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CS Professional · Corporate Restructuring, Valuation and Insolvency · Accounting in Corporate Restructuring: Concept and Accounting Treatment

Dhruv Ltd sells its dairy undertaking by slump sale for Rs 30 crore, payable Rs 18 crore in cash and the balance by issue of the buyer's equity shares. The undertaking has assets of Rs 34 crore (book) and liabilities of Rs 9 crore taken over by the buyer. Dhruv Ltd also incurs Rs 1 crore of sale expenses, paid in cash. What net profit does Dhruv Ltd record on the sale before tax?

The net profit is Rs 4 crore. Total consideration is Rs 30 crore including shares worth Rs 12 crore, net assets transferred are Rs 25 crore, giving a gross gain of Rs 5 crore. Deducting Rs 1 crore of sale expenses leaves Rs 4 crore before tax.

  1. ARs 4 croreCorrect
  2. BRs 5 crore
  3. CRs 3 crore
  4. DRs 6 crore

Explanation

Total consideration = 18 cash + 12 shares = Rs 30 crore. Net assets = 34 - 9 = Rs 25 crore. Gross gain = 5 crore. Less sale expenses Rs 1 crore = Rs 4 crore. Rs 5 crore ignores expenses; Rs 6 crore wrongly adds them; Rs 3 crore counts only cash less net assets, minus expenses incorrectly.

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