MCom I Semester Corporate Accounting Amalgamation Reconstruction Study Material Notes ( Part 2 )

MCom I Semester Corporate Accounting Amalgamation Reconstruction Study Material Notes ( Part 2 ) : Calculation Purchase Consideration Journal Entries Balance Sheet Ledger Realisation Account Equity Shareholders Account ( Most Important Notes for MCom Students )

CTET Paper Level 2 Language I English Question Model Paper

Illustration 12, Diva Ltd. and Aura Ltd. carrying on similar business agreed to amalgamate by transferring their undertaking to a new company Devisor Ltd. The balance sheets of the two companies as of the date of transfer were as follows:

The terms of the agreement were as follows:

(a) The purchase consideration consisted of:

(i) the assumption of liabilities of both the companies,

(ii) the discharge of the debentures in Aura Ltd, at a premium of 5% by the issue of 14% debentures in Devisor Ltd.,  (iii) the issue of 10 equity shares of Rs. 10 each at a premium of Rs. 2 per share for each preference share held in both the companies, (iv) the issue of 10 equity shares of Rs. 10 each at a premium of Rs. 2 per share and Rs. 22 in cash for each equity share in Diva Ltd. and 5 equity shares of Rs. 10 each at a premium of Rs. 2 per share and Rs. 80 in cash for every equity share in Aura Ltd.

(b) All the assets and liabilities of the two companies were taken over at their book values except that a provision @ 5% to be raised on debtors.

(c) In order to raise working capital and to pay the purchase considerations Devasura Ltd. decided on 30.000 equity shares of Rs. 10 each at a premium of Rs. 2.50 per share.

 Dissenting Shareholders

A dissenting shareholder is that shareholder of the transferor company who has not assented to the scheme of amalgamation passed by the prescribed majority of shareholders of that company and who has refused to transfer his shares to transferee company in accordance with the scheme. Section 395 (2) (a) and (b) of Companies Act provides that the shares of such dissenting shareholder may be acquired by the liquidator of transferor company on mutually agreed terms or on terms as ordered by the court.

In an examination problem, the paid-up value of shares held by the dissenting shareholders shall be transferred to a separate account designated as “Dissentient Shareholders’ Account” and share capital held by others will be transferred to “Willing Shareholders’ Account”. Any premium paid or discount received in settlement of dissenting shareholders claim shall be transferred to Realization Account. The profit or loss on realization and accumulated profits, reserves or losses as appearing in the Balance Sheet would be transferred to Willing Shareholders’ Account

Here it is important to state that if shares of dissenting shareholders are acquired by any assenting or willing shareholder, no entry will be passed in the books of the company to record this deal.

Illustration 21. The All India Company Limited agrees to acquire, as a going concern, the business of the Presidency Company Ltd. on the basis of the Vendor’s balance sheet at 31st December 2005, which is as follows: