TYBCOM SEM VI FINANCIAL ACCOUNTING NOTES

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T.Y.B.COM : Semester – VI

Core Cources (CC)

FINANCIAL
ACCOUNTING

NOTES BY:
SUNNY PUNJABI

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INDEX

Sr. No. Topic Page No.
1 Underwriting Of Shares And Debentures 3 - 13
2 Foreign Exchange Currency Transactions 14 - 22
3 Amalgamation Of Companies (W.R.T. AS-14) 23 - 47
4 Liquidation Of Companies 48 - 64
5 Limited Liability partnership 65 - 80

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TOPIC :- UNDERWRITING OF SHARES AND DEBENTURES

INTRODUCTION:-

UNDERWRITING IS AN AGREEMENT WHERE BY THE UNDERWRITERS ENSURE THE COMPANY THAT IN CASE THE
SHARES AND DEBENTURES OFFERED TO THE PUBLIC, ARE NOT SUBSCRIBED BY THE PUBLIC TO THE EXTENT, THE
BALANCE OF SHARES AND DEBENTURES WILL BE TAKEN UP BY THE UNDERWRITERS.

THE FIRMS OR PERSONS WHO ARE ENGAGED IN UNDERWRITING ARE CALLED UNDERWRITERS. THE COMMISSION
PAYABLE TO UNDERWRITERS FOR UNDERWRITING IS KNOWN AS UNDERWRITING COMMISSION.

UNDERWRITING COMMISSION :- THE CONSIDERATION PAYABLE TO THE UNDERWRITER FOR UNDERWRITING THE
ISSUE OF SHARES OR DEBENTURES OF A COMPANY IS CALLED AS “UNDERWRITING COMMISSION”.

ADVANTAGES OF UNDERWRITING

1. THE COMPANY IS SURE OF GETTING THE VALUE OF SHARES ISSUED
2. IT ENHANCES GOODWILL OF THE COMPANY
3. IT FACILITATES WIDE DISTRIBUTION OF SECURITIES
4. THE COMPANY GETS EXPERT ADVICE FROM UNDERWRITERS IN THE MATTER OF MARKETING SECURITIES
5. IT FULFILLS REQUIREMENT OF MINIMUM SUBSCRIPTION

BENEFITS OF UNDERWRITING:-
1. IT RELIEVES THE COMPANY FROM THE RISK AND UNCERTAINTY OF MARKETING THE SECURITIES.
2. UNDERWRITERS HAVE AN INTIMATE AND SPECIALIZED KNOWLEDGE OF THE CAPITAL MARKET.
3. THEY OFFER VALUABLE ADVICE TO THE ISSUING COMPANY IN THE PREPARATION OF THE PROSPECTUS,
TIME OF FLOATATION ETC.
4. IT BUILDS UP INVESTORS' CONFIDENCE IN THE ISSUE OF SECURITIES.
5. THE ISSUING COMPANY IS ASSURED OF THE AVAILABILITY OF FUNDS. IMPORTANT PROJECTS ARE NOT
DELAYED FOR WANT OF FUNDS.
6. THEY ALSO PROVIDE PUBLICITY SERVICE TO THE COMPANIES WHICH HAVE ENTERED INTO UNDERWRITING
AGREEMENTS WITH THEM.

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TYPES OF UNDERWRITING:-

 COMPLETE UNDERWRITING-- IF THE WHOLE ISSUE OF SHARES OR DEBENTURES OF A COMPANY IS
UNDERWRITTEN, IT IS CALLED COMPLETE UNDERWRITING.
 PARTIAL UNDERWRITING-- IF PART OF ISSUE OF SHARES OR DEBENTURES OF A COMPANY IS
UNDERWRITTEN, IT IS SAID TO BE PARTIAL UNDERWRITING.
 FIRM UNDERWRITING– WHEN AN UNDERWRITER AGREES TO BUY A DEFINITE NUMBER OF SHARES OR
DEBENTURES IN ADDITION TO THE SHARES AND DEBENTURES HE HAS TO TAKE UNDER THE
UNDERWRITING AGREEMENT, THIS IS CALLED FIRM UNDERWRITING.
PROVISIONS REGARDING UNDERWRITING

1. A COMPANY CANNOT PAY ANY COMMISSION ON THE ISSUE OF SHARES UNLESS PERMITTED BY ITS ARTICLES.
2. COMMISSION CANNOT BE PAID TO ANY PERSON FOR SHARES OR DEBENTURES WHICH ARE NOT OFFERED TO THE
PUBLIC FOR SUBSCRIPTION.
3. THE COMMISSION IS LIMITED TO 5% OF ISSUE PRICE IN CASE OF SHARES AND 2 ½ % IN CASE OF DEBENTURES.
HOWEVER, IN PRACTICE, SEBI HAS ALLOWED UNDERWRITING COMMISSION ONLY AT THE RATE OF 2.5% OF ISSUE
PRICE OF EQUITY SHARES.
4. THE AMOUNT OR RATE OF COMMISSION SHOULD BE DISCLOSED IN THE PROSPECTUS.
5. THE DIRECTORS MUST STATE IN THE PROSPECTUS THAT THE UNDERWRITERS ARE CAPABLE OF MEETING THEIR
OBLIGATIONS UNDER THE UNDERWRITING CONTRACT.

DISCLOSURE REQUIREMENTS (PROVISIONS OF THE COMPANIES ACT, 1956 REGARDING DISCLOSURE OF
UNDERWRITING AGREEMENT)
 DISCLOSURE IN THE PROSPECTUS.
 DISCLOSURE IN THE STATUTORY REPORT.
 DISCLOSURE OF SUMS PAYABLE.
UNDERWRITING COMMISSION
TYPES OF
UNDERWRITIG
COMPLETE
UNDERWRITING
PARTIAL
UNDERWRITING
FIRM
UNDERWRITING
PARTIAL
UNDERWRITING
ALONG WITH FIRM
UNDERWRITING

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 UNDERWRITING COMMISSION IS A PAYMENT, WHICH IS GIVEN BY THE COMPANY, TO UNDERWRITERS FOR
THEIR SERVICES OF UNDERWRITING. COMPANIES CAN GIVE MAXIMUM 5% COMMISSION TO
UNDERWRITERS FOR SELLING ITS SHARES.
PAYMENT OF UNDERWRITING COMMISSION
ACCORDING TO SEC 76 OF THE COMPANIES ACT, 1956,A COMPANY IS AUTHORIZED TO PAY SUCH COMMISSION
SUBJECT TO FOLLOWING RESTRICTIONS:
 THE ARTICLES MUST AUTHORIZE THE PAYMENT OF COMMISSION.
 THE RATE OF COMMISSION MUST NOT EXCEED 5% OF THE ISSUE PRICE OF SHARES OR THE AMOUNT OR
RATE AUTHORIZED BY ARTICLES WHICHEVER IS LESS AND IN CASE OF DEBENTURES, 2.5% OF THE ISSUE
PRICE OR THE AMOUNT OR RATE AUTHORIZED BY ARTICLES, WHICHEVER IS LESS.
 IN PRACTICE, SEBI HAS ALLOWED THE COMMISSION ONLY AT THE RATE OF 2.5% OF ISSUE PRICE OF
EQUITY SHARES THOUGH SECTION 76 PROVIDES FOR MAXIMUM RATE OF 5%.
 THE COMMISSION PAID OR AGREED TO BE PAID MUST BE DISCLOSED IN THE PROSPECTUS AND IF NO
PROSPECTUS IS ISSUED, IN THE STATEMENT IN LIEU OF PROSPECTUS.
 THE NUMBER OF SHARES OR DEBENTURES WHICH UNDERW RITERS HAVE AGREED TO SUBSCRIBE
ABSOLUTELY OR CONDITIONALLY SHOULD BE DISCLOSED IN THE PROSPECTUS.
 A COPY OF THE CONTRACT REGARDING THE PAYMENT OF COMMISSION SHOULD BE DELIVERED TO THE
REGISTRAR.
 THE COMMISSION IS ONLY PAYABLE IF THE SHARES OR DEBENTURES ARE OFFERED TO THE GENERAL
PUBLIC. NO UNDERWRITING COMMISSION CAN BE PAID IF THE ISSUE IS PRIVATELY PLACED.
AS PER SEBI GUIDELINES:
 UNDERWRITING IS NOT MANDATORY. IN CASE THE ISSUE IS NOT UNDERWRITTEN AND MINIMUM
SUBSCRIPTION OF 90% OF THE OFFER TO THE PUBLIC IS NOT RECEIVED, THE ENTIRE AMOUNT RECEIVED
AS SUBSCRIPTION WOULD HAVE TO BE REFUNDED IN FULL.
 IN CASE THE ISSUE IS UNDERWRITTEN AND IF THE COMPANY DOES NOT RECEIVE 90% OF ISSUED CAPITAL
FROM THE PUBLIC SUBSCRIPTION PLUS ACCEPTED DEVELOPMENT FROM UNDERWRITERS, WITH IN 120
DAYS FROM THE DATE OF OPENING OF THE ISSUE, THE COMPANY SHALL REFUND THE AMOUNT OF
SUBSCRIPTION.

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FOLLOWING RATES FOR THE PAYMENT OF UNDERWRITING COMMISSION ARE IN FORCE
ON AMOUNTS
DEVELOPING ON THE
UNDERWRITERS (%)
ON AMOUNTS SUBSCRIBED BY
THE PUBLIC (%)
(A) EQUITY SHARES 2.5 2.5
(B) PREFERENCE SHARES/ CONVERTIBLE AND NON
CONVERTIBLE DEBENTURES

(i) FOR AMOUNTS UPTO 5 LACS 2.5 1.5
(ii) FOR AMOUNTS IN EXCESS OF 5 LACS 2 1

MARKED OR UNMARKED APPLICATION

GENERALLY SHARES OR DEBENTURES OF A COMPANY ARE UNDERWRITTEN BY TWO OR MORE UNDERWRITERS IN
AN AGREED RATIO. USUALLY THE FORMS ARE STAMPED WITH THE NAME OF THE UNDERWRITERS IN ORDER TO
DISTINGUISH THE FORMS OF ONE UNDERWRITER FROM THAT OF OTHERS. SUCH STAMPED APPLICATIONS WHEN
RECEIVED ARE CALLED MARKED APPLICATIONS. THE APPLICATION FORMS WHICH ARE RECEIVED BY THE COMPANY
WITHOUT ANY NAME OF THE UNDERWRITER ARE CALLED UNMARKED APPLICATIONS

JOURNAL ENTRIES IN THE BOOKS OF THE COMPANY

1. IN CASE THE WHOLE OF SHARES OR DEBENTURES ARE NOT TAKEN UP BY THE PUBLIC, THE REMAINING IS
ALLOTTED TO UNDERWRITERS. THE ENTRY IS:

UNDERWRITERS A/C DR
TO SHARE CAPITAL A/C
TO DEBENTURES A/C
(BALANCE OF SHARES AND DEBENTURES ALLOTTED TO UNDERWRITERS)

2. FOR COMMISSION DUE:

UNDERWRITING COMMISSION A/C DR
TO UNDERWRITERS

3. FOR PAYMENT OF COMMISSION:

UNDERWRITER A/C DR
TO BANK (CHEQUE)
TO SHARE CAPITAL A/C (SHARES)
TO DEBENTURES A/C (DEBENTURES)

4. FOR THE BALANCE AMOUNT DUE FROM UNDERWRITERS RECEIVED:

BANK A/C DR
TO UNDERWRITERS A/C

DETERMINATION OF LIABILITY IN RESPECT OF UNDERWRITING CONTRACT

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DETERMINING THE LIABILITY OF UNDERWRITERS
 COMPLETE UNDERWRITING:
(I) IF THE WHOLE ISSUE OF THE SHARES OR DEBENTURES IS UNDERWRITTEN ONLY BY ONE UNDERWRITER:
THE LIABILITY OF UNDERWRITERS WILL BE DETERMINED BY DEDUCTING THE TOTAL APPLICATION MONEY
RECEIVED FROM THE SHARES OR DEBENTURES OFFERED TO PUBLIC.
(II) IF THE WHOLE ISSUE OF THE SHARES OR DEBENTURES IS UNDERWRITTEN BY NUMBER OF UNDERWRITERS IN
AN AGREED RATIO:
THERE ARE TWO WAYS OF DETERMINING LIABILITY:
(i) THE LIABILITY OF EACH UNDERWRITER IN THIS WAY WILL BE:
GROSS LIABILITY ACCORDING TO AGREED RATIO …..
LESS: MARKED APPLICATIONS …..
BALANCE LEFT …..
LESS: UNMARKED APPLICATION (IN THE RATIO OF
GROSS LIABILTY) …..
NET LIABILITY .....
(II) THE LIABILITY OF EACH UNDERWRITER IN THIS OTHER WAY WILL BE:
GROSS LIABILITY ACCORDING TO AGREED RATIO …..
LESS: MARKED APPLICATIONS …..
BALANCE LEFT …..
LESS: UNMARKED APPLICATIONS(IN THE RATIO OF BALANCE LEFT,I.E., GROSS LIABILITY AS REDUCED BY MARKED
APPLICATIONS) ……
NET LIABILITY …..
III) WHEN THE ISSUE IS FULLY UNDERWRITTEN (WITH FIRM UNDERWRITING)
THE BENEFIT OF FIRM UNDERWRITING IS NOT GIVEN TO INDIVIDUAL UNDERWRITER
THEN FIRM UNDERWRITING TREATED AS UNMARKED APPLICATIONS AND DIVIDE IN THE RATIO OF GROSS
LIABILITY
LIABILITY OF EACH UNDERWRITER IS CALCULATED AS FOLLOWS:
GROSS LIABILITY ACCORDING TO THE AGREED RATIO ………..
LESS: MARKED APPLICATIONS (EXCLUDING FIRM UNDERWRITING) ………..
BALANCE LEFT ………..

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LESS: *UNMARKED APPLICATION IN THE RATIO OF GROSS LIABILITY ………..
BALANCE ………..
NET LIABILITY ………...
ADD: FIRM UNDERWRITING ……......
TOTAL LIABILITY …………
* NO. OF UNMARKED APPLICATION = TOTAL SUBSCRIPTION EXCLUDING FIRM UNDERWRITING – MARKED
APPLICATION EXCLUDING FIRM UNDERWRITING + APPLICATION UNDER FIRM UNDERWRITING.

III) WHEN THE ISSUE IS FULLY UNDERWRITTEN (WITH FIRM UNDERWRITING)
THE BENEFIT OF FIRM UNDERWRITING IS GIVEN TO INDIVIDUAL UNDERWRITER
THEN FIRM UNDERWRITING NOT TREATED AS UNMARKED APPLICATIONS
LIABILITY OF EACH UNDERWRITER IS CALCULATED AS FOLLOWS:
GROSS LIABILITY ACCORDING TO THE AGREED RATIO ………..
LESS: FIRM UNDERWRITING ………..
BALANCE
LESS: MARKED APPLICATIONS (EXCLUDING FIRM UNDERWRITING) ………..
BALANCE LEFT ………..
LESS: UNMARKED APPLICATION IN THE RATIO OF GROSS LIABILITY ………..
BALANCE ………..
NET LIABILITY ………...
ADD: FIRM UNDERWRITING …….......
TOTAL LIABILITY …………

NOTE: IF NO INFORMATION IS GIVEN REGARDING MARKED AND UNMARKED APPLICATION, MARKED APPLICATION IS
CALCULATED AS FOLLOWS:

MARKED APPLICATIONS = TOTAL NO. OF APPLICATION RECEIVED X % OF UNDERWRITING

UNDERWRITING ACCOUNT
THIS ACCOUNT IS PREPARED BY THE UNDERWRITER TO ASCERTAIN THE PROFIT OR LOSS ON UNDERWRITING.
IT IS A NOMINAL ACCOUNT AND IS PREPARED LIKE A P/L A/C.

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PROBLEMS ON UNDERWRITING OF SHARES AND DEBENTURES
P.1 A Company Issues 50,000 Shares Of Rs.10 Each At Par. The Whole Issue Has Been Underwritten By X & Co. For
A Commission Of 4%. The Company Received Applications Only For 47,000 Shares. All The Applications Were
Accepted. Give The Journal Entries To Record The Above Transactions.
P.2 R Limited Issued 1 Lakh 12 Per Cent Debentures Of Rs.10 Each At A Discount Of 10 Per Cent On The Face
Value. The Whole Issue Was Underwritten By M/S. A & Co. For The Maximum Commision As Permitted By Law.
Applications For 90,000 Debentures Were Received In All. Determine (i) The Net Liability Of M/S. A & Co. And (ii)
The Commission Payable To Them As Per Law.
P.3 A Limited Issued 5,000 Debentures At 14% Of Rs. 100 Each At A Premium Of 5 Per Cent. 80 Per Cent Of The
Issue Was Underwritten By M/S. B & Co. At A Commission Legally Permissible On The Issue Price Of Debenture.
Application Were Received In One Installment. Prepare (i) The Statement Showing Liability Of M/S B & Co. And (ii)
Compute The Underwriting Commission Received As Per Law.
P.4 Cybertech Ltd. Issued 1,00,000 Shares Of Public Subscription And These Were Underwritten By A, B And C In
The Ratio Of 25%, 30% And 45% respectively. Applications Were Received For 80,000 Shares And These,
Applications For 16,000 Shares Had The Stamp Of A, Those For 20,000 Shares Had The Stamp Of B And Those Of
24,000 Shares Had The Stamp Of C. The Remaining Applications Are To Be Distributed Amongst The Underwriters
In The Ratio Of Their Gross Liability.
On The Basis Of Above Information, Work Out The Liability Of The Individual Underwriters.
P. 5 R Ltd. Issued 20,000 Shares Of Rs.10 Each At Par, Underwritten As Follows ; A – 10,000 Shares; B – 6,000
Shares; And C – 4,000 Shares. Applications Were Received For 18,000 Shares Which Also Included Marked
Applications As Follows ; A – 4,000 Shares; B – 2,000 Shares; And C – 10,000 Shares. Prepare A Statement To Show
How Many More Shares The Underwriters Will Have To Take As Per Their Underwriting Contract. Unmarked
Applications Are To Be Distributed Amongst The Underwriters In The Ratio Of Their Gross Liability.
P. 6 Albert Ltd. Issued 50,00,000 Equity Shares Of Rs. 10 Each. The Whole Issue Was Underwritten By A, B And C As
Below :
A 15,00,000 Shares
B 25,00,000 Shares
C 10,00,000 Shares
Applications Were Received For 48,50,000 Shares Of Which The Marked Applications Were As Follows ;
A 12,00,000 Shares
B 25,00,000 Shares
C 8,50,000 Shares

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Calculate The Number Of Shares To Be Taken Up By The Underwriters. Unmarked Applications Are To Be
Distributed Amongst The Underwriters In The Ratio Of Their Gross Liability.
P.7 Super India Ltd. Issued 75,000 Equity Shares. The Whole Of The Issue Was Underwritten As Follows :
A – 50%, B – 25%, C – 25%
Applications For 60,000 Shares Were Received In All, Out In Which Applications For 15,000 Shares Had The Stamp
Of A, Those For 7,500 Shares That Of B, And Those For 15,000 Shares That Of C. The Remaining Applications For
22,500 Shares Did Not Bear Any Stamp. Determine The Liability Of The Underwriters. Unmarked Applications Are
To Be Distributed Amongst The Underwriters In The Ratio Of Their Gross Liability.
P. 8 M Limited Brought Out A Public Issue Of 1 Lac Equity Shares Of Rs. 10 Each. The Entire Issue Was
Underwritten By Five Underwriters As Follows : A – 25%; B – 15%; C – 10%; D – 30%; And E – 20%. Applications
Bearing The Seal Of An Underwriter Are To Be Applied In Relief Of Liability. The Following Applications Were
Received : 13,750 Shares Bearing The Seal Of A ; 10,250 Shares Bearing The Seal Of B; 9,250 Shares Bearing The
Seal Of C; 8,250 Shares Bearing The Seal Of D; And 8,500 Shares Bearing The Seal Of E. 30,000 Shares Had No Seal
Of Underwriters. Find The Liability Of Individual Underwriters. Unmarked Applications Are To Be Distributed
Amongst The Underwriters In The Ratio Of Their Gross Liability.
P. 9 Excel Limited Issued 40,000 Shares Of Rs. 10 Each. These Shares Were Underwritten As Follows : A – 20,000
Shares; And B – 12,000 Shares. The Public Applied For 33,000 Shares Which Included Marked Applications From
The Underwriters As Follows ; A – 5,000 Shares; B – 3,000 Shares. Direct Applications Received By The Company
Were For 5,000 Shares. Determine The Net Liability Of The Underwriters. Unmarked Applications Are To Be
Distributed Amongst The Underwriters In The Ratio Of Their Gross Liability.
P. 10 Authorised capital of Jalram Ltd. Was 12,50,000 Equity shares of Rs. 10 each. Company issued 80% shares at
a premium of Rs. 2 per share which was entirely underwritten as follows :
Kotak – 40% Thakkar – 20%
Kotecha – 30% Ganatra – 10%
Company received applications for 9,00,000 Equity shares including marked applications as below:
Kotak 2,85,000 shares
Kotecha 3,00,000 shares
Thakkar 1,10,000 shares
Ganatra 1,05,000 shares
Underwriters are entitled to get 5 % commission on face value.
From the above information find out the liability of underwriters and give journal entries in the books of Jalram
Ltd.

