorsBills PayablesOutstanding Expenses

Total


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(10) Other Current Liabilities


Current Maturity of Long term debtCurrent Maturity of Finance Lease obligationInterest accrued but not dueInterest accrued dueIncome received in advanceUnpaid and unclaimed dividendSales tax payableExcise duty payableService tax payableOther Payables

Total

(11) Short-term Provision


Provision for Employee Benefit under AS 15Provision for dividend including dividend distribution taxProvison for income taxProvision for wealth taxProvision for Legal DamagesOther provisions

Total

(12) Fixed Assets - Tangible

Particulars Gross Carrying Amount Accumulated Depreciation Net Carrying AmountOpening Addition Deletion Closing Opening Addition Deletion Closing Opening Closing

1. LandOwnedLeased

2. BuildingsOwnedLeased

3. Plant & EquipmentOwnedLeased

4. Furniture & FixturesOwnedLeased

5. VehiclesOwnedLeased

6. Office EquipmentsOwnedLeased

Total

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(13) Fixed Assets - Intangible

Particulars Gross Carrying Amount Accumulated Depreciation Net Carrying AmountOpening Addition Deletion Closing Opening Addition Deletion Closing Opening Closing

1. Goodwill2. Brands / Trade Marks3. Computer Software

AcquiredInternally Generated

4. Mastheads5. Mining Rights6. Copyrights

AcquiredInternally generated

7. PatentsAcquiredInternally generated

Total

Author Note

(i) Opening Balance, Addition, Deletion and Closing Balance of impairment loss if any is also required both fortangible and Intangible fixed assets.

(ii) Revaluation Reserve any write off of revaluation reserve in case of tangible fixed assets should also bedisclosed.

(14) Non-current investment

Particulars Amount Trade Non-trade Permanent Remarks

Decline

1. Investment Property2. Investment in equity shares3. Investment in pref. shares4. Investment in Debenture or Bond5. Investment in Mutual Fund6. Investment in Government or Trust7. Investment in Partnership firm

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 Secured Unsecured Doubtful Bad debts Net

1. Capital advances

2. Security Deposit

3. Loans and Advances to related party

4. Loans and Advances to Director


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(16) Other Non Current Assets


1. Long term trade receivable

2. Others

(17) Current Investment

Particulars Amount Trade Non-trade Decline Remarks

1. Investment Property2. Investment in equity shares3. Investment in pref. shares4. Investment in Debenture or Bond5. Investment in Mutual Fund6. Investment in Government or TrustTotal

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 In Stock In Transit Total

Raw MaterialWork in ProgressFinished GoodsStock acquired for TradingStores and SparesLoose ToolsPacking Material

(19) Trade Receivable


1. Trade receivable for more than 6 months

2. Others

(20) Cash and Cash equivalent


Balance with Bank

Cheques, Draft in Hand

Cash on Hand

Short-term investment of upto 3 months

Total

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(21) Short-term Loans and Advances


1. Loans and advances to director

2. Loans and advances to related party

(22) Other Current Assets


Interest accrured and due on investment

Other specially not covered in other category

(23) Contingent Liability and Capital Commitment


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 oncapital account and not provided for

Others

(24) Revenue from Operation


Sales of ProductSale of ServicesOther Operating revenueLess : Excise Duty

Total

NoteIn case of finance company revenue from operation includes interest and other financial services.

(25) Other Income


Rental from investment propertyDividend from subsidiaryInterest from Government SecuritiesDividend from other companiesDividend on Mutual fundInterest from debentureShare of Profit in partnership firm


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(26) Cost of Material Consumed


Raw Material consumedPower and fuel consumedStores, spares, chemicals and packing material consumedProcessing ChargeRepair of Plant and MachineryRepair of Factory BuildingDepreciation on factory buildingTotal

(27) Employee Benefit Expenses


Salaries and Wages, Bonus, Gratuity and Allowances

Contribution to PF, ESI and Superannuation fund

Staff Welfare expense

Total

(28) Finance Cost


Interest expensesOther Borrowing CostNet Gain Loss on foreign currency costLess : Amount capitalised under AS 16

Total

(29) Depreciation and Amortisation


Depreciation on tangible fixed assetsAmortisation on intangible fixed assetsImpairment of Tangible and IntangibleWrite off of cost of assets

Total

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(30) Other Expenses


RentInsuranceRates and Taxes, Other than taxes on IncomeDonation contribution to political partyDonation to national defence fundOther DonationPayment to statutory Auditor as auditorPayment to statutory auditor for tax auditPayment to statutory auditor for certificationPayment to statutory auditor for taxationPayment to statutory auditor for law mattersPayment to statutory for management servicesPayment to statutory auditor for reimbursement of expensesLegal, Professional and consultancy chargeAdvertisement, Publicity and Sales PromotionCommission on SalesDownfall in the value of investmentDirector feesNet gain loss on foreign currency transactionsMiscellaneous 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 followedin examination as per the requirement of the questions.


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1. Introduction

New Schedule VI introduce concept of current and non current assets and liabilities which has been takenfrom Indian Accounting Standards. Therefore, it is important to understand the classification of assets andliabilities.

2. Assets

(i) Definition of Current AssetsIf 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 company’s 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 balancesheet date); or

Condition 4 : It is cash or cash equivalent unless it is restricted from being exchanged or used tosettle a liability for at least 12 months after the reporting date.

(ii) Definition of Non-Current AssetsNegative 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 beof 12 months.

In other ways operating cycle is calculated as follows :

Average collection Period of trade receivable xxxAdd : Average time lage period for work-in-progress, raw material and finished goods xxxLess : Average Payment Period of trade payable (xxx)Net xxx

(b) 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 andMeasurement of Financial Instrument”.

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(c) Example on Classification of Assets :-Classify the following item into Current and Non-current Assets

Item of Assets Operating Primary Settlement Cash & Cash

Cycle Purpose Period equivalent

Debtor 9 months --- 11 months ---

Bills Receivable 8 months --- 7 months ---

Cash in Hand --- --- --- Cash

Demand deposit with bank --- --- --- Equivalent

Term Deposit in Bank --- --- 48 months ---

Fixed Deposit --- --- 60 months ---

Investment in Government Bond --- Trading --- ---

Investment in Reliance Shares --- --- --- ---

Investment in Debenture of Tata --- Trading --- ---

Investment in Foreign currency

designated bond --- --- 2 months ---

Prepaid Expense --- --- 4 months ---

Investment in Land --- Trading --- ---

Investment in Building --- Rental Inc. --- ---

Investment in Gold --- --- 24 months ---

Property Plant and Equipment --- --- --- ---

Goodwill --- --- --- ---

Advertisement Right --- Trading --- ---

Know How --- --- --- ---

Brand --- --- --- ---

Deferred Tax Assets --- --- --- ---

Advances to Director --- --- 11 months ---

Advances to Related Party --- --- 25 months ---

Capital work in progress --- --- --- ---

Intangible under development --- --- --- ---

Investment in Mutual fund of SBI --- Trading --- ---

Investment in Close ended

scheme of Reliance --- --- 40 months ---

Capital Advances to Subsidiary --- --- 60 months ---

Lease receivable --- --- 12 months ---

Investment in Pref. Shares --- --- 20 Years ---

Interest accrued on investment --- --- 6 months ---

Goods in transit --- --- 3 months ---

Security Deposit --- --- 10 months ---

Investment in Partnership Firm --- --- 5 years ---

Copyright --- --- --- ---


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Ans. :-

Particulars Classification Reason

Debtor Current Condition 1 & 3 is satisfied

Bills Receivable Current Condition 1 & 3 is satisfied

Cash in Hand Current Condition 4 is satified

Demand deposit with bank Current Condition 4 is satisfied

Term Deposit in Bank Non Current No Condition is satisfied

Fixed Deposit Non Current No Condition is satisfied

Investment in Government Bond Current Condition 2 is satisfied

Investment in Reliance Shares Non Current No condition is satisfied

Investment in Debenture of Tata Current Condition 2 is satisfied

Investment in Foreign currency designated bond Current Condition 4 is satisfied

Prepaid Expense Current Condition 3 is satisfied

Investment in Land Current Condition 2 is satisfied

Investment in Building Non Current For long term prospective

Investment in Gold Non Current No Condition is satisfied

Property Plant and Equipment Non Current No Condition available

Goodwill Non Current No Condition available

Advertisement Right Current Condition 2 is satisfied

Know How Non Current No Condition is satisfied

Brand Non Current No condition is satisfied

Deferred Tax Assets Non Current Already given in format

Advances to Director Current Condition 3 is satisfied

Advances to Related Party Non Current No Condition is satisfied

Capital work in progress Non Current Available in format

Intangible under development Non Current Available in format

Investment in Mutual fund of SBI Current Condition 2 is satisfied

Investment in Close ended scheme of Reliance Non Current No Condition is satisfied

Capital Advances to Subsidiary Non Current No condition is satisfied

Lease receivable Current Condition 3 is satisfied

Investment in Pref. Shares Non Current No Condition is satisfied

Interest accrued on investment Current Condition 3 is satisfied

Goods in transit Current Condition 3 is satisfied

Security Deposit Current Condition 3 is satisfied

Investment in Partnership Firm Non Current No Condition is satisfied

Copyright Non Current No Condition is satisfied

Conclusion :- If any of the condition of current assets is not satisfied assets is called non current.

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Q. (RTP, Nov. 2012) X Ltd. is a company engaged in the business of manufacturing white & rose wine. Theprocess of manufacturing white & rose wine takes around 2 years. Due to this reason X Ltd. has prepared itsfinancial statements considering its operating cycle as 2 years and accordingly classified the raw materialpurchased & held in stock for less than 2 years as current asset. Comment on the accuracy of the decision andthe 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 otherwise non current.

Condition 1 : It is expected to be settled in the company’s 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 sheetdate); or

Condition 4 : It is cash or cash equivalent unless it is restricted from being exchanged or used to settle aliability 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 andcontention of management is correct.

Q. (RTP Nov. 2012 - Most Important) On 30th September, 2009 Beta Enterprises Ltd. was incorporated with anAuthorised Capital of ` 50 lakhs. its first accounts were closed on 31st March, 2010 by which time it hadbecome a listed company with an issued, subscribed and paid up capital of ` 40 lakhs in 4,00,000. Equityshares 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 on1st April, 2011. The following data is gathered from the books of account of Beta Enterprises Ltd.:

` in 000’sDr. Cr.

Engineering Division sales --- 6,000Cost of Engineering division sales 2,600 ---Chemicals division sales --- 8,000Cost of sales of Chemicals Division 4,300 ---Ceramics Division Sales --- 1,500Cost of Sales of Ceramics Division 900 ---Administration costs 2,000 ---Distribution costs 1,500 ---Dividend-Interim 1,200 ---Fixed Assets at cost 9,000 ---Depreciation on Fixed Assets --- 1,500Stock on 31st March, 2012 400 ---Trade Debtors 440 ---Cash at Bank 160 ---Trade Creditors --- 500Equity Share Capital in shares of ` 10 each --- 4,000Retained Profits --- 1,000

22,500 22,500Additional 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 legaladvice.

(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%.


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(h) During the year Engineering Division has sold to Alpha Ltd. goods having a sales value of ` 2500thousands. Mr. Gamma, the Managing Director of Beta Enterprises Ltd. owns 100% of the issued EquityShares 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 BalanceSheet as at the date. Your answer should include notes and disclosures as per Accounting Standards.

Ans. :-

Beta Enterprises Ltd.

Profit and Loss Account for the year ending 31st March, 2012Particulars Note No. (` in crores)

I. Revenue from opeations 15,500II. Total Revenue 15,500III. Expenses

Cost of Sales (7,800)Distribution costs (1,500)Administration costs (2,000)Total Expenses 11,300

IV. Profit before tax 4,200V. Tax Expenses

Current tax 1,239Deferred tax 231 1,470

VI. Profit or Loss for the period 2,730

Beta Enterprises Ltd.Balance Sheet as at 31st March, 2012

Particulars Note No. (`’000)I. Equity and Liabilities

(1) Shareholder’s Funds(a) Share Capital 1 4,000(b) Reserves and Surplus 2 1,187.8

(2) Current LiabilitiesTrade payables 500Other current liabilities 3 1,573.2Short term provisions 4 1,239

Total 8,500II. Assets

(1) Non-current assetsFixed assets

Tangible 5 7,500(2) Current assets

(a) Inventories 400(b) Trade receivables 440(c) Cash and Cash equivalents 160

Total 8,500

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Notes to Accounts :(` ‘000) (`’000)

1. Share CapitalAuthorised share capital 5,00,000 Equity shares of ` 10 each 5,000Issued and subscribed 4,00,000 shares of ` 10 each, fully paid up 4,000

2. Reserves and SurplusRetained profit brought forward (` 1,000 - ` 210) 790Profit after tax of the current year 2,730Amount transferred to General Reserve (10% of ` 2,730) (273)Amount transferred to CDT (16.2225% of ` 2,000) (324.45)Dividends (` 1,200 + ` 800) (2,000)Profit for the year 132.55Total Profit 922.55Reserves 273

1,195.553. Other current Liabilities

Proposed dividend 800Dividend distribution tax 324.45Deferred Tax Liability (` 210 + ` 231) 441 1,565.45

4. Short term provisionsProvision for tax 1,239

5. Tangible assetsFixed AssetsGross Block 9,000Less : Depreciation (1,500) 7,500

Disclosures1. Segmental Disclosures (Business Segments)

(` ‘000)Engineering Chemical Ceramics Total

Division Division DivisionSales 6,000 8,000 1,500 15,500Cost of Sales 2,600 4,300 900 7,800Administration Cost (5:3:2) 1,000 600 400 2,000Distribution cost (3:1:1) 900 300 300 1,500Profit / Loss 1,500 2,800 (100) 4,200

6,000 8,000 1,500 15,500Original Cost of Assets (Equal Capital Base) 3,000 3,000 3,000 9,000Depreciation @ 10% p.a.For the year ended 31.3.2011 300 300 NIL 600For the year ended 31.3.2012 300 300 300 900

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 1.4.2011WDV of fixed assets as per books 5,400WDV of fixed assets as per Income Tax Act 4,800Difference 600Deferred Tax Liability @ 35% on ` 600 210This has been adjusted against opening balance of retained profits.Current year (ended 31st March, 2012)Depreciation as per books 900Depreciation as per Income Tax Act (` 480 + ` 480 + ` 600) 1,560Difference 660Deferred Tax Liability @ 35% on ` 660 (to be carried forward) 231


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3. Contingent Liabilities not provided : Company is contesting claim for damages for ` 7,50,000 and as suchthe same is not acknowledged as debts.

4. Related Party Disclosures : As per AS 18Name of the related party Alpha Ltd.Nature of relationship Common directorNature of the transaction Sale of goods at normal commercial termsVolume of the transaction Sales to Alpha Ltd. worth ` 2500 thousandes

WN : Calculation of Tax(` in ‘000)

Profit before tax for the year ended 31.3.2012 4,200Add : Depreciation provided in the books (` 300 + ` 300 + ` 300) 900

5,100Less : Depreciation as per Income Tax Act (` 480 + ` 480 + ` 600) (1,560)Taxable Income 3,540Tax at 35% on ` 3,540 1,239

Examination Tips

(1) Fictitious Assets : In Revised Schedule VI there is no head to disclose fictitious assets. As per AS 26following expenses are required to be written off in the first year of operation i.e. preliminary expense deferredrevenue expenditure, startup cost, pre-operative expense and pre-opening expense. Accordingly such ficti-tious should be adjusted from reserve and surplus in the balance sheet. Alternatively, as some company isfollowing practice to write off such fictitious as per income tax provision. Hence, such fictitious assets can alsobe disclosed as other current assets, if it can be written off within 12 months from the end of balance sheet andother 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 coveredunder AS 26. Hence, can be disclosed as other current assets or other non current assets as the case may be.

