HUMAN RESOURCE ACCOUNTING Total value of Human Capital is to be found out by Assuming all employees are starting from

m that age group (i.e. starting from same age) and end at the last age. Multiply average earnings with PV . Multiply the present value earnings with total no of employees. Aggregate all present values to get value of Human Capital of a parti!ular !ategory.

ECONOMIC VALUE ADDED (EVA) "VA # Capital # (here )* $%PAT (ACC (here)* 0e # Cost of ".uity # ,rf + 3eta ( ,rm ' ,rf) 0d # Cost of 2ebt # 4,nterest(5*Ta& 6ate)-7ong Term 3orrowings8 / 599 Note : ,f multiple 3eta are given ta:e Highest Capital "mployed # Assets ' %utside 7iabilities (or) Total !apital i.e ".uity + Pref + 2ebt ,f mar:et !apitali;ation is given for e.uity that amount shall be !onsidered for !al!ulating rate of (ACC on total !apital employed. However while !al!ulating (ACC we ta:e boo: value of e.uity. # PAT + ,nterest (+-*) "&traordinary ,tems # (".uity-Cap "mp) / 0e + (Pref 1hares-Cap "mp) / 0p + (2ebt-Cap "mp) / 0d $et %perating Profit After Ta& ' (eighted Average Cost of $%PAT ' (ACC

VALUE ADDED STATEMENTS PROFORMA : VA7<" A22"2 1TAT"M"$T %6 TH" ="A6 "$2"2 >>.>>.>>>> Parti!ulars 1ales 7ess ) Cost of 3ought in materials @ servi!es Produ!tion @ %perational "&p Administration "&p && ,nterest on (or:ing Cap 7oan Value added by mfg and trading a!tivities Add ) %ther ,n!ome Aross Value Added Appli!ation of Value Added ) To To To To To To Pay "mployees ' 1alariesB (ages Pay 2ire!tors Pay Aovt ' Cess 7o!al Ta&es Prov for Ta& Pay 2ebt fund Providers ' i&ed 7oans 2ebentures Pay 1hareholders 2ividend Management for Maintainen!e * 2epre!iation && * Aeneral 6eserve (,n!rease) && * 6etained Profit (,n!rease) && &&& Notes : 6e!on!iliation statement shall be prepared between AVA and P3T if as:ed. AVA and Appli!ation total shall be tallied and ? shall be provided for the appli!ation ea!h item. $et Value Added ($VA) # AVA ' 2epre!iation "&!ise 2uty !an be ta:en as part of appli!ation or as a part of Value Added. A!!ordingly note shall be presented. && && && && && && && && &&& && &&& 6s 6s &&& ?

&&

FUND BASED ACCOUNTING ( NON PROFIT ORGANISATION) Statement o In!ome an" E#$en"%t&'e 1hall be prepared for <nrestri!ted fund and 6estri!ted und. 6estri!ted unds re!eipts shall be a!!ounted to the e&tent it is used. Transfers shall be separately presented. Statement o C(an)es %n F&n" Ba*an!e 3alan!e shall be arrived by %pening 3alan!e + Additions ' 2edu!tions (+-*) Transfers. ,t shall be prepared for various funds 6estri!ted fundsB "ndowment B 2evelopment funds et!. ,ndividual 3alan!e sheets shall be prepared for ea!h fund and a general balan!e sheet shall be prepared for <nrestri!ted funds. Notes: Advan!es paid for pur!hase of land and payments to !ontra!tors for !onstru!tion of buildings shall be shown dire!tly in 3alan!e sheet. Assets !ompleted shall be transferred to general - unrestri!ted fund.

