W1 before W1 after

Anna Sumitra Anna and Sumitra

$ $ Statement of financial position at 1-Jan-16
Non current assets 50,000 45,000 $
Non current assets 112,000
Current assets
Inventory and trade receivables 15,000 8,000 Current assets
Cash and cash equivalents 3,000 1,000 Inventory and trade receivables 18,000
18,000 9,000 Cash and cash equivalents 4,000
22,000
Assets 68,000 54,000
Assets 134,000
Capital 62,000 50,000
Capital
Current liabilities Anna 69,000
Trade payables 6,000 4,000 Sumitra 55,000
124,000
Capital and liabilities 68,000 54,000
Current liabilities
Trade payables 10,000

Capital and liabilities 134,000

 W2 W3 Date
Bert Mary Total Note 1 1-Apr
$ $ $ 2 1-Apr
Note Net assets at valuation 400,000 500,000 900,000 3 1-Apr
60k anna + 52k sumitra Goodwill at valuation 60,000 30,000 90,000 4 1-Apr
460,000 530,000 990,000 5 1-Apr
6 1-Apr
12k anna + 6k sumitra Goodwill written off (45,000) (45,000) (90,000) 90k x 1/2 each 7 1-Apr
3k anna + 1k sumitra 8 1-Apr
Opening capital account 415,000 485,000 900,000 9 1-Apr
10 1-Apr
Profit and losses are shared equally 11 1-Apr
12 1-Apr
13 1-Apr
60k + 12k + 3k - 6k 14
52k + 6k + 1k - 4k 15
16
17
18
6k anna + 4k sumitra 19
20
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 Debit $ Credit $ Note Capital account
Bal b/d Capital Don 55,000 86,000 86,000
Bal b/d Capital Tom 55,000 Date Debit Don Tom
Motor vehicle 14,000 Capital Ron 14,000 1-Apr New goodwill 16,000 16,000
Inventory 6,000 Capital Ron 6,000
Cash 23,000 Capital Ron 23,000
Non current assets 22,000 Revaluation 22,000 122k - 100k
Revaluation 11,000 Capital Don 11,000 22k x 1/2
Revaluation 11,000 Capital Tom 11,000 22k x 1/2
Old goodwill 20,000 Capital Don 20,000 40k x 1/2
Old goodwill 20,000 Capital Tom 20,000 40k x 1/2
Capital Don 16,000 New goodwill 16,000 40k x 2/5 1-Apr Bal c/d 70,000 70,000
Capital Tom 16,000 New goodwill 16,000 40k x 2/5
Capital Ron 8,000 New goodwill 8,000 40k x 1/5
 Capital account Don, Tom & Ron
43,000 86,000 86,000 43,000 Statement of financial position at 1-Apr-16
Ron Date Credit Don Tom Ron $
8,000 1-Apr Bal b/d 55,000 55,000 Non current assets 136,000
1-Apr Motor vehicle 14,000 Current assets 79,000
1-Apr Inventory 6,000
1-Apr Cash 23,000 Assets 215,000
1-Apr Revaluation 11,000 11,000
1-Apr Old goodwill 20,000 20,000 Capital
Capital Don 70,000
Capital Tom 70,000
35,000 Capital Ron 35,000
2-Apr Bal b/d 70,000 70,000 35,000 175,000

Current accounts
Don 10,000
Tom 12,000
22,000

Current liabilities 18,000

Capital and liabilities 215,000

 Note
100k + 22k reval + 14k mv ron
50k + 6k inv ron + 23k cash ron

55k + 11k reval + 20k og - 16k ng

55k + 11k reval + 20k og - 16k ng
14k mv + 6k inv + 23k cash - 8k ng
No Date Debit $ Credit $ Note C
1 1-Jun Bal b/d Capital Nitin 120,000 166,000
2 1-Jun Bal b/d Capital Maria 120,000 Date Debit Nitin
3 1-Jun Non current assets 24,000 Revaluation 24,000 1-Jun New goodwill 15,000
4 1-Jun Revaluation 16,000 Capital Nitin 16,000 24k x 2/3
5 1-Jun Revaluation 8,000 Capital Maria 8,000 24k x 1/3
6 1-Jun Old goodwill 30,000 Capital Nitin 30,000 45k x 2/3
7 1-Jun Old goodwill 15,000 Capital Maria 15,000 45k x 1/3
8 1-Jun Capital Nitin 15,000 New goodwill 15,000 45k x 1/3
9 1-Jun Capital Maria 15,000 New goodwill 15,000 45k x 1/3
10 1-Jun Capital Sam 15,000 New goodwill 15,000 45k x 1/3
11 1-Jun Non current assets 98,000 Capital Sam 98,000 1-Jun Bal c/d 151,000
12 1-Jun Inventory 12,000 Capital Sam 12,000
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 Capital account Nitin, Maria & Sam
143,000 110,000 166,000 143,000 110,000 Statement of financial position at
Maria Sam Date Credit Nitin Maria Sam
15,000 15,000 1-Jun Bal b/d 120,000 120,000 Non current assets
1-Jun Revaluation 16,000 8,000 Current assets
1-Jun Old goodwill 30,000 15,000
1-Jun Non current assets 98,000 Assets
1-Jun Inventory 12,000
Capital
Capital Nitin
Capital Maria
128,000 95,000 Capital Sam
2-Jun Bal b/d 151,000 128,000 95,000

Current accounts
Nitin
Maria

Current liabilities

Capital and liabilities

ria & Sam
1-Jun-16
$ Note
342,000 220k + 24k reval + 98k nca sam
92,000 80k + 12k inv sam

