Self-test The directors of Sun Limited and Land Limited decided to combine the companies with effect from 1 January 2006.

The current summarised balance sheets of the two companies are given below.

Balance sheets at 31 December 2005 Sun Limited Land Limited Buildings 70,000 –

Machinery 20,000 80,000 Vehicles – 40,000 Stock 2,300 21,000 Debtors 1,500 14,050 Bank 18,800 12,000 112,600 167,050 Sun Limited Land Limited Issued capital 100,000 150,000 Profit and loss balance 8,000 9,600 General reserve – 4,000 Creditors 4,600 3,450 112,600 167,050 The new company was registered with a capital of 800,000 ordinary shares of 50p each, under the name SunLand Limited. It was agreed that shareholders of Sun Limited and Land Limited should receive shares in SunLand Limited in satisfaction of the purchase price.

All the assets and liabilities were taken over by SunLand Limited at the above values with the following exceptions:

(i) Goodwill of the two companies was agreed at £20,000 for Sun Ltd and £14,000 for Land Ltd.

(ii) Buildings were valued at £90,000.

(iii) One vehicle was sold to a director of Land Ltd for £3,000 cash, which was

£800 less than book value.

Required:

(a) In the books of Sun Limited, prepare the:

(i) realisation account;

(ii) sundry shareholders’ account.

(b) Show your calculations of the purchase price of Land Limited and indicate how many shares its members will receive in SunLand Limited.