Download A Foundation in Business Accounting PDF

TitleA Foundation in Business Accounting
Author
LanguageEnglish
File Size27.1 MB
Total Pages410
Document Text Contents
Page 2

A FOUNDATION IN BUSINESS ACCOUNTING

Page 205

198 A Foundation in Business Accounting

Share Capital

Loss on Bal.
Reali- Reserves
sation 1,100
Ord.
Shares
c. Ltd 7,900

£9,000
--

Books of C Ltd

A Ltd

Or d. Land
Shares 15,800 Fixtures
Creditors 2,900 Vehicles
Capital Stock
Reserve 100 Debtors

Cash

£18,800
--

Fixed Assets

10,000 Ord.
1,000 Shares

800 Creditors
3,500
2,000
1,500

---
£18,800
---

Balance Sheet C Ltd
(After Amalgamation)

Land and Buildings
Fixtures and Fittings (A 1 ,000
Vehicles (A 800
Goodwill (A-100

Current Assets
Stock
Debtors
Cash

Creditors

£1 Ordinary Shares

(A 3,500
(A 2,000
(A 1,500

(A 2,900

+ B 1,200)
+ B 1 ,000)
+ B 3,000)

+ B 2,000)
+ B 1 ,200)
+ B 2,000)

+ B 2,500)

2,000
7,000

£9,000
--

BLtd

7,900
2,500

£10,400
---

5,500
3,200
3,500

12,200
5,400

Fixtures
Vehicles
Stock
Debtors
Cash
Goodwill

10,000
2,200
1,800
2,900

16,900

6,800

£23,700

£23,700

1,200
1,000
2,000
1,200
2,000
3,000

£10,400
---

In the books of A Ltd and B Ltd the book values of the assets and liabilities
are used to arrive at a profit for A and a loss for B, while in the books of C Ltd
the valuation of the assets and liabilities is used. This, compared with the price,
gives rise to a capital reserve on A and goodwill on B, these having been set off
against each other to produce a goodwill figure of £2,900.

Page 206

Amalgamations and Consolidations 199

The premium on purchase, i.e. goodwill, represents the difference between
the price paid by the purchasing company and their valuation of the assets.

Book Value A and B
17,800

Market Valuation Purchase Price
20,800 23,700

I r"'oodwill inC I L 2,9oo ____ _..J_
Total Net profit on sale

'----------- 5,900--------'

C Ltd paid a price higher than market valuation as a result of the bargaining
power of A Ltd.

Fixed Assets
Goodwill

Current Assets
Stock
Debtors
Bank

Less Creditors

Net Current liabilities

Ordinary Capital
6% Preference Capital
5% Debentures
Debenture Interest
Profit and Loss Account

Balance Sheet X Ltd

31,000
24,550

1,950

57,500
72,000

137,000
25,000

(14,500)

£147,500

120,000
25,000
30,000

1,500
(29,000)

£147,500

Y Ltd was formed to take over all the assets. The purchase price was:

(1) 5% Debenture holders accepted £30,000 8% Debentures and two fully
paid shares to discharge unpaid interest.

(2) Creditors accepted £2.61 in cash and two £1 fully paid shares for every
£4 outstanding.

(3) Preference shareholders received nine fully paid £1 shares for every ten
shares in X Ltd. Arrears of preference dividend, £4,500, was paid by the issue of
two £1 shares for every £3 of the arrears.

(4) Ordinary shareholders were to receive one share for every three held.

Page 409

402 A Foundation in Business Accounting

Corporation tax 350
Cost: estimate 254
Cost accounting:

distinctions 251, 253
Costing

contract 272
marginal 315
material analysis 266
materials 252
overheads 252
process 268
product 267
standard 291
uses 251

Costs: fixed 316
Creditor 10

Debenture issues 154
Debtor 10
Depreciation

explanation I 9, 3 7
flow of funds I 9, 40
schedule 42, 70

Drawings 10

Efficiency variance 293
Expense budgets 228

Final accounts: - non-trading
organisation I I 7

Fixed costs 316
Funds-flow statement 66, 3 72

Goodwill 132,199

Hire-purchase 89

Income and expenditure 115
Income statement 13, 14, 15, 64,

74
Incomplete records

clubs and societies 114
treatment 102

Insurance 36

Job costing
method 267
profit-taking 266, 269, 272
variances in estimates 269

Joint product cost 287

Labour
costs 292

efficiency variance 293
rate variance 293
utilisation 227

Liabilities
current 12
long-term 13

Liquidity 367
Loan repayment 155,161

Machine utilisation budget 237
Manufacturing account 266, 348
Marginal costing 31 5

break-even 316
contribution 315

Master budget 230
Material

budget 228
price variance 292
standards 292
usage variance 29 5

Overheads
absorption by products 261
apportionment by department

261
expenditure variance 298
methods of charging 261
recovery rates 262
standards 293
volume variance 293

Partnership
Act (I 890) 125
admission of new partner 132
agreement 125
capital 128
current accounts 129
dissolution 136
revaluation 132
types of 124

P.A.Y.E. 33, 34
Prepayments 16,35
Pnze funds 118
Process costing 276

losses in production 276
valuation of W.I.P. 282

Production budget 227
Profit

capitalisation l 72
creation 10, 13
gross 14
net 14

Proprietor's interest 7, 13

Page 410

Purchases: calculation of 1 09

Quoted companies: Stock Exchange
requirements 340

Rates 16,35
Ratios

capital employed 365
dividend yield 367
sales 365

Receipts and payments 114
Reconstructions

accounting 190
law relating to 191
share valuation 193

Rent 16,35
Report-writing 362
Rights issues 175

Sales
budget 226
calculation 13
cost of 15, 31 , 59, 11 0
price variance 300
volume variance 301

Share
issues 143
premium 147
valuations 173, 175, 178, 202,

257
Single-entry

accounting
opening fund
profit 103

102
102

Standard costing 291
purposes of 291
terminology 292

Index 403

Statement of Standard Accounting
Practice

No. I (Associated Co.) 216
No. 8 (Taxation) 354
No.9 (Stock) 260
No. lO(Fund~ 379
No. 11 (Deferred Tax) 355

Stock
record cards 69
valuation 1 7, 25 5

Subscriptions 116

Taxation
accounts 350
equalisation 353

Trial balance 50, 62, 75

Underwriting of share issues 149

Variances
capacity 293
efficiency 293
labour 293
material 292
mix 311
overhead 293
volume 293
yield 311

Wages 33
Work in progress 268

Similer Documents