Escolar Documentos
Profissional Documentos
Cultura Documentos
INDEX
Chapter
No. Name of the Chapter Page No.
2 Internal Reconstruction 33 to 41
3 Liquidation Of Companies 41 to 45
Books Reference 55
2
3
CHAPTER 1
1. MERGER
2. ACQUISITION
(1) Merger refers to f two or more existing companies (vendor companies) being wound up
in the process for instance ‘ A‘ ltd and ‗B‘ Ltd winding up their business and form a new
company called ‗AB ‗Ltd constitute. In short ―Two or more liquidations and one
formation‖.
Acquisition or Takeover refers to (2) a- A company gets liquidated and is sold to another
company. In short ―One liquidation and no formation‖ or Absorption
(2) b- A company gets liquidated and in place of it a new company is formed. In short ―One
liquidation and one formation‖ or External Reconstrution
Types of Amalgamation
I. Amalgamation in the nature of Merger
II. Amalgamation in the nature of Purchase
i. All the assets and liabilities of the transferor company, after amalgamation
becomes, the assets and liabilities of the transferee company.
ii. Shareholders holding not less than 90% of the face value of the equity shares of
the transferor company become equity shareholders of the transferee company by
virtue of the amalgamation.
iii. The consideration for the amalgamation receivable by those equity shareholders of
the transferor company who agree to become equity shareholders of the transferee
company is discharged wholly by the issue of equity shares in the transferee
company, except that cash may be paid in respect of any fractional shares.
iv. The business of the transferor company is intended to be carried on after the
amalgamation , by the transferee company.
v. No adjustment is intended to be made to the book values of the assets and
liabilities of the transferor company when they are incorporated in the financial
4
statements of the transferee company except to ensure uniformity of accounting
policies.
Purchase Method is adopted for amalgamation in the nature of Purchase Under this
method assets and liabilities of the transferor company will be recorded by the transferee
company at Agreed Values.
Statutory Reserve must be treated like any other liability in the Realization a/c in the
books of Transferor Co. In the books of Transferee Co. the following entry will be passed
to incorporate the Statutory Reserve:
5
Amalgamation Adjustment A/c Dr
To Statutory Reserve
ACCOUNTING PROCEEDURE
Purchase Consideration refers to the consideration payable by the Transferee Co. to the
Transferor Co. for taking over the assets and liabilities of the Transferor Company.
i. Lump sum Method: Lump sum amount or fixed amount will be given as
P.C.
ii. Net Payment Method: P.C. will be the total of the payments made by
Transferee Co. to Transferor Co. (As per A.S.14 only payment for the
Equity Shareholders & Preference Shareholders are taken for the purpose
of Purchase Consideration.)
Example: X Ltd is absorbed by Y Ltd. Y ltd agrees to make the following payments:
a. Cash at Rs.5 per share for 10,000 shares of Rs.10 each issued by X ltd.
b. Issued two shares of Rs.20 each for every 5 shares held in X ltd.
c. Discharge Rs.1, 00,000 12% Debentures of X ltd at 10% premium by
issuing Debentures in Y ltd at par.
d. Rs.50, 000 cash to creditors of X ltd in final settlement of their
account.
Determine the amount of purchase consideration as per A.S.14.
As the various payments are mentioned in the question specifically Net Payment Method is
followed.
As per A.S.14 consideration given to the Equity share holders & Preference share holders
(Owners) only will be considered for calculating Purchase consideration. Any payment
6
given to the Debenture holders & Creditors (Outsiders) are not considered for calculating
purchase consideration.
The Assets of X ltd are valued at Rs. 1,00,000 ; The liabilities are valued at Rs.40,000;
Rs.20,000 cash is to be paid to the share holders of X ltd and the balance is to be discharged
by issue of shares of Rs.10 each.
(Since all the payments are not given net payment method cannot be followed. So Net Asset
Method.)
Solution
Various Assets taken over = 1, 00,000
Less liabilities taken over = 40,000
Purchase consideration = 60,000
60,000 is discharged by cash Rs.20, 000 and shares of Rs.40,000
When the Payments is given with the statement ―Balance in ---- (cash or shares) ―Net Asset
Method
Some times all the payments and agreed value of Assets and Liabilities will be given in that
case follow Net Payment Method.