(2) Amalgamation Adjustment account should be disclosed as other non current assets.

(3) If there is debit balance in P&L Account and there is no other reserve in that case it should be presented in thehead of reserve and surplus as negative item.

(4) 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 pref-

erence 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. Eitherseparate note can be presented in notes to account or it can be clubbed in working note and directlydisclosed.

(5) Notes to account should be prepared for those item having complex calculation and for which adjustment isgiven in the question. For other item it should be disclosed in balance sheet.

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 B Total

Fixed AssetsCost 600 300 900Depreciation (500) (100) (600)W.D.V. 100 200 300

Net current assetsCurrent assets 400 300 700Less : Current liabilities (100) (100) (200)

Net current assets 300 200 500Total 400 400 800Financed by :

Loan funds --- 100 100(secured by a charge on fixed assets)

Own funds :Equity capital (fully paid up ` 10 shares) 50

Reserves and surplus ? ? 650Total 400 400 800

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 thatdivision. B Ltd. is to allot 5 crores equity shares of ` 10 each in the company to the members of AB Ltd. in fullsettlement of the consideration. The members of AB Ltd. are therefore to become membes of B Ltd. as wellwithout 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 correspondingprevious 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 thecompany'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 W Division TotalFixed Assets :Cost 875 249(-)Depreciation 360 81Written down value 515 168 683Investments 97Net Current assets :Current assets 445 585(-) Current Liabilities 270 93

175 492 6671,447

Financed by :Loan funds 15 417Own funds :Equity share capital : shares of ` 10 each 345Reserves and surplus 685

1,447


22

Loan funds included, inter alia, Bank Loans of ` 15 crore specifically taken for W Division and Debentures of thepaid 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 sharsof ` 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 valuest 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 8,60,000Issued and Paid up : Land 7,00,0008,000 equity shares of ̀10 each, fully paid up 8,00,000 Current Assets 8,00,000Reserve and Surplus : Patents, trade marks and copyrights 6,00,000General Reserve 5,00,000Share Premium 4,00,000Profit and Loss 3,60,000 12,60,00011% Debentures secured againstthe assets of the Co. 5,00,000Sundry 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 4,00,000Land (used for business) 2,00,000Current Assets 2,00,000Trademarks and copyrights 3,50,000

11,50,000Sundry Creditors 2,50,000

9,00,000Due to managerial constraints, X is unable to develop this department. An overseas buyer is interested to acquirethis department and after due diligence, offers a consideration of ` 20,00,000 to the company for transfer ofbusiness. The buyer offered to discharge the purchase consideration immediately after 31st March, 2012, in thefollowing manner :(i) Issue of equity shares of the buyer’s 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 X’s 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.

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(d) 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 buyerwill 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 transferreddepartment 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 buyer’s company were quoted on the London Stock Exchange and on 30thApril, 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 2012when 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 overseasbuyer. [May, 2012 - 16 Marks]

Q.4. (Study Material - Important) Batliboi & Co. Ltd. carried on manufacturing business. Its products were sold towholesales and the company had its own retail shop. Adhikary & Co., private ltd. carried on similar manufacturingbusiness, 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 & Adhikary & Batliboi & Adhikary &Co. Ltd. Co. Ltd. Co. Ltd. Co. Ltd.

` ` ` `Share Capital Fixed Assets :Authorised Equity Freehold propertiesshares of ` 10 40,00,000 6,00,000 at cost 10,00,000 2,50,000Issued & fullypaid up 25,00,000 6,00,000 Plant & machinery atP & L A/c 3,40,000 90,000 cost less depreciation 13,00,000 1,00,000Creditors 4,20,000 70,000 23,00,000 3,50,000

Current Assets :Stock 4,80,000 1,20,000Debtors 2,30,000 80,000Bank 2,50,000 2,10,000

32,60,000 7,60,000 32,60,000 7,60,000

The original cost of plant and machinery was :Batliboi & Co. Ltd. ` 26,00,000Adhikary & 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 offagainst the amount due to them under (1) above and the balance due to them to be satisfied by the issue of anappropriate 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 shareholdersagainst 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 byAdhikary & 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. immediatelyafter 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 ` Assets Àuthorised capital : Goodwill 10,000

20,000 equityshares of` 10 each 2,00,000 Land and Buildings 20,500

Issued, subscribed and paid up Machinery 50,850capital 12,000 shares of Stock 10,275` 10 each 1,20,000 Book debts 15,000

Less : Calls in arrear Cash at bank 1,500(` 3 per share Profit and loss A/con 3,000 shares) (9,000) 1,11,000 Balance as per last

Sundry creditors 15,425 Balance Sheet 22,000Provision for taxes 4,000 Less : Profit for the year (1,200) 20,800

Preliminary expenses 1,5001,30,425 1,30,425

The directors have had a valuation made of the machinery and find it overvalued by ` 10,000. It is proposed towrite down this asset to its true value and to extinguish the deficiency in the Profit and loss account and to write ofgoodwill 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 arerequested to draft the journal entries necessary and the balance sheet of the company after carrying out the termsof 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 Assets4,000 Equity shares of ` 100 each, Goodwill at cost 20,000` 50 per share paid up 2,00,000 Others 4,25,0002,000, 11% Cumulative Less : Depreciation 1,35,000 2,90,000preference shares of ` 100 each, Investment 12,500fully paid up 2,00,000 Stock in trade 1,05,000Premium received on preference shares 20,000 Sundry Debtors 1,27,500General reserve 30,000 Cash and Bank balances 50,000Current Liabilities 1,55,000

6,05,000 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 somewould also like to reflect the values of some of its assets in a realistic manner. The Board of Directors of theCompany 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 thethe working for the half-year ended 30th September, 2011 it is noticed that the trading for the period has resultedin an increase of bank balances by ` 27,550. Sundry Debtors by ` 20,000, Trade Creditors by ` 13,000 and adecrease 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 andredeeming 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 fi-nances. On March 31, 2010 a final Trial Balance extracted from the books of the company showed the follow-ing position :

Dr. (`) Cr.(`)Share Capital, Authorised and issued :1,500 6% Cumulative Preference Shares of ` 100 each 1,50,0002,000 Equity shares of ` 100 each 2,00,000Capital Reserve 36,000Profit and Loss Account 1,10,375Preliminary Expenses 7,250Goodwill at Cost 50,000Trade Creditors 42,500Debtors 30,200Bank Overdraft 51,000Leasehold Property at Cost 80,000Provision for Depreciation on Leasehold Property 30,000Plant and Machinery at Cost 2,10,000Provision for Depreciation on Plant and Machinery 57,500Stock-in-Trade 79,175

5,67,000 5,67,000

(a) The approval of the Court was obtained for the following scheme for reduction of Capital.(b) The Preference Shares to be reduced to ` 75 per share.(c) The Equity Shares to be reduced to ` 12,50 per share(d) 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.(e) The balance in Capital Reserve Account to be utilized.(f) Plant and Machinery to be written down to ` 75,000.(g) 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 thetotal Authorised Capital to ` 3,50,000 consisting of 1,500 6% Cumulative Preference Shares of ` 75 each andthe balance in Equity shares of ` 12.50. As soon as the above resolutions had been passed 5,000 Equityshares were issued at par, for cash, payable in full as application money. The same were fully subscribed andpaid.

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 :

(` ‘000)Liabilities Max Ltd. Mini Ltd. Assets Max Ltd. Mini Ltd.Share Capital : Goodwill 20 ---Equity share of ` 100 each 1,500 1,000 Other fixed assets 1,500 7609% Preference shares of ` 100 each 500 400 Debtors 651 440General Reserve 180 170 Stock 393 680Profit and Loss account --- 15 Cash at Bank 26 130 Debentures of ` 100 each 600 200 Own debenturesSundry 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 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 considerationwas 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 ` in lakhs10% redeemable preference shares of ` 10 each, fully paid-up 2,500Equity shares of ` 10 each fully paid up 8,000Capital redemption reserve 1,000Securities premium 800General reserve 7,100Profit and loss account 3009% Debentures 5,000Sundry creditors 3,300Sundry provisions 2,000

30,000

Assets ` in lakhsFixed Assets 16,000Investment 4,100Cash at Bank 1,650Other current assets 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 itsequity shares @ ` 20 per share. In order tto make cash available, the company sold all the investments for ` 4,500lakh 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'sbalance sheet immediately thereafter. The amount of securities premium has been utilized to the maximumextent 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 ` Assets `Trade Creditors 36,000 Building 80,000Capital 1,94,000 Furniture and fittings 10,000

Debtors 90,000Stock 30,000Bank 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 ofdebtors will be made by the company on a commission of 5% on cash collected. The company is to issue A with10,000 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, ` 8per share was called and paid up except in the case of 1,000 shares on which the 3rd call of ̀ 2 per share had notbeen realised. In the case of 2,000 shares, the entire face value of the shares has been realised. The share issuewas 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 ofX Co. Ltd. on 31st March, 1994.

`Discount (including ` 1,000 allowed on vendor's debtors) 6,000Preliminary Expenses 10,000Director's Fees 12,000Salaries 48,000Debtors (including vendor's debtors) 1,60,000Creditors 48,000Purchases 3,20,000Sales 4,60,000

Stock on 31st March, 1994 was ` 52,000. Depreciation at 10% on Furniture and Fittings and at 5% on building isto 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 balancesheet as at that date. [May, 1994 - 20 Marks & RTP- Nov. 2009]


28

Solutions of Corporate RestructuringQ.1.Ans. :- Journal Entries in the books of AB Ltd.

Particulars Dr. Cr.(`) (`)

(1) Loan Funds Dr. 100Current Liabilities Dr. 100Provision for Depreciation Dr. 100Loss on reconstruction Dr. 300

To Fixed Assets 300To Current Assets 300

(being division B along with its assets and liabilities sold toTurnaround Ltd. for ` 25 Crores)

(2) Reserve & Surplus Dr. 300To Loss on reconstruction 300

(Being allotment of 5 crore equity shares of ` 10 eachto the members of AB Ltd. in full settlement of the consideration)

Journal Entries in the books of B Ltd.Particulars Dr. Cr.

(`) (`)

(1) Fixed Assets Dr. 200Current Assets Dr. 300

To Current Liabilities 100To Secured Loan 100To Equity Share Capital 50To Capital Reserve 250

(being assets & liabilities of AB Ltd. taken over in consideration5 crores equity shares of ` 10 each

Balance Sheet of AB Ltd.Note No. After Before

Reconstruction Reconstruction(I) Equity and liabilities

(1) Shareholder’s funds(a) Share Capital 50 50(b) Reserves and Surplus 1 350 650

(2) Non-current liabilitiesSecured Loan --- 100

(3) Current Liabilities 100 200Total 500 1000

(II) Assets(1) Non-Current Assets

(a) Fixed Assets 2 100 300(2) Current Assets 400 700Total 500 1000

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Notes to AccountAfter Before

Resonstruction Reconstruction(1) Reserves and Surplus

Balance sheet value 650 650Less : Loss on reconstruction (300) ---

350 650(2) Fixed Assets

Balance Sheet value 600 900Less : Depreciation (500) (600)

100 300

Balance Sheet of B Ltd.Note No. `

(i) Equity and Liabilities(1) Shareholder’s Funds

(a) Share Capital 50(b) Reserves and Surplus 250

(2) Non-current LiabilitiesSecured Loans 100

(3) Current Liabilities 100Total 500

(ii) Assets(1) Non-current assets

Fixed Assets 200(2) Current Assets 300Total 500

(b) Net Assets value of an equity sharePre-demerger Post-demerger

Maxi Mini Ltd.Rs. 700 crores

5 crores = Rs. 140

Rs. 400 crores

5 crores = Rs. 80

Mini Ltd.Rs. 300 crores

5 crores = Rs. 60

(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 businesseswhereby profitability is likely to improve on account of demerger.


30

Q.2.Ans. :-

(i) Journal Entries in Z Ltd.’s books

Dr. Cr.(`) (`)

Bank Account (Current Assets) Dr. 102To Investments 97To Profit and Loss Account (Reserves and Surplus)

(Sale of investments at a profit of ` 5 crores)Debentures (Loan Funds) Dr. 125

To Bank Account (Current Assets) 125(Redemption of denentures at par)Current Liabilities Dr. 93Bank Loan (Loan Funds) Dr. 15Provision for Depreciation Dr. 81Reserves and Surplus (Loss on Demerger) Dr. 645

To Fixed Assets 249To Current Assets 585

(Assets and liabilities pertaining to W Division taken out of thebooks on transfer of the division of Y Ltd.)

(ii) (a) Z Ltd.’s Balance Sheet after demerger

Particulars Note No. (` in crores)(i) Equity and Liabilities

(1) Shareholder’s Funds(a) Share Capital 345(b) Reserve and Surplus 1 45

(2) Non-Current LiabilitesLong-term borrowings 2 277



Fixed AssetsTangible Assets 515

(2) Current Assets 3 422Total 937

Notes to Accounts :

1. Reserves and SurplusBalance as on 31st March, 2012 685Add : Profit on sale of investments 5

690Less : Loss on demerger (645)Balance shown in balance sheet after demerger 45

2. Loan FundsBalance as on 31st March, 2012 417Less : Bank Loan transferred to Y Ltd. 15Debetures redeemed 125 (140)Balance shown in balance sheet after demerger 277

31

3. Current AssetsBalance as on 31st March, 2012 445Add : Cash received from sale of investments 102

547Less : Cash paid to redeem debentures (125)Balance in balance sheet after demerger 422

(b) Initial Balance Sheet of Y Ltd.

