Accounting Steps for Transferor Company

hello everyone you're watching sahab academy if you like our videos then please subscribe to our channel and also hit the bell icon for the regular updates and also follow us on instagram sahab academy now let's go to the video hi everyone welcome back to the third video of amalgamation chapter now in this video what are we going to do is in this video we are going to see the accounting treatment in the books of transferrer company now in the previous two videos we have seen the concept of amalgamation and we have solved three problems on purchase consideration with the net payment method as well as net asset method right so please make sure you watch those two videos first and then come back to this video right i will put the links in the description below now in this video what are we going to do is in this video as i said we are going to see the accounting treatment that you have to do in the books of transferrer company or you can also call it as vendor company or selling company now what i'm talking about here transferrer company what is transferrer company See here, the company which loses its existence to become part of another company, that company is called as transferrer company or selling company or what? Vendor company, right? So see here, in this chapter, I have told you there are two point of view. One is transferee and one is transferrer. The company which loses its existence. Now in this example, see here, let's say there are two companies XYZ limited and ABC limited. Now let's say this big company acquires this big company acquires the abc limited it takes over the abc limited so now this abc limited will lose its existence it will get dissolved it will get liquidated yeah so now this company will lose its existence that's why this company is called as old company and old companies in this chapter are called as transferer company remember this o o right old company fine yeah and here e new company the company which exists now that is called transfer e company yeah new company you can say that yeah so don't get confused in these two terms fine ee oo fine okay so now as i said this company is getting liquidated so now this company will be shut down right it will be no more so now you as an accountant you also have to close the book of this company that's the accounting treatment over here right this company is getting liquidated so now you have to do what you have to close the books the accounting books of this company so how are you going to do that how will you close the company in accounting You are going to do that by reversing each and every item in the balance sheet. What is there in the balance sheet? In the balance sheet, we have got assets. We have got liabilities. We have got capital or you can say equity, right? So all these items have to be reversed, cancelled. These items have to be cancelled. So how can you cancel assets? How can you cancel liabilities? How can you cancel capital? And what is this here? what i've written over here fictitious assets yeah this is what is there in balance sheet yeah fictitious assets also such as advertisement expense the expenses and the losses which have been capitalized right such as profit and loss debit balance and then what do you say advertisement expense underwriting commission expense and then preliminary expenses so all these expenses and all they are called fictitious assets they don't have any resale value right those are fictitious assets fine so all these items in the balance sheet you have to cancel them So how can you cancel the items of balance sheet? How can you do that? How can you cancel the assets? How can you cancel the liability? See, it's very simple. To cancel, first you should know what balances, what kind of balances these items have. You know assets, assets always have debit balance, isn't it? So to cancel assets, you have to credit them. Simple as that. If you want to decrease any asset, you want to credit that. Simple. And then liabilities. Liabilities always have credit balance. So to cancel them, you have to debit them. And capital also, they always have credit balance. To cancel them, you need to debit them. Yeah. So all these items needs to be what? Cancelled. Reversed, right? That is how you will. will close the books of this abc limited simple as that right but what is the procedure to do that see here what are you going to do is you are going to open a new account called as a realization account what realization account this is a nominal account you will take all the expenses over here and all the incomes over here simple rule regarding realization account so now what you have to do to close the books of this company as i said you have to cancel out so now First take the assets okay take the assets and you have to dump that into Realization account over here. Add the book values. Whatever values at the assets are in the balance sheet, take them except fictitious. Not fictitious assets. All the other assets, take them and throw them in the realization account. You have to empty out the balance sheet. Nothing should be there in the balance sheet. Throw everything out of the balance sheet. That is what you have to do. You have to empty out the entire balance sheet. You have to empty it all out. Fine, so throw the assets in the realization account over here and then liabilities. You have got the liabilities over here. So throw the liabilities on the credit side of realization account. Okay, add the book values only. All right. either simple throw them and then what is left in the balance sheet if you throw the assets and liabilities fictitious assets and the capital now you have to also cancel the capital you have to throw out the capital from the balance sheet but where are you going to throw that you are going to throw that to the holders of those capital equity share capital equity shareholders preference share capital preference shareholders and then you have got in equity reserves and surplus isn't it that is also equity right reserves and surplus but who are the owners of reserves and surplus to whom it belongs it belongs to the equity shareholders right so now here you are going to open the accounts of the owners owners account okay equity shareholder account and preference shareholder account so in equity shareholder account what are you going to do throw the equity share capital over here throw the reserves and surplus over here simple so what is happening to this item it is being what debited over here yes it is on credit side but here what is happening here equity share capital and reserves and surplus are being debited equity shareholder account is getting credited that is the credit side fine and then preference shareholder account also through the preference share capital there yeah so now you have emptied out assets liabilities capitals and reserves and surplus then you are left with fictitious assets the assets which have no resale value and the accumulated losses such as profit and loss debit balance so all these losses which have have been capitalized as you can't take it in the realization account yeah these are losses they don't have any resale value you can't take it in realization account you will take this fictitious assets into where to the owners of the company they have to bear the losses right and who are the real owners of the company the first owners equity shareholders take the fictitious assets on the debit side of equity shareholder account okay fictitious assets Simple? So this is what you have to do. Empty out the balance sheet. Understood? Add the book values. And then what else is there? Yeah. Then you have to carry on. See here. Then what you have to take in the realization account. In the realization account and then you have to take the purchase consideration. What is purchase consideration? price that is payable from the transferee company to the transferrer company purchase consideration so this purchase consideration will come where it will come here in realization account as by transferee company okay purchase consideration purchase consideration will always be at market value purchase consideration will always be at market value but the assets and liabilities which you are going to take from the balance sheets that would be at book values purchase consideration market value fine and then if any expenses are there then those expenses will come over here because this is a nominal account okay so realization account will get debited okay and all expenses will come on the debit side of realization account okay realization expenses and all yeah if it is paid by the transferer company yeah fine and then what will happen see the assets and liabilities they are at book value and the purchase consideration is at market value so of course there will be difference in the realization account there will be balance so whatever balance is there that balance will go you to whom to equity shareholder is account if it's a profit it will come over here balance will come over here if it's loss it will come over here so equity shareholder this is what profit and if there is a loss and realization this will come over here in credit side on credit side okay so this is what and then in preference shareholder account and equity shareholder account what you have to take what payment that is done to preference shareholders such as preference shares cash whatever that is given to preference shareholders yeah that is what will happen right see here the transfer company will pay purchase consideration to the owners of transfer company so now who are the owners of the transfer company the equity shareholders and the preference shareholders so they will get something they will get something right purchase consideration so that purchase consideration can be in form of equity share cash debenture whatever it is yeah that will go to preference shareholders and equity shareholders so whatever they will get preference shares cash write that down here and then here also in equity shareholders see here if they are getting shares equity shares right equity shares if they are getting cash right cash if they are getting debentures right debentures like that okay This is just an overview that I'm showing you. Okay, this is not the actual ledgers. I mean there are many more ledgers simple simple ledgers are there but these are the main ledgers and there's also one more main ledger that is transferee company. We'll see all that. It's very simple. This is just an overview that I'm showing you. Okay, it's very simple first empty out whole balance sheet. Yeah, throw assets on the debit side of realization throw liabilities in the on the credit side of realization at the book values and then take the purchase consideration at market value. And if there are any expenses paid by the transferor company, the old company pays its liquidation or realization expenses itself, then you will have to take here to bank. OK, the expenses are being paid by the transferor company. You have to make an entry. OK, but if the expenses, realization or liquidation expenses of transferor company are paid by transferee company, the new company pays the expense, then no entry should be done. in the transfer company okay no entry nothing nothing you have to take over here fine if transfer company pays the expense then you have to take if the transferee company pays the expense then you don't have to take it over here and then some students have doubt that what if this This company, the transferee company, new company doesn't take over all the assets and liabilities. If some assets are not taken over and if some liabilities are not taken over, then it's simple. It's common sense. Then you yourself, transfer company, have to what? you transfer a company you as an accountant of transfer a company you have to sell those assets yourself and you have to pay those liabilities yourself okay those certain liabilities which are not taken over by the transferry company the new company fine and then whatever balance that will come in the realization account that will hit the equity shareholder account if it is profit it will come here if it is a loss it will come over here and it will hit equity shareholder account right and now this realization here what is this preference shareholder in preference shareholder is the realization see if you are making more payment to preference shareholder account and that's an expense for you and you know the expense will hit in the realization account okay the balancing figure