In: Accounting
The owners of ASPRO Sdn Bhd and ASPIA Sdn Bhd decided to combine their business in which a new company named ASPRO ASPIA Bhd was formed to take over the businesses of both companies from 1 January 2020. Below are their balance of accounts as at 31 December 2019.
Balance of accounts as at 31 December 2019
ASPRO (RM) |
ASPIA (RM) |
|
Property, plant and equipment |
400,000 |
600,000 |
Investment property |
200,000 |
100,000 |
Cash |
40,000 |
10,000 |
Trade receivables |
100,000 |
60,000 |
Inventories |
60,000 |
50,000 |
Total assets |
800,000 |
820,000 |
Ordinary shares |
600,000 |
400,000 |
Retained profit |
100,000 |
140,000 |
Bank loan |
70,000 |
200,000 |
Trade payables |
30,000 |
80,000 |
Total equities and liabilities |
800,000 |
820,000 |
ASPRO ASPIA Bhd took over all the asset and liabilities of ASPRO Sdn Bhd and ASPIA Sdn Bhd. The assets were taken over at the following fair values:
ASSETS |
ASPRO(RM) |
ASPIA (RM) |
Property, plant and equipment |
420,000 |
640,000 |
Investment property |
200,000 |
100,000 |
Trade receivables |
90,000 |
60,000 |
Inventories |
70,000 |
55,000 |
The consideration were 687,500 unit of shares to ASPRO Sdn Bhd and 500,000 unit of shares to ASPIA Sdn Bhd, discharged with the issuance of fully paid ordinary shares in ASPRO ASPIA Bhd at RM1.20 per share.
Required:
(a) Determine the type of business combination applied in the above situation. Explain your answer.
(b) Show the detail calculation of the amount of goodwill by companies and in total.
(c) Prepare the statement of financial position of ASPRO ASPIA Bhd as at 1 January 2020.
Type of Business Combination used | |||
The type of business combination used is amalgamation: purchase method/acquisition method. | |||
Purchase Method, is an accounting method, wherein the assets and liabilities of the | |||
transferor company are shown at their market value in the books of the transferee company, | |||
as of the date of amalgamation. | |||
Assets and liabilities appear at fair market values in this method. | |||
The aggregate liabilities of the united firm is equal to the sum of the liabilities of the | |||
individual firms. | |||
The equity capital of the transferee company is increased by the amount of the purchase | |||
consideration. | |||
Surplus of deficit of purchase considertaion over the net asset acquired, should be credited | |||
or debited, as capital reserves or goodwill. | |||
The identity of the transferor company's reserves except statutory reserves is not kept intact. |
Computation of Goodwill | (In RM) | |
Particulars | ASPRO Sdn Bhd | ASPIA Sdn Bhd |
Number of Shares | 687,500 | 500,000 |
Value per Share | 1.20 | 1.20 |
Purchase Consideration | 825,000 | 600,000 |
(687.000 x 1.20) | (500,000 x 1.20) | |
Assets:- | ||
Property, Plant and Equipment | 420,000 | 640,000 |
Investment Property | 200,000 | 100,000 |
Cash | 40,000 | 10,000 |
Trade Receivables | 90,000 | 60,000 |
Inventories | 70,000 | 55,000 |
Total Assets | 820,000 | 865,000 |
Liabilities:- | ||
Bank Loan | 70,000 | 200,000 |
Trade Payables | 30,000 | 80,000 |
Total External Liabilities | 100,000 | 280,000 |
Net Asset Value | 720,000 | 585,000 |
(Total Assets- Total External Liabilities) | ||
Goodwill | 105,000 | 15,000 |
(Purchase Consideration - Net Asset Value) | ||
ASPRO ASPIA Bhd | ||
Statement of Financial Position | ||
As at 1st January 2020 | (In RM) | |
Particulars | Amount | |
ASSETS | ||
Non-current assets: |
||
Fixed assets | ||
Tangible Fixed Assets: Property, Plant and Equipment | 1,060,000 | |
Intangible Fixed Assets: Goodwill | 120,000 | |
Non-Current Investments: | ||
Investment Property | 300,000 | |
Current assets: | ||
Inventories | 125,000 | |
Trade Receivables | 150,000 | |
Cash and Cash equivalents | 50,000 | |
TOTAL | 1,805,000 | |
EQUITY AND LIABILITIES | ||
Equity: | ||
Share Capital | 1,187,500 | |
Reserves and Surplus | 237,500 | |
Non-current liabilities: Bank Loan | 270,000 | |
Current liabilities: | ||
Trade Payables | 110,000 | |
Provisions | - | |
TOTAL | 1,805,000 | |
Notes to Financial Statements | ||
Share Capital: 1,187,500 shares of RM 1 each | 1,187,500 | RM |
(Total shares issued = 687,500 + 500,000 = 1,187,500 shares) | ||
Reserves and Surplus | ||
Securities Premium: 1,187,500 shares of RM 0.20 each | 237,500 | RM |