W Ltd., registered with a capital of ₹10,00,000 in equity shares of ₹10 each, acquired the business of M/s A and B, the Balance Sheet of whom at the date of acquisition was as follows: Liabilities Amount ₹ Assets Amount
CS Executive · Company Accounts & Auditing Practices · PYQS · December 2017
W Ltd., registered with a capital of ₹10,00,000 in equity shares of ₹10 each, acquired the business of M/s A and B, the Balance Sheet of whom at the date of acquisition was as follows: Liabilities Amount ₹ Assets Amount ₹ Capital A-70000 Land & Building 50,000 B-70000 1,40,000 Plant & Machinery 40,000 Reserves 14,000 Furniture & Fixture 2,000 Sundry Creditors 30,000 Sundry Debtors 48,000 Bill Payable 16,000 Bill Receivable 13,000 Stock 18,000 Cash at Bank 29,000 2,00,000 2,00,000 The assets and liabilities were subject to the following revaluation: Plant and Machinery to be depreciated by 10%, Furniture and Fittings to be depreciated by 15%, Land and Buildings to be appreciated by 20%, A provision to be made for bad debts on debtors @ 2-1/2%, Goodwill of the firm was valued at ₹24,000. The consideration was to be discharged as follows: (i) Allotment of 10,000 equity shares of ₹10 each at ₹12 each. (ii) Allotment of 500, 14% Debentures of ₹100 each at a discount of 10%. (iii) Balance in cash. The cost of acquisition of the business amounted to ₹5,000. You are required to show the journal entries in the books of the company W Ltd.
Answer & Explanation:
Calculation of Purchase Consideration Assets taken over: Amount (₹) Cash at Bank 29,000 Bills Receivable 13,000 Sundry Debtors book value ₹48,000 Less: Provision @ 2.5% (₹1,200) 46,800 Stock 18,000 Furniture and Fixture (₹2,000 - 15% depreciation = ₹300) 1,700 Plant and Machinery (₹40,000 - 10% depreciation = ₹4,000) 36,000 Land and Building (₹50,000 + 20% appreciation = ₹10,000) 60,000 Goodwill 24,000 Gross assets taken over 2,28,500 Less: Liabilities taken over Bills payable 16,000 Sundry Creditors 30,000 Net Assets acquired or purchase consideration 1,82,500 Journal Entries in the Books of W Ltd. Date Particulars L.F. Amount (Dr.) Amount (Cr.) Business Purchase A/c Dr. ₹1,82,500 To M/s A & B A/c ₹1,82,500 (Being consideration due to vendor on purchase of the business as per agreement date) Bank A/c Dr. ₹29,000 Bills Receivable A/c Dr. ₹13,000 Sundry Debtor A/c Dr. ₹48,000 Stock A/c Dr. ₹18,000 Furniture and Fixture A/c Dr. ₹1,700 Plant and Machinery A/c Dr. ₹36,000 Land and Building A/c Dr. ₹60,000 Goodwill A/c Dr. ₹24,000 To Provision for Bad Debts ₹1,200 To Bills Payable ₹16,000 To Sundry Creditors ₹30,000 To Business Purchase ₹1,82,500 (Being take over the assets and liabilities of vendor) M/s A & B A/c Dr. ₹1,82,500 Discount on issue of Debenture A/c Dr. ₹5,000 To Equity Share Capital (10,000 shares * ₹10) ₹1,00,000 To Securities Premium (10,000 shares * ₹2) ₹20,000 To 14% Debenture (500 debentures * ₹100) ₹50,000 To Bank A/c (Balance in cash) ₹17,500 (Being Allotment of 10,000 equity shares of ₹10 each at a premium of ₹2 per share and 500 debenture of ₹100 each at a discount of 10% to vendor for consideration other than cash and the balance of ₹17,500 paid in cash as per board resolution dated ______) Goodwill A/c Dr. ₹5,000 To Bank A/c ₹5,000 (Being cost of acquisition paid and debited to goodwill a/c) Securities Premium A/c Dr. ₹5,000 To Discount on issue on Debenture A/c ₹5,000 (Being writing off discount on issue of debentures A/c)
Topics: Amalgamation and Acquisition
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