Realization Account Dr
(All assets except cash & Bank whether taken over or not transfer to Realization A/C.
Cash& Bank will be transferred to Realization A/C only when it is taken over by the
7
purchasing Co. The items which are given under Miscellaneous Expenditure on the Asset
side of the Balance sheet will not be transferred to Realization A/C. It will be transferred to
Equity Share holders A/C.)
To Realization A/c
8
Reserve A/c Dr
Profit & Loss A/c Dr
To Equity Shareholders A/C
9. For transfer of Miscellaneous Expenditure
Equity Shareholders A/c Dr
To Preliminary Expenses A/C
To Underwriting Commission A/C
To Discount on Issue of Shares or Debentures A/C
To P/L A/c
Note: In case of Amalgamation in the nature of Merger Only Share Capital must
be transferred to Equity Shareholders A/c and all other items relating to
Shareholders must be transferred to Realizations A/c.
10. For Payment of Realizations Expenses
a. If it is paid by the Vendor Company
Realizations A/c Dr
To Cash/Bank A/c
b. If it is paid by Transferee Company
Note: When the purchasing company issues Debentures for discharge of Vendor
Co. Debentures in the books of Vendor Co. it is treated as taken over and
9
transferred to Realizations A/c. And in the books of Purchasing Co. the discharge
must be recorded.
10
6. For set off of Goodwill against Capital Reserve
Capital Reserve A/c Dr
To Goodwill A/c
Vikas Ltd and Mohith Ltd carrying on similar business decided to amalgamate and a new
Co. Vikmo Ltd is to be formed to take over the assets and liabilities of both the companies
and it is agreed that fully paid equity shares of Rs.100 each shall be issued by the new Co. to
the value of net asset of each of the old Co.
11
All tangible assets are taken over at book values and goodwill of Vikas Ltd. is to be valued
at Rs.24,000 while that of Mohith is valueless.
Pass Journal entries and prepare necessary ledger Accounts in the books of Vikas Ltd &
Mohith Ltd and incorporation entries and Balancesheet in the books of Vikmo Ltd.
As all the payments are not given in the question it is Net Asset Method
Goodwill 24,000 -
13
Realizations Account Dr 1,62,000
To Goodwill 10,000
To Land & Building 34,000
To Plant & Machinery 48,000
To Furniture 10,000
To Stock 20,000
To Cash 16,000
To Debtors 24,000
( Being the assets closed by transferring to Realisation A/c)
2. Creditors A/c Dr 8,000
BillspayableA/c Dr 8,000
To Realisation 16,000
(Being the various outside liabilities closed by transferring to
realization A/c)
3.VikasLtdA/c Dr 1,60,000
To Realisation 1,60,000
( Being the Purchase consideration due)
4.EquitySharesinVikmoLtdA/c Dr 1,60,000
To Vikmo Ltd 1,60,000
( Being the purchase consideration received by shares)
5 Equity Share Capital A/c Dr 1,00,000
General Reserve A/c Dr 40,000
P &L A/c Dr 6,000
To Equity Shareholders 1,46,000
( Being the capital , reserves & surplus transferred to
shareholders Account)
6 Realisation A/c Dr 14,000
To Equity shareholders 14,000
( Being profit on realization transferred to shareholders A/c)
7 Equity Shareholders A/c Dr 1,60,000
To Equity shares in Purchasing company 1,60,000
( Being the final payment given to equity shareholders )
Realisation Account
14
Particulars Amount Particulars Amount
To Goodwill 10,000 By Creditors 8,000
To Land &Building 34,000 By Bills Payable 8,000
To Plant & Machinery 48,000 By Purchasing Company 1,60,000
To Furniture 10,000
To Stock 20,000
To Cash 16,000
To Debtors 24,000
To Equity Share holders ( B/F) 14,000
1,76,000 1,76,000
Realisation Account
1,00,600 1,00,600
Vikmo Ltd
15
To Realisation 64,600 By Equity Shares 64,600
64,600 64,600
16
Liabilities Amount Assets Amount
Equity Share Capital 2,24,600 Goodwill 24,000
Creditors 24,000 Land & Building 54,000
Bills Payable 8,000 Plant & Machinery 80,000
Bank Overdraft 16,000 Furniture 25,000
Stock 35,000
Cash 16,600
Debtors 38,000
2,72,600 2,72,600
Absorption of Companies
Absorption ( Acquisition) refers to purchase of an existing company or companies by
another existing company.
