X Limited and Y Limited were in the business of telecommunication (telecom). Both the companies decided to amalgamate and form a new company XY Limited with an authorized capital of ₹ 20,00,000 divided into 200000 equity shares of ₹ 10 each. The bala

Question

X Limited and Y Limited were in the business of telecommunication (telecom). Both the companies decided to amalgamate and form a new company XY Limited with an authorized capital of ₹ 20,00,000 divided into 200000 equity shares of ₹ 10 each. The balance sheets of the companies as on 31.03.2021 were as follows:

Details | X Limited (₹) | Y Limited (₹)
---|---|---
I. Equity and Liabilities: | |
1. Shareholders' Funds: | |
(a) Share Capital | 2,80,000 | 5,00,000
(b) Reserves and Surplus (Profit and Loss Account) | 60,000 | 3,10,000
2. Non-current Liabilities: | |
8% Secured Debentures | 2,20,000 | —

UPSC Answer Check · Accepted Answer

The directive 'calculate' requires precise numerical computation of purchase consideration and related amalgamation accounting. Structure: (a) Identify the method of amalgamation (pooling of interests vs. purchase) and compute purchase consideration for X Limited (~50% time) — consider share capital, reserves, and debenture treatment; (b) Compute purchase consideration for Y Limited (~35% time) — focus on share capital and reserves; (c) Pass journal entries and prepare opening balance sheet of XY Limited (~15% time). Show all workings stepwise with clear assumptions.
- Computation of purchase consideration for X Limited: consideration of equity share capital (₹2,80,000), P&L reserves (₹60,000), and treatment of 8% secured debentures (₹2,20,000) — whether taken over by new company or discharged
- Computation of purchase consideration for Y Limited: consideration of equity share capital (₹5,00,000) and P&L reserves (₹3,10,000) with no debentures
- Determination of net assets taken over by XY Limited and calculation of purchase consideration payable to shareholders of both companies
- Journal entries in books of X Limited and Y Limited for transfer of assets, liabilities, realization, and settlement of purchase consideration
- Journal entries in books of XY Limited for receipt of assets/liabilities, allotment of shares, and treatment of reserves
- Preparation of opening balance sheet of XY Limited showing authorized capital (₹20,00,000), issued capital, reserves, and assets/liabilities taken over

Dimension	Weight	Max marks	Excellent	Average	Poor
Demand-directive understanding	20%	2	Correctly identifies that 'calculate' requires numerical computation of purchase consideration under AS-14, distinguishes between net assets method and payment method, and applies appropriate method based on data given; clearly states assumption about debenture treatment	Attempts calculation but confuses purchase consideration with net assets or omits debenture treatment; shows partial understanding of AS-14 requirements	Misinterprets directive as descriptive, provides only theory of amalgamation without calculations, or applies wrong method (e.g., calculates goodwill when not required)
Content depth & accuracy	20%	2	Accurate computation of purchase consideration for both companies with correct arithmetic; proper treatment of reserves (P&L account) as per AS-14; correct journal entries with proper narration and ledger accounts if required	Minor arithmetic errors in computation (±5% variance); partially correct journal entries with some omissions in narration or wrong account heads; inconsistent treatment of debentures	Major computational errors (>10% variance); fundamentally wrong journal entries; ignores AS-14 provisions on treatment of reserves or amalgamation in nature of merger vs. purchase
Structure & flow	20%	2	Logical sequence: computation workings → journal entries (X Ltd, Y Ltd, XY Ltd) → opening balance sheet; clear headings for each sub-part; numbered steps in calculations with cross-references	Present in correct sequence but lacks clear demarcation between sub-parts; workings shown but not systematically arranged; some steps missing or merged confusingly	Random presentation with no logical flow; journal entries mixed with balance sheet items; workings not shown or incomprehensible; no headings or sub-headings
Examples / case-law / data	20%	2	Cites relevant AS-14 provisions for amalgamation accounting; references Companies Act 2013 provisions on transfer of assets/liabilities; uses given data precisely (₹2,80,000; ₹5,00,000; ₹2,20,000 debentures) with proper units	Uses given data but without citing AS-14 or Companies Act; minor errors in data transcription; generic reference to accounting standards without specificity	Ignores given data or uses wrong figures; no reference to applicable standards; invents data not provided in question (e.g., asset values, other liabilities)
Conclusion & analytical edge	20%	2	Concludes with balanced opening balance sheet tallying; notes accounting treatment of reserves (whether capital reserve or revenue reserve); briefly comments on financial position of new entity (capital structure, reserve position); mentions any alternative treatment with justification	Prepares balance sheet but without analytical comment; simple statement of totals without interpretation; no note on nature of amalgamation or reserve treatment implications	No conclusion or final balance sheet; incomplete answer ending abruptly; balance sheet not tallied with no attempt to reconcile

X Limited and Y Limited were in the business of telecommunication (telecom). Both the companies decided to amalgamate and form a…

Directive word: Calculate

How this answer will be evaluated

Approach

Key points expected

Evaluation rubric

Practice this exact question

More from Commerce & Accountancy 2021 Paper I