VALUATION OF GOOD+ILL I, Met(o"s o' Va*&at%on o Goo"-%**: Capitalisation Method 1uper Profits Method Annuity Method Ca$%ta*%.at%on Met(o" Ste$s: o o o o o uture Maintainable Profits ( MP) $ormal 6ate of 6eturn ($66) $ormal Capital "mployed ($C" # MP-$66) A!tual Capital "mployed (AC") Aoodwill # $C" ' AC"

S&$e' P'o %ts Met(o" Ste$s: o o o o o o Average Capital "mployed (Avg C") $66 $ormal Profits ($P # Avg C" & $66) MP 1uper Profits (1P # MP ' $P) Aoodwill # 1P & $o of =ears

Ann&%t/ Met(o" Ste$s: o 1P o Aoodwill # 1P & Annuity a!tor II, Ca$%ta* Em$*o/e": 7iabilities 1ide Approa!h # ".uity 1hare Capital + 6eserves and 1urplus ' $on Trading Assets ' Mis! "&penditure (+-*) AdCustments in values of Assets or 7iabilities Assets 1ide Approa!h # Total Assets ("&!ld Mis! "&penditure and $on Trading Assets) ' %utside 7iabilities ' Preferen!e 1hare Capital

Notes: o $on Trading assets shall be e&!luded (,nvestments mentioned in the balan!e sheet shall be e&!ludedB if nothing is mentioned assume it as non trading investments. ,f nothing is given regarding pur!hase date of investment it is assumed it is pur!hased at the beginning of the year. o Asset must be ta:en at !urrent !ost. ,f nothing is mentioned ta:e value given in the balan!e sheet. o ,f we already have goodwill in balan!e sheet that shall be e&!luded. o Proposed dividend is not an outside liability whereas preferen!e dividend is an outside liability. (Appearing in 3alan!e 1heet) o 2ividend Paid last year if there is no proposed dividend then the dividend paid shall be ta:en into !onsideration for !apital employed. o 1in:ing und is a part of 6eserves and 1urplus o (or:menDs Compensation fund is a part of 1hareholders fund. o Preferen!e shares are treated as !umulative and non* parti!ipating if nothing is mentioned o <n!laimed dividend is !onsidered as outside liability it is different from proposed dividend. o ,f the profits for past and profits for future are given we have to ta:e profits of future for MP. And less weightage shall be allotted to future profits. o Aratuity fundB wor:menDs !ompensation fund is a outside liability. o Capital "mployed for 7ong term funds # Capital "mployed as !al!ulated above + 7oans and Preferen!e 1hare Capital o 2ifferen!e in 3alan!e sheet is outside liability if it appears on liability side and assets if vi!e versa. III, A0e'a)e Ca$%ta* Em$*o/e": o ,f two balan!e sheets are given # Closing Capital "mployed + %pening Capital "mployed E o ,f more than E years are given !al!ulate first for two balan!e sheets then ta:e !onsolidated average of all. o ,f only one balan!e sheet is given then # Closing Capital "mployed ' F of Current =ear Profit

IV, No'ma* Rate o Ret&'n: o (ithout ta:ing any ris: the return we get. o 7ast year dividend paid ? is given in the problem along with the !losing mar:et pri!e then we have to !al!ulate $66 as follows) V / 2ividend 6ate ? MP o ,f average pri!e is given instead of the mar:et pri!e then average dividend rate shall be used to !al!ulate $66 V, F&t&'e Ma%nta%na1*e P'o %ts: o Cal!ulate average profits of past years whi!h represent tomorrow (futures)G if there is a trend in profits (it is better to ta:e trend in profit ? on sales if sales is also given) ta:e weighted averageB otherwise simple average. o %nly $et %perating Profit shall be ta:en into !onsideration i.e. profit available to ".uity 1hareholders. o %nly Profits of $ormal =ears shall be ta:en into !onsideration i.e. abnormal transa!tions shall be eliminated. o (e have to adCust future li:ely e&penses - in!ome - ta& rate. o ,f dire!t profits not given in!rease in general reserve balan!e !an be ta:en as profit. o ,f profits of past and profits for future are given we have to ta:e profits of future for MP and less weightage shall be given for more future. VI, Le0e'a)e e e!t: o ,f goodwill of 7ong Term unds is lower than that of 1hareholders fund then it is a favorable leverage effe!t. Gene'a* Notes: o Any !ontention as:ed in problem regarding doubtful of goodwill try all methods for valuation of goodwill. o ,f nothing is mentioned in the problem !al!ulate super profits method. o Capitali;ation method is more appropriate if !apital is important fa!tor. (i.e. Conversion of Pvt into publi!)