Particulars Note No. (` in crores)(i) Equity and Liabilities

(1) Shareholder’s Funds(a) Share Capital 1 690(b) Reserves and Surplus 2 5

(2) Non-current liabilitiesLong-term borrowings 3 15



Fixed Assets 218(2) Current Assets 585Total 803

Notes to Accounts :(` in crore)

1. Share CapitalAuthorised Capital

90 crores Equity shares of ` 10 each 900Issued and subscribed capital

69 crores Equity shares of ` 10 each 690(issued for consideration other than cash)

2. Reserves and SurplusCapital Reserve

Purchase consideration 690Less: Assets transferred 710Loan funds transferred (15) (695)

Capital Reserve 53. Long-term borrowing

Loan Funds 15

(iii) Calculate Intrinsic ValueBefore Recons. After Recons

Fixed Assets 683 515Current Assets :(-) Current Liabilities 644 152(-) Loan Funds (292) (277)Net Assets 1035 390No. of Share 34.5 34.5Intrinsic Value 30 11.30


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(iv) (a) Intrinsic Value of Y Ltd.Fixed Assets 218Net Current Assets 492(-) Loan Fund (15)Net Assets 695No. of Share 69Intrinsic Value 10.07

(b) Statement of Gain / LossPre-demerger wealth 30Post demerger

Z Ltd. 11.30Y Ltd. 20.14 31.44

Impact (gain) 1.44

Q.3. Ans. :-(i) Balance Sheet

Particulars Note No. (`)I. Equity and Liabilities

(1) Shareholder’s Funds(a) Share Capital 8,00,000(b) Reserves and Surplus 1 20,54,000

(2) Non Current LiabilitiesLong-term Borrowing (11% Debenture) 5,00,000

(3) Current LiabilitiesTrade Payables (Creditors) 1,50,000Total 35,04,000

II. Assets(1) Non-current assets

(a) Fixed Assets 2 14,60,000(2) Current Assets

(a) Current Investments 9,50,000(b) Cash & cash equivalents 4,94,000(c) Other Current Assets (8,00,000 - 2,00,000) 6,00,000Total 35,04,000

Notes to Account(` in crore)

1. Reserve & SurplusRevaluation Reserve 5,00,000General Reserve 5,00,000Securities Premium 4,00,000Profit & Loss Account 6,54,000Total 20,54,000

2. Fixed AssetsPlant and Machinery Less Depreciation (8,60,000 - 2,00,000) 4,60,000Land

Balance Sheet value 7,00,000Less : taken over by overseas buyer (2,00,000) 5,00,000Add : Revaluation @ 100% 5,00,000

10,00,000

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WN 1 : Calculation of Profit`

Total Profit earned by X Co. Ltd. during the month of April, 2012 2,40,000Less : 40% Profit of the sold department (96,000)Profit of X Co. Ltd. on the retained department 1,44,000

WN 2 : Calculation of Gain on Sale of Department`

Purchase consideration 20,00,000Less : Net Assets sold (9,00,000)Gain 11,00,000

WN 3 : Statement showing discharge of purchase consdideration`

Purchase Consideration given in question 20,00,000Less : Discharged by issue of Overseas Buyer’s Equity Shares of ` 10,00,000 at 20% premium (12,00,000)Balance discharged in cash i.e. (8,00,000/80) = £10,000 8,00,000

WN 4 : Calculation of Patent, trademarks and copyrights written off`

Value as per Balance Sheet 6,00,000Less : Taken by overseas buyer (3,50,000)Transfer to Profit and Loss Account 2,50,000

WN 5 : Calculation of Loss on investment of equity share of overseas buyer`

Value of share discharge as purchase consideration 12,00,000Less : Market Value (10,00,000 x 95%) (9,50,000)Transfer to Profit and Loss Account 2,50,000

WN 6 : Calculation of Loss on foreign exchange translation`

Cash payment by overseas buyer 10,000 due on 31st March 2012 @ ` 80 per £ 8,00,000Exchange rate on 30th April, 2012 is ` 75 per £Less : Amount remitted in Indian Currency (£10,000 x ` 75) (7,50,000)Transfer to P&L Account 50,000

WN 7 : Cash AccountParticulars Amount Particulars AmountTo Cash from overseas buyer 7,50,000 By Expenses on sale of deptt. 8,00,000To Profit earned 2,40,000 By Share of Profit given to buyer 96,000To Cash Reimbursed by overseas buyer 4,00,000

By Balance c/d (Bal. Fig.) 4,94,00013,90,000 13,90,000


34

WN 8 : Profit and Loss AccountParticulars Amount Particulars Amount

By Balance b/d 3,60,000To Expenses on Sale of Deptt. 4,00,000 By Profit on sale of deptt. 11,00,000To Patent, trademark and copy written off 2,50,000 By Profit Eanred 1,44,000To Decrease in value of investment 2,50,000 By Balance c/d (bal. Fig.) 6,54,000To Loss on exchanged transaction 50,000

16,04,000 16,04,000

Note 1 - Investment is assumed short termNote 2 - Profit is assumed realized in cash.

Q.4. Ans. :-(i) Balance Sheet of Batliboi & Co. as on 31st March, 2012


(1) Shareholder’s Funds(a) Share Capital 29,00,000(b) Reserves and Surplus 7,05,000

(2) Current LiabilitiesTrade Payables 4,20,000Total 40,25,000


(a) Fixed Assets(b) Tangible Assets 24,95,000(c) Non-current Investments 7,80,000

(2) Current Assets(a) Inventories 4,00,000(b) Debtors 2,30,000(c) Cash & Cash equivalents 1,20,000Total 40,25,000

(ii) Balance Sheet of Adhikary & Co. (P.) Ltd. as on 31st March, 2012Particulars Note No. (`)

I. Equity and Liabilities(1) Shareholder’s Funds

(a) Share Capital 6,00,000(b) Reserves and Surplus 1,00,000

(2) Current LiabilitiesTrade Payables 70,000

Total 7,70,000II. Assets

(1) Non-current assetsFixed assetTangible assets 1,50,000

(2) Current Assets(a) Inventories 2,00,000(b) Debtors 80,000(c) Cash & Cash equivalents 3,40,000

Total 7,70,000

35

WN : Journal Entries in the books of

Batliboi & Co. Adhikari & Co.Investment in Adhikari Dr. 8,40,000 No Entry

To Member of Adhikari 8,40,000

No entry Member of Adhikari Dr. 60,000To Freehold Property 60,000

Member of Adhikari Dr. 60,000 Batliboi Dr. 60,000To Adhikari Ltd. 60,000 To Member of Adhikari 60,000

Member of Adhikari Dr. 7,80,000 No EntryTo Equity Share Capital 4,00,000To Securities Premium 3,80,000

Plant and Machinery Dr. 1,50,000 Batliboi Dr. 2,70,000Freehold Property Dr. 1,20,000 Accumulated Dep. Dr. 1,00,000

To Adhikari 2,70,000 To Plant and Machinery 2,00,000To Freehold Property 1,00,000To Capital Reserve (bal. fig.) 70,000

Adhikari Dr. 1,40,000 Freehold Property Dr. 60,000Capital Reserve Dr. 15,000 Stock Dr. 80,000

To Freehold Property 75,000 To Batliboi 1,40,000To Stock 80,000

Adhikari Dr. 1,90,000 Bank Dr. 1,90,000To Bank 1,90,000 To Batliboi 1,90,000

P&L A/c Dr. 60,000To Proposed dividend 60,000

Bank A/c Dr. 60,000 Proposed dividend Dr. 60,000

To Investment in adhikari 60,000 To Bank 60,000

Q.5.Ans. :-Journal Entries

S. No. Particulars (Dr. `) (Cr. `)

(i) Equity Share Capital A/c Dr. 30,000To Share forfeiture 21,000To Calls in arrear 9,000

(Being share forfeited)(ii) Equity share capital [9,000 x10] Dr. 90,000

To equity share capital 63,000To Capital Reconstruction 27,000

(Being share redeemed)(iii) Bank A/c (3000 x 5) Dr. 15,000

Share forfeiture Dr. 6,000To Equity share capital (3,000 x 7) 21,000

(iv) Share forfeiture A/c Dr. 15,000To Capital reserve 15,000

(Being amount of forfeiture transferred to capital reserve)(v) Capital Reconstruction A/c Dr. 27,000

Capital Reserve A/c Dr. 15,000Provision for tax Dr. 300

To Machinery 10,000To P & L A/c 20,800To Preliminary exp. 1,500To Goodwill 10,000

(Being assets revised & written off)


36

(i) Balance sheet of Bharat Construction (as reduced) as at 31.12.2002Particulars Note No. (` in Crores)

I. Equity and Liabilities(1) Shareholders’ Funds :

(a) Share Capital 1 84,000(2) Current Liabilities

Trade Payable 2 15,425Other current liability 3 3,700

Total 1,03,125II Assets

(1) Non-current AssetsTangible Fixed Assets 4 61,350

(2) Current AssetsInventories 5 10,275Trade Receivable 6 15,000Cash and Cash equivalent 7 16,500

Total 1,03,125


1. Share Capital12,000 equity share @ 7 84,000

2. Trade PayableSundry Creditors 15,425

3. Other Current LiabilityProvision for taxes 4,000Reconstruction adjustment (300) 3,700

4. Tangible Fixed AssetsLand and Building 20,500Machinery 50,850Reconstruction adjustment (10,000) 61,350

5. InventoriesStock 10,275

6. Trade ReceivableBook Debts 15,000

7. Cash and Cash equivalentCash at Bank 1,500Cash from issue of shares 15,000 16,500

37

Q.6. Ans. :-Balance sheet of Sick Limited as at 30.9.2011

Particulars Note No. (` in Crores)I. Equity and Liabilities

(1) Shareholders’ Funds :(a) Share Capital 1 2,66,000(b) Reserve and Surplus 2 73,038

(2) Non - Current LiabilitiesLong-term borrowing 3 90,900

(3) Current LiabilitiesTrade Payable 4 1,68,000Total 5,97,938

II Assets(1) Non-current Assets

Tangible Fixed Assets 5 2,37,500(2) Current Assets

Inventories 6 1,11,500Trade Receivable 7 1,41,125Cash and Cash equivalent 8 1,07,813

Total 5,97,938


1. Share Capital4,000 equity share @ 50 each 2,00,0001320 equity share issued in lieu of Pref. Dividend 66,000 2,66,000

2. Reserve and SurplusSecurities premium 20,000Premium on issue of debenture 18,180General Reserve 28,625Profit and Loss A/c (from working note) 6,233 73,038

3. Long term borrowings13% debenture isued to 11% cumulative PSC 1,81,800Redeemed during ½ year (50%) (90,900) 90,900

4. Current LiabilityCurrent Liability in Balance Sheet 1,55,000Increase during ½ year 13,000 1,68,000

5. Tangible Fixed AssetsFixed Assets balance sheet 2,90,000Reconstruction adjustment (40,000)½ year depreciation (12,500) 2,37,500

6. InventoriesStock as per balance sheet 1,05,000Reconstruction adjustment 10,500Decrease during ½ year (4,000) 1,11,500

7. Trade ReceivableDebtor as per balance sheet 1,27,500Reconstruction adjustment 6,375Increase during the year 20,000 1,41,125

8. Cash and Cash equivalentCash at Bank (from working note) 1,07,813


38

WN 1 : Journal EntriesS.No. Particulars Dr. (`) Cr.(`)(i) 11% Cumulative Preference Share Capital A/c Dr. 2,00,000

To 13% Debentures A/c 1,81,800To Premium on issue of Debentures A/c 18,180To Cash 20

(ii) Capital Reduction A/c Dr. 66,000To Equity Share Capital 66,000

(iii) Equity Share Capital A/c Dr. 1,33,000To Capital Reduction Ac 1,33,000

Equity Share capital A/c Dr. 1,33,000To Equity Share Capital (` 50) 1,33,000

(iv) Cash and Bank A/c Dr. 1,33,000To Equity Share Capital A/c 1,33,000

(v) Capital Reduction A/c Dr. 78,875To Goodwill 20,000To Investment 12,500To Fixed Assets A/c 40,000To Sundry Debtors A/c 6,375

(vi) Stock A/c Dr. 10,500To Capital Reduction A/c 10,500

(vii) General Reserve A/c Dr. 1,375To Capital Reduction A/c 1,375

WN 2 : Profit and Loss AccountParticulars ` Particulars Ìncrease in Creditors 13,000 Increases in Cash & Bank 27,550Decrease in Stock 48,000 Increase in Debtors 20,000Increase in Depreciation 12,500Profit (bal. fig.) 18,050

47,550 47,550

WN 2 : Cash and Bank AccountParticulars ` Particulars `To Balance b/d 1,82,980 By Interest 11,817To Increase 27,550 By Debentures (1,81,000/2) 90,900

By Balance c/d 1,07,8132,10,530 2,10,530

39

Q.7. Ans. :- Journal EntriesS.No. Particulars Dr. (`) Cr.(`)(i) 6% Cumulative Preference Share Capital (` 100 each) A/c Dr. 1,50,000

To 6% Cumulative Pref. Share Capital (` 75 each) A/c 1,12,500To Capital Reduction A/c 37,500

(ii) Equity Share Capital (` 100 each) a/c Dr. 2,00,000To Equity Share Capital (` 12.50 each) A/c 25,000To Capital Reduction A/c 1,75,000

(iii) Capital Reduction A/c Dr. 3,375To Equity share capital A/c 3,375

(iv) Capital Reserve A/c Dr. 36,000To Capital Reduction A/c 36,000

(v) Capital Reduction A/c Dr. 77,500To Plant & Machinery A/c 77,500

(vi) Capital Reduction A/c Dr. 1,67,625To Profit & Loss A/c 1,10,375To Preliminary Expenses 7,250To Goodwill 50,000

(vii) Bank a/c Dr. 62,500To Share Application & Allotment A/c 62,500

(viii) Share Application and Allotment A/c Dr. 62,500To Equity Share Capital A/c 62,500

Balance sheet of Paradise Ltd. as at 31.3.2010Particulars Note No. (` in Crores)


(a) Share Capital 2,03,375(2) Current Liabilities

Trade Payable 42,500Total 2,45,875

II Assets(1) Non-current Assets

Tangible Fixed Assets 1,25,000(2) Current Assets

Inventories 79,175Trade Receivable 30,200Cash and Cash equivalent 11,500

Total 2,45,875


40

Q.8. Ans. :- In the books of Max Ltd.Date Particulars Dr. Cr.

` `1.4.2012 Equity share capital A/c Dr. 15,00,000

To Equity Share Capital A/c 15,00,000(Being sub-division of one share of ` 100 each into10 shares of ` 10 each)Equity share capital A/c Dr. 7,50,000

To Capital reduction A/c 7,50,000(Being reduction of capital by 50%)Capital reduction A/c Dr. 13,500

To Bank A/c 13,500(Being payment in cash of 10% of arrear of preference dividend)Bank A/c Dr. 78,400

To Own debentures A/c 76,800To Capital reduction A/c 1,600

(Being profit on sale of own debentures transferred to capital reduction A/c)12% Debentures A/c Dr. 1,20,000

To Own debentures A/c 1,15,200To Capital reduction A/c 4,800

(Being profit on cancellation of own debentures transferred tocapital reduction A/c)12% Debentures A/c Dr. 2,80,000Capital reduction A/c Dr. 20,000

To Machinery A/c 3,00,000(Being machinery taken up by debentureholders for ` 2,80,000)Creditors A/c Dr. 65,000Capital reduction A/c Dr. 29,000

To Debtors A/c 61,000To Stock A/c 33,000

(Being assets and liabilities revalued)Capital reduction A/c Dr. 4,33,000

To Goodwill A/c 20,000To Discount on debentures A/c 2,000To Profit and Loss A/c 4,11,000

(Being the balance of capital reduction transferred to capital reserve account)Capital reduction A/c Dr. 15,000

To Bank A/c 15,000(Being penalty paid for avoidance of capital commitments)Capital reduction A/c Dr. 2,45,900

To Capital reserve A/c 2,45,900(Being penalty paid for avoidance of capital commitments)

2.4.2012 Business Purchases A/c Dr. 13,20,000To Liquidators of Mini Ltd. 13,20,000

(Being the purchase consideration payable to Mini Ltd.)Fixed Assets A/c Dr. 7,60,000Stock A/c Dr. 6,80,000Debtors A/c Dr. 4,40,000Cash at Bank A/c Dr. 1,30,000

To Sundry Creditors A/c 2,25,000To 12% Debentures A/c of Mini Ltd. 2,00,000To Profit and Loss A/c 15,000To General reserve A/c (` 1,70,000 + 80,000) 2,50,000To Business purchase A/c 13,20,000

(Being the take over of all assets and liabilities of Mini Ltd. by Max Ltd.)

41

Liquidators of Mini Ltd. A/c Dr. 13,20,000To Equity Share Capital 10,00,000To 9% Preference Share Capital 3,20,000

(Being the purchase consideration discharged)12% Debentures of Mini Ltd. A/c Dr. 2,00,000

To 12% Debentures A/c 2,00,000(Being Max Ltd. issued their 12% Debentures in against of everyDebentures of Mini Ltd.)

