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

AMALGAMATION, ABSORPTION AND RECONSTRUCTION4. Where the liability of a business being absorbed is taken over by theacquiring company the double entry is.A. Dr. Liability accountCr. Acquiring Company AccountB. Dr. Liability AccountCr. Liability AccountC. Dr. Realisation AccountCr. Liability AccountD. Dr. Bank AccountCr. Liability AccountE. Dr. Liability AccountCr. Bank Account5. Which of the following is not a form of business combination?A. Sole trader acquires another sole trader.B. Partnership acquires sole trader.C. Partnership converts to limited liability company.D. Partnership buys another partnership.E. Two or more sole trades form a partnership.3.11.2 SHORT ANSWER QUESTIONS1. On the completion of a scheme of capital reduction the capitalreconstruction account is expected to show a ............................balance.Use the following information to answer questions 2 - 4Big-Head Plc. absorbed Small Mind Ltd. at an agreed purchase price whichis to be settled by the issuance of ordinary shares with N25million andDebentures worth N12.5million. The balance is to be paid in cash. Bighead is to take over all the assets of Small-Mind Ltd. except the bankbalance. Extracts from the books of Small-Mind Ltd. are detailed below:Assets Book value Takeover valueN‘000 N’000Fixed Assets 29,030 34,775Other Current Assets 10,970 10,225Bank Balance 1,345 --Small Mind Ltd. incurred realisation expenses of N1.26 million. Big-HeadPlc is expected to have a negative goodwill of N2.5million after absorption.2. What is the value of the purchase consideration?3. What is the profit or loss that accrued to Small-Mind Limited on the takeover?4. How much of the purchase consideration will be settled in cash?5. In amalgamation all the assets of the discontinuing companies aretransferred to the realisation account at ___________ value.Refer to Suggested Solutions in Appendix I, Page 263.65