in the preference shareholder account it will hit the realization account okay you are making extra payment so that's an expense to you so it will come over here as to preference shareholder it will come over here to preference shareholder and here by realization simple yeah so this is what you have to do this is the accounting treatment in the books of transferer fine old company so now let's see the journal entries that you have to pass in the books of transferer company okay and then we will also see the you know ledger account format in very much detail yeah okay let's jump to the journal entries now here we have the journal entries in the books of transferer company see here it's very simple but first let's refresh what is the modern rules of debit and credit yeah Yeah. See here in this modern rules of accounting, we have got five items. Yeah. There is no sixth item. Only five items are there in the accounting. Asset, liability, income, expense and capital. Yeah. And the rule regarding asset and expense is same. And the rule regarding liability, income and capital is same. OK. You just have to understand the rule of asset and liability. And then according to the group, you can easily understand the rule regarding each and every item. So if asset increases, you debit. debit yeah and if asset decreases you credit and this same rule applies to the expense also because they are in the same group and then in case of liability if liability decreases you debit and if liability increases you credit it is exactly opposite to the asset rule yeah so the same rule you have to apply for the income as well as capital understood so this is the modern rules of accounting so now let's go to the general entries now see here it's very easy to understand the general entries because you all already know the rough accounting treatment that i have shown you right the first thing that we have to do is we have to cancel each and every item of the balance sheet right which has debit balance you need to credit that which has credit balance you need to debit that which has credit balance you need to debit that like that cancel off everything yeah balance sheet ko khali karna hai to kese karoge so the first thing that you have to do is you have to cancel the assets or you can say transfer all assets to realization account except fictitious assets yes that is what we did over here right from the balance sheet Where did you keep it? In the realisation account So the same thing that you have to do right See here the assets one by one they will be credited Why credited? Because assets always have debit balance And now you need to cancel them off So you need to credit them Isn't it? To cancel the assets Or to decrease the asset You need to credit that So all the assets will be credited one by one Planning, Merchandising, Land and Building Various assets except fictitious assets And cash Cash depends upon the question if the question says except cash if cash is not taken over then you don't have to take cash Fine, so kaha jaare assets all the assets are going to the realization account So realization account debit to various assets one by one you have to take and then you can sell the liabilities right transfer all liabilities so what you have to do liabilities always have credit balance so to cancel off the liabilities what you will do to cancel off the liabilities you will debit them simple see here various liabilities account debit liabilities are getting debited to realization one by one take all the liabilities fine to realization all the liabilities okay to realization account because simple and then what you have to do is you have to cancel the capital and you know the capital they have credit balances yeah the capital they have credit balances so these capitals where these capitals go to equity shareholder account and to preference shareholder account isn't it so that is what you are going to do see here transfer equity share capital and reserves and surplus to equity shareholder account so simple thing capitals and reserves they always have credit balances so you just debit them to cancel them off and you are going to send them to the equity shareholders account simple as that right there is no logic behind that it's very simple yeah and then the fourth is transfer fictitious assets yeah that's what i said right the fictitious assets will not go to realization account fictitious assets will not go to realization account so these losses someone has to bear them and who are going to bear those losses equity shareholder account so throw them into equity shareholder account so simple these are assets they have debit balance so to cancel them you are going to credit that yeah credit the fictitious assets so just credit the fictitious assets or to me but I agree a credit over to kuch debit on a right something has to be debited and where are these assets going to equity shareholder account so debit the equity shareholder account okay you transfer the fictitious assets and the fifth entry that you have to pass is the transferring the preference share capital you have transferred till now equity share capital and reserves and surplus to equity shareholder account then you need to pass another entry to transfer preference share capital to preference shareholder account and you know preference share capital always have credit balance balance to cancel that right you have to debit that so preference share capital will get debited and where this capital is going to preference shareholder account simple as that right so these five entries are the entries related to what to empty the balance sheet balance sheet ko khali karne ke liye yeh paach entry tum karoge simple entries hai right the items which have debit balances credit that and you should know where those items go and then the items which have credit balances debit that yeah simple as that and then you have to take the purchase consideration yeah for purchase consideration due that is what happens right in realization account what do you take in realization account see here purchase consideration at market value isn't it so now here what do you write over here you take it over here by transferee company because you are going to get purchase consideration by you i mean transfer company from the transferee company Yes, you will get purchase consideration from transferee company. So, what will happen? You are supposed to get. First, you have to pass the entry of due. See here, for purchase consideration due. Transferee company is saying, we want to get money. We want to get purchase consideration. Some money should come from whom? Transferee company. Yes, so transferee company account will be debited. Why debited? Because this is an asset for transfer company, isn't it? Transferee company has become debtor. We are supposed to get money from transferee company. So, that. That is why it is debited. Yeah. And we are taking that to realization account. Transferry company account debit to realization account. Pesa aana hai. So this is an asset for us. Yeah. Our asset is increasing. So transferry company account debit. Kese asset? Pesa aana hai. If pesa aana hai from transferry company, then you need to debit that. Okay. To realization account. Simple as that. Yeah. And then the receipt will happen. Yeah. We will get the purchase consideration. Here, tum bol rahe ho purchase consideration due. Purchase consideration due. Matla purchase consideration aana hai. We are supposed to. to get the purchase consideration from transferee company so that is why you are debiting the transferee company account but when you will get the purchase consideration then also you have to pass another entry that is called for receipt of purchase consideration for receipt of purchase consideration purchase consideration right so what you got open the box the bag open the bag just simple yeah so what are you getting the purchase consideration can be in form of equity shares it can be in form of preference shares it can be in form of debentures it can be in form of cash yeah if you get purchase consideration like this then what you have to do slowly you have to open the box what have we got in purchase consideration and from whom did you get this purchase consideration from the transfer company yeah whatever receipt you got go and debit it right whatever you get debit that right equity shares preference shares debentures cash this purchase consideration purchase consideration is not always in cash it can be in another forms also and from whom did you get the purchase consideration from the new company from the transfer company right so transfer company account will be credited or to sb both okay either transfer company debit with yeah here the transfer company account was debited now that account has been closed because transfer company has paid the purchase consideration yeah or the simple way is you have got equity shares you have got preference shares you have got debenture you have got cash from whom from transfer company simple as that yeah so these are the two entries that you have to pass regarding the purchase consideration yeah one is the due entry one is the receipt entry fine and then the eighth entry see here I've told you sometime what will happen sometime the transferee company will not take over some assets or liabilities Yeah, if this company doesn't take over some assets or liabilities, then what do you have to do? You have to sell those assets and liabilities in the realization account Yeah, so assets will be sold over here as you know by bank and liabilities will be paid off over here to bank Yeah, so this is what you have to do. So the journal entry for that would be very simple See here, we sell all assets in the realization account right we sell everything and we pay everything in realization account so that is what we are going to do bank account debit to realization account this is the entry of selling the assets which are not taken over by transferee company if there is any asset which is not taken by the transferee company those assets are sold by the transfer company simple money is coming bank account debit to realization account yeah simple and then if some liabilities are not taken over by transferee company then then you yourself have to pay those liabilities. So, realization account debit to bank. Pesa ja rahe. Simple as that. To bank account. And you know, all the payments and receipt will happen in realization account. So, that is why, see here, this will hit realization account. Bust ek chis samajhna. Either asset bech rahe ho, pesa a rahe hai. Either liabilities, pay kar rahe ho, pesa ja rahe hai. So, here bank account debit, pesa a rahe hai. Here bank account credit because, because bank balance is getting reduced. Yeah, we are paying off the liabilities. And in the realization account. account will be you know it will get debited over here simple as that yeah and then the tenth entry is payment of realization expenses by transfer company if the payment is done by the transferor company other hum hum our payment hood current transfer company pays the liquidation expenses or the realization expenses then you have to make an entry that is simple payment entry could you be payment career kappa Riga realization account K debit side may I go either I go right simple yeah so the interview would be realization account debit to bank bank account is getting credited yeah simple as that asset is decreasing you are crediting that to bank account realization account debit to bank account but if transferee company other new company new company pays the liquidation or realization expenses then you don't have to make any entry in the books of transfer in the books of old company you don't have to make any entry if if this company pays the expenses if the transferee company pays the expenses fine simple as that and then what do you have to do and then see here first what you did empty the balance sheet yeah these five entries of emptying the balance sheet and then sixth and seventh entry related to purchase consideration yeah and then if assets are not taken over you sell them yourself and then if some liabilities are not taken over you pay them yourself and then payment of realization expenses simple entries here very simple entries and then 11th one see here payment made to preference shareholders yeah see here here this purchase consideration the company got right here there is seat of purchase consideration now to whom this purchase consideration is paid is it paid to the transfer company