Balance sheet of Max Ltd.Particulars Note No. (` in Crores)


(a) Share Capital 1 25,70,000(b) Reserve and Surplus 2 6,90,900

(2) Non-current LiabilitiesLong term borrowing (12% Debenture) 4,00,000

(3) Current LiabilitiesTrade Payable 5,75,000


(1) Non-current AssetsTangible Fixed Assets 19,60,000

(2) Current AssetsInventories 10,40,000Trade Receivable 10,30,000Cash and Cash equivalent 20,05,900

Total 42,35,900


1. Share CapitalEquity Share Capital 17,50,000Preference Share Capital 8,20,000 25,70,000

2. Reserve and SurplusProfit and Loss Account 15,000General Reserve 4,30,000Capital Reserve 2,45,900 6,90,900

WN : Calculation of Purchase ConsiderationEquity Share Capital (10,000 x 50 x 10)/ 5 10,00,000Pref. Share Capital (4,000 x 4 x 100) / 5 3,20,000Total 13,20,000


42

Q.9. Ans. :-Journal Entries

S.No. Particulars Dr. (`) Cr. (`)

(i) Bank A/c Dr. 4,500To Investment A/c 4,100To Profit and Loss A/c 400

(Being sale of investments and profit thereon)

(ii) Bank A/c Dr. 1,000To Bank loan A/c 1,000

(Being loan taken from bank)

(iii) 10% Redeemable preference share capital A/c Dr. 2,500Premium on redemption of preference shareholder A/c Dr. 250

To Preference shareholders A/c 2,750(Being redemption of preference shares)

(iv) Preference shareholders A/c Dr. 2,750To Bank A/c 2,750

(being payment of amount due to preference shareholders)(v) Securities premium A/c Dr. 250

To Premium on redemption of preference shares 250(Being use of securities premium to provide premium onredemption of preference shares)

(vi) Equity Shares bought back A/c Dr. 4,000To Bank A/c 4,000

(Being buy back of equity shares)(vii) Equity share capital A/c Dr. 2,000

Securities premium A/c (800 - 250) Dr. 550General Reserves A/c [(200x20) - 2000 - 550] Dr. 1,450

To Equity shares bought back A/c 4,000(Being buy back of equity shares)

(viii) General reserves A/c Dr. 4,500To Capital redemption reserve (2000 + 2500) 4,500

(Being creation of capital redemption reserve to the extent ofthe face value of preference share redeemed and equityshares bought back)

Balance sheet of Paradise Ltd. as at 31.3.2010Particulars Note No. (` in Crores)


(a) Share Capital 6,000(b) Reserve and Surplus (1,000 + 800 + 7,100 + 300 + 400 - 250 - 550 - 1,450) 7,350

(2) Non Current Liabilities(a) 9% Debenture 5,000(b) Bank Loan 1,000

(2) Current Liabilities(a) Trade Payable 3,300(b) Sundry Provision 2,000

Total 24,650II Assets

(1) Non-current AssetsTangible Fixed Assets 16,000

(2) Current Assets(a) Cash and Cash equivalent (1,650 + 4,500 + 1,000 - 2,750 - 4,000) 400(b) Other Current Assets 8,250

Total 24,650

43

Q.10. Ans. :-Trading Account

Particulars ` Particulars `To Opening Stock 30,000 By Sales 4,60,000To Purchase 3,20,000 By Closing Stock 52,000To Gross Profit (bal.fig.) 1,62,000Total 5,12,000 5,12,000

Profit & Loss Account

Particulars Pre Profit Post Profit Particulars Pre Profit Post ProfitTo Salaries 12,000 36,000 By Gross Profit 40,500 1,21,500To Directors’ Fee --- 12,000 By Commission --- 3,000To Discount 1,250 3,750To Depreciation : Building 1,000 3,000 Furniture 250 750To Pre-incorporation Profit transferred to Capital Reserve 26,000 ---To Net Profit --- 69,000

40,500 1,24,500 40,500 1,24,500

Balance SheetParticulars Note No. (` in Crores)

I. Equity and Liabilities(1) Shareholders’ Funds

(a) Share Capital 1 2,46,000(b) Reserve and Surplus 2 69,000

(2) Current LiabilitiesTrade Payable 48,000


(1) Non-current AssetsTangible Fixed Assets (80,000 - 4,000 + 10,000 - 1,000) 85,000

(2) Current Assets(a) Inventory 52,000(b) Trade Receivable 1,31,000(c) Cash and Cash equivalent (WN 1) 91,000(d) Other Current Assets (underwriting commission) 4,000

Total 3,63,000


1. Share CapitalEquity Share Capital (30,000 equity share of 10 each 8 called up) 2,40,000Less : Calls in arrear 2,000Add : Share issue to underwriter 4,000 2,42,000Add : Calls in advance 4,000

2,46,0002. Reserve and Surplus

Capital Reserve 26,000Less : Goodwill written off 16,000 10,000Profit and Loss Account 69,000Less : Preliminary expense (Note) (10,000)

69,000


44

WN 1 : Debtor AccountParticulars ` Particulars `To Balance b/d --- By Discount 5,000To sales 4,60,000 By Cash 3,24,000

By Balance c/d 1,31,0004,60,000 4,60,000

WN 2 : Creditor AccountParticulars ` Particulars `To Cash (b/f) 2,72,000 By Purchase 3,20,000To Balance c/d 48,000

3,20,000 3,20,000

WN 3 : Cash AccountParticulars ` Particulars `To Share Capital 1,62,000 By creditors 2,72,000To Debtor 3,24,000 By Purchase Consideration 56,000To Commission 3,000 By Preliminary expense 10,000

By Director fee 12,000By salary 48,000By Balance c/d (b/f) 91,000

4,89,000 4,89,000

WN 4 : Calculation of Purchase Consideration10 share @ 10 each paid up 80,000Cash 56,000Total 1,36,000

WN 5 : Calculation of Goodwill / Capital ReservePurchase Consideration paid 1,36,000Less : Net Assets acquired 1,20,000Goodwill 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. P Ltd. R Ltd. P Ltd.` ` ` `

Equity share capital Fixed assets 55,00,000 27,00,000(in shares of ̀10 each) 24,00,000 12,00,000 Current assets 25,00,000 23,00,0008% Preference share capital(in share of ` 10 each) 8,00,000 ---10% preference share capital(in shares of ` 10 each) --- 4,00,000Reserves 30,00,000 24,00,000Current liabilities 18,00,000 10,00,000

80,00,000 50,00,000 80,00,000 50,00,000

The following information is provided :(1) R Ltd. P Ltd.

` `(a) Profit before tax 10,64,000 4,80,000(b) Taxation 4,00,000 2,00,000(c) Preference dividend 64,000 40,000(d) Equity dividend 2,88,000 1,92,000

(2) The equity shares of both the companies are quoted in the market. Both the companies are carryingon similar manufacturing operations.

(3) 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 increasethe 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 exchangeof 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 :

Increased by Decreased byFixed asets 1,00,000 ----Current assets ---- 2,00,000Current Liabilities ---- 40,000

(5) For next two yar, no increase in the ratio of equity dividend is expectedYou 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 Sheetsof all the three companies as on 31.3.2012 are as follows :

` in 000Particulars Arun Ltd. Brown Ltd. Crown Ltd.Liabilities :Equity Share Capital (Share of ` 10 each) 1,800 2,100 900Reserve 300 150 30010% Debenture 600 --- 300Other Liabiliies 600 450 300Total 3,300 2,700 1,800Assets :Net Tangible Block 2,400 1,800 1,500Goodwill --- 150 ---Other Assets 900 750 300Total 3,300 2,700 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 :

Tangible Block Other AssetsArun Ltd. ` 30,00,000 ` 10,50,000Brown Ltd. ` 15,00,000 ` 4,20,000Crown Ltd. ` 18,00,000 ` 2,40,000

(ii) Normal Profit on capital employed is to be taken at 10%.(iii) Average amount of profit for three years before charging interest on Debentures are :

Arun Ltd. ` 5,40,000Brown Ltd. ` 4,32,000Crown Ltd. ` 3,12,000

(iv) Goodwill is to be calculated at three years' purchase of average super profits for three years, suchaverage is to be calculated after adjustment of 10% depreciation on Increase / Decrease on revaluationof Fixed Assets (Tangible Block).

(v) Capital employed being considered on the basis of net revaluation of Tangible Assets.(vi) 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.(vii) 10% Debenture of ` 100 each fully paid up are to be issued by Dawn Ltd. for the balance due.(viii) The ratio of issue of Equity shares and debentures of Dawn Ltd. are to be maintained at 3:1, towards

the take over companies.(ix) 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]

47

Q.3. (RTP - May 2006) The financial position of two companies Hans Ltd. and Varun Ltd. as on 31st March, 2005 wasas under :Assets Hans Ltd. (`) Varun Ltd. (`)Goodwill 50,000 25,000Building 3,00,000 1,00,000Machinery 5,00,000 1,50,000Stock 2,50,000 1,75,000Debtors 2,00,000 1,00,000Cash at Bank 50,000 20,000Preliminary Expenses 30,000 10,000

13,80,000 5,80,000LiabilitiesShare Capital : Hans Ltd. (`) Varun Ltd. (`)Equity Shares of ` 10 each 10,00,000 3,00,0009% Preference shares of ` 100 each 1,00,000 ---10% Preference shares of ` 100 each --- 1,00,000General Reserve 1,00,000 80,000Retirement Gratuity fund 50,000 20,000Sundry 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 thebooks of Hans Ltd.

Q.4. (Study Material - Important) AX Ltd. and BX Ltd. amalgamated on and from 1st January 2012. A new companyABX Ltd. was formed to take over the businesses of the existing companies.

Balance Sheet as on 31.12.2011

Liabilities AX Ltd. BX Ltd. Assets AX Ltd. BX Ltd.Share Capital : Sundry fixedEquity shares of assets 85,00 75,00` 10 each 60,00 70,00 Investment 10,50 5,50General reserve 15,00 20,00 Stock 12,50 27,50P&L A/c 10,00 5,00 Debtors 18,00 40,00Investmetn allowance reserve 5,00 1,00 Cash & Bank 4,50 4,00Export profit reserve 50 1,0012% debentures 30,00 40,00Sundry creditors 10,00 15,00

130,50 152,00 130,50 152,00

ABX Ltd. issued requisite number of shares to discharge the claims of the equity shareholders of the transferorcompanies. Prepare a note showing purchase consideration and discharge thereof and draft the Balance Sheet ofABX 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 ` Assets `Share Capital 4,00,000 Fixed Assets 2,14,000Reserves & Surplus 4,88,000 Investment in Nuts Ltd. 1,00,000Secured Loan 1,20,000 Investment in Nails Ltd. 1,00,000Sundry Creditors 9,00,000 Current AssetsOwing to Subsidiaries 2,00,000 Stock & Work-in-Progress 4,34,000Proposed Dividend 40,000 Sundry Debtors 9,36,000

Cash at Bank 3,64,00021,48,000 21,48,000

Profit & Loss Account for the year ended 30th June, 2012Net Profit 3,72,000Dividend Paid 40,000Transfer to Reserve 3,32,000

The two managing directors Mr. Rajan & Mr. Singh who own 40% and 60% respectively of the share capitalof M Ltd., will become individually concerned with Nuts and Nails Ltd. respectively in order to allow them todevelop their own interests.

They have agreed to a scheme of reconstruction whereby the respective trade and assets apart from cashat 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 andpay dividend. He will distribute the remaining cash at bank and shares in two subsidiaries to M Ltd.'s shareholdersMr. Rajan and Mr. Singh.

As far as his ash distribution pool permits, each director will then purchase, at net assets value, those sharesin his own company distributed by the liquidator to his former colleague. It has been agreed Nuts Ltd. willreceive 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 thesubsidiary companies in the ratio of 75% to Nuts Ltd. and 25% to Nail Ltd. with the group freehold propertyincluded in the fixed assets at ` 1,50,000 being revalued at the open market value of ` 4,20,000 and beingtransferred 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 :-


Big Ltd. Small Ltd. Big Ltd. Small Ltd.` ` ` `

Equity Share Capital (`10) 8,00,000 3,00,000 Building 2,00,000 1,00,00010% Preference Share Machinery 5,00,000 3,00,000Capital (` 100) ---- 2,00,000 Furniture 1,00,000 60,000General Reserve 3,00,000 1,00,000 InvestmentProfit and Loss Account 2,00,000 1,00,000 6,000 shares of Small Ltd. 60,000 ----Creditors 2,00,000 3,00,000 Stock 1,50,000 1,90,000

Debtors 3,50,000 2,50,000Cash and Bank 90,000 70,000Preliminary Expenses 50,000 30,000

15,00,000 10,00,000 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 currentassets except Cash and Bank balances and Current Liabilities were as under :

Big Ltd. Small Ltd.` `

Stock 1,20,000 1,50,000Debtors 3,80,000 2,50,000Creditors 1,80,000 2,10,000

Profits earned for the half year ended on 30.09.2012 after charging depreciation at 5% on building, 15% on machineryand 10% on furniture, are :

Big Ltd. ` 1,02,500Small 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 on31.3.2012. Preference shareholders of Small Ltd. are to be allotted 10% preference shares of Big Ltd. and equityshareholders of Small Ltd. are to receive requisite number of equity shares of Big Ltd. valued at ` 15 per share insatisfaction 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. B Ltd.

` `Shares of ` 10 each 1,00,00,000 20,00,000Reserves and surplus 1,40,00,000 60,00,000Secured loans 40,00,000 ---Current liabilities 60,00,000 20,00,000

3,40,00,000 1,00,00,000

Fixed assets 1,20,00,000 35,00,000Investments in B Ltd. 7,40,000 ---Sundry debtors 70,00,000 10,00,000Inventories 60,00,000 50,00,000Cash and bank 82,60,000 5,00,000

3,40,00,000 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 collaboratingcompany. 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 calculatedby capitalizing the yield at 16%. Yield, for this purpose, would mean 40% of the average of pre-tax profitsfor the last 3 years, which were ` 35 lakhs, ` 44 lakhs and ` 65 lakhs.

(b) The actual cost of shares to the foreign company was ` 2,40,000 only. The profit that would accrue tothem would be taxable at an average rate of 30%. The tax payable be deducted from the proceedsand A Ltd. will pay it to the government.

(c) Out of the net consideration, 50% would be remitted to the foreign company immediately and the balancewill 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 includeda sum of ` 1,50,000 due by B Ltd. to A Ltd.

The entire arrangement was approved by all concerned for giving effect to on 1.4.2001. You are required toshow 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 followingare their balance sheets as at 31.3.1998 :

(` '000)Liabilities AB MB Assets AB MB

Ltd. Ltd. Ltd. Ltd.Share capital : Fixed assets : 750 200(` 100) each 1,000 600 Investment 1500 sharesGeneral reserve Investment 100 50 in MB 350Investment allow. reserve 40 30 4,000 Sh. in AB 50012% debentures (` 100 each) 300 100 Current Assets 400 100Sundry creditors 60 20

1,500 800 1,500 800

Calculate the amount of purchase consideration of AB Ltd. and MB Ltd. and draw up the balance sheet ofAM Ltd. after considering the followings :

(a) Assume amalgamation is in the nature of purchase.

(b) 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.

(c) 12% debenture holders of AB Ltd. and MB Ltd. are discharged by AM Ltd. by issuing such number ofits 15% debentures of ` 100 each so as to maintain the same amount of interest.

(d) Shares of AM Ltd. are of ` 100 each.

Also show, how the investment allowance reserve will be treated in the Financial Statement assuming theReserve 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 RS XY Assets RS XYLtd. Ltd. Ltd. Ltd.

