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Question 4 Following are the summarized Balance Sheet of Light Limited and Bright Limited as at 31st March,2024: Particulars Notes Light Limited (` in Lakhs) Bright Limited (` in Lakhs) Equity and Liabilities Shareholders’ Funds (a) Share Capital 1 50.00 40.00 (b) Reserves and Surplus 2 27.00 24.00 Non- Current Liabilities Long Term Provisions 1.50 - Current Liabilities Trade Payables 3.40 2.00 Total 81.90 66.00 Assets Non-Current Assets Property, Plant and Equipment 3 68.70 50.25 Current Assets (a) Inventories 5.75 7.10 (b) Trade Receivables 4.30 5.80 (c) Cash and Cash equivalents 3.15 2.85 Total 81.90 66.00 Notes to Accounts: Particulars Light Limited (` in Lakhs) Bright Limited (` in Lakhs) 1. Share Capital 50,000 Equity Shares of ` 100 each 50.00 40.00 2. Reserves and Surplus Statutory Reserve 2.00 - General Reserve 18.00 15.00 Securities Premium - 5.00 Profit and Loss 7.00 4.00 27.00 24.00 3. Property, Plant and Equipment Land and Building 58.00 44.00 Plant and machinery 7.50 4.50 Other Assets 3.20 1.75 68.70 50.25 ADVANCED ACCOUNTING Other Information: (a) A company Rainbow Limited is formed to acquire the Assets and Liability of both the companies. Assets were acquired at book values except Land and Building of Light Limited, which is revalued at ` 62 lakhs. (b) Other Assets of Bright Limited are obsolete and are scrapped and sold for ` 50,000 by Bright Limited itself before acquisition of its assets and liabilities by Rainbow Limited. (c) Light Limited and Bright Limited will be issued 80,000 and 64,000 equity shares of ` 100 each respectively of new company Rainbow Limited in lieu of purchase consideration due to them. You are required to Prepare: (a) Realisation Account and Equity Shareholders Account in the books of Light Limited and Bright Limited; (b) Opening Balance Sheet of Rainbow Limited as at 31st March,2024. (14 Marks)

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Detailed Solution & Explanation

Adjustment in bank balance and profit & loss account before amalgamation Other assets of Bright limited ` In lakhs Book value 1.75 Less: Sale proceeds (0.50) Loss on sale of other assets (debited to Profit & Loss A/c) 1.25 The new balance of Bank = 2.85 +0.5= 3.35 (` In lakhs) The new balance of Profit & Loss A/c = 4-1.25= 2.75 (` In lakhs) (a) (i) Realisation Account Light Ltd. (` In lakhs) Bright Ltd. (` In lakhs) Light Ltd. (` In lakhs) Bright Ltd. (` In lakhs) To Sundry Assets, transfer : By Long term provision 1.50 - To Land & Building, 58.00 44.00 By Trade payables 3.40 2.00 To Plant & machinery 7.50 4.50 By Rainbow Ltd. - purchase 80.00 64.00 To Other assets 3.20 - To Inventories 5.75 7.10 To Trade receivable 4.30 5.80 To Cash & Bank Balance 3.15 3.35 To Equity Shareholders - profit 3.00 1.25 84.90 66.00 84.90 66.00 (ii) Shareholders Account Light ltd. (` In lakhs) Bright Ltd. (` In lakhs) Light Ltd. (` In lakhs) Bright Ltd. (` In lakhs) To Shares in Rainbow Ltd. 80.00 64.00 By Share Capital A/c - transfer 50.00 40.00 By Statutory reserve 2.00 - By General Reserve 18.00 15.00 By Securities premium - 5.00 By Profit & Loss A/c 7.00 2.75 By Realisation A/c 3.00 1.25 80.00 64.00 80.00 64.00 (b) Balance Sheet of Super Rainbow Ltd. Particulars Notes (` In lakhs) Equity and Liabilities 1 Shareholders' funds A Share capital 1 144.00 B Reserves and Surplus 2 1.00 2 Non-current liabilities A Long-term provisions 1.50 3 Current liabilities A Trade Payables 5.40 Total 151.90 ADVANCED ACCOUNTING Assets 1 Non-current assets A Property, Plant and Equipment 3 121.20 B Intangible assets 4 1.25 2 Current assets Inventories 12.85 Trade receivables 10.10 Cash and cash equivalents 6.50 Total 151.90 (c) Notes to Accounts (` In lakhs) 1. Share Capital Equity share capital Issued, subscribed and paid up 1,44,000 Equity shares of ` 100 each 144.00 (all shares are issued for consideration other than cash) 2. Reserves and Surplus Statutory Reserves 2.00 Amalgamation Adjustment Reserves (2.00) Capital Reserves 1.00 1.00 3. Property, Plant and Equipment Land and Buildings 106.00 Plant and Machinery 12.00 Other Assets 3.20 121.20 4 Intangible assets Goodwill 1.25 Working notes: 1. Calculation of purchase consideration Light ltd. (` In lakhs) Bright Ltd. (` In lakhs) 80,000 Equity Shares of ` 100 80 64,000 Equity Shares of ` 100 64 2. Calculation of Net assets taken over (` In lakhs) Particulars Light Ltd. Bright Ltd. Assets taken over: Land and Buildings 62.00 44.00 Plant and Machinery 7.50 4.50 Other Assets 3.20 - Inventory 5.75 7.10 Trade Receivable 4.30 5.80 Cash at Bank (2.85 + 0.50) 3.15 3.35 (i) 85.90 64.75 Liabilities taken over: Long term provisions 1.50 - Trade payable 3.40 2.00 (ii) 4.90 2.00 Net assets taken over (i) – (ii) 81.00 62.75 3. Calculation of Goodwill/Capital Reserve (` In lakhs) Particulars Light Ltd. Bright Ltd. Net Assets takeover 81.00 62.75 Less: Purchase Consideration (80.00) (64.00) Goodwill/ (Capital Reserve) (1.00) 1.25 ADVANCED ACCOUNTING

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.

Reserves and Surplus

Accumulated profits and specific provisions retained in the business rather than distributed to shareholders. Reserves are appropriations of profit (General Reserve, Capital Reserve), while Surplus is the undistributed balance in the P&L Account.

More Questions from Advanced Accounting

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