Description

Corporate Accounting
April 2024 Examination
1. Amar takes over the business of Anil as on 31st March 2023. The Balance Sheets of
both companies as on that date are as under:
Balance sheet of M/s Amar Ltd. as on 31st March 2023
Liabilities Rs. Assets Rs.
Equity Share Capital (Rs. 10
each) 1200000 Land & Building 1150000
12% Preference Shares 500000 Plant & Machinery 825000
Reserves & Surplus 65000 Other Assets 123000
8% Debentures 250000 Inventory 77000
Payables 175000 Receivables 100000
Other Liabilities 120000
Cash & Bank
Balances 35000
2310000 2310000
Balance Sheet of M/s Anil Ltd. as on 31st March 2023
Liabilities Rs. Assets Rs.
Equity Share Capital (Rs. 10
each) 650000 Land & Building 893000
10% Preference Shares 200000 Plant & Machinery 345000
Reserves & Surplus 13000 Other Assets 78000
10% Debentures 250000 Inventory 45000
Payables 200000 Receivables 52000
Other Liabilities 112000
Cash & Bank
Balances 12000
1425000 1425000
Terms of the deal were as follows:
Issue of equal no. of equity shares of Rs. 10 each at a premium of Re.1 /share to
shareholders of M/s Anil Limited.
Issue of 12% Preference Shares of Rs. 50 each against existing Preference Shares of M/s
Anil Ltd. at Par.
Debentures converted to 10% Debentures of M/s Amar Ltd. at proportionate value to
the
Debenture holders of M/s Anil Ltd.
Land & Building fair valued to Rs. 10,50,000/- and Plant & Machinery to Rs. 2,75,000/-
i. Pass Journal entries for the above assuming M/s Amar Ltd. does not intend to carry
on the business of M/s Anil Ltd.
ii. If the Value of Purchase Consideration is more than the value of assets taken over,
the difference is transferred to which Account? (10 marks)
Ans 1.
Introduction
In the realm of corporate finance and accounting, the process of one company taking over
another involves a series of meticulous transactions that are reflected through journal entries.
These entries not only document the transfer of assets and liabilities but also the issuance of
shares and debentures as part of the purchase consideration. The case of Amar Ltd. taking
over Anil Ltd. as of 31st March 2023, presents a classic example of such a corporate
restructuring. The balance sheets of both companies provide a snapshot of their financial
positions right before the takeover, setting the stage for a detailed accounting treatment of the
transaction. This exercise not only requires an understanding of the principles of accounting
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2. M/s Mittal Ltd. issued 75,000 debentures @ 8% interest on 1st April 2022 at par.
Interest is paid semi-annually. The Company redeemed 5,000 shares on 31st March
2023. Pass necessary Journal entries for the above for FY 2022-23 and FY 2023-24. (10
marks)
Ans 2.
Introduction:
In corporate accounting, the issuance and redemption of debentures and shares play a crucial
role in managing a company’s capital structure. M/s Mittal Ltd.’s scenario involves the
issuance of debentures at a specified interest rate and the subsequent redemption of shares.
These transactions impact the company’s financial position, liquidity, and shareholder equity.
Proper recording of these transactions is essential for accurate financial reporting and
compliance with accounting standards. This analysis will delve into the journal entries
required for the issuance of debentures and the redemption of shares by M/s Mittal Ltd. for
3a. Calculate the Value of the Shares of the following Company using Intrinsic value
method. Assume book value of assets is equal to their realizable value.(5 marks)
Liabilities Rs. Assets Rs.
Share Capital Fixed Assets
40000 shares @ Rs. 10
eRaecsherves & Surplus 14050000 BLaunilding 2300000
Plant & Machinery 180000
Long Term Debt 50000
Short Term Liabilities Investments 120000
Sundry Creditors 80000 Sundry Debtors 45000
Bank Short Term Loan 20000 Cash & Bank 123000
Other Liabilities 10000 Preliminary Exp 12000
710000 710000
Ans 3a.
Introduction:
The intrinsic value method is a fundamental approach used to determine the true worth of a
company’s shares based on the underlying value of its assets and liabilities. In this method,
the book value of assets is assumed to be equal to their realizable value, providing a more
realistic assessment of the company’s financial position. Using this method, we will calculate
b. Following is the extract of the Trial Balance of M/s Dhan Bank as on 31st March
2022. Identify what seems to be incorrect in terms of the rules and regulations
applicable to Banking Companies.
Name the Act pertaining to the Banking Companies and justify with relevant rules and
Sections:
i. Paid Up Share Capital Rs. 2,00,000
ii. Reserves and Surplus Rs. 1,00,000
iii. Preliminary Expenses Rs. 12,000
Additional information available:
The Bank has its branches in Rajkot and Indore, with plans to expand in Chennai.
Profit for the year was Rs. 1,20,000. Dividend declared Rs. 85,000. (5 marks)
Ans 3b.
Introduction:
Banking companies are governed by specific rules and regulations to ensure the stability,
transparency, and efficiency of the banking system. It’s crucial for banks to comply with these
regulations to maintain public trust and financial integrity. In this case, we will analyze the
Trial Balance of M/s Dhan Bank and identify any discrepancies or non-compliance with the
rules and regulations applicable to banking companies, particularly under the Banking