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P. 11 ABC Co.Limited Has Authorised Capital Of Rs. 50,00,000, Divided Into 1,00,000 Equity Shares Of Rs. 50 Each.
The Company Issued 50,000 Shares For Subscription At A Premium Of Rs. 10 Each. The Entire Issue Was
Underwritten As Follows: X – 30,000 Shares (Firm Underwriting – 5,000 Shares); Y – 15,000 Shares (Firm
Underwriting – 2,000 Shares); Z – 5,000 Shares (Firm Underwriting – 1,000 Shares).
From The Total Issue 45,000 Shares, Including Firm Underwriting, Were Subscribed.
The Following Were Marked Forms: X – 16,000 Shares; Y – 10,000 Shares; And Z – 4,000 Shares. Calculate The
Liability Of Each Underwriter, When Benefit Of Firm Underwriting Is Not Given To Individual Underwriters.
P. 12 N Ltd. Issued 80,000 Equity Shares Which Were Underwritten As Follows :
Mr. A 48,000 Equity Shares
Messrs. B & Co. 20,000 Equity Shares
Messrs. C Corp. 12,000 Equity Shares
The Above Mentioned Underwriters Made Applications For ‘Firm’ Underwritings As Follows:
Mr. A 6,400 Equity Shares
Messrs. B & Co. 8,000 Equity Shares
Messrs. C Corp. 2,400 Equity Shares
The Total Applications Excluding ‘Firm’ Underwriting, But Including Marked Applications Were For 40,000 Equity
Shares.
The Marked Applications Were As Under:
Mr. A 8,000 Equity Shares
Messrs. B & Co. 10,000 Equity Shares
Messrs. C Corp. 4,000 Equity Shares
(The Underwriting Contracts Provide That Underwriters Be Given Credit For ‘Firm’ Applications And That Credit For
Unmarked Applications Be Given In Proportion To The Shares Underwritten).
You Are Required To Show The Allocation Of Liability. Working Will Be Considered As A Part Of Your Answer.
P. 13 K Ltd. Issued 50,000, 9% Preference Shares Of Rs. 10 Each. 75% Of The Issue Was Underwritten By M. In
Addition, There Is A Firm Underwriting Of 5,000 Shares From M. In All, The Company Received Applications For
42,000 Shares. 30,000 Share Applications Had The Seal Of Mr. M. Determine The Liability Of Mr. M. Firm

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Underwriting Applications To Be Treated Like Marked Applications. Ascertain The Respective Liabilities of The
Underwriter And The Company.
P-14 A company issued 1,50,000 shares of Rs. 10 each at a premium of Rs. 10. The entire issue was underwritten
as follows :
X – 90,000 shares ( firm underwriting 12,000 shares )
Y – 37,500 shares ( firm underwriting 4,500 shares )
Z – 22,500 shares ( firm underwriting 15,000 shares )
Total subscriptions received by the company (excluding firm underwriting and marked applications ) were 22,500
shares.
The marked applications (excluding firm underwriting ) were as follows :
X – 15,000 shares; Y – 30,000 shares; Z – 7,500 shares
Commission payable to underwriters is at 5% of the issue price. The underwriting contract provides that credit for
unmarked applications be given to the underwriters in proportion to the shares underwritten and benefit of firm
underwriting is to be given to individual underwriters.
(i) Determine the liability of each underwriter ( number of shares );
(ii) Compute amount payable or due from underwriters ; and
(iii) Pass journal entries in the books of the company relating to underwriting.
P-15 Jupiter Ltd. Issued 10,000 shares of Rs. 10 each. The entire issue was underwritten as follows :
Sun – 5,000 shares ( firm underwriting – 1,000 shares )
Moon – 3,000 shares ( firm underwriting – 500 shares )
Star – 2,000 shares ( firm underwriting – 500 shares )
Shares applied for were 9,000 shares, the following being the marked application forms including firm
underwriting :
Sun – 3,500 shares
Moon – 1,400 shares
Star – 1,600 shares
Calculate the liability of each underwriter.

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P-16 Madhavi Ltd. Issued 10,000 shares of Rs. 10 each. These shares are underwritten as Nitu – 6,000, Mitu 2,500
and Anand -= 1,500. In addition to this there was firm underwriting as Nitu – 800, Mitu – 300 and Anand – 1,000
shares. The total subscription received including firm underwriting and marked applications are 7,500 shares. The
marked applications excluding firm underwriting are Nitu – 1,000, Mitu – 2,000 and Anand – 500 shares. You are
required to show statement of liability of underwriters in both cases if credit of firm underwriting is to be given
and not to be given.
P-17 ABC Ltd. Came up with public issue of 3,00,000 equity shares of Rs. 10 each at Rs. 15 per share. P,Q and R
took underwriting of the issue in the ratio of 3: 2 :1 with the provisions of firm underwriting of 20,000, 14,000 and
10,000 shares respectively.
Applications were received for 2,40,000 shares excluding firm underwriting. The marked applications from public
were received as under :
P – 60,000; Q- 50,000; R – 60,000.
Compute the liability of each underwriter as regards the number of shares to be taken up assuming that the
benefit of firm underwriting is not given to individual underwriters.

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PROBLEMS ON FOREIGN EXCHANGE CURRENCY TRANSACTIONS

A transaction like sale or purchase of goods involves two parties. Whenever such transaction is entered with
another party situated in India, the transaction is in Indian currency, recording of such transaction does not pose
any problem. But if the other party is located outside India then the transaction entered might be in foreign
currency and then we have to translate this transaction from foreign currency into India currency. This translation
is done by applying the foreign exchange rates prevailing at the time of transaction. Accounting Standard No.11
deals with recording and translation of such type of foreign currency transactions.

SCOPE: (Accounting Standard -11)

 The standard should be applied in accounting for transactions entered in foreign currencies.

 This standard also deals with accounting for foreign currency transactions in the nature of forward
exchange contracts.

 This standard does not specify the currency of presentation of financial statements. Normally an
organization prepares its financial statements in currency of home country.

 The standard does not deal with the restatement of an enterprise's financial statements from its reporting
currency into another currency for the convenience for user accustomed to that currency of for similar
purpose.

 This standard does not deal with the presentation in a cash flow statement of cash flows arising from
transactions in a foreign currency and the transactions of cash flows of a foreign operation.

 This standard does not deal with the exchange difference arising from foreign currency borrowings to the
extent that they are regarded as an adjustment interest cost.

DEFINITIONS:

 Average rate is the mean of the exchange rates in force during a period.

 Closing rate is the exchange rate at the Balance Sheet date.

 Exchange Difference is the difference resulting from reporting the same number of units of a foreign
currency in the reporting currency at different exchange rates

 Exchange rate is the ratio for exchange of two currencies.

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 Fair value is the amount for which an asset could be exchanged or a liability settled, between
knowledgeable, willing parties in an arm's length transaction.
 Monetary items are money held and assets and liabilities to be received or paid in fixed or determinable
amounts of money’s. Cash, Receivables, Payables etc.

 Non-monetary items are assets and liabilities other than monetary items Fixed Assets, Inventories,
Investments etc.

 Reporting currency is the currency used in presenting the financial statements.

 Foreign Currency is a currency other than the reporting currency of an enterprise.

ACCOUNTING PROCEDURE:
 Record the initial transaction entered in foreign currency by converting in Indian Rs. by multiplying the
transaction amount with the foreign exchange rate as on the date of transaction.
 Subsequently when the payment is made or is received in the same year it should be recorded at foreign
exchange rate on the date of settlement. Any profit or loss arising due to exchange fluctuation should be
treated as revenue item, and hence it should be transferred to profit and loss A/c. at the end of the year.
 Any balance payable or receivable to or from a foreign party, at the end of year ,should be adjusted at the
closing foreign exchange rate.
 The foreign exchange rate for any payment made or received in the subsequent year should be compared
with the closing rate of the earlier year to find the profit or loss on exchange fluctuations

JOURNAL ENTRIES:
Following four types of transactions are required to be translated.
I. Import of goods
II. Export of goods
III. Purchase of Fixed Assets

Import of goods

1. Purchase of goods/ raw materials
Purchases A/c Dr.
To Foreign Supplier A/c

2. Payment to foreign supplier Foreign
Supplier A/c Dr.
Foreign Exchange Fluctuation A/c (if loss) Dr.
To Foreign exchange Fluctuation A/c (if Profit)
To Bank A/c

3. Year end adjustments

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A. Adjusting closing balance payable to foreign suppliers (if Loss)
Foreign Exchange Fluctuation A/c Dr.
To Foreign Supplier A/c.

(if Profit)
Foreign Supplier A/c. Dr
To Foreign Exchange Fluctuation A/c

B. Closing of nominal A/c if Profit.
Foreign Exchange Fluctuation A/c Dr.
To Profit & Loss A/c
(if Loss)
Profit & Loss A/c Dr
To Foreign Exchange Fluctuation A/c

4. Payment to foreign supplier in the next year

Foreign Supplier A/c Dr.
Foreign Exchange Fluctuation A/c (if loss) Dr.
To exchange Fluctuation A/c (if profit)
To Bank A/c

1. Export of goods

Foreign Customer A/c Dr.
To Export Sales A/c

2. Receiving Payment from Foreign Customer

Bank A/c. Dr.
Foreign Exchange Fluctuation A/c. (If Loss) Dr.
To Foreign Exchange Fluctuation A/c. (If profit)
To foreign Customer A/c.

3. Year end adjustments
A. Adjusting Closing balance receivable from foreign customer
Foreign customer A/c Dr
To Foreign Exchange Fluctuation A/c (if Profit)

Foreign Exchange Fluctuation A/c Dr
To Foreign customer A/c
B. Closing of nominal A/c. (if Profit)

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Foreign Exchange Fluctuation A/c Dr.
To Profit & Loss A/c
(if Loss) Profit & Loss A/c Dr
To Foreign Exchange Fluctuation A/c

4. Receiving payment from foreign customer in the next Year
Bank A/c. Dr.
Foreign Exchange Fluctuation A/c (if loss) Dr.
To exchange Fluctuation A/c(if profit)
To foreign Customer A/c.

Purchase of Fixed Assets

1. Fixed Assets A/c Dr.
To Foreign Supplier A/c.

2. Payment To foreign supplier Foreign
Supplier A/c Dr.
Foreign Exchange Fluctuation A/c. (If Loss) Dr.
To Foreign Exchange Fluctuation A/c. (If profit)
To Bank A/c.

3. Year end adjustments

A. Adjusting closing balance payable to foreign suppliers if Loss
Foreign Exchange Fluctuation A/c Dr. To Foreign Supplier A/c. (if Profit)
Foreign Supplier A/c. Dr
To Foreign Exchange Fluctuation A/c

B. Providing Depreciation
Depreciation A/c. Dr.
To Fixed Assets A/c.
Note: Depreciation should be provided on original amount

C. Closing of nominal A/c. (if Profit)
i. Foreign Exchange Fluctuation A/c Dr.
To Profit & Loss A/c (if Loss)

ii. Profit & Loss A/c Dr
To Foreign Exchange Fluctuation A/c

iii. Profit & Loss A/c. Dr.

18

To Depreciation A/c
D. Payment to foreign supplier in the next year
Foreign Supplier A/c Dr.
Foreign Exchange Fluctuation A/c (if loss) Dr.
To exchange Fluctuation A/c(if profit)
To Bank A/c

Problem No.1
Nari Ltd. exports on 15-12-2020 goods worth $ 1 ,00,000 to Orient Traders in New York. The payment was
received on 28-2-2021. On the date of export, the exchange rate was $ 1 = 45. The dollars were actually received
when the exchange rate was $ 1 = 48. Record the transactions in the book of Nari Ltd. in accordance with AS 11
(Revised). The year-ending is 31st March.

Problem No.2
On 1st January, 2020 Sonali Ltd. imported $ 1,00,000 worth of goods from Robin Traders of USA. The payment for
the import was made on 15-4-2020. Sonali Ltd. closes its books on 31st March, every year. The exchange rates on
the relevant dates were :
1-1-2020 1 $ = 46
31 -3-2020 1 $ = 45
15-4-2020 1 $= 48
Record the above transaction in the books Sonall Ltd. in accordance with AS 11.

Problem No.3
Pass necessary Journal Entries in the books of N of Nasik based on A8 11.
A machine was imported on 20th January, 2020 from Jackie Chan of China for US $ 2,00,000.
The payment for the same was made as follows:
US $ 150,000 on 27th February 2020
US $ 50,000 on 15th March 2020
The Exchange Rate for $ 1 was as follows :
on 20th January, 2020 47.00
on 27th February, 2020 46.50
on 15th March, 2020 48.00
N follows financial year as accounting year.

Problem No.4
On 1st January, 2020 MARINA LTD., an Indian Importer, purchased $ 2.50.000 worth goods from Gemini Trading
Company of USA.
The payment for the import was made as follows :
On 10th February 2020 $ 1.00.000
On 15th March 2020 $ 75.000
On 20th April 2020 $ 75.000
Marina Limited closes its books on 31 st March every year.

19

The exchange rate for $ 1 was follows :
1st January 2020 49.00
10th February 2020 49.50
15th March 2020 47.60
31st March 2020 45.00
20th April 2020 46.75
(1) Pass Journal Entries.
(2) Prepare Gemini Trading Company Account and Foreign Exchange Fluctuation Account in the books of Marina
Ltd.

Problem No.5
Pass journal entries for the following transactions in foreign currency and also prepare foreign exchange
fluctuation account in the books of DBK Industries Ltd.
DBK Industries Ltd. invoiced goods to West Germany worth US $ 100,000 on 10th March, 2020 on which date
exchange rate for US $ 1 was Rs. 41.00.
The payment for the same was received as under:
The
company closes its accounting year on 31st March. The exchange rate as on 31-03-2020 was 1 US $ Rs. 45.00.

Problem No.6
Godrej industries Ltd. exported refrigerators and. received the amounts as under:
Sales Transactions:
(a) On 5th January, 2020 to C of Canada amount US $ 1 0,000 at exchange rate Rs. 41 per US $.
(b) On 7th January, 2020 to W of Germany amount US $ 20,000 at exchange rate Rs. 41 per US $.
Receipt Transactions:
(a) On 5th February, 2020 from C of Canada amount US $ 6,000 at exchange rate Rs.42 per US $.
(b) On 10th February, 2020 from W of Germany amount US $ 6,000 at exchange rate Rs.43 per US $.
(c) On 1sth April, 2020 from W of Germany amount US $ 14,000 at exchange rate Rs .42 per US $.
(d) On 31st May, 2020 from C of Canada amount US $ 4,000 at exchange rate Rs. 44 per US $.
Exchange rate on 31st March,2020 Rs.44 per US $.
You are required to:
(i) Pass necessary journal Entries to record above transactions.
Date of Receipt Received Exchange rate for 1 US $
20-03-2020 US $ 40,00 Rs. 42.00
29-03-2020 US $ 35,000 Rs. 41.00
15-04-2020 US $ 25,000 Rs. 44.00

20

(ii) Prepare Foreign Exchange Fluctuation Account.
In the books of Godrej industries Ltd. for the year ended 31st March, 2020 (Apply AS - 11).

Problem No.7
M/s. Adidas and Co. Football Exporters, entered into following foreign currency transactions:

NAM,E OF THE CUSTOMERS
PARTICULARS C OF CHIKAGO W OF WASHINGTON
DATE US $
EXCHANGE
RATE PER US
$ DATE US $
EXCHANG
E RATE
PER US $
EXPORT SALES 5/1/2020 10,000 42 7/1/2020 20,000 43
AMOUNT RECEIVED AS
UNDER
I INSTALLMENT 5/2/2020 3,000 43 15/02/2020 6,000 44
II INSTALLMENT 25/04/2020 6,000 42 15/03/2020 8,000 43
III INSTALLMENT 30/06/2020 1,000 45 15/04/2020 6,000 48

Additional Information:
(i) Exchange Rate as on 31st March, 2020 Rs. 44 per US
(ii) Exchange Rate as on 31st March, 2021 Rs. 45 per US
(iii) Company Follows financial year as accounting year.
(iv) Apply AS - 11
You are required to give necessary Journal Entries in the books of Adidas and Co. for the year ended 31st March,
2021.

