Question

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.

10. marks)

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

Answer 1

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