just an artificial person no it is paid to the owners of transfer company yes that is what is the definition accounting to the accounting standard 14 yeah the accounting standard which gives us the guidance regarding amalgamation it is paid to the owners of transfer company and who are the owners of transfer company the preference shareholders and the equity shareholders holders to unco page a jaiga right equity share preference shares debenture cash which is coming in form of purchase consideration to whom this is paid to the owners of transfer our company and the owners are preference shareholders and equity shareholders to unco me lega equity share preference share debentures cash fine so scale maybe entry pass carnet for that also you have to pass the entry see here simple entry payment made to preference shareholders see here preference shareholders account debit yeah see if it's very simple what these preference shareholders account are getting they are getting preference shares they are getting debentures they are getting cash they can get anything yeah depending upon the question you have to see that yeah i told you over here right in preference shareholder account what do we do whatever the company gives to them the new company it will come over here preference share cash this is the entry that i'm talking about over here okay see here preference shareholder account debit two preference shares in transfer a company to debentures in transfer a company to cash account simple entry payment that is done to preference shareholders this is the entry yeah if you are giving them preference shares debentures cash take that simple and then the 12th entry is for transfer of premium on preferences sometime what will happen i told you previously that see here sometimes there will be a balance in preference shareholder account because if we make more payment to preference shareholders if we give them more than that or their preference share capital which we have cancelled from the balance sheet then obviously some balance will come over here and that balance is an expense for us and that balance will hit realization account that balance will hit realization account so there is an entry for that see here for transfer of premium of preference shares if you are paying them more than that that is called premium so it will hit realization account it is an expense expenses are debited right? Realization account is debited. Realization account debit to preference shareholders account. You are giving more to preference shareholders. so that's an expense for the company for the transfer company yeah so realization account debit to preference shareholders account simple as that if expense increases you debit that right and to whom are you making the extra payment to preference shareholders simple as that and then comes the payment that is done to equity shareholders simple either be payment kakiya owners of the company to preference shareholders either be payment career to equity shareholders yeah yeah jo aega purchase consideration in my case preference shareholders and equity shareholders so that is what is happening happening in the entry number 11 and entry number 13 their payment is done okay in form of shares debentures cash whatever it is depending upon the question so here also see here equity shareholders are getting their payment so equity shareholders account will be debited why because we have to close their account right yes so that is what we have to debit their account now here equity shareholders account debit two equity shares two debentures two cash depending upon the question it's very simple yeah that's what happens right see here in this ledger account here equity shareholder account they get their whatever it's put purchase consideration equity shares cash debentures whatever they are getting yeah so this is the entry regarding that for payment made to equity shareholders equity shareholders account debit two equity shares two debentures two cash yeah whatever that is given to equity shareholders the purchase consideration yeah so these are the entries five entries of closing the balance sheet yeah purchase consideration is due purchase consideration has come yeah we have received the purchase consideration and the asset is not taken over, sell by yourself if the liability is not paid, pay the liabilities yourself and then realization expenses if done by transferor company, make the entry of simple payment entry and if the expenses are paid by the transferee company, the new company then no entry, yeah and then payment made to preference shareholders, kya tumne diya preference shareholders ko and then kuch zyada diya, if you have paid something more, something extra, something premium, then you have to make an entry realization account debit to preference shareholders account because that will be expense for you zada payment career right simple and then what you are going to pay to equity shareholders that is the entry over here for for payment made to equity shareholders right simple entry these and this entry is same only yeah here preference shareholders are getting the payment here equity shareholders are getting the payment Simple as that and then the fourth and yeah, and then the 14 entries see here It's very simple closing the realization account at last what you will do you will close the realization account, right? After everything what you're going to do you are going to close the realization account see here account right see and realization upon what will happen you will close it yeah so if there is a balance over here that's profit and it will go to equity shareholders account and if there is a loss it will also go to equity shareholder account yeah so loss will come on the credit side side in this realization account yes so this is what you have to do either you have to pass this entry or this entry depending upon the profit or loss if there is a profit this entry if there is a loss this entry close the realization account simple as that if profit then realization account debit to equity shareholder account yeah there will be balance on the debit side of realization then it will call realization account debit to equity shareholder account but if there is a balance on the credit side of realization account then obviously it will be equity shareholder account debit to realization account simple as that yeah simple entries simple entries balance sheet khali karo purchase consideration aana hai purchase consideration aagaya uske baat assets assets which are not taken over liabilities which are not taken over payment of realization expenses or payment karo owners ko simple purchase consideration jo mila hai usse payment karo payment to preference shareholders payment to equity shareholders yeah and then what else and then something extra then that's an expense so you have to debit that in realization and then close the realization account simple as that these 14 entries are there but believe me for your BCom BBA exams, you will get simple problems. You don't have to pass these much entries. Alright okay then now let's see ledger accounts. Now, here we have the ledger accounts that you need to prepare in the books of transferrer company. But before going into the ledger accounts and understanding everything, please make sure what is asked in your exam. You have to analyze your past year papers, your BCom, BBA, whatever course it is, BAF, whatever it is, you have to look in the past papers and you have to see whether you are asked journal entries of transferrer company or ledger accounts of transferrer company and you have to study according to that. Okay? don't study everything if you study everything then you will eventually mess up yeah so please go according to your syllabus go according to the scheme of your examination fine okay so now let's start let's see the ledger account and yeah i'm going to teach everything okay i have shown you the general entries and now we are going to see the ledger accounts okay so now let's start see here in the books of transfer company you might have to prepare these many ledger accounts yeah realization account equity shareholder account preference shareholder account, transferee company account, bank account. Yeah. See, all these are very easy to prepare. Believe me, very, very easy to prepare. Okay. It might look a lot, but it's very simple. So first let's start. See here. And if you are getting ledger accounts in your exam, then believe me, you won't have to prepare all this in your BCom BBA exams and all, because you will get simple problems. You will have very less, you know, very less adjustment, everything. And it'll be very simple. Don't worry. So now let's start. Let's understand the format of the ledger accounts that we have to prepare in the books of transfer company see here as usual we start off with the balance sheet right we have to empty the balance sheet we have to cancel each and every item of the balance sheet because this transfer company is getting liquidated yeah so to do that you start with the realization account see here you start with the realization account first you take all the assets on the debit side yeah two various assets one by one all the assets planned in machinery whatever is their land and building everything except fictitious assets and cash there is an adjustment of cash always mostly it will be there yeah except fictitious assets and cash also because in cash if the question says that entire business is not taken over then you don't have to take cash okay if the question says entire business is taken over then you have to take cash or the question may specifically mention also whether the cash is taken over or not yeah according to the question you have to go but fictitious assets always don't take fictitious assets fictitious assets go to equity shareholder account right so this is what you have to do realization account take all the asset except fictitious assets and you have to be careful about cash and then take all the liabilities on the its idea at the book values all the liabilities and all the assets whether taken over or not taken over all the liabilities all the assets you have to take right and if there are any expenses paid by the transferrer company if there are any expenses paid by the transfer company you have to take the expenses over here to bank you're making the payment yeah so you have to take that over there fine and then if there are any assets or liabilities that are not taken over by the new company the transferee company yeah then you have to sell those assets and pay those liabilities yourself as an accountant of transfer company fine so the asset sold will come over here by bank and the liabilities which are being paid which are not taken over by the transferee company will come over here two bank simple yeah and then what do you do and then you take the purchase consideration now who is paying the purchase consideration the transferee company the new company is paying the purchase consideration to the owners of transferer company right so now that purchase consideration will come over here pcr by transferee company simple and then what do you do and then what most of the students do is they just close the realization account they do the tally and everything and they find out the balance and they send it to the equity shareholder account whether it's profit or loss you don't have to do that don't close realization account don't do that first look whether in your company in your balance sheet whether there is preference share capital if there is preference share capital that means in this company there are preference shareholders so you have to open their account first whose account preference shareholders account right you have to open preference shareholders account and preference shareholder account what do you take what do you take in preference shareholder account simple is to throw items of balance sheet so preference share capital where the preference share capital is cancelled it is cancelled in the preference shareholders account isn't it take the preference share capital from the balance sheet and throw it in the opposite side yes that is what we do in the ledger accounts always here what we do cross postings yeah opposite postings either hey either dollar yes that's what we do we do all cross postings over here it's very simple so what i said don't close the realization account if there are preference shareholders open the preference shareholder account first okay do till here