Problem No.8
Journalise the following transactions in the books of M/s. Rumani & Co. for the year ended 31st March, 2021

DATE TRANSACTIONS
30/11/2020 EXPORT OF GOODS WORTH US $ 60,000 TO M/S. JAKSON LTD.
27/12/2020 IMPORT OF GOODS WORTH US $ 40,000 TO M/S. MAX LTD.
13/01/2021 RECEIVED US $ 25,000 FROM M/S. JACKSON LTD.
27/01/2021 PAID TO M/S. MAX LTD. US $ 20,000
19/02/2021 RECEIVED FROM M/S. JACKSON LTD. US $ 35,000
31/03/2021 PAID US $ 20,000 TO M/S. MAX LTD.
EXCHANGE RATE PER US $ WAS AS FOLLOWS :-

DATE EXCHANGE RATE PER US $ (RS.)
30/11/2020 47
27/12/2020 48
13/01/2021 50
27/01/2021 49

21

19/02/2021 45
31/03/2021 49

Problem No.9
On 31 st October, 2020 M/s. Fiaman Industries Ltd. exported goods worth US $ 60,000 to M/s. WMS Co. USA. M/s.
WMS Co. paid the instalments as under

Date instalment in US $ Exchange rate per US [Rs.]
01/12/2020 18000 44-00
01/02/2021 12000 46-00
10/03/2021 12000 43.00
17/04/2021 10000 46-00
19/05/2021 8000 47-00
Additional Information:
(i) Exchange rate as on 31/10/2020 was Rs. 45-00 per US $ and as on 31/03/2021 was Rs. 44-00 per US
(ii) Accounts are closed on 31st March every year.
(iii) Apply AS-11.
Prepare WMS's account in the books of M/s. Fiaman Industries Ltd. for the year ended 31/03/2022.

Problem No. 10
NSD Ltd. imported raw materials worth US $ 40,000 on 12th December, 2019. The exchange rate for US $ 1 as on
12-12-2019 was Rs. 46.50.
The payment for the above transaction was made as under :
Date of Payment Payment made Exchange rate for US $ 1
23-02-2020 US $ 18,000 Rs. 47.75
21-03-2020 US $ 12,000 Rs. 48.25
10-04-2020 US $ 10,000 Rs. 48.50
The accounting year of the company ends on 31st March. The exchange rate as on 31st March, 2021 for US $ 1
was Rs. 45.00.
Problem No. 11
Nandlal imported goods from US company worth US $ 5 lac on 10-08-2020 when exchange rate 16 was US $ 1 =
Rs. 42.90. He agreed to pay 5 installments as below:
Date Installment (Us S) Rate of Exchange (Rs.)

22

The rate of exchange was Rs. 43.00 as on 31-03-2021.
Pass journal entries [including those for cash] in the
books of Nandlal in accordance with AS-11.
Problem No. 12
Madhav exported goods to US Company worth US $1 lac on 01-03-2020 when exchange rate was US $ 1 = Rs.
43.00. The payment was received as below:
Date Installment (Us S) Rate of Exchange (Rs.)
01-02-2020 20,000 (Advance) 43.25
15-03-2020 25,000 43.50
01-05-2020 Balance 42.75

The rate of exchange was US $ 1 = Rs. 43.75 as on 31-03-2020.
Pass journal entries in the books of Mr. Madhav [including those for cash] in accordance with AS-11

10-10-2020 75,000 42.75
10-12-2020 1, 50,000 43.50
10-02-2021 60,000 44.80
10-04-2021 75,000 42.90
10-06-2021 Balance 43.00

23

Amalgamation of Companies [AS 14]
The term Amalgamation refers to blending of two or more existing undertaking into one undertaking. It
contemplates not only blending two or more existing undertaking into one undertaking, but also blending of one by
another, which is called as Absorption.
The ICAI has issued Accounting Standard 14 to deal with accounting for amalgamation.
Amalgamation involves two types of company
i. Transferee Company:
It means a company into which Transferor Company is amalgamated.
ii. Transferor Company:
It means the company which is amalgamated into another company.

Amalgamation May Take Place in Any One of the Following Two Ways
i. A new company is formed to take over the business of two or more existing companies. It is called Pure
Amalgamation.
ii. One of the existing companies take over (absorbs) the business of another existing company. It does not
involve formation of a new company. This form of amalgamation is known as Absorption.

TYPES OF AMALGAMATION

i. Amalgamation in the nature of merger:
Amalgamation is in the nature of merger provided following conditions are satisfied-
a) All the assets & liabilities of the transferor company become, after amalgamation the assets & liabilities of
the transferee company.
b) Shareholders holding 90% of the face value of the equity shares of the transferor company (other than
equity shares already held therein, immediately before amalgamation by the transferee company or its
subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the
amalgamation.
c) The consideration for the amalgamation receivable by those equity shareholders of the transferor company
who agree to become equity shareholder of the transferee company is discharged by transferee company
only by the issue of equity shares in the transferee company except that cash may be paid in respect of any
fractional shares.
d) The business of the transferor company is intended to be carried on by the transferee company after
amalgamation.
e) No adjustment is intended to be made to the book values of assets & liabilities of the transferor company.
When they are incorporated in the financial statement of the transferee company except to ensure
uniformity of accounting policies.

ii. Amalgamation in the nature of purchase
It is a type of amalgamation, which does not satisfy any one or more of the five conditions which are applicable to
amalgamation in the nature of merger

24

Methods of accounting for amalgamation
1) The pulling of interest method in the books of Transferee Company.
2) The purchase method in the books of Transferee Company.
Pulling of interest method Purchase method
Applicability. It is applicable in the case of an
amalgamation in the nature of
merger.
It is applicable in the case of an
amalgamation in nature of
purchase.
Recording of Assets &
Liabilities & Reserves.
Assets & Liabilities & Reserves of
the transferor company are
recorded by the transferee
company in the books of A/c’s.
Assets & Liabilities which are
taken over are recorded in the
books of transferee company.
The reserves except statutory
reserves of the transferor
company are not aggregated
with those of the transferee
company.
Value at which recorded As per the book value in the books
of transferor.
At the revised or agreed value.
Adjustment of difference The difference between the
consideration paid and the share
capital of the transferor company is
adjusted in general reserves or
other reserves of the transferee
company.
The difference between the
consideration paid and the net
assets taken over is treated by
the transferee company as
goodwill or capital reserves as
the case may be.
Statutory Reserves Statutory reserves of the transferor
company are incorporated in the
books of transferee company like all
other reserves. No amalgamation
Adjustment A/c is required to be
open.
Statutory reserve of the
transferor company are
incorporated in the books of
transferee company under the
A/c Amalgamation Adjustment
A/c.

Purchase Consideration
For the purpose of Accounting for Amalgamation, AS-14 defines the term consideration as “The aggregate of shares
and other securities issued and the payment made in the form of cash or other assets by the transferee company to
the shareholders of the transferor company”.
Thus, the consideration does not include payments made to or for creditors or any other person. Consideration
implies the value agreed upon for the net assets taken over. The amount depends on the terms of the contract
between Transferor Company and Transferee Company.

25

Methods of computation of purchase consideration:
Following are different methods of computing purchase consideration.
1. Lump sum method.
2. Net Assets method.
3. Total payment method.
4. Intrinsic worth method.

Lump sum method-
In Lump sum method the problem may state directly the amount of purchase consideration (PC) and there will be
no need of any calculation. For e.g.- Rajesh Ltd take over the business of Rajan Ltd for a sum of Rs. 275000.Here P.C
is Rs. 275000.

Net Assets Method-
Under the net assets method, P.C is arrived at by adding agreed value of assets taken over by the purchasing
company and deducting there from agreed value of liabilities taken over by the purchasing company.
Only those Assets & Liabilities which are taken over are considered for calculation of P.C.
It should be noted that fictitious assets such as preliminary expenses, under writing commission, discount on issue
of shares or debentures, expenses on issue of shares or debentures and debit balance of P&L A/c are not taken
over.
Illustration:
Given below are balance sheets of A Ltd & B Ltd as on 31
st
December, at which date, the companies were
amalgamated & the new company ‘C’ Ltd was form.
Balance sheet
Liability ‘A’ Ltd ‘B’ Ltd Assets ‘A’ Ltd ‘B’ Ltd
Equity Share of Rs.10
each
70000 60000 Fixed Assets 85000 70000
Reserves 20000 40000 Current Assets 20000 30000
Current Liability 15000 10000 Misc
expenditure
- 10000

1,05,000 1,10,000 1,05,000 1,10,000

It was agreed that Fixed Assets of ‘A’ Ltd would be valued at Rs. 100000 and that of ‘B’ Ltd at Rs. 95000. ‘C’ Ltd would
issue requisite no. of equity share of Rs.10 each at 10% premium. To discharge the claim of the equity shareholder
of A ltd and B ltd. How many shares of C ltd should be issued to take over the business of 2 merging companies?
Solutions: Calculate of purchase consideration:

26

Net Assets A Ltd B Ltd
Fixed assets 1,00,000 95,000
Current assets 20,000 30,000
Total assets 1,20,000 1,25,000
Less: liabilities taken over 15,000 10,000
P.C 1,05,000 1,15,000

Total purchase consideration= 105000+115000=220000
No. of Equity shares to be issued=220000/11=20000
Hence C ltd will be form where the paid up capital of Rs. 200000 and securities premium of Rs. 20000.
Total Payment Method
Under this method consideration is ascertained by adding up the cash paid, agreed value of assets given and agreed
value of securities allotted by the transferee company to the transferor company in discharge of consideration.
For e.g.: Ketan ltd takes over business of Abdul ltd and agrees to pay Rs. 70,000 in cash and allot to Abdul ltd 50,000
equity shares of Rs.100 each fully paid at an agreed value of Rs.150 per share .
Calculation of P.C.:
Particulars Rs
Cash 70,000
50,000 equity share of Rs. 100 each at agreed value
of Rs. 150 per share
75,00,000
P.C. 75,70,000

Intrinsic Worth Method
In this method, the P.C. is to be ascertained on the basis of proportion in which the shares of the transferee company
are exchange for the shares of the transferor company. The proportion or ratio of exchange is usually determined
on the basis of intrinsic value of share of the both companies.
Illustration:
Manoj Ltd is absorbed by Purvish Ltd. Given below are balance sheets of two companies taken after revaluation of
their assets on uniform basis
Manoj ltd Purvish ltd Manoj ltd Purvish ltd
Authorized capital Sundry assets 33,70,000 87,15,000

27

9000 shares of Rs. 300 each 27,00,000 - Cash at bank 7,000 55,000
40,000 shares of Rs. 180 each. - 72,00,000
Paid up capital
9,000 shares of Rs. 270per share paid
up.
24,30,000 -
40,000 shares of Rs. 150 per share
paid up
- 60,00,000
Creditors 1,10,000 1,30,000
General reserves 8,07,000 25,70,000
P&L A/c 30,000 70,000
33,77,000 87,70,000 33,77,000 87,70,000
The holders of every three shares in Manoj ltd were to receive 5 shares in Purvish ltd plus as much cash as is
necessary to adjust the rights of shareholders of both the companies in accordance with the intrinsic value of
the shares as per respective balance sheets. Calculate purchase consideration.
Solutions:
Particulars Manoj ltd Purvish ltd
Total assets 33,77,000

87,70,000
Less: Liabilities 1,10,000 1,30,000
Net assets 32,67,000 86,40,000
Intrinsic value= Net assets/no. of equity shares 32,67,000/9000 86,40,000/40000
363 216
Value of 3 shares in Manoj ltd (363*3)

1089

28

Value of 5 shares in Purvish ltd(216*5) 1080
Difference in value (1089-1080=9) 9

Particulars Rs.
1. Shares: Old : New
3 5
9000 ? (15,000)
Hence 15,000 shares * Rs. 216

32,40,000
2. Cash : 9000 * Rs. 9 per share
3
27,000
Purchase consideration 32,67,000

Accounting in the books of Transferor Company:
Necessary accounts to be open:
1. Realisation A/c.
2. Equity shareholders A/c.
3. Preference Shareholders A/c.
4. Cash at bank A/c.
5. Transferee Company’s A/c.
6. Equity shares in Transferee Company’s A/c.
7. Preference shares in Transferee Company’s A/c.

Entry in books of Transferor Company
1. Transfer all assets to Realisation A/c at book value
Realisation A/c-------Dr
To Assets

2. Provision and accumulated reserves transfer to Realisation A/c:
Provision/reserves A/c-------Dr
To Realisation
3. Transfer all liabilities to Realisation A/c.
Liabilities A/c-------Dr
To Realisation

4. Transferring equity share capital:

29

Equity share capital A/c---------Dr
To equity share holders A/c

5. Transferring accumulated profits:
Accumulated profits A/c---------Dr
To equity shareholders

6. Transferring accumulated losses:
Equity shareholders a/c---------Dr
To accumulated losses.

7. Recording claim of pref. shareholders

a. At Par:
Pref. share Capital A/c---------Dr
To pref. shareholders A/c

b. If payable at premium
Pref. share capital A/c---------Dr (face Value)
Realisation A/c------------------Dr (Premium)
To pref. shareholders A/c

c. If at discount
Pref. share capital A/c--------Dr (Face value)
To pref. shareholders A/c (net amt)
To Realisation A/c (Discount)

8. Record Realisation Expense:-
a. If paid by transferor company:-
Realisation A/c-----------Dr
To Bank A/c

b. Transferor company pays for expenses to be reimburse by the transferee company.
1. Transferee Co. A/c--------Dr
To Bank A/c
2. Bank A/c--------------------Dr
To transferee co A/c

9. Record purchase consideration:-
Transferee Co A/c-------------Dr
To Realisation A/c

30

10. Record of receipt of P.C:-
Cash/Bank A/c---------------------------Dr
Equity share in new co A/c---------Dr
Pref. share in new co A/c------------Dr
To Transferee co A/c

11. Record sale on Realisation of Assets not taken over by transferee co:-
Bank A/c------------------Dr
To Realisation A/c

12. Payment of settlement of liabilities not taken over by transferee co:-
Realisation A/c------------Dr
To Bank A/c

13. Settle the claim of pref. shareholders:-
Pref. shareholders A/c----------------Dr
To Cash A/c
To equity share in transferee co
To pref. share in transferee co
To debentures in transferee co

14. Record profit or loss on Realisation:-
1. If there is profit:-
Realisation A/c---------------Dr
To equity share holders A/c
2. If it is loss
Equity shareholders A/c------------Dr
To Realisation A/c

15. Settle the account of equity shareholder :-
Equity shareholders A/c--------------Dr
To Cash
To Employee share in transferee co A/c
To Pref. share in transferee co A/c
To debenture in transferee co A/c

Accounting procedure in the books of transferee company:-
(In case of Amalgamation is in the nature of purchase & hence the purchase methods are as follows)

1. Record P.C.:-
Business Purchase A/c-------------Dr

31

To liquidators of transferor A/c

2. Record Asset & Liabilities taken over
Assets A/c--------------------Dr
To Liabilities A/c
To Business Purchase A/c

a. If in above mention entry total of credit exceeds total of debit such excess is considered as G/W
Assets A/c-----------------Dr
G/W A/c-------------------Dr
To Liabilities A/c
To Business purchase A/c

b. On the other hand if total debit exceeds total credit such excess is credited to Capital Reserves A/c
Assets A/c------------------Dr
To Liabilities A/c
To Capital Reserves A/c
To Business Purchase A/c

3. Record statutory reserve of the transferor company
Amalgamation Adjustment A/c---------------Dr
To Statutory Reserve A/c

4. If Business purchase A/c is not to be open the following entry is passed:-
i. Assets taken over A/c-------------Dr
To Liabilities taken over A/c
To Liquidators of transferor company A/c

5. Discharge of P.C.:-
a. Issue of Securities at par :-
Liquidator of transferor company A/c-------------Dr
To Cash/Bank A/c
To Equity share capital A/c
To Pref. share capital A/c
To Debenture A/c

b. Issue of Securities at discount :-
Liquidator of transferor A/c-----------Dr
To Cash/Bank A/c
To Equity share capital A/c
To Pref. share capital
To Debentures

32

c. Issue of Securities at premium
Liquidator of Transferor Company A/c-----------Dr
To Equity share capital A/c
To Pref. share capital A/c
To Debenture A/c
To Sec. Premium A/c
To Cash/Bank A/c

6. Record expenses of liquidation to be borne.
Goodwill A/c---------------Dr
To Cash A/c

7. Payment of preliminary Expenses
Preliminary Expenses A/c------------------Dr
To Cash/Bank A/c

8. Discharge of debenture of transferor company
Debenture in transferor company A/c--------------Dr (take over value)
Discount on issue of transferee company A/c---------Dr (discount if any)
To Debenture in transferee company A/c (face value)
To Sec. Premium A/c (premium if any)
To Bank A/c (paid if any)

In case the Amalgamation is in the nature of merger & hence pulling of interest method is as follows:-
1. Record the P.C.
Business Purchase A/c-------------Dr
To Liquidators of transferor company A/c

2. Records Assets & Liabilities taken over
Assets A/c--------------------Dr
Miscellaneous A/c------------Dr
To Reserves A/c
To Business Purchase A/c
To Liabilities A/c

3. Discharge of P.C.
a. Issue of shares at par:-
Liquidator of transferor company A/c-------------Dr
To Cash/Bank A/c
To Equity share capital A/c
To Pref. share capital A/c

33

b. Issue of Share at discount :-
Liquidator of transferor company A/c-----------Dr
Discount on issue A/c-------------------------Dr
To Equity share capital A/c
To Pref. share capital
To Cash/Bank A/c

c. Issue of Share at premium
Liquidator of Transferor Company A/c-----------Dr
To Equity share capital A/c
To Pref. share capital A/c
To Cash/Bank A/c
To Sec. Premium A/c

4. Discharge the Liability of Transferor Company:-
a. Issue of Debenture at par :-
Debenture of transferor A/c--------Dr
To Debenture A/c

b. Issue of Debenture at premium :-
Debenture of transferor A/c--------Dr
To Debenture A/c
To Sec. Premium A/c

c. Issue of Debenture at discount :-
Debenture of transferor A/c--------Dr
Discount on issue A/c----------------Dr
To Debenture A/c

5. Record the liquidation expenses
If the transferee company bearers the expenses of liquidation of transferor company.
The cost of business taken over, positives by the amount of expenses, hence it is adjusted in the G/R A/c.
General Reserves A/c----------Dr
To Cash/Bank A/c

6. Record the expenses incurred by the transferee company for its own formation:-
Preliminary expenses A/c---------------------Dr
To Bank A/c

34

PROBLEMS ON AMALGAMATION

Q.1 Following are the Balance Sheets of ROHAN Ltd. and SOHAN Ltd. as on 31-3-2020.

