Page 59 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes self assessment

Fill in the blanks:
1. Excess payment to preference shareholders or debenture-holders in liquidation is adjusted
to ................... .
2. ................... is computed by net payment method and net assets method.
3. Under the Net Assets Method, purchase consideration is calculated by considering the
................... values of assets and liabilities.
4. The situation of formation of one company and liquidation of more than one company is
known as ................... .

5. Under the pooling of interest method, the transferee company issues the shares ...................
to the liquidator of Transferor Company.

4.2 accounting treatment

In any of the conditions–either amalgamation in the nature of purchase, in the nature of merger,
absorption, or external reconstruction–the transferor company has to wind up its business. Hence
all the accounts have to close in the same way as the accounts of partnership firm are closed on
dissolution. All assets are disposed, liabilities are paid off and the surplus (if any) is distributed
among its shareholders.

4.2.1 Journal entries in the Books of transferor company

Following are the journal entries, which are passed in the books of Transferor Company:

(1) For transferring the assets taken over by the transferee company:
Realisation A/c. Dr.
To Various Assets A/c.
(Being the transfer of various assets to Realisation A/c).

Notes
(a) Various assets will be shown individually

(b) Assets will be shown at book value
(c) Fictitious assets and miscellaneous expenses will not be transferred to Realisation
A/c.
(d) If cash balance and bank balance are not taken over by the transferee company, these
will not be transferred to the Realisation A/c.

(2) For transferring the liabilities taken over by the purchasing company:

Various liabilities A/c Dr.
To Realisation A/c
(Being transfer of various liabilities to the Realisation A/c)

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