Advanced AccountingSubjectiveICAI Descriptive / AS 14 Amalgamation & AbsorptionQuestion 12436 of 300
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**Practical Problem — AS 14 Amalgamation & Absorption (Marks: 10)** Bharat Forge Ltd. agreed to absorb Dynamic Agro Ltd. on 31st March 2024. The summarised Balance Sheet of Dynamic Agro Ltd. disclosed: - Equity Share Capital (₹10 fully paid): ₹40,000,000 - General Reserve: ₹10,000,000 - Profit & Loss Account (Dr. balance): ₹4,000,000 - 12% Debentures: ₹8,000,000 - Property, Plant & Equipment: ₹34,000,000 - Current Assets: ₹18,000,000 Consideration is discharged by Bharat Forge Ltd. by issuing 3 equity shares of ₹10 each (market value ₹15) for every 2 shares held in Dynamic Agro Ltd., and discharging the 12% Debentures at a premium of 5% by issue of 14% Debentures of Bharat Forge Ltd.. **You are required to:** (a) Calculate the Purchase Consideration under the Net Payment Method. (b) Pass necessary Journal Entries in the books of Bharat Forge Ltd. assuming the amalgamation is in the nature of purchase.

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Detailed Solution & Explanation

### Suggested Solution — ICAI Advanced Accounting #### 1. Calculation of Purchase Consideration (Net Payment Method): - Number of equity shares in Dynamic Agro Ltd. = ₹40,000,000 / ₹10 = 4,000,000 shares. - Exchange ratio: 3 shares of Bharat Forge Ltd. for every 2 shares. - Number of shares to be issued = 4,000,000 × 3/2 = 6,000,000 shares. - Issue Price per share = ₹15 (Face Value ₹10 + Securities Premium ₹5). - **Total Purchase Consideration** = 6,000,000 × ₹15 = **₹90,000,000**. *(Note: As per AS 14, payments to debenture holders do not form part of purchase consideration. They are liabilities assumed and settled).* #### 2. Journal Entries in the books of Bharat Forge Ltd. (Transferee Company):
DateParticularsDebit (₹)Credit (₹)
2024 Mar 31Business Purchase A/c ...Dr.
  To Liquidator of Dynamic Agro Ltd. A/c
*(Being purchase consideration payable)*		90,000,00090,000,000
2024 Mar 31Property, Plant & Equipment A/c ...Dr.
Current Assets A/c ...Dr.
Goodwill A/c (Balancing figure) ...Dr.
  To 12% Debentures of Dynamic Agro A/c
  To Business Purchase A/c
*(Assets & liabilities incorporated at agreed values)*		34,000,000
18,000,000
46,000,000		8,000,000
90,000,000
2024 Mar 31Liquidator of Dynamic Agro Ltd. A/c ...Dr.
  To Equity Share Capital A/c
  To Securities Premium A/c
*(Allotment of 6,000,000 shares at ₹15 each)*		90,000,00060,000,000
30,000,000

Key Concepts to Understand

Consideration

Something of value exchanged for a promise. 'Quid Pro Quo' (Something for something).

Balance Sheet

A statement showing the financial position of a business at a particular date, listing all assets on one side and all liabilities and capital on the other side. It is not an account but a statement.

Debentures

Long-term debt instruments issued by a company to the public for raising loan capital, carrying a fixed rate of interest (coupon rate) payable regardless of profit. Debenture holders are creditors, not owners, of the company.

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