On 31st March, 2023, H Ltd. has 20,000 shares out of 25,000 equity shares issued by S Ltd. H Ltd. acquired these shares in S Ltd. in the following manner: Date of Acquisition: 01st April, 2022 - % of Shares Acquired: 25%
CS Executive · Corporate Accounting and Financial Management · PYQS · December 2023
On 31st March, 2023, H Ltd. has 20,000 shares out of 25,000 equity shares issued by S Ltd. H Ltd. acquired these shares in S Ltd. in the following manner: Date of Acquisition: 01st April, 2022 - % of Shares Acquired: 25% Date of Acquisition: 01st October, 2022 - % of Shares Acquired: 37.5% Date of Acquisition: 01st January, 2023 - % of Shares Acquired: 37.5% On 31st March, 2022, the balance sheet of S Ltd. exhibited equity share capital of ₹ 2,50,000 (in ₹ 10 shares) and reserves and surplus of ₹ 1,25,000. During the year 2022-23, net profit earned by the company was ₹ 50,000, that was distributed evenly throughout the year. Amount of Reserves and Surplus on 31st March, 2023 stood at ₹ 1,75,000. Ascertain the share of parent company in profits of S Ltd. on the dates of acquisition of these shares.
Answer & Explanation:
Calculation of Share of H Ltd. in Profits of S Ltd. on the Dates of Acquisition of Shares Total Equity Shares of S Ltd. = ₹ 2,50,000 / ₹ 10 per share = 25,000 shares Total Shares acquired by H Ltd. = 20,000 shares Net Profit earned during 2022-23 = ₹ 50,000 (distributed evenly throughout the year) 1. On 01st April, 2022: Shares acquired by H Ltd. = 25% of 20,000 shares = 5,000 shares Proportionate holding of H Ltd. in S Ltd. = 5,000 shares / 25,000 shares = 20% Reserves and Surplus on 31st March, 2022 (Pre-acquisition) = ₹ 1,25,000 Share of H Ltd. in pre-acquisition profit/reserves = 20% of ₹ 1,25,000 = ₹ 25,000 2. On 01st October, 2022: Shares freshly acquired by H Ltd. = 37.5% of 20,000 shares = 7,500 shares Proportionate holding of freshly acquired shares in S Ltd. = 7,500 shares / 25,000 shares = 30% Total share acquired by H Ltd. up to 01st October, 2022 = 20% + 30% = 50% Profit earned from 01st April, 2022 to 30th September, 2022 (6 months) = ₹ 50,000 × (6/12) = ₹ 25,000 Reserves and Surplus on 01st April, 2022 = ₹ 1,25,000 Total Pre-acquisition Reserves and Surplus on 01st October, 2022 = ₹ 1,25,000 + ₹ 25,000 = ₹ 1,50,000 Share of H Ltd. in pre-acquisition profit/reserves = 50% of ₹ 1,50,000 = ₹ 75,000 3. On 01st January, 2023: Shares freshly acquired by H Ltd. = 37.5% of 20,000 shares = 7,500 shares Proportionate holding of freshly acquired shares in S Ltd. = 7,500 shares / 25,000 shares = 30% Total share acquired by H Ltd. up to 01st January, 2023 = 50% + 30% = 80% Profit earned from 01st April, 2022 to 31st December, 2022 (9 months) = ₹ 50,000 × (9/12) = ₹ 37,500 Reserves and Surplus on 01st April, 2022 = ₹ 1,25,000 Total Pre-acquisition Reserves and Surplus on 01st January, 2023 = ₹ 1,25,000 + ₹ 37,500 = ₹ 1,62,500 Share of H Ltd. in pre-acquisition profit/reserves = 80% of ₹ 1,62,500 = ₹ 1,30,000
Topics: Corporate Accounting
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