Amalgamation Absorption
1. Involves formation of new company Does not involve formation of new company
2. Two or more companies are One or more companies are liquidated.
liquidated
In the books of the Transferee Company while preparing the Balance sheet
after absorption the existing assets of the company plus the assets taken over
from the Transferor company is to be shown on the asset side & the existing
liabilities plus liabilities taken over is to be shown on the Liability side.
Inter –company owings refers to the amount due from Transferee company to Transferor
Company or from Transferor company to Transferee company. After absorption both
companies will become one company and the owings no more exist. In absorption Inter-
company owings must be set-off.
In the books of Transferee company the following entry is to be passed ( to the extent of
Inter company owing)
To Sundry Debtors
Unrealised Profit In case of absorption , if one company hold stock of goods purchased
from the other company i.e., if purchasing company holds stock of goods purchased from
17
vendor company or vice versa, the profits included in the value of such goods is called
Unrealised Profits
It Can be adjusted by passing the following entry in the books of the purchasing company
To Stock A/c
Inter company holding : means purchasing company holding shares of vendor company or
vendor company holding shares of purchasing company or both purchasing company and
vendor company mutually holding shares of other company.
External Reconstruction
External Reconstruction refers to Closing or Liquidating the old company and starting a new
company by the same management to come out of its financial difficulties.
Note : Usually in case of External Reconstruction Partly Paid Shares will be issued by the
purchasing company as part of Purchase Consideration. In the books of Purchasing company
an extra journal entry will be passed for making the Call and Collecting the money.
Example 2
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India Co.Ltd. Purchased the business of Bharat Co.Ltd on the following terms:
a) All the assets except cash & good will are taken over.
b) 800 shares of Rs. 100 each of Indian co. are issued at an agreed value of Rs.125 per share
in full settlement of accounts of creditors.
c) 5 equity shares of Rs. 110 each in India Co. are issued to equity share holders at an agreed
value of Rs.125 per share for every 4 shares held in Bharat Co.
d) Cash Rs.40 per share held in Bharat Ltd is paid to equity share holders.
e) 10% debentures are discharged at 20% premium by issue of necessary amount of 12%
debentures in India Ltd., at 4% discount
Close the books of Bharat Co.Ltd & pass opening Journal entries in the books of India Co.Ltd
(5,000 shares = Rs. 40 per share per share in cash) 7,81, 250
In cash 2,00,000
9,81,250
Realization a/c
19
Particulars Amt(Rs.) Particulars Amt(Rs.)
13,31,250 13,31,250
9,81,250 9,81,250
20
Bank A/c
2,40,000 2,40,000
7,81,250 7,81,250
Notes:
1) Tax provision a/c can also be transferred to equity shareholders a/c if there is no for
liability due.
2) Goodwill is not taken over, However, Goodwill being an intangible asset cannot be
realized separately and hence no entry for its realization has been shown.
3) While closing the books of accompany, Bank a/c must be opened Hence in this
problem, cash balance has been shown as deposit made in the bank
21
IV. Opening entries in the books of purchasing company:
Journal Entries
22
Note: Calculation of discount on debentures:
If debentures price is Rs. 100 @ 4% is Rs. 4, Hence debenture price after discount is Rs. 96,
Rs. 2, 40,000 worth of 12% debentures must be issued towards f10% debentures of Bharat Co
Ltd. At 4% discount. Therefore, Rs. 2, 40,000 is equivalent to 96. Proportionate value of 4 is
the discount.
