Question

In: Accounting

The owners of ASPRO Sdn Bhd and ASPIA Sdn Bhd decided to combine their business in...

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.

  1. marks)

(c) Prepare the statement of financial position of ASPRO ASPIA Bhd as at 1 January 2020.

Solutions

Expert Solution

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

Related Solutions

Thomas Sdn Bhd is a computer manufacturer. The summarised accounts of Thomas Sdn Bhd for the...
Thomas Sdn Bhd is a computer manufacturer. The summarised accounts of Thomas Sdn Bhd for the years 2019 and 2020 are given below. Thomas Sdn Bhd Income Statement for the Year Ended 31 December 2019 2020 RM’000 RM’000 Sales 200 280 Cost of goods sold (150) (210) Gross profit 50 70 Administrative and selling expenses (38) (46) Interest expenses -0- (4) Net income 12 20 Thomas Sdn Bhd Statement of Financial Position as at 31 December 2019 2020 RM’000 RM’000...
AFX Sdn Bhd is trying to decide whether to accept a business loan or a lease...
AFX Sdn Bhd is trying to decide whether to accept a business loan or a lease financing facility for an equipment purchase. The equipment cost $60,000 with 3-year economic life, depreciated annually based on MACRS 3-year class with the following rates: Year 1 = 33%; Year 2 = 45%; Year 3 = 15%; Year 4 = 7%. If AFX accepts the business loan option, the 3-year loan will attract an interest rate at 12% interest calculated on a yearly reducing...
Limpah Kurnia Sdn Bhd (LKSB) is an engineering company that started a new business with an...
Limpah Kurnia Sdn Bhd (LKSB) is an engineering company that started a new business with an opening cash balance of RM85,000. This new business will focus on sales component parts to all potential customers located in Sungkai, Perak. The following are the budgeted data of LKSB for the year 2020. 1.   In January 2020, to start a business the company has rented a double storey building for its operation at RM5,000 per month with RM20,000 rental deposit. Rental deposit is...
Assume that Covidabravo Sdn. Bhd. is a large merchandising wholesale business operating in Malaysia. The company...
Assume that Covidabravo Sdn. Bhd. is a large merchandising wholesale business operating in Malaysia. The company is affected by the Covid-19 pandemic. Hence, the top management has called for ideas on potential strategies recommendation to overcome potential negative impact of the pandemic on profitability and solvency of the company. As one of the bright new management executives, you are eager to present your recommendation in the next coming online management meeting. To do that, you need to show some calculations,...
May Gems Sdn Bhd is a successful jewellery business. The company was recently bought over by...
May Gems Sdn Bhd is a successful jewellery business. The company was recently bought over by Boon who engages his brother-in-law, Wan, to perform the audit. Wan has experience in auditing small business companies but he has no experience or knowledge with the jewellery or gems business. After completing all the steps of the audit process, Wan issues an unqualified opinion that provides reasonable assurance that the company's financial statements contain no material misstatements. Comment on any potential problems with...
QUESTION 2 Liyala Sdn Bhd is a successful family-run business. The board of directors is led...
QUESTION 2 Liyala Sdn Bhd is a successful family-run business. The board of directors is led by the founder of the company, Liyala who is both chairman and CEO. The other board members, a finance director and two non-executive directors, are also Liyala’s brother and daughter. The members of Liyala family own all the share capital of the company.The company does not have a company secretary, and its auditors are a local firm of accountants in the town where Liyala...
The Nanjo Van(NV) Sdn Bhd is a private limited company incorporated in Malaysia. Starting its business...
The Nanjo Van(NV) Sdn Bhd is a private limited company incorporated in Malaysia. Starting its business in the last 5 years, NV already employs 70 dispatch staffs for delivery services. The company currently owns 15 vans and 20 motorcycles, some were purchased new, and some were acquired second-hand. Since the pandemic of Covid-19 early 2020, the company suffers from inadequate resources as many trading companies now need transport facilities to sell their products. The company then decides to lease 10...
On 1April2020, Adam Syaqif began a new business called Cepat Cetak Sdn. Bhd, which provides typing...
On 1April2020, Adam Syaqif began a new business called Cepat Cetak Sdn. Bhd, which provides typing and printing services. The following is a list of transactions incurred by the business during the month of April 2020: i)   Adam Syaqif contributed RM200,000 cash into the business. ii)   Purchased a land and a small building for RM450,000. He paid RM165,000 cash and signed a note payable for the balance. The land was considered to be worth RM240,000 and the building to be...
REVENUE CASE 1: Florist Blossom Sdn Bhd (FB) has been in the flower and gift business for several years
Florist Blossom Sdn Bhd (FB) has been in the flower and gift business for several years. The recent Covid-19 pandemic has affected the business quite severely in the year 2020. In December 2020, the company changed its full operation to online deliveries of fresh and artificial flowers, and gifts and started a membership program for its customers. Since then, the business performance improves gradually as many customers turn to online orderings and they get 20% discounted prices for their chosen...
One of the subsidiary of the company Dronedelivery Sdn Bhd is producing delivery drones. With the...
One of the subsidiary of the company Dronedelivery Sdn Bhd is producing delivery drones. With the existing technology, their variable per unit is $480 and annual fixed cost, including maintenance expenses, total $1,120,000. However, with the proposed new technology variable costs, are projected to be cut in half to $240 per unit while fixed costs are expected to double to $3,240,000. Given the anticipated new costs structure and no change in the pricing structure of the drones, the breakeven level...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT