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Chapter # 3 Accounting for Company –

Amalgamation

Sameer Hussain

www.a4accounting.weebly.com

Accounting for Company – Amalgamation

Chapter # 3

Page 34

Sameer Hussain www.a4accounting.weebly.com

SYLLABUS ACCORDING TO UNIVERSITY OF KARACHI:

Accounting for companies. Amalgamation.

WHAT THE EXAMINER USUALLY ASK?

Computation of purchase consideration and number of shares. General Journal entries in the books of old companies. General Journal entries in the books of new company. Initial Balance Sheet of new company.


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www.a4accounting.weebly.com Sameer Hussain

AMALGAMATION The combination of two or more companies in which the old companies merge to form a new company is called amalgamation. For example Company “A” and Company “B” amalgamate to form a Company “C”. All the assets and liabilities of both old companies (A and B) are transferred to new company (C). In that sense the company “C” is acquiring the company “A” and company “B”.

PURCHASE CONSIDERATION Purchase consideration is the amount paid by the new company to both old companies. The purchase consideration can be made in two different ways:

Purchase consideration by net asset method. Purchase consideration by lump sum method.

a) PURCHASE CONSIDERATION BY NET ASSET METHOD In this method the purchase consideration is calculated according to the value of net asset (total assets – total liabilities). It means that the amount paid to the old companies is equal to their book value (if liquidation expenses are not paid separately by new company) and no goodwill or capital reserve arises.

COMPUTATION OF PURCHASE CONSIDERATION: “A” Co. “B” Co. Total assets XXX XXX Less: Total liabilities (XXX) (XXX) Net assets XXX XXX Add: Liquidation expense XXX XXX Purchase consideration XXX XXX

b) PURCHASE CONSIDERATION BY LUMP SUM METHOD In this method the new company paid the amount of consideration without calculating the net assets value. In this method there is a chance of goodwill or capital reserve.

COMPUTATION OF PURCHASE CONSIDERATION: Company – A: XXX no. of shares @ Rs.XX each. Rs.XXX Company – B: XXX no. of shares @ Rs.XX each. Rs.XXX

GENERAL ENTRIES IN THE BOOKS OF OLD COMPANY 1- Entry to record the transfer of assets:

Realization Debit Assets (all) Credit ---------------------------------------------------------------------------------------------------------------

2- Entry to record the transfer of liabilities: Liabilities Debit Realization Credit ---------------------------------------------------------------------------------------------------------------

3- Entry to record the purchase consideration: Receivable from purchasing company Debit Realization Credit ---------------------------------------------------------------------------------------------------------------


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4- Entry to record the purchase consideration received: Shares – in Debit Debentures – in Debit Cash Debit Receivable from purchasing company Credit ---------------------------------------------------------------------------------------------------------------

5- Entry to close the shareholder’s equity account: Share capital Debit Retained earning Debit Share premium Debit Payable to shareholders Credit ---------------------------------------------------------------------------------------------------------------

6- Entry to record the payment to shareholders: Payable to shareholders Debit Shares – in Credit Debentures – in Credit Cash Credit -----------------------------------------------------------------------------------------------------------------

GENERAL ENTRIES IN THE BOOKS OF NEW COMPANY 1- Entry to record the purchase of assets and liabilities from A company:

Assets Debit Liabilities Credit Payable to old company (A) Credit ----------------------------------------------------------------------------------------------------------------

2- Entry to record the payment of purchase consideration to A company: Payable to old company (A) Debit Debentures – in Credit Cash Credit Shares – in Credit ----------------------------------------------------------------------------------------------------------------

3- Entry to record the purchase of assets and liabilities from B Company: Assets Debit Liabilities Credit Payable to old company (B) Credit ----------------------------------------------------------------------------------------------------------------

4- Entry to record the payment of purchase consideration to B Company: Payable to old company (B) Debit Debentures – in Credit Cash Credit Shares – in Credit

ILLUSTRATION # 1: (NET ASSET METHOD) ABC Co. Ltd. and XYZ Co. Ltd. have agreed to amalgamate. A new company A2Z Co. Ltd. has been formed to take over the both companies. After negotiations the financial position of both companies is shown in the following balance sheet as on December 31, 2009. ABC Co. Ltd. (Rs.) XYZ Co. Ltd. (Rs.) Total assets 500,000 470,000 Total liabilities 140,000 170,000 Share capital 360,000 300,000


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REQUIRED (a) Compute purchase consideration. (b) General Journal entries in the books of ABC Co. Ltd. and XYZ Co. Ltd. (c) General Journal entries in the books of A2Z Co. Ltd. (d) Initial balance sheet of A2Z Co. Ltd. on 31 December 2009.

