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Question 4 The following are the summarized Balance Sheets of Well Ltd. and Nice Ltd. as at 31st March, 2024 : Particulars Notes Nice Ltd. (` in '000) Well Ltd. (` in '000) Equity and Liabilities 1. Shareholder's funds a. Share capital 1 41,000 14,300 b. Reserves and Surplus 2 19,500 (7,350) 2. Non-current liabilities a. Long-term borrowings 3 20,500 5,425 3. Current Liabilities a. Trade Payables 15,740 4,850 b. Short-term Borrowings - 1,975 Total 96,740 19,200 Assets 1. Non-current Assets a. Property, plant, and equipment 4 62,550 16,380 b. Non-current Investments 22,500 - 2. Current assets a. Inventories 300 870 b. Trade Receivables 6,590 1,950 ADVANCED ACCOUNTING c. Cash and Cash equivalents 4,800 - Total 96,740 19,200 Notes to Accounts Nice Ltd. (` in '000) Well Ltd. (` in '000) 1. Share Capital Equity Share Capital Issued, subscribed & paid up capital Equity Shares of ` 100 each 31,500 12,500 Preference Share Capital Issued, subscribed & paid up capital 9% Preference Shares of ` 100 each 9,500 10% Preference Shares of ` 100 each 1,800 Total 41,000 14,300 2. Reserves and Surplus Balance of Profit and Loss A/c 19,500 (7,350) 3. Long-term borrowings 9% Debentures of ` 100 each 11,200 10% Debentures of ` 100 each 900 Loan from Banks 9,300 4,525 20,500 5,425 Details of Trade receivables and Trade payables are as under : Nice Ltd. (` in '000) Well Ltd. (` in '000) 1. Trade receivables Debtors 6,200 1,800 Bills Receivables 390 150 6,590 1,950 2. Trade payables Creditors 14,750 4,400 Bills Payables 990 450 15,740 4,850 On 31.03.2024, Nice Ltd. absorbs the business of Well Ltd. on the following terms: • For every five equity shares held by the equity shareholders of Well Ltd., they receive three equity shares of Nice Ltd. issued at a premium of ` 20 per share. • The 10% debenture-holders of Well Ltd. were to be allotted such 9% debentures in Nice Ltd. as would bring the same amount of interest. • 10% Preference Shareholders of Well Ltd. are to be paid at 10% discount by issue of 9% Preference Shares at par in Nice Ltd. • Banks agreed to waive off the loan of ` 270 thousand of Well Ltd. • Expenses of Liquidation of Well Ltd. are to be reimbursed by Nice Ltd. ` 55 thousand. • Inventory of Well Ltd. is taken over at 10% more than their book value by Nice Ltd. • Debtors of Nice Ltd. include ` 215 thousand receivables from Well Ltd. • Property, Plant, and Equipment of Well Ltd. are revalued at 20% abo their book value. • The remaining Assets and Liabilities of Well Ltd. are taken over at book value by Nice Ltd. You are required to : 1. Record Journal Entries in the books of Nice Ltd. 2. Prepare Balance Sheet of Nice Ltd. after absorption as at 31 March, 2024. (14 Marks) ADVANCED ACCOUNTING

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Detailed Solution & Explanation

Journal Entries in the Books of Nice Ltd. Dr. Cr. ` in ‘000 ` in ‘000 Business Purchase Account Dr. 10,620 To Liquidator of Well Ltd. 10,620 (Consideration payable for the business taken over from Well Ltd.) Property, Plant and Equipment (120% of ` 16,380) Dr. 19,656 Inventory (110% of ` 870) Dr. 957 Trade receivables Dr. 1,950 Goodwill A/c (Balancing figure) Dr. 137 To Trade payables 4,850 To Debenture Holders Account 1,000 To Loan from bank (4,525-270) 4,255 To Short term borrowings 1,975 To Business Purchase Account 10,620 (Incorporation of various assets and liabilities taken over from Well Ltd. at agreed values and difference of net assets and purchase consideration debited to Goodwill A/c)) Liquidator of Well Ltd. Dr. 10,620 To Equity Share Capital (75,000x 100) 7,500 To 9% Preference Share Capital 1,620 To Securities premium (7,5000x 20) 1,500 (Discharge of consideration for Well Ltd.’s business) Debenture holders A/c Dr. 1,000 To 9% Debentures A/c (Being 9% debentures issued to 10% debenture holders) 1,000 Sundry Creditors of Well Ltd. Dr. 215 To Sundry Debtors of Nice Ltd. 215 (Cancellation of mutual owing) Goodwill Dr. 55 To Bank 55 (Being liquidation expenses reimbursed to Well Ltd.) Working Note: The purchase consideration will be: ` Form Preference shareholders: 16,200 × 100 16,20,000 9% Pref. shares Equity shareholders: 1,25,000 × 3/5 × 120 90,00,000 Equity shares 1,06,20,000 10 % Preference shares 18,00,000 Less: 10% discount 1,80,000 16,20,000 Debenture calculation Interest 10% Debenture 9,00,000 90,000 Therefore 9% debentures 90,000/9% = 10,00,000 Balance Sheet of Nice Ltd. (After absorption) as at 31st March 2024 Particulars Notes ` in ‘000 I Equity and Liabilities 1 Shareholders' funds (a) Share capital 1 50,120 (b) Reserves and Surplus 2 21,000 2 Non-current liabilities (a) Long-term borrowings 3 25,755 3 Current liabilities (a) Trade payables 4 20,375 ADVANCED ACCOUNTING (b) Short term borrowing 1,975 Total 1,19,225 II Assets 1 Non-current assets (a) Property, Plant and Equipment and Intangibles 5 (i) Property, plant and equipment 82,206 (ii) Intangible assets 192 (b) Non-current investments 22,500 2 Current assets (a) Inventories 6 1,257 (b) Trade receivables 7 8,325 (c) Cash and Cash equivalents 8 4,745 Total 1,19,225 Notes to accounts ` in ‘000 1 Share Capital Equity share capital Issued, subscribed and paid up 3,90,000 Equity shares of ` 100 each (out of above 75,000 shares are issued for consideration other than cash) 39,000 Preference Shares Issued, subscribed and paid up 1,11,200 9% Preference Shares of ` 100 each (9,500 + 1,620) (out of above 16,200 shares are issued for consideration other than cash) 11,120 50,120 2 Reserves and Surplus Securities premium 1,500 Reserves and surplus 19,500 21,000 3 Long-term borrowings 9 % Debentures (11,200+1,000) 12,200 Loan from bank (9,300+4255) 13,555 25,755 4 Trade Payable Nice Limited 15,740 Well Limited 4,850 20,590 Less: Inter Company holdings (215) 20,375 5 Property, Plant and Equipment and Intangibles Property, Plant and Equipment 62,550 Acquired during the year 19,656 82,206 Intangibles Goodwill (137+55) 192 6 Inventories 300 Acquired during the year 957 1,257 7 Trade receivables 6,590 Acquired during the year (1,585+150) 1,735 8,325 8 Cash and Cash Equivalents Nice Limited 4,800 Less: Expenses on liquidation (55) 4,745 ADVANCED ACCOUNTING

Key Concepts to Understand

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.

Bills Receivable

A negotiable instrument (Bill of Exchange or Promissory Note) received by the creditor from the debtor as an acknowledgement of debt, promising payment on a specified future date. It is an asset in the Balance Sheet.

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