X company Ltd. & Y Company Ltd. Have agreed to amalgamate & to form a new
company called Z co Ltd. This has taken over both the company‘s assets & liabilities as
per their Book value .Balance sheet given below:
As on 31-12-2000
As on 31-12-2000
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Liabilities Rs. Assets Rs.
You are required to close the books of X co. & Y Co. and give Balance sheet of Z Co.
which has authorized capital of Rs. 25, 00,000, along with opening journal entries.
Ans: Since no details of payments made by Z Co., to X Co & Y co have been specified &
since no lump sum amount of purchase consideration has been given Net Assets method is
used to calculate purchase consideration.
X Co Y Co
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III closing the books of vendor companies
Realization a/c
Particulars X Co Y co Particulars X co Y Co
a/c
Z co a/c
Particulars X Co Y co Particulars X co Y Co
To realization 7,00,000 12,00,000 By shares in Z –c0 7,00,000 12,00,000
(Purchase
consideration)
7,00,000 12,00,000 7,00,000 12,00,000
Shareholders a/c
Particulars X Co Y co particulars X co Y Co
To shares in Z Co a/c 7,00,000 12,00,000 By shares capital a/c 5,00,000 8,00,000
By General reserve 1,50,000 3,00,000
a/c
By profit & Loss a/c 50,000 1,00,00
Total 7,00,000 12,00,000 7,00,000 12,00,000
25
III. Opening entries & Balance sheet in the book of purchasing company
To Creditors 1,40,000
26
Balance sheet as on 1st January 2001
A-(EQUITIES&LIABILITIES)
Share Capital
Authorized capital 25,00,000
Issued & subscribed paid up capital 19,00,000
2) Reserves & Surplus ---
Non Current Liabilities
23,00,000
B- (ASSETS) Rs.
Fixed Assets
Furniture 1,00,000
Patents 1,50,000
Investments -----
23,00,000
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3. Problems on External Reconstruction:
Pavani Company after a series of heavy losses resolves to go into voluntary liquidation
& to reconstruct by means of a new company under the name of new Pavani Company.
On the date of reconstruction the Balance sheet of Pavani. Company as follows:
Bank 3,590
10,55,000 10,55,000
1) The new company is to take over the assets of the old company & not the
liabilities.
2) Capital of the new company is to consist of 5,00,000 shares of Rs. 5 each
3) The new company is to issue 2,80,000 shares or Rs. 5 each credited with Rs. 2.50
per shares as paid up to the old company & to pay to it Rs. 1,00,000 in cash by
way of purchase consideration
4) The balance of Rs. 2, 50 per share payable by members of the new company is
duly received.
Record the journal entries in the books of both the companies & prepare the Balance
sheet of the new company.
Since the total payments made by purchasing company to vendor company is specified. Net
payments method of calculating purchases consideration must be adopted.
In cash 1, 00,000
-----------
8, 00,000
Journal entries
29
Share Capital a/c 10,00,000
30
Shareholders a/c 55,000
To Realization 55,000
III Opening entries & Balance sheet in the books of purchasing company
Building 3,92,500
Machinery 2,39,000
Stock 91,410
Bank 3,590
31
To Business purchase a/c 8,00,000
Share capital
Secured loans -
Unsecured loans -
Current liabilities & Provisions -
Total 14,55,000
32
(B) Assets Rs.
Fixed Assets
Building 3,92,500
Machinery 2,39,000
Investments -
Stock
Debtors 1,09,100
Total 14,55,000
33
CHAPTER –II
INTERNAL RECONSTRUCTION
Meaning
It means rearrangement of the capital of the company which may include increase in the
share capital by making fresh issue of shares or consolidation or subdivision of shares
Reduction of capital
It is an arrangement under which generally the capital of the members and sometimes , even
the claims of debenture holders and creditors of the company are reduced with their consent.
The amount made available is utilized in writing off accumulated losses, fictitious assets and
the overvalued portion of other assets.
