Q. 14. The summarized Balance Sheets of B Ltd. and X Ltd. for the year ending on 31.3.2010 are as under BLtd. X Ltd. BLtd. X Ltd. Rs. Rs. Rs. Rs. 24,00,000 12,00,000 Fixed assets 55,00,000 27,00,000 8,00,000 Current assets 25,00,000 23,00,000 Equity Share capital in shares of RS. 10 each) 8% Preference Share capital in share of Rs. 10 each) 10% Preference Share capital in shares of Rs. 10 each) Reserves Current liabilities 4,00,000 30,00,000 24,00,000 18,00,000 10,00,000 80,00,000 50,00,000 80,00,000 50,00,000 1. The following information is provided : (a) Profit before tax (b) Taxation (c) Preference dividend (d) Equity dividend X Ltd. Rs. 10,64,000 4,00,000 64,000 2,88,000 B Ltd. Rs. 4,80,000 2,00,000 40,000 1,92,000 2. The Equity shares of both the companies are quoted in the market. Both the companies are carrying on similar manufacturing operations. 3. B Ltd. proposes to absorb X Ltd. as on 31.3.2010. The terms of absorption are as under: a. Prefernce shareholders of X Ltd. will receive 8% preference shares of B Ltd. sufficient to increase the income of preference shareholders of X Ltd. by 10% b. The equity shareholders of X Ltd. will receive equity shares of B Ltd. on the following basis: (i) The equity shars of X Ltd. will be valued by applying to the earnings per share of X Ltd. 75% of pric earnings ratio of B Ltd. based on the results of 2009-2010 of both the companies. 8 (ii) The market price of equity shares of B Ltd. is Rs. 40 per share. (iii) The number of shares to be issued to the equity shareholders of X Ltd. will be based on the above market value. n (iv) In addition to equity shares, 8% preference share of B Ltd. will be issued to the equity shareholders of X Ltd. to make up for the loss in income arising from the above exchange of shares based on the dividends for the year 2009 2010. 4. The assets and liabilities of X Ltd. as on 31.3.2010 are revalued by professional valuer as under Increased by Decreased by Rs. Rs. Fixed assets 1,00,000 Current assets 2,00,000 Current liabilities 40,000 5. For the next two years, no increase in the rate of equity dividend is expected