ACCOUNTING ENTRIES IN THE BOOKS OF TRANSFEROR COMPANY :

It involves the closing of accounts in the books of the transferor company. The following procedures are followed:

1. Open a Realisation Account and transfer all the assets except any fictitious assets like preliminary expenses, underwriting commission, discount on issue of shares or debentures, profit and loss account (Dr.) balance, etc., to it at their book value:

Realisation A/c                                              Dr.	(with the total)
To Sundry Assets A/c	(with their books value)
(Individually)

 

Notes:
(i) If cash in hand and cash at bank are not taken over by the transferee company, do not transfer them to Realisation Account. But, if it is taken over, then it must be transferred to the Realisation Account.

(ii) The asset not taken over by the transferee company has also to be transferred to the Realisation Account.

(iii) Goodwill and other intangible assets like trade marks, patent rights, etc. are also transferred to Realisation Account provided they have realisable value or they are taken over by the transferee company.

2. Similarly, transfer the liabilities taken over by the transferee company to the Realisation Account at their book figures:

Sundry Liabilities A/c                                                                                                                                                         Dr      (with their book figure)

(individually)

To Realisation A/c                                                                                                                                                              (with the total)

 

3. On the consideration becoming due from the transferee company:

Transferee Company                                                                                                                                              Dr          (with the amount of consideration)

To Realisation A/c

 

4. If any assets (other than fictitious assets) is not taken over by the transferee company, the same has to be realised by the transferor company itself:

Bank                                                                                                                                                                                     Dr               (with the realised value)

To Realisation A/c

 

5. On receiving the consideration from the transferee company:

Shares in Transferee Company                                                                                      Dr         (as the case may be according to the terms

Debentures in Transferee Company                                                                            Dr          of the discharge of the consi-deration)

Bank                                                                                                                                     Dr

To Transferee Company

 

6. If the liquidation expenses or realisation expenses are borne by the transferor company itself:

Realisation A/c                                                                                                                Dr                (with the amount of  expenditure) To Bank

 

7. If the liquidation expenses or realisation expenses are borne by the transferee company:

In such a case, it is better not to pass any entry in the books of the transferor company. Alternatively, the following two entries may be passed, the effect of which will be practically nil:

(i) Transferee Company                                                                                            Dr                  (with the amount of expenditure)

To Bank

(ii) Bank                                                                                                                      Dr                  (with the amount of expenditure) To Transferee Company

 

Entry (i) is passed when the expenditure is incurred, and entry (ii) when it is reimbursed

8. If any liability is not taken over by the transferee company, the same need not be transferred to the Realisation Account. On payment, the liability account should be debited and Bank Account is credited with the actual amount paid. But, if there is any profit or loss on redemption of the liability, the same must be shown in the Realisation Account. The entry for this will be:

(a) In case of Profit:

Respective Liability A/c                                                                              Dr              (with the profit, i.e  difference between the  amount due and the

To Realisation A/c                                                                                    amount payable)

(b) In case of Loss:

Realisation A/c                                                                                              Dr                (with the loss, i.e,difference  between the amount payable and

To Respective Liability A/c                                                                        the amount due)

 

9. Now pay off the outside liabilities, if any, not taken over by the transferee company:

Respective Liability A/c                                                                                       Dr                                       (with the amount paid)

To Bank

 

10. When the debentures are discharged: (not assumed or discharged by transferee company)

(a) Debentures A/c                                                                                               Dr                                            (with the book value)

To Debentureholders A/c

(b) Debentureholders A/c                                                                                 Dr                                         (with the amount paid)

To Bank

 

11. Now, pay off the preference shareholders, if any

(a) Preference Share Capital A/c                                                                    Dr                                        (with the book figures)

To Preference Shareholders A/c

(b) Preference Shareholders A/c                                                                   Dr                                         (with the amount payable)

To Preference Shares in Transferee Company

To Equity Shares in Transferee Company                                                             (as the case may be)

To Debentures in Transferee Company

To Bank

 

12. Now, close the Realisation Account and transfer the profit or loss on realisation to Equity Shareholders Account:

(a) In case of profit:

Realisation A/c                                                                                                       Dr                               (with the amount of profit)

To Equity Shareholders A/c

(b) In case of loss:

Equity Shareholders A/c                                                                                    Dr                               (with the amount of loss)

To Realisation A/c

 

13. Before the equity shareholders are paid off, transfer equity share capital and the past accumulated profits and reserves to Equity Shareholders Account:

Equity Share Capital A/c                                                                                    Dr                                  (with the paid up value) General Reserve A/c                                                                                            Dr Reserve Fund A/c                                                                                                 Dr                                  (with their figures as the Capital Reserve A/c                                                                                             Dr                                  case may be) Profit and Loss A/c                                                                                              Dr To Equity Shareholders A/c                                                                                             (with the   total)

 

14. Similarly, transfer the past accumulated losses and fictitious assets, if any, to Equity Shareholders Account:

Equity Shareholders A/c                                                                                  Dr                                    (with the total)

To Profit and Loss A/c

To Preliminary Expenses A/c

To Underwriting Commission A/c                                                                                (as the case may be)

To Discount on Issue of Shares A/c

To Discount on Issue of Debentures A/c

 

15. Now, pay off the equity shareholders:

Equity Shareholders A/c                                                                                       Dr                        (with the amount payable)

To Equity Shares in Transferee Co A/c

To Preference Shares in Transferee Co A/c                                                         (as the case may be)

To Debentures in Transferee Co A/c

To Bank

 

Notes:

1. If preference shareholders or debentureholders are paid more or less than the amount due to them as per balance sheet, the difference be transferred Equity Shareholders Account through Realisation Account.

2. After the equity shareholders are paid off, all the accounts in the book of the transferor company will be closed and not a single account will show any balance.

3. The net amount payable to the equity shareholders, after adjustment of accumulated profits and reserves, fictitious assets and profit or loss on realisation, must be equal to the amount of shares and debentures in transferee company and cash received from the transferee company left after discharge of all liabilities and preference share capital.