(a) X Ltd. and Y Ltd. were in telecom business. Both the companies took a decision to amalgamate and a new company XY Ltd. is to…

(a) Amalgamation of X Ltd. and Y Ltd. into XY Ltd.

The revaluation of assets and the recognition of goodwill show an amalgamation in the nature of purchase. X's receivables, bank balance and trade payables stay with its liquidator. The 10% debenture premium is taken as part of the ₹2,20,000 discharge value.

(i) Purchase consideration and shares at par

• X: PPE 2,50,000 + inventories 2,70,000 + goodwill 1,00,000 = 6,20,000, less debentures 2,20,000 = ₹4,00,000, so 40,000 shares of ₹10.
• Debentures: XY issues 8% debentures of ₹2,00,000 face value at a 10% premium (₹2,20,000), discharging X's ₹2,20,000.
• Y: PPE 6,10,000 + inventories 1,00,000 + receivables 2,84,000 + bank 1,16,000 + goodwill 3,00,000 = 14,10,000, less payables 2,80,000 = ₹11,30,000, so 1,13,000 shares.
• Total 1,53,000 shares (₹15,30,000), within the authorised ₹20,00,000.

(ii) Balance Sheet of XY Ltd. at 1.4.2021

• Equity and liabilities: share capital ₹15,30,000; 8% debentures ₹2,00,000; securities premium ₹20,000; trade payables ₹2,80,000. Total ₹20,30,000.
• Assets: PPE ₹8,60,000; goodwill ₹4,00,000; inventories ₹3,70,000; trade receivables ₹2,84,000; cash at bank ₹1,16,000. Total ₹20,30,000.

(iii) Journal entries in the books of X Ltd. (₹)

1. Realisation A/c Dr 6,08,000; to PPE 2,50,000, Inventories 2,70,000, Trade receivables 88,000.
2. 8% Debentures A/c Dr 2,20,000 and Trade payables A/c Dr 1,08,000; to Realisation A/c 3,28,000.
3. XY Ltd. A/c Dr 4,00,000; to Realisation A/c 4,00,000.
4. Bank A/c Dr 88,000; to Realisation A/c 88,000 (receivables realised).
5. Realisation A/c Dr 1,08,000; to Bank A/c 1,08,000 (payables paid).
6. Shares in XY Ltd. A/c Dr 4,00,000; to XY Ltd. A/c 4,00,000.
7. Realisation A/c Dr 1,00,000; to Equity shareholders' A/c 1,00,000 (profit); and Share capital Dr 2,80,000, Profit and loss Dr 60,000; to Equity shareholders' A/c 3,40,000.
8. Equity shareholders' A/c Dr 4,40,000; to Shares in XY Ltd. 4,00,000 and Bank 40,000 (60,000 + 88,000 − 1,08,000).

(b) Principles and steps of a good costing system

A costing system records, classifies and assigns manufacturing cost to products so that it can be controlled and used for pricing and decisions. Its principles are:

• It must suit the nature of the business and be simple, flexible and economical.
• Cost must be classified consistently (material, labour, overheads; direct and indirect; fixed and variable).
• Responsibility must be fixed through cost centres, with cost data tied to the financial accounts.
• Records must be accurate, prompt and verifiable, with a reconciliation to the financial accounts.
• Management and workers should accept it, and it should report cost against standards.

The steps are:

• Study the products, process flow, organisation and information needs.
• Choose the method: job, batch, process or standard costing.
• Define cost centres and cost units, then design the documents and codes: material requisition, job card, time sheet.
• Select methods for pricing material issues and for absorbing overheads.
• Set standards and the variance and cost reports.
• Integrate with stores and the financial accounts, train staff, run a pilot, then review.

(c) Short-term and long-term capital assets, and tax on gains

(i) Definition. A capital asset is short-term if held for not more than the specified period and long-term if held for longer. The period is 12 months for listed securities and units of equity-oriented funds, and 24 months for other assets such as land, buildings and unlisted shares. Gains on unlisted bonds, debentures and specified debt funds are always short-term.

(ii) Tax computation.

• Short-term gain = sale consideration − (cost of acquisition + improvement + transfer expenses). Listed equity sold through a recognised exchange with STT is taxed at 20% (Section 111A of the 1961 Act); other short-term gains are added to income and taxed at slab rates.
• Long-term gain = sale consideration − the same deductions, without indexation after 23 July 2024. Listed equity gains above ₹1,25,000 are taxed at 12.5% (Section 112A) and other long-term gains at 12.5% (Section 112). Resident individuals and HUFs may use 20% with indexation on land or buildings acquired before 23 July 2024.
• Surcharge (capped at 15% on these gains) and cess apply, and exemptions such as Sections 54, 54F and 54EC reduce the tax.

For the year of the paper (AY 2021–22) the rates were 15% (short-term, STT paid), 10% above ₹1 lakh (listed equity) and 20% with indexation (others). These provisions are now carried into the Income-tax Act, 2025.