Page 124 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 6: External Reconstruction of Companies

Goodwill A/c Dr. 8,00,000 notes
To Business Purchase A/c 18,00,000
(Being various assets taken over and balance
transferred to Goodwill Account)

Liquidators of Abhijeet Ltd. Dr. 18,00,000
To Equity Share Capital A/c 4,00,000
To 11% Preference Share Capital A/c. 14,00,000
(Being purchase consideration paid off)

Balance sheet of abhijeet (2011) ltd.
as on 31 December, 2010
st
liabilities ` assets `
share capital: fixed assets:
40,000 Equity shares of ` 10 each 4,00,000 Goodwill 8,00,000
14,000, 11% Preference Building 6,00,000
Shares of ` 100 Each 14,00,000
Plant & Machinery 2,80,000
current assets:
Stock 1,20,000
18,00,000 18,00,000
Illustration 4 (Fraction of Shares & Treatment of Liquidation Expenses)

The following was the Balance Sheet of Kavita Ltd. as on 31 March 2011:
st
liabilities ` assets `
Share Capital: Intangible Assets 6, 50,000
Equity shares of ` 10 each. 10, 00,000 Fixed Assets 15, 00,000
General Reserve 5, 00,000 Current Assets 10, 00,000
Capital Redemption: Unwritten off Expenses 2, 00,000
Reserve Account 5, 00,000
Development Rebate Reserve 2, 00,000
Debenture Redemption A/c 3, 00,000
Creditors 5, 00,000
Outstanding bills 3, 50,000
33, 50,000 33, 50,000
The purchasing company, Sunita Ltd. took away assets except debtors of ` 1, 50,000. These were
later on collected by the Kavita Ltd. and could realise only ` 1, 40,000. Sunita Ltd. also agreed
to pay trade liabilities. The purchase consideration is the exchange of three shares of ` 20 each
in Sunita Ltd. for two shares in Kavita Ltd. fractions total 75 shares which Sunita Ltd. agreed to
pay in cash. The cost of liquidation amounted to ` 2,500 which the purchasing company agreed
to bear. You are required to give journal entries in the books of Kavita Ltd. and assume shares of
Sunita Ltd. are quoted in the market at ` 52.
What entries will be made if: (i) Liquidation expenses are borne by Kavita Ltd., (ii) Liquidation
expenses are borne by Sunita Ltd. but the payment is made through Sunita Ltd.

lovely professional university 119