Illustration - 16 a 16AX Ltd. and BX Ltd. decided to amalgamate their business with a view to a public share issue. A holding company, MX Ltd. is to be incorporated on 1st May 2009 with an authorised capital of Rs. 60,00,000 in Rs. 10 ordinary shares. The company will acquire the entire ordinary Share capital of AX Ltd. and BX Ltd. in exchange for an issue of its own shares. The consideration for the acquisition is to be ascertained by multiplying the estimated profits available to the ordinary shareholders by agreed price earnings ratio. The following relevant figures are given: AX Ltd. Rs. BX Ltd. Rs. 30,00,000 Issued Share capital Ordinary shares of Rs. 10 each 6% Cumulative Preference shares of Rs. 100 each 5% Debentures, redeemable in 2013 Estimated annual maintainable profits, before deduction of debenture interest and taxation Price / Earning Ratio 12,00,000 10,00,000 8,00,000 2,40,000 6,00,000 15 10 The shares in the holding company are to be issued to members of the subsidiaries on 1st June 2009, at a premium of Rs. 2.50 per share and thereafter these shares will be marketable on the Stock Exchange. It is anticipated that the merger will achieve significant economics but will necessitate additional working capital. Accordingly, it is planned that on 31st December, 2009, MX Ltd. will make a further issue of 60,000 ordinary shares the public for cash at the premium of Rs. 3.75 a share. These shares will not rank for dividends until 31st December, 2009. In the period ended 31st December, 2009, bank overdraft facilities will provide funds for the payment of MX Ltd. of preliminary expenses estimated at Rs. 50,000 and management etc. expenses estimated at Rs. 6,000 It is further assumed that interim dividends on ordinary shares, relating to the period from 1st June to 31st December, 2009 will be paid on 31st December 2009 by MX Ltd. at 3% by AX Ltd. at 5% and by BX Ltd. at 2%. You are required to project, as on 31st December 2009 for MX Ltd., (a) the Balance Sheet as it would appear immediately after fully subscribed share issue, and (b) the Profit and Loss Account for the period ending 31st December, 2009. Assume the rate of corporation tax to be 40% you can make any other assumption you consider relevant