Financial Reporting and Ethics - The Institute of Chartered ...

AMALGAMATION, ABSORPTION AND RECONSTRUCTIONmillionGoodwillNilPremises 16Motor vehicles 32StockworthlessDebtors 12All the trade creditors were taken over for 46m, the excess resulting from adispute over undisclosed purchases. The amalgamation expense of 2.4m wasfully borne by the new firm.Required: Prepare the following accounts:(a) Creditors account(b) Amalgamation expense account.SUGGESTED SOLUTION 3.2NIn closing the books of XYZ Ltd, the creditors and cash account will be asfollows:Creditors AccountmmABAK LTD 46 Bal b/d 40__ Realisation (loss) 646 46Creditors for Amalgamation ExpensesmmABAK LTD 2.4 Realisation 2.4NotesThe 6m on creditors account is the difference between the book value ofcreditors and the takeover value that is, the excess resulting from a disputeover undisclosed purchases.3.6 PURCHASE CONSIDERATIONThis is the aggregate amount, which the new company is to pay the owners(that is the stakeholders) of the discontinuing business and creditors.The components of the purchase consideration in amalgamation of companiesmay comprise of some or all of the following:(i) Ordinary shares issued by the new company.(ii) Preference shares issued by the new company.(iii) Debenture stock issued by the new company.(iv) Cash given by the new company.(v) Liabilities of the old companies taken over by the new company.25