The following are the summarized Balance Sheets of M Ltd. and N Ltd : M Ltd. N L
ID: 2374882 • Letter: T
Question
The following are the summarized Balance Sheets of M Ltd. and N Ltd : M Ltd. N Ltd. M Ltd. N Ltd. Rs. Rs. Rs. Rs. Share Capital 32,000 28,000 Sundry Assets 42,000 33,000 Profit and Loss A/c 5,000 - Shares in N Ltd. 20,000 Creditors 15,000 6,000 Profit and Loss A/c - 1,000 Loan-H Ltd. 10,000 - 62,000 34,000 62,000 34,000 The whole of the shares of M Ltd. are held by H Ltd. and the entire share capital of N Ltd. is held by M Ltd. A new company MN Ltd., is formed to acquire the sundry assets and creditors of M Ltd. and N Ltd. For this purpose, the sundry assets of M Ltd. are revalued at Rs. 30,000 and those of N Ltd. at Rs. 20,000. The amount of the loan due to H Ltd. is also to be discharged by way of shares in the new company. Show the journal entries necessary to close the books of N Ltd.
Explanation / Answer
BOOKS OF N LTD.
1. Realisation A/c Dr. 33,000
To Sundry Assets A/c 33,000
(Sundry Assets transferred to Realisation Account on sale of business to MN Ltd.)
2.Creditors A/c Dr. 6,000
To Realisation A/c 6,000
sale of business to MN Ltd.)
3. MN Ltd. A/c Dr. 14,000
To Realisation A/c 14,000
(Amount of purchase consideration receivable from MN Ltd.)
4. Share Capital A/c Dr. 28,000
To Sundry Shareholders (M Ltd.) A/c 28,000
(Amount of Share capital transferred to Sundry Shareholders account)
5. Sundry Shareholders (M. Ltd.) A/c Dr. 14,000
To Realisation A/c 13,000
To Profit & Loss A/c 1,000
(Loss on realisation and debit balance of Profit & Loss Account transferred to Shareholders A/c)
6.Share in MN Ltd. Dr. 14,000
To MN Ltd. 14,000
(Amount of purchase consideration received in shares of MN Ltd.)
7. Sundry Shareholders (M Ltd.) A/c Dr. 14,000
To Shares in MN Ltd. A/c 14,000
(Amount payable to shareholders discharged by issue of shares in MN Ltd.)
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