Question: Enterprise Ltd. agreed to purchase as at 30th June, 1959, the business of Day and Night whose Balance Sheet at that date was summarised as follows:
The purchase consideration was agreed at £150,000 and the company took over all the assets and the liability to the creditors, but the bank overdraft was discharged by Day and Night. In arriving at the purchase price, stocks were revalued at £21,000, a reserve of £5,000 was considered necessary in respect of a doubtful debt, and plant and machinery was revalued at £30,000. To provide funds for the purchase of the business and further working capital Enteφrise Ltd. decided to issue 200,000 new Ordinary Shares of £1 each, at 22/6 per share. Of these new shares Day and Night agreed to accept 50,000 shares in part satisfaction of the purchase consideration for their business and these were allotted as fully paid on 15th July, 1959, the balance of the consideration being payable in cash on 1st September, 1959.