Model: Absorption—Intrinsic value method The balance sheets of ‘L’ Ltd. and ‘M’ Ltd. as on 31 March 2011 were as follows:
|
Liabilities |
L Ltd. |
M Ltd. |
Assets |
L Ltd. |
M Ltd. |
|
Share Capital: (Equity) |
|||||
|
Rs. 100 Each |
15,00,000 |
— |
Goodwill |
1,20,000 |
— |
|
Rs. 10 Each |
— |
1100,000 |
Fixed Assets |
12,00,000 |
24,00,000 |
|
Capital Reserve |
3,00,000 |
— |
Cash at Bank |
— |
3,00,000 |
|
General Reserve |
1,05,000 |
12,00,000 |
Other Current Assets |
13,50000 |
9,90,000 |
|
Secured Loan |
— |
7,50,000 |
|||
|
Unsecured Loan |
3,00000 |
— |
|||
|
Sundry Creditors |
4,65,000 |
5A0,000 |
|||
|
26,70,000 |
36,90,000 |
26,70,000 |
36,90,000 |
It was proposed that L Ltd. should be taken over by M Ltd. The following terms were agreed upon by both the companies:
- Goodwill of L Ltd. is considered worthless.
- Arrears of depreciation in L Ltd. amounted to Rs.60,000.
- The holder of every 2 shares in L Ltd. was to receive:
- As fully paid, at par, 10 shares in M Ltd.
- So much cash as is necessary to adjust the rights of shareholders of both the companies in accordance with the intrinsic values of the values of the shares as per their balance sheets after the adjustments mentioned above.
You are required to:
- Determine the purchase consideration
- Show the balance sheet of M Ltd. after the absorption, if the amalgamation is in the nature of purchase.