Page 57 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes in cash (25,000×10) 2,50,000
in shares (25,000×2×15) 7,50,000

Total Purchase Price 18,17,500
Illustration 2 (Calculation of Purchase Consideration by Net Assets Method)
X Company Limited takes over the business of Y Company Limited on 31 December 2010. The
st
Balance Sheet of Y Limited on this date was as follows:
Balance sheet of y limited as on 31 December 2010
st
liabilities ` assets `
Shares Capital Goodwill 1, 40,000
30,000 Equity shares of ` 10 each. 3,00,000 Land & Buildings 80,000
Plant & Machinery 1, 40,000
10% Debentures 50,000 Stock 80,000
Sundry Creditors 30,000 Debtors 40,000

General Reserve 20,000 Cash Balance 10,000
Profits & Loss A/c 1,00,000 Preliminary Expenses. 10,000
5,00,000 5,00,000
On the basis of above Balance Sheet of Y Company Limited, calculate the purchase consideration
assuming:
(a) The values agreed for various assets are: Goodwill ` 1,10,000, Land & Buildings
` 1,25,000, Plant and Machinery ` 1,20,000, Stock ` 65,000 and Debtors ` 40,000.
(b) X Company Limited does not take over cash but agrees to assume the liability of sundry
creditors at ` 25,000.
Solution
calculation of purchase consideration
Agreed value of various assets `
Goodwill 1, 10,000

Land & Buildings 1, 25,000
Plant & Machinery 1, 20,000
Stock 65,000
Debtors 40,000

Total of Assets 4, 60,000
Less: External liabilities Sundry Creditors taken by X Ltd. 25,000
Purchase Consideration 4, 35,000

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