okay till the purchase consideration but don't Don't take this. Okay. Don't do this. Don't close. the realization account open the preference shareholder account yeah account open karo okay preference shareholder account open karo so in preference shareholder account what do we take first we take the capital preference share capital over here yes and then what do you take whatever payment jo kuch bhi preference shareholder ko de rahe hai preference shares in transfer e-company to cash to debenture jo kuch bhi de rahe hai wo lete jao one by one simple if you are giving them preference shares take two preference share in transfer e-company ya to cash if you are giving them cash take cash like that and and then if the balance doesn't tally in preference shareholder account then there will be balance over here right some difference will come and mostly difference will come over here this means you have paid more compared to their capital so more payment means expense right if there is a balance on this side it means that you have paid them more than their capital so that means it's an expense for the company and all the expenses hit realization account so This balance will be cross-posted to the Realization account. This balance will be cross-posted to the Realization account over here. That is why I tell you, please don't close the Realization account. Do till here, till the purchase consideration and then open the Preferred Shareholder account if Preferred Shareholders are there in the company and see whether you get a balance over here. If you get, then please take that to the Realization account debit side. To Preferred Shareholder Premium, extra payment. That extra payment that you have done to Preferred Shareholders. That is an expense and expense are debited in the realization here. Yes, this is what you do. And then you will tell you that. And then here in realization account, what do you do? You close the realization account and you will get a balance either on the debit side or credit side. If it is on debit side, that's profit. If it is on credit side, that's loss. Yeah. So where the profit or loss will hit, it will hit to the equity shareholder account. The ultimate owners of the company, they have to enjoy the profit. or the loss that is bear by the equity shareholder only yeah so if it is a profit cross posting okay see here if here it is a profit it will go on the where here profit if it's loss then it will be opposite yeah from credit it will be debit over here simple i'll be taking it so now You are done with the realization account, preference shareholder account. Then you will start with the equity shareholder account. You will open equity shareholder account. Still our balance sheet is not empty. We have killed the asset. We have killed the liabilities and we have killed the preference share capital. But still equity share capital is there. Reserves and surplus is there and fictitious assets are there which are going to be killed in the equity shareholder account. yes we are going to take the equity share capital and reserves and surplus and throw them on the opposite side of the equity shareholder account right see here it's all about opposite sides it's very simple equity share capital reserves and surplus it's on the which side the left side right so throw them on the right side yeah here it is credit side so buy equity share capital buy reserves simple whatever reserves are there take the reserves fine and then what do you do and then you are going to dump the fictitious assets also right advertisement expense preliminary expense and then what underwriting commission and accumulated losses also such as profit and loss debit balance yeah all those fictitious assets which don't have any resale value you cannot take it in the realization those losses will be bared by equity shareholder account so you are going to throw them into equity shareholder account to fictitious assets okay don't write fictitious assets take one by one okay all the fictitious asset to advertisement expense to profit and loss debit balance like that simple okay Simple, right? You cancel the capital reserves over here and then fictitious assets. Yeah. And then what are you going to do? And then whatever payment equity shareholder will get, equity shares in transfer company to cash, whatever they are going to get, you have to take it over here. Right. They might get equity shares in transfer company. They might get cash. They might get debentures. So whatever they are getting, you will take it over here. Simple, right? So this is what you're going to do. And then, you know, the profit or the loss of realization will hit equity shareholder account right so you have to take that also by cross posting if it's profit take it over here if it's loss take it over here right so this is what you're going to do cancel the capitals and reserves from the balance sheet here yeah yeah either jayega and then what fictitious asset and then and then here what the realization profit or loss yeah either this or this fine and then yeah account will be tally finished finished finished yeah and then what do you have to do and then you have to open the equity shares in transferry company account equity shares in transferry company account now what is happening over here this transferry company is paying purchase consideration to transfer company but Payment is not only in cash. It can be in form of equity shares. It can be in form of debentures. It can be in form of preference shares. So what is that? Whose equity shares are those? Whose preference shares? Whose debentures are those? Of a transfer company. Now this company is not existing, right? So the owners of this company has to get something. So what they're going to get? they are going to get the shares of transfer e-company they are going to get the you know debentures or preference shares of transfer e-company ye company ke shares debentures preference shares in ki owners ko milenge okay so this is what is going to happen so now that is what equity shares in transfer e company nko mila na see here equity shares in transfer e company preference shares in transfer e company preference shareholders ko or equity shareholders ko of purani company ya old company what do they get they get shares debentures cash of what of transfer e company of new company to unka be account khona parta hai okay we have to open that account also equity shares in transfer e account ya preference shares in transfer e account company account yeah so this is what it's very simple cross postings see here equity shares in transfer e-company account right see here what do you have to do the cross posting the name of this see equity shares in transfer e-company account is coming over here right in the equity shareholder account so just do the cross posting it's in which account equity shareholder account so here it is two you have to take by equity shareholder why by equity shareholder because this is in the equity shareholder account so by equity shareholder account simple and then the balancing figure on the this This side will go to the transfer account because whose shares are those? This equity shares, transfer company. So the balance will go to transfer company. Simple. And then see here, then you have to open the preference shares and transfer company account. If there are any in the question, it will depend upon the question. But this is the format I'm talking about. So here see preference shares and transfer company account. Now where this term is coming, preference shares and transfer company, where this name is coming in the preference shareholder account. So see here, preference share in. transferee company right so it's on the debit side so you are going to take it on the credit side by the name of the account preference shareholder account so by preference shareholder account and the balancing figure will go to transferee company because whose shares are these preference shares transferee company shares simple cross posting right and then you have to open the transferee company account now what do you have to do in the transferee company account you don't have to do anything you have to open the purchase consideration box and show what is in this purchase consideration that's all you have to do in this in this transfer company account okay nothing to do it is very simple look cross posting here right in realization account you have taken the name of transfer company over here right right the purchase consideration so here it is credited right here it is on the credit side so you are going to take the realization name on the debit side as to realization this is the purchase consideration or you have to open that purchase consideration in what what forms did the transferee company pay the purchase consideration okay very simple see here cross posting from here transferee company it will go over there yeah transferee company it will go over there simple equity share enough so yeah equity share over here and then to transferee company preference share so preference share over here Very very simple so this is what you have to do and then what see and then cash also. I told you to open the purchase consideration. What kind of payment has come, in which way, in what form the payment has come. you have to write that down. Okay, two preference shares, two equity share, two cash, two debentures, whatever it is, just open the back, open the box and see how the purchase consideration has been paid. So take all that over here. Simple, yeah? And then at last, you are going to open the bank account. bank account also cross postings all cross posting see here in realization account if there are any bank bank terms then just do the cross posting see here here there is one bank right two bank so here it will be by realization because it's in realization account so here again there is two bank but i have not written over there okay so you have to take that like that so it is two bank over here so again by realization one more by realization yeah and then here you see uh by bank so again here to realization like that and you have to take the opening balance over there right right because this is a bank account yes asset account so always the asset account has the debit opening balance so this is the opening balance that you have to take from the balance sheet to balance b by d simple yeah and then see all the other accounts see here in equity shareholder account have they got any cash yes see here cash is there yeah cash oblique bank so if it's two banks so cash or bank take it both okay so the same thing right to cash so here it will come by equity shareholder account and then in preference shareholder account if you see here 2 cash so it's in preferential holder account you have to do cross posting so 2 cash will become buy preferential holder account yeah cross postings you have to do that's it that's how you are going to go about this ledger accounts it's very simple yeah and debentures account i'm not showing you the debentures account i will see that while solving the problem okay because i didn't have the space over here so this is what you have to do balance it kali karna okay don't close the realization account do the preference shareholder account first yeah if there is a balance take it in the realization on the opposite side and then close the realization and if there is a problem profit or loss that will hit the equity shareholder account and then in equity shareholder account what do you take the capital from the balance sheet equity share capital and the reserves and surplus and the fictitious assets and then whatever payment that is done yeah and then in equity shareholder account what will hit the realization loss or profit yeah it will hit over here so this is what will happen yeah and then these two accounts simple cross postings from the equity shareholder and preference shareholder accounts yeah and then transferry company here you are going to take the cross postings of this purchase consideration over here yeah And then open the box of purchase consideration in what form, in what forms the purchase consideration is coming to the transfer company, preference shares, equity share, cash. You have to show that and then bank account at last with the cross postings from all the accounts. So these are the ledger accounts that you have to prepare in the books of transfer company or the vendor company. Simple, right? Yes, this is the treatment, right? We have seen all the treatment of transfer company.

