CK Ltd was incorporated on 15 December 2009 with an authorized capital of 200,000 ordinary shares of £0.20 each to acquire as at 31 December 2009 the business of CK, a sole trader, and RP Ltd, a company.

From the following information you are required to prepare:

(a) the realization and capital accounts in the books of CK and RP Ltd showing the winding up of these two concerns;

(b) the journal entries to open the books of CJK Ltd, including cash transactions and the raising of finance;

(c) the balance sheet of CJK Ltd after the transactions have been completed.

The balance sheet of CK as at 31 December 2009 is as follows:

The assets (excluding cash) and the liabilities were taken over at the following values: freehold premises £10,000, plant £3,500, stock £2,000, debtors £5,000 less a bad debts provision of £300, goodwill £7,000, creditors £3,200 less a discount provision of £150. The purchase consideration, based on these values, was settled by the issue of shares at par.
The balance sheet of RP Ltd as at 31 December 2009 is as follows:

The assets and liabilities were taken over at book value with the exception of the freehold premises which were revalued at £5,500. The purchase consideration was a cash payment of £1 and three shares in CJK Ltd at par in exchange for every two shares in RP Ltd.
Additional working capital and the funds required to complete He purchase of RP Ltd were provided by the issue for cash of:
(i) 10,000 shares at a premium of £0.30 per share;
(ji) £8,000 7 per cent debenture stock at 98.
The expenses of incorporating CJK Ltd were paid, amounting to £1,200.

Transcribed Image Text:

Freehold premises Plant Stock Debtors Cash Capital Creditors Balance Sheet 8,000 4,000 2,000 5,000 200 19,200 16,000 3,200 19,200