ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

4,000 , 10% Preference share of Rs.100 each – Rs.4,00,000

5,000 , Equity shares of Rs.100 each -Rs.5,00,000

Average profits before tax- Rs. 3,22,580

Rate of tax  – 38%

Transfer to be made to Reserve – 20%

Normal rate of return – 15%

Ascertain the value of each equity share under Yield method.

The following scheme of reconstruction was finalized:

a.      Preference shareholders would give up 30% of their capital in exchange for allotment of 11% Debentures to them.

b.      Debenture holders having charge on plant & machinery would accept plant & machinery in full settlement of their dues.

c.       Inventory equal to Rs.5,00,000 in book values will be taken over by trade payables in full settlement of their dues.

d.     Investment value to be reduced to market price.

Give necessary journal entries reflecting the above scheme of reconstruction in the books of ABC Ltd.

Big Ltd. agreed to take over the assets (exclusive of goodwill, fixed assets of Rs. 4,000 and cash Rs. 1,000 which is included in current assets) at 10% less than book value and to discharge the trade creditors and to pay Rs. 6,000 for goodwill.

The purchase consideration was to be settled by the allotment of 2,000 shares of Rs. 10 each, Rs. 8 called up at a market value of Rs. 15 per share and the balance in cash. Liquidation expenses amounted to Rs. 400.

Show the calculation of purchase consideration and discharge.

SECTION – C

Net profit before tax 2013 – Rs.2,10,000 , 2014 – Rs.2,20,000 , 2015 – Rs.2,50,000. Rate of tax 40% .Income from investments may be taken at 6%. Normal rate of return on average capital employed is 15%. Building is valued at Rs.1,80,000 and Machinery at Rs.90,000. Taking weighted average profits after tax as basis, calculate the value of goodwill based on:

 a. 5 years purchase of super profits

b.  Capitalisation of super profits

 c. Annuity of super profits taking Annuity rate at 3.35. ( Ignore depreciation on Building & Machinery )

The expert valuer valued Land & Building at Rs.2,40,000;  Goodwill at Rs.1,60,000 and Plant and Machinery  at Rs.1,20,000. Out of the total Debtors, it is found that debtors of Rs.8,000 are bad.

The profits of the company after tax have been as follows:

The company follows the practice of transferring 25% of the profits to General reserve. Similar type of companies each, earns a profits at 10% of the value of their shares. Income Tax rate applicable to the company is 50%.  Ascertain the value of shares of the company under:

a)      Intrinsic value method             b)  Yield value method            c)Fair value method

X ltd. is absorbed by Y ltd. following terms:

a.    Equity shares are to be redeemed at 6% premium by issuing equity shares in Y ltd. at par.

b.   Nine preference shares in Y ltd. are to be issued for five preference shares held in X ltd. the face value of preference share of both companies is same.

c.    Stock is not taken over by Y ltd. and it realised Rs.1,00,000.

d.   The fair value of assets taken over is as under:

Plant & machinery Rs.4,00,000

Land & building Rs,17,00,000

Investments Rs.1,00,000

Debtors book value less 10%

Prepare the necessary ledger accounts in the books of X Ltd.

The following scheme of reconstruction was adopted:

a. Fixed assets are to written down by 33.33%

b. Current assets are to be revalued at Rs. 24,00,000

c. One of the creditors of the company to whom the company owes

Rs. 25,00,000 decides to forego 50% of his claim. He is allotted 2,50,000

equity shares of Rs. 5 each in full satisfaction of his claim.

d. The rate of interest on debentures is increased to 11%. The debenture holders surrender their existing debentures of Rs. 100 each and exchange the same for fresh debentures of Rs. 75 each.

e. All existing equity shares are reduced to Rs. 5 each.

f. All preference shares are reduced to Rs. 75 each.

Pass Journal entries and show the Balance Sheet of the company after giving effect to the above. Also prepare Capital Reduction A/c.

&&&&&&&&&&&&&&&&&&&&&