Syed Shariq
Matin
November 2022 Paper 32
Q.2
November 2022 Paper 32 Q.2 Syed Shariq Matin
(a) Prepare the following ledger accounts in the books of Sarah to record the sale of her business and the settlement of the
amount due to her.
(a) (i) DB plc account
(a) (i) Sarah
DB Plc
$ $
Realisation 240,000 Bank 30,000
(purchase consideration) _______ Capital (shares) 210,000
240,000 240,000
Debit Credit
DB PLC 240,000
Realization 240,000
Bank 30,000
Shares & DB PLC 210,000
DB PLC 240,000
© EAST
A Level Accounting Syllabus 9706
November 2022 Paper 32 Q.2 Syed Shariq Matin
(a) Prepare the following ledger accounts in the books of Sarah to record the sale of her business and the settlement of the
amount due to her.
(a) (ii) Bank account
(a) (ii) Bank
$ $
Balance b/d 12,000 Loan 20,000
DB plc 30,000 Capital 22,000
42,000 42,000
© EAST
A Level Accounting Syllabus 9706
November 2022 Paper 32 Q.2 Syed Shariq Matin
Realisation
$ $
Non-current asset 120,000 Trade Payable 21,000
Inventory 17,000 DB PLC 240,000
Trade Receivable 15,000
Capital 109,000
261,000 261,000
© EAST
A Level Accounting Syllabus 9706
November 2022 Paper 32 Q.2 Syed Shariq Matin
(a) Prepare the following ledger accounts in the books of Sarah to record the sale of her business and the settlement of the
amount due to her.
(a) (iii) Capital account
(a) (ii) Capital
$ $
Bank 22,000 Balance b/d 123,000
DB plc (shares) 210,000 Realisation (profit) 109,000
232,000 232,000
© EAST
A Level Accounting Syllabus 9706
November 2022 Paper 32 Q.2 Syed Shariq Matin
$
Purchase Consideration 240,000
Bank / Cash Payment (30,000)
Value of Shares 210,000
Share price = $210,000 = $1.40
150,000
Share Premium = $1.40 – $1 = $0.40
Total Share Premium = 150,000 shares $0.40
= $60,000
© EAST
A Level Accounting Syllabus 9706
November 2022 Paper 32 Q.2 Syed Shariq Matin
Calculation of Goodwill
Goodwill = Purchase Price – Fair Value of Net Assets
= $240,000 – ($203,000 + $14,000 + $15,000 – $21,000)
= $240,000 – $211,000
= $29,000
© EAST
A Level Accounting Syllabus 9706
November 2022 Paper 32 Q.2 Syed Shariq Matin
(b) Prepare the statement of financial position of DB plc immediately after the purchase of Sarah’s business.
(b) DB plc
Statement of financial position at 31 October 2021
$
Non-current assets - tangible 925,000
- intangible (goodwill) 29,000
954,000
Current assets
Inventory 115,000
Trade receivables 91,000
Total current assets 206,000
Total assets 1,160,000
© EAST
A Level Accounting Syllabus 9706
November 2022 Paper 32 Q.2 Syed Shariq Matin
(b) Prepare the statement of financial position of DB plc immediately after the purchase of Sarah’s business.
(b) DB plc
Statement of financial position at 31 October 2021
$
Equity
Ordinary shares of $1 each 550,000
Share premium 60,000
Retained earnings 464,000
Total equity 1,074,000
Current liabilities
Trade payables 80,000
Bank 6,000
Total current liabilities 86,000
Total equity and liabilities 1,160,000
© EAST
A Level Accounting Syllabus 9706
November 2022 Paper 32 Q.2 Syed Shariq Matin
(c) Advise Sarah whether or not she should sell her shares in DB plc and invest the proceeds to earn interest. Justify your
answer.
(c) The dividend on her shares is $8 100 per annum (1). The interest would be $10 800 per annum (1). However, interest rates
and/or dividends might change in the future (1).
If Sarah needs short term income then it would be better to sell the shares (1). But selling costs would be incurred if the
shares were sold (1).
As Sarah has a substantial shareholding she may find it difficult to find a buyer for her shares. (1)
The company may be retaining a high proportion of its profit to fund further expansion/more business purchases so
dividends may not increase (1).
However, in the longer term there could be more capital gains as the share price could continue to increase (1).
© EAST
A Level Accounting Syllabus 9706
November 2022 Paper 32 Q.2 Syed Shariq Matin
(d) Explain how stewardship affects a business purchase by a limited company.
(d) Stewardship means that directors act as stewards on behalf of owners/shareholders (1)
This means that the directors must ensure that the business purchase is in the best interests of the shareholders (1).
© EAST
A Level Accounting Syllabus 9706
