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34 XIII. Impact of Reconstruction over Wealth of Investor and Company Illustration - 42 AB Ltd has 2 divisions - A and B. The Balance Sheet as at 31, October 2008 was as under: (in Crores) Total A B 600 500 100 300 100 200 900 600 300 400 300 100 300 100 400 700 200 200 400 500 800 Fixed assets Cost Depreciation W.D.V. Net Current Assets Current Assets Less: Current Liabilities Total Financed by: Loans (Secured by a charge on Fixed assets) Own funds: Equity capital (Fully paid up Rs. 10 shares) Reserves and surplus Total 100 100 100 100 50 650 700 400 400 800 It is decided to form a new company B Ltd., to take over the assets and liabilities of B division. According B. Ltd. was incorporated to take over at balance sheet figures, the assets and liabilities of that division. B Ltd. is to allot 5 crores equity shars of Rs. 10 each in the company to the members of AB Ltd., in full settlement of the consideration. The members of AB Ltd. are therefore to become members of B Ltd. as well without having to make any further investment a. You are asked to pass journal entries in relation to the above in the books of AB Ltd and B. Ltd. Also show the Balance Sheets of the 2 companies as on the morning of ist November, 2008, showing cor- responding previous year's figures. b. The directors of the 2 companies, ask you to find out the net asset value of equity shares pre and post demerger. C. Comment on the impact of demerger on "shareholders wealth

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