10% Preference Share 6,00,000 Investment in Shares in capital 80,000 shares Ltd. at Cost 3,24,000 of Rs. 7.5 each Less: Reduced (11 500) 3,12,500 Reserve and surplus Stock 2,48,000 Capital reserve 2,56,100 Add: Increased 2.000 2,50,000 Sundry creditors 4,40,00 Debtors 3,20,000 Less: Provision 16.400) 3,13,600 Bank 5,12,000 Deferred Revenue Exp. 48,000 Less: Reduced 48.000 Nil Profit and Loss A/C 4,40,000 Less: Reduced 14,40,000) Nil 19,56,100 19,56,100 Notes: 1. It is assumed that there is permanent decline in the value of investments of Q Ltd. 2. Preference dividend, on cancellation, ceases to be a contingent liability. Hence, it is needles to disclose the interest as Contingent Liability. VIII. Reverse Merger a28 Illustration - 33 The following are the Balance sheets of AB Ltd. and XY Ltd. as on 31.12.2008 ('000) Liabilities AB Ltd. AB Ltd. Rs. XY Ltd. Rs. Rs. 2,000 850 Share capital: Equity Shares of Rs.100 each fully paid up Reserves and surplus 10% Debentures Loan from Financial Institutions XY Ltd. Assets Rs. . Fixed assets 1,000 (net of depreciation) Investments Sundry Debtors Cash and Bank Profit and Loss A/C 400 2,700 700 400 800 150 500 250 800 250 AB Ltd Rs 300 Liabilities AB Ltd. XY Ltd. Assets XY Ltd. Rs. Rs. Rs. Bank Overdraft 100 Sundry creditors 300 Proposed Dividend 200 Total 4,050 1,800 Total 4,050 1,800 It was decided that XY Ltd. will acquire the business of AB Ltd. for enjoying the benefit of carry forward of business loss. After acquisition, XY Ltd. will be renamed as Z Ltd. The following scheme has been approved for the merger. XY Ltd. will reduce its shares to Rs. 10 and then consolidate 10 such shares into one share of Rs. 100 each (New Share). ii. Financial institutions agreed to waive 15% of the loan of XY Ltd. iii. Shareholders of AB Ltd. will be given one new share of XY Ltd. in exchange of every share held in AB Ltd. iv. AB Ltd. will cancel 20% holdings of XY Ltd. Investments were held at Rs. 250 thousands. After merger, the proposed dividend of AB Ltd. will be paid to the shareholders of ABLtd. vi. Authorised Capital of XY Ltd. will be raised accordingly to carry out the scheme. vii. Sundry creditors of XY Ltd. includes payables to AB Ltd. Rs. 1,00,000. i. V. Pass the necessary entries to implement the scheme in the books of AB Ltd. and XY Ltd. and prepare a Balance Sheet of Z Ltd