On 1 January x3 it was agreed that Black will acquire all the assets and liabilities of Color except for

the shares in Black. Given below are the balance sheets of Black and Color on 1 Januaryx3: Black RM000 440,000 50,000 490,000 56,000 (40,000) 506,000 400,000 40,000 66,000 506,000 Color RM000 190,000 40,000 230,000 36,000 (20,000) 246,000 400,000 30,000 66,000 246,000

Non-current tangible assets Goodwill Shares in Black (20,000,000) Current assets Current liabilities Net assets Share capital Ordinary shares of RM1.00 each Share premium Retained profits

The acquisition was undertaken under the following conditions: a. The shareholders of Color are to receive 10 shares in Black for every 8 shares held in Color and cash of RM20,000,000. The shares in Black already held by Color are to be used as part of the purchase consideration. It was agreed that the fair value of the shares of Black for the acquisition exercise be RM1.60. Color will go into liquidation. The fair value of the assets and liabilities of Color was estimated to be: Non-current tangible assets RM220,000,000 Current assets RM36,000,000 Current liabilities RM20,000,000

b. c.

Required: a. Close the books of Color; b. Record the above transactions in the books of Black; and c. Prepare the balance sheet of Black immediately after the acquisition of Color.

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

Answer Purchase consideration RM000 Shares in Apple 10 shares for every 8 shares held 10/8 x 150,000 less Shares already held Shares to be issued Issued at agreed price Cash Purchase consideration = purchase Calculation of goodwill Tangible assets taken over Non-current assets Current assets Liabilities taken over Current liabilities Net tangible assets taken over Purchase price Goodwill 187,500 (20,000) 167,500 X 1.60 RM000

268,000 20,000 288,000

220,000 36,000 256,000 (20,000) 236,000 288,000 52,000

Ledger entries to close the books of Color Realisation account RM000 190,000 Purchasers account 36,000 Current liabilities 82,000 308,000

Non-current assets Current assets Sundry members account

RM000 288,000 20,000 308,000

Realisation account

Purchasers account RM000 288,000 Ordinary shares in Black Cash 288,000

RM000 268,000 20,000 288,000

Bank Ordinary shares in Black

Sundry members account RM000 20,000 Ordinary share capital 308,000 Profit and loss account Share premium Realisation account 328,000

RM000 150,000 66,000 30,000 82,000 328,000

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

Balance b/d New ordinary shares in Black at RM1.60 each

Shares in Black Bhd RM000 40,000 Sundry members 268,000 308,000

RM000 308,000

308,000

b. Journal entries to record the absorption of Black Debit RM000 288,000 Credit RM000 288,000

a. Business purchase account Color (Being the agreed purchase price) b. To record the assets acquired at fair value Non-current assets Current assets Goodwill Current liabilities Business purchase account (Being assets and liabilities acquired) c. Color Bank Ordinary share capital Share premium (Being settlement of purchase price)

220,000 36,000 52,000 20,000 288,000 288,000 20,000 167,500 100,500

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

Black Balance sheet as at 31 December 2002 Non-current assets Goodwill (50,000 + 52,000) Current assets (56,000 20,000 + 36,000) Issued and paid up capital: Ordinary shares of RM1/- each (400,000 + 167,500) Share premium Retained profits Current liabilities Trade payables RM000 660,000 102,000 762,000 72,000 834,000 567,500 140,500 66,000 774,000 60,000 834,000

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