Liabilities ROHAN Ltd.
Rs.
SOHAN Ltd.
Rs.
Assets ROHAN Ltd.
Rs.
SOHAN
Ltd.
Rs.
Share Capital

Fixed Assets:

9% Preference Shares

Goodwill 1, 50,000 1, 50,000
Of Rs. 100 each 6, 00,000 9, 00,000 Land & Building 6, 00,000 7, 50,000
Equity shares

Plant & Machinery 4, 50,000 6, 00,000
Of Rs. 100 each 9, 00,000 15, 00,000 Computer 3, 00,000 4, 50,000
Reserves & Surplus:

Investments: 1, 50,000 1, 50,000
General Reserves 75,000 90,000 Current Assets,

Revaluation Reserves 45,000 60,000 Loans & Advances

Export Profit Reserves 30,000 45,000 Stock 3, 00,000 4, 50,000
Profit & Loss Account 15,000 30,000 Sundry Debtors 1,50,000 3,00,000
Secured Loans:

Bills receivables 75,000 1,50,000
12% Debentures

Bank 1, 95,000 3,75,000
Of Rs. 100 each 3,00,000 4, 50,000

Unsecured Loans
Current Liabilities &
Provisions:
1, 50,000 75,000

Sundry Creditors 2, 25,000 1, 80,000

Bills payable 30,000 45,000

23,70,000 33,75,000

23,70,000 33,75,000
Mohan Ltd. was formed to take over the business of Rohan Ltd. and Sohan Ltd. with an authorized share capital of
Rs. 30,00,000 consisting of 20,000 13% Preference Shares of Rs. 100 each and 100,000 Equity Shares of Rs. 10
each.
Terms of Amalgamation :-
1. 9% Preference shareholders of both the companies are issued equal number of 13% Preference shares of
Mohan Ltd. at a price of 125 each.
2. Mohan Ltd. will issue four Equity shares for three Equity shares of Rohan Ltd. and four Equity shares for
five Equity shares of Sohan Ltd. The shares are to be issued at Rs. 35 each.
3. 12% Debenture holders of both the companies are discharged by Mohan Ltd. by issuing such number of its
15% Debentures of Rs. 100 each so as to maintain the same amount of interest.
4. Mohan Ltd. agree to take over all assets and all liabilities at book values except the following
i. Tangible fixed assets at 10% more than book-values
ii. Investments and Sundry Debtors at 90% of their book values.

35

5. Export Profit Reserves are to be maintained for three more years.
You are required to -
(i) Compute purchase consideration of Rohan Ltd. and Sohan Ltd.
(ii) Pass Journal entries and Prepare Balance Sheet after amalgamation in the books of Mohan Ltd. applying
Purchase Method.
Q.2 Shubha Ltd. absorbed Sushma Ltd. with effect from 1st April, 2020 when their Balance sheets as on 20 31-03-
2020 were as under:
Liabilities Shubha
Ltd.Rs.
Sushma
Ltd.Rs.
Assets Shubha
Ltd.Rs.
Sushma
Ltd.Rs.
Share Capital: Fixed Assets
10% Preference Share
of Rs. 100 each 2,00,000 2,00,000 Land & Building 2,20,000 1,40,000
Equity Share of Rs. 100
each 5,00,000 2,00,000 Plant & Machinery 4,20,000 2,60,000
Reserves & Surplus:
Current Assets, Loans &
Advances
Revaluation Reserves 20,000 -- Stock 2,90,000 1,60,000
Export Profit Reserves 40,000 20,000 Sundry Debtors 1,20,000 1,40,000
General Reserve 2,00,000 60,000 Bills Receivable 1,30,000 90,000
Secured Loans Bank 20,000 10,000
10% Debentures of Rs.
100 1,20,000

15% Debentures of Rs.
100 80,000 --

Current Liabilities &
Provisions
Sundry Creditors 1,60,000 2,00,000
12,00,000 8,00,000 12,00,000 8,00,000
Terms Of Amalgamation:
1. Shubha Ltd. will issue Eight equity shares for Five equity shares in Sushma Ltd.
2. 11 % Preference shareholders of Sushma Ltd. will be issued equal number of Equity shares inShubha Ltd.
3. 10% Debentureholders of Sushma Ltd. Are discharged by Shubha Ltd by issuing equal number of its 15%
Debentures of Rs. 100 each.
4. All the Assets and liabilities of Sushma Ltd are taken over at book values except the following.
(i) Fixed Assets at 10% more than book values.

36

(ii) Stock at Rs. 1,44,000
(iii) Debtors at Rs. 1,25,000
(iv) Bills Receivables at Rs. 81,000

You are required to-
a. Compute Purchase consideration.
b. Prepare Ledger Accounts to close the books of Accounts of Sushma Ltd.
Pass journal entries and prepare Balance-sheet after Amalgamation in the books of Shubha Ltd. applying Purchase
Method.
Q.3 BK Ltd. is formed to takeover 'Bunty Ltd and Kuber Ltd'. Their Balance Sheets on the date of amalgamation are
as below:

Liabilities Bunty Ltd.
Rs.
Kuber Ltd.
Rs.
Assets Bunty Ltd.
Rs.
Kuber Ltd.
Rs.
Share Capital of

Goodwill -- 25,000
Rs.10 each

Buildings 1,50,000 1,40,000
Equity shares 2,40,000 1,60,000 Machinery 80,000 60,000
11% Preference Shares 1,50,000 1,00,000 Furniture 10,000 5,000
General Reserve 45,000 40,000 Investments 1,40,000 80,000
Profit & loss A/C 30,000 21,000 Debtors 1,65,000 60,000
9% Debentures 1,00,000 1,00,000 Stock 75,000 90,000
Sundry Creditors 60,000 40,000 Cash & Bank 13,000 8,000
Other Liabilities 40,000 24,000 Other Current Assets 20,000 10,000

Preliminary Expenses 12,000 7,000

6,65,000 4,85,000

6,65,000 4,85,000
BK Ltd. issued 10,000 equity shares of Rs.10 each to the public at a premium of 10%.Bunty Ltd. and Kuber Ltd.
were taken over by BK Ltd. on the following terms.
Re: Bunty Ltd.
1. Equity Shareholders are to be issued 7 Equity Shares of Rs. 10 at par in BK Ltd. and are to be paid Rs.5 in
cash for surrender of each 6 Shares.
2. Preference shareholders are to be paid at 10% premium by 12.5% preference shares in BK Ltd. issued at
par.
3. All Assets and liabilities are valued at book value except Machinery which is valued at 10% below book
value and Debtors are worth Rs. 1,60,000.
4. Liquidation expenses of Rs.12,500 are to be borne by BK Ltd.
5. Discharge the debentures of Bunty Ltd. at a discount of 10% by the issue of 13% Debentures of Rs.100
each in BK Ltd.
Re: Kuber Ltd.
1. Cash Rs.3,000 is to be retained for liquidation expenses.
2. Debtors and investments are valued at 90% of cost.

37

3. Machinery and stock are valued at 10% above cost and other assets and liabilities are valued at book value
except Fictitious assets.
4. Prefrence shareholders are to be paid at 10% premium by 12.5% prefrence shares in BK Ltd. issued at par.
5. Balance of Purchase consideration is payable,in equity share at par.
6. Discharge the debentures of Kuber Ltd. at par by the issue of 13% Debentures of Rs.100 each in 'BK' Ltd.
7. The Face value of Equity shares and preference shares in BK Ltd. is of Rs.10 each.
Show the necessary Ledger Accounts in the books of 'Bunty Ltd' and Kuber Ltd'. also calculate purchase
considerations.
Q.4 Following are the Balance Sheets of X Ltd. and Y Ltd.
Balance Sheets As on 31st March, 2020
Liabilities X Ltd.
Rs.
Y Ltd.
Rs.
Assets X Ltd.
Rs.
Y Ltd.
Rs.
Equity Share Capital of
Rs. 10 each
75,00,000 45,00,000 Building 25,00,000 15,50,000
Export Profit Reserves 3,00,000 3,00,000 Machinery 32,50,000 17,00,000
Profit and Loss Account 7,00,000 6,00,000 Stock 25,50,000 18,00,000
General Reserve 2,00,000 4,50,000 Debtors 9,00,000 10,00,000
12% Debenture of Rs.
100 each
5,00,000 3,00,000 Bank 7,00,000 5,50,000
Sundry Creditors 7,00,000 5,50,000 Preliminary Expenses - 1,00,000

99,00,000 67,00,000

99,00,000 67,00,000
Z Ltd was formed to acquire all assets and liabilities of X Ltd. and Y Ltd. on the following terms:
1. Z Ltd. to have an authorised share capital of Rs. 5 crores dividend into 5,00,000 equity shares of Rs. 100
each.
2. The business of both companies were taken over for a total price of Rs. 1.2 crores to be discharged by Z
Ltd. by issue of equity shares of Rs. 100 each at a premium of 20%.
3. The shareholders of X Ltd. and Y Ltd. to get shares in Z Ltd. in the ratio of net assets values of their
respective shares.
4. The Debentures of both the companies to be converted into equivalent number of 14% Debentures of Rs.
100 each in Z Ltd. at a discount of 10%.
5. All the tangible assets of both the companies are taken over by Z Ltd. at book values except the following:
Assets X Ltd.
Rs.
Y Ltd.
Rs.
Building 28,00,000 18,20,000
Machinery 31,50,000 16,00,000
6. Sundry creditors of X Ltd. and Y Ltd. are taken over at Rs. 6,50,000 and Rs. 5,00,000 respectively.
7. Statutory Reserves are to be maintained for 3 years more.You are required to:

38

i. Compute Purchase consideration of X Ltd. and Y Ltd.
ii. Pass Journal Entries in the Books of Z Ltd.
iii. Prepare Balance Sheet after amalgamation. Apply Purchase Method.
Q.5 'A' Ltd. absorbed 'B' Ltd. w.e.f. 1st April, 2020 when their Balance sheets were as under:-
Balance Sheet as on 31st March 2007
Liabilities
'A' Ltd.
Rs.
'B' Ltd.
Rs.
Assets
'A'Ltd.
Rs.
'B'Ltd.
Rs.
Equity Shares of

Land and Building 4,40,000 2,80,000
Rs. 10/- each fully paid 10,00,000 4,00,000 Plant and Machinery 8,40,000 5,20,000
11% Preference shares of

Stock 5,80,000 3,20,000
Rs. 100/- each fully paid 4,00,000 4,00,000 Sundry Debtors 2,40,000 2,80,000
Revaluation Reserves 40,000 - Bills receivables 2,60,000 1,80,000
General Reserve 3,00,000 1,00,000 Bank 40,000 20,000
Export Profits Reserves 80,000 40,000

Other Statutory Reserves 1,00,000 20,000

15% Debentures 1,60,000 -

10% Debentures - 2,40,000

Sundry Creditors 3,20,000 4,00,000

24,00,000 16,00,000

24,00,000 16,00,000
Terms of Absorption
1) 'A' Ltd. will issue Eight Equity shares for every Five Equity shares in 'B' Ltd. of Rs. 10 each at Rs. 11 per
share.
2) 11 % Preference shareholders of 'B' Ltd. will be issued equal number of preference shares in A Ltd. of Rs.
100/- each at Rs. 105 per share.
3) 'A' Ltd. agreed to take over the debentures of 'B' Ltd. at book value. Subsequently after absorption, 10%
debenture holders of 'B' Ltd. are discharged by 'A' Ltd. issung such number of its 15% debentures of Rs.
100/- each so as to maintain the same of amount of interest.
4) All the assets and liabilities of 'B' Ltd. were taken over at book values except the following which were
revalued as follows
Land and Building 3,00,000
Plant and Machinery 5,00,000
Stock 3,00,000
Sundry Debtors 2,60,000
Bills receivables 1,60,000
Sundry Creditors 3,80,000
5) Cost of absorption amounting to Rs. 10,000/- was paid by 'A' Ltd.
6) Creditors of 'B' Ltd. include Rs. 10,000/- payable to 'A' Ltd.
7) It was decided by the directors of 'A' Ltd. to set off Goodwill and Capital Reserves mutually.

39

You are required to :
1. Compute Pruchase Consideration of 'B' Ltd.
2. Pass Journal entries in the books of 'A' Ltd.
3. Prepare Balance sheet after absorption of 'A' Ltd. Apply Purchase Method.
Q.6 Balance Sheet of North Sick Ltd. as on 31-03-2020 is as below:-
Liabilities Rs. Assets Rs.
5,000 8% Preference Shares of Rs. 10 each 50,000 Office Premises

fully paid up

At Goregaon 1,00,000
25,000 Equity Shares of Rs. 10 each fully paid up 2,50,000 At Borivli 60,000
10% Debentures 50,000 Furniture 40,000
Creditors 40,000 Current Assets 1,90,000

3,90,000

3,90,000
A new Company namely West Healthy Ltd. was formed with Authorised Capital of 50,000 equity shares of Rs. 10
each. The directors of the Company.

(a) Issued 10,000 equity shares at premium of 10% to the public for cash. The issue was fully subscribed and paid
for.
(b) Paid underwriting commission of Rs. 5,000 to the underwriters ICICI Bank Ltd.
(c) Paid Rs. 10,000 to M/s. ANIC & Co. Chartered Accountants, as professional fees for Co. formation.
(d) Decided to take over the business of North Sick Ltd. on the following terms:
(i) To issue 6 equity shares of Rs. 10 each at 10% premium for every 5 equity shares in North Sick Ltd.
(ii) To issue 5,000 equity shares of Rs. 10 each at 10% premium to the preference shareholders of North Sick Ltd.
(iii) To revalue Goregaon Office at Rs. 1,50,000 and Borivli Office at Rs. 90,000
(iv) To take over 10% debentures of North Sick Ltd. at face value. Then, debentureholders of North Sick Ltd. shall
be issued 12% debentures of the face value Rs. 55,000 in West Healthy Ltd.

You are required to :
1. Write necessary journal entries in the books of West Healthy Ltd. to record the above transactions.
2. Prepare Balance Sheet of West Healthy Ltd. as on 1-4-2020, after take-over.
Q.7 Following are the Balance Sheets of Alpha Ltd. And Beeta Ltd. As on 31st March 2020.
Liabilities Alpha Ltd. Beeta Ltd. Assets Alpha Ltd. Beeta Ltd.
Rs. Rs. Rs. Rs.
Share Capital :
7% Preference Shares of Rs. 4,50,000 6,00,000 Goodwill 60,000 1,00,000
100 each Premises 6,50,000 7,00,000
Equity Shares of Rs. 100 each 8,00,000 12,00,000 Plant & 4,80,000 6,20,000

40

General Reserve 70,000 80,000 Machinery 1,20,000 2,00,000
Profit & Loss A/c 45,000 62,000 Computer 1,80,000 2,50,000
Statutory Reserves 27,000 48,000 Stock 1,10,000 3,15,000
10% Debentures 1,50,000 84,000 Sundry Debtors 30,000 20,000
Sundry Creditors 75,000 1,20,000 Bills Receivable 12,000 24,000
Bills Payable 25,000 35,000 Bank
16,42,000 22,29,000 16,42,000 22,29,000

Beeta Ltd. Takes over Alpha Ltd. On 1st April 2020 on the following terms:
(1) Beeta Ltd. Discharged purchase consideration as under :
a) Issued 10000 Equity Shares of Rs. 100 each at a premium of 5% for the equity share holders of
Alpha Ltd.
b) Issued 8% Preference Shares of Rs. 100 each at par to discharge the preference shareholders of
Alpha Ltd. At 10% premium
(2) The Debentures of Alpha Ltd. To be converted into equivalent number of debentures of Beeta Ltd.
(3) Sundry Debtors of Beeta Ltd. Include Rs. 25,000 being amount due from Alpha Ltd.
(4) Bills Payable of Alpha Ltd. Includes Rs. 7,000 being the amount of bills accepted in favour of Beeta Ltd.
But the Bills Receivable of Beeta Ltd. Includes Rs. 5,000 only being the amount of bills due from Alpha
Ltd.
(5) The stock of Beeta Ltd. Includes Rs. 30,000 worth of goods purchased from Alpha Ltd. On which Alpha Ltd.
Made a profit of 25% on cost.
You are required to :-
a) Calculate purchase consideration.
b) Pass Journal Entries in the books of Beeta Ltd. Assuming that amalgamation is in the nature of purchase.
c) Prepare Balance Sheet of Beeta Ltd. After amalgamation.

Q.8) The Balance Sheet of Shine Ltd. as on 31
st
March 2020 is as follows:
Particulars Amount(Rs.)
EQUITY AND LIABILITIES
Share Capital:
3,00,000 Equity Shares of Rs.10 each 30,00,000
1,00,000 10% Preference Shares of Rs.10 each 10,00,000
10% Debentures 6,00,000
Sundry Creditors 4,00,000

41

Total 50,00,000
ASSETS
Goodwill 8,00,000
Plant and Machinery 14,00,000
Furniture and Fittings 4,00,000
Patents 3,00,000
Stock 9,80,000
Sundry Debtors 5,10,000
Cash at Bank 10,000
Discount on the issue of Shares 40,000
Profit and Loss Account 5,60,000
50,00,000
On the following Terms and Conditions the Scheme of External Reconstruction agreed upon:
i. A New Company Sun ltd. is formed called Sun Ltd. to with an authorised share capital of Rs.65,00,000 in
equity shares of Rs.10 each.
ii. Each equity share in old company is issued one Equity share in new company at Rs.5 each.
iii. Each Preference Share in old Company is allotted two preference shares in New Company at
Rs.5 each.
iv. Debenture holders are to be issued 60,000 equity shares in the New Company as fully paid up.
v. Creditors are taken over by the New Company.
vi. The remaining unissued share are issued to the directors in the New Company as fully paid up.
vii. All the Assets of the old company are taken over by the New Company except patents, Plant and
Machinery at Rs.8,20,000 and Stock Rs.8,60,000.
viii. Patents Realised Rs.20,000
ix. Realisation Expenses amounted to Rs.20,000
You are required to prepare necessary Ledger Accounts in the books of Shine Ltd and pass Journal
Entries in the books of Sun Ltd.
Q.9) Josh ltd and Ashish ltd were amalgamated on & from 1
st
April, 2020. A new company namely Shilpa ltd was
formed to take over the business of Josh ltd & Ashish ltd.
Balance sheets as on 31
st
march, 2009
Liabilities Josh Ltd
Rs
Ashish Ltd
Rs
Assets Josh Ltd
Rs
Ashish Ltd
Rs

42

Equity shares of Rs. 100 each,
fully paid
4,00,000 3,75,000 Land & Building 3,00,000 1,50,000
12% preference shares of Rs. 100
each fully paid
1,50,000 1,00,000 Plant &
machinery
1,50,000 1,80,000
General Reserve 85,000 75,000 Computers 75,000 20,000
Profit & Loss A/c 25,000 15,000 Stocks 2,00,000 1,00,000
Statutory Reserve 1,00,000 75,000 Debtors 1,25,000 2,00,000
10% debentures of Rs. 100 each 30,000 15,000 Bills receivable 90,000 20,000
Sundry creditors 1,10,000 70,000 Bank 60,000 80,000
Bills payable 1,00,000 25,000
Total 10,00,000 7,50,000 Total 10,00,000 7,50,000
Additional information:
a) Shilpa ltd issued five equity shares, for each equity share of Josh ltd and four equity shares, for each equity
shares of Ashish ltd. The shares are of Rs. 10 each, issued at Rs. 30.
b) Preference shareholders of both the companies are issued equivalent number of 15% preference shares of
new company at Rs. 150 per share (face value Rs. 100)
c) 10% debentures holders of Josh ltd and Ashish ltd are discharged by Shilpa ltd issuing such number of its
15% debenture of Rs. 100 each so as to maintain the same amount of interest.
d) Shilpa ltd revalued following assets taken over from Josh ltd and Ashish ltd.

Josh ltd Ashish ltd
Land & Building 4,00,000 2,00,000
Plant & machinery 1,20,000 1,50,000
Computers 70,000 10,000
Stocks 1,50,000 80,000
Debtors 1,10,000 1,90,000
You are required to:
1. Compute Purchase Consideration.
2. Pass Journal Entries in the books of Shilpa Ltd. under Purchase Method.
3. Prepare Balance Sheet of Shilpa Ltd. after amalgamation.
Q.10) Following are the balance sheets of Rahul Ltd. and Mehul Ltd. as on 31
st
March, 2010.

43

Liabilities Rahul Ltd
Rs
Mehul Ltd
Rs
Assets Rahul Ltd
Rs
Mehul Ltd
Rs
Equity shares of Rs. 10 each, fully
paid
5,00,000 3,00,000 Goodwill - 50,000
10% preference shares of Rs. 100
each fully paid
- 2,00,000 Building 3,00,000 4,00,000
12% preference shares of Rs. 100
each fully paid
3,00,000 - Machinery 1,00,000 90,000
General Reserve 1,00,000 1,21,000 Furniture 20,000 10,000
Profit & Loss A/c 50,000 40,000 Investments 2,00,000 50,000
Statutory Reserve 20,000 10,000 Debtors 3,00,000 1,50,000
9% debentures of Rs. 100 each 1,50,000 1,50,000 Stocks 1,00,000 1,00,000
Sundry creditors 1,00,000 59,000 Other current
assets
2,30,000 50,000
Other Liabilities 60,000 40,000 Bank 30,000 20,000
Total 12,80,000 9,20,000 Total 12,80,000 9,20,000
On the above date Rahul ltd. takes over the business of Mehul ltd. on the following terms and conditions:
1. All fixed assets (other than goodwill) are to be taken over at 20% above book values and current assets
(other than cash & bank balance) are valued at 15% below book values.
2. Goodwill to be consider as worth Rs. 1,50,000.
3. Equity shares holders of Mehul ltd are to be issued, 8 equity shares of Rs. 10 each in Rahul ltd at Rs. 12 each,
for every 5 equity shares in Mehul ltd. Balance of purchase consideration to be paid in cash.
4. 10% preference share holders of Mehul ltd are to be paid at 10% premium by issue of 12% preference shares
of Rahul ltd at par.
5. Investments of Mehul ltd represent investments in own debentures of face value Rs. 50,000 purchased at
par, which are to be cancelled before the company is taken over by Rahul ltd.
6. Investments of Rahul ltd include investments in 9% debentures of Mehul ltd of face value Rs. 1, 00,000
purchased at Rs. 95,000.
7. Sundry debtors of Rahul ltd include Rs. 5,000 due from Mehul ltd.
You are required to:
1. Compute Purchase Consideration.
2. Pass necessary Journal Entries in the books of Rahul Ltd.
3. Prepare Balance Sheet of Rahul Ltd. after amalgamation

44

Q.11) Manoj Ltd is absorbed by Purvish Ltd. Given below are balance sheets of two companies taken after
revaluation of their assets on uniform basis
Manoj ltd Purvish ltd Manoj ltd Purvish ltd
Authorized capital Sundry assets 33,70,000 87,15,000
9000 shares of Rs. 300 each 27,00,000 - Cash at bank 7,000 55,000
40,000 shares of Rs. 180 each. - 72,00,000
Paid up capital
9,000 shares of Rs. 270per share paid
up.
24,30,000 -
40,000 shares of Rs. 150 per share
paid up
- 60,00,000
Creditors 1,10,000 1,30,000
General reserves 8,07,000 25,70,000
P&L A/c 30,000 70,000
33,77,000 87,70,000 33,77,000 87,70,000
The holders of every three shares in Manoj ltd were to receive 5 shares in Purvish ltd plus as much cash as is
necessary to adjust the rights of shareholders of both the companies in accordance with the intrinsic value of
the shares as per respective balance sheets. Calculate purchase consideration.

Q.12) The summarised balance sheet of A Ltd. and B Ltd. as on 31/03/2020 were as follows :
LIABILITIES A Ltd. Rs. B Ltd. Rs. ASSETS A Ltd. Rs. B Ltd. Rs.
Equity Share Capital (Shares Of Rs. 10 Each) 8,00,000 6,00,000 Land & Building 6,00,000 4,80,000
Reserves & Surplus 5,80,000 1,00,000 Plant & Machinary 1,20,000 80,000
Creditors 4,20,000 2,60,000 Motor Vehicle 60,000 40,000
6% Debentures( Rs. 100 Each) 2,40,000 Debtors 4,00,000 1,60,000
Inventories 4,60,000 3,60,000
Cash & Bank 1,60,000 80,000
18,00,000 12,00,000 18,00,000 12,00,000
Additional Information :
A Ltd. & B Ltd. amalgamate their business. They form ‘AB’ Ltd. to take over Assets and Liabilities of both companies
on the following basis :
Assets and Liabilities are taken over at Book value, with the following exceptions :
a) Goodwill of ‘A’ Ltd. and ‘B’ Ltd. to be valued at Rs. 2,80,000 and Rs. 80,000 respectively.
b) Plant and Machinary of ‘A; Ltd. to be valued at Rs. 2,00,000.

45

c) Debentures of ‘B’ ltd. are to be discharged at a premium of 5% by issue of 6% Debentures of Rs. 100 each
of ‘AB’ Ltd. at par.
d) Entire purchase consideration is discharged by issuing Equity shares of ‘AB’ Ltd. of Rs. 10 each at par.
You are required to:
1. Compute Purchase Consideration.
2. Pass necessary Journal Entries in the books of ‘AB’ Ltd.
3. Prepare Balance Sheet of ‘AB’ Ltd. after amalgamation.
Q.13) Acqua engineers Ltd. A newly formed company acquired business of Beeta Ltd. As on 31-03-2020.
The summary Balance sheet of Beeta Ltd. As on that date was as under :
Liabilities Rs. Assets Rs.
Equity shares of Rs. 10 each, fully paid 1,50,000 Goodwill 20,000
General Reserve 25,000 Land & Building 80,000
export profit reserve 8,000 Plant 80,000
Profit & Loss A/c 18,000 investments 30,000
12% debentures 60,000 Stock 40,000
Sundry creditors 37,000 Debtors 50,000
provision for tax 30,000 Bills receivable - Trade 8,000
Bank 20,000
Total 3,28,000 Total 3,28,000
TERMS OF ACQUISITION :
1. Aqua Engineers Ltd. Issued 25,000 equity shares of Rs. 10 each at Rs. 12 per share.
2. Aqua Engineers Ltd. Paid Rs. 4 in cash for each share of Beeta Ltd.
3. Aqua Engineers Ltd. Discharged 12 % debentures of Beeta Ltd. At 10% premium by issue of its
15% debentures at a discount of 12%.
4. Aqua Engineers Ltd. Paid absorption expenses Rs. 3,000.
5. Aqua Engineers Ltd. Revalued land and Building at Rs. 1,00,000, plant at 10% below book
value, stock at Rs. 35,000 and debtors subject to 5% provision for doubtful debts.
6. Beeta Ltd. Sold one-fifth of the shares received from Aqua Engineers Ltd. At Rs. 13 per share.
7. Aqua Engineers Ltd. Issued 10,000 equity shares of Rs. 10 each at Rs. 12 each to the public.
The issue was fully subscribed and paid for.
8. Export profit reserve is to be maintained for next three years.
You are required to:
1. Compute Purchase Consideration.
2. Prepare Realisation Account, Aqua Engineers Ltd. Account, Equity shareholders A/c, Equity shares in
Aqua Engineers Ltd A/c and Bank A/c in the books of Beeta Ltd.
3. Prepare Balance Sheet of Aqua Engineers Ltd. After acquisition under purchase method.
Q.14) Parag Ltd. And Chirag Ltd. To amalgamate and form a new company namely Anurag Ltd. Which will take
over all the assets and liabilities of both the companies. The summarised balance sheet of Parag Ltd. and Chirag
Ltd. as on 31/03/2020 were as follows :

46

Liabilities Parag Ltd.
Rs
Chirag Ltd.
Rs
Assets Parag Ltd.
Rs
Chirag Ltd.
Rs
Equity shares of Rs. 10 each, fully
paid
4,00,000 5,00,000 Plant &
Machinery
8,00,000 8,00,000
6% preference shares of Rs. 100
each fully paid
- 3,00,000 Stocks 65,000 60,000
Profit & Loss A/c 5,00,000 - Debtors 95,000 50,000
Statutory Reserve 50,000

Profit & Loss
A/c
- 1,40,000
9% debentures of Rs. 100 each - 2,00,000 Bank 65,000 40,000
creditors 75,000 90,000

Total 10,25,000 10,90,000 Total 10,25,000 10,90,000
In case of Parag Ltd.: Assets and liabilities are to be taken over at book values. For every 4 equity shares in Parag
ltd. 5 equity shares of Rs. 10 each in Anurag ltd. Shall be issued at 10% premium .
In case of Chirag Ltd. :
1. 6% preference shareholders of Chirag ltd. Would be allotted 4, 7% preference shares of Rs. 100 each in
Anurag ltd. For every 5, 6% preference shares in Chirag ltd.
2. 9% debentureholders would be discharged at par by issue of an equal number of 10% debentures of Rs. 100
each in Anurag ltd. At par.
3. Plant and machinery and stock shall be appreciated by 10%.
4. Balance of purchase consideration would be discharged by issue of equity shares of Rs. 10 each in Anurag
ltd. Issued at 10% premium.
5. Sundry debtors of Chirag Ltd. Include Rs. 5,000 due from Parag ltd.
You are required to:
1. Compute Purchase Consideration.
2. Pass necessary Journal Entries in the books of ‘Anurag’ Ltd.
3. Prepare Balance Sheet of ‘Anurag’ Ltd. after amalgamation.
P-15 Following are the Balance Sheets of Honest Limited end Faithful Limited as on 31st March 2020:
Liabilities Honest Ltd. Rs Faithful
Ltd. Rs
Assets Honest Ltd.
Rs
Faithful
Ltd. Rs
Equity Share Capital 12,00,000 18,00,000 Goodwill 90,000 1,50,000
(Shares of Rs. 100 each, fully paid) Premises 9,75,000 10,50,000
7% Preference shares of Rs. 100 each 6,75,000 9,00,000 Plant & Machinery 9,00,000 12,30,000
General Reserve 1,05,000 1,20,000 Stocks 2,70,000 3,75,000
Profit & Loss A/c 67,500 93,000 Sundry Debtors 2,10,000 5,02,500
Statutory Reserve 40,500 72,000 Bank 18,000 36,000
10% Debentures 2,25,000 1,26,000
Sundry Creditors 1,50,000 2,32,500
Total 24,63,000 33,43,500 Total 24,63,000 33,43,500

On the above date Faithful Limited takes over Honest Limited on the following terms and conditions:
(1) All Assets and Liabilities are taken over at book value except the following Which were revalued as follows:
Premises Rs. 8,50,000 and Plant and Machinery Rs. 7.00.000.

47

(2) Shareholders of Honest Limited to be issued 10,000 equity shares of Rs. 100 each at 10% premium
(3) 7% preference shareholder of Honest Limited to be discharges at Rs. 10%premium by issuing 8% preference
shares of Rs. 100 each (at par)
(4) Debentures of Honest Limited to be converted into equivalent number of debentures of Faithful Limited.
(5) Sundry debtors of faithful Limited include Rs. 25,000 due from Honest Limited.
(6) Cost of liquidation amounting to Rs.4,000 were borne by Faithful Limited.
You are required to :
(i) Calculate Purchase consideration
(ii) Pass Journal entries in the books of Faithful Limited.
(iii) Prepare Balance-sheet of faithful Limited after Amalgamation.
P-16 Following is the Balance Sheet of Jay Ltd. and Vijay Ltd. as on 31-03-2020.
Liabilities Jay Ltd.
Rs
Vijay
Ltd. Rs
Assets Jay Ltd.
Rs
Vijay
Ltd. Rs
Equity Shares of Rs. 10 each, fully paid 5,50,000 3,00,000 Land & Building 2,50,000 3,50,000
General Reserve 40,000 60,000 Furniture & Fittings 1,20,000 80,000
Profit & Loss A/c 55,000 75,000 Investments 25,000
Export Profit Reserve A/C 90,000 60,000 Stocks 65,000 40,000
Dividend Equalisation Reserve 75,000 85,000 Sundry Receivables 1,25,000 1,10,000
Sundry Payable 1,10,000 90,000 Cash & Bank Balance 3,35,000 90,000
Total 9,20,000 6,70,000 Total 9,20,000 6,70,000

On the above date, Jay Ltd. takes over the business of Vijay Ltd. (including cash and Bank Balance), on the
following terms and conditions:
(i) All the assets and Liabilities are taken over at book value except the following assets which were revalued and
taken over as follows Land and Building Rs. 6,00,000, Furniture and Fittings Rs. 50,000.
(ii) Statutory reserves are to be maintained for next 3 years.
(iii) Sundry receivables of Jay Ltd. included Rs. 3,000, receivable from Vijay Ltd.
(iv) Purchase Consideration is settled by issuing 60,000 equity shares in Jay Ltd., of 10/- each at Rs. 15/- each, to
the equity share holders of Vijay Ltd., Rs. 3,00,000 of Purchase Consideration is paid in cash.
(v) Stock of Vijay Ltd. includes goods of the sales Price of Rs. 5,000 sold by Jay Ltd. to Vijay Ltd. at a profit of 25%
on cost.

You are required to:
(i) Calculate Purchase Consideration.
(ii) Prepare Balance Sheet of Jay Ltd. after amalgamation.

48

LIQUIDATION OF COMPANIES
A Company Ceases To Exist When It Is Dissolved. One Of The Ways To Dissolve A Company Is To Resort To The
Process Of Winding Up Or Liquidation. It Is Not Necessary That Only Insolvent Company Can Be Liquidated.
Sometimes Even Solvent Company Is Liquidated. Winding Up Is Of Two Types: -
 Winding Up By Court And
 Voluntary Winding Up (Members/ Creditors)

1. Compulsory Winding Up By The Court

 A Company Formed And Registered Under The Ordinance, May Be Wound Up By The Court. This Kind Of
Winding Up Is Also Called Compulsory Winding Up.
 Explanations:
1) A Company Needs To Pass A Special Resolution And Also Court Orders For Winding Up On The Basis Of
Some Specific Grounds
2) When Company Is Unable To Pay Its Debts
3) If Company Is Carrying Any Illegal Business
4) In Case Of Non Maintenance Of Accounts
5) When The Statutory Meaning Is Not Conducted Then The Court May Give Orders To Wind Up The Company
6) In Case Of Non Submission Of Statutory Report To The Registrar
7) If Company Unable To Start Its Business Within A Year After Incorporation
8) If Company Is Not Having Minimum Number Of Members
In Case Of Public: Minimum 7 Members
In Case Of Private: Minimum 2 Members
9) If Company Doesn't Follow The Directions Of The Court Or Registrar Or Commission Etc.

2. Voluntary Winding Up By Members Or Creditors
 The Main Object Of A Voluntary Winding Is That The Company And Its Creditors Shall Be Left To Settle Their
Affairs Without Going To Court, But They May Apply To The Court For Any Directions And Order If And When
Necessary.
 Explanations:
A) When The Period Fixed For The Duration Of The Company Has Expired
B) If The Company Passes The Special Resolution Of Its Winding Up By Voluntary
C) When The Event Occurs And The Articles Provide Information That When This Event Will Occur Then
Company Has To Be Wound Up

Liquidation Process
1. Liquidation Process Begins With The Appointment Of Official Liquidator Who Is Supposed To Manage Funds Of
Liquidation Process.
2. Creditor Can Appoint A Person To Take Care Of Their Dues. Such Person Is Called The Official Receiver.
3. Notice Given To The Board By The Liquidator To Submit The Estimate Of Assets And Liabilities In Prescribed
Form (Form-57). This Statement Is Called Statement Of Affairs. This Must Be Verified By The Resolution Of
Member And Creditor By Calling Their Respective Meetings.
4. Liquidator Begins The Process Of Liquidating The Assets And Payment Of Liabilities.
5. Liquidator Should Prepare Annual Statement Of Affairs After 1 Year Of His Appointment Giving Details Of
Assets And Liabilities Liquidated Since His Appointment. Such Statement Is Prepared On Annual Basis.

49

6. Make A List Of B List Contributory So That In Case Of Need Calls Can Be Made From Them.
7. Submit Liquidator’s Final Statement Of Account Upon Completion Of Liquidation Process.

Basically Three Statements Are Prepared: -

1. Statement Of Liabilities Of ‘B’ List Contributories
2. Liquidator’s Final Statement Of Account.
3. Statement Of Affairs Or Deficiency Account.