SOLUTION # 1: Computation of Purchase Consideration: ABC Co. Ltd. (Rs.) XYZ Co. Ltd. (Rs.) Total assets 500,000 470,000 Less: Total liabilities 140,000 170,000 Purchase consideration 360,000 300,000

Number of shares = 360,000/10 300,000/10 Number of shares = 36,000 30,000

ABC Co. Ltd. General Journal

Date Particulars P/R Debit Credit 1 Realization 500,000 Assets 500,000 (To record the transfer of assets to A2Z Co. Ltd.) 2 Liabilities 140,000 Realization 140,000 (To record the transfer of liabilities to A2Z Co. Ltd.) 3 Receivable from A2Z Co. Ltd. 360,000 Realization 360,000 (To record the purchase consideration) 4 Shares – in 360,000 Receivable from A2Z Co. Ltd. 360,000 (To record the shares received for purchase

consideration from A2Z Co. Ltd.)

5 Share capital 360,000 Payable to shareholders 360,000 (To record the closing of shareholders’ equity) 6 Payable to shareholders 360,000 Shares – in 360,000 (To record the shares issued to the shareholders)

XYZ Co. Ltd. General Journal

Date Particulars P/R Debit Credit 1 Realization 470,000 Assets 470,000 (To record the transfer of assets to A2Z Co. Ltd.) 2 Liabilities 170,000 Realization 170,000 (To record the transfer of liabilities to A2Z Co. Ltd.) 3 Receivable from A2Z Co. Ltd. 300,000 Realization 300,000 (To record the purchase consideration)


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Date Particulars P/R Debit Credit 4 Shares – in 300,000 Receivable from A2Z Co. Ltd. 300,000 (To record the shares received for purchase

consideration from A2Z Co. Ltd.)

5 Share capital 300,000 Payable to shareholders 300,000 (To record the closing of shareholders’ equity) 6 Payable to shareholders 300,000 Shares – in 300,000 (To record the shares issued to the shareholders)

A2Z Co. Ltd. General Journal

Date Particulars P/R Debit Credit 1 Assets 500,000 Liabilities 140,000 Payable to ABC Co. Ltd. 360,000 (To record the purchase of assets and liabilities

from ABC Co. Ltd.)

2 Payable to ABC Co. Ltd. 360,000 Ordinary share capital (36,000 x 10) 360,000 (To record the shares issued to the ABC Co. Ltd.) 3 Assets 470,000 Liabilities 170,000 Payable to XYZ Co. Ltd. 300,000 (To record the purchase of assets and liabilities

from XYZ Co. Ltd.)

4 Payable to XYZ Co. Ltd. 300,000 Ordinary share capital (30,000 x 10) 300,000 (To record the shares issued to the XYZ Co. Ltd.)

A2Z Co. Ltd. Balance Sheet

As on 31 December 2009 Equities Assets

Shareholder’s Equity: Assets 970,000 Issued & Paid-up Capital: 66,000 ordinary shares @ Rs.10 each 660,000 Total shareholder’s equity 660,000 Liabilities 310,000 Total equities 970,000 Total assets 970,000

ILLUSTRATION # 2: (LUMP SUM METHOD) On January 1, 2010 balance sheet of A Ltd. and B Ltd. appeared as follows: A Ltd. (in Rs.) B Ltd. (in Rs.) Cash 40,000 90,000 Assets 300,000 400,000 Liabilities 40,000 40,000 Shares capital (Rs.10 each) 300,000 450,000


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The two companies amalgamate on January 1, 2010 to form C Ltd. on the following conditions: (a) Authorized capital of C Ltd. is to be 120,000 ordinary shares of Rs.10 each. (b) All assets and liabilities of A Ltd. are taken at book value and shareholders are issued

33,000 shares (fully paid up) in C Ltd. (c) All the assets and liabilities of B Ltd. are taken at book value and the shareholders are

issued 40,000 shares (fully paid up) in C Ltd. (d) Liquidation expenses paid by the C Ltd. Rs.12,000 to each liquidating company.

REQUIRED (a) Give journal entries in the books of both liquidating companies. (b) Give journal entries in the books of C Ltd. (c) Balance sheet of C Ltd. on January 1, 2010.

SOLUTION # 2: Computation of Purchase Consideration: A Ltd. Rupees 33,000 ordinary shares @ Rs.10 each 330,000 Add: Liquidation expense (Cash) 12,000 Purchase consideration 342,000

B Ltd. Rupees 40,000 ordinary shares @ Rs.10 each 400,000 Add: Liquidation expense (Cash) 12,000 Purchase consideration 412,000

A Ltd. General Journal

Date Particulars P/R Debit Credit 1 Realization 340,000 Assets 300,000 Cash 40,000 (To record the transfer of assets to C Ltd.) 2 Liabilities 40,000 Realization 40,000 (To record the transfer of liabilities to C Ltd.) 3 Receivable from C Ltd. 342,000 Realization 342,000 (To record the purchase consideration) 4 Shares – in 330,000 Cash 12,000 Receivable from C Ltd. 342,000 (To record the shares and cash received for

purchase consideration from C Ltd.)

5 Realization 12,000 Cash 12,000 (To record the liquidation expense paid) 6 Share capital 300,000 Payable to shareholders 300,000 (To record the closing of shareholders’ equity) 7 Realization 30,000 Payable to shareholders 30,000 (To record the closing of realization account)


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Date Particulars P/R Debit Credit 8 Payable to shareholders 330,000 Shares – in 330,000 (To record the shares issued to the shareholders)

Realization 3 Assets 340,000 1 Receivable from C Ltd. 342,000 5 Cash 12,000 4 Liabilities 40,000 7 Payable to shareholders 30,000 382,000 382,000

B Ltd. General Journal

Date Particulars P/R Debit Credit 1 Realization 490,000 Assets 400,000 Cash 90,000 (To record the transfer of assets to C Ltd.) 2 Liabilities 40,000 Realization 40,000 (To record the transfer of liabilities to C Ltd.) 3 Receivable from C Ltd. 412,000 Realization 412,000 (To record the purchase consideration) 4 Shares – in 400,000 Cash 12,000 Receivable from C Ltd. 412,000 (To record the shares and cash received for

purchase consideration from C Ltd.)

5 Realization 12,000 Cash 12,000 (To record the liquidation expense paid) 6 Share capital 450,000 Payable to shareholders 450,000 (To record the closing of shareholders’ equity) 7 Payable to shareholders 50,000 Realization 50,000 (To record the closing of realization account) 8 Payable to shareholders 400,000 Shares – in 400,000 (To record the shares issued to the shareholders)

Realization

3 Assets 490,000 1 Receivable from C Ltd. 412,000 5 Cash 12,000 4 Liabilities 40,000 7 Payable to shareholders 50,000 502,000 502,000


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C Ltd. General Journal

Date Particulars P/R Debit Credit 1 Assets 300,000 Cash 40,000 Goodwill 42,000 Liabilities 40,000 Payable to A Ltd. 342,000 (To record the purchase of assets and liabilities

from A Ltd.)

2 Payable to A Ltd. 342,000 Ordinary share capital (33,000 x 10) 330,000 Cash (To record the shares & cash paid to the A Ltd.) 3 Assets 400,000 Cash 90,000 Liabilities 40,000 Capital reserve 38,000 Payable to B Ltd. 412,000 (To record the purchase of assets and liabilities

from B Ltd.)

4 Payable to B Ltd. 412,000 Ordinary share capital (40,000 x 10) 400,000 Cash 12,000 (To record the shares & cash paid to B Ltd.)

C Ltd.

Balance Sheet As on 1January 2010

Equities Assets Shareholder’s Equity: Goodwill 42,000 Authorized Capital: Assets 700,000 120,000 ordinary shares Cash 106,000 @ Rs.10 each 1,200,000

Issued & Paid-up Capital: 73,000 ordinary shares @ Rs.10 each 730,000 Capital reserve 38,000 Total shareholder’s equity 768,000 Liabilities 80,000 Total equities 848,000 Total assets 848,000


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PRACTICE QUESTIONS Question # 1: 1995 – Regular (Advanced & Cost Accounting)–UOK The Moon Light Co. Ltd. and the Star Light Co. Ltd. have agreed to amalgamate. A new company Sun Light Co. Ltd. has been formed to take over the both companies. After negotiations the financial position of both companies is shown in the following balance sheet as on October 31, 1995.

