Question

1. The following business is to convert to a company. The new company Sunflower ltd will take over net assets (other than cash) at fair value of KPG Ltd. Consideration will be Paid in the form of assumption of liabilities, $50,000 cash and the balance by the issue of 100,000 shares issued as paid to 50¢. The shares have a fair value of $1 each.

	Carrying Amounts	Fair Values
Land	$48,000	$65,000
Plant	38,000	36,000
Debtors	15,000	12,000
Total	101,000	113,000
Trade creditors	23,000	23,000

Required: Prepare the necessary journal entries to record this business event.

2. From the following ledger account of Brink lets Ltd prepare an Income Statement for the year ended 30 June 2015 for presentation in the annual report which complies with all of the necessary statutory requirement and regulations.

                                                            Trading Account

	$		$
Cost of goods sold Profit & loss: gross profit	1,920,000 1,378,000	Sales	3,298,000
	3,298,000		3,298,000

                                          Profit and loss Account

	$		$
Advertising Delivery Freight Salaries: marketing Depreciation: plant Occupancy Postal Salaries: administration General Bed. Debt Interest payable Discount Allowed Income tax expense Net profit after income tax	230,000 40,000 55,000 220,000 400,000 25,000 4,500 90,000 500 45,000 30,000 8,000 177,000 353,000	gross profit Income from investment	1,378,000 300,00
	1,678,000		1,678,000

Answer 1

a.

CONSIDERATION PAID TO KPG LTD BY SUNFLOWER LTD	IN $
CASH PAID	50000
ISSUE OF PARTLY PAID EQUITY SHARES (100000 SHARES @ 50c PER SHARE)	50000
TOTAL CONSIDERATION PAID	100000

JOURNAL ENTRIES:

PARTICULARS	AMT (IN $)	AMT (IN $)
1. LAND A/C DR.	65000
PLANT A/C DR.	36000
DEBTORS A/C DR.	12000
GOODWILL A/C (BAL.FIG.) DR.	10000
TO CREDITORS		23000
TO KPG. LTD.		100000
2. KPG ,LTD DR.	100000
TO CASH A/C		50000
TO SHARE CAPITAL		50000

b. INCOME STATEMENT:

PARTICULARS	AMT (IN $)	AMT (IN $)
SALES		3298000
LESS: COST OF GOOD SOLD		(1920000)
GROSS PROFIT		1378000
LESS: OPERATING EXPENSES
- ADVERTISING	230000
- DELIVERY CHARGES	40000
- FREIGHT	55000
- SALARIES: MARKETING	220000
- DEPRECIATION: PLANT	400000
- OCCUPANCY	25000
- POSTAL	4500
- ADMINISTRATION EXPENSES	500
- SALARIES	90000
- GENERAL BAD DEBT	45000
- DISCOUNT ALLOWED	8000	(1118000)
OPERATING INCOME		260000
OTHER INCOME:
- INCOME FROM INVESTMENT		300000
OTHER EXPENSES:
- INTEREST EXPENSES	30000
- INCOME TAX EXPENSES	177000	(207000)
PROFIT / NET INCOME		353000

COMMENT: THE AMOUNT OF INCOME FROM INVESTMENT IS PRINTED WRONGLY $ 30000 INSTEAD OF $ 300000.