VALUATION OF SHARES E2&%t/ S(a'es: $et Assets Method "arnings =ield Method 2ividend =ield Method air Value Net Assets Met(o": o $et Assets - $o of ".uity shares outstanding o Value of Partly paid up shares # Value of ully paid up as above ' <npaid !all per share o $et assets # Capital "mployed as !al!ulated in Aoodwill + $on Trade ,nvestments + Calls in arrears + Aoodwill as per valuation o $o of shares outstanding if there are different fa!e values then $et assets shall be divided by whole paid up !apital and then multiplied by appropriate paid up !apitals of different fa!e values o ,n !ase of value of shareB dividends may be e&!luded to give e&*dividend valueB alternatively dividends may be in!luded as part of net assets to give !um*dividend value. Ea'n%n)s 3%e*" Met(o": (FOR LARGE BLOC4) o ("arnings =ield 6ate-$66) & Paid up value of 1hare o "arnings =ield rate # ("arnings may be average available to e.uity - Total ".uity) & 599 o $ormal rate of return is adCusted to 9.H? in!reased or de!reased a!!ording to situations if not satisfied. o (hile determining "=6 the transfer to reserves if any shall be !onsidered it means that the profits otherwise available for payment of dividend i.e divisible profits shall be ta:en into a!!ount. o ,n !ase of yield valuation it is always !um*dividend value. D%0%"en"s 3%e*" Met(o": (FOR SMALL BLOC4) o (2ividend =ield 6ate-$66) & Paid up value of 1hare o 2ividends =ield rate # 2ividend rate may be average Fa%' Va*&e Met(o": (FOR CONTROLLING INTEREST)

Average of $et Assets Value and "arnings =ield Value. P'e e'en!e S(a'es are valued on 2ividend =ield method. NOTES : Capital Aearing 6atio # (7ong term debts + Preferen!e Capital) ".uity shareholder funds. High !apital gearing ratio more ris:y. High ,nterest dividend !overage ratio less ris:y. (henever Problem as:s something about performan!e of a !ompany we have to !al!ulate some ratio based on the data given. ,nvestments in 1ubsidiaries is always trade investments %pening $etworth + AdCusted PAT # Closing $et worth

CONSOLIDATION (AS -56) Ho*"%n) Com$an/: A !ompany whi!h !ontrols is holding. S&1s%"%a'/ Com$an/: A !ompany whi!h is been !ontrolled is subsidiary. > is a holding of =B = is holding of IB then I is s&1 s&1s%"%a'/ of >. T%me $e'%o" "% e'en!e of presentation of finan!ial statements is J months for holding and subsidiary !ompanies. Met(o"s o P'esentat%on o In0estment o S&1s%"%a'/ %n B7S o Ho*"%n) Com$an/: Cost Met(o" : This is followed as per ,ndian A!!ounting standard. Here Pre a!.uisition dividend is redu!ed from !ost of investmentB whereas post a!.uisition dividend shown as revenue profits. ,t is always long term investment shown K !ost as per A1 5L. E2&%t/ Met(o": Here share of profit is a!!ounted notionally by giving debit to ,nvestment and !redit to Profit and 7oss a!!ount. And whenever dividends are re!eived ,nvestment a!!ount is !redited as we have already a!!ounted for profit. Dates o A!2&%s%t%on are very important in Holding Company a!!ounts. An statement pursuant to 1e! E5E of Companies A!tB 5MHJ is to be prepared by Holding Company showing details of information regarding subsidiary !ompany-ies. Proforma of the above statement is shown as follows) Pa't%!&*a's 5. inan!ial year ending of subsidiary !ompanies E. (a). $o of ".uity shares of 1ubsidiary Companies held at the end of inan!ial year of 1ubsidiary !ompany @ "&tent of Holding of su!h shares. E. (b). $o of preferen!e shares of 1ubsidiary Companies held at the end of inan!ial year of 1ubsidiary !ompany @ "&tent of Holding of su!h shares. L. $et aggregated amount of profits less loss of subsidiary !ompany for the year as above so far as it !on!erns members of H 7td a. 2ealt within the a!!ounts of H 7td S Lt" ##,##,## ##### nos ##8 ##### nos ##8

