Amalgamation doubts dnt seem to end....

IPCC 687 views 5 replies

vikas gupta

c.a final....

714 Points Joined August 2009

1. why do we write off cost of issue of debentures in case of merger from Pand loss a/c like

sundry assets

To sundry liabilities

To Reserve ( suppose 180 - 20 ) ,20 amount is of cost of issue od debntrs.,.....but why?

To debentureholders why not 5% dentures? (Doubt )

2.Provision is liability so whats the difference b/w provision for bad and doubtful debts and reserve for bad and doubtful debts?

3.Why cant we purchase shares directly from company and through broker only?

4. why do creditors have market value?

5. In 1st question entry,why cant we write 5% dentures and debentureholders only?

6.IF company takes over all assets except debtors for which provision on debtrs is to be raised ( whats the meaning of this line exactly )?.......then can we write net amount as follows :

sundry assets

debtors ( net amount )

Replies (5)

Manmohan ACA, CS

Chartered Accountant

14243 Points Joined February 2009

suppose B Ltd is amalgamating with A Ltd.

B Ltd. has 5% Debentures , now this entry for cancelling the debentures by debiting the 5 % debentures and crediting the Debentures holders is to be passed in the book id B Ltd. who issued the debentures, so entry in B. book should be

Debentures Dr.

TO Debentures holders

and since payment is made by A Ltd. we pass entry

A Ltd.

To Debentures holders.

-----------

NOW B ltd. has to make payment to these debentures holder (Mr. P Mr. Q , Mr. E, Mr. T..........for which we collectively used the term" Debentures holder of B Ltd." )

it is wrong to use the term Debentures holder in the books of A Ltd. as he is making payment to debentures holder it is not redeeming Debentures directly.

Manmohan ACA, CS

Chartered Accountant

14243 Points Joined February 2009

A reserve made for specific purpose is called Provision. actually provision for bad and doubtful debts and reserve for bad and doubtful debts is same thing.

we should use the term provision for bad and doubtful debts as it is more appropriate.

it is just ways if expressing them .

Manmohan ACA, CS

Chartered Accountant

14243 Points Joined February 2009

If u are talking about share purchase in case of amalgamation , it is purchase by public offer, from court order.

Manmohan ACA, CS

Chartered Accountant

14243 Points Joined February 2009

why do creditors have market value?

A person have creditors Rs. 400000 (4 Lakhs), to to whom I generally pay in 2 months (2 months credit), now their market value shall be lower then Rs. 400000 , as they are ready to forget certain amount, if their debt is cleared today. further if there is uncertainty about collection (say the debtors has bas creditworthiness), further the market value will decrease, so Market Value of Creditors is nothing but RISK ADJUSTED PRESENT VALUE OF PAYMENT. (although this will be directly given is sums )

Manmohan ACA, CS

Chartered Accountant

14243 Points Joined February 2009

I can not understand the last question "IF company takes over all assets except debtors for which provision on debtors is to be raised ( whats the meaning of this line exactly )?"

please complete the question.

however YOU CAN NOT show the net amount as debt has not becomes bad , but only provisions to be created.

suppose debtors is Rs. 100000 of which 5% i.e. Rs. 5000 is doubtful creates provision for the same , Do not Debit Rs. 95000, varna debtors apna balance uski balance sheet me 95000 hi dekhega aur delibrately he will pay Rs. 95000 only.

further as per AS-4 in case any incomes becomes doubtful we should creates a provision for the same rather then debiting it as a loss in P/L.

(clear ur last question, so that can answer it property)