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JOURNAL ENTRIES ON REDUCTION OF CAPITAL
PARTICULARS LF DR CR
1. For Reduction of Equity Share Capital
Old Equity Share Capital A/c Dr
To New Equity Share Capital a/c
To Capital Reduction a/c
Note
If in the problem it is said that share capital is reduced to an equal number of fully paid shares
of Rs. – each , it is implied that face value of the share has changed. On the other hand if it
is just mentioned that share capital is reduced to Rs. – each it is implied that face value has
not changed but only the paid up value has changed.
35
If the face value has not changed instead of the first journal entry the following entry is to be
passed
Note: (1) In case of Debentures if the old debentures are exchanged by new Debentures
the journal entry can be
Example 1
a. Shares of Rs.100 are to be reduced to an equal number of fully paid shares of Rs.40
each.
b. To issue 1,000 new shares of Rs.40 each as fully paid up to debenture holders in full
settlement.
c. The amount available is to be utilized in writing off the goodwill and profit & loss
A/c and the balance in writing down the value of machinery.
d. Authorised capital of the company is 20,000 shares of Rs.100 each.
Give the necessary journal entries. Prepare Capital Reduction A/c and Reconstructed
Balance Sheet.
36
Journal Entries
37
5,50,000
Less Current Liabilities:
Creditors 1,00,000
Working Capital 4,50,000
Total 8,00,000
Example 2
1. The equity share capital is to be reduced to Rs.2.50 each fully paid and the equity
share holders to subscribe to new equity shares of Rs.2.50 each at the rate of 3 shares
for one share held.
2. The preference dividend which is in arrear for 3 years to be cancelled against the
issue of two new equity shares for every Rs.100 dividend in arrears.
3. The preference share capital is to be reduced to 10% preference shares of Rs.10 each
fully paid and preference shareholders to subscribe new equity shares of Rs.2.50 each
at the rate of 2 shares for one share held.
4. 12% loan creditors to forego Rs.125000 and accept 10% preference shares of Rs.10
each fully paid for the balance of claim. They also agreed to subscribe 12,000 new
equity shares of Rs.2.50 each.
5. The directors of the company to subscribe 40,000 equity shares of Rs.2.50 each .
6. Trade creditors to sacrifice 10% of their claim and be paid immediately 50% of the
remaining claim.
7. The intangible and fictitious assets to be written off completely and the balance be
utilized to write off Plant and stock in proportion to their book value.
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Solution
39
To Plant 1,56943
To Stock 2,09,257
( Being Capital reduction a/c is utilized to write off the past
losses, arrears of dividend, goodwill, fictitious assets and plant and
Stock)
Application of Funds:
Fixed Assets:
Buildings 2,00,000
Plant (3,00,000—1,56,943) 1,43,057
3,43,057
Current Assets:
Stock 1,90,743
Debtors 3,00,000
Bank 2,12,500
7,03,243
Less Current Liabilities
Trade Creditors 90,000
Other current liabilities 40,000 1,30,000
5,73,243
Total 9,16,300
Note
1. Here the first adjustment includes two points.(a) One is the reduction of the Equity
share capital of Rs.50 each to Rs.2.50 each. Here the face value of the equity share has
changed . So the Old equity shares are to be cancelled and new equity shares are to be
credited and the balance will be transferred to capital reduction a/c.
40
(b) Existing Equity Share holders have to subscribe new equity shares . The ratio is for
one share three share. So for 15,000 shares 45,000 shares (15,000x3) @ Rs.2.50 per
share. Second journal entry is for the subscription of shares.
2. It says about the Arrears of Preference Dividend. In the problem if the payment of
the arrears is not mentioned it is to be ignored otherwise according to the information
given in the question it is to be considered. According to the second adjustment 3 years
dividend is in arrear and it is to be settled by the issue of 2 new equity shares for every
100 rupees.
3.According to the first part of the third adjustment 7% Preference shares of Rs.50 each
is reduced to 10% Preference shares of Rs.10 each fully paid. For that 7% preference
share capital is to be cancelled and 10% preference share capital is to be credited.