Pref

b. $ot dealt in a!!ounts of H 7td

2ividend + A!!ounting system for e.uity dividend and profits Total ? of share in profits ' (a)

N. $et aggregated amount of profits less loss of subsidiary !ompany for the earlier years so far as it !on!erns members of H 7td a. 2ealt within the a!!ounts of H 7td

b. $ot dealt in a!!ounts of H 7td

H. Changes of ,nterest of H 7td in the subsidiary between the end of inan!ial year of 1ubsidiary !o @ that of H 7td

Pref 2ividend + A!!ounting system for e.uity dividend and profits Total ? of share in profits ' (a) Comes only of = of 1 @ H are different and date of a!.uisition of share is given. &&&& &&&& &&&& &&&&

J. Material !hanges between the end of inan!ial year of the subsidiary and that of H 7td. a. i&ed Assets b. ,nvestments !. Moneys lent by 1ubsidiary Company d. Moneys borrowed by subsidiary !ompany for any purpose other than that of meeting !urrent liabilities.

PROCESS OF CONSOLIDATION The e.uity of subsidiary !ompany will not be shown in !onsolidated balan!e sheet as it is and shall be eliminated fully. The investments held by holding !ompanies in subsidiary !ompanies shall be eliminated fully in the !onsolidated balan!e sheet. Con!eptually in the balan!e sheet of holding !ompany the investments are repla!ed by the net assets of subsidiary !ompanies. (hen all the shares of subsidiary !ompany are not held by holding !ompanies there arises a .uestion of minority shareholders. Therefore minority interest shall be !omputed and presented separately as last item in liabilities side of balan!e sheet. Ca*!&*at%on o M%no'%t/ %nte'est: Proportionate share in paid up share !apital &&& Add-7ess) Proportionate share in the profits-lossess of subsidiary Company &&& Minority ,nterest &&&

,n !ase the proportionate loss attributable to minority shareholders in subsidiary !ompany e&!eeds share !apitalB there arises a debit balan!e. To the e&tent !olle!table from minority shareholders under obligation it will be shown on assets side of balan!e sheet. The balan!e shall be adCusted to maCority interest. (hen the profits earned in later periods by subsidiary !ompany it will be absorbed fully by maCority till the earlier losses are set off. (hen the amount of investment is in e&!ess of proportionate e.uity it is referred to as goodwill. (hen the amount of investment is less than the proportionate e.uity the result is :nown as !apital reserve. ,t will be !al!ulated as under. Cost of ,nvestments Less: 5. Paid up value of ,nvestments E. 1hare in pre a!.uisition profits L. Pre a!.uisition dividend if any Goo"-%** (9) 7 Ca$%ta* Rese'0e (-) && && && &&&& &&&& ####

