Self-test Highway Connections Ltd, which builds roads, and Wessex Quarries Ltd, which mines stone used in the construction industry, have merged. The new company is called Roadworks Ltd and has an authorised share capital of 2,500,000 ordinary shares of £1 each. The new company was formed on l April 2009.

The balance sheets of the two companies on 31 March 2009 were as follows:

Highway Connections Ltd Wessex Quarries Ltd

£000 £000 £000 £000 Fixed assets Buildings 200 120 Machinery 950 480 Furniture 70 37 Vehicles 550 186 1,770 823 Current assets Stock 58 43 Debtors 22 39 Bank 36 12 Cash 21 2 137 96 Current liabilities Creditors (46) (72)

Working capital 91 24 Net assets 1,861 847 Ordinary shares of £1 each 800 800 Share premium 200 50 Profit & loss reserve 861 (3)

Capital employed 1,861 847 Roadworks Ltd settled the purchase consideration by issuing to shareholders of Highway Connections Ltd and Wessex Quarries Ltd, £1 ordinary shares in Roadworks Ltd. These shares were valued at £1.50 each, which included a premium of £0.50 per share.

Roadworks Ltd took over the assets and liabilities of Highway Connections Ltd and Wessex Quarries Ltd at book value, with the following exceptions:

(i) Buildings were revalued:

(a) Highway Connections Ltd to £280,000.

(b) Wessex Quarries Ltd to £160,000.

(ii) Machinery of Wessex Quarries Ltd was valued at £380,000.

(iii) Furniture of Highway Connections Ltd was valued at £60,000.

(iv) Vehicles of Wessex Quarries Ltd were valued at £145,000.

(v) Net realisable value of the stock was:

(a) Highway Connections Ltd £55,000.

(b) Wessex Quarries Ltd £25,000.

(vi) Debtors (£17,000) of Wessex Quarries Ltd were written off as bad debts.

In addition:
(i) Goodwill was valued at:

(a) £274,000 for Highway Connections Ltd; and

(b) £30,000 for Wessex Quarries Ltd.
(ii) The purchase price of Highway Connections Ltd was £2,202,000.
Required:

(a) Calculate:
(i) the purchase price of Wessex Quarries Ltd;
(ii) how many shares the members of Wessex Quarries Ltd received in Roadworks Ltd.

(b) In the books of Highway Connections Ld, prepare the:
(i) realisation account; and (ii) sundry shareholders’ account.

(c) Prepare the balance sheet of Roadworks Limited as at 1 April 2009.
Angelina was a shareholder in Highway Connections Limited.

(d) Evaluate the merger from the point of view of Angelina.
(Edexcel Accounting 6002 June 2009)