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Mergers

The document summarizes the balance sheets of two companies, BIG plc and SLIM plc. BIG plc acquired SLIM plc by issuing new shares. The fair value of SLIM plc's shares was higher than their net assets. The balance sheet of SLIM plc is also presented along with terms for BIG plc taking over SLIM plc.

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briankuria21
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13 views

Mergers

The document summarizes the balance sheets of two companies, BIG plc and SLIM plc. BIG plc acquired SLIM plc by issuing new shares. The fair value of SLIM plc's shares was higher than their net assets. The balance sheet of SLIM plc is also presented along with terms for BIG plc taking over SLIM plc.

Uploaded by

briankuria21
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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The summarized balance sheets of BIG plc and SLIM plc were as below:

BIG plc SLIM plc

Ordinary shares of shs 10 each 10,000,000 4,000,000


Revenue reserves 2,000,000 1,000,000
12,000,000 5,000,000
Fixed assets 8,000,000 3,000,000
Net current assets 4,000,000 2,000,000
12,000,000 5,000,000
BIG plc acquired the entire share capital of SLIM plc by the issue of one new ordinary share for one share
in SLIM plc.
The fair value of the consideration was shs 5,600,000, this being the fair market value of SLIM plc’s
shares (shs 14 per share).
The fair value of SLIM plc’s separate net assets was shs 5,000,000
Required:
Summarized Balance sheet for BIG plc immediately after the combination for:
A) BIG plc
B) BIG Group of companies: using
I. Acquisition method
II. Merger method

The balance sheet of SLIM plc on 311.12.2020 has been presented as below:
65,000 equity shares of shs 10 each 650,000
20,000, 12% preference shares of shs 10 each 200,000
10% Debentures 150,000
Bank overdraft 5,000
Creditors 225,000
1,230,000
Represented by:
Furniture and fittings 85,000
Inventory 720,000
Debtors 107,000
Debenture issue expenses 7,500
Profit and loss 310,500
1,230,000
Preference share dividend is in arrears for three years
BIG plc takes over the company on the terms that it would:
a) Take furniture and fittings after depreciating the same by 10%; inventory at shs 686,850 and
Debtors subject to a provision for bad debts at 5%
b) Take 10% Debentures
c) Discharge the purchase consideration by allotment of 20,000 equity shares of shs 10 each to
SLIM plc and by the payment of the balance in cash
Preference shareholders of SLIM plc accepted shs 180,000 in full settlement of their total claim.
Liquidation expenses amounted to shs 8,000
Required: Close the books of SLIM plc and pass journal entries in the books of BIG plc

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