Question

Which of the following statements are Incorrect for Accounting treatment to close the books of Vendor company in case of Amalgamation of Companies?
A. The assets and the liabilities of the Vendor company are transferred at the book values to a separate account called as the “Realization Account”.
B. The purchase consideration receivable is debited to the Realization Account.
C. On the Receipt of the Purchase consideration, it is credited to equity shareholders and preference shareholders account.
D. The balance of Realization Account (either profit/loss) is transferred to the equity shareholders account.

• A. A and D only
• B. A, B and D only
• C. B and D only
• D. B and C only

Hint:

Logic Tip: In the Vendor's books, the purchase consideration is credited to Realization A/c, and shareholders' accounts are debited when they receive it.

Answer 1

The Correct Option is D

Step 1: Understanding the Question:

• We must identify the INCORRECT statements about closing the books of the Vendor company on amalgamation.

Step 2: Detailed Explanation:

• A is correct: assets and liabilities are transferred to the Realization Account at book values.
• B is incorrect: the purchase consideration is credited to the Realization Account (the Purchasing Company's account is debited).
• C is incorrect: when the purchase consideration is received, the shareholders' accounts are debited (they receive the consideration), not credited.
• D is correct: the profit or loss on realization is transferred to the equity shareholders' account.
• So the incorrect statements are B and C.

Step 3: Final Answer:
The correct option is (D) B and C only.