Now in this example, see here, let's say there are two companies XYZ limited and ABC limited. Now let's say this big company acquires this big company acquires the abc limited it takes over the abc limited so now this abc limited will lose its existence it will get dissolved it will get liquidated yeah so now this company will lose its existence that's why this company is called as old company and old companies in this chapter are called as transferer company remember this o o right old company fine yeah and here e new company the company which exists now that is called transfer e company yeah new company you can say that yeah so don't get confused in these two terms fine ee oo fine okay so now as i said this company is getting liquidated so now this company will be shut down right it will be no more so now you as an accountant you also have to close the book of this company that's the accounting treatment over here right this company is getting liquidated so now you have to do what you have to close the books the accounting books of this company so how are you going to do that how will you close the company in accounting You are going to do that by reversing each and every item in the balance sheet. What is there in the balance sheet? In the balance sheet, we have got assets. We have got liabilities.

We have got capital or you can say equity, right? So all these items have to be reversed, cancelled. These items have to be cancelled. So how can you cancel assets? How can you cancel liabilities?

How can you cancel capital? And what is this here? what i've written over here fictitious assets yeah this is what is there in balance sheet yeah fictitious assets also such as advertisement expense the expenses and the losses which have been capitalized right such as profit and loss debit balance and then what do you say advertisement expense underwriting commission expense and then preliminary expenses so all these expenses and all they are called fictitious assets they don't have any resale value right those are fictitious assets fine so all these items in the balance sheet you have to cancel them So how can you cancel the items of balance sheet? How can you do that? How can you cancel the assets?

How can you cancel the liability? See, it's very simple. To cancel, first you should know what balances, what kind of balances these items have. You know assets, assets always have debit balance, isn't it? So to cancel assets, you have to credit them.

Simple as that. If you want to decrease any asset, you want to credit that. Simple.

And then liabilities. Liabilities always have credit balance. So to cancel them, you have to debit them. And capital also, they always have credit balance.

To cancel them, you need to debit them. Yeah. So all these items needs to be what?

Cancelled. Reversed, right? That is how you will. will close the books of this abc limited simple as that right but what is the procedure to do that see here what are you going to do is you are going to open a new account called as a realization account what realization account this is a nominal account you will take all the expenses over here and all the incomes over here simple rule regarding realization account so now what you have to do to close the books of this company as i said you have to cancel out so now First take the assets okay take the assets and you have to dump that into Realization account over here. Add the book values.

Whatever values at the assets are in the balance sheet, take them except fictitious. Not fictitious assets. All the other assets, take them and throw them in the realization account.

You have to empty out the balance sheet. Nothing should be there in the balance sheet. Throw everything out of the balance sheet. That is what you have to do.

You have to empty out the entire balance sheet. You have to empty it all out. Fine, so throw the assets in the realization account over here and then liabilities. You have got the liabilities over here.

So throw the liabilities on the credit side of realization account. Okay, add the book values only. All right.

either simple throw them and then what is left in the balance sheet if you throw the assets and liabilities fictitious assets and the capital now you have to also cancel the capital you have to throw out the capital from the balance sheet but where are you going to throw that you are going to throw that to the holders of those capital equity share capital equity shareholders preference share capital preference shareholders and then you have got in equity reserves and surplus isn't it that is also equity right reserves and surplus but who are the owners of reserves and surplus to whom it belongs it belongs to the equity shareholders right so now here you are going to open the accounts of the owners owners account okay equity shareholder account and preference shareholder account so in equity shareholder account what are you going to do throw the equity share capital over here throw the reserves and surplus over here simple so what is happening to this item it is being what debited over here yes it is on credit side but here what is happening here equity share capital and reserves and surplus are being debited equity shareholder account is getting credited that is the credit side fine and then preference shareholder account also through the preference share capital there yeah so now you have emptied out assets liabilities capitals and reserves and surplus then you are left with fictitious assets the assets which have no resale value and the accumulated losses such as profit and loss debit balance so all these losses which have have been capitalized as you can't take it in the realization account yeah these are losses they don't have any resale value you can't take it in realization account you will take this fictitious assets into where to the owners of the company they have to bear the losses right and who are the real owners of the company the first owners equity shareholders take the fictitious assets on the debit side of equity shareholder account okay fictitious assets Simple? So this is what you have to do. Empty out the balance sheet.

Understood? Add the book values. And then what else is there? Yeah. Then you have to carry on.

See here. Then what you have to take in the realization account. In the realization account and then you have to take the purchase consideration. What is purchase consideration?

price that is payable from the transferee company to the transferrer company purchase consideration so this purchase consideration will come where it will come here in realization account as by transferee company okay purchase consideration purchase consideration will always be at market value purchase consideration will always be at market value but the assets and liabilities which you are going to take from the balance sheets that would be at book values purchase consideration market value fine and then if any expenses are there then those expenses will come over here because this is a nominal account okay so realization account will get debited okay and all expenses will come on the debit side of realization account okay realization expenses and all yeah if it is paid by the transferer company yeah fine and then what will happen see the assets and liabilities they are at book value and the purchase consideration is at market value so of course there will be difference in the realization account there will be balance so whatever balance is there that balance will go you to whom to equity shareholder is account if it's a profit it will come over here balance will come over here if it's loss it will come over here so equity shareholder this is what profit and if there is a loss and realization this will come over here in credit side on credit side okay so this is what and then in preference shareholder account and equity shareholder account what you have to take what payment that is done to preference shareholders such as preference shares cash whatever that is given to preference shareholders yeah that is what will happen right see here the transfer company will pay purchase consideration to the owners of transfer company so now who are the owners of the transfer company the equity shareholders and the preference shareholders so they will get something they will get something right purchase consideration so that purchase consideration can be in form of equity share cash debenture whatever it is yeah that will go to preference shareholders and equity shareholders so whatever they will get preference shares cash write that down here and then here also in equity shareholders see here if they are getting shares equity shares right equity shares if they are getting cash right cash if they are getting debentures right debentures like that okay This is just an overview that I'm showing you. Okay, this is not the actual ledgers. I mean there are many more ledgers simple simple ledgers are there but these are the main ledgers and there's also one more main ledger that is transferee company.

We'll see all that. It's very simple. This is just an overview that I'm showing you. Okay, it's very simple first empty out whole balance sheet. Yeah, throw assets on the debit side of realization throw liabilities in the on the credit side of realization at the book values and then take the purchase consideration at market value.

And if there are any expenses paid by the transferor company, the old company pays its liquidation or realization expenses itself, then you will have to take here to bank. OK, the expenses are being paid by the transferor company. You have to make an entry. OK, but if the expenses, realization or liquidation expenses of transferor company are paid by transferee company, the new company pays the expense, then no entry should be done. in the transfer company okay no entry nothing nothing you have to take over here fine if transfer company pays the expense then you have to take if the transferee company pays the expense then you don't have to take it over here and then some students have doubt that what if this This company, the transferee company, new company doesn't take over all the assets and liabilities.

If some assets are not taken over and if some liabilities are not taken over, then it's simple. It's common sense. Then you yourself, transfer company, have to what? you transfer a company you as an accountant of transfer a company you have to sell those assets yourself and you have to pay those liabilities yourself okay those certain liabilities which are not taken over by the transferry company the new company fine and then whatever balance that will come in the realization account that will hit the equity shareholder account if it is profit it will come here if it is a loss it will come over here and it will hit equity shareholder account right and now this realization here what is this preference shareholder in preference shareholder is the realization see if you are making more payment to preference shareholder account and that's an expense for you and you know the expense will hit in the realization account okay the balancing figure in the preference shareholder account it will hit the realization account okay you are making extra payment so that's an expense to you so it will come over here as to preference shareholder it will come over here to preference shareholder and here by realization simple yeah so this is what you have to do this is the accounting treatment in the books of transferer fine old company so now let's see the journal entries that you have to pass in the books of transferer company okay and then we will also see the you know ledger account format in very much detail yeah okay let's jump to the journal entries now here we have the journal entries in the books of transferer company see here it's very simple but first let's refresh what is the modern rules of debit and credit yeah Yeah. See here in this modern rules of accounting, we have got five items.

Yeah. There is no sixth item. Only five items are there in the accounting.

Asset, liability, income, expense and capital. Yeah. And the rule regarding asset and expense is same.

And the rule regarding liability, income and capital is same. OK. You just have to understand the rule of asset and liability.

And then according to the group, you can easily understand the rule regarding each and every item. So if asset increases, you debit. debit yeah and if asset decreases you credit and this same rule applies to the expense also because they are in the same group and then in case of liability if liability decreases you debit and if liability increases you credit it is exactly opposite to the asset rule yeah so the same rule you have to apply for the income as well as capital understood so this is the modern rules of accounting so now let's go to the general entries now see here it's very easy to understand the general entries because you all already know the rough accounting treatment that i have shown you right the first thing that we have to do is we have to cancel each and every item of the balance sheet right which has debit balance you need to credit that which has credit balance you need to debit that which has credit balance you need to debit that like that cancel off everything yeah balance sheet ko khali karna hai to kese karoge so the first thing that you have to do is you have to cancel the assets or you can say transfer all assets to realization account except fictitious assets yes that is what we did over here right from the balance sheet Where did you keep it?

In the realisation account So the same thing that you have to do right See here the assets one by one they will be credited Why credited? Because assets always have debit balance And now you need to cancel them off So you need to credit them Isn't it? To cancel the assets Or to decrease the asset You need to credit that So all the assets will be credited one by one Planning, Merchandising, Land and Building Various assets except fictitious assets And cash Cash depends upon the question if the question says except cash if cash is not taken over then you don't have to take cash Fine, so kaha jaare assets all the assets are going to the realization account So realization account debit to various assets one by one you have to take and then you can sell the liabilities right transfer all liabilities so what you have to do liabilities always have credit balance so to cancel off the liabilities what you will do to cancel off the liabilities you will debit them simple see here various liabilities account debit liabilities are getting debited to realization one by one take all the liabilities fine to realization all the liabilities okay to realization account because simple and then what you have to do is you have to cancel the capital and you know the capital they have credit balances yeah the capital they have credit balances so these capitals where these capitals go to equity shareholder account and to preference shareholder account isn't it so that is what you are going to do see here transfer equity share capital and reserves and surplus to equity shareholder account so simple thing capitals and reserves they always have credit balances so you just debit them to cancel them off and you are going to send them to the equity shareholders account simple as that right there is no logic behind that it's very simple yeah and then the fourth is transfer fictitious assets yeah that's what i said right the fictitious assets will not go to realization account fictitious assets will not go to realization account so these losses someone has to bear them and who are going to bear those losses equity shareholder account so throw them into equity shareholder account so simple these are assets they have debit balance so to cancel them you are going to credit that yeah credit the fictitious assets so just credit the fictitious assets or to me but I agree a credit over to kuch debit on a right something has to be debited and where are these assets going to equity shareholder account so debit the equity shareholder account okay you transfer the fictitious assets and the fifth entry that you have to pass is the transferring the preference share capital you have transferred till now equity share capital and reserves and surplus to equity shareholder account then you need to pass another entry to transfer preference share capital to preference shareholder account and you know preference share capital always have credit balance balance to cancel that right you have to debit that so preference share capital will get debited and where this capital is going to preference shareholder account simple as that right so these five entries are the entries related to what to empty the balance sheet balance sheet ko khali karne ke liye yeh paach entry tum karoge simple entries hai right the items which have debit balances credit that and you should know where those items go and then the items which have credit balances debit that yeah simple as that and then you have to take the purchase consideration yeah for purchase consideration due that is what happens right in realization account what do you take in realization account see here purchase consideration at market value isn't it so now here what do you write over here you take it over here by transferee company because you are going to get purchase consideration by you i mean transfer company from the transferee company Yes, you will get purchase consideration from transferee company. So, what will happen? You are supposed to get.

First, you have to pass the entry of due. See here, for purchase consideration due. Transferee company is saying, we want to get money.

We want to get purchase consideration. Some money should come from whom? Transferee company.

Yes, so transferee company account will be debited. Why debited? Because this is an asset for transfer company, isn't it? Transferee company has become debtor. We are supposed to get money from transferee company.

So, that. That is why it is debited. Yeah. And we are taking that to realization account. Transferry company account debit to realization account.

Pesa aana hai. So this is an asset for us. Yeah. Our asset is increasing. So transferry company account debit.

Kese asset? Pesa aana hai. If pesa aana hai from transferry company, then you need to debit that. Okay. To realization account.

Simple as that. Yeah. And then the receipt will happen. Yeah. We will get the purchase consideration.

Here, tum bol rahe ho purchase consideration due. Purchase consideration due. Matla purchase consideration aana hai. We are supposed to.

to get the purchase consideration from transferee company so that is why you are debiting the transferee company account but when you will get the purchase consideration then also you have to pass another entry that is called for receipt of purchase consideration for receipt of purchase consideration purchase consideration right so what you got open the box the bag open the bag just simple yeah so what are you getting the purchase consideration can be in form of equity shares it can be in form of preference shares it can be in form of debentures it can be in form of cash yeah if you get purchase consideration like this then what you have to do slowly you have to open the box what have we got in purchase consideration and from whom did you get this purchase consideration from the transfer company yeah whatever receipt you got go and debit it right whatever you get debit that right equity shares preference shares debentures cash this purchase consideration purchase consideration is not always in cash it can be in another forms also and from whom did you get the purchase consideration from the new company from the transfer company right so transfer company account will be credited or to sb both okay either transfer company debit with yeah here the transfer company account was debited now that account has been closed because transfer company has paid the purchase consideration yeah or the simple way is you have got equity shares you have got preference shares you have got debenture you have got cash from whom from transfer company simple as that yeah so these are the two entries that you have to pass regarding the purchase consideration yeah one is the due entry one is the receipt entry fine and then the eighth entry see here I've told you sometime what will happen sometime the transferee company will not take over some assets or liabilities Yeah, if this company doesn't take over some assets or liabilities, then what do you have to do? You have to sell those assets and liabilities in the realization account Yeah, so assets will be sold over here as you know by bank and liabilities will be paid off over here to bank Yeah, so this is what you have to do. So the journal entry for that would be very simple See here, we sell all assets in the realization account right we sell everything and we pay everything in realization account so that is what we are going to do bank account debit to realization account this is the entry of selling the assets which are not taken over by transferee company if there is any asset which is not taken by the transferee company those assets are sold by the transfer company simple money is coming bank account debit to realization account yeah simple and then if some liabilities are not taken over by transferee company then then you yourself have to pay those liabilities.

So, realization account debit to bank. Pesa ja rahe. Simple as that. To bank account.

And you know, all the payments and receipt will happen in realization account. So, that is why, see here, this will hit realization account. Bust ek chis samajhna.

Either asset bech rahe ho, pesa a rahe hai. Either liabilities, pay kar rahe ho, pesa ja rahe hai. So, here bank account debit, pesa a rahe hai.

Here bank account credit because, because bank balance is getting reduced. Yeah, we are paying off the liabilities. And in the realization account.