Share Capital Fixed AssetsEquity share of ` 100 2,000 1,000 (net of depreciation) 2,700 850each fully paid up Investments 700Reserves and surplus 800 --- Sundry debtors 400 15010% debentures 500 --- Cash and bank 250 ---Loan from financial institutions 250 400 Profit and loss A/c --- 800Bank overdraft --- 100Sundry creditors 300 300Proposed dividend 200 ---

4,050 1,800 4,050 1,800

It was decided that XY Ltd. will acquire the business of RS Ltd. for enjoying the benefit of carry forward ofbusiness loss. After acquisition, XY Ltd. will be renamed as XYZ Ltd. The following scheme has been approved for themerger -(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 balancesheet 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 Assets

Share capital Fixed assets 3,400

3,00,000 equity shares of ` 10 each 3,000 Stock (pledged with secured loan creditors) 18,400

10,000 preference shares of ` 100 each 1,000 Other current assets 3,600

General Reserve 400 Profit and Los Account 16,600

Secured loans (secured against pledge of stocks) 16,000

Unsecured loans 8,600

Current liabilities 13,000

42,000 42,000

Barry Ltd.

(in `'000s)Liabilities AssetsShare capital Fixed assets 6,8001,00,000 equity shares of ` 10 each 1,000 Current assets 9,600General reserve 2,800Secured loans 8,000Current liabilities 4,600

16,400 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. Fixedassets are taken over at book value.

(b) The break up of Current liabilities is as follows :

Andrew Ltd. Barry Ltd.` `

Statutory liabilities (including ` 22 lakh in case ofAndrew Ltd. in case of a claim not having been admittedshown as contingent liability) 72,00,000 10,00,000Liability to employees 30,00,000 18,00,000

The balance of Current liability is miscellaneous creditors.

(c) Secured loans include ` 16,00,000 accrued interest in case of Barry Ltd.

(d) 2,00,000 equity shares of ` 10 each are allotted by Chalie Ltd. at par against cash payment of entireface value to the shareholders of Andrew Ltd. and Barry Ltd. in the ratio of shares held by them in AndrewLtd. 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]


52

Q.11. (Study Material - Important) Rich Ltd. and Poor Ltd. decided to amalgamate their business with a view toa public share issue. A holding company, Mix Ltd., is to be incorporated on 1st May 2011 with all authorisedcapital of ` 60,000,000 in ` 10 ordinary shares. The company will acquire the entire ordinary share capitalof Rich Ltd. and of Poor Ltd. in exchange for an issue of its own shares. The consideration for the acquisitionis to be ascertained by multiplying the estimated profits available to the ordinary shareholders by agreed priceearnings ratio. The following relevant figures are given :

Rich Ltd. Poor Ltd.` `

Issued share capitalOrdinary shares of ` 10 each 30,00,000 12,00,0006% Cumulative Preference shares of ` 100 each — 10,00,0005% Debentures, redeemable in 2010 8,00,000Estimated annual maintainable profits, before deduction ofdebenture interest & taxation 6,00,000 2,40,000Price/earning ratio 15 10

The shares in the holding company are to be issued to members of the subsidiaries on 1st June 2011, at apremium of ` 2.50 a share and thereafter these shares will be marketable on the Stock Exchange. It is anticipatedthat 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 thepublic for cash at the premium of ` 3.75 a share. These shares will not rank for dividends until 31st December2011.

In the period ending 31st December 2011, bank overdraft facilities will provide funds for the payment by MixLtd. 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 31stDecember 2011 will be paid on 31st December 2011 by Mix Ltd. at 3½ % by Rich Ltd. at 5% and by PoorLtd. at 2%.

You are required to project, as on 31st December 2011 for Mix Ltd., (a) the Balance Sheet as it would appearimmediately after fully subscribed share issue, and (b) the Profit and Loss Account for the Period ending 31stDecember 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 :


Liabilities Strong Ltd. Weak Ltd. Assets Strong Ltd. Weak Ltd.Equity Share capital Fixed assets other(` 100 each) 50,00,000 30,00,000 than goodwill 30,00,000 20,00,000Reserve 4,00,000 2,00,000 Stock 8,00,000 6,00,000P/L A/c 6,00,000 4,00,000 Debtors 14,00,000 9,00,000Creditors 5,00,000 3,00,000 Cash & Bank 12,00,000 3,50,000

Preliminary Exp. 1,00,000 50,000

65,00,000 39,00,000 65,00,000 39,00,000

Strong Ltd. takes over Weak Ltd. on 01.07.12. No. Balance Sheet of Weak Ltd. is available as on thatdate. It is however estimated that Weak Ltd. earns estimated profit of ` 2,00,000 after charging proportionatedepreciation @ 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 WeakLtd. 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 are required to calculate the following :(i) No. of shares to be issued by Strong Ltd. to Weak Ltd. against purchase consideration;(ii) Net Current Asses of Strong Ltd. and Weak Ltd. as on 01.07.2012;(iii) P/L A/c balance of the Strong Ltd. as on 01.07.2012;(iv) Fixed assets as on 01.07.2012;(v) Balance Sheet of Strong Ltd. as on 01.07.2012 after takeover of Weak Ltd.

[Nov. 2007 - 16 marks]


54

Solutions of AmalgamationsQ.1. Ans. :-

R Ltd.Balance Sheet as at 31st March, 2004 (after absorption)

Particulars Note no. Amount(`)


(a) Share Capital 1 57,90,000(b) Reserves and Surplus 2 51,60,000

(2) Current Liabilities 3 27,60,000Total 1,37,10,000

II. Assets(1) Non-current Assets

(a) Fixed assets(i) Tangible Assets 4 83,00,000(ii) Intangible Assets 5 8,10,000

(2) Current Assets 6 46,00,000Total 1,37,10,000

Notes to Accounts` `

1. Share Capital3,12,000 Equity Shares of ` 10 each (of the above shares,72,000 Equity shares are allotted as fully paid up for considerationother than cash) 31,20,0002,67,000 8% Preference Shares of ` 10 each (of the above,1,87,000 are allotted as fully paid up for consideration other than cash) 26,70,000 57,90,000

2. Reserves and SurplusReserves (As per last Balance Sheet) 30,00,000Securities Premium 21,60,000 51,60,000

3. Current LiabilitiesAs per last balance sheet 18,00,000Taken over on absorption of P Ltd. (10,00,000 - 40,000) 9,60,000 27,60,000

4. Tangible AssetsAs per last Balance Sheet 55,00,000Taken over on absorption of P Ltd. 28,00,000 83,00,000

5. Intangible AssetsGoodwill 8,10,000

6. Current AssetsAs per last Balance Sheet 25,00,000Taken over on absorption of P Ltd. (23,00,000 - 2,00,000) 21,00,000 46,00,000

(i) Statement of Purchase Consideration

Beneficiaries Mode Working Amount

Preference share holders 8% PSC4,00,000 x 10% x 110%

8%5,50,000

Equity Share Holder ESC1,20,000 x 24 x 40

4028,80,000

Equity Share Holder 8% PSC1,05,600

8%13,20,000

47,50,000

55

(ii) Calculation of EPS

R Ltd. P Ltd.PBT 10,64,000 4,80,000(-) Tax (4,00,000) (2,00,000)PAT 6,64,000 2,80,000(-) Preference dividend (64,000) (40,000)(a) Earning for equity 6,00,000 2,40,000(b) No. of share 2,40,000 1,20,000(c) EPS (a/b) 2.5 2

(iii) Calculation of PE Ratio of R Ltd.

P/E Ratio = M P SE P S

P/E Ratio = 402.5

= 16

(iv) Calculation of Dividend Rate

(i) Dividend Rate of R = 2,88,000

24,00,000 x 100 = 12%

(ii) Dividend Rate of P = 1,92,000

12,00,000 x 100 = 16%

(v) Calculation of loss arising in dividend due to Absorption

(i) Present dividend receivable 1,92,000(ii) Dividend receivable after absorption 86,400Loss 1,05,600

(vi) Calculation of Goodwill / Capital Reserve

PC paid 47,50,000(-) Net Asets acquired

Fixed Assets 28,00,000Current Assets 21,00,000(-) Current Liabilities (9,60,000) (34,40,000)

Goodwill 8,10,000

Q.2.Ans. :- Balance Sheet of Dawn Ltd. as at 31.3.2012Particulars Note No. `


(a) Share capital 1 66,25,500(b) Reserves and Surplus 2 (1,50,000)

(2) Non-current LiabilitiesLong-term borrowings 3 18,58,500

(3) Current Liabilities 13,50,000Total 96,84,000


Fixed Assets(a) Tangible Assets 63,00,000(b) Intangible Assets 4 16,74,000

(2) Current Assets 17,10,000Total 96,84,000


56

Notes to Accounts`

1. Share CapitalEquity share capital6,62,550 shares of ` 10 each, fully paid up (including 5,57,550shares of ` 10 each issued for consideration other than cash) 66,25,500

2. Reserves & SurplusProfit or Loss A/c (Loss) (1,50,000)

3. Long term BorrowingsSecured - 18,585, 10% Debentures of ` 100 each 18,58,500

4. Intangible AssetsGoodwill 16,74,000

(1) Discharge of Purchase Consideration

Particulars Total Arun Brown Crown

Equity [4.2 : 4.62 : 2.52] 55,75,500 20,65,000 22,71,500 12,39,000

Debentures (b/f) 18,58,500 11,90,000 1,43,500 5,25,000

Total 74,34,000 33,55,000 24,15,000 17,64,000

(2) Calculation of Goodwill(a) Statement of FMP

Arun Brown CrownAverage Profit 5,40,000 4,32,000 3,12,000Additional / Saving in Dep. (60,000) 30,000 (30,000)(-) Interest on debentures (60,000) --- (30,000)FMP 4,20,000 4,62,000 2,52,000

(b) Statement of Capital Employed

Arun Brown CrownNet tangible block 30,00,000 15,00,000 18,00,000Other assets 10,50,000 4,20,000 2,40,000(-) Other Liabilities (6,00,000) (4,50,000) (3,00,000)(-) 10% debenture (6,00,000) --- (3,00,000)Capital employed 28,50,000 14,70,000 14,40,000Normal Profit @ 10% 2,85,000 1,47,000 1,44,000

(c) Calculation of Super Profit & Goodwill

Arun Brown Crown

Total Profit (FMP) 4,20,000 4,62,000 2,52,000

Normal Profit 2,85,000 1,47,000 1,44,000

Super Profit 1,35,000 3,15,000 1,08,000

No. of year purchase 3 3 3

Goodwill 4,05,000 9,45,000 3,24,000

(3) Calculation of Purchase Consideration

Arun Brown Crown

Capital employed 28,50,000 14,70,000 14,40,000

Goodwill 4,05,000 9,45,000 3,24,000

Total 32,55,000 24,15,000 17,64,000

Combine PC 74,34,000

57

(4) Proportion of Equity & Debt : 3 : 1

Total purchase consideration 74,34,000

Equity = 7 4 , 3 4 , 0 0 0 x 3

455,75,500

Debentures = 7 4 ,34 ,000 x 1

418,58,500

Q.3.Ans. :-In the books of Varun Ltd.

(a) Realisation Account

Particulars ` Particulars `To Detail 5,70,000 By Gratuity Fund 20,000To Preference Shareholders By Sundry Creditors 80,000(Premium on Redemption) 10,000 By Hans Ltd.(Purchase Consideration) 5,30,000To Equity Shareholders (Profit on realisation) 50,000

6,30,000 6,30,000

(b) Equity Shareholders Account

Particulars ` Particulars `To Preliminary Expenses 10,000 By Share Capital 3,00,000To Equity shares of Hans Ltd. 4,20,000 By General Reserve 80,000

By Realisation Account(Profit on realisation) 50,000

4,30,000 4,30,000

(c) Preference Shareholders Account

Particulars ` Particulars `To 9% Pref. Shares of Hans Ltd. 1,10,000 By Pref. Share Capital 1,00,000

By Realisation Account 10,000(Premium on Redemption of Pref. shares)

1,10,000 1,10,000

(d) Hans Ltd. Account

Particulars ` Particulars `To Realisation Account 5,30,000 By 9% Preference Shares 1,10,000

By Equity Shares 4,20,0005,30,000 5,30,000


58

In the books of Hans Ltd.Journal Entries

Particulars Dr. Cr.

Goodwill Account Dr. 50,000Building Account Dr. 1,50,000Machinery Account Dr. 1,60,000Stock Account Dr. 1,57,500Debtors Account Dr. 1,00,000Bank Account Dr. 20,000

To Gratuity Fund Account 20,000To Sundry Creditors Account 80,000To Provision for Doubtful Debts Account 7,500To Liquidators of Varun Ltd. Account 5,30,000

(Being Assets and Liabilities takenover as per agreed valuation)

Liquidators of Varun Ltd. Account Dr. 5,30,000To 9% Preference Share Capital Account 1,10,000To Equity Share Capital Account 4,00,000To Securities Premium Account 20,000

(Being Purchase Consolidation satisfied as above)

WN :Purchase Consideration : `Goodwill 50,000Building 1,50,000Machinery 1,60,000Stock 1,57,500Debtors 92,500Cash at Bank 20,000

6,30,000Less : Liabilities :

Gratuity 20,000Sundry Creditors 80,000

Total Purchase consideration 5,30,0001,100, 9% Preference Shares of Hans Ltd. [10% premium] 1,10,000Equity shareholders of Varun Ltd. to be satisfied by issue of 40,000equity shares of Hans Ltd. at 5% premium 4,20,000

5,30,000

59

Q.4. Ans. :-Balance Sheet of ABX Ltd. as on 1.1.2012

Particulars Note No. Ì. Equity and Liabilities

(1) Shareholder’s Funds(a) Share Capital 1 130,00(b) Reserves and Surplus 2 57,50

(2) Non-Current LiabilitiesLong-term borrowings 3 70,00

(3) Current Liabilities(a) Trade Payables 25,00


(1) Non-current Assets(a) Fixed Assets

Tangible Assets (85,00 + 75,00) 160,00(b) Non-current investments (10,50 + 5,50) 16,00

(2) Current Assets(a) Stock (12,50 + 27,50) 40,00(b) Trade Receivables (18,00 + 40,00) 58,00(c) Cash & Cash equivalents (4,50 + 4,00) 8,50

Total 282,50

Notes to Accounts(` 000) (` ‘000)

1. Share Capital13,00,000 Equity Shares of ` 10 each 130,00

2. Reserves and SurplusGeneral Reserves 35,00Profit & Loss 15,00Investment Allowance Reserve 6,00Export Profit Reserve 1,50 57,50

3. Long term Borrowings12% Debentures (Assumed that new debentures were issued inexchange of the old series) 70,00

Step I : Calculation of Net AssetsAX BX

Total of Assets Side of Balance Sheet 130, 50 152,00(-) Sundry Creditors (10,00) (15,00)(-) 12 % Debenture (30,00) (40,00)Net Assets 90,50 97,00

Step II : Calculation of PCAX BX

Net Assets as per Step I 90,50 97,00(-) Export profit reserve (50) (100)(-) Investment allowance reserve (500) (100)(-) Profit loss account (10,00) (5,00)(-) General Reserve (15,00) (20,00)PC 60,00 70,00

Step III : Allocation of PC

(i) To AX Ltd.1 3 0 ,00 x 9 0 ,50

187 ,50 = 6 2 ,75

(ii) To BX Ltd. 1 3 0 ,0 0 x 9 7 , 0 01 8 7 , 5 0

= 6 7 , 2 5


60

Q.5. Ans. :- Proforma Balance Sheet of Nut Ltd. as at 30 June, 2012

Note No. `1. Shareholder Fund


2. Current LiabilitiesTrade Payable - Creditor 6,81,000

14,34,0001. Non-current Assets

Tangible Fixed Assets 64,0002. Current Assets

Stock & WIP 4,34,000Debtor 9,36,000

14,34,000

Proforma Balance Sheet of Nail Ltd. as at 30 June, 2012Note No. `

1. Shareholder Fund(a) Share Capital 1,00,000

2. Non-current LiabilitiesSecured Loan 1,20,000

2. Current LiabilitiesTrade Payable - Creditor 2,19,000

4,39,0001. Non-current Assets

Tangible Fixed Assets 4,20,000Intangible - Goodwill 19,000

4,39,000

WN 1 - Calculation of Purchase ConsiderationNut Ltd. Nail Ltd.

