CASE STUDY 1

X Ltd acquired the business of Y Ltd on 01.04.2010. The folllowing were the Assets and Liabilites on that date:

BALANCE SHEET AS ON 01.04.2010

Rs in MillionAmount

Liabilities

7% Debentures 100.00Trade Creditors (after net off of amount due to X Ltd) 30.00

Provision for retirement benefits

30.00

Deferred Tax liability 20.00

180.00

Rs in MillionAmount

Assets

Property Plant and Equipment

100.00

Leased assets 20.00Available for Sale Investments

30.00

Receivables 40.00Less: Provision for doubtful debts at 40%

16.00 24.00

Y Ltd guarantees that it would not exceed 25%Inventories 40.00

Held for trading Investments

30.00

Cash 20.00 264.00

YOU ARE REQUIRED TO IDENTIFY THE ASSETS AND LIABILITES ASSUMED IN THE BUSINESS COMBINATION

Further Information:

Y Ltd has not accounted for a brand which is valued at Rs 30 million.

It has not recognized a Warranty obligation as it does not consider any cash outflow. But the fair value of the obligation is Rs 2 Million. Y Ltd has guaranteed that the Warranty Obligation would not exceed one Million.

X Ltd has agreed to pay Rs 2 million to Key Management personnel of Y Ltd for their efforts to help in Integration and post combination period up to 1 year.

It was agreed that available for sale and held for trading securities will be taken over by key management personnel at balance sheet date figures which corresponds to the Market Value. They will in turn settle the trade crs of 30 Million.

Deferred tax liability is assumed to be Rs 24 Million.

Y Ltd has a operating lease on a premises in good location at Rs 2 million pa for a period of 3 years. Others would be willing to pay Rs 3 million for it. Discount rate is assumed at 10%

Y Ltd has given a factory on lease (operating Lease) at Rs 10 million pa for a period of 3 years. Due to low demand the current market rent is Rs. 7.5 Million and would recover to Rs 9 million pa in the next 2 years.

Discount rate is assumed at 10%

Fair values

PPE is Rs 220 Million,Factory under operating lease is Rs. 24 million Inventories Rs. 38 million and 7 % debentures is Rs 100 Million