Moon Light Co. Ltd. Balance Sheet

As on October 31, 1995 Assets (in Rs.) Equities (in Rs.)

Cash and bank balances 45,000 Accounts payable 100,000 Accounts receivable 150,000 Issued and Paid – Up Capital: Merchandise inventory 155,000 100,000 Ordinary shares Land and building 490,000 @ Rs.10 fully paid 1,000,000 Machinery and plant 200,000 Retained earnings 90,000 Patents 150,000 1,190,000 1,190,000

Star Light Co. Ltd. Balance Sheet

As on October 31, 1995 Assets (in Rs.) Equities (in Rs.)

Cash 500,000 Accounts payable 110,000 Accounts receivable 25,000 General reserve 50,000 Merchandise inventory 25,000 Issued and Paid – Up Capital: Land and building 290,000 81,600 Ordinary shares Machinery and plant 280,000 @ Rs.10 fully paid 510,000 Goodwill 60,000 Retained earnings 60,000 730,000 730,000 REQUIRED Compute: What amount payable is arrived at each, and prepare the journal entries in the books of Sun Light Co. Ltd. Also prepare amalgamated balance sheet of the new company. Question # 2: 1992 – Private (Advanced & Cost Accounting)–UOK A Ltd. and B Ltd. decide to amalgamate C Ltd. take over the assets and liabilities of the two companies. C Ltd. issues ordinary shares of Rs.10 each to the value of net assets to each of the old companies. The balance sheets of A Ltd. and B Ltd. on the date of amalgamation were:

Assets A Ltd. (in Rs.) B Ltd. (in Rs.) Plant assets 180,000 200,000 Patents 35,000 --- Merchandise inventory 150,000 80,000 Accounts receivable 50,000 60,000 Cash 15,000 50,000 Profit and loss 10,000 --- Total assets 440,000 390,000

Liabilities and Capital A Ltd. (in Rs.) B Ltd. (in Rs.) Ordinary share capital 360,000 190,000 Accounts payable 80,000 50,000 General reserve --- 90,000 Profit and loss --- 60,000 Total liabilities and capital 616,000 546,000


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REQUIRED (a) Compute purchase consideration to A Ltd. and B Ltd. (b) General Journal entries in the books of A Ltd. and B Ltd. (c) Entries in the General Journal of C Ltd.

Question # 3: 2013 – Private (Advanced & Cost Accounting)–UOK Two companies carrying on similar business enter into a contract to amalgamation. A new company called Al-Falah Ltd. being formed to take over the assets and liabilities of both the companies. The agreed balances in the balance sheet of each company are as under:

AMBER LTD. Share capital 1,250,000 Building 480,000 Accounts payable 200,000 Machinery 450,000 Merchandise 370,000 Bank 50,000 Profit & loss 100,000 Total 1,450,000 Total 1,450,000

RANIA LTD. Share capital 1,000,000 Building 375,000 General reserve 250,000 Machinery 500,000 Accounts payable 150,000 Merchandise 225,000 Profit & loss 50,000 Accounts receivable 175,000 Bank 175,000 Total 1,450,000 Total 1,450,000 In the contract, it was provided that fully paid Rs.100 shares shall be issued by Al-Falah Ltd. to the value of net assets of each of the old companies. REQUIRED

(i) Calculate the amount of purchase consideration of the two companies. (ii) Record journal entries in the books of Al-Falah Ltd. and also prepare its balance sheet.

