Page 27 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes 6. When a company purchases a business what accounting records are made in the books of
purchasing company?
7. What journal entries are passed when debtors and creditors are not taken over by the
purchasing company?
8. At the time of acquisition of business, what entries are recorded in the books of the
purchasing company?
9. How are ‘Profit prior to incorporation’ dealt with? How will you ascertain such profits?
10. Why is it necessary to find out profit prior and after incorporation? Explain it in detail.

11. Why and how are pre- and post-incorporation profits and losses calculated?
12. Lalit Construction Limited was registered with an authorised capital of ` 10, 00,000 divided
into 50,000. Equity shares of ` 10 each and 2,500; 12% preference shares of ` 100 each. The
company purchased the business of Satish Brothers whose balance sheet was as follows:
liabilities ` assets `
Bills Payable 8,750 Cash at Bank 11,250
Sundry Creditors 16,000 Book Debits 18,750
Capital 3, 30,250 Stock 87,500
Plant and Machinery 1, 25,000
Buildings 1,12,500
3,55,000 3,55,000
The purchase consideration was fixed at ` 4,37,500 which was to be paid in fully paid
12,500 equity shares of ` 10 each and in fully paid 1,250; 12% preference shares of ` 100
each and the balance in cash.
The remaining shares were issued to the public. All were paid up. Give the journal entries
to record the above mentioned transactions and the initial balance sheet of the company
after the acquisition of business.
13. On 31 December, 2011 the following is the balance sheet of a firm.
st
liabilities ` assets `
Capital Accounts: Fixed Assets:
A – 1,10,000 Factory Buildings 66,000
B – 1,10,000 2,20,000 Plant & Machinery 84,000
Creditors 80,000 Furniture 10,000
Current Assets:
Stock 30,000
Sundry Debtors 70,000
Cash 40,000
3,00,000 3,00,000
On 1 January, 2012 the firm is converted into a limited company on the following terms:
st
(a) Debtors and Creditors of the firm were not to be taken over as well as the cash
balances.
(b) Assets were revalued as to furniture at ` 6,000, plant and machinery at ` 80,000 and
the buildings at ` 70,000.

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