CIK Ltd was incorporated on 15 December 2012 with an authorised capital of 200,000 ordinary shares of $£ 0.20$ each to acquire as at 31 December 2012 the business of CK, a sole proprietor, and RP Ltd, a company.

From the following information you are required to prepare:

(a) the realisation 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 statement of financial position of CJK Ltd after the transactions have been completed.

The statement of financial position of CK as at 31 December 2012 is as follows:

Statement of Financial Position

\begin{tabular}{lr}

\hline & $£$ \\

Freehold premises & 8,000 \\

Plant & 4,000 \\

Inventory & 2,000 \\

Accounts receivable & 5,000 \\

Cash & $\underline{200}$ \\

Total assets & $\underline{19,200}$ \\

Accounts payable & $\underline{(3,200}$ \\

Net assets & $\underline{16,000}$ \\

Equity & $\underline{16,000}$

\end{tabular}

The assets (excluding cash) and the liabilities were taken over at the following values: freehold premises $£ 10,000$; plant $£ 3,500$; inventory $£ 2,000$; accounts receivable $£ 5,000$ less an allowance for doubtful debts of $£ 300$; goodwill $£ 7,000$; accounts payable $£ 3,200$ less a discount provision of $£ 150$. The purchase consideration, based on these values, was settled by the issue of shares at par.
The statement of financial position of RP Ltd as at 31 December 2012 is as follows:
\section*{Statement of Financial Position}
\begin{tabular}{|c|c|c|}
\hline Freehold premises & $£$ & $\underset{4,500}{\mathbf{f}}$ \\
\hline & & \\
\hline Inventory & & 1,600 \\
\hline Accounts receivable & & 3,400 \\
\hline Total assets & & $\overline{11,500}$ \\
\hline Current liabilities & 1,500 & \\
\hline Accounts payable & 3,500 & \\
\hline Bank overdraft & & $\frac{(5,000)}{6,500}$ \\
\hline \multicolumn{3}{|l|}{ Equity } \\
\hline 10,000 shares of $£ 0.40$ each & & 4,000 \\
\hline Retained p & & $\frac{2,500}{6,500}$ \\
\hline \end{tabular}
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 the purchase of RP Ltd were provided by the issue for cash of:
(i) 10,000 shares at a premium of $£ 0.30$ per share;
(ii) $£ 8,0007 \%$ loan notes at 98 .
The expenses of incorporating CJK Ltd were paid, amounting to $£ 1,200$.
(Chartered Institute of Management Accountants)