 P'e-a!2&%s%t%on $'o %ts: or the purpose of !al!ulation of goodwill-!apital reserve the profits of subsidiary !ompany shall be !lassified between pre a!.uisition and post a!.uisition period. The following is the pro!edure) As!ertain the date of a!.uisition. <sually it is not a problem. However when the shares are a!.uiredB the date on whi!h the !ompany has be!ome holding !ompany for the first time is date of a!.uisition. (hen there are numerous number of dates go by pra!ti!al date. As!ertain the profits as on the above date. This may be given in the problem. However when the date of a!.uisition is not !oin!iding with the beginning or the end of the year and profit figures are not available e&a!tly on the date of a!.uisitionB we should ta:e the profits on previous reporting date. or the balan!e period the profits may be !lassified on time ratio basis B assuming that profits ate earned evenly throughout the year. There !ould be some appropriations between the date of a!.uisition and balan!e sheet date. The li:ely appropriations are !apitali;ation of profits i.e. bonus shares and dividends. The proper adCustment has to be done for bonus shares. The adCustment is effe!t the profits from whi!h these are issued and in!rease the number of shares held by holding !ompany and minority shareholders. ,n !ase of dividend the profits of that parti!ular year for whi!h dividends are paid shall be effe!ted as far as holding !ompany is !on!erned any dividends re!eived for the pre*a!.uisition period shall be !redited to investment a!!ount and post a!.uisition shall be !redited to profit and loss a!!ount. Having as!ertained the pre*a!.uisition portion of profits a !omparison will be made with balan!e sheet figures. Any !hanges there on shall be ta:en as post a!.uisition. There will be some more adCustments to be affe!ted during analysis of profits. They are a. Re0a*&at%on o %#e" assets: <sually the revaluation ta:es pla!e on the date of a!.uisition. Therefore revaluation profit-loss shall be ta:en as pre*a!.uisition. However any depre!iation after that revaluation shall be ta:en as post*a!.uisition.

b. Re!t% %!at%on o E''o's: A!!ording to period adCustment shall be made. !. A1no'ma* E0ents7t'ansa!t%ons : A!!ording to period adCustment shall be made d. P'o$ose" "%0%"en"s o' !&''ent /ea' : ,t shall be adCusted to the !urrent year profits. ,n !ase a portion of !urrent year profit ta:en as pre*a!.uisition the dividends also shall be treated li:e that proportionately. The following is the methodology in presenting !onsolidated balan!e sheet. A minimum of N wor:ing notes shall be prepared as follows) Analysis of profits of subsidiary !ompany Cal!ulation of goodwill-!apital reserve. Cal!ulation of minority interest. Consolidated profits and reserves

(hile !onsolidating balan!e sheet items of balan!e sheet are to be !onsolidated on line by line basis i.e. li:ewise items of balan!e sheet are to be shown together. Any inter !ompany owings-transa!tions shall be eliminated fully. Conso*%"at%on o P'o %ts7Rese'0es: Ta:e the amount of profits and reserves from the holding !ompany balan!e sheet Add share of holding !ompany in post a!.uisition profits in subsidiary !ompany. The following are the li:ely adCustments) a. Pre*a!.uisition dividends wrongly !reditedB if any shall be dedu!ted. b. <nreali;ed profit on sto!: shall be dedu!ted !. <nreali;ed profit on transfer of fi&ed assets shall be dedu!ted. d. Proposed dividend of holding !ompany for !urrent yearB if any shall be dedu!ted. Notes: To !ross verify !onsolidated balan!e sheet total please total all the balan!e sheets of holding subsidiary and ma:e adCustments of assets side only i.e. removal of investments in subsidiaries addition of goodwill and removal of inter !ompany et!.

 To !ross verify group profits # Total Profits ' Pre*A!.uisition ' Minority Profits Conso*%"at%on o P'o %t an" Loss a!!o&nt: or this purpose all revenue items are to be !onsidered by line by line basis by adCusting inter*!ompany transa!tions. All inter* !ompany transa!tions shall be eliminated fully. Any unreali;ed profit in sto!: of goods shall be adCusted. ,t is also ne!essary to eliminate share of holding !ompany in proposed dividend of subsidiary. ,t is also ne!essary to eliminate Minority interest profit in group profits. To summari;e following pro!edure may be adopted) 5. Provide 5 !olumn ea!h for Holding and subsidiaryB 5 !olumn to show adCustments and 5 !olumn to show !onsolidated figures. E. ,nter*!ompany transa!tions have to be eliminated by in!orporating in adCustments !olumn appropriately. L. ind out profit of ea!h !ompany and !onsolidate in the normal way. N. Provide for the following) a) 1to!: reserve if any. b) Pre a!.uisition profit transfer to !ost of !ontrol. !) Minority interest. 6evenue of the subsidiary !ompany shall be restated in !ase the different a!!ounting poli!ies are followed by subsidiary and holding !ompany. D% e'ent Re$o't%n) Dates: A situation will arise in whi!h reporting dates of holding and subsidiary !ompanies are different. ,n that situation subsidiary !ompany often prepareB for !onsolidation purpose finan!ial statement as at same date holding !ompany prepares. (hen su!h statements !annot be prepared finan!ial statements drawn upon different date may be used provided the differen!e is not more than J months. However adCustments shall be made for the effe!ts of any signifi!ant event or intra* group transa!tions that o!!ur between the date.

