Page 12 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 1: Acquisition of Business

Bank Account Dr. 62,000 notes
Debtors Account Dr. 50,000
Goodwill Account Dr. 34,000
To Bills Payable Account 20,000
To Sundry Creditors Account 64,700
To Alfa Mills 2,00,000

(Being sundry assets and liabilities purchased
from Alfa Mills and Goodwill recorded)
Alfa Mills Dr. 2,00,000
To Bank Account 50,000
To Equity share Capital Account 50,000
To 12% Debentures Account 1,00,000
(Being payment made to Alfa Mills in cash,
shares and partly in Debentures)
Working Note:

Goodwill = ` 2,00,000 – (70,000 + 40,000 + 28,700 + 62,000 + 50,000 – 20,000 – 64,700) = 34,000
Illustration 2 (Purchase of Business and Thereafter Issue of Shares)
A Ltd. is registered with an authorised capital of ` 20,00,000 in order to purchase the business
of X Limited. The share capital of new company was divided into 1,00,000 equity shares of
` 10 each and 1,00,000; 5% Preference shares of ` 10 each. The purchase price is ` 12,00,000. It is
paid as under: ` 3,00,000 in cash, ` 4,00,000 in equity shares and ` 5,00,000 in 5% preference shares.
A new company has also taken over the liabilities of X limited.
The following is the Balance Sheet of X limited on the date of purchase:
liabilities ` assets `
Capital 10,00,000 Freehold Property 3,60,000
Creditors 1,40,400 Plant and Machinery 3,78,600
Bank Loan 20,000 Debtors 1,87,640

Stock 2,24,400
Cash in hand 9,760
11,60,400 11,60,400
The remaining shares of the company were issued to the public payable ` 2.50 on application,
` 2.50 on allotment and ` 5 on first call. All the amounts were duly received except that one
shareholder who has 250 equity shares failed to pay the first call of ` 5 per share. Pass the
necessary journal entries in the books of the new company.
Solution
Date particulars l.f. ` `
Freehold Property Account Dr. 3,60,000
Plant and Machinery Account Dr. 3,78,600

Debtors Account Dr. 1,87,640
Stock Account Dr. 2,24,400
Cash Account Dr. 9,760

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