Statement Of Liabilities Of ‘B’ List Contributories
Creditors O/S On The Date
Of Ceasing To Be Member
A
.Shares
B
Shares
C
Shares
D
Shares
Amount To Be Paid To
The Creditor
1
2

Total (A)
Maximum Liability (B)
(No Of Shares X Uncalled
Per Share)
Amount Paid
[A Or B Whichever Is Less]

Notes: -
1. Contributories Are The Present Shareholders Or Past Shareholders Of The Company. There Are Two Kinds Of
Contributories: -
 A List Contributory – Present Shareholders
 B List Contributory – Past Shareholders.
It Must Be Noted That First The Company Makes A Call On A List Contributory. If They Fails To Pay Then B List
Contributory Are Called For Payment.
2. Only Those Shareholders Are Taken Who Were Members During One Year Back Of The Date Of Liquidation.
For Example If Liquidation Taking Place On 1
st
April 2003 Then Person Who Were Members From 1
st
April 2002
To 1
st
April 2003. But If The Member To Whom They Were Originally Allotted Becomes Insolvent Then The
Person To Whom The Shares Were Transferred Is Also Called B List Contributory.
3. The Amount Outstanding To Be Paid To Creditors Is Distributed In The Ratio Of Respective Shares.

Liquidator’s Final Statement Of Account From…..To…….
Dr Cr

50

Particular Amount Particular Amount
To Bank A/C
To Cash A/C
To Assets Realised
(In Sequence Of Liquidity)

To Realisation Of Assets
Specially Pledged. Xxx
Less: Secured Loan Xxx
To Call On Equity Shareholders.
To Operational Earning
(I.E. If Liquidator Running The
Business Than What He Gets In
The Mean While)

By Legal Expenses
By Liquidator’s Remuneration
By Liquidation Expenses
By Debentures Having Floating Charges
+ Interest Outstanding
+ Interest Accrued (Only If Solvent)
By Preferential Creditors
By Unsecured Creditors
By Preference Shareholders
- Preference Share Capital
- Preference Dividend Arrears
By Equity Shareholders

Notes: -
1. If The Company Is Insolvent, Then Only The Outstanding Interest Is Taken And Not The Accrued Interest.
Accrued Interest Is Taken Only If The Company Is Solvent.
2. If Nothing Is Given About Preference Share Capital Then We Will Assume It To Be Cumulative Preference Share
Capital And Therefore Arrears Of Dividend Taken In The Above Statement.
3. A Regular Check Will Be Maintained On Cash Balance. It Should Not Happen That We Are Making Payments
Without Corresponding Cash In Hand. In The Event Of Negative Cash Balance A Deficiency Account Is
Prepared.
4. Liquidators Remuneration
 Language Used For Calculating Liquidators Remuneration Can Be Any Of The Following Six:
a) Percentage (%) On Assets Realised.
b) Percentage (%) Of All Assets/ Gross Assets/ Total Assets
c) Percentage (%) Of Payment To Unsecured Creditors.
d) Percentage (%) Of Payment To Secured Creditors.

51

e) Percentage (%) Of Payment To Members/Shareholders.
f) Percentage (%) Of Payment To Equity Shareholders.
 Never Include Opening Cash In Hand/Bank For Purpose Of Calculating Liquidators Remuneration Until And
Unless It Is Specified In The Question.
5. Shares Have Different Paid Up Value But Same Face Value
 Realise All Assets And Pay Off All Liab. Including Psc And Get Surplus Available For Esh
 Make Notional Calls To Make Esc Fully Paid Up.
 Distribute Available Cash Including Notional Calls.
 Calculate Net Payable/Net Receivable.
6. Shares Have Different Paid Up Value But Same Face Value
Amount Available For Distribution To Esh Is Distributed To Them In The Ratio Of Fully Paid Share Capital
Statement Of Affairs Or Deficiency Account.
As On ………………
(Form No-57)

Assets Not Specifically Pledged (As Per List A)
(In Order Of Liquidity)
Bank Balance
Cash
Bills Receivable
Debtors
Unpaid Calls (I.E. Calls In Arrears But Not Uncalled Capital)
Stock
Plant & Machinery
Furniture
Estimated
Realisable
Value

Xxxx
Xxxx
Xxxx
Xxxx
Xxxx
Xxxx
Xxxx
Xxxx
Xxxx

52

Vehicles

Assets Specifically Pledged (As Per List B)
Estimated Due To Deficiency Surplus
Realisable Secured Ranking As Carried To
Value Creditors Unsecured Last Column

Surplus From Assets Specifically Pledged

Total Assets Available For Preference Creditors, Creditors Secured By Floating Charge
And Unsecured Creditors.
Summary Of Gross Assets
Gross Realisable Value Of Assets Specifically Pledged Xxx
Other Assets Xxx
Gross Assets Xxx
Xxxx

Xxxx

Xxxx

Gross Liab. Liabilities (Deducted From Surplus Or Added To Deficiency)

53

Secured Creditors As Per List B To The Extent To Which Claims Are
Estimated To Be Covered By Assets Specifically Pledged
Preferential Creditors As Per List C
Balance
Creditors Secured By Floating Charges As Per List D
Balance
Unsecured Creditors As Per List E
Trade Account Xxx
Contingent Liabilities Xxx
Balance
(Deficiency For Creditors I.E. Gross Liab. – Gross Assets)
Issued And Called Up Capital
Pref. Shares Fully Called Up As Per List F
Balance
Equity Shares Of Fully Called Up As Per List G
Surpulus/Deficiency For Members As Per List H

Xxxx

Note: -
1. Preferential Creditors: - Following Considered As Preferential Creditors
 Govt. Dues That Arose Within 12 Months Before The Date Of Winding Up.
 Salary & Wages Due To Employee’s Upto Rs 20000/Employee But Maximum For 4 Months. (Not To
Workers)
 Remuneration To Investigator Upon Investigation Of The Affairs Of Company.
 Retirement Benefits Of Employees Without Limit
2. Meaning Of Overriding Preferential Creditors: - This Includes
 Wages To Workers Under Factory Act 1948 Without Limit.
 Retirement Benefits To Workers Without Limit.
3. Preference Dividend: - It Will Be Included With Preference Share Capital If In Arrears.
4. Calls From Partly Paid Shares
Loss To Be Born By Esh= (Total Esc – Balance Available After Payment To Unsecured & Psc)
Loss Per Share = Total Loss Born By Esh
No Of Equity Shares
Loss Per Share > Amt. Paid Up, Then Amt Of Call = (Loss Per Share - Amt. Paid Up)
Loss Per Share < Amt. Paid Up, Then Amt Refunded = (Amt. Paid Up - Loss Per Share)

54

5. Call In Arrears
Call In Arrears Is To Be Treated As Assets Not Specifically Pledged But Uncalled Capital Is Not An Asset
6. Call In Advance
Will Be Included In Unsecured Creditors
7. Deficiency Account
This Account Is Prepared Whenever There Is Deficiency In The Prescribed Form I.E. H Form

Items Increasing Deficiency
Balance In P&L Account (Dr) (For 3 Years) Xxxx
Dividend Paid On Esc/Psc Xxxx
Loss On Realization Xxxx
Items Decreasing Deficiency
Balance In P&L Account (Cr) (For 3 Years) Xxxx
Profit On Realization Xxxx

Xxxx

Xxxx
Xxxx
The Deficiency/Surplus Shown By The Above Account Must Be
The Same As Shown By The Statement Of Affairs As Regards
Members.

55

LIQUIDATORS FINAL STATEMENT OF ACCOUNT
P-1 The Following Is The Balance Sheet Of XY Ltd. Which Is In The Hands Of Liquidator.
Liabilities rs. Assets rs.
Share Capital

Fixed
Assets 2,00,000
1,000, 6% Preference Shares Of Rs. 100
1,00,000 Stock 1,20,000 Each, Fully Paid Up
2,000 Equity Shares Of Rs.100 Each 2,00,000 Book Debts 2,40,000
2,000 Equity Shares Of Rs.75 Each 1,50,000 Cash 40,000
Loan From Bank (On Security Of Stock) 1,00,000
Profit &
Loss 3,00,000
Trade Creditors 3,50,000
9,00,000 9,00,000
The Assets Realized Following Amounts (After All Costs Of Realization And Liquidator’s Commission Amounting To
Rs. 5,000 Paid Out Of Cash In Hand Rs. 40,000 As Per Balance Sheet):
Fixed Assets 1,68,000
Stock 1,10,000
Book Debts 2,30,000
Calls On Partly Paid Shares Were Made But The Amount Due On 200 Shares Was Found To Be Irrecoverable.
Prepare The Liquidator’s Final Statement Of Account.
P-2 XYZ Ltd. Went Into Liquidation On 31/12/2015. The Assets Realized Were : Stock Rs.1,00,000; Plant Rs.75,000;
Cash Rs. 625. Liquidation Expenses Rs. 1,375. Creditors Rs. 90,000 (Rs. 8,000 Are Preferential) 6% Debentures Rs.
80,000. Interest On Debentures Paid Up To 30-4-2015.
Remuneration At 3% On Amounts Realized (Except Cash) From Assets And 2% On The Amounts Distributed To
Unsecured Creditors Excluding Preferential Creditors.
Prepare The Liquidator’s Final Statement Of Account.
P-3 The Vacuum Ltd. Went Into Voluntary Liquidation On 1-1-2016 On Which Date Dividends On Preference
Shares Were In Arrears For Two Years. The Subscribed Capital Of The Company Consisted Of ;40,000, 6%
Preference Shares Of Rs. 10 Each.
50,000 Equity Shares Of Rs. 10 Each, Rs.6 Paid.
The Assets Realized Rs. 3,50,000. The Expenses Of Liquidation Came To Rs. 9,800. The Liquidator Is Entitled To
Remuneration Of Rs. 11,000 And A Commission Of 2
1
2
% On The Amount Paid To The Preference Shareholders As

56

Capital And Dividend. The Liabilities Amounted To Rs. 20,000. Arrears of preference dividend are payable, before
any payment is made to equity shareholders, as provided in the Articles of Association.
Prepare The Liquidator’s Final Statement Of Account.
P-4 The Balance Sheet Of N Ltd. As On 31-12-2015 Was As Follows :
Liabilities Rs. Assets Rs.
Share Capital

Land & Building 25,000
8,000, Preference Shares Of Rs. 10
Each
80,000 Other Fixed Assets 2,00,000
12,000 Equity Shares Of Rs.10 Each 1,20,000 Stock 5,25,000
Bank Loan 4,00,000 Debtors 1,00,000
8% Debentures 1,00,000 Profit & Loss 58,000
Interest Outstanding On Debentures 8,000
Creditors 2,00,000
9,08,000 9,08,000
The Company Went Into Voluntary Liquidation On That Date. Prepare The Liquidator’s Final Statement Of Account
After Taking Into The Following :
1. Liquidation Expenses And Liquidator’s Remuneration Amounted To Rs. 3,000 And Rs. 10,000 Respectively.
2. Bank Loan Was Secured By Pledge Of Stock.
3. Debentures And Interest Thereon Are Secured By A Floating Charges On All Assets.
4. Fixed Assets Were Realized At Book Value And Current Assets At 80% Of Book Values.
P-5 From The Data Relating To A Company Which Went Into Voluntary Liquidation, You Are Required To Prepare
The Liquidator’s Final Statement Of Account.
1. Cash With Liquidators (After All Assets Are Realized And Secured Creditors And Debentureholders Are
Paid) Is Rs. 7,50,000.
2. Preferential Creditors To Be Paid Rs.35,000.
3. Other Unsecured Creditors Rs. 2,30,000.
4. 5,000, 10% Preference Shares Of Rs. 100 Each Fully Paid Up.
5. 3,000 Equity Shares Of Rs. 100 Each, Rs. 75 Per Share Paid Up.
6. 7,000 Equity Shares Of Rs. 100 Each, Rs. 60 Per Share Paid Up.
7. Liquidator’s Remuneration Is 2% On Payments To Preferential And Other Unsecured Creditors.
P-6 The Following Particulars Related To A Limited Company Which Has Gone Into Voluntary Liquidation. You Are
To Prepare The Liquidator’s Statement Of Account Allowing For His Remuneration @ 2
1
2
% On All Assets Realized
Excluding Call Money Received And 2% On The Amount Paid To Unsecured Creditors Including Preferential
Creditors.
Share Capital Issued :
10,000 Preference Shares Of Rs. 100 Each Fully Paid Up.

57

50,000 Equity Shares Of Rs. 10 Each Fully Paid Up.
30,000 Equity Shares Of Rs. 10 Each, Rs. 8 Paid Up.
Assets Realized Rs.20,00,000 Excluding The Amount Realized By Sale Of Securities Held By Partly Secured
Creditors.
Preferential Creditors Rs. 50,000
Unsecured Creditors Rs. 18,00,000
Partly Secured Creditors (Assets Realized Rs. 3,20,000) Rs. 3,50,000
Debentureholders Have Floating Charge On All Assets Of The Company Rs. 6,00,000
Expenses Of Liquidation Rs. 10,000
A Call Of Rs. 2 Per Share On The Partly Paid Equity Shares Was Duly Received Except In Case Of One Shareholder
Owning 1,000 Shares.
Also Calculate The Percentage Of Amount Paid To The Unsecured Creditors To The Total Unsecured Creditors.
P-7 The Position Of Valueless Ltd. On Its Liquidation Is As Under :
Issued & Paid Up Capital :
3,000, 11% Preference Shares Of Rs. 100 Each Fully Paid
3,000 Equity Shares Of Rs. 100 Each Fully Paid
1,000 Equity Shares Of Rs. 50 Each, Rs. 30 Per Share Paid
Calls In Arrears Are Rs. 10,000 And Calls Received In Advance Rs. 5,000. Preference Dividends Are In Arrears For
One Year. Amount Left With The Liquidator After Discharging All Liabilities Is Rs. 4,13,000.
Articles Of Association Of The Company Provide For Payment Of Preference Dividend Arrears In Priority In
Payment Of Equity Capital.
Prepare The Liquidator’s Final Statement Of Account.
P-8 TM Ltd. Went In For Liquidation On 31
st
March, 2016.
The Balance Sheet Of The Company As At 31-03-2016 Is Given Below :
Liabilities Rs. Assets Rs.
Share Capital :

Freehold
Property
11,85,000
1,00,000 Equity Shares Of Rs. 10 Each
Fully Paid Up
10,00,000 Plant 6,03,000

58

10% Preference Shares Of Rs. 100 Each
Fully Paid Up
12,00,000 Motor Vehicle 1,15,000
Securities Premium 1,00,000 Stock 3,72,000
5% Debentures 2,00,000 Sundry Debtors 1,48,000
Interest On Debentures 5,000 Profit & Loss A/C 4,28,000
Bank Overdraft 1,16,000
Sundry Creditors 2,30,000
28,51,000 28,51,000
The Preference Dividend Are In Arrears For The Years 2014-15 And 2015-16.
The Company’s Articles Provide That On Liquidation, Out Of Surplus Assets Remaining After Payment Of
Liquidation Costs And Outside Liabilities, It Shall Be Applied Firstly Towards Arrears Of Preference Dividend,
Secondly To Preference Shareholders With A Premium Thereon At Rs. 10 Per Share And Finally Any Residue Shall
Be Paid To The Equity Shareholders.
The Liquidator Realized The Assets As Below :
Particulars Rs.
Freehold
Property
14,25,000
Plant 5,05,000
Motor Vehicle 1,18,000
Stock In Trade 3,00,000
Sundry Debtors 1,20,000
Creditors Were Paid Less Discount Of 5%. Debentureholders Were Paid Along With The Accrued Interest Upto 30-
6-2016.
Liquidators Remuneration Is 2% Of The Assets Realized And Cost Of Liquidation Was Rs. 7,640.
Prepare The Liquidator’s Final Statement Of Account.
P-9 Suku Ltd. Went Into Voluntary Liquidation. The Details Regarding Liquidation Are As Follows :
Share Capital :
9,000, 10% Preference Shares Of Rs. 100 Each (Fully Paid-Up)
Class A, 8,000 Equity Shares Of Rs. 100 Each (Rs. 75 Paid-Up)
Class B, 6,400 Equity Shares Of Rs. 100 Each (Rs. 60 Paid-Up)
Class C, 56,000 Equity Shares Of Rs. 10 Each (Rs. 5 Paid-Up)
Assets Including Machinery Realized Rs. 1,75,000. Liquidation Expenses Including Remuneration Of Liquidator
Amounted To Rs. 72,000. The Company Has Borrowed A Loan Of Rs. 2,00,000 From Bank Of Baroda Against The
Mortgage Of Machinery (Which Realized Rs. 3,22,000). In The Books Of The Company, Salaries Of Ten Clerks For

59

Four Months At A Rate Of Rs. 600 Per Month And Salaries Of Six Peons For Three Months At A Rate Of Rs. 300 Per
Month, Are Outstanding. In Addition To This, The Company’s Books Show Other Creditors Worth Rs. 5,24,600.
Prepare The Liquidator’s Final Statement Of Account.
P-10 The Summarized Balance Sheet Of Vasant Ltd. As On 31
st
March, 2013, Being The Dte Of Voluntary Winding
Up Is As Under :
Liabilities Rs. Assets Rs.
Share Capital :

Land & Building 1,30,000
10% Preference Shares Of Rs. 10 Each
Fully Paid Up
1,50,000
Sundry Current
Assets
4,36,000
1,00,000 Equity Shares Of Rs. 10 Each
Fully Paid Up
1,00,000 Profit & Loss A/C 35,000
5,000 Equity Shares Of Rs. 10 Each,
Rs.8 Per Share Paid Up
40,000
Debenture Issue
Expenses
Not Written Off
2,000
13% Debentures 1,50,000
Mortgage Loan 70,000
Bank Overdraft 30,000
Trade Creditors 38,000
Income Tax Arrears (Assessment
Concluded In February, 2013)
25,000
6,03,000 6,03,000
Mortgage Loan Was Secured Against Land & Building. Debentures Were Secured By A Floating Charge On All
Assets. The Company Was Unable To Meet The Payments And Therefore The Debentureholders Appointed A
Receiver For The Debentureholders. He Brought The Land & Building To Auction And Realized Rs. 1,60,000. He
Also Took Charge Of Sundry Assets Of Value Of Rs. 2,36,000 And Realized Rs. 2,00,000. The Bank Overdraft Was
Secured By Personal Guarantee Of The Directors Of The Company And On The Bank Raising A Demand, The
Directors Paid Off The Due From Their Personal Resources. Costs Incurred By The Receiver Were Rs. 1,950 And By
The Liquidator Rs. 3,000. The Receiver Was Not Entitled To Any Remuneration But The Liquidator Was To Receive
2% Fee On The Value Of Assets Realized By Him. Preference Shareholders Have Not Been Paid Dividend For Period
After 31
st
March, 2011 And Interest For The Last Half Year Was Due To The Debentureholders. Rest Of The Assets
Were Realized At Rs. 1,50,000.
Prepare The Accounts To Be Submitted By The Receiver And Liquidator.
P-11 Following is the Balance Sheet of Pooja Co. Ltd. As on 31
st
December, 2017.
LIABILITIES Rs. ASSETS Rs.
Share Capital :

Goodwill 1,68,000
1,500 8% Prefernece Share Of Rs. 100 Each Fully Paid 1,50,000 Land & Building 3,27,000
3,000 Equity Shares Of Rs. 100 Each Rs. 80 Paid Up 2,40,000 Plant & Machinary 1,35,000
4,500 Equity Shares Of Rs. 100 Each, Rs. 70 Paid Up 3,15,000 Furniture 15,000
8% Debentures (Having A Floating Charge On All Assets) 1,50,000 Office Equipment 30,000

60

Outstanding Debenture Interest 6,000 Stock 1,48,500
Creditors 2,40,000 Debtors 1,27,500

Bills Receivable 33,000

Cash In Hand 12,000

Profit & Loss A/C 1,05,000

11,01,000

11,01,000
The company went into liquidation as on above balance sheet date :
1. Preference dividend was in arrears for last 3 years and it was to be paid before paying equity share capital.
2. Sundry creditors include a loan from bank of Rs. 60,000 secured on the hypothecation of plant and
machinery. Sundry creditors also include preferential creditors of Rs. 15,000.
3. The liquidator realized the assets as follows : Rs.
Land and building 3,22,500
Plant and machinery 75,000
Office equipment 19,500
Furniture 12,000
Stock 1,05,000
Debtors 90,000
Bills receivable 21,000
4. Legal charges on liquidation amounted to Rs. 1,500.
5. The liquidation expenses Rs. 3,900.
6. The liquidator’s remuneration was fixed at Rs. 1,500 plus 2% on sale of assets excluding cash plus 4% of
the amount distributed to unsecured creditors including Preferential Creditors.
The liquidator made payment on 31
st
march, 2018.
Prepare Liquidator’s Final statement of accounts.