AMALGAMATION AND RECONSTRUCTION Amalgamation: ,t may be of two types ' Amalgamation in nature of merger and amalgamation in nature of Purchase. Amalgamation in nature of merger: ,f the amalgamation satisfies all following !onditions it may be termed as amalgamation in nature of merger. ,f any one of !onditions is not satisfied it will be in nature of purchase. All assets and liabilities of Transferor Company be!omeB after amalgamationB the assets of Transferee Company. 1hareholders holding not less than M9? of the fa!e value of e.uity shares of transferor !ompany held therein immediately before amalgamationB shall be!ome shareholders of transferee !ompany by virtue of amalgamation. The !onsideration for amalgamation re!eivable by those e.uity shareholders of the transferor !ompany who agree to be!ome e.uity shareholders of transferee !ompany is dis!harged by the transferee !ompany wholly by issue of e.uity shares in transferee !ompany e&!ept that !ash may be paid in respe!t of fra!tional shares. The business of Transferor Company is intended to be !arried onB after the amalgamationB by the transferee !ompany. $o adCustment is intended to be made to boo: values of assets and liabilities of Transferor Company when they are in!orporated in finan!ial statements of Transferee Company e&!ept to ensure uniformity of a!!ounting poli!ies. Met(o"s o A!!o&nt%n) o Ama*)amat%ons: Poo*%n) o Inte'ests met(o": (Me')e' met(o") The assetsB liabilities and reserves of Transferor Company are re!orded by the transferee !ompany at e&isting !arrying amounts after adCusting for uniform a!!ounting prin!iples. The reserves are preserved in !ase of this method in the same form as it appeared in finan!ial statements of transferor !ompany. The differen!e between share !apital issued and amount of share !apital of transferor !ompany is adCusted in reserves.

 P&'!(ase met(o": Transferee !ompany ,n!orporates assets and liabilities of transferor !ompany on basis of fair values. The identity of reserves other than statutory reserves li:e investment allowan!e reserveB development allowan!e reserve is not preserved. 2ifferen!e may be termed as goodwill-!apital reserve. The amount of !onsideration is dedu!ted from the value of net assets of transferor !ompany if result is negative it is goodwill otherwise !apital reserve. The statutory reserve is re!orded by giving a debit to amalgamation adCustment a!!ount under mis!. e&penditure on assets side. T'eatment o Goo"-%** on ama*)amat%on: Aoodwill shall be written off over a period of H years unless Custified for longer period. Ba*an!e o P'o %t an" Loss a!!o&nt: ,n !ase of merger balan!e is aggregated with !orresponding balan!e in transferee !ompany. ,n !ase of pur!hase it loses its identity. PURCHASE CONSIDERATION: The pur!hase !onsideration represents the amount payable in the form of se!urities-!ash by the transferee !ompany to shareholders of Transferor Company. The !al!ulation of PC may be based on following methods) L&m$ s&m Pa/ment: A !onsolidated lump sum amount may be agreed. Net Assets Met(o": <nder this method intrinsi! value of share whi!h may in!lude value of goodwillB shall be as!ertained and e&!hange ratio will be !omputed. Net Pa/ment Met(o": <nder this method different amounts are agreed to be paid to shareholders of Transferor Company. 1ome of these payments represent pur!hase !onsideration. Ot(e' met(o"s) May in!lude the method based on earningsB mar:et value of share or fair value of share et!. Ot(e' Notes: Cost of amalgamationB dis!harge of debentures et!. shall not be in!luded in pur!hase !onsideration.