Stock in trade 1,50,000Secured Loan (1,20,000)Remaining Net Assets in the ratio of 75 : 25 6,03,000 2,01,000Total 7,53,000 81,000

WN 2 - Calculation of Remaining Net AssetsParticulars ` `Fixed Assets 1,50,000Add : Increase due to revaluation 2,70,000Others (2,14,000 - 1,50,000) 64,000 4,84,000Stock and work-in-progress 4,34,000Less : Separately taken by Nut Ltd. 1,50,000 2,84,000Sundry Debtors 9,36,000Less : Sundry Creditors (9,00,000)Total 8,04,000

WN 3 - Calculation of Goodwill / Capital ReserveNut Ltd. Nail Ltd.

PC Paid 7,53,000 81,000Less : Net assets represented by share capital 1,00,000 1,00,000Goodwill / Capital Reserve 6,53,000 19,000

61

Q.6.Ans. :-Balance Sheet of Big Ltd.

As at 30th September, 2012(` in ‘000’s)


(1) Shareholder’s Funds(a) Share Capital 1 12,96,000(b) Reserves and Surplus 2 5,90,500

(2) Current LiabilitiesTrade Payables 3,90,000

Total 22,76,500


(a) Fixed Assets(b) Tangible Assets 3 12,30,500

(2) Current Assets(a) Inventories 2,70,000(b) Debtors 6,30,000(c) Cash & Cash equivalents 1,46,000

Total 22,76,500


1. Share Capital1,09,600 Equity Shares of ` 10 each 10,96,00010% Preference shares (of above shares, 29,600 equity shares and 2,00,000all preference shares are allotted as fully paid up for considerationother than cash) 12,96,000

2. Reserves and SurplusCapital Reserve 1,000Securities Premium Account 1,48,000General Reserve 3,00,000Profit & Loss Account 1,91,500Less : Preliminary expenses 50,000 1,41,500

5,90,5003. Tangible Assets

Building 2,00,000Less : Depreciation (5,000)Add : Taken over 1,07,500 3,02,500Machinery 5,00,000Less : Depreciation (37,500)Add : Taken over 3,07,500 7,70,000Furniture 1,00,000Less : Depreciation (5,000)Add : Taken over 63,000 1,58,000

12,30,500


62

WN - 1 Updated Balance Sheet on 30 Sept. 1995Big Ltd. Small Ltd. Big Ltd. Small Ltd.

Equity Share Capital 8,00,000 3,00,000 Building 1,95,000 97,500Pref. Share capital --- 2,00,000 Machinery 4,62,500 2,77,500General Reserve 3,00,000 1,00,000 Furniture 95,000 57,000Profit and Loss A/c 1,91,500 89,000 Investment 60,000 ---Creditors 1,80,000 2,10,000 Stock 1,20,000 1,50,000

Debtor 3,80,000 2,50,000Cash (b/f) 1,09,000 37,000Prel. Exp. 50,000 30,000

Total 14,71,500 8,99,000 14,71,500 8,99,000

WN - 2 Calculation of Profit & LossBig Ltd. Small Ltd.

Opening Balance 2,00,000 1,00,000Profit for the period 1,02,500 54,000(-) Equity Dividend (1,20,000) (45,000)(-) Dividend on Preference Shares (20,000)(+) Dividend income 9,000 ---Total 1,91,500 89,000

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 considerationGoodwill 50,000Building add 10% Less Depreciation 2500 1,07,500Machinery add 10% Less Depreciation 22500 3,07,500Furniture add 10% Less Depreciation 3000 63,000Stock 1,50,000Debtor 2,50,000Cash 37,000(-) Creditors (2,10,000)Total PC 7,55,000

WN - 4 Statement showing discharge of PC

Beneficiary Mode Calculation AmountPref. share holder 10% pref. share capital ---- 2,00,000Equity Share holder Equity Share Capital 5,55,000 x 80% /15 x 15 4,44,000Total 6,44,000

WN - 5 Calculation of Goodwill / Capital Reserve

PC paid 6,44,000(+) Value of investment loss 60,000(-) Net Assets acquired excluding goodwill 7,05,000Capital Reserve 1,000

63

Q.7. Ans. :-

(i) Calculation of Price per Share

Yield = 40%

35 + 44 + 653

16% = 120

LNM

OQP

Price per share = 120L / 2Lakhs = ` 60

(ii) Share held by foreign company in B Ltd.No. of share of B Ltd. 2,00,000Held by Foreign Co. 2,00,000 x 24% 48,000

Total consideration [48,000 x 60] 28,80,000(-) Cost of Foreign Co. 2,40,000Capital Gain 26,40,000Capital gain tax @ 30% 7,92,000Net Consideration 18,48,800

(iii) Amount payable to Foreign CompanyTotal consideration 28,80,000(-) Paid to Govt. (7,92,000)

20,88,000

(iv) Calculation of PC

Beneficiary Mode Working Amt.Foreign Company Cash 20,88,000/2 10,44,000Foreign Company Loan 20,88,000/2 10,44,000

Govt. Cash --- 7,92,00028,80,000

(v) Calculation of Goodwill / Capital ReservePC paid 28,80,000Value of investment lost 7,40,000Total 36,20,000Net Assets acquiredFixed Assets 33,25,000Debtor 10,00,000Inventory 50,00,000Cash 5,00,000(-) Creditors (20,00,000) 78,25,000Capital Reserve 42,05,000

Q.8.Ans.:-Balance Sheet of AM Ltd. as at 31st March, 2012

Particulars Note No. Amount(`)


(a) Share Capital 1 10,99,000(b) Reserves and Surplus 2 70,000

(2) Non-current LiabilitiesLong-term borrowings 3 3,20,000

(3) Current LiabilitiesTrade Payables 80,000

Total 15,69,000


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(a) Fixed Assets 10,00,000(b) Other non-current assets 4 70,000

(2) Current Assets 5 4,99,900Total 15,69,900


1. Share Capital10,999 shares of ` 100 each 10,99,000(All the above shares are allotted as fully paid upfor consideration other than cash)

2. Reserves and SurplusInvestment Allowance Reserve 70,000

3. Long Term Borrowings15% Debentures 3,20,000

4. Other non-current assetsAmalgamation Adjustment Account 70,000

5. Current AssetsCurrent Assets 5,00,000Less : Purchase consideration paid in cash ` (33+67) (100) 4,99,900

(i) Statement of Net Assets other than investments

AB MBSundry Fixed Assets 7,00,000 3,00,000Current Assets 4,00,000 1,00,000(-)Current Liabilities (60,000) (20,000)(-) Debenture (2,40,000) (80,000)

Net Assets Value 8,00,000 3,00,000

(ii) Calculation of Total Net Assets

Net Assets of AB Ltd. = 8,00,000 + ¼ 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

AB MBTotal Consideration 9,72,222 6,88,889Less : Inter company investment (3,88,889) (1,72,222)Net PC payable 5,83,333 5,16,667

(iv) Statement showing discharge of Purchase ConsiderationAB MB

In Shares of ` 100 each 5,83,300 5,16,600In Cash for fractional portion 33 67

(v) Calculation of Goodwill Capital ReservePurchase Consideration paid 11,00,000Less : Net Assets acquired AB Ltd. (8,00,000) MB Ltd. (3,00,000)Net Nil

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Q.9. Ans. :-Journal Entries in the books of RS Ltd.

(Rs.’000)Dr. Cr.Rs. Rs.

10% Debentures Account Dr. 500Loan from financial institutions account Dr. 250Sundry Creditors Account Dr. 300Proposed Dividend Account Dr. 200Realisation Account Dr. 2,800

To Fixed Assets Account 2,700To Investments Account 700To Sundry Debtors Account 400To Cash and Bank Account 250

(Transfer of assets and liabilities to realisation account)Share Capital Account Dr. 2,000Reserve and Surplus Account Dr. 800

To Equity Shareholders Account 2,800(Transfer of share capital, reserve and surplus to shareholders accont)Equity Shareholders Account Dr. 250

To Realiation Account 250(Cancellation of 20% holding of XY Ltd. held as investments)Shares in XYZ Ltd Dr. 2,000

To Realisation Account 2,000(Issue of shares by XYZ Ltd. in the ratio of 1:1)Equity Shareholders Account Dr. 550

To Realisation Account 550(Transfer of loss on realisation)Equity Shareholders Account Dr. 2,000

To Shares in XYZ Ltd. 2,000(Distribution of shares of XYZ Ltd. among the shareholders)

Journal Entries in the books of XY Ltd.(Rs. ‘000)

Dr. Cr.Rs. Rs.

Equity Share Capital (Face value - Rs. 100) Account Dr. 1,000To Equity Share Capital (Face Value - Rs. 10) Account 100To Reconstruction Account 900

(Face value of equity shares of Rs. 100 each reduced to Rs. 10 each)Equity Share Capital (Face Value - Rs. 10 each) A/c Dr. 100

To Equity Share Capital Account (Face Value - Rs. 100 each) 100(Consideration of 10,000 equity shares of Rs. 10 each to 1,000equity shares of Rs. 100 each)Loan from Financial Institutions Account Dr. 60

To Reconstruction Account 60(Waiver of 15% of loan by financial institutions)Reconstruction Account (900 + 60) Dr. 960

To Profit and Loss Account 800To Capital Reserve 160

(Utilisation of Reconstruction account balance to writeoff the Profit and Loss Account)Proposed Dividend Account Dr. 200

To Bank Account 200(Payment of proposed dividend to shareholders of RS Ltd.)


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Fixed Assets Account Dr. 2,700Other Investments Account Dr. 450Sundry Debtors Account Dr. 400Cash and Bank Account Dr. 250

To Reserves Account 570To 10% Debentures Account 500To Loan from Financial Institutions Account 250To Sundry Creditors Account 300To Proposed Dividend Account 200To Business Purchase Account 1,980

(Incorporation of various asses and liabilities acquired from RS Ltd.after cancellation of investment held by Rs Ltd. in XY Ltd., profit onacquisition credited to Reserves Account)Business Purchase Account Dr. 1,980

To Liquidator of RS Ltd. 1,980(Consideration Payable on business acquired from RS Ltd.)Liquidator of RS Ltd. Dr. 1,980

To Equity Share Capital of XYZ Ltd. 1,980(Discharge of purchase consideration in the form of equity shares of XYZ Ltd.)Sundry Creditors Account Dr. 100

To Sundry Debtors Account 100(Cancellation of intercompany owings)

Balance Sheet of XYZ Ltd.as on 31st March, 2012 (immediately after acquisition)

(Rs. in ‘000’s)Particulars Note No. (Rs.)


(a) Share Capital 1 2,080(b) Reserves and Surplus 2 730

(2) Non-Current LiabilitiesLong-term borrowings 3 1,090

(3) Current Liabilities(a) Short term borrowings 4 50(b) Trade Payables 500


(1) Non-current Assets(a) Fixed Assets

Tangible Assets 5 3,550(b) Non-current investments 450

(2) Current AssetsTrade receivables 450

Total 4,450

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Notes to Accounts

(Rs. in 000’s) (Rs. in 000’s)1. Share Capital

2,56,000 Equity Shares of Rs. 10 each fully paid 25,60,000(1,06,000 shares allotted as fully paid withoutpayment being received in cash)

2. Reserves and SurplusSecurities Premium 5,30,000Reserves 4,15,000Profit and Loss Account 3,60,000Less : Preliminary expenses (25,000) 3,35,000 12,80,000

3. Tangible AssetsOther Fixed Assets (Rs. 12,50,000 + Rs. 8,75,000) 21,25,000Less : Depreciation (1,06,250) 20,18,750

4. Intangible assetsGoodwill 1,20,000

WN - Calculation of Purchase Consideration(i) Original share capital of Bat Ltd. [1,000 x 1000 / 100] x 100 10,00,000(ii) Capital Reduction [1,000 x 1,000 / 100] x 909,00,000(iii) Total share capital after reduction 1,00,000(iv) No. of share = 1,00,000 / 10 10,000(v) Consolidated share = 10,000 x 10 / 100 1,000(vi) Inter company investment in share [1,000 x 20%] 200(vii) Amount of Consideration : (20,000 – 200) x 100 = 19,80,000

Q.10.Ans. :-Projected Balance Sheet of Mix Ltd. as on December 31, 2011


(1) Shareholder’s Funds(a) Share Capital 1 7,000

(2) Non Current LiabilitiesLong-term borrowings 2 10,630

(3) Current Liabilities (7,200 + 1,000 + 4,000 +1,440) 13,640Total 31,270


(a) Fixed AssetsTangible Assets (3,400 + 6,800) 10,200Intangible Assets (WN 2) 9,470

(2) Current Assets (2,000 + 2,880 + 6,720) 11,600Total 31,270

Notes to AccountsRs.

1. Share CapitalIssued, subscribed & Paid up :7,00,000 equity shares of Rs. 10 each, fully paid up 7,000(of the above 5,00,000 shares have been issued forconsideration other than cash)

2. Long Term BorrowingsSecured Loan (1,280 + 7,200) 8,480Unsecured Loans (25% of Rs. 8,600) 2,150 10,630


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WN 1 : Calculation of Net AssetsAndrew Ltd. Barry Ltd.

Fixed Assets (Book Value) 3,400 6,800Current Assets (80% & 70%) 2,880 6,720Less : Statutory Liabilities (7,200) (1,000)Less : Liabilities to Employee (3,000) (1,800)Less : Miscellaneous Creditor (4,000) (1,440)Less : Secured Loan (1,280) (7,200)Less : Unsecured Loan @ 25% (2,150) ---Net Assets (11,350) 2,080

WN 2 : Calculation of Goodwill / Capital ReserveAndrew Ltd. Barry Ltd.

PC Paid 200 ---Net Assets acquired 11,350 (2,080)Goodwill / (Capital reserve) 11,550 (2,080)Net Goodwill for Balance Sheet (11,550 - 2,080) = 9,470

Q.11.Ans. :-Projected Balance Sheet of Mix Ltd. as on December 31, 2011


(1) Shareholder’s Funds(a) Share Capital 1 54,00,000(b) Reserves and Surplus 2 13,75,000

Total 67,75,000II. Assets

(1) Non-current assetsNon Current Investments 3 60,00,000

(2) Current AssetsCash & Cash equivalents 7,75,000

Total 67,75,000

Projected Profit and Loss Account for the Period ending December 31, 2011

Particulars Note No (`)I. Other Income 1,74,000II. Total Revenue 1,74,000I. Expenses

Management Expenses 6,000II. Total Expenses 6,000Net Profit before Tax 1,68,000

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Notes to Accounts(`) (`)

1. Share CapitalAuthorised : 6,00,000 Equity Shares of ` 10 each 60,00,000Issued : 5,40,000 Equity Shares of ` 10 each 54,00,000 54,00,000

2. Reserves and SurplusSecurities Premium Account 14,25,000Less : Preliminary Expenses written off (50,000) 13,75,000

Profit and Loss 1,68,000Deduct Dividend (3/2 percent on ` 48,00,000) paid on December 31,2011 (1,68,000) ---

13,75,0003. Non Current Investments

Subsidiary Companies shares at cost 60,00,000

(1) Calculation of Profit

Rich PoorPBIT 6,00,000 2,40,000(-) Interest --- (40,000)PBT 6,00,000 2,00,000(-) Tax @ 40% (2,40,000) (80,000)(-) Pref. Dividend --- (60,000)(a) Total 3,60,000 60,000(b) P/E Ratio 15 10(c) Total consideration (a x b) 54,00,000 6,00,000(d) No. of Share 4,32,000 48,000

(2) Calculation of Purchase Consideration

(a) Rich Ltd. with Mix. :

Beneficiary Mode Working Amt.

