The following are the summarized Balance Sheet of VT Ltd. and MG Ltd. as on 31st March, 2024: Particulars VT Ltd. (₹) MG Ltd. (₹) Equity and…
CA Intermediate · Advanced Accounting · MTP · September 2024
The following are the summarized Balance Sheet of VT Ltd. and MG Ltd. as on 31st March, 2024: Particulars VT Ltd. (₹) MG Ltd. (₹) Equity and Liabilities Equity Shares of 10 each 12,00,000 6,00,000 10% Preference Shares of 100 each 4,00,000 2,00,000 Reserve and Surplus 6,00,000 4,00,000 12% Debentures 4,00,000 3,00,000 Trade Payables 5,00,000 3,00,000 Total 31,00,000 18,00,000 Assets PPE 14,00,000 5,00,000 Investment 1,60,000 1,60,000 Inventory 4,80,000 6,40,000 Trade Receivables 8,40,000 4,20,000 Cash at Bank 2,20,000 80,000 Total 31,00,000 18,00,000 Details of Trade receivables and trade payables are as under: VT Ltd. (₹) MG Ltd. (₹) Trade Receivable Debtors 7,20,000 3,80,000 Bills Receivable 1,20,000 40,000 8,40,000 4,20,000 Trade Payables Sundry Creditors 4,40,000 2,50,000 Bills Payable 60,000 50,000 5,00,000 3,00,000 PPE of both the companies are to be revalued at 15% above book value. Inventory in Trade and Debtors are taken over at 5% lesser than their book value. Both the companies are to pay 10% equity dividend, Preference dividend having been already paid. After the above transactions are given effect to, VT Ltd. will absorb MG Ltd. on the following terms: (i) VT Ltd. will issue 16 Equity Shares of 10 each at par against 12 Shares of MG Ltd. (ii) 10% Preference Shareholders of MG Ltd. will be paid at 10% discount by issue of 10% Preference Shares of 100 each, at par, in VT. Ltd. (iii) 12% Debenture holders of MG Ltd. are to be paid at 8% premium, by 12% Debentures in VT Ltd., issued at a discount of 10%. (iv) ₹ 60,000 is to be paid by VT Ltd. to MG Ltd. for Liquidation expenses. (v) Sundry Debtors of MG Ltd. includes - 20,000 due from VT Ltd. You are required to prepare : (1) Journal entries in the books of VT Ltd. (2) Statement of consideration payable by VT Ltd.
Suggested Answer and Working Notes:
(i) Journal Entries in the Books of VT Ltd. Dr. ₹ Cr. ₹ PPE Dr. 2,10,000 To Revaluation Reserve 2,10,000 (Revaluation of PPE at 15% above book value) Reserve and Surplus Dr. 1,20,000 To Equity Dividend 1,20,000 (Equity dividend @ 10%) Equity Dividend Dr. 1,20,000 To Bank Account 1,20,000 (Payment of equity dividend) Business Purchase Account Dr. 9,80,000 To Liquidator of MG Ltd. 9,80,000 (Consideration payable for the business taken over from MG Ltd.) PPE (115% of 5,00,000) Dr. 5,75,000 Inventory (95% of 6,40,000) Dr. 6,08,000 Debtors Dr. 3,80,000 Bills Receivable Dr. 40,000 Investment Dr. 1,60,000 Cash at Bank (₹ 80,000 - 60,000 dividend paid) Dr. 20,000 To Provision for Bad Debts (5% of 3,60,000) 18,000 To Sundry Creditors 2,50,000 To 12% Debentures in MG Ltd. 3,24,000 To Bills Payable 50,000 To Business Purchase Account 9,80,000 To Capital Reserve (Balancing figure) 1,61,000 (Incorporation of various assets and liabilities taken over from MG Ltd. at agreed values and difference of net assets and purchase consideration being credited to capital reserve) Liquidator of MG Ltd. Dr. 9,80,000 To Equity Share Capital 8,00,000 To 10% Preference Share Capital 1,80,000 (Discharge of consideration for MG Ltd.'s business) 12% Debentures in MG Ltd. (₹ 3,00,000 × 108%) Dr. 3,24,000 Discount on Issue of Debentures (₹ 3,60,000 × 10%) Dr. 36,000 To 12% Debentures (3,24,000/90 × 100) 3,60,000 (Allotment of 12% Debentures to debenture holders of MG Ltd. at a discount of 10%) Sundry Creditors Dr. 20,000 To Sundry Debtors 20,000 (Cancellation of mutual owing) Goodwill Dr. 60,000 To Bank 60,000 (Being liquidation expenses reimbursed to MG Ltd.) Capital Reserve/P&L A/c Dr. 60,000 To Goodwill 60,000 (Being goodwill set off) (ii) Statement of Consideration payable by VT Ltd. for 60,000 shares (payment method) Shares to be allotted: 60,000/12 × 16 = 80,000 shares of VT Ltd. Issued 80,000 shares of 10each i.e.8,00,000 (i) For 10% preference shares, to be paid at 10% discount 2,00,000 x 90/1001,80,000 (ii) Consideration amount [(i) + (ii)] ₹ 9,80,000
Topics: AS 14
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