Doubt ? - Amalgamation

A/c entries 867 views 6 replies

Krish

CA Final

3331 Points Joined July 2009

The following Balance Sheets are given as on 31st March, 2008:

	(Rs. in lakhs)			(Rs. in lakhs)
	Best Ltd.	Better Ltd		Best Ltd.	Better Ltd
Share Capital:
Shares of Rs. 100, each fully paid	20	10	Fixed Assets	25	15
Reserve and Surplus	10	8	Investments	5	-
Other Liabilities	20	2	Current Assets	20	5
	50	20		50	20

The following further information is given —

(a) Investments of Best Ltd. include Rs. 3 lakhs representing shares in Better Ltd. having a face value of Rs. 2 lakhs.

(b) Better Limited issued shares on 1st April, 2008, in the ratio of one share for every two held, out of Reserves and Surplus.

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What would be the position on 01/04/2008.

	(Rs. in lakhs)			(Rs. in lakhs)
	Best Ltd.	Better Ltd		Best Ltd.	Better Ltd
Share Capital:
Shares of Rs. 105, each fully paid	21	15	Fixed Assets	25	15
Reserve and Surplus	10	3	Investments	6	-
Other Liabilities	20	2	Current Assets	20	5
	50	20		50	20

Reasons:

Share capital of Better ltd. : Due to issuance of bonus shares (10,00,000 + 5,00,000)

Reserves and Surplus of Better Ltd. : 8,00,000 – 5,00,000 (use of reserves and surplus in bonus issue)

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Investment of Best Ltd. : 5 Lakhs to 6 Lakhs due to issuance of bonus share by Better Ltd.

(2,00,000/100 = 2000 shares, after bonus share, 3000 shares x Rs. 100 = 3,00,000)

Share capital of Best Ltd. : 20 Lakhs to 21 Lakhs due to impact on investment by bonus shares issued by Better ltd.

Am I correct ?

Replies (6)

AVIJIT

CA FINALIST

370 Points Joined January 2011

There are some mistakes over there like:

1.There will be no change in the face value of Shares. It will remain at 100.

2.There will be no change in the figures of Best Ltd (i.e. they will remain at 20 and 5) because as per our AS for Investments if we get Bonus Shares on the Investmants held by us then there is nochange in the amt., only the no. of shares held will change reducing the book value per share in our Balance Sheet.

Krish

CA Final

3331 Points Joined July 2009

Thank you so much Avijit for reply, actually the same question is in our study material of IPCC. I have deliberately mentioned wrong figure so that i could understand clearly, now i have got the point of investment. Actually i have one more doubt that how can we recognise that the same question is for purchase method, while it seems like merger one, even it fulfils all the criteria for being a merger. Please help me out..............you may refer the study material of A/c (Group - I) for original question or below attached file.

Krish

CA Final

3331 Points Joined July 2009

Full Question

AVIJIT

CA FINALIST

370 Points Joined January 2011

Krishna I don't have any idea why they are considering it as a sum of Purchase (if study mat says so) while there is no mention of any condition because of which it will cease to be a sum of Merger. Just check whether they have taken any assumption in the solution including the assumption that Best and Better are doing different types of Business.