QUESTION 1 16 Marke: 29 minutes) Anthony and David are tho sole membere in Polon

Question

QUESTION 1 16 Marke: 29 minutes) Anthony and David are tho sole membere in Polonius Promotions CC, A bueiness ontarpriaa which urganises fun runs. They have an equai share in the profits and losses and they eech contributedN$ 2 500 to start the corporation in 20x5. On 1 Merch 20x8, Walk AND Run Forever (Piy) Limied made members loan wes payable (o Davidnthoy did noi wanl io take up the offer so he asked to be paid out. to take over Poionius Promotions CC. At thet date ths The siatemeni of inancial position of Potonius CC At 28 February 20X8 was as follows: ?? ASSETS Non- Current assets 15 500A Cost Accumulated depreciation Carrying amount 12 500 5 000 Land and Buildin Motor vehicles Current Assets nvenio Account receivable 12 500- 3 000 39 000 22 500 7500 9 000 54 000 2 000 TOTAL ASSETS EQUITY AND LIABILITY Members Funds Members contributions Undrawn profit Non -Current liabilities Members loarn Current liabilities Account payable TOTAL EQUITY AND LIABILITIES 35 000 5 000 30 000 15 000 4500 51 000 100 000 take Walk and Run Forever (Ply)Limited offered to pay Polonius Promotions CCN over the business as a going concern. The payment was structured as follows e o N 42 500 by a fresh issue of ordinary share in Walk and run oer (Piy) Limited at o N$15000 by an issue of 150 debentures of N$ 100 each in Walk and Run Forever (Piy) o The land and building taken over were considered to be worth S 37 500 N$ 42 500 paid in cash-to pay Anthony for his share of the business. N 1 each to pay David for his share of the business. Limitedto repay the members loan to David in the CC in alk and Run Forever p)

Explanation / Answer

Part a:

Journal entries

Date

Account titles and explanations

Debit ($)

Credit ($)

Land and building

37500

Motor vehicles

3000

Inventory

22500

Accounts receivable

7500

Bank

9000

Goodwill (on acquisition)

25000

Members loans

15000

Accounts payable

4500

Liquidator of Polonius

85000

(Being the business of Polonius acquired)

Liquidator of Polonius Limited

85000

Share capital

42500

Bank

42500

(Being the purchase consideration discharged)

Members loans

15000

10% debentures

15000

(Being member 's loan repaid with issue of debentures)

Workings:

Purchase consideration

Shares

42500

Cash

42500

Debentures (Not part of purchase consideration)

85000

Net asset acquired from business acquisition

Assets

Land and building

37500

Motor Vehicles

3000

Inventory

22500

Accounts receivable

7500

Bank

9000

79500

Less: Outside liabilities

Members loans

15000

Accounts payable

4500

19500

Net assets acquired from business acquisition

60000

Purchase consideration

85000

Goodwill arising on the acquisition (85000 -60000)

25000

Note: the payment of member’s loan in cash is not part of purchase consideration as it is a liability of the company which it repaid after the acquisition of business.

Part b:

Assets          

Non-current assets

Cost

Accumulated depreciation

Carrying amount

Goodwill

     25,000.00

Land and building (100000 +37500)

   137,500.00

   137,500.00

Motor vehicles (25000+3000)

     45,000.00

   17,000.00

     28,000.00

Current assets

Inventory (15000 +22500)

     37,500.00

Accounts receivable (25000 +7500)

     32,500.00

Bank (60000 +9000)-42500

     26,500.00

Total assets

   287,000.00

Equity and liabilities

Capital and reserves

Ordinary share capital (100000+42500)

   142,500.00

accumulated profit

     40,000.00

Non-current liabilities

10% debentures (50000 +15000)

     65,000.00

Shareholders' loan

     20,000.00

Current liabilities

Accounts payable (15000 +4500)

     19,500.00

Total equity and liabilities

   287,000.00

Journal entries

Date

Account titles and explanations

Debit ($)

Credit ($)

Land and building

37500

Motor vehicles

3000

Inventory

22500

Accounts receivable

7500

Bank

9000

Goodwill (on acquisition)

25000

Members loans

15000

Accounts payable

4500

Liquidator of Polonius

85000

(Being the business of Polonius acquired)

Liquidator of Polonius Limited

85000

Share capital

42500

Bank

42500

(Being the purchase consideration discharged)

Members loans

15000

10% debentures

15000

(Being member 's loan repaid with issue of debentures)

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