ESH ES 4,32,000 x 10 43,20,000

ESH Security P. 4,32,000 x 2.5 10,80,000

54,00,000

(b) Poor with Mix :

Beneficiary Mode Working Amount

ESH ES 48,000 x 10 4,80,000

ESH Security Premium 48,000 x 2.5 1,20,000

6,00,000

(3) Bank A/c

To Equity Share Capital 6,00,000 By Mgt. Exp. 6,000

To Security Premium 2,25,000 By dividend 1,68,000

To Dividend 1,74,000 By Preliminary Exp. 50,000

By Balance c/d 7,75,000

9,99,000 9,99,000


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Q.12. Ans. :-

(i) Statement of No. of Share to be issued

Goodwill 2,00,000Stock 6,00,000Fixed Assets (19,50,000 + 1,00,000) 20,50,000Debtors 9,00,000Cash & Bank 3,00,000Creditors (3,00,000)Net Assets 37,50,000Price of Shares 100No. of Shares 37,500

(ii) Statement of Net Current Assets

Strong Weak

Stock 8,00,000 6,00,000Debtors 14,00,000 9,00,000Cash & Bank 11,75,000 3,00,000Creditors (5,00,000) (3,00,000)

28,75,000 15,00,000

(iii) Profit & Loss Account as on 1.7.07

Strong Weak

Balance Sheet Value 6,00,000 4,00,000Current Year Profit 4,00,000 2,00,000Dividend Paid (5,00,000) (3,00,000)Net 5,00,000 3,00,000

(iv) Statement of Fixed Assets as on 1.7.2012

Strong Weak

Balance Sheet value 30,00,000 20,00,000

Depreciation (75,000) (50,000)

Net 29,25,000 19,50,000

Calculation of Bank Balance

Strong WeakBalance Sheet value 12,00,000 3,50,000Profit During the year 4,00,000 2,00,000Depreciation (Non-cash) 75,000 50,000Dividend Paid (5,00,000) (3,00,000)

11,75,000 3,00,000

(v) Balance Sheet of Strong Ltd. as on 1.7.2012 (after take over)Particulars Note No. (`)


(a) Share Capital 1 87,50,000(b) Reserves and Surplus 2 8,00,000

(2) Current LiabilitiesTrade Payables 3 8,00,000

Total 1,03,50,000

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(a) Fixed Assets(i) Tangible Assets 4 49,75,000(ii) Intangible Assets 5 2,00,000

(2) Current Assets(a) Inventories 14,00,000(b) Trade receivables 23,00,000(c) Cash and cash equivalents 14,75,000

Total 1,03,50,000

Notes to Accounts :` `

1. Share Capital87,500 (50,000 + 37,500) Equity shares of ` 100 each 87,50,000

2. Reserves and SurplusReserves 4,00,000Profit and Loss Account [as computed in (iii)] 4,00,000 8,00,000

3. Trade PayablesCreditors (` 5,00,000 + ` 3,00,000) 8,00,000

4. Tangible AssetsFixed Assets [as computed in (iv)] 49,75,000

5. Intangible assetsGoodwill 2,00,000


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Q.1. (Important) Consider the following summarised balance sheets of subsidiary B Ltd :

2010 2011 2010 2011` ` ` `

Share-Capital Fixed AssetsIssued & subscribed Cost 3,20,000 3,20,0005,000 equity shares of ` 100 each 5,00,000 5,00,000 Less : Accumulated dep. (48,000) (96,000)Reserves & Surplus

2,72,000 2,24,000Revenue reserves 2,86,000 7,14,000 Investments at cost --- 4,00,000Current Liabilities & Provisions : Current Assets :Sundry Creditors 4,90,000 4,94,000 Stock 5,97,000 7,42,000Bank Overdraft --- 1,70,000 Sundry Debtors 5,94,000 8,91,000Provision for taxation 3,10,000 4,30,000 Prepaid Expenses 72,000 48,000

Cash at Bank 51,000 3,00015,86,000 23,08,000 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 endof 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 threeyears. 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 thepurpose of consolidation. Such restatement is necessary to make the accounting policies adopted by A Ltd. and BLtd. 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 ofpre-acquisition profit and the amount wa correctly treated by Harsh Ltd. Debenture interest has been paid up todate. Following are Balance Sheets of Harsh Ltd. and Sukh Ltd.

Balance Sheet as on 30.9.2011Harsh Ltd. Sukh Ltd.

Liabilities ` Èquity Capital (` 10) 5,00,000 1,00,0006% Preference Share Capital (` 100) 1,00,000 50,000General Reserve 30,000 30,000Profit and Loss Account 40,000 12,0006% Debentures Nil 1,00,000Sundry Creditors 90,000 60,000Due to Sukh Ltd. 10,000 NilBills Payable 20,000 25,000Total 7,90,000 3,77,000

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AssetsGoodwill 50,000 30,000Building 2,00,000 50,000Plant & Machinery 1,05,000 1,00,000Stock in trade 1,30,000 1,00,000Sundry Debtors 90,000 50,000Bills Receivable 30,000 10,000Due from Harsh Ltd. Nil 12,000Bank 27,000 25,000Investments in Sukh Ltd.300 Preferences Share Capital 28,000 Nil7,500 Equity Shares 85,000 NilDebentures (Face Value ` 50,000) 45,000 NilTotal 7,90,000 3,77,000

1. Cheque of ` 2,000 sent by Harsh Ltd. to Sukh Ltd. was in transit.2. 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. made10% 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 wayof 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 30,00,000Issued and Subscribed Capital Equity shares of` 10 each fully paid 50,00,000 20,00,000Capital Reserve 5,00,000 3,10,000Revenue Reserve 8,50,000 75,000Profit and Loss Account 4,00,000 2,80,000Sundry Creditors 2,50,000 2,25,000Bills Payable 1,00,000 10,000

71,00,000 29,00,000Assets

Land and Building 20,00,000 15,20,000Plant and Machinery 20,00,000 8,00,000Furniture 5,00,000 1,60,000Investment 16,10,000 ---Stock 3,40,000 1,00,000Sundry Debtors 3,60,000 2,00,000Bills Receivable 50,000 40,000Bank 2,40,000 80,000

71,00,000 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 andpaid dividend on Equity shares. PD Ltd. appropriately adjust its share of dividend in Investment Account.


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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 on1.10.03 Furniture, which stood in the books at ` 2,00,000 on 1.4.2003 revalued at ` 1,50,000 on 1.10.03. In boththe 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 inrespect of this machinery in the books on 31.3.2004 :

Ìnstallment due 20,000Installment not due 8,000Hire-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 therequirements 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 31stMarch, 2010, prepare a consolidated balance sheet as a that date, having regards to the following :1. 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, 2009.2. 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 ofdepreciation : Machinery 10% Furniture 15%).

Balance Sheet of Hanish Ltd. as on 31st March, 2010

Liabilities Hanish Ltd. Sunil Ltd. Assets Hanish Ltd. Sunil Ltd.Share capital Machinery 3,00,000 90,000Share of ` 100 each 6,00,000 1,00,000 Furniture 1,50,000 17,000Reserve 2,00,000 75,000 Other Assets 4,40,000 1,50,000Profit & Loss A/c 1,00,000 25,000 Shares in Sunil Ltd. :Creditors 1,50,000 57,000 800 shares at ` 200 each 1,60,000

10,50,000 2,57,000 10,50,000 2,57,000

Q.5. The draft Balance Sheets of 3 Companies as at 31st March, 2007 are as below : (In ` 000's)

Liabilities Morning Ltd. Evening Ltd. Night Ltd.Share Capital - shars of ` 100 each 40,000 20,000 10,000Reserves 1,800 1,000 900P/L A/c (1.4.06) 1,500 2,000 800Profit for 2006-07 7,000 3,800 1,800Loan from Morning Ltd. --- 5,000 ---Creditors 2,500 1,000 1,400

52,800 32,800 14,900AssetsInvestments : 1,60,000 shares in Evening 18,000 --- --- 75,000 shares in Night 8,000 --- ---Loan to Evening Ltd. 5,000 --- ---Sundry Assets 21,800 32,800 14,900

52,800 32,800 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.

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(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 subscribedfor 100% shares of a new company B Ltd. promoted by the manaement of A Ltd. Following are the summarizedbalance 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.

` ` ` ` ` Èquity shares of ` 10 each 5,000 1,000 1,000 Fixed Assets 7,000 -- 2,500Profit & Loss A/c 6,500 --- 2,300 Investment 1,500 -- 2,000Current 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. S Ltd.Dr. Cr. Dr. Cr.

` ` ` Èquity Share Capital (Share of ` 100 each) 10,00,000 2,00,0007% Preference Share Capital (Share of ` 100 each) --- 2,00,000Reserves 3,00,000 1,00,0006% Debentures 2,00,000 2,00,000Sundry Debtors / Creditors 80,000 90,000 50,000 60,000P&L A/c balance 20,000 15,000Purchases / Sales 5,00,000 9,00,000 6,00,000 9,50,000Wages & Salaries 1,00,000 --- 1,50,000Debenture Interest 12,000 12,000General Expenses 80,000 60,000Preference dividendup to 30.6.2011 3,500 7,000Stock (31.12.2011) 1,00,000 50,000Cash at Bank 13,500 6,000Investment in S Ltd. 5,28,000 ---Fixed Assets 11,00,000 7,90,000

25,13,500 25,13,500 17,25,000 17,25,000

Investment in S Ltd. were acquired on 1.4.2011 and consisted of 80% of Equity Capital and 50% of PreferenceCapital. Depreciation on fixed assets is written off @ 105 p.a. After acquiring control over S Ltd., H Ltd. suppliedto it goods at cost plus 20%, the total invoice value of such goods being ` 60,000; 1/4 of such goods was still instock at the end of the year.

Prepare the Consolidated Profit and Loss Account for the year ended on 31st December, 2011.


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Q.8. (Study Material - Important) A Ltd. a UK based company entered into a joint venture with B Ltd. in India, whereinB 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 distributedequally. A Ltd. invested 49% of total capital but has equal share in all the assets and is equally liable for all theliabilities of the joint venture. Following is the trail balance of the joint venture at the end of the first year :

Particulars Dr. (`) Cr. (`)Purchases 9,00,000Other Expenses 3,06,000Sales 13,05,000Fixed Assets 6,00,000Current Assets 2,00,000Unsecured Loans 2,00,000Current Liabilities 1,00,000Capital 4,01,000

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. Blue Ltd. Green Ltd.` ` ` ` ` `

Fixed Assets :Land and Building at cost 1,60,000 60,000 80,000Furniture and Fittings at cost 1,50,000 50,000 46,000Less: Depreciation upto June 30, 2006 70,000 80,000 26,000 24,000 15,000 31,000

2,40,000 84,000 1,11,000Shares in Blue Ltd. at cost 1,25,000Shares in Green Ltd. at cost 1,60,000Current Assets :Stock-in-trade 42,400 50,300 61,200Debtors 82,390 46,610 44,300Bank Balance 1,30,400 22,350 77,750

6,20,190 3,63,260 2,94,250Share Capital :Authorised and IssuedEquity Shares of ` 10 each fully paid 2,50,000 1,00,000 1,50,000Reserve and Surpluses:Capital Reserve 40,000 --- 30,000Revenue Reserve 77,496 61,420 32,425Current Liabilities and Provisions :Creditors 80,194 90,940 16,340Income-tax 72,500 60,900 35,485Proposed Dividends 1,00,000 50,000 30,000

6,20,190 3,63,260 2,94,250You 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 CompanyQ.1.Ans. :-

Balance Sheet of B Ltd.Note No. `


(a) Share Capital 5,00,000(b) Reserves and Surplus (WN 1) 6,91,000

(2) Current Liabilities(a) Short Term borrowing (bank overdraft) 1,70,000(b) Trade Payable 4,94,000(c) Other Current Liabilities (Provision for tax) 4,30,000

Total 22,85,000(ii) Assets

(1) Non-current assets(a) Tangible Fixed assets (3,20,000 - 64,000) 2,56,000(b) Non Current Investment 4,00,000

(2) Current Assets(a) Inventory 7,08,000(b) Trade Receivable 9,00,000(c) Cash & cash equivalent 3,000(d) Other current assets (Prepaid expense) 18,000

Total 22,85,000

Working Note : Calculation of Adjusted ProfitRs. Rs.

Revenue reserves as given 7,14,000Add : Depreciation over charged (Rs. 16,00 x 2) 32,000 ---Add : Provision for doubtful debts 9,000 41,000

7,55,000Less : Reduction in stock-in-trade 34,000Less : Advertising expenditure to be written off 30,000 (64,000)Adjusted revenue reserve 6,91,000

Q.2. Ans. :- Balance Sheet of Harsh Ltd.Note No. `


(a) Share Capital 6,00,000(b) Reserves and Surplus (WN 4) 84,675

(2) Minority Interest (WN 2) 54,175(3) Non Current Liabilities

(a) Long term borrowing - Debenture (1,00,000 - 50,000) 50,000(4) Current Liabilities

(a) Trade Payable (Creditors + Bills Payable) 1,95,000(b) Other Provision (Minority interest in preference propose) 600(c) Inter Company Balance Sheet (10,000 - 10,000) ---

Total 9,84,950


78


(a) Tangible Fixed assets (2,00,000 + 50,000 + 1,05,000 + 1,00,000 - 4,000 + 1,200) 4,52,000(b) Intangible Assets (WN 3) 69,250

(2) Current Assets(a) Inventory (1,30,000 + 1,00,000 - 1,000) 2,29,000(b) Trade Receivable (90,000 + 50,000 + 30,000 + 10,000) 1,80,000(c) Cash & cash equivalent (27,000 + 25,000 + 2,000 cheque in transit) 54,000(d) Inter company balance sheets (12,000 - 12,000) ---

Total 9,84,450

WN 1 : Analysis of Profit of Sukh Ltd.

Particulars Capital Revenue P&L Revenue GR Total

General Reserve 25,000 ---- 5,000 30,000Profit & Loss A/c 14,000 (2,000) ---- 12,000

Total 39,000 (2,000) 5,000(+) Dividend Paid

Equity 7,500 x 100

75

LNM

OQP ---- 10,000 ----

Pref. [50,000 x 6% x 6 month] ---- 1,500 ----Total 39,000 9,500 5,000

(-) Dividend paidEquity (10,000) ---- ----Pref. [Current Year] ---- (1,500) ----

(-) Revaluation Loss (Note 1) (4,000) ---- ----(+) Saving in depreciation [4,000 x 30%] ---- 1,200 ----(-) Stock Reserve [6,000 x 20/100] ---- (1,000) ----(-) Pref. Proposed dividend para 27 (Note 2) [50,000 x 6% x 1/2] ---- (1,500) ----

Total 25,000 6,700 5,000MIT 25% 6,250 1,675 1,250Harsh 75% 18,750 5,025 3,750

Note 1 : Calculation of Revaluation Profit and LossMarket 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 InterestShare in equity share capital 25,000Share in Pref. Share capital 20,000Share in Profit 9,175Total 54,175

79

WN 3 : Calculation of Cost of ControlCost of investment in equity share 85,000Cost of investment in Pref. Share 28,000Less : Capital Profit (18,750)Less : Share in equity share capital (75,000)Less : Share in Pref. Share capital (30,000)Capital Reserve 10,750Add : Balance Sheet goodwill 80,000Net Goodwill 69,250

WN 4 : Calculation of Reserve & SurplusGeneral Reserve Profit & Loss Total

Own Balance 30,000 40,000Add : Share in subsidiary 3,750 5,025Add : Share in Preference proposed dividend 900Add : Profit on cancellation of debenture (50,000 - 45,000) 5,000Total 33,750 50,925 84,675

Q.3. Ans. :-Balance Sheet of B Ltd.

