Model: Purchase consideration—Net assets method The balance sheet of ABC Ltd. as at 31 March 2011 is as follows:
|
Liabilities |
Rs. |
Assets |
Rs. |
|
Equity Share Capital |
5,00,000 |
Building |
2,00,000 |
|
10% Preference Share Capital |
1,50,000 |
Plant & Machinery |
3,00,000 |
|
12% Debentures |
1,00,000 |
Furniture |
70,000 |
|
Reserve Fund |
40,000 |
Investment (MV Z 80,000) |
90,000 |
|
Securities Premium |
30,000 |
Stock |
75,000 |
|
Profit & Loss A/c |
10,000 |
Debtors |
2,80,000 |
|
Workmen Compensation Fund |
45,000 |
Bills Receivable |
25,000 |
|
Bills Payable |
25,000 |
Cash in Hand |
15,000 |
|
Creditors |
1,70,000 |
Cash at Bank |
85,000 |
|
Provident Fund |
80,000 |
Goodwill |
20,000 |
|
Provision for Tax |
20,000 |
Preliminary Expenses |
10,000 |
|
11,70,000 |
11,70,000 |
XYZ Ltd. intends to take over the business on the following terms and valuation:
- Building at Rs.1,70,000; plant & machinery at Rs.2,50,000; furniture at Rs.15,000; stock at Rs.1,00,000; debtors subject to a provision of 10% for doubtful debts; goodwill found to be nil
- There was a liability of Rs.15,000 against workmen compensation fund
- Actual tax liability is Rs.25,000
- Realization expenses estimated at Rs.10,000 to be borne by XYZ Ltd.
- Preference shareholders are to be paid in cash
- Balance to be paid in equity shares of XYZ Ltd. of Rs.10 shares