 (hen the transferee !ompany holds some shares in transferor !ompany the pur!hase !onsideration is amount payable to outside sundry shareholders. (hen transferor !ompany holds some shares in transferee !ompany the number of shares to be issued by transferee !ompany under the s!heme of amalgamation shall be redu!ed by no of shares held by transferor !ompany. (hen both the !ompanies are holding in both of the shares the above two points shall be effe!ted. ,n !ase of fra!tion of shares there will be !ash settlement. :OURNAL ENTERIES IN THE BOO4S OF TRANSFEROR COMPAN3: BEFORE MERGER: For Revaluation of Investments in Equity shares of Transferor co held by Transferee co, if any: ,f appre!iated) ,nvestment A-! 2r To Aeneral 6eserve a-!. %therwise reverse. For declaration of dividend by transferee company just before merger: P-7 a-! 2r To 2ividends payable a-! ENTERIES FOR AFFECTING AMALGAMATION: For urchase consideration payable: 3usiness Pur!hase a-! 2r To 7i.uidator of Transferor Co a-! For Ta!ing over various assets and "iabilities: ,n !ase of Merger) Assets a-! 2r (3oo: Value) To 7iabilities (3oo: Value) To 6eserves To ,nvestments (if any) To 3usiness Pur!hase

,n !ase of Pur!hase) Assets a-! 2r(Agreed Value) To 7iabilities *do* To ,nvestments (if any) To 3usiness pur!hase (Any differen!e in above entry shall be Aoodwill(2r)-Capital 6eserve(Cr)) For #ischarge of $onsideration: 7i.uidator of transferor !o To "1C To P1C To 2ebentures (if any) To 3an: To 1e!urities Premium ENTRIES AFTER AMALGAMATION: For Adjusting unreali%ed profits on goods transfer: P-7 - Aoodwill or Capital 6eserve To 1to!: in Trade 2r 2r

For Adjusting inter co &'ings(mutual indebt ness: Creditors-3-P-7oan 2r To 2ebtors-3-6-7oan For $ancellation of #ividend: Proposed 2ividend 2r (Proposed dividend !an!ellation) To P-7 %6 2ividends Payable 2r (AdCustment of dividends de!lared) To 2ividends 6e!eivable AdCustments for !onformity uniform a!!ounting poli!ies shall be done. ,t may be anything li:e for eg. ,nvestment may be .uoted at MV in one !ompany and at !ost in other or !hange in depre!iation rates of two !ompanies. ,t may not be given in the problem we have to loo: at balan!e sheet and then de!ide. For discharge of debentures of Transferor co:

2ebentures To 2ebentures

2r(Transferor !o) (Transferee !o)

The differen!e if any shall be a!!ounted to reserve in !ase of amalgamation in the nature of mergerB goodwill-!apital reserve in nature of pur!hase. For e)penses of amalgamation paid by transferee company: 6eserves-A(-C6 To Cash-3an: OTHER IMPORTANT NOTES: ,n !ase the two !ompanies are merged into another third !ompany whi!h be!omes holding !ompany then while showing the balan!e sheet of holding !ompany we have to be !areful as all assets and liabilities will not be amalgamated into C 7td. 1how the share !apital issued to Transferee Company on liabilities side and show as investments on the assets side. (hen holding !ompany ta:es over subsidiary !ompany it is merger whereas if subsidiary !ompany ta:es over holding !ompany it is reverse merger. ,f e&!hange ratio is not given in the problem then we have to find out by simultaneous e.uation method. Aoodwill or !apital reserve will arrive only if goodwill is there in valuation of net assets. 6epla!ement value is always the highest and reali;able value is least. ,n !ase of Reconstruction; we open !apital redu!tion a!!ount and transfer all gains and redu!tion of loans and !reditorsB shares !laims and then transfer of opposite entry of losses brought forward and balan!e shall be transferred to !apital reserve a!!ount if any. 2r