Model: Absorption—Issue of bonus shares ABC Ltd. want to acquire the business of XYZ Ltd. as on 31 December 2010. The balance sheets of two companies as that date are given below:
|
Liabilities |
ABC Ltd. |
XYZ Ltd. |
Assets |
ABC Ltd. |
XYZ Ltd. |
|
Share Capital: |
Sundry Assets |
37,50,000 |
5,00,000 |
||
|
25,000 Equity Shares of |
25,00000 |
— |
Balances |
5,00,000 |
2,50000 |
|
Rs. 100 each |
|||||
|
10,000 Equity Shares of |
— |
5,00,000 |
|||
|
Rs. 50 Each |
|||||
|
Reserve & Surplus |
15,00,000 |
125,000 |
|||
|
Sundry Creditors |
2,50,000 |
125,000 |
|||
|
42,50,000 |
7,50,000 |
42,50,000 |
7,50,000 |
The shares of both companies are quoted on the Stock Exchange. Such values on 31 December 2010 are:
ABC Ltd.—Rs. 160 per share
XYZ Ltd.—Rs. 45 per share
The terms of absorption are as follows:
- ABC Ltd. to take over all the sundry assets and liabilities of XYZ Ltd. except cash and bank balances.
- The values of sundry assets of XYZ Ltd. to be fixed at 90% of their book values.
- The purchase consideration is to be met by ABC Ltd. by the allotment of one equity share at the market value for every five equity share held in XYZ Ltd. and the balance, if any, to be met by cash payment.
- On acquisition of the business by ABC Ltd., the directors of ABC Ltd. decide to capitalize the reserve by allotting bonus shares in the preparation of one share for every two shares held.
- The authorized capital of ABC Ltd. is increased to Rs.50,00,000 in 100 shares.
- The balance of unissued shares has now been issued at a premium of Rs.40 per share. All the allottees have fully met their obligations.
- Out of the moneys received, the sundry creditors are paid off in full.
You are required to draw up the balance sheet of ABC Ltd. as it would stand after making due adjustments for carrying out the above scheme under purchase method.