account will be you know it will get debited over here simple as that yeah and then the tenth entry is payment of realization expenses by transfer company if the payment is done by the transferor company other hum hum our payment hood current transfer company pays the liquidation expenses or the realization expenses then you have to make an entry that is simple payment entry could you be payment career kappa Riga realization account K debit side may I go either I go right simple yeah so the interview would be realization account debit to bank bank account is getting credited yeah simple as that asset is decreasing you are crediting that to bank account realization account debit to bank account but if transferee company other new company new company pays the liquidation or realization expenses then you don't have to make any entry in the books of transfer in the books of old company you don't have to make any entry if if this company pays the expenses if the transferee company pays the expenses fine simple as that and then what do you have to do and then see here first what you did empty the balance sheet yeah these five entries of emptying the balance sheet and then sixth and seventh entry related to purchase consideration yeah and then if assets are not taken over you sell them yourself and then if some liabilities are not taken over you pay them yourself and then payment of realization expenses simple entries here very simple entries and then 11th one see here payment made to preference shareholders yeah see here here this purchase consideration the company got right here there is seat of purchase consideration now to whom this purchase consideration is paid is it paid to the transfer company just an artificial person no it is paid to the owners of transfer company yes that is what is the definition accounting to the accounting standard 14 yeah the accounting standard which gives us the guidance regarding amalgamation it is paid to the owners of transfer company and who are the owners of transfer company the preference shareholders and the equity shareholders holders to unco page a jaiga right equity share preference shares debenture cash which is coming in form of purchase consideration to whom this is paid to the owners of transfer our company and the owners are preference shareholders and equity shareholders to unco me lega equity share preference share debentures cash fine so scale maybe entry pass carnet for that also you have to pass the entry see here simple entry payment made to preference shareholders see here preference shareholders account debit yeah see if it's very simple what these preference shareholders account are getting they are getting preference shares they are getting debentures they are getting cash they can get anything yeah depending upon the question you have to see that yeah i told you over here right in preference shareholder account what do we do whatever the company gives to them the new company it will come over here preference share cash this is the entry that i'm talking about over here okay see here preference shareholder account debit two preference shares in transfer a company to debentures in transfer a company to cash account simple entry payment that is done to preference shareholders this is the entry yeah if you are giving them preference shares debentures cash take that simple and then the 12th entry is for transfer of premium on preferences sometime what will happen i told you previously that see here sometimes there will be a balance in preference shareholder account because if we make more payment to preference shareholders if we give them more than that or their preference share capital which we have cancelled from the balance sheet then obviously some balance will come over here and that balance is an expense for us and that balance will hit realization account that balance will hit realization account so there is an entry for that see here for transfer of premium of preference shares if you are paying them more than that that is called premium so it will hit realization account it is an expense expenses are debited right? Realization account is debited. Realization account debit to preference shareholders account.

You are giving more to preference shareholders. so that's an expense for the company for the transfer company yeah so realization account debit to preference shareholders account simple as that if expense increases you debit that right and to whom are you making the extra payment to preference shareholders simple as that and then comes the payment that is done to equity shareholders simple either be payment kakiya owners of the company to preference shareholders either be payment career to equity shareholders yeah yeah jo aega purchase consideration in my case preference shareholders and equity shareholders so that is what is happening happening in the entry number 11 and entry number 13 their payment is done okay in form of shares debentures cash whatever it is depending upon the question so here also see here equity shareholders are getting their payment so equity shareholders account will be debited why because we have to close their account right yes so that is what we have to debit their account now here equity shareholders account debit two equity shares two debentures two cash depending upon the question it's very simple yeah that's what happens right see here in this ledger account here equity shareholder account they get their whatever it's put purchase consideration equity shares cash debentures whatever they are getting yeah so this is the entry regarding that for payment made to equity shareholders equity shareholders account debit two equity shares two debentures two cash yeah whatever that is given to equity shareholders the purchase consideration yeah so these are the entries five entries of closing the balance sheet yeah purchase consideration is due purchase consideration has come yeah we have received the purchase consideration and the asset is not taken over, sell by yourself if the liability is not paid, pay the liabilities yourself and then realization expenses if done by transferor company, make the entry of simple payment entry and if the expenses are paid by the transferee company, the new company then no entry, yeah and then payment made to preference shareholders, kya tumne diya preference shareholders ko and then kuch zyada diya, if you have paid something more, something extra, something premium, then you have to make an entry realization account debit to preference shareholders account because that will be expense for you zada payment career right simple and then what you are going to pay to equity shareholders that is the entry over here for for payment made to equity shareholders right simple entry these and this entry is same only yeah here preference shareholders are getting the payment here equity shareholders are getting the payment Simple as that and then the fourth and yeah, and then the 14 entries see here It's very simple closing the realization account at last what you will do you will close the realization account, right? After everything what you're going to do you are going to close the realization account see here account right see and realization upon what will happen you will close it yeah so if there is a balance over here that's profit and it will go to equity shareholders account and if there is a loss it will also go to equity shareholder account yeah so loss will come on the credit side side in this realization account yes so this is what you have to do either you have to pass this entry or this entry depending upon the profit or loss if there is a profit this entry if there is a loss this entry close the realization account simple as that if profit then realization account debit to equity shareholder account yeah there will be balance on the debit side of realization then it will call realization account debit to equity shareholder account but if there is a balance on the credit side of realization account then obviously it will be equity shareholder account debit to realization account simple as that yeah simple entries simple entries balance sheet khali karo purchase consideration aana hai purchase consideration aagaya uske baat assets assets which are not taken over liabilities which are not taken over payment of realization expenses or payment karo owners ko simple purchase consideration jo mila hai usse payment karo payment to preference shareholders payment to equity shareholders yeah and then what else and then something extra then that's an expense so you have to debit that in realization and then close the realization account simple as that these 14 entries are there but believe me for your BCom BBA exams, you will get simple problems.

You don't have to pass these much entries. Alright okay then now let's see ledger accounts. Now, here we have the ledger accounts that you need to prepare in the books of transferrer company.

But before going into the ledger accounts and understanding everything, please make sure what is asked in your exam. You have to analyze your past year papers, your BCom, BBA, whatever course it is, BAF, whatever it is, you have to look in the past papers and you have to see whether you are asked journal entries of transferrer company or ledger accounts of transferrer company and you have to study according to that. Okay? don't study everything if you study everything then you will eventually mess up yeah so please go according to your syllabus go according to the scheme of your examination fine okay so now let's start let's see the ledger account and yeah i'm going to teach everything okay i have shown you the general entries and now we are going to see the ledger accounts okay so now let's start see here in the books of transfer company you might have to prepare these many ledger accounts yeah realization account equity shareholder account preference shareholder account, transferee company account, bank account.

Yeah. See, all these are very easy to prepare. Believe me, very, very easy to prepare. Okay.

It might look a lot, but it's very simple. So first let's start. See here. And if you are getting ledger accounts in your exam, then believe me, you won't have to prepare all this in your BCom BBA exams and all, because you will get simple problems.

You will have very less, you know, very less adjustment, everything. And it'll be very simple. Don't worry.

So now let's start. Let's understand the format of the ledger accounts that we have to prepare in the books of transfer company see here as usual we start off with the balance sheet right we have to empty the balance sheet we have to cancel each and every item of the balance sheet because this transfer company is getting liquidated yeah so to do that you start with the realization account see here you start with the realization account first you take all the assets on the debit side yeah two various assets one by one all the assets planned in machinery whatever is their land and building everything except fictitious assets and cash there is an adjustment of cash always mostly it will be there yeah except fictitious assets and cash also because in cash if the question says that entire business is not taken over then you don't have to take cash okay if the question says entire business is taken over then you have to take cash or the question may specifically mention also whether the cash is taken over or not yeah according to the question you have to go but fictitious assets always don't take fictitious assets fictitious assets go to equity shareholder account right so this is what you have to do realization account take all the asset except fictitious assets and you have to be careful about cash and then take all the liabilities on the its idea at the book values all the liabilities and all the assets whether taken over or not taken over all the liabilities all the assets you have to take right and if there are any expenses paid by the transferrer company if there are any expenses paid by the transfer company you have to take the expenses over here to bank you're making the payment yeah so you have to take that over there fine and then if there are any assets or liabilities that are not taken over by the new company the transferee company yeah then you have to sell those assets and pay those liabilities yourself as an accountant of transfer company fine so the asset sold will come over here by bank and the liabilities which are being paid which are not taken over by the transferee company will come over here two bank simple yeah and then what do you do and then you take the purchase consideration now who is paying the purchase consideration the transferee company the new company is paying the purchase consideration to the owners of transferer company right so now that purchase consideration will come over here pcr by transferee company simple and then what do you do and then what most of the students do is they just close the realization account they do the tally and everything and they find out the balance and they send it to the equity shareholder account whether it's profit or loss you don't have to do that don't close realization account don't do that first look whether in your company in your balance sheet whether there is preference share capital if there is preference share capital that means in this company there are preference shareholders so you have to open their account first whose account preference shareholders account right you have to open preference shareholders account and preference shareholder account what do you take what do you take in preference shareholder account simple is to throw items of balance sheet so preference share capital where the preference share capital is cancelled it is cancelled in the preference shareholders account isn't it take the preference share capital from the balance sheet and throw it in the opposite side yes that is what we do in the ledger accounts always here what we do cross postings yeah opposite postings either hey either dollar yes that's what we do we do all cross postings over here it's very simple so what i said don't close the realization account if there are preference shareholders open the preference shareholder account first okay do till here okay till the purchase consideration but don't Don't take this. Okay. Don't do this.