Question # 4: 2007 – Regular (Advanced & Cost Accounting)–UOK Two companies A and B carrying on similar business decided to amalgamate and a new company called AB Company Ltd. being formed to take over the assets and liabilities of each. The followings are the respective balance sheets, showing the values of assets as agreed in the contract and it is provided that fully paid up Rs.100 shares will be issued by the new company to the value of the net assets of each of the old companies:

Assets A. Co. Ltd. B. Co. Ltd. Cash 16,500 52,500 Accounts receivable --- 52,500 Merchandise inventory 112,500 67,500 Retained earnings 30,000 --- Building 142,500 112,500 Machinery 135,000 150,000 Total assets 436,500 435,000

Liabilities and Capital A. Co. Ltd. B. Co. Ltd. Accounts payable 61,500 45,000 Share capital 375,000 300,000 Reserve fund --- 75,000 Retained earnings --- 15,000 Total liabilities and capital 436,500 435,000


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REQUIRED (a) Compute purchase consideration for each liquidating Co. (b) State what shares the liquidator of each company will receive in the new company. (c) Give entries in the books of new company.

Question # 5: 1995 – Private (Advanced & Cost Accounting)–UOK The balance sheets of the two private companies are given below:

M/S. Nisar Ahmed (Pvt.) Ltd. Balance Sheet

As on June 30, 1994 Equities (in Rs.) Assets (in Rs.)

Share Capital: Machinery and equipment 150,000 5,400 Shares of Rs.150 each 450,000 Land and building 200,000 Accounts payable 50,000 Merchandise inventory 80,000 Cash at bank 40,000 Profit & loss account 30,000 Total equities 500,000 Total assets 500,000

M/S. Qurban Ali (Pvt.) Ltd.

Balance Sheet As on June 30, 1994

Equities (in Rs.) Assets (in Rs.) Share Capital: Land and building 250,000 4,500 Shares of Rs.150 each 375,000 Machinery and equipment 140,000 Accounts payable 40,000 Merchandise inventory 50,000 Reserve (General) 30,000 Accounts receivable 15,000 Profit & loss account 25,000 Cash at bank 15,000 Total equities 470,000 Total assets 470,000 On July 1, 1994, both the companies are of the opinion that the companies should be amalgamated to avoid future competition as they are doing the same business. Hence, they agreed to enter into a contract to amalgamate their business. The new business will be carried on under the name and style of M/S. Nisar and Qurban (Pvt.) Ltd. under the term that fully paid shares of Rs.100 each should be issued by the new company of the net assets. REQUIRED

(a) State the number of shares the liquidator of each Co. will receive from the new Co. (b) Pass necessary journal entries at the time of amalgamation in the book of newly formed

company. (c) Prepare the opening balance sheet of the new company as on July 1, 1994.

Question # 6: 1999 – Regular & Private (Advanced & Cost Accounting)–UOK On January 1, 1999 balance sheet data of Khairpur Limited and Noori Abad Limited are as follows:

Khairpur Limited Noori Abad Limited Cash 7,000 41,000 Accounts receivable 104,000 97,000 Merchandise inventory 85,000 100,000 Land 60,000 45,000 Building 125,000 140,000 Goodwill 20,000 --- Retained earnings 10,000 401,000 433,000


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Khairpur Limited Noori Abad Limited Allowance for bad debts 4,000 3,000 Allowance for depreciation 25,000 30,000 Accounts payable 47,000 50,000 Share capital 300,000 350,000 Reserve for contingencies 5,000 --- Retained earnings 20,000 401,000 433,000 Both the companies have agreed to amalgamate on January 1, 1999. For this purpose a new company, Sindh Co. Limited has been formed with an authorized capital of Rs.1,000,000 divided into ordinary shares of Rs.10/- each. The new company issued shares equal to the value of their net assets in payment of purchase consideration to each of the old company and also paid Rs.15,000 to each liquidating Co. for their liquidating expenses and paid preliminary expenses Rs.25,000/-. REQUIRED

(a) Amount of purchase consideration of each company and the number of shares to be issued.

(b) Entries in general journal of Sindh Company Limited. (c) Initial balance sheet of Sindh Company Limited.

Question # 7: 2006 – Regular (Advanced Accounting)–UOK Balance sheets of Blue Limited and Bright Limited as on January 1, 2006 are given below: Assets Blue Limited Bright Limited Cash and bank balance 10,000 50,000 Accounts receivable 100,000 105,000 Merchandise inventory 80,000 95,000 Land & building 800,000 300,000 Goodwill 110,000 ---

1,100,000 550,000 Liabilities & Equity Accounts payable 40,000 50,000 Ordinary share capital (Rs.10 ordinary shares fully paid) 1,000,000 400,000 General reserves --- 60,000 Retained earnings 60,000 40,000

1,100,000 550,000 On January 1, 2006 both companies agreed to amalgamate and form Indigo Limited with an authorized capital of Rs.10,000,000 divided into ordinary shares of Rs.10 each. Indigo Limited issued shares equal to the value of their net assets in payment of purchase consideration of Blue Limited and Bright Limited. The new company also paid Rs.25,000 to each liquidating company for their liquidation expenses. REQUIRED

(a) Amount of purchase consideration for each liquidating company and the number of shares to be issued.