P-12 Following is the Balance Sheet of X Ltd. As on 31
st
March, 2017.
LIABILITIES Rs. ASSETS Rs.
Share Capital :

FIXED ASSETS

14% prefernece share of Rs. 100 each fully paid 4,00,000 Land 40,000
8,000 Equity shares of Rs. 100 each Rs. 60 paid up 4,80,000 Building 1,60,000
Reserves and Surplus Nil plant & machinary 5,40,000

61

On 31-03-2017 the company went into liquidation. The dividend on 14% preference shares was in arears for one
year. Sundry creditors include preferential creditors amounting to Rs. 30,000.
The assets realized the following sums:
Land Rs. 80,000; Building Rs. 2,00,000; Plant and Machinary Rs. 5,00,000; Patent Rs. 50,000; Stock Rs. 1,60,000;
Sundry Debtors Rs. 2,00,000.
The expenses of liquidation amounted to Rs. 29,434. The liquidator is entitled to a commission of 2% on amounts
among unsecured creditors other than preferential creditors. All payments were made upto the 30
th
June, 2017.
Interest on mortgage loan shall be ignored at the time of payment.
Prepare the liquidator’s Final statement of A/C.

P-13 X went into liquidation on 31
st
December, 2017 when its Balance Sheet was as follows :
LIABILITIES Rs. ASSETS Rs.
Share Capital :

land & building 7,50,000
15,000, 10% Cumulative prefernece shares of Rs.
100 each 15,00,000 Machinary 18,75,000
7,500 Equity shares of Rs. 100 each Rs. 75 paid up 5,62,500 Patents 3,00,000
22,500 Equity shares of Rs. 100 each, Rs. 60 paid
up 13,50,000 Stock 4,02,500
15% debentures secured by a floating charge 7,50,000 Sundry Debtors 8,25,000
outstanding debenture interest 1,12,500 Cash at Bank 2,25,000
Creditors 9,56,250 Profit & Loss A/C 8,53,500

bills receivable 33,000

cash in hand 12,000

profit & loss A/C 1,05,000
52,31,250 52,31,250
Preference dividend were in arrears for two years and the creditors included preferential creditors of Rs. 38,000.
The assets realized as follows :
Secured Loans

Patents 40,000
1. 14% Debentures (Having a floating charge on all
assets) 2,30,000 Investments Nil
outstanding debenture interest on above
(Also having a floating charge on all assets) 32,200
CURRENT ASSSETS, LOANS &
ADVANCE

2. Loan on Mortgage of Land & Building 1,50,000 A. CURRENT ASSETS

Unsecured Loan Nil stock at cost 1,00,000
CURRENT LIABILITIES AND PROVISIONS

Sundry Debtors 2,30,000
A. Current Liabilities

Cash at Bank 60,000
Sundry Creditors 1,17,800 profit & loss A/C 1,05,000

B. Loans & Advances Nil

Miscellaneous Expenses

Profit & Loss A/C 2,40,000

14,10,000

14,10,000

62

Land and Building Rs. 9,00,000; Machinery Rs. 15,00,000; Patent Rs.2,25,000; Stock Rs. 4,50,000 and Sundry
Debtors Rs. 6,00,000.
The expenses of liquidation amounted to Rs. 27,250. The liquidator is entitled to a commission of 3% on assets
realised except cash. Assuming the final payments including those on debentures were made on 30
th
June, 2018.
Show the Liquidator’s Final Statement Of Accounts.

B LIST OF CONTRIBUTORIES
P-1 Liquidation Of XYZ Ltd. Commenced On 2
nd
April, 2016. Certain Creditors Could Not Receive Payments Out Of
The Realization Of Assets And Out Of The Contributions From A List Contributories. The Following Are The Details
Of Certain Transfers Which Took Place In 2015 And 2016 :
No. Of The
Transferror
No. Of Shares
Transferrred
Date Of Ceasing To
Be A Member
Creditors Remaining Unpaid
And Outstanding On The
Date Of Such Transfer (Rs.)
A 2,000 1st March, 2015 5,000
P 1,500 1st May, 2015 3,300
Q 1,000 1st October, 2015 4,300
R 500
1st November,
2015
4,600
S 300 1st February, 2016 6,000
All The Shares Were Of Rs. 10 Each,Rs. 8 Per Share Paid Up. Show The Amount To Be Realized From The Various
Persons Listed Above Ignoring Expenses And Remuneration To Liquidator, Etc.
P-2 M/S ABC Limited Has Gone Into Liquidation On 25
th
June, 2011. Certain Creditors Could Not Receive Payments
Out Of Realization Of Assets And Contributions From A List Contributories. The Following Are The Details Of
Certain Transfers Which Took Place In The Year Ended 31
st
March, 2011 :
Shareholders
No. Of Shares
Transferrred
Date Of Ceasing To
Be A Member
Creditors Remaining Unpaid
And Outstanding On The
Date Of Such Transfer (Rs.)
P 4,000 10/5/2010 9,000
Q 3,000 22-7-2010 12,000
R 2,400 15-9-2010 13,500
S 1,600 14-12-2010 14,000
T 1,000 9/3/2011 14,200
All The Shares Were Of Rs. 10 Each,Rs. 8 Per Share Paid Up. Show The Amount To Be Realized From The Various
Persons Listed Above Ignoring Expenses And Remuneration To Liquidator, Etc.
STATEMENT OF AFFAIRS
P-1 ‘A’ Ltd. Is to be liquidated. Their summarized Balance Sheet as at 30
th
September, 2017 appears as under :
Particulars Rs.
Liabilities :

63

5,00,000 Equity shares of Rs. 100 each 50,00,000
Secured debentures ( on land and Building ) 20,00,000
Unsecured Loans 40,00,000
Trade Creditors 70,00,000
1,80,00,000
Assets :

Land and Building 10,00,000
Other Fixed Assets 40,00,000
Current Assets 90,00,000
Profit and Loss A/C 40,00,000
1,80,00,000
Contigent Liabilities Are :

For Bills discounted 2,00,000
For Excise duty demands 3,00,000
On investigation, it is found that the contingent liabilities are certain to dissolve and that the assets are likely to be
realized as follows :
Particulars Rs.
Land and Building 22,00,000
Other Fixed Assets 36,00,000
Current Assets 70,00,000
Taking the above into account, prepare the statement of affairs.
P-2 X Co. Ltd. Into liquidation on 1
st
April, 2017. The following balances are extracted from its books on that date :
Particulars Rs. Particulars Rs.
Capital : Machinary 90,000
24,000 Equity shares of Rs. 10 each 2,40,000 Leasehold Properties 1,20,000
Debentures (secured by Floating charge) 1,50,000 Stock 3,000
Bank Overdraft 54,000 Debtors 1,50,000
Creditors 60,000 Investments 18,000
Cash in Hand 3,000
Profit and Loss A/C 1,20,000
5,04,000 5,04,000
The following assets are valued as under :
Machinary 1,80,000
Leasehold Properties 2,18,000
Investments 12,000
Stock6,000
Debtors 1,40,000

64

The bank overdraft secured by deposit of title deeds of leasehold properties. There were preferential creditors
amounting Rs. 3,000 which were not included in creditors Rs. 60,000.
Prepare a Statement of Affairs to be submitted to the meeting of members / creditors.

65

LIMITED LIABILITY PARTNERSHIP (LLP)
A typical partnership form of the business suffers from the problem of unlimited liability. Liabilities of partners of a
firm extend right up to their personal assets. This makes regular partnerships undesirable for a lot of entrepreneurs.
One solution for this issue exists in the form of Limited Liability Partnerships, better known as LLP.
Limited Liability Partnerships (LLP)
Partners of typical partnership firms have unlimited liability towards their collective debts and legal consequences.
This means that their own assets are liable for attachment for meeting the firm’s debts and liabilities. And limited
liability partnerships (LLP) solves this problem.
An LLP has all basic features of a regular partnership firm, except that of same legal entity status and unlimited liability
of partners. Consequently, limited liability partnerships have legal existence and identity separate from that of its
partners. Furthermore, its partners have limited liabilities.

Definition of LLP
The Parliament of India passed the Limited Liability Partnership Act in 2008 to govern LLP businesses in India.
According to Section 2 of this law, an LLP is a partnership registered under the Act. Further, an LLP agreement means a
written agreement either between an LLP’s partners or between the LLP itself and its partners. This agreement defines
the rights, liabilities, duties, and powers of the partners.
Since the Limited Liability Partnership Act, 2008 specifically governs limited liability partnerships in India,
the provisions of the Indian Partnership Act, 1932 are not applicable to LLPs. They only apply to traditional partnership
firms.

66

Browse more Topics under Introduction To Partnership Accounting
 Definition and Features of Partnership
 Partnership Deed
 Profit and Loss Appropriation Account
 Fixed and Fluctuating Capital

Distinct Features of an LLP
A limited liability partnership contains the following peculiar features:
1. Separate legal entity
Unlike regular partnership firms, limited liability partnerships are treated as separate legal entities. This means that
LLPs can own assets and incur liabilities in their own names. They can also enter into contracts and sue and be sued in
their own names.
2. Limited liability of partners
The liabilities of partners of an LLP are separate and limited. Their personal assets will not liable to attachment in case
the LLP is winding up or suffering certain legal consequences of repayment of debt.
Partners’ liabilities, however, can become unlimited in cases of offenses like fraud, the commission of an offense, or
any other wrongful and illegal act.
3. Sharing of profits
All partners of limited liability partnerships share profits of business just as partners of regular firms. They are,
however, free to decide the ratio in which they will share profits.
4. Partners of LLPs
Partners of a limited liability partnership can be either natural persons, i.e. individuals, or even body corporates.
Furthermore, an individual cannot be a partner if he suffers from unsoundness of mind or he is insolvent.
LLPs must have a minimum of two partners at all times. Also, the maximum number of partners is unlimited, while it is
restricted to 50 for regular partnership firms. If at any time, the number of partners in an LLP becomes less than two,
and the sole partner carries on business for more than six months under such circumstances, his liability towards the
firm’s business will become unlimited.

67

Partnerships vs. LLPs
Let’s take a look at how a limited liability partnership differs from traditional partnerships.
Differences Traditional partnerships Limited liability partnerships
Governing law Indian Partnership Act, 1932
Limited Liability Partnerships Act,
2018
Separate
entity?
No Yes
Unlimited
liability of
partners?
No Yes
Nature of
partners
Only natural persons, i.e. individuals
Individuals as well as body
corporates
Number of
partners
Minimum 2, maximum 50 Minimum 2, maximum unlimited
Registration Optional Mandatory

68

Assets
Only partners can own assets of the
firm
A firm can own assets in its name

ACCOUNTING FOR LIMITED LIABILITY PATNERSHIP

Q1. Prajakta & Manasvi were in partnership business sharing profit in the ratio of 3/5 & 2/5. On 1
st
April 2017 they
admitted Rishika into partnership giving her 1/6 of the profits , Rishika brought Rs.2,00,000 in cash of which
Rs.75,000 were considered as payment for goodwill & balance as her capital.
The following Trial balance was extracted from books as on 31
st
march 2018.
Debit Balance Rs. Credit Balance Rs.
Purchases 3,14,325 Sales 5,35,800
Discount Allowed 4,300 Discount Received 5,375
Sundry Debtors 1,00,500 RDD 3,000
Stock (1-4-17) 1,07,050 Sundry Creditors 81,350
Carriage Inward 8,125 Capital A/c :
Miscellaneous 19,600 P 1,62,500
Motor vehicle 1,25,000 M 87,500
Land & Building 2,00,000 Cash paid by R on 1
st
April 17 2,00,000
Cash at bank 12,600 Bank Overdraft 17,300
Telephone Exp. 8,100
Printing & stationery 6,725
Rent & Insurance 8,000
Bad debts 1,000
Investment 1,50,000
Drawings : P 12,500
M 10,000
R 5,000
Total 10,92,825 Total 10,92,825
Additional Information : 1.Stock on 31
st
march 2018 was Rs.1,05,625
2.Bad debts Rs.3,000 3.Dep.to be charge on : land & building – 5% Motor Vehicle - 20%
4.RDD to be maintained at 10% on Sundry debtors 5.Goods to the value of Rs.2,500 have been lost by theft .
you are required to prepare : (A) Trading & Profit & loss A/c for the year ended 31
st
march 2018. (B) Balance
sheet as on that date.

Q2.S , A & So carried on business in partnership sharing profit & losses in the ratio of 2:1:2.
The Trial balance of the firm as on 31
st
march 2018 was as follows :
Particulars Rs. Particulars Rs.
Plant & machinery 3,75,000 Capital A/c: S 2,25,000
Investment 1,25,000 A 1,30,000
Sales Return 12,500 So 1,65,000
Furniture 1,17,500 Sales 14,12,500
Motor Vehicles 1,50,000 Trade Creditors 2,17,500
Land & Building 2,50,000 Commission 1,250
Purchases 7,00,000 Bills Payable 90,500

69

Opening stock 1,15,000 Bank Loan 2,50,000
Salaries 1,55,000 Bank overdraft 50,000
Office Exp. 1,00,500
Rent & Insurance 38,750
Accountant Fees 8,750
Debtors 1,29,000
Cash at bank 1,09,250
Drawings : S 30,000
A 15,000
So 47,500
Bills receivable 45,750
Printing & stationery 17,250
Total 25,41,750 Total 25,41,750
Additional Information : 1.Stock on 31
st
march 2018 was valued at Rs.1,66,250
2.Dep : Land & Building at 5% Furniture at 10% Plant & Machinery at 20% Motor Vehicles at 20%
3.Provide for the following outstanding Exp.as on 31
st
march 2018. Salaries Rs.20,000 Printing &
Stationery Rs.6,000
4.Insurance prepaid as on 31
st
march 2018 Rs.6,250.
You are required to prepare :1.The trading & profit& loss A/c for the year ended 31
st
march 2018 2.The
balance sheet as on that date.

Q3.(o/s , Pre-paid)
Following is the Trail balance S & M (LLP).They share profit & losses in the proportion 3:2.From the following
balances & adjustment , prepare Trading & profit & Loss A/c for the year ending 31
st
march 2018 & balance sheet
on that date.
Trial Balance
Particulars Dr(Rs.) Cr(Rs.)
Stock on 1-4-17 45,000
Purchases & sales 1,12,500 1,87,500
Drawings : S 16,500
M 15,000
Returns 3,600 1,500
Wages : Productive 5,250
Unproductive 900
Salaries 9,300
Rent , Rates & Insurance 5,100
Bad debts 600
Discount 1,950 1,500
Machinery 22,500
Building 54,300
Sundry Debtors & Creditors 76,500 45,000
Cash 1,500
Capitals :S 52,500
M 67,500
Bank Overdraft 15,000
Total 3,70,500 3,70,500
Adjustments: 1.On 31
st
march 2018 the stock was valued at Rs.28,000
2.Outstanding Productive wages Rs.300 3.Rent,Rates,Insurance include Rs.800 paid for on year ending on 30
th

june 2018 4.Provide for doubtful debts on debtors at 5% 5.Dep.Building by 5% & Machinery by 10%

70

Q4.(Goods Withdrawn)
From the following Trial balance of J & M you are required to prepare Trading & profit & loss A/c for the year
ended 31
st
march 2018 & the balance sheet as on that date , after taking into the consideration the additional
information :
Trial balance as on 31
st
march 2018
Particulars Dr.(Rs.) Cr.(Rs.)
Opening stock 17,500
Salaries & Wages 4,600
Cash in hand 5,000
Purchases & sales 1,12,600 1,65,000
Office Exp. 4,300
Productive Wages 7,000
Bills Receivables 4,000
Legal Exp. 1,500
Bad debts 500
Work Manager’s Salary 3,000
Commission 1,500 2,400
Investments 10,000
Debtors & Creditors 20,000 10,000
Bank Overdraft - 5,000
Patents 4,000
Loose Tools 3,000
Furniture 6,000
Goodwill 6,500
Interest on Investment - 3,600
Land & Building 25,000
Capital A/cs: J - 30,000

71

M - 20,000
Total 2,36,000 2,36,000
Adjustments: 1.Partners share profit & losses in their capital ratio. 2.The closing stock – Cost Rs.20,000 market
value Rs.22,500 3.J has Withdrawn goods worth Rs.600 for his personal use.
4.Rs.225 written off as bad debts from debtors. 5.Outstanding salaries & Wages Rs.400
6.Dep.on land & Building at 7 ½%

Q5.(Net loss , Loss by fire)
From the following Trial balance of M & S you are required to prepare a Trading & Profit & loss A/c for the year
ended 31
st
march 2018 & the Balance sheet as on that date after taking into consideration the additional information
:
Particulars Dr.(Rs.) Cr.(Rs.)
M Capital - 2,00,000
S Capital - 1,80,000
M Drawings 14,450 -
S Drawings 10,000 -
Stock (1-4-17) 2,20,000 -
Bills receivable 30,000 -
Purchases 2,80,000 -
Sales - 4,00,000
Bills Payable - 40,000
Return Outward - 4,500
Return Inward 5000 -
Plant & Machinery 1,00,000 -
Goodwill 25,000 -
Patents 20,000 -
Sundry Debtors 1,25,000 -
Sundry Creditors - 1,38,000
Cash in Hand 2,550 -

72

Cash in bank 75,000 -
Salaries 11,000 -
Wages 17,000 -
Office Exp. 9,500 -
Insurance 3,000 -
Advertisement 5,000 -
General Exp. 6,500 -
Factory Rent 3,500 -
Total 9,62,500 9,62,500
Adjustments : 1.Dep.plant & machinery by 5% & patents by 15%
2.Provide for Reserve for bad & doubtful debts @5% on sundry debtors.
3.Provide insurance Rs.600
4.Provide for outstanding Exp. salary Rs.2,000 Wages Rs.1,000 Advertisements Rs.700
5.Stock on 31
st
march 2018 was valued at Rs.1,20,000
6.Goods costing Rs.6,000 were destroyed by fire & the insurance Company has admitted a claim for Rs.3,800
7.Partners share profit & loss equally.

