Practical Steps

Question 1

What are the types of mergers?

Answer 1

• Two sole traders become Partnership
• Sole trader combines with Partnership

Question 2

Revaluation Account

Answer 2

• REMOVES old valuations and ADDS the new valuations.
• REMAINING balance is apportioned to the partner’s capital accounts

Question 3

Realisation Account

Answer 3

• Asset and Liabilities are recorded based on what is sold and how much it is sold for or paid off.
• Any dissolution costs are debited
• If a partner takes an asset it is Credited to realisation debited to partner’s capital account.

Question 4

Two sole traders

Answer 4

• COMBINE assets and liabilities at agreed values
  CAPITAL BAL = Net assets + Old Goodwill - New Goodwill

Question 5

Sold trader merge with existing Partnership

Answer 5

SAME AS ADMISSION OF PARTNER!!
- REVALUATION account
- AWARD goodwill old ratio
- ELIMINATE goodwill old ratio

Question 6

What are the two types of acquisitions?

Answer 6

• Purchase of sole trader by a limited company
• Purchase of a partnership by a limited company (Partnerships view or Limited Company view)

Question 7

Purchase of Sole Trader by a limited company

Answer 7

Goodwill = Purchase consideration - Net assets acquired
Combine everything else

Question 8

Purchase of Partnership by Limited Company (From Limited POV)

Answer 8

Step 1 - Deal with any Loans or Debentures and ensure they have the same interest.
Step 2 - CALCULATE GOODWILL
Step 3 - PREPARE the statement of financial position

Question 9

Purchase of Partnership by Limited Company (From Partnership POV)

Answer 9

SAME AS PARTNERSHIP DISSOLUTION don’t forget current account though!!

Question 10

What is the transfer price calculated from?

Answer 10

The cost of completed goods multiplied by the markup on the factory profit.

Question 11

Accounting treatment of factory profit?

Answer 11

• The factory profit is added to the gross profit in the statement of profit or loss.

Question 12

How is unrealized profit calculated?

Answer 12

• Multiply the closing inventory of finished goods by the percentage markup eg ( 20 % would be 20/120 )

Question 13

What is the treatment of unrealized profit?

Answer 13

• Removed from inventory in the statement of financial position.
• The increase in provision is added to the statement of profit or loss.

Question 14

Accounting treatment of Life memberships

Answer 14

• Credited to the IE in equal instalments for the life determined by the club
• Liability that is yet to be paid in the Statement of Financial Position