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Question 4 The following is summarized Balance Sheet of Pickles Ltd. as on 31/03/2025. Particulars Notes ` Equity and Liabilities 1 Shareholders’ Funds A Share Capital 1 11,00,000 B Reserves and Surplus 2 2,10,000 2 Non-Current liabilities A Long term borrowings 3 1,00,000 B Long term Provisions 4 60,000 3 Current liabilities A Trade Payables 1,75,000 B Other Current Liabilities 65,000 Total 17,10,000 Assets 1 Non-current Assets A Property, Plant and Equipment 5 7,50,000 B Intangible assets 6 75,000 2 Current Assets A Inventories 5,25,000 B Trade receivables 3,00,000 C Cash and Cash equivalents 60,000 Total 17,10,000 ADVANCED ACCOUNTING Notes to Accounts ` 1 Share Capital 6,000 Equity Shares of ` 100 each 6,00,000 5,000 6% Preference Shares of ` 100 each 5,00,000 11,00,000 2 Reserves and Surplus General reserve 1,00,000 Profit and Loss account 1,10,000 2,10,000 3 Long term borrowings 8% Debentures 1,00,000 4 Long term Provisions Retirement Gratuity Fund 60,000 5 Property, Plant and Equipment Land and Building 3,50,000 Plant and Machinery 3,00,000 Furniture and Fittings 1,00,000 7,50,000 6 Intangible Assets Patents 75,000 On 31/03/2025, Foods Ltd. acquires the business of Pickles Ltd. on the following terms: • Foods Ltd. to take over all assets (except cash) and liabilities at their book values. • Part of the Furniture and Fixtures is disposed off by Pickles Ltd. for ` 55,000 at cost. • The retirement of employees was due on 31/03/2025. A portion of ` 35,000 from Retirement Gratuity Fund was earmarked towards the payment due to them. • Foods Ltd. decided to pay for each Preference share in Pickles Ltd., ` 27 in cash and one 8% Preference share of ` 100 in Foods Ltd. • For each Equity share in Pickles Ltd., it was decided to pay ` 30 in cash and one Equity share of Foods Ltd. for ` 145. (Face value of each share of Foods Ltd. is ` 100) • Liquidation expenses of ` 22,500 paid by Pickles Ltd. were subsequently reimbursed by Foods Ltd. • The fixed assets of Pickles Ltd were not revalued for the purpose of amalgamation. You are required to pass the necessary Journal entries and also prepare Realisation Account and cash account in the books of Pickles Ltd. (14 Marks)

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Detailed Solution & Explanation

Journal Entries in the Books of Pickles Ltd. Debit (`) Credit (`) Realisation A/c Dr. 16,50,000 To Land & Building A/c 3,50,000 To Plant & Machinery A/c 3,00,000 To Furniture & Fixtures A/c 1,00,000 To Patent A/c 75,000 To Inventories A/c 5,25,000 To Trade Receivables A/c 3,00,000 (Being assets transferred to Realisation A/c) 8% Debentures A/c Dr. 1,00,000 Trade Payables A/c Dr. 1,75,000 Other Current Liabilities A/c Dr. 65,000 Retirement Gratuity Fund A/c Dr. 35,000 To Realisation A/c (Being liabilities transferred to Realisation A/c) 3,75,000 ADVANCED ACCOUNTING Cash A/c Dr. 55,000 To Realisation A/c 55,000 (Being part of furniture sold) Foods Ltd. A/c Dr. 16,85,000 To Realisation A/c 16,85,000 (Being purchase consideration receivable) Cash A/c Dr. 3,15,000 Equity Shares in Foods Ltd A/c Dr. 8,70,000 Preference Shares in Foods Ltd A/c Dr. 5,00,000 To Foods Ltd. A/c 16,85,000 (Being consideration received) 6% Preference Share Capital A/c Dr. 5,00,000 Realization A/c Dr. 1,35,000 To Preference Shareholders A/c (Being amount due to preference shareholders for capital and extra amount payable under the scheme of acquisition) 6,35,000 Preference Shareholders A/c Dr. 6,35,000 To Cash A/c 1,35,000 To Pref. Shares in Foods Ltd A/c 5,00,000 (Being payment made to preference shareholders) Equity Share Capital A/c Dr. 6,00,000 General Reserve A/c Dr. 1,00,000 Profit & Loss A/c Dr. 1,10,000 Retirement Gratuity fund Dr. 25,000 To Equity Shareholders A/c (Being various accounts representing capital, reserve, profit and loss account and others transferred to equity shareholder account) 8,35,000 Equity Shareholders A/c 11,65,000 To Cash A/c 2,95,000 To Equity Shares in Foods Ltd A/c 8,70,000 (Being payment made to equity shareholders) Foods Ltd A/c Dr. 22,500 To Cash A/c 22,500 (Being liquidation expenses paid) Cash A/c Dr. 22,500 To Foods Ltd A/c 22,500 (Being reimbursement by Foods Ltd.) Realisation A/c To Equity Shareholders A/c (Being Profit on realization is transferred to equity shareholders) Dr. 3,30,000 3,30,000 Realisation Account (Journal Entries Particulars Amount (`) Particulars Amount (`) To Land & Building 3,50,000 By Debentures 1,00,000 To Plant & Machinery 3,00,000 By Trade Payables 1,75,000 To Furniture & Fixtures 1,00,000 By Other Current Liabilities 65,000 To Patent 75,000 By Ret. Gratuity Fund 35,000 To Inventories 5,25,000 By Cash (Sale of Furniture) 55,000 To Trade Receivables 3,00,000 By Foods Ltd (PC) 16,85,000 To Preference shareholder 1,35,000 To Equity Shareholder A/c (Profit on realization) 3, 30,000 21,15,000 21,15, 000 ADVANCED ACCOUNTING Cash Account Particulars Amount (`) Particulars Amount (`) To Balance b/d 60,000 By Foods Ltd. A/c (Expenses) 22,500 To Realisation A/c (Furniture Sale) 55,000 By Pref. Shareholders A/c 1,35,000 To Foods Ltd. A/c (Reimbursement) 22,500 By Equity Shareholders A/c 2,95,000 To Foods Ltd (Cash Part of PC) (1,35,000 + 1,80,000) 3,15,000 4,52,500 4,52,500 Working Notes: 1. Purchase Consideration ` ` Form (i) Preference Shares: ` 27 per share 1,35,000 Cash Preference shares 5,00,000 6,35,000 Preference shares (ii) Equity shares: ` 30 per share 1,80,000 Cash 6,000 equity shares in Food Ltd. @ ` 145 8,70,000 10,50,000 Equity shares 16,85,000

Key Concepts to Understand

Profit and Loss Account

The second part of the final accounts that records all indirect incomes and indirect expenses to determine the Net Profit or Net Loss for the accounting period. It starts with Gross Profit from the Trading Account.

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.

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.

More Questions from Advanced Accounting

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If x:y=z:7=4:11\displaystyle x:y=z:7=4:11 then x+y+zz\displaystyle \frac{x+y+z}{z} is

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