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SOLUTION

(i) Journal of Notorola Ltd. (Rs in crore)
Dr. Cr.
Loan Funds Dr. 600
Current Liabilities Dr. 800
Provision for Depreciation Dr. 800
To Fixed Assets 1,000
To Current Assets 1,000
To Capital Reserve 200
(Being division B along with its assets and liabilities sold to Senovo
Ltd. for Rs 50 crore)
In the given scenario, this demerger will meet the definition of common control transaction. Accordingly, the

transfer of assets and liabilities will be derecognized and recognized as per book value and the resultant loss
or gain will be recorded as capital reserve in the books of demerged entity (Notorola Ltd).

Notes: Any other alternative set of entries, with the same net effect on various accounts, may also be given.

(ii) Notorola Ltd. Balance Sheet after demerger (Rs in crore)

ASSETS Note No. Amount
Non-current assets
Property, Plant and Equipment 50
Current assets 400
450
EQUITY AND LIABILITIES
Equity
Equity share capital (of face value of Rs 10 each) 1 50
Other equity 2 350
Liabilities

Current liabilities
Current liabilities 50
450
Notes to Accounts
(Rs in crore)
1. Equity Share Capital
5 crore equity shares of face value of Rs 10 each 50
Consequent to transfer of Division B to newly incorporated company Senovo
Ltd., the members of the company have been allotted 2 crore equity shares of
Rs 10 each at a premium of Rs 15 per share of Senovo Ltd., in full settlement
of the consideration in proportion to their shareholding in the company

2. Other Equity
Surplus (350 - 200) 150
Add: Capital Reserve on reconstruction 200
350

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