A Limited and B Limited are carrying on business of same nature. On 31st March, 2024 the information given by both these companies is as follows:…

Journal Entries in the books of A Ltd. Particulars Debit ₹ Credit ₹ Business purchase A/c (W.N.1) 13,75,000 To Liquidator of B Ltd. 13,75,000 (Being business of B Ltd. taken over) Land & Building A/c 8,40,000 Plant and machinery A/c 5,60,000 Office equipment A/c 2,10,000 Investments A/c 3,00,000 Inventory A/c 4,20,000 Debtors A/c 3,20,000 Bills receivables A/c 70,000 Bank A/c 61,000 To General reserve A/c (W.N.2) 95,000 (2,50,000-1,55,000) To Export profit reserve A/c 1,20,000 To Investment allowance reserve A/c 60,000 To Profit and loss A/c 1,20,000 To Liability for 9% Debentures A/c (100each) 2,00,000 To Secured Loan 3,60,000 To Trade creditors A/c 2,76,000 To Bills payables A/c 1,00,000 To Other current liabilities A/c 75,000 To Business purchase A/c 13,75,000 (Being assets and liabilities taken over) Liquidator of B Ltd. 13,75,000 To Equity share capital A/c 8,00,000 To 10% Preference share capital A/c 4,00,000 To Securities premium A/c 1,75,000 (Being purchase consideration discharged) General Reserve* A/c 12,000 To Cash at bank 12,000 (Being expenses of amalgamation paid) Liability for 9% Debentures in B Ltd. A/c 2,00,000 To 9% Debentures A/c 2,00,000 (Being debentures in B ltd. discharged by issuing own 9% debentures) Bills payables A/c 60,000 To Bill receivables A/c 60,000 (Cancellation of mutual owing on account of bills of exchange) *Alternatively, profit & loss A/c may be debited in place of general reserve A/c. Opening Balance Sheet of A Ltd. (after absorption) as at 1st April, 2024 Particulars Notes ₹ Equity and Liabilities 1 Shareholders' funds a Share capital 1 30,00,000 b Reserves and Surplus 2 14,94,000 2 Non-current liabilities a Long-term borrowings 3 8,60,000 3 Current liabilities a Trade Payables 4 7,03,000 b Other current liabilities 5 1,25,000 Total 61,82,000 Assets 1 Non-current assets a PPE 6 36,35,000 b Investments 7 3,96,000 2 Current assets a Inventories 8 10,50,000 b Trade receivables 9 8,80,000 c Cash and cash equivalents 10 2,21,000 Total 61,82,000 Notes to accounts 1 Share Capital Particulars ₹ Equity share capital 2,00,000 Equity shares of 10each 20,00,000 (Out of above, 80,000 shares were issued for consideration other than cash) Preference share capital 10,000 10% Preference shares of 100each 10,00,000 (Out of above, 4,000 shares were issued for consideration other than cash) Total 30,00,000 2 Reserves and Surplus General Reserve Opening balance 3,00,000 Add: Adjustment under scheme of amalgamation 95,000 Less: Amalgamation expense paid (12,000) 3,83,000 Securities premium (2,40,000 + 1,75,000) 4,15,000 Export profit reserve Opening balance 1,80,000 Add: Adjustment under scheme of amalgamation 1,20,000 3,00,000 Investment allowance reserve 60,000 Profit and loss account Opening balance 2,16,000 Add: Adjustment under scheme of amalgamation 1,20,000 3,36,000 Total 14,94,000 3 Long-term borrowings Secured 9% Debentures 3,00,000 Add: Adjustment under scheme of amalgamation 2,00,000 Secured loan 3,60,000 8,60,000 4 Trade payables Creditors: Opening balance 3,12,000 Add: Adjustment under scheme of amalgamation 2,76,000 5,88,000 Bills Payables: Opening balance 75,000 Add: Adjustment under scheme of amalgamation 1,00,000 Less: Cancellation of mutual owning upon amalgamation (60,000) 1,15,000 Total 7,03,000 5 Other current liabilities Opening balance 50,000 Add: Adjustment under scheme of amalgamation 75,000 1,25,000 6 PPE Land & Building- Opening balance 10,80,000 Add: Adjustment under scheme of amalgamation 8,40,000 19,20,000 Plant and machinery- Opening balance 6,00,000 Add: Adjustment under scheme of amalgamation 5,60,000 11,60,000 Office equipment-Opening balance 3,45,000 Add: Adjustment under scheme of amalgamation 2,10,000 5,55,000 Total 36,35,000 7 Investments Opening balance 96,000 Add: Adjustment under scheme of amalgamation 3,00,000 3,96,000 8 Inventories Opening balance 6,30,000 Add: Adjustment under scheme of amalgamation 4,20,000 10,50,000 9 Trade receivables Debtors: Opening balance 4,90,000 Add: Adjustment under scheme of amalgamation 3,20,000 8,10,000 Bills Payables: Opening balance 60,000 Add: Adjustment under scheme of amalgamation 70,000 Less: Cancellation of mutual owning upon amalgamation (60,000) 70,000 Total 8,80,000 10 Cash and cash equivalents Opening balance 1,72,000 Add: Adjustment under scheme of amalgamation 61,000 Less: Amalgamation expense paid (12,000) 2,21,000 Working Notes: 1. Calculation of purchase consideration Particulars ₹ Equity shareholders of B Ltd. (80,000 x 10) 8,00,000 Preference shareholders of B Ltd. (5,00,000 x 115%) 5,75,000 Purchase consideration would be 13,75,000 2. Amount to be adjusted from general reserve The difference between the amount recorded as share capital issued and the amount of share capital of transferor company should be adjusted in General Reserve. Thus, General reserve will be adjusted as follows: Particulars ₹ Purchase consideration 13,75,000 Less: Share capital issued (7,20,000 +5,00,000) (12,20,000) Amount to be adjusted from general reserve 1,55,000 3. Calculation of balances of Profit & Loss and Sundry Creditors of B Limited to be taken over by A Limited P&L (₹) Creditors (₹) Balance as per Balance Sheet of B Limited 1,92,000 2,04,000 Less / Add: Contingent Trade Payable treated as Actual Liability (72,000) 72,000 Taken by A Limited 1,20,000 2,76,000