a 9 Illustration - 9 Given below Balance Sheets of Ram Ltd and Rahim Ltd, as on 31.3.2009. Rahim Ltd. was merged with Ram Ltd. with effect from 01.04.2009. Balance Sheets as on 31.3.2009 (Rs.) Liabilities Ram Rahim Assets Ram Rahim Ltd. Ltd. Ltd. Ltd. Share Capital Sundry Fixed Assets 9,50,000 4,00,000 Equity Shares of Investments (Non- 2,00,000 50,000 Rs. 10 each 7,00,000 2,50,000 trade) General Reserve 3,50,000 1,20,000 Stock 1,20,000 50,000 Profit and Loss A/c 2,10,000 65,000 Debtors 75,000 80,000 Export Profit Reserve 70,000 40,000 Advance Tax 80,000 20,000 12% Debentures 1,00,000 1,00,000 Cash and Bank 2,75,000 1,30,000 Sundry Creditors 40,000 45,000 balances Provision for Taxation 1,00,000 60,000 Preliminary Expenses 10,000 Proposed Dividend 1,40,000 50,000 17,10,000 7,30,000 17,10,000 7,30,000 Ram Ltd. would issue 12% Debentures to discharge the claims of the debenture holders of Rahim Ltd. at par. Non-trade investments of Ram Ltd. fetched @ 25% while those of Rahim Ltd. fetched @ 18%. Profit (pre-tax) by Ram Ltd and Rahim Ltd. during 2006-07, 2007-08 and 2008-09 and were as follows: Year Ram Ltd. Rahim Ltd. Rs. Rs. 2006-07 5,00,000 1,50,000 2007-08 6,50,000 2,10,000 2008-09 5,75,000 1,80,000 Goodwill may be calculated on the basis of capitalisation method taking 20% as the pretax normal rate of return. Purchase consideration is discharged by Ram Ltd. on the basis of intrinsic value per share. Both companies decided to cancel the proposed dividend. Required Balance Sheet of Ram Ltd, after merger. Solution: WN # 1: Purchase Consideration (1) Shares outstanding in Rahim Ltd. 25,000 (ii) Intrinsic Value per Share of Rahim Ltd. [WN #2] Rs. 36.20 (1) Value of Shares (axb) Rs. 9,05,000