(b) Entries in General Journal of Indigo Limited. (c) Initial balance sheet of Indigo Limited as on January 1, 2006.


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Question # 8: 2004 – Private (Advanced Accounting)–UOK The respective balance sheets of Fiza Ltd. and Aimen Ltd. stood on 31, Dec. 2004 as under: Assets (in Rs.) Fiza Ltd. Aimen Ltd. Building (Net) 800,000 1,400,000 Plant & machinery (Net) 650,000 800,000 Goodwill --- 100,000 Merchandise inventory 100,000 250,000 Accounts receivable 60,000 300,000 Cash 40,000 150,000 Profit and loss 50,000 ---

Total: 1,700,000 3,000,000 Equities (in Rs.) Fiza Ltd. Aimen Ltd. Share capital (in Rs.10 shares) 1,500,000 2,500,000 Accounts payable 200,000 300,000 Retained earnings --- 200,000

Total: 1,700,000 3,000,000 On 1st January 2005, both the companies agreed to amalgamate. A new company Nadeem Ltd. was formed with an authorized capital of Rs.5,000,000 (divided into 500,000 shares of Rs.10 each) to take over assets and liabilities of the both the concerns at book values with the exception of buildings which were taken at 20% more than their book values. REQUIRED

(1) Compute the amount payable to each company and number of shares to be issued to the shareholders of the liquidation companies.

(2) Journal entries in the books of Nadeem Ltd. (3) Prepare initial balance sheet of Nadeem Ltd.

Question # 9: 2005 – Private (Advanced Accounting)–UOK On January 1, 2005 balance sheet of Karim Ltd. and Rahim Ltd. appeared as follows: Assets Karim Ltd. Rahim Ltd. Cash 32,000 16,000 Accounts receivable 24,000 48,000 Merchandise 56,000 24,000 Prepaid insurance 8,000 --- Plant assets 120,000 144,000 Equities Accounts payable 40,000 24,000 Accumulated depreciation 40,000 48,000 Shares capital (Rs.10 each) 160,000 160,000 The two companies amalgamate on January 1, 2005 to form Bright Star Ltd. on the following conditions:

(a) Authorized capital of Bright Star Ltd. is to be 80,000 ordinary shares of Rs.10 each. (b) All assets and liabilities of Karim Ltd. are taken at book value and shareholders are

issued 24,000 shares (fully paid up) in Bright Star Ltd. (c) All the assets and liabilities of Rahim Ltd. are taken at book value and the shareholders

are issued 19,200 shares (fully paid up) in Bright Star Ltd. (d) Preliminary expenses paid by the new company Rs.8,000.

REQUIRED (a) Give journal entries in the books of Bright Star Ltd. (b) Balance sheet of Bright Star Ltd. on January 1, 2005.


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Question # 10: 1997 – Private (Advanced & Cost Accounting)–UOK On January 1, 1996 Balance Sheet data of Amin Co. and Fahim Co. appeared as follows: Assets Amin Co. (in Rs.) Fahim Co, (in Rs.) Cash 20,000 10,000 Accounts receivable 15,000 30,000 Merchandise 35,000 15,000 Prepaid insurance 5,000 --- Plant assets 75,000 90,000 Equities Accounts payable 25,000 15,000 Accumulated depreciation (Plant assets) 25,000 30,000 Shares capital (Rs.10 par) 100,000 100,000 The two companies amalgamate on January 1, 1996 to form Amin Fahim Company on the following conditions:

(a) Authorized capital of Amin Fahim Co. is to be 50,000 ordinary shares of Rs.10 each. (b) All the assets and liabilities of Amin Co. are taken over at book values and its

shareholders are issued 15,000 shares (fully paid up) in Amin Fahim Co. (c) All the assets and liabilities of Fahim Co. are taken over at book values and its

shareholders are issued 12,000 shares (fully paid up) in Amin Fahim Co. (d) The new company makes a public issue of 13,000 shares of Rs.10 each at Rs.13 per

share; the issue is fully subscribed and paid for in full. REQUIRED

(a) General Journal entries in the books of Amin Fahim Company. (Preliminary expenses paid by the company Rs.5,000).

