TUTORIAL : BUSINESS COMBINATIONS

Course : Financial Accounting 5 (ACC3553) S1/2023

Instruction - For ALL QUESTIONS, prepare:

a) The calculation of the Consideration Transferrable

b) In Seller’s (Vendor’s) book
i) The Realisation Account
ii) The Sundry Members Accounts
iii) The Buyer’s Account
iv) The Bank Account

c) In Buyer’s book:
i) The Business Purchase Account
ii) The Statement of Financial Position, immediately after the
combinations

QUESTION 1

Top Up Bhd was incorporated on 1 July 2003. After years running the business, on 1 May 2022 the
company decided to acquire the businesses of Prepaid Bhd in order to strengthen their market share.

The balances in the statement of financial position of Top Up Bhd and Prepaid Bhd on 30 April 2022
were as follows:

Top Up Bhd Prepaid Bhd

RM RM
Goodwill 30,000 14,000
Premises 193,000 168,000
Machinery 35,000 43,000
Inventories 35,000 33,000
Account Receivables 15,000 44,000
Bank 15,000 40,000
_______ _______
323,000 342,000

Ordinary Shares @ RM2.00 200,000 240,000

9% Preference Shares @ RM1.00 50,000
6% Preference Shares @ RM1.00 50,000
Profit or Loss acc 30,000 25,000
General Reserves 18,000 10,000
Account Payables 25,000 17,000
_______ _______
323,000 342,000

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 The sale and purchase agreement contained the following clauses:

1. Top Up Bhd was to take over all the assets and liabilities of Prepaid Bhd.

2. The purchase consideration payable to Prepaid Bhd, to be :

To the ordinary shareholders :

175,000 fully paid ordinary shares of Top Up Bhd at RM2.00 each

To the preference shareholders :

55,000 9% preference shares in Top Up Bhd, issued at Rm1.00 each

3. The cost of liquidation of Prepaid Bhd amounting to RM2,000 is to be paid by Top Up

Bhd.

4. The agreed values for the assets of Prepaid Bhd are as follows:
RM
Premises 268,000
Machinery 40,000
Inventories 32,000
Account Receivables 35,000

QUESTION 2

The list of balances in the Statement Of Financial Position of Kelam Berhad and Kabut Berhad
as at 31st December 2022 were as follows:
Kelam Berhad Kabut Berhad
RM RM
Freehold Premises 1,560,000 1,100,000
Motor Vehicles 215,000 252,000
Plant & Machinery 750,000 342,000
Furniture & Fittings 85,000 58,000
Formation Expenses 2,500 3,000
Inventories 80,000 50,000
Account Receivables 35,000 55,000
Bank 10,000
2,737,500 1,860,000
Equities and Liabilities
Ordinary Shares @ RM 1.00 each 2,000,000 900,000
6% Preference Shares @ RM1.00 each - 500,000
General Reserves 202,500 150,000
Profit or Loss acc 450,000 238,000
Account Payables 85,000 60,000
Bank Overdraft - 12,000
2,737,500 1,860,000

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 1. Kelam Berhad took over all the assets and liabilities (except for Bank Overdraft) of
Kabut Berhad. For the combination purposes, the assets of Kabut Berhad were
revalued as follows:

RM
Freehold Premises 1,250,000
Motor Vehicles 200,000
Plant & Machinery 255,000
Furniture & Fittings 42,000
Inventories 45,000
Account Receivables 50,000
Goodwill on absorption 40,000

2. The purchase price of Kabut Berhad is RM1820,000, and the consideration is to be

settled as follows;

To Ordinary Shareholders;
960,000 Ordinary Shares in Kelam Berhad at RM1.00 each

To Preference Shareholders;
500,000 6% Preference Shares in Kelam Berhad of RM1.00 each

The balance in cash

3. Liquidation expense RM2,000 of Kabut Berhad was paid by Kelam Berhad.

4. Kabut Berhad settled the Bank Overdraft in full.
5. Kelam Berhad also issute 250,000 Ordinary Shares at RM1.00 each which were fully
subscribed and paid for.

QUESTION 3

The summarized Statement Of Financial Position of Paxi Bhd and Maxi Bhd showed the following
position as at 31st December 2022.
PAXI BHD MAXI BHD
RM RM
Land And Building 240,000 220,000
Plant And Machinery 65,000 60,000
Inventories 35,000 20,000
Account Receivables 18,000 15,000
Bank 32,000 11,000
390,000 326,000

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 Ordinary Shares @ RM1.00 each 250,000 200,000
5% Preference Shares @ RM1.00 each 80,000 -
8% Preference Shares @ RM1.00 each - 60,000
Profit And Loss 45,000 (10,000)
8% Debentures - 56,000
Account Payables 15,000 20,000
390,000 326,000

1. It was agreed that Paxi Bhd was to take over all assets (except Bank) and liabilities of Maxi Bhd
on 1 January 2023, on the following terms;
RM
Land and Building 235,000
Inventories 12,000
Account Receivables 13,000

2. The purchase consideration payable by Paxi Bhd is as follows;

i) To issue sufficient 6% Preference Shares in Paxi Bhd to enable the Preference
Shareholders of Maxi Bhd to receive the same amount of dividends for next year as they
received this year.
ii) To issue sufficient 7% Debentures in Paxi Bhd to discharge the 8% Debentures in Maxi
Bhd at a premium of 10%.
iii) The balance of the purchase consideration is to be paid in fully paid Ordinary Shares in
Paxi Bhd at an agreed value of RM1.00 per share.

3. The cost of winding up Paxi Bhd was RM2,000 to be paid by Paxi Bhd.

QUESTION 4

Given below are the Statement Of Financial Position of Copa Sdn Bhd and Cabana Sdn Bhd as at 30
September 2022.

Copa Sdn Bhd Cabana Sdn Bhd

RM RM
Equities and Liabilities:
Issued and Paid Up Capital
150,000 Ordinary Shares of RM1.00 each 150,000 -
100,000 Ordinary Shares of RM1.00 each - 100,000
General Reserves 20,000 5,000
Profit & Loss 5,720 3,680
6% Debentures 50,000 -
Account Payables 35,630 19,960
261,350 128,640

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 Copa Sdn Bhd Cabana Sdn Bhd
RM RM
ASSETS
Non-Current Assets:
Land & Building 75,000 42,000
Plant & Machinery 35,000 18,000
Goodwill 25,000 12,000

Current Assets

Inventories 42,000 26,000

Account Receivables 48,000 23,000
Bills Receivable 15,000 4,000
Balances at bank 21,350 3,640
61,350 128,640

On 1st October 2007, Cabana Sdn Bhd was to take over all the assets of Copa Sdn Bhd (excluding
cash at bank) and trade payables of Copa Sdn Bhd.

1. The consideration for the absorption of the respective undertakings to the company was as
follows;

• The allotment of one fully paid ordinary share of RM1.00 each in Cabana Sdn Bhd for
every one share held.
• Cash payment of RM 0.20 for every one share held.
• The 5% Debentures will be issued at a premium of 5% to discharge 6% Debentures at a
premium of 5%.

2. The assets of Copa Sdn Bhd were revalued as follows:

RM
Plant & machineries 80,000
Inventories 40,000
Trade receivables 45,000

3. Copa Sdn Bhd would pay its own liquidation expenses, which amounted to RM 600.
4. Cabana Sdn Bhd made an additional issue of 200,000 Ordinary Shares at RM 1.00 each to
provide additional working capital, the issue is fully subscribed and paid for.

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