Question 4 Intelligent Limited and Diligent Limited are carrying their business independently for last two years. Following financial information in…

CA Intermediate · Advanced Accounting · PYQS · May 2024
Question 4 Intelligent Limited and Diligent Limited are carrying their business independently for last two years. Following financial information in respect of both the companies as at 31st March, 2024 has been given to you: Particulars Intelligent Limited (₹) Diligent Limited (₹) Equity And Liabilities: Equity Shares Capital of 100 each 12,00,000 10,00,000 8% Preference shares of 100 each 3,00,000 2,00,000 Trade Payables 12,00,000 4,00,000 Retirement Gratuity Fund (Long Term) 3,00,000 2,00,000 Profit and Loss Account Opening balance 4,50,000 2,50,000 Profit for the current year 2,50,000 1,50,000 Assets: Land and Buildings 10,00,000 8,00,000 Plant and Machinery 10,00,000 6,00,000 Inventories 7,00,000 4,00,000 Trade Receivables 6,00,000 3,00,000 Cash and Bank 4,00,000 1,00,000 On 1st April, 2024, both the companies agreed to amalgamate and form a new company 'Genius Limited, with an authorized capital of 40,00,000 divided into 30,000 equity shares of 100 each and 10,000 8% preference shares of 100 each. The amalgamation has to be carried out on the basis of following agreement: (1) Assets of both the companies were to be revalued as follows: Particulars Intelligent Limited (₹) Diligent Limited (₹) Land and Buildings 11,00,000 8,50,000 Plant and Machinery 9,00,000 4,00,000 Inventories 6,00,000 3,00,000 (2) Trade payables of Intelligent Limited includes - 1,00,000 due to Diligent Ltd. and the Trade receivables of Diligent Limited shows - 1,00,000 receivables from Intelligent Limited. (3) The purchase consideration is to be discharged in the following manner: (i) Issue 22,000 Equity Shares of 100 each fully paid up in the proportion of the sum of their profitability in the preceding two financial years. (ii) Preference shareholders of both companies are issued equivalent number of 8% Preference Shares of 100 each of Genius Limited at a price of 125 per share. (iii) 12% debentures of 100 each in Genius Limited at par to provide an income equivalent to 10% return on the basis of net assets in their respective business as on 1st April, 2024 after revaluation of assets. You are required to: (a) Compute the amount of Shares & Debentures to be issued to Intelligent Limited and Diligent Limited. (b) Prepare a Balance Sheet of Genius Limited showing the position immediately after amalgamation. (14 Marks)

Suggested Answer and Working Notes:

Computation of shares and debentures to be issued Intelligent Ltd. Diligent Ltd. (i) Equity shares 22,000 x 7/11 = 14,000 (W.N.1) 14,00,000 22,000 x 4/11 =8,000 (W.N.1) 8,00,000 (ii) Preference shares 3,00,000 / 100 × 125) 3,75,000 2,00,000 / 100 × 125) 2,50,000 (iii) Debentures Refer (W.N.3) 17,50,000 11,25,000 Total Purchase Consideration (i + ii + iii) 35,25,000 21,75,000 Balance Sheet of Genius Limited as at 1st April, 2024 (after amalgamation) Notes no. ₹ I. Equity and Liabilities (1) Shareholder's fund (a) Share Capital 1 27,00,000 (b) Reserves & Surplus 2 1,25,000 (2) Non-current Liabilities (a) Long term borrowings 3 28,75,000 (b) Other non-current liabilities 4 5,00,000 (3) Current Liabilities (a) Trade Payables (12,00,000 + 4,00,000 – 1,00,000) 15,00,000 Total 77,00,000 II. Assets (1) Non-current Assets (a) Property, Plant & Equipment 5 32,50,000 (b) Intangible Assets 6 22,50,000 (2) Current Assets (a) Inventories (6,00,000 + 3,00,000) 9,00,000 (b) Trade Receivables (6,00,000 + 3,00,000 - 1,00,000) 8,00,000 (c) Cash & Cash Equivalents 5,00,000 Total 77,00,000 Notes to Accounts: Sr. No. Particulars ₹ 1. Share Capital Authorized Share Capital a) Equity Share Capital 30,000 Equity Shares of 100each 30,00,000 b) Preference Share Capital 10% 10,000 Preference Shares 100each 10,00,000 40,00,000 Issued, Subscribed & Paid-up Capital a) Equity Share Capital 22,000 Equity Shares of 100each (out of the above all shares are issued for consideration other than cash) 22,00,000 b) Preference Share Capital 10% 5,000 Preference Shares of 100each (out of the above all shares are issued for consideration other than cash) 5,00,000 27,00,000 2. Reserves & Surplus Securities Premium 1,25,000 3. Long term borrowings 12% Debentures of 100each 28,75,000 4. Other Non-current Liabilities Gratuity Fund 5,00,000 5. Property, Plant & Equipment Land & Building (11,00,000 + 8,50,000) 19,50,000 Plant & Machinery (9, 00,000 + 4,00,000) 13,00,000 32,50,000 6. Intangible Assets Goodwill 22,50,000 Working Notes: 1. Calculation of Ratio of Equity Shares Intelligent Ltd. Diligent Ltd *Opening balance P&L 4,50,000 2,50,000 Profit for the current year 2,50,000 1,50,000 Total 7,00,000 4,00,000 *As the company has been in existence for two years, the opening balance of profit and loss account has been assumed to be the profit of the previous year. The total profits-7,00,000+4,00,000 = 11,00,000. No. of shares to be issued = 22,000 equity shares in the proportion of the preceding 2 years' profits. i.e. in 7:4. 2. Calculation of Net assets as on 31.3.2024 Particulars Intelligent Ltd. Diligent Ltd Assets (after revaluation) Land and Buildings 11,00,000 8,50,000 Plant & Machinery 9,00,000 4,00,000 Inventories 6,00,000 3,00,000 Trade Receivables 6,00,000 3,00,000 Cash & Cash Equivalents 4,00,000 1,00,000 Total (a) 36,00,000 19,50,000 Liabilities Trade Payables 12,00,000 4,00,000 Gratuity Fund 3,00,000 2,00,000 Total (b) 15,00,000 6,00,000 Net Assets (a – b) 21,00,000 13,50,000 3. Calculation of 12% Debentures to be issued to Intelligent Ltd. and Diligent Ltd. Intelligent Ltd. Diligent Ltd ₹ ₹ Net assets (Refer working note) 21,00,000 13,50,000 10% return on Net assets 2,10,000 1,35,000 12% Debentures to be issued 17,500 [2,10,000×100/12 = 17,50,000 of 100each] [1,35,000×100/12 = 11,25,000 of 100each] 11,250 4. Calculation of Goodwill / Capital Reserve S. No. Particulars Intelligent Ltd. Diligent Ltd. (i) Purchase Consideration Paid 35,25,000 21,75,000 (ii) Less: Net Assets 21,00,000 13,50,000 (iii) Goodwill 14,25,000 8,25,000 22,50,000 Alternatively: 4. Calculation of Goodwill / Capital Reserve S. No. Particulars Intelligent Ltd. Diligent Ltd (i) Purchase Consideration Paid 35,25,000 21,75,000 (ii) Less: Net Assets* 22,00,000 12,50,000 (iii) Goodwill 13,25,000 9,25,000 22,50,000 * Calculation of Net assets taken over Particulars Intelligent Ltd. Diligent Ltd Assets (after revaluation) Land and Buildings 11,00,000 8,50,000 Plant & Machinery 9,00,000 4,00,000 Inventories 6,00,000 3,00,000 Trade Receivables 6,00,000 2,00,000* Cash & Cash Equivalents 4,00,000 1,00,000 Total (a) 36,00,000 18,50,000 Liabilities Trade Payables 11,00,000** 4,00,000 Gratuity Fund 3,00,000 2,00,000 Total (b) 14,00,000 6,00,000 Net Assets (a – b) 22,00,000 12,50,000 ** 3,00,000 -1,00,000= 2,00,000 *** 12,00,000 -1,00,000 = 11,00,000

Topics: Amalgamation of Companies

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