Note No. `(i) Equity and Liabilities

(1) Shareholder’s Funds(a) Share Capital 5,00,000(b) Reserves and Surplus (12,48,000 + 8,50,000 + 4,91,600) 25,89,600

(2) Minority Interest 6,13,400(2) Current Liabilities and Provision

(a) Creditors (2,50,000 - 2,25,000 - 28,000) 4,47,000(b) Bills Payable (1,00,000 + 10,000) 1,10,000

Total 87,60,000(ii) Assets

(1) Non-current assets(a) Tangible Fixed assets 1 73,76,400

(2) Current Assets(a) Inventories 2 4,33,600(b) Trade Receivables 3 6,30,000(c) Cash & cash equivalent 3,20,000

Total 87,60,000


80

Notes to Accounts :-1. Tangible Fixed Assets :-

Land & BuildingPD Ltd. 20,00,000SD Ltd. 15,20,000

(+) Revaluation Profit 4,40,000(-) Additional Depreciation (11,000) 39,49,000Plant & Machinery

PD Ltd. 20,00,000SD Ltd. 8,00,000

(-) Unrealised Profit on H.P. (5600) 27,94,400Furniture

PD Ltd. 5,00,000SD Ltd. 1,60,000

(-) Revaluation Loss (30,000)(+) Saving in Depreciation 3,000 6,33,000

73,76,400

2. InventoriesStock PD Ltd. 3,40,000

SD Ltd. 1,00,000(+) Cancellation of Stock Reserve 1,600(-) Cancellation of Contra (8,000) 4,33,600

3. Trade ReceivableDebtors PD Ltd. 3,60,000

SD Ltd. 2,00,000(-) Contra (20,000) 5,40,000B/R PD Ltd. 50,000

SD Ltd. 40,000 90,0006,30,000

WN 1 : Analysis of Profit

Particulars Capital Revenue P&L Revenue GR Total

Profit & Loss A/c 2,75,000 5,000 --- 2,80,000Capital Reserve 50,000 --- 2,60,000 3,10,000Revenue Reserve 75,000 --- --- 75,000Total 4,00,000 5,000 2,60,000

(+) Dividend Paid 18,10,000 - 16,10,000

80%

FHG IKJ --- 2,50,000 ---

Total 4,00,000 2,55,000 2,60,000

Time Adjustment 2,57,5002,55,000 x 6

12

FHG IKJ2,60,000 x 6

12

FHG IKJTotal 6,57,500 1,27,500 1,30,000Revaluation Profit/Loss (4,40,000 - 30,000) 4,10,000 --- ---(-) Additional Depreciation (11,000 - 3,000) --- (8,000) ---Total 8,17,500 1,19,500 1,30,000

Minority @ 20% 1,63,500 23,900 26,000PD Ltd. @ 80% 6,54,000 95,600 1,04,000

81

WN 2 : Calculation of Revaluation Profit and Loss

Particulars Land & Building Furniture & Fixture

Market value on 30.9.03 20,00,000 1,50,000

(-) Book value on 30.9.03 15,60,000 1,80,000

1,60,000 - 5% x 6

12b gRST

UVW 2,00,000 - 20% x 612

b gRSTUVW

Revaluation Profit / Loss 4,40,000 (30,000)

Additional Depreciation 4,40,000 x 5% x 6

1230,000 x 20% x

612

11,000 3,000

Depreciation Rate16,00,000 - 15,20,000

16,00,000 x 100

FHG

IKJ

2,00,000 - 1,60,000

2,00,000 x 100

FHG

IKJ

5% 20%

WN 3 : Calculation of Cost of Control

Cost of investment 16,10,000

(-) Share in share capital (16,00,000)

(-) Share in Capital Profit (6,54,000)

C/R 6,44,000

(+) Own Capital Reserve 5,00,000

(+) Share in Post C/R 1,04,000

Net Capital Reserve 12,48,000

WN 4 : Calculation of Minority Interest

Share in share capital 4,00,000

Add : Share in Pre Profit 1,63,500

Post Profit 49,900

Minority Interest 6,13,400

WN 5 : Calculation of Consolidated P&L

Own Balance 4,00,000

Add : Share in Subsidiary 95,600

Less : Unrealised Profit on H.P. transaction (28,000 x 20%) (5,600)

Add : Cancellation of stock reserve 1,600

Total 4,91,600

Note : Since dividend has been recorded properly by PD Ltd. hence amount of dividend has not been rectified in costof control.


82

Q.4.Ans. :- Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd.as at 31st March, 2012

Particulars Note No. (` in crores)I. Equity and Liabilities

(1) Shareholder’s Funds(a) Share Capital 6,00,000(b) Reserves and Surplus 1 3,44,600

(2) Minority Interest 48,150(3) Current Liabilities

(a) Trade Payables 2 2,07,000Total 11,99,750


(a) Fixed Assets(i) Tangible Assets 3 5,97,750(ii) Intangible Assets 4 12,000

(b) Other non-current assets 5 5,90,000Total 11,99,750

W.N. 1 Analysis of Profit

Capital P&L Reserve Total

Reserve 25,000 --- 50,000 75,000P&L 15,000 10,000 --- 25,000Total 40,000 10,000 50,000 1,00,000

± Time Adjustment --- --- ---Total 40,000 10,000 50,000

(+)Revaluation Projection 45,000(-) Depreciation (4,250) ---

Total 85,000 5,750 50,000Minority Interest (20%) 17,000 1,150 10,000 28,150H Ltd. (80%) 68,000 4600 40,000

W.N. 2 Revaluation Adjustment

Machinery FurnitureMarket Value 1,50,000 25,000Book value 1,00,000 20,000Revaluation / Profit / Loss 50,000 (5,000)Additional / Saving (5000) 750

W.N. 3 Calculation of Cost of ControlCost 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

W.N. 4 Calculation of Minority Interest

Share in Share Capital (1,00,000 x 20%) 20,000Share in Profit (17,000 + 1,150 + 10,000) 28,150Total 48,150

W.N. 5 Calculation of Consolidated P&L / GR

P&L Reserve

Own 1,00,000 2,00,000Share in Subsidiary 4,600 40,000

1,04,600 2,40,000

83

Q.5.Ans. :-

Consolidated Balance Sheet of Morning & GroupParticulars Note No. (` in crores)


(a) Share Capital 40,000(b) Reserves and Surplus (8,745 + 2,072.5 + 902.50) 11,720

(2) Minority Interest 7,930(3) Current Liabilities

(a) Trade Payables 4,900(b) Other Provision (4,000 + 400 + 250) 4,650Total 69,200


(a) Fixed Assets(i) Tangible Assets 1 69,200

Total 69,200

Notes to Account

Morning Ltd. 21,800Evening Ltd. 32,800Less : Unrealized profit Night Ltd. (300) 32,500Night Ltd. 14,900

69,200

(i) Analysis of Profit of Evening Ltd.

Particulars Capital Rgr Rpl TotalGeneral Reserve 800 200 --- 1,000Profit & Loss A/c 2,000 --- 3,800 5,800Total 2,800 200 3,800(-) Interest on Loan [5,000 x 8%] --- --- (400)Total 2,800 200 3,400Minority Interest : 20% 560 40 680Morning Ltd. : 80% 2,240 160 2,720

(ii) Analysis of Profit of Night Ltd.Particulars Capital Rgr Rpl TotalGeneral Reserve 750 150 --- 900Profit & Loss 800 --- 1,800 2,600Total 1,550 150 1,800(-) Stock Reserve --- --- (300)Total 1,550 150 1,500Minority Interest : 25% 387.5 37.5 375Morning Ltd. : 75% 1162.5 112.5 1125

(iii) Calculation of Cost of Control

Cost of investment [18,000 + 8,000] 26,000(-) Capital Profit - Evening (2,240) Night (1162.5)(-) Share in share capital - Evening (16,000) Night (7,500)Capital Reserve 902.50


84

(iv) Calculation of Consolidated Profit & Loss & ReserveProfit & Loss Reserve

Own Balance 8,500 1,800(+) Share in Evening 2,720 160(+) Share in Night 1,125 112.5(+) Unrecorded Interest 400 ---(-) Proposed dividend of holding (4,000) ---Total 8,745 2,072.5

(v) Calculation of Minority Interest

Share in share capital : Evening [20,000 x 20%] 4,000 Night [10,000 x 25%] 2,500(+) Share in Profit : Evening [560 + 40 + 680] 1,280 Night [387.5+ 37.5 + 375] 800(-) Minority interest in proposed dividend : Evening [20,000 x 10% x 20%] (400) Night [10,000 x 10% x 25%] (250)Total 7,930

Q.6.Ans. :-

Consolidated Balance Sheet as on 1 April, 2010Particulars Note No. (` in crores)



(2) Current Liabilities 25,00,000Total 1,40,00,000


(a) Fixed Assets 70,00,000(b) Non Current Investment 1 5,00,000

(2) Current Assets 65,00,000Total 1,40,00,000

Notes to Account

I. Investment in Associates 8,25,000Less : Capital Reserve (3,25,000)Net 5,00,000

WN 1 : Calculation of Value of Investment

Equity Share Capital 10,00,000Profit and Loss Account 23,00,000Net Assets 33,00,000Value of Investment @ 25% 8,25,000

WN 2 : Calculation of Goodwill / Capital Reserve

Cost of Investment 5,00,000Less : Share in Net Assets (8,25,000)Capital Reserve 3,25,000

85

Q.7.Ans. :-

Consolidated Profit and Loss Account of H Ltd. and S Ltd.

for the year ended 31st December, 2011Particulars Note No. (` in crores)

I. Revenue from opeations 17,90,000II. Total Revenue 17,90,000III. Expenses

Cost of Material purchased / consumed 10,40,000Changes of Inventories of finished goodsEmployee benefit expense 2,50,000Finance Cost 24,000Depreciation and amortization expense 1,89,000Other expenses 1,40,000Total expenses 16,43,000

IV. Profit before Tax (II - III) 1,47,000Profit transferred to Consolidated Balance Sheet

Profit after Tax 1,47,000Preference dividend 3,500Preference dividend payable 3,500 7,000

1,40,000Less : Minority Interest 7,000Capital Reserve 7,000Investment Account - dividend for 3 months (prior to acquisition) 1,750Stock reserve 2,500

Profit to be transferred to consolidated Balance Sheet 1,21,750

Q.8.Ans. :-

Consolidated Profit & Loss AccountParticulars Note No. (` in crores)

Revenue from operations 1 13,05,000Total Revenue (A) 13,05,000Less : Expenses

Purchases 2 9,00,000Other expenses 3 3,06,000Changes in inventories of finished goods 4 (1,00,000)

Total Expenses (B) 11,06,000Profit Before Tax (A - B) 1,99,000

Consolidated Balance SheetNote No. `

I. Equity and Liabilities1. Shareholders’ Funds :

Share Capital 5 4,01,000Reserves and Surplus 6 1,99,000

2. Non-current liabilitiesLong term borrowings 7 2,00,000

3. Current Liabilities 8 1,00,000Total 9,00,000

II. AssetsNon Current Assets

Fixed Assets 9 6,00,000Current Assets

Inventories 10 1,00,000Other curent assets 11 2,00,000

9,00,000


86

Notes to Accounts

Particulars (`)1. Revenue from operations

Sales :A Ltd. 7,25,000B Ltd. 5,80,000 13,05,000

2. PurchasesA Ltd. 5,00,000B Ltd. 4,00,000 9,00,000

3. Other ExpensesA Ltd. 1,70,000B Ltd. 1,36,000 3,06,000

4. Closing StockA Ltd. 50,000B Ltd. 50,000 1,00,000

5. Share Capital :A Ltd. 1,96,490B Ltd. 2,04,510 4,01,000

6. Reserves and SurplusProfit & Loss Account :

A Ltd. 99,500B Ltd. 99,500 1,99,000

7. Long Term BorrowingsUnsecured Loans :

A Ltd. 1,00,000B Ltd. 1,00,000 2,00,000

8. Current Liabilities :A Ltd. 50,000B Ltd. 50,000 1,00,000

9. Fixed Assets :A Ltd. 3,00,000B Ltd. 3,00,000 6,00,000

10. InventoriesA Ltd. 50,000B Ltd. 50,000 1,00,000

11. Other Current Assets :A Ltd. 1,00,000B Ltd. 1,00,000 2,00,000

87

Q.9.Ans. :-

Consolidated Balance Sheet as on 1 April, 2010Particulars Note No. (` in crores)



(2) Minority Interest 60,261(3) Current Liabilities & Provision

(a) Trade Payable (80,194 + 90,940 + 16,340) 1,87,474(b) Tax Provision 1,68,885(c) Other Provision (Proposed Dividend) 1,11,000Total 9,33,150


(a) Fixed AssetsTangible 4,35,000Intangible 9,450

(2) Current Assets(a) Inventories 1,53,900(b) Trade Receivable 1 1,04,300(c) Cash & Cash equivalent 2,30,500

Total 9,33,150

Notes to Account

Trade ReceivableDebtor Star 82,390

Blue 46,610Green 44,300 1,73,300

Less : Dividend RectificationBlue (24,000)Green (45,000)

1,04,300

WN 1 : Analysis of Profit of Green Ltd.

Capital Rr/r Rc/r TotalRevenue Reserve 22,000 10,425 --- 32,425Capital Reserve 20,000 --- 10,000 30,000Total 42,000 10,425 10,000(+) Proposed Dividend --- 30,000 ---Total 42,000 40,425 10,000Minority Interest @ 20% 8,400 8,085 2,000Minority interest @ 80% 33,600 32,340 8,000


88

WN 2 : (a) Analysis of Profit of Blue Ltd. (with reference to first date of acquisition)

Capital Revenue TotalRevenue Reserve 25,000 36,420 61,420Rectification of Proposed Dividend --- (24,000)Proposed Dividend --- 50,000Total 25,000 62,420(+) Transfer from Green

Revenue Reserve --- 32,340Capital Reserve 8,000 ---Total 33,000 94,760Share of Star Ltd. @ 75% 24,750 71,070

(b) Analysis of Profit of Blue Ltd. (with reference second date of acquisition)

Capital Revenue TotalRevenue Reserve 40,000 21,420 61,420Rectification of Proposed Dividend --- (24,000)Proposed Dividend --- 50,000Transfer from Revenue Reserve --- 32,340Transfer from Capital Reserve 8,000 ---Total 48,000 79,760Minority Interest @ 10% 4,800 7,976Star Ltd @ 15% 7,200 11,964Share from first acquisition 24,750 71,070Total 31,950 83,034

WN 3 : Calculation of Cost of Control

Cost of Investment 2,85,000Less : Capital Profit

B (31,950)G (33,600)

Share in Share CapitalB (90,000)G (1,20,000)

Goodwill 9,450

WN 4 : Calculation of Minority Interest

Share in Share CapitalB 10,000G 30,000

Share in ProfitB 12,776G 18,485

Less : Minority of equity proposedB (50,000 x 10%) (5,000)G (30,000 x 20%) (6,000)

60,261

WN 5 : Calculation of Consolidated ReserveOwn Balance (Revenue Reserve) 77,496Add : Share in Blue 83,034Less : Rectification Proposed Dividend (50,000 x 90%) (45,000)Own Capital Reserve 40,000Total 1,55,530