(b) Balance sheet of Amin Fahim Company on January 1, 1996. Question # 11: 20011 – Private (Advanced & Cost Accounting)–UOK Sun Ltd. and Moon Ltd. decided to amalgamate their business and a new company Stars Ltd. is formed to take over all assets and liabilities of the two concerns. The new Co. Stars Ltd. issue 110,000 shares of Rs.10 each at Rs.20 to Sun Ltd. and 90,000 shares of Rs.10 each at Rs.20 to Moon Ltd. The following are the balance sheets:

Sun Limited Balance Sheet December 31, 2010

Cash Rs.120,000 Accounts payable Rs.180,000 Accounts receivable 400,000 General reserves 300,000 Merchandise inventory 600,000 Share capital Machines 1,200,000 (190,000 shares of Rs.10 each) 1,900,000 Furniture 60,000

2,380,000 2,380,000 Moon Limited

Balance Sheet December 31, 2010 Cash Rs.250,000 Accounts payable Rs.200,000 Accounts receivable 300,000 General reserves 100,000 Merchandise inventory 700,000 Share capital Machines 800,000 (185,000 shares of Rs.10 each) 1,850,000 Office equipment 100,000

2,150,000 2,150,000 REQUIRED

(a) Give entries in General Journal form in the books of Stars Ltd. (b) Prepare amalgamated balance sheet in the books of Stars Ltd.


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Question # 12: 2001 – Regular & Private (Advanced & Cost Accounting)–UOK Shan Ltd. and Adnan Ltd. decided to amalgamate their business and a new company S and A Co. is formed to take over all assets and liabilities of the two concerns. The new Co. S and A Ltd. issue 110,000 shares of Rs.10 each at Rs.20 to Shan Ltd. and 90,000 shares of Rs.10 each at Rs.20 to Adnan Ltd. The following are the balance sheets:

Shan Limited Balance Sheet December 31, 2000

Cash Rs.120,000 Accounts payable Rs.180,000 Accounts receivable 400,000 General reserves 300,000 Merchandise inventory 600,000 Share capital Machines 1,200,000 (190,000 shares of Rs.10 each) 1,900,000 Furniture 60,000

2,380,000 2,380,000 Adnan Limited

Balance Sheet December 31, 2000 Cash Rs.250,000 Accounts payable Rs.200,000 Accounts receivable 300,000 General reserves 100,000 Merchandise inventory 700,000 Share capital Machines 800,000 (185,000 shares of Rs.10 each) 1,850,000 Office equipment 100,000

2,150,000 2,150,000 REQUIRED

(c) Give entries in General Journal form in the books of Shan Ltd. (d) Prepare amalgamated balance sheet in the books of S and A Co. (e) Compute purchase consideration for each liquidating Co.

Question # 13: 2005 – Regular (Advanced Accounting)–UOK Zulfi Ltd. and Lutfi Ltd. decided amalgamate their businesses and a new company ZL Ltd. is formed to take over all the assets and liabilities of the two concerns. The new company ZL Ltd. issues 100,000 shares of Rs.10 each at Rs.20 to Zulfi Ltd. and 80,000 shares of Rs.10 each at Rs.20 to Lutfi Ltd. The following are the balance sheets of the two companies:

Zulfi Ltd. Balance sheet as at December 31, 2004

Cash 100,000 Accounts payable 380,000 Accounts receivable 350,000 General reserve 100,000 Merchandise inventory 650,000 Share capital (190,000 shares of Rs.10 each) 1,900,000 Machinery 1,220,000 Furniture 60,000 2,380,000 2,380,000

Lutfi Ltd. Balance sheet as at December 31, 2004

Cash 200,000 Accounts payable 180,000 Accounts receivable 350,000 General reserve 120,000 Merchandise inventory 700,000 Share capital (185,000 shares of Rs.10 each) 1,850,000 Machinery 800,000 Office equipment 100,000 2,150,000 2,150,000 REQUIRED

(a) Compute purchase consideration for each liquidating Co. (b) Give general journal entries in the books of Zulfi Ltd. (c) Prepare amalgamated balance sheet of ZL Ltd.