Q6.(Value of closing stock, Goods for personal use , goods lost by fire)
R & M are partners sharing profit & losses 2:1 Following is the Trial balance an on 31-3-18
Trial Balance as on 31-3-18
Particulars Dr.Rs. Cr.Rs.
Land & building 55,000 -
Machinery 40,000 -
Salary & Wages 21,000 -
Cash at bank 40,000 -
Cash in hand 1,100 -
Motor Van’s 20,000 -
Office Exp. 1,000 -
R capital - 1,16,000
M Capital - 62,000
Carriage 5,000 -
Purchases 2,20,000 -
Return Outward - 5,500
Sales - 2,80,000
Return inward 2000 -
Bad debts 1000 -
Debtors 32,800 -
Creditors - 20,000
Rent 1,100 -

73

Bills payable - 35,000
Travelling Exp.(salesman) 7,000 -
Stock (1-4-17) 30,000 -
Insurance 1,500 -
Discount 8,000 -
Advertisement 12,000 -
Furniture 20,000 -
Total 5,18,500 5,18,500
Adjustments: 1.On 31-3-18 the cost price of closing stock was Rs.41,000 & its market price was Rs.42,000.
2.Goods Worth Rs.5,000 taken over by R for personal use were not entered in the books of A/cs
3.Goods worth Rs.5,000 were destroyed by fire & insurance co.Agreed to pay Rs.4000 in full A/cs
4.Outstanding Exp: Rent Rs.100 & salary Rs.500
5.Provide Dep 10% on machinery & 5% on furniture
6.Provide Rs.800 for reserve for doubtful debts on debtors.
You are required to prepare Trading & profit & loss A/c for the year ending 31-3-18 & the balance sheet as on that
date after considering the above adjustments.

Q7.(O/S salary in Trial balance)
C & M are partners sharing profit & losses equally.From the following Trial balance & adjustment you are required
to prepare a Trading a/c , Profit & loss A/c for the year ended on 31
st
march 2018 & balance sheet as on that date.
Trial Balance as on 31-3-18
Debit Balance Rs. Credit Balance Rs.
Carriage inward 2,000 Capitals: C 60,000
Opening stock 30,760 M 40,000
Salary 4,000 Commission 4,000
Wages 1,000 Interest 4,200
Discount 500 Sales 92,000
Interest 750 Purchases Return 3,800
Motive Power 4,500 Sundry Creditors 27,400
Motor Van 28,000 Outstanding Salary 400
Bad debts 1,920
Building 34,000
Debtors 20,000
Cash at bank 16,120
Machinery 10,000
Investment 12,000
Purchases 60,250
Drawings : C 2,800
M 3,200
Total 2,31,800 Total 2,31,800
Adjustments: 1.outstanding Wages Rs.400 2.Provide dep.at 10%building & motor van
3.accured interest on investment Rs.360 4.Provide 5% R.B.D.D on debtors 5.Stock at 31
st
march , 2018
was market value Rs.40,000 , Cost Price Rs.,50,000

Q8.(Unrecorded goods Sold)
R & Ri are partners sharing profit & losses equally , following is their Trial balance as on 31
st
march 2018:
Trial balance as on 31
st
march 2018

74

Particulars Dr.Rs. Cr.Rs.
Buildings 27,500
Machinery 20,000
Salary & Wages 10,500
Cash at bank 20,000
Cash in hand 550
Motor cycle 10,000
Office Exp. 500
R Capital - 58,000
Ri capital - 31,000
Carriage Outward 2,500 -
Purchases 1,10,000 -
Return Outward - 2750
Sales - 1,40,000
Return Inwards 1,000 -
Bad debts 500 -
Debtors 16,400 -
Creditors - 27,500
Rent 550 -
Printing & Stationery 750 -
Travelling Exp. (Marketing) 2,750 -
Stock (1-4-17) 15,000 -
Insurance 750 -
Discount 4,000 -
Advertisement (for 3 Years) 6,000 -
Furniture 10,000 -
Total 2,59,250 2,59,250
Adjustments: 1.The closing stock on 31
st
march 2018 was valued at cost Rs.20,500 while its market price is
Rs.22,500 2.Goods worth Rs.2,500 were destroyed by fire & insurance company agreed to pay
Rs.2,000 in full settlements of the claim. 3.Unpaid Exp.Rent Rs.50 & salary Rs.250
4.Provide Dep. At 10% on machinery & 5% on furniture 5.Goods worth Rs.4,000 were sold on 27
th
march
2018 but no entry was made in the books. You are required to prepare Trading & Profit & loss A/c for the year
ended 31
st
march 2018 & the balance sheet as on the date after considering the above adjustments.

Q9.D & R are partners sharing Profits & losses Equally in LLP.From the following Trial balance of the firm , prepare
Income statement & Balance sheet as on 31
st
march 2018.
Trial balance as on 31
st
march 2018
Particulars Dr.Rs. Particulars Cr.Rs.
Stock 20,000 Capital A/cs : D 15,000
Purchases 1,30,000 R 15,000
Sales Return 700 Commission 1,000
Debtors 20,000 Rent 1,000
Wages 6,000 Miscellaneous Income 2,000
Royalties on Sales 1,000 Sales 1,70,500
Furniture 5,000 Purchase Return 32,00
Machinery 30,000 Discount 300

75

Advertisement for 4 Years 4,000 Provide Fund 2,000
Salaries 3,000 Interest on Provident Fund
Investment
200
Provide Fund Investment 2000 Reserve for doubtful debts 500
Contribution to Provide Fund 500 Creditors 20,000
Insurance 500
Cash 3000
Drawings : D 3500
R 1500
Total 2,30,700 Total 2,30,700
Adjustments: 1.Closing Stock Price Rs.25,000 , Market Price Rs.30,000
2. D has taken goods worth Rs.500 for his personal
3. Prepaid insurance amounted to Rs.100
4.Dep.Furniture by 15% & machinery by 20%
5. Writ Off Rs.400 as bad debts & maintain the Reserve for Doubtful debts 3% on debtors.

Q10.From the following Trial balance of J & M, Prepare Trading & Profit & loss A/c for the year ending 31
st
march
2018 & balance sheet as on that date after considering adjustments given below:
Trial Balance as 31
st
March 2018
Debit Balance Rs. Credit Balance Rs.
Stock (1-4-17) 35,000 Sales 3,30,000
Salary & Wages 9,200 Discount 4,800
Cash 10,000 Creditors 20,000
Purchases 2,25,200 Bank overdraft 10,000
Sundry Exp. 8,600 Interest on investment 7,200
Productive wages 14,000 Capital – J 60,000
Bills receivable 8,000 M 40,000
Law charges 3,000
Bad debts 1,000
Works Exp. 6,000
Commission 3,000
Investment 20,000
Debtors 40,000
Trade marks 8,000
Tools & Equipment 6,000
Furniture 12,000
Goodwill 13,000
Building 50,000
Total 4,72,000 Total 4,72,000
Adjustments: 1. Partners share profit & losses in their capital ratio
2. Closing stock cost price Rs.40,000 , Market price Rs.45,000
3. J has withdraw goods worth Rs.1,200 for his own use , & his should be properly adjusted.
4. Uninsured goods worth Rs.10,000 were lost by fire
5. Rs.450 are to be written off as bad debts
6.Unpaid salary & wages Rs.800 ,printing bill Rs.1,200
7.Dep.Building @ 7 ½% p.a

76

Q11.(Dishonoured Bill , Unrecorded Sales , Accrued Interest on loan)
From the following Trial balance of R & S sharing profits & losses in the proportion of 3:2, you are required to
prepare a Trading & Profit & loss A/c for the year ending 31
st
march 2018 & balance sheet on that date.
Trial balance as on 31-3-18
Particulars Dr.Rs. Cr.Rs.
Goodwill 20,000 -
Plant & machinery 79,000 -
Bills Receivable 10,000 -
Carriage 8600 -
General Exp. 1,400 -
Electricity & Lighting 6,000 -
Debtors 2,4000 -
Trade Exp. 600 -
Advertisement 3,000 -
Bank loan @15% p.a (taken on 1-7-17) - 60,000
Capitals : R - 80,000
S - 60,000
Furniture 15,200 -
Wages 28,000 -
Purchases 59,000 -
Stock 20,800 -
Creditors - 41,000
Printing & Stationery 4,200 -
Interest on bank loan 4,000 -
Land & building 10,6600 -
Commission - 800
Sales - 15,0400
Discount 800 -
Cash in hand 1,000 -
Total 39,2200 39,2200
Adjustments: 1.Stock of goods on 31
st
march 2018 was valued at Rs.24,000 cost while its market price is Rs.26,000
2.Bill Receivable included a dishonoured bill of Rs.2,000
3.Provide Reserve for bad debts at 5% on debtors
4.Goods worth Rs.6,000 were sold on 27
th
march 2018 but the invoice is omitted to be entered in the books
5.Electricity & lighting included deposit Rs.1,500 with electricity Board
6.Wages include a sum of Rs.1,000 spent on installation of machinery purchased for Rs.9,000 on 30-9-17
7.Plant & machinery is to be Dep.at 10%

Q12.(Plant & machinery included in Purchases)
R & K are partners sharing profits equally. From the following Trial balance, prepare Trading & Profit & loss A/c for
the year ended 31
st
march 2018 & the balance sheet as at that date of M/s RK after making the adjustments given
below:
Particulars Dr.Rs. Cr.Rs.
R’s Capital - 1,00,000
K’s Capital - 1,00,000
Land & Buildings 87,000 -
Plant & machinery 17,500 -

77

Goodwill 20,000 -
R’s Drawings 10,000 -
K’s Drawings 12,600 -
Deposits 1,000 -
Stock (1-4-17) 27,000 -
Wages 10,000 -
Purchases 69,000 -
Carriage Inward 600 -
General Exp. 4,000 -
Rent & Taxes 1,200 -
Motor Car 3,000 -
Carriage Outward 1,400 -
Sales - 8,4000
Salaries 3,100 -
Legal charges 105 -
Bad debts written off 2,100 -
Provision for doubtful debts - 1,500
Printing & stationery 2,000 -
Debtors 19,800 -
Creditors - 7,500
Bank Current A/c 1.595 -
Total 2,93,000 2,93,000
1.Closing stock was Rs.46,000
2.It is discovered that credit sales effected on 21-3-18 to the value of Rs.200 have not been entered in the books.
3.Stock worth Rs.3,000 un insured has been destroyed by fire
4.Plant & machinery worth Rs.1,000 purchased on 31
st
march 2018 has been inadvertently included in purchase
5.Wages include a sum of Rs.500 spent at the time of installation of a new machinery valued at Rs.4,000 on 30-9-
17
6.The motor car sold on 30-9-17 for Rs.2,000 , the amt being wrongly included in the sales.
7.Dep.Plant & machinery at 10% p.a & Motor cat at 20% p.a & Provision for bad debts to be increased to
Rs.2,000.opening balance of Plant & machinery as on 1-4-17 was Rs.13,500

Q13.(Interest on Drawings , Sales of car , Unrecorded Purchases)
From the following Trial balance of A & S , you are required to prepare Trading , Profit & loss A/c for the year
ended 31
st
march 2018 & the balance sheet as on that date.
Trial Balance as on 31
st
march 2018
Particulars Rs. Particulars Rs.
Drawings A/cs : A 2,000 Capital A/cs : A 60,000
S 1,000 S 40,000
Stock on 1-4-17 44,000 Sales 3,22,000
Bills receivable 1,800 Returns 2,000
Purchases 1,90,000 Discount Received 3,000
Returns 6,000 Creditors 65,400
Salaries 10,000
Carriage Outward 1,400
Wages 24,000

78

Insurance 1,600
Postage 800
Debtors 70,400
Furniture 24,000
Cash in hand 9,800
Machinery 80,000
Rent & Taxes 1,200
Printing & stationery 400
Motor car 24,000
Total 4,92,400 Total 4,92,400
Adjustments :
1.Closing stock on 31
st
march 2018 was valued at Rs.56,000
2.Interest on partners capitals at 7% p.a was to be provide & interest on partners drawings is to be charged : A
Rs.100 & R Rs.50
3.Motor car was sold on 30-9-17 for Rs.22,000 , the amt being wrongly included in sales
4.It is discovered that credit purchases effected on 25-3-18 of the value ofRs.10,000 have not been entered in the
books.
5.Dep.furniture at 10% machinery at 5% & motor car at 20% p.a
6.Goods distributed as free samples were Rs.2,000
7.Create a Reserve for Bad debts & double debts 5% on sundry debtors.

Q14.(Hidden Adjustments , interest on capital)
S & D are in partners sharing profits & losses equally.The trial balance of the firm on 31
st
march 2018 was as
follows:
Trial Balance as on 31
st
march 2018
Debit Balances Rs. Credit Balances Rs.
Purchases 25,000 Capitals : S 40000
Debtors 12,000 D 30,000
Opening stock 20,000 Sales 60,000
Wages 5,000 Creditors 21,000
Salaries 8,000 10% Bank loan (1
st
jan 2018) 20,000
Land & Buildings 30,000 Commission 5,000
Plant & machinery 25,000 Outstanding Rent 1,000
Furniture 16,000 Discount 500
Advertisement (for 2years) 6,000
Bills receivables 8,000
Insurance 2,000
Drawings : S 2,000
D 3,000
Cash in hand 5,500
Rent 7,000
Power & Fuel 3,000
Total 1,77,500 Total 1,77,500
Adjustments : 1.Closing stock was valued at Rs.30,000
2.Credit purchases amounting to Rs.5,000 were not recorded in the books of A/cs
3.Outstanding Exp.were wages Rs.,1,000 & salary Rs.2,000
4.Write Off Rs.2,000 for bad debts & maintain R.D.D at 5% on debtors

79

5.Dep.land & building at 5% & machinery at 10%
6.Provide interest on Patners’ capital at 5%p.a
From the above Trial balance & Adjustments you are required to prepare Trading & Profit & loss A/c for the year
ended 31
st
march 2018 & balance sheet as on that date.

Q15.(Provident Fund , Error of Principle , Sale of Return)
Following is the Trial balance of M/s Sachin & shrimant on 31
st
march 2018.Sachin & shriman share profits & losses
in the ratio of 3:1. Prepare Trading & Profit & loss a/c for the year ending 31
st
march 2018 & a balance sheet as on
that date , after taking into consideration the additional information.
Trial Balance on 31
st
march 2018
Debit Balance Rs. Credit Balance Rs.
Advertisement for 2 years (w.e.f 1-1-18) 3,600 Sales 2,87,500
Opening stock 2,2000 Bills payables 3,000
Purchases 1,62,350 Commission 4,200
Drawings : Sachin 2,500 Capitals: Sachin 40,000
Shrimant 1,800 Shrimant 20,000
Wages 4,500 Creditors 21,500
Salaries 11,200 Outstanding Salaries 300
Professional Charges 7,300 Provident Fund 12,000
Printing & stationery 1,850 Interest on P.F Investment 1,200
Insurance 3,400
Prepaid Insurance 400
Interest 6,300
Debtors 48,200
Cash at bank 1,01,300
P.F Investment 12,000
P.F Contribution 1,000
Total 3,89,700 Total 3,89,700
1.Closing stock – Cost price Rs.37,500 , Market price Rs.45,000
2.Interest on capital is allowed at 10% p.a while interest on drawing is charged as sachin Rs.250 & Shrimant Rs.180
3.Goods of Rs.3,000 were taken by Sachin but no entry was made in the books
4.A receipt of Rs.2,000 from Mr.P as loan is wrongly included in commission income
5.Goods of Rs.3,000 were sold to a customer on sale or return basis on 1-3-18. The customer has not approved the
goods till 31-3-18.The cost of goods was Rs.2,500

Q16.(Revaluation of Furniture , Unrecorded Purchases)
From the following Trial balance of A & B given adjustment , prepare a Trading A/c , profit & loss A/c for the year
ended 31
st
march 2018 & a balance sheet as on that date.
Trial balance sheet as on 31
st
march 2018
Debit balance Rs. Credit Balance Rs.
Stock 25,000 Sales 4,30,000
Purchases 1,70,000 Returns 3,000
A’s Drawings 10,000 Discount 3,500
B’s Drawings 10,000 Creditors 35,000
Returns 2,500 A’s Capital 1,20,000
Sundry Exp. 500 B’s Capital 90,000
Wages 2,3000 Bills payable 45,000

80

Salaries 4,5000 15% Bank loan (Taken on 1-7-17) 50,000
Travelling Exp. 6,000
Advertising 10,000
Rent 6,800
Insurance 4,000
Bad debts 3,200
Discount 4,000
Commission 6,300
Buildings 1,30,000
Machinery 1,20,000
Furniture 50,000
Sundry Debtors 45,000
Cash 5,000
Bills receivable 50,000
Goodwill 50,200
Total 7,76,500 Total 7,76,500
Adjustments: 1.Stock on 31-3-18 was valued at Rs.64,500
2.Dep.building by 10% machinery by 15% furniture was revalued at the end of the year at Rs.40,000
3.Provide Rs.3,500 as further bad debts & R.D.D is to be maintained at 5% on debtors
4.Outstanding Exp. were wages Rs.11,000 Rent Rs.4,000 & prepaid insurance Rs.2,000
5.Interest on capital is to be provided at 10% & interest on drawing is to be ignored
6.Purchases on credit of Rs.10,000 are not recorded in the books.

TYBCOM SEM VI FINANCIAL ACCOUNTING NOTES

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