Don't close. the realization account open the preference shareholder account yeah account open karo okay preference shareholder account open karo so in preference shareholder account what do we take first we take the capital preference share capital over here yes and then what do you take whatever payment jo kuch bhi preference shareholder ko de rahe hai preference shares in transfer e-company to cash to debenture jo kuch bhi de rahe hai wo lete jao one by one simple if you are giving them preference shares take two preference share in transfer e-company ya to cash if you are giving them cash take cash like that and and then if the balance doesn't tally in preference shareholder account then there will be balance over here right some difference will come and mostly difference will come over here this means you have paid more compared to their capital so more payment means expense right if there is a balance on this side it means that you have paid them more than their capital so that means it's an expense for the company and all the expenses hit realization account so This balance will be cross-posted to the Realization account. This balance will be cross-posted to the Realization account over here. That is why I tell you, please don't close the Realization account. Do till here, till the purchase consideration and then open the Preferred Shareholder account if Preferred Shareholders are there in the company and see whether you get a balance over here.

If you get, then please take that to the Realization account debit side. To Preferred Shareholder Premium, extra payment. That extra payment that you have done to Preferred Shareholders. That is an expense and expense are debited in the realization here. Yes, this is what you do.

And then you will tell you that. And then here in realization account, what do you do? You close the realization account and you will get a balance either on the debit side or credit side. If it is on debit side, that's profit. If it is on credit side, that's loss.

Yeah. So where the profit or loss will hit, it will hit to the equity shareholder account. The ultimate owners of the company, they have to enjoy the profit. or the loss that is bear by the equity shareholder only yeah so if it is a profit cross posting okay see here if here it is a profit it will go on the where here profit if it's loss then it will be opposite yeah from credit it will be debit over here simple i'll be taking it so now You are done with the realization account, preference shareholder account.

Then you will start with the equity shareholder account. You will open equity shareholder account. Still our balance sheet is not empty. We have killed the asset. We have killed the liabilities and we have killed the preference share capital.

But still equity share capital is there. Reserves and surplus is there and fictitious assets are there which are going to be killed in the equity shareholder account. yes we are going to take the equity share capital and reserves and surplus and throw them on the opposite side of the equity shareholder account right see here it's all about opposite sides it's very simple equity share capital reserves and surplus it's on the which side the left side right so throw them on the right side yeah here it is credit side so buy equity share capital buy reserves simple whatever reserves are there take the reserves fine and then what do you do and then you are going to dump the fictitious assets also right advertisement expense preliminary expense and then what underwriting commission and accumulated losses also such as profit and loss debit balance yeah all those fictitious assets which don't have any resale value you cannot take it in the realization those losses will be bared by equity shareholder account so you are going to throw them into equity shareholder account to fictitious assets okay don't write fictitious assets take one by one okay all the fictitious asset to advertisement expense to profit and loss debit balance like that simple okay Simple, right?

You cancel the capital reserves over here and then fictitious assets. Yeah. And then what are you going to do? And then whatever payment equity shareholder will get, equity shares in transfer company to cash, whatever they are going to get, you have to take it over here. Right.

They might get equity shares in transfer company. They might get cash. They might get debentures. So whatever they are getting, you will take it over here. Simple, right?

So this is what you're going to do. And then, you know, the profit or the loss of realization will hit equity shareholder account right so you have to take that also by cross posting if it's profit take it over here if it's loss take it over here right so this is what you're going to do cancel the capitals and reserves from the balance sheet here yeah yeah either jayega and then what fictitious asset and then and then here what the realization profit or loss yeah either this or this fine and then yeah account will be tally finished finished finished yeah and then what do you have to do and then you have to open the equity shares in transferry company account equity shares in transferry company account now what is happening over here this transferry company is paying purchase consideration to transfer company but Payment is not only in cash. It can be in form of equity shares. It can be in form of debentures.

It can be in form of preference shares. So what is that? Whose equity shares are those?

Whose preference shares? Whose debentures are those? Of a transfer company. Now this company is not existing, right? So the owners of this company has to get something.

So what they're going to get? they are going to get the shares of transfer e-company they are going to get the you know debentures or preference shares of transfer e-company ye company ke shares debentures preference shares in ki owners ko milenge okay so this is what is going to happen so now that is what equity shares in transfer e company nko mila na see here equity shares in transfer e company preference shares in transfer e company preference shareholders ko or equity shareholders ko of purani company ya old company what do they get they get shares debentures cash of what of transfer e company of new company to unka be account khona parta hai okay we have to open that account also equity shares in transfer e account ya preference shares in transfer e account company account yeah so this is what it's very simple cross postings see here equity shares in transfer e-company account right see here what do you have to do the cross posting the name of this see equity shares in transfer e-company account is coming over here right in the equity shareholder account so just do the cross posting it's in which account equity shareholder account so here it is two you have to take by equity shareholder why by equity shareholder because this is in the equity shareholder account so by equity shareholder account simple and then the balancing figure on the this This side will go to the transfer account because whose shares are those? This equity shares, transfer company.

So the balance will go to transfer company. Simple. And then see here, then you have to open the preference shares and transfer company account.

If there are any in the question, it will depend upon the question. But this is the format I'm talking about. So here see preference shares and transfer company account. Now where this term is coming, preference shares and transfer company, where this name is coming in the preference shareholder account.

So see here, preference share in. transferee company right so it's on the debit side so you are going to take it on the credit side by the name of the account preference shareholder account so by preference shareholder account and the balancing figure will go to transferee company because whose shares are these preference shares transferee company shares simple cross posting right and then you have to open the transferee company account now what do you have to do in the transferee company account you don't have to do anything you have to open the purchase consideration box and show what is in this purchase consideration that's all you have to do in this in this transfer company account okay nothing to do it is very simple look cross posting here right in realization account you have taken the name of transfer company over here right right the purchase consideration so here it is credited right here it is on the credit side so you are going to take the realization name on the debit side as to realization this is the purchase consideration or you have to open that purchase consideration in what what forms did the transferee company pay the purchase consideration okay very simple see here cross posting from here transferee company it will go over there yeah transferee company it will go over there simple equity share enough so yeah equity share over here and then to transferee company preference share so preference share over here Very very simple so this is what you have to do and then what see and then cash also. I told you to open the purchase consideration. What kind of payment has come, in which way, in what form the payment has come.

you have to write that down. Okay, two preference shares, two equity share, two cash, two debentures, whatever it is, just open the back, open the box and see how the purchase consideration has been paid. So take all that over here. Simple, yeah? And then at last, you are going to open the bank account.

bank account also cross postings all cross posting see here in realization account if there are any bank bank terms then just do the cross posting see here here there is one bank right two bank so here it will be by realization because it's in realization account so here again there is two bank but i have not written over there okay so you have to take that like that so it is two bank over here so again by realization one more by realization yeah and then here you see uh by bank so again here to realization like that and you have to take the opening balance over there right right because this is a bank account yes asset account so always the asset account has the debit opening balance so this is the opening balance that you have to take from the balance sheet to balance b by d simple yeah and then see all the other accounts see here in equity shareholder account have they got any cash yes see here cash is there yeah cash oblique bank so if it's two banks so cash or bank take it both okay so the same thing right to cash so here it will come by equity shareholder account and then in preference shareholder account if you see here 2 cash so it's in preferential holder account you have to do cross posting so 2 cash will become buy preferential holder account yeah cross postings you have to do that's it that's how you are going to go about this ledger accounts it's very simple yeah and debentures account i'm not showing you the debentures account i will see that while solving the problem okay because i didn't have the space over here so this is what you have to do balance it kali karna okay don't close the realization account do the preference shareholder account first yeah if there is a balance take it in the realization on the opposite side and then close the realization and if there is a problem profit or loss that will hit the equity shareholder account and then in equity shareholder account what do you take the capital from the balance sheet equity share capital and the reserves and surplus and the fictitious assets and then whatever payment that is done yeah and then in equity shareholder account what will hit the realization loss or profit yeah it will hit over here so this is what will happen yeah and then these two accounts simple cross postings from the equity shareholder and preference shareholder accounts yeah and then transferry company here you are going to take the cross postings of this purchase consideration over here yeah And then open the box of purchase consideration in what form, in what forms the purchase consideration is coming to the transfer company, preference shares, equity share, cash. You have to show that and then bank account at last with the cross postings from all the accounts. So these are the ledger accounts that you have to prepare in the books of transfer company or the vendor company. Simple, right? Yes, this is the treatment, right?

We have seen all the treatment of transfer company.

Transcript for:Accounting Steps for Transferor Company

Transcript for:
Accounting Steps for Transferor Company