Page 14 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 1: Acquisition of Business

Bank Account Dr. 5,48,750 notes
To 5% Preference Share First Call Account 2,50,000
To Equity Share First Call Account 2,98,750
(Being receipt of first call money on preference
and equity shares except 250 equity shares)
Working Note:
Goodwill = Purchase Price – Net Assets
= 12,00,000 – (3,60,000 + 3,78,600 + 1,87,640 + 2,24,400 + 9,760 – 20,000 – 1,40,400)
= ` 2,00,000.

Illustration 3 (Calculation of Purchase Consideration and Business Purchase Account)
Karan & Company Limited acquired the business of M/s. Raheza Brothers. The balance sheet of
M/s. Raheza Brothers as on 31 December 2011 was as below:
st
liabilities ` assets `

Creditors 1,00,000 Goodwill 10,000
Loans 80,000 Machinery 70,000
B/P 40,000 Patents 70,000
Capital 30,000 Debtors 40,000
Stock 50,000
Bank 10,000
2,50,000 2,50,000
The values put on the assets taken over excluding bank were:
Goodwill ` 25,000
Machinery ` 80,000
Patents ` 60,000
Debtors ` 40,000
Stock ` 60,000
The company did not agree to take loans but agreed to pay the creditors and bills payable.
In payment of consideration the company issued 10,000 equity shares of ` 10 each and 250
debentures of ` 100 each.

Pass journal entries of acquisition of business in the books of the company and its balance sheet.
Solution
Calculation of purchase consideration:
Assets taken over: `
Goodwill 25,000
Machinery 80,000
Patents 60,000
Debtors 40,000
Stock 60,000
2, 65,000

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