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 RM 280,000 60,000 20,000 80,000 60,000 80,000 580,000 600,000 (100,000) 80,000 580,000 Gun RM 300,000 80,000 10,000 60,000 80,000 60,000 590,000 200,000 200,000 160,000 30,000 590,000

Land and building (cost) Plant and machinery (cost) Goodwill Current assets Inventories Trade receivables Bank

Ordinary shares of RM1/- each 10% preference shares of RM1/- each Profit and loss balance Trade payables

You are given the following information: It was agreed that: 1. The fair value of the assets is as follows: Shot RM 400,000 30,000 nil Book value Gun RM 500,000 40,000 70,000 Book value

Land and building Plant and machinery Goodwill Current assets

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 to be paid for by Shotgun.

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 = Purchase consideration

Net assets acquired: Shot RM Goodwill Land and building Plant and machinery Inventories Trade receivables Bank Trade payables Net assets at fair value = Purchase price 400,000 30,000 80,000 60,000 80,000 650,000 (80,000) 570,000 Gun RM 70,000 500,000 40,000 60,000 80,000 60,000 810,000 (30,000) 780,000 Total RM 70,000 900,000 70,000 140,000 140,000 140,000 1,460,000 (110,000) 1,350,000

Goodwill appearing in the individual books is ignored. A new value is adopted as per the agreement. Purchase consideration Shot RM 6% preference shares of RM1/- each Ordinary shares of RM1I- each Liquidation expenses Purchase price 560,000 10,000 570,000 Gun RM 240,000 530,000 10,000 780,000 Total RM 240,000 1,090,000 20,000 1,350,000

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Debit RM a. To record the purchase price Shotgun Realisation account (Being the agreed purchase price) b. Assets taken over Realisation account Goodwill Land and building Plant and machinery Inventories Trade receivables Bank (Being assets disposed off) c. Liabilities taken over Trade payable Realisation account (Being liabilities taken over by Shotgun) d. Realisation account Preference share capital Sundry members preference shareholders (Being amount payable to preference shareholders) e. Profit and loss account Ordinary share capital Sundry members ordinary shareholders (Being transfer of capital and reserve) f. Realisation Sundry members ordinary shareholders (Being profit on sale of business) g. Preference shares in Shotgun Ordinary shares in Shotgun Shotgun (Being purchase consideration received) h. Sundry members account preference shareholders Preference shares in Shotgun (Being settlement of amount due to preference shareholders) i. Sundry members account ordinary shareholders Ordinary shares in Shotgun (Being distribution of shares to ordinary shareholders) 770,000

Credit RM

770,000

590,000 10,000 300,000 80,000 60,000 80,000 60,000

30,000 30,000 40,000 200,000 240,000 160,000 200,000 360,000 170,000 170,000 240,000 530,000 770,000 240,000 240,000 530,000 530,000

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

Goodwill Land and building Plant and machinery Inventories Trade receivables Bank Sundry members preference shareholders Sundry members account

Realization Account RM 10,000 Shotgun 300,000 Trade payable 80,000 60,000 80,000 60,000 40,000 170,000 800,000

RM 770,000 30,000

800,000

Realisation account

Shotgun RM 770,000 Shares in Shotgun - Preference shares Ordinary shares 770,000

RM 240,000 530,000 770,000

Share in Shotgun Preference shares Ordinary shares

Sundry Members Account Preference Ordinary RM RM Share capital 240,000 Profit and loss account 530,000 Realisation account 240,000 530,000

Preference RM 200,000

Ordinary RM 200,000 160,000 170,000 530,000

40,000 240,000

Liquidator Trade payables

Shot RM000 560 80

Bank- liquidation expenses

10 650

Business Purchase Gun RM000 770 Goodwill 30 Land and building Plant and machinery Inventories Receivables 10 Bank 810

Shot RM000 400 30 80 60 80 650

Gun RM000 70 500 40 60 80 60 810

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

Shotgun Balance sheet as at 31 December 2009 RM Land and building Plant and machinery Goodwill (50,000 + 47,000) Current assets Inventories Trade receivables Bank Issued and paid up capital: 700,000 ordinary shares Share premium Profit and loss account Non-current liabilities 8% debentures Current liabilities Trade payables RM 600,000 150,000 97,000 847,000

100,000 120,000 28,000

248,000 1,095,000 700,000 125,000 100,000 925,000 120,000 50,000 1,095,000

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