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The following are the liabilities and assets of Amrita Ltd Liabilities Assets Share capital 60000 Goodwill 28000 Debentures 10000 Land & building 16000 Sundry creditors 6000 Plant & Machinery 28000 General reserve 4000 Stock 16000 Profit & Loss A/c 20000 Debtors 8000 Cash 2000 Preliminary expenses 2000 Total assets 100000 Totall liabilities and equity 100000 Bangalore Ltd takes over the business of Amrita Ltd
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The following are the liabilities and assets of Amrita Ltd |
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Liabilities |
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Assets |
|
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Share capital |
60000 |
Goodwill |
28000 |
|
Debentures |
10000 |
Land & building |
16000 |
|
Sundry creditors |
6000 |
Plant & Machinery |
28000 |
|
General reserve |
4000 |
Stock |
16000 |
|
Profit & Loss A/c |
20000 |
Debtors |
8000 |
|
Cash |
2000 |
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|
Preliminary expenses |
2000 |
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|
Total assets |
100000 |
Totall liabilities and equity |
100000 |
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Bangalore Ltd takes over the business of Amrita Ltd. the value agreed for various assets and liabilities are: |
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Goodwill |
36000 |
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Land & Building |
39000 |
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Plant and Machinery |
38000 |
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|
Stock |
27000 |
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Debtors |
8000 |
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Debentures |
10000 |
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sundry creditors |
6000 |
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Requirement: 1. Calculate the purchase consideration and Regarding in book of Bangalore Ltd |
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Expert Solution
Answer
Purchase consideration - Net Asset method
Net Asset = Agreed value of assets taken over by purchaing company - agreed value of liabilities assuemed by purchaing company
Here Purchasing compaany Banglore Ltd
Vendor Company - Amritha Ltd.
Purchaing company take over the business
Business means all assets and outside liabilities
All assets means assets other tham fictitious aassets . Here preliminery expenses is fictitious assets.
Purchase Consideration
| Agrred Value of assets | Amount | Amount |
| Goodwill | 36,000 | |
| Land aand Building | 39,000 | |
| Plant and Machinery | 38,000 | |
| Stock | 27,000 | |
| Debtors | 8,000 | |
| Cash | 2,000 | |
| Total | 150,000 | |
| Less Agreed Value of Liabilities | ||
| Debentures | 10,000 | |
| Sundry Creditors | 6,000 | |
| Total | 16,000 | |
| Prucahse Consideration | 134,000 |
Journal Entries in thee book of Banglore Ltd.
| 1 | Business Purchase Account Dr | 134,000 | |
| To Liquidator of Amritha Ltd. | 134,000 | ||
| 2 | Goodwill Dr. | 36,000 | |
| Land aand Building Dr. | 39,000 | ||
| Plant and Machinery Dr. | 38,000 | ||
| Stock Dr. | 27,000 | ||
| Debtors Dr. | 8,000 | ||
| Cash Dr. | 2000 | ||
| To Debenture Account | 10,000 | ||
| To Sundry Creditors | 6,000 | ||
| To Business Purchase | 134,000 | ||
| 3 | Liquidation of Amritha Ltd. | 134,000 | |
| To Share Capital | 134,000 | ||
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