Sagar Ltd. was formed on 1 January, 2016 with an authorised share capital of 5,00,000 equity shares of ₹ 10 each. 1,00,000 equity shares were issued for cash at a premium of ₹ 2.50 per share. No other transactions took place until 1 April 2016 when Sagar Ltd. agreed to buy the assets, including goodwill and assume the liabilities of River Ltd. and Canal Ltd. for a total of 4,00,000 of its shares. For the purpose of determining the premium at which the shares of Sagar Ltd. were to be issued, fixed assets, current assets and liabilities are to be taken at their book values, goodwill is to be determined on the basis of two and half times the average profit of the past three years after deducting a standard profit at 10% on capital employed as on 31 March, 2016. The summarised Balance Sheet of River Ltd. and Canal Ltd. as on 31 March, 2016 were as follows:

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Balance Sheets of River Ltd. and Canal Ltd. as at 31st March, 2016 Note River Ltd. No. (3) (2) (3) I. EQUITY AND LIABILITIES (1) Shareholders' Funds : (a) Share Capital Equity Share of 10 each (b) Reserves and Surplus --Profit and Loss (2) Share Application Money Pending Allotment : (3) Non-current Liabilities: (4) Current Liabilities: (a) Trade Payables TOTAL II. ASSETS (1) Non-current Assets: (a) Fixed Assets (i) Tangible Assets (2) Current Assets: Particulars (1) (a) Other Current Assets TOTAL Operating profits for the last three years: Year ended 31 March, 2014 2015 2016 Particulars 15,50,000 9,50,000 10,00,000 35,00,000 22,50,000 12,50,000 35,00,000 River Ltd. ₹ 3,52,500 4,40,000 4,45,000 Canal Ltd. (4) 16,75,000 75,000 27,50,000 45,00,000 14,50,000 30,50,000 45,00,000 Canal Ltd. ₹ 2,75,000 3,20,000 3,42,500