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Question # 14: 2008 – Private (Advanced & Cost Accounting)–UOK Hafeez Co. Ltd and Rasheed Co. Ltd. decided to amalgamate their business and a new company Hameed Co. Ltd. was formed to take over all assets and liabilities of the two companies. Hameed Co. Ltd. issued 100,000 shares of Rs.10 each at Rs.26 to Hafeez Co. Ltd. and 98,000 shares of Rs.10 each at Rs.26 to Rasheed Co. Ltd. At the time of amalgamation following were the balance sheets of two companies:

Hafeez Co. Ltd. Balance Sheet as on Dec. 31, 2007

Assets Equities Cash 110,000 Accounts payable 280,000 Accounts receivable 400,000 Share Capital: Merchandise inventory 600,000 190,000 shares of Rs.10 1,900,000 Building 1,300,000 General reserves 300,000 Furniture 70,000 2,480,000 2,480,000

Rasheed Co. Ltd. Balance Sheet as on Dec. 31, 2007

Assets Equities Cash 200,000 Accounts payable 200,000 Accounts receivable 350,000 Share Capital: Merchandise inventory 600,000 185,000 shares of Rs.10 1,850,000 Building 900,000 General reserves 100,000 Furniture 100,000 2,150,000 2,150,000 REQUIRED

(a) Compute purchase consideration for each of the amalgamating company. (b) Give all necessary entries in the General Journal of Hameed Co. Ltd. (c) Prepare a balance sheet of Hameed Co. Ltd. after amalgamation.

Question # 15: 1993 – Regular (Advanced & Cost Accounting)–UOK The following are the assets and equities of Faqeer Ltd. and Ameer Ltd. on June 30, 1993: Faqeer Ltd. (Rs.) Ameer Ltd. (Rs.) Current assets 60,000 400,000 Non – current assets 660,000 840,000 Investments --- 80,000 Accounts payable 300,000 200,000 5% Debentures payable --- 100,000 General reserves 40,000 60,000 Paid up capital (Rs.20 each) 480,000 800,000 Retained earnings (Dr.) 100,000 (Cr.) 160,000 The above companies enter into a contact to amalgamate a new company being formed under the name of Rising Star Ltd. The Rising Star Ltd. issued 60,000 shares of Rs.10 each to Faqeer Ltd. and 100,000 shares of Rs.10 each to Ameer Ltd. The new company also issued 8% debentures to the debenture holders of Ameer Ltd. at a premium of 5%. All the assets and liabilities of the companies were taken over at book values. REQUIRED

(a) Give journal entries in the books of Faqeer Ltd. and Ameer Ltd. (b) Give journal entries in the books of Rising Star Ltd.


Chapter # 3

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Question # 16: 1988 – Regular (Advanced & Cost Accounting)–UOK On January 1, 1987, balance sheet of data of A Co. and B Co. appeared as follows:

Assets A Co. (in Rs.) B Co. (in Rs.) Cash 10,000 4,000 Accounts receivable 20,000 10,000 Merchandise inventory 15,000 18,000 Prepaid insurance 4,000 --- Plant assets 50,000 80,000

Equities A Co. (in Rs.) B Co. (in Rs.) Allowance for depreciation – Plant 14,000 15,000 10% Bonds payable --- 20,000 Ordinary share capital (Rs.10 each) 50,000 50,000 Retained earnings 35,000 27,000 The two companies amalgamate on January 1, 1987 to form AB Co. on the following conditions:

1. Authorized capital of AB Co. to be 50,000 ordinary shares of Rs.10 each. 2. All the assets of A Co. (except cash and prepaid insurance) are taken over at book values

and its shareholders are issued 8,000 shares (fully paid up) in AB Co. 3. Of the assets of B Co. cash, accounts receivable and merchandise are taken over at book

values and plant assets are taken over at Rs.60,000. The bondholders are issued 2,100 shares and a suitable number of shares were issued to the shareholders of B Co.

REQUIRED (a) General Journal entries in the books of the two liquidating companies. (b) General Journal entries in the books of AB Co. (Preliminary expenses paid by the

company Rs.39,000).

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