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CMA Intermediate · Financial Accounting · Conversion of Partnership Firm into a Company and Sale of Partnership Firm to a Company

Ravi & Sons are taken over by Kaveri Ltd. Assets taken over are agreed at Rs 12,00,000 and liabilities taken over at Rs 2,00,000. The company agrees to pay purchase consideration by issuing 60,000 equity shares of Rs 10 each at par and the balance in cash. How much cash is payable (net assets method)?

Cash payable is Rs 4,00,000. Purchase consideration equals assets taken over less liabilities taken over, which is Rs 10,00,000. Shares of Rs 6,00,000 are issued, so the balance of Rs 4,00,000 is paid in cash.

  1. ARs 4,00,000Correct
  2. BRs 6,00,000
  3. CRs 10,00,000
  4. DRs 3,00,000

Explanation

Purchase consideration by net assets method = 12,00,000 - 2,00,000 = Rs 10,00,000. Shares issued = 60,000 x 10 = Rs 6,00,000. Cash = 10,00,000 - 6,00,000 = Rs 4,00,000. Rs 6,00,000 is only the share portion, and Rs 10,00,000 is the total consideration.

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