Second Part is about the issue of new equity shares to the preference share holders. The
ratio is for one share held two shares . So for 12,000 shares held 24,000 (12,000x2)
shares are to be issued @2.50 each
4.Next adjustment is regarding the Laon creditors. Total amount of Loan creditors is
5,75,000. They agreed to sacrifice Rs.1,25,000. The remaining amount (5,75,000—
1,25,000 =4,50,000) will be discharged by the issue of 10% preference shares of Rs.10
each and for that one entry is to be passed. The next entry is for the subscription of
12,000 new equity shares
5.It is about the issue of 40,000 Equity shares of Rs.2. 50 each to the Directors. for that
one journal entry is to be passed.
7. Finally the Capital Reduction A/c will be utilized to write off all fictitious and
Intangible assets. And the balance amount in the CR A/c will be utilized to write off
Plant & Stock in proportion to their book value.
41
Balance Amount Available to write of Plant & Stock = 3,66,200
CHAPTER-III
LIQUIDATION OF COMPANIES
Meaning
Liquidator or Administrater
Liquidator is the person, who is appointed to conduct the winding up proceedings of the
company. He is appointed to take control of the company, collect its assets, pay its debts and
finally distribute any surplus amount to the members in accordance with their rights.
Types of Liquidation
i. If the company has, by special resolution, resolved that the company be wound up
by the court.
ii. If a default is made in delivering the statutory report of the Registrar of companies
or in holding the statutory meeting of the company.
iii. If the company does not commence its business within a year from its
incorporation or suspends its business for a whole year.
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iv. If the number of members falls below seven in case of a public company or below
two in case of a private company.
v. If the company is unable to pay its debts.
vi. If the court is of the opinion that it is just and equitable that the company should
be wound up.
After the passing of a resolution for voluntary winding up , the court makes an order that
the voluntary winding up can continue , but subject to such supervision of the court is called
Voluntary winding up under the supervision of the court.
Contributory ― Every person liable to contribute to the assets of a company in the event of
its being wound up ,and includes the holder of any shares which are fully paid up and also
any person alleged to be a contributory‖.
Functions of Liquidator
Distribute the amount realized in the order of preference as per rule329 of Companies Act.
Maintain and submit the record of receipts and payments of cash to the court in case of
compulsory winding up .
At the time of liquidation of a company, the liquidator realizes all the assets and discharge the
liabilities and capital. The Statement prepared to record such receipts and payments is called
‗ Liquidator‘s final statement of account. The liquidator must make payments in the
following order.
1. Secured creditors
2. Legal expenses( including liquidation expenses and cost of winding up.
3. Liquidator‘s remuneration
4. Payments to Debenture holders and other creditors having floating charge on the
assets of the company.
5. Payment to Preferential creditors
6. Payments to unsecured creditors
7. Calls in Advance if any
8. Arrears of dividend on cumulative preference shares
9. Amount due to preference share holders
10. Amount due to equity share holders
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Liquidator‘s Final Statement of Account
Receipts Amount Payments Amount
Cash in hand Xxx Sucured creditors Xxx
Cash at Bank Xxx Legal charges Xxx
Assets Realised: Liqquidator‘s remuneration Xxx
Marketable Securities Xxx Other expenses on liquidation Xxx
Bills Receivable Xxx Debenture holders:
Debtors Xxx Outstanding interest on Xxx
Loans & Advances Xxx debenture Xxx
Stock in trade Xxx Debentures Xxx
Plant & Machinery Xxx Preferential Creditors Xxx
Furniture & Fixtures Xxx Unsecured Creditors Xxx
Patents & trade marks Xxx Calls in advance if any Xxx
Investments Xxx Arrears of dividend on Xxx
Surplus realized from secured Cumulative Preference shares Xxx
creditors ( if any) Xxx Preference share holders Xxx
Calls in Arrears Xxx Equity Share holders
Amount received from calls on
shares Xxx
Preferential Creditors
Creditors to whom the following are due, as preferential creditors under Section 530
of the Companies Act
(I) All revenues ,taxes, cesses and rates due from the company to the Central
Government or a State Government or to a local authority at the relevant date
and having become due and payable within the twelve months next before that
date.
(II) All wages or salaries of any employee, in respect of service rendered to the
company and due for a period not exceeding 4 months within the 12 months
next before the relevant date , and any compensation payable to any workman
under any provision of Chapter V A of the Industrial Dispute Act ,1947,
provided the amount payable to any one claimant does not exceed Rs.20,000
(III) All accrued holiday remuneration becoming payable to any employee or in the
case of his death, to any other person in his right , on the termination of his
employment before ,or by the effect of the winding up order or resolution
(IV) All sums due as compensation under the Workmen‘s Compensation
Act,1923, in respect of death or disablement of any employee of the company
(V) All sums due to an employee , from a provident fund , pension fund or any
other fund for the welfare of the employees , maintained by the company.
44
Example I
S ltd went into voluntary liquidation on 31-12-2012. The balance sheet as on that date
was:
Liabilities Rs. Assets Rs.
Share Capital: Land & Building 2,50,000
5,000, 6% Cumulative Machinery 6,25,000
Preference Shares of Rs.100 5,00,000 Patents 1,00,000
each fully paid Stock 1,37,500
2,500 Equity shares of Rs.100 1,87,500 Debtors 2,75,000
each Rs.75 paid up Cash at bank 75,000
7,500 Equity shares of Rs.100 4,50,000 Profit& loss A/c 3,00,000
each Rs.60 paid up 2,50,000
5% Mortgage Debentures 12,500
Interest outstanding on
debentures 3,62,500
Creditors 17,62,500 17,62,500
The liquidator is entitled to a commission of 3% on all assets realized except cash and
2% on amounts distributed to unsecured creditors.
Creditors include Rs.17,500 for Income-Tax due to Government, Rs.5,000
Outstanding salaries of employees and an award of Rs.15,000 made under
Workmen‘s Compensation Act. It also includes a loan for Rs.1,25,000 secured by
mortgage on Land & Buildings. The preference dividends were in arrears for two
years. The assets realized as follows:
Land & Building 3,00,000
Machinery 5,00,000
Patents 75,000
Stocks 1,50,000
Debtors 2,00,000
Expenses of liquidation amounted to 27,250
Prepare the Liquidator‘s Final Statement of Account.
S Ltd
45
Debenture holders
5% Debentures 2,50,000
O/s Interest on Deb. 12,500 2,62,500
Preferential Creditors:
a. Income Tax 17,500
b. Salaries 5,000
c. Award 15,000 37,500
Unsecured Creditors(balance) 2,00,000
Preference Share Capital5,00,000
Arrears of Dividend
(5,00,000x6/100x2) 60,000 5,60,000
Equity Share holders
2,500 share @15.875 39,688
7,500 shares @.875 6,562
13,00,000 13,00,000
Working Note
Unsecured Creditors:
Total 3,62,500
Less Mortgage loan 1,25,000
Less Preferential
Creditors 37,500
2,00,000
46
CHAPTER-1V
Introduction:
A group represents a holding company and one or more subsidiaries, the holding company
and each one of the subsidiary company are legally separate entities. Each company prepares
and publishes its own accounts as per their requirement of Company Law.
Definition:
When a company holds majority shares of another company, it is called holding company and
the company, the shares of which are held is called ‗Subsidiary Company‘.
Step1:
While preparing a consolidated balance sheet investment of a holding company in the
equity shares of the subsidiary is replaced by the assets and the liabilities.
Step2:
The share of the outsiders in the net assets is shown on the liabilities side under the
heading ‗Minority Interest‘.
The share of the outsiders in the Net Assets of the company must be shown as a liability
under the heading of Minority Interest.
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Step2: - Procedure for calculation of Pre- Acquisition Profit
Example: H Ltd. Acquired 8000 shares of Rs.10 each in S Ltd. On 31/12/2002 the
summarized B/s of H Ltd and S Ltd were as follows:-
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Liabilities H Ltd S Ltd Assets H Ltd S Ltd
Share Capital Machinery 60,000 45,000
Shares of Rs.10
each 2,00,000 1,00,000 Furniture 2,000 4,000
Investment: Shares in S
Reserves 10,000 15,000 Ltd 98,000 -
P/c A/c 5,000 4,500 Stock 42,000 65,000
Bank Loan - 21,000 Debtors 18,000 27,000
Creditors 40,000 20,000 B/R 1,000 1,500
B/P 2,000 1,000 Cash 36,000 10,000
2,57,000 1,52,500 2,57,000 1,52,500
On the date of acquisition of shares by H Ltd, the S Ltd had undistributed profits Rs.1, 500
and Reserves amounted to Rs.5, 000.
