Advanced AccountingSubjectiveICAI Descriptive / AS 14 Amalgamation & AbsorptionQuestion 12499 of 300
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**Practical Problem — AS 14 Amalgamation & Absorption (Marks: 10)** Godavari Sugar Mills 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): ₹71,500,000 - General Reserve: ₹17,875,000 - Profit & Loss Account (Dr. balance): ₹7,150,000 - 12% Debentures: ₹14,300,000 - Property, Plant & Equipment: ₹60,775,000 - Current Assets: ₹32,175,000 Consideration is discharged by Godavari Sugar Mills 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 Godavari Sugar Mills Ltd.. **You are required to:** (a) Calculate the Purchase Consideration under the Net Payment Method. (b) Pass necessary Journal Entries in the books of Godavari Sugar Mills 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. = ₹71,500,000 / ₹10 = 7,150,000 shares. - Exchange ratio: 3 shares of Godavari Sugar Mills Ltd. for every 2 shares. - Number of shares to be issued = 7,150,000 × 3/2 = 10,725,000 shares. - Issue Price per share = ₹15 (Face Value ₹10 + Securities Premium ₹5). - **Total Purchase Consideration** = 10,725,000 × ₹15 = **₹160,875,000**. *(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 Godavari Sugar Mills Ltd. (Transferee Company):
DateParticularsDebit (₹)Credit (₹)
2024 Mar 31Business Purchase A/c ...Dr.
  To Liquidator of Dynamic Agro Ltd. A/c
*(Being purchase consideration payable)*		160,875,000160,875,000
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)*		60,775,000
32,175,000
82,225,000		14,300,000
160,875,000
2024 Mar 31Liquidator of Dynamic Agro Ltd. A/c ...Dr.
  To Equity Share Capital A/c
  To Securities Premium A/c
*(Allotment of 10,725,000 shares at ₹15 each)*		160,875,000107,250,000
53,625,000

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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