Marlin Ltd, a supplier of snooker equipment, agreed to acquire the business of rival firm,

Crab Ltd, taking over all assets and liabilities as at 1 June 2013. The price agreed on was K60

000, payable K20 000 in cash and the balance by the issue to the selling company of 16 000

fully paid shares in Marlin Ltd, these shares having a fair value of K2.50 per share.

The trial balances of the two companies as at 1 June 2013 were as follows:

Marlin Ltd Crab Ltd

Dr Cr Dr Cr

Share Capital 100 000 90 000

Retained earnings 12 000 24 000 20 000

Accounts payable 2 000 20 000

Cash 30 000 -

Plant (net) 50 000 30 000

Inventory 14 000 26 000

Accounts receivable 8 000 20 000

Government bonds 12 000 -

Goodwill - 10 000

114 000 114 000 110 000 110 000

All the net identifiable net assets of Crab Ltd were recorded by Crab Ltd at fair value except

for the inventory, which was considered to be worth K28 000 (assume no tax effect). The

plant had an expected remaining life of 5 years.

The business combination was completed and Crab Ltd went into liquidation. Cost of

liquidation amounted to K1000. Marlin Ltd incurred incidental costs of K500 in relation to

the acquisition. Costs of issuing shares in Marlin Ltd were K400.

Required:

A. Show the Liquidation account and the Shareholders Distribution account and

Liquidators statement of receipts and payments in the records of Crab Ltd

B. Prepare the journal entries in the records of Marlin Ltd to record the business

combination

C. Show the statement of financial position of Marlin Ltd after completion of the

business combination