Solution:
Working Notes
1) Ratio
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4) Calculation of Cost of Control or Capital Reserve:
1) Internal Debts:
When loans are advanced by the holding company to its subsidiary or vise-versa, the same
will appear as an asset in the balance sheet of the lender and as a liability in the balance sheet
of the borrower company. These being inter-company owings, should be eliminated in the
consolidated B/s.
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2) Bills of Exchange:
Bills drawn by the holding Co. on its subsidiary or vise-versa appearing as bills receivable in
one balance sheet and B/P in another are again inter company obligations should be
eliminated.
Notes:
When the goods are sold by the Holding Co. to its subsidiary Co. or sold by the subsidiary
Co. to its holding Co. and such goods remain unsold. At the end of the financial year, there
shall be an element of profit included in such goods (this is profit added by the seller of the
goods) should be eliminated while preparing the consolidated B/s.
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CHAPTER-V
The Different cost based methods of human resource valuation are as follows:
Historical Method : Under this method human resources are valued similarly like any
physical asset. All expenses incurred on recruitment, selection, hiring, training and
development of human resources of the organization will be capitalized and shown as
Investment in the balance sheet. Such capitalized expenditure will be amortized over the
expected useful life of human resources.
Replacement Cost Method : Under this method, the human resources are valued at their
present replacement cost. If a new organization has to be started what will be the cost of
recruiting, selecting , hiring, training and developing human resource to their present
efficiency level will be considered as the value of human resources.
Opportunity Cost Method : Under this method , the value of human resources will be
ascertained on the basis of its alternative use or ability of performing other jobs. According
to this method ,if an employee has no alternative use means he has no value.
Standard Cost Method : According to this method standard cost per grade of an employee ,
for recruiting selecting, hiring ,training and developing will be ascertained year after year.
The aggregate of standard cost of all employees will be the value of human resources.
Total Cost Method : Under this method , the value of an employee of an organization will
be equal to the total of the cost incurred by the employee, the state and the organization
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towards the education , training etc, to make the employee efficient to his present level or to
make him fit for the organization requirement
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(b) Social Responsibility Accounting
Introduction
Social accounting is the process of communicating the social and environmental effects of
organizations economic actions is particular is commonly used in the context of business, or
corporate social responsibility (CSR), although any organization, including NGO‘s, charities,
and government agencies may engage in social accounting.
Definition
Seidler Lee and Seidler Lynn have defined Social Accounting as, ―modification and
application of conventional accounting to the analysis and solutions of problems of a social
nature.
Definition
CIMA, London, again briefly defines ‗responsibility accounting‘ as ―a system of accounting
that segregates revenue and costs into areas of personal responsibility in order to assess the
performance attained by persons to whom authority has been assigned.‖
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Benefits of Responsibility Accounting
1) Responsibility Accounting provides a system of closer control, sine the
focus of responsibility accounting is on planning and cost control, rather
than cost ascertainment.
2) It facilitates decentralization of decision-making, by facilitating delegation
of decision making.
3) It necessitates the need of clearly defining and communicating the
corporate objectives and individual goals.
4) It brings in a sense of cost consciousness among the employees of the
organization.
5) It compels and enables management o set realistic plans and budgets.
6) It provides for ‗management by exception‘ by enabling managers to
concentrate on key issues only, which need their attention.
7) It provides for measurement of performance of individuals in an objective
manner, by creating a quantitative basis for evaluation purposes.
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BOOKS FOR REFERENCE
Advanced Accounting-Volume II
R.L.Gupta
M.Radhaswamy
Dr.S.N.Maheswari
S.Anil Kumar
V.Rajesh Kumar
B.Mariyappa
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