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Hak Milik Sant Sahabat dan Kawan-Kawan. Dibenar untuk tujuan pembelajaran sahaja

Shot and Gun are two medium sized companies that want to amalgamate. A new company

named Shotgun is formed to acquire all the assets and liabilities of Shot and Gun. The

authorised share capital of the new company is made up of 2,000,000 ordinary shares of RM1/-

each and 400,000 6% preference shares of RM1/- each. To register the new company RM50,000

ordinary shares are issued to the founders at par for cash.

Given below are the balance sheets of Shot Bhd and Gun Bhd as at 31 December 2009

Shot Gun

RM RM

Land and building (cost) 280,000 300,000

Plant and machinery (cost) 60,000 80,000

Goodwill 20,000 10,000

Current assets

Inventories 80,000 60,000

Trade receivables 60,000 80,000

Bank 80,000 60,000

580,000 590,000

Ordinary shares of RM1/- each 600,000 200,000

10% preference shares of RM1/- each 200,000

Profit and loss balance (100,000) 160,000

Trade payables 80,000 30,000

580,000 590,000

You are given the following information:

It was agreed that:

1. The fair value of the assets is as follows:Shot Gun

RM RM

Land and building 400,000 500,000

Plant and machinery 30,000 40,000

Goodwill nil 70,000

Current assets Book value Book value

2. Fully paid ordinary shares in Shotgun to be issued to Shot to satisfy the ration.3. Shot to be issued with 240,000 6% preference shares, and fully paid ordinary share at

par in Shotgun. The preference shares issued by Shotgun are to be used to discharge the

preference shareholders of Gun.

4. Both Shot and Gun are to be wound up. Liquidation expenses of RMI0,000 each for tobe paid for by Shotgun.

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Hak Milik Sant Sahabat dan Kawan-Kawan. Dibenar untuk tujuan pembelajaran sahaja

You are required to:

a. Calculate the purchase price and state the consideration paid to Shot and Gun;

b. Prepare ledger entries to close the books of Shot;

c. Prepare journal entries to close the books of Gun; and

d. Prepare the initial balance sheet of Shotgun.

Answer

a. Fair value of net assets acquired + Expenses incurred = Purchase price = Purchaseconsideration

Net assets acquired:

Shot Gun Total

RM RM RM

Goodwill 70,000 70,000

Land and building 400,000 500,000 900,000

Plant and machinery 30,000 40,000 70,000

Inventories 80,000 60,000 140,000

Trade receivables 60,000 80,000 140,000

Bank 80,000 60,000 140,000

650,000 810,000 1,460,000

Trade payables (80,000) (30,000) (110,000)

Net assets at fair value = Purchase price 570,000 780,000 1,350,000

Goodwill appearing in the individual books is ignored. A new value is adopted as per the

agreement.

Purchase consideration

Shot Gun Total

RM RM RM

6% preference shares of RM1/- each 240,000 240,000

Ordinary shares of RM1I- each 560,000 530,000 1,090,000

Liquidation expenses 10,000 10,000 20,000

Purchase price 570,000 780,000 1,350,000

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Hak Milik Sant Sahabat dan Kawan-Kawan. Dibenar untuk tujuan pembelajaran sahaja

Debit Credit

RM RM

a. To record the purchase price

Shotgun 770,000

Realisation account 770,000

(Being the agreed purchase price)

b. Assets taken over

Realisation account 590,000

Goodwill 10,000

Land and building 300,000

Plant and machinery 80,000

Inventories 60,000

Trade receivables 80,000

Bank 60,000

(Being assets disposed off)

c. Liabilities taken over

Trade payable 30,000

Realisation account 30,000(Being liabilities taken over by Shotgun)

d. Realisation account 40,000

Preference share capital 200,000

Sundry members preference shareholders 240,000

(Being amount payable to preference shareholders)

e. Profit and loss account 160,000

Ordinary share capital 200,000

Sundry members ordinary shareholders 360,000

(Being transfer of capital and reserve)

f. Realisation 170,000

Sundry members ordinary shareholders 170,000(Being profit on sale of business)

g. Preference shares in Shotgun 240,000

Ordinary shares in Shotgun 530,000

Shotgun 770,000

(Being purchase consideration received)

h. Sundry members account preference shareholders 240,000

Preference shares in Shotgun 240,000

(Being settlement of amount due to preference shareholders)

i. Sundry members account ordinary shareholders 530,000

Ordinary shares in Shotgun 530,000

(Being distribution of shares to ordinary shareholders)

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Hak Milik Sant Sahabat dan Kawan-Kawan. Dibenar untuk tujuan pembelajaran sahaja

Realization Account

RM RM

Goodwill 10,000 Shotgun 770,000

Land and building 300,000 Trade payable 30,000

Plant and machinery 80,000

Inventories 60,000

Trade receivables 80,000

Bank 60,000

Sundry members -

preference shareholders 40,000

Sundry members account 170,000

800,000 800,000

Shotgun

RM RM

Realisation account 770,000 Shares in Shotgun

- Preference shares 240,000- Ordinary shares 530,000

770,000 770,000

Sundry Members Account

Preference Ordinary Preference Ordinary

RM RM RM RM

Share in Shotgun Share capital 200,000 200,000

Preference shares 240,000 Profit and loss

account

160,000

Ordinary shares 530,000 Realisation account 40,000 170,000240,000 530,000 240,000 530,000

Business Purchase

Shot

RM000

Gun

RM000

Shot

RM000

Gun

RM000

Liquidator 560 770 Goodwill 70

Trade payables 80 30 Land and building 400 500

Plant and machinery 30 40

Inventories 80 60

Bank- liquidation Receivables 60 80

expenses 10 10 Bank 80 60

650 810 650 810

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Hak Milik Sant Sahabat dan Kawan-Kawan. Dibenar untuk tujuan pembelajaran sahaja

Shotgun

Balance sheet as at 31 December 2009

RM RM

Land and building 600,000

Plant and machinery 150,000

Goodwill (50,000 + 47,000) 97,000

847,000

Current assets

Inventories 100,000

Trade receivables 120,000

Bank 28,000 248,000

1,095,000

Issued and paid up capital:

700,000 ordinary shares 700,000

Share premium 125,000

Profit and loss account 100,000

925,000

Non-current liabilities

8% debentures 120,000

Current liabilities

Trade payables 50,000

1,095,000