434,000

151,000 120k + 16k reval + 30k og - 15k ng

128,000 120k + 8k reval + 15k og - 15k ng
95,000 -15k ng + 98k nca + 12k inv
374,000

16,000
(4,000)
12,000

48,000

434,000
No Date Debit $ Credit $ Note
1 1-Oct Land and buildings 80,000
2 1-Oct Plant and machinery 28,000
3 1-Oct Motor vehicles 16,000
4 1-Oct Inventory 5,000
5 1-Oct Trade receivables 3,000
6 1-Oct Trade payables 2,000
7 1-Oct Bank 20,000
8 1-Oct Ordinary shares 100,000 100k x 1
9 1-Oct Share premium 30,000 150k paid - 20k cash - 100k ord shares
10 1-Oct Goodwill 20,000 152k cr- 132k db
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 Trial balance at 1-Oct-16 Mekong Limited
Statement of financial position at
Accounts Db ($) Cr ($) Note $
Land and buildings 280,000 200k + 80k Non current assets
Plant and machinery 103,000 75k + 28k Tangible
Motor vehicles 56,000 40k + 16k Land and buildings 280,000
Inventory 26,000 21k + 5k Plant and machinery 103,000
Trade receivables 19,000 16k + 3k Motor vehicles 56,000
Cash and cash equivalents 12,000 32k - 20k 439,000
Ordinary shares of $1 400,000 300k + 100k Intangible
Retained earnings 77,000 Goodwill 20,000
Trade payables 9,000 7k + 2k 459,000
Current assets
Share premium 30,000 Inventory 26,000
Goodwill 20,000 Trade receivables 19,000
Cash & cash equivalents 12,000
57,000

Assets 516,000
Mekong Limited
1-Oct-16
$
Equity
Ordinary shares of $1 400,000
Share premium 30,000
Retained earnings 77,000
507,000
Current liabilities
Trade payables 9,000
9,000

Equity and liabilities 516,000

No Date Debit $ Credit $ Note
1 30-Jun Freehold property 70,000
2 30-Jun Plant and machinery 12,000
3 30-Jun Office furniture 4,000
4 30-Jun Inventory 2,500
5 30-Jun Trade receivables 5,500
6 30-Jun Trade payables 3,000
7 30-Jun Bank 20,000
8 30-Jun Ordinary shares 80,000 80k x 1
9 30-Jun Share premium 20,000 120k - 20k cash - 80k ord shares
10 30-Jun Goodwill 29,000 123k cr - 94k db
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 Trial balance at 30-Jun-16 Hamil Limited
Statement of financial position at
Accounts Db ($) Cr ($) Note $
Freehold property 170,000 100k + 70k Non current assets
Plant and machinery 72,000 60k + 12k Tangible
Office equipment 14,000 Freehold property 170,000
Inventory 12,500 10k + 2.5k Plant and machinery 72,000
Trade receivables 12,500 7k + 5.5k Office equipment 14,000
Cash and cash equivalents 5,000 25k - 20k Office furniture 4,000
Ordinary shares of $1 230,000 150k + 80k 260,000
Share premium 40,000 20k + 20k Intangible
Retained earnings 40,000 Goodwill 29,000
Trade payables 9,000 6k + 3k 289,000
Current assets
Office furniture 4,000 Inventory 12,500
Goodwill 29,000 Trade receivables 12,500
Cash & cash equivalents 5,000
30,000

Assets 319,000
Hamil Limited
30-Jun-16
$
Equity
Ordinary shares of $1 230,000
Share premium 40,000
Retained earnings 40,000
310,000
Current liabilities
Trade payables 9,000
9,000

Equity and liabilities 319,000

A4 Date Debit $ Credit $ Note
1 31-Dec Land and buildings 60,000
2 31-Dec Fixtures and fittings 14,000
3 31-Dec Office machinery 10,000
4 31-Dec Inventory 15,000
5 31-Dec Trade receivables 6,000
6 31-Dec Trade payables 12,000
7 31-Dec Bank 28,000
8 31-Dec 8% debentures 15,000 (12k x 10%) / 8 x 100
9 31-Dec Ordinary shares 60,000 (118k - 28k - 15k) / 1.25
10 31-Dec Share premium 15,000 60k x (1.25 - 1)
11 31-Dec Goodwill 25,000 130k cr - 105k db or
12 118k - (105k - 12k)
13 105k total assets agreed
14 12k trade payable
15 Loan not included
16 replaced by debentures
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 Trial balance at 31-Dec-16 Digger Limited
Statement of financial position at
Accounts Db ($) Cr ($) Note $
Land and buildings 150,000 90k + 60k Non current assets
Fixtures and fittings 44,000 30k + 14k Tangible
Office machinery 25,000 15k + 10k Land and buildings 150,000
Inventory 35,000 20k + 15k Fixtures and fittings 44,000
Trade receivables 11,000 5k + 6k Office machinery 25,000
Cash and cash equivalents 32,000 60k - 28k 219,000
Ordinary shares of $1 260,000 200k + 60k Intangible
Retained earnings 4,000 Goodwill 25,000
Trade payables 28,000 16k + 12k 244,000
Current assets
8% debentures 15,000 Inventory 35,000
Share premium 15,000 Trade receivables 11,000
Goodwill 25,000 Cash & cash equivalents 32,000
78,000

Assets 322,000
Digger Limited
31-Dec-16
$
Equity
Ordinary shares of $1 260,000
Share premium 15,000
Retained earnings 4,000
279,000
Non current liabilities
8% debentures 15,000
15,000
Current liabilities
Trade payables 28,000
28,000

Equity and liabilities 322,000

W1 Date Debit $ Credit $ Note
1 31-Jul Bal b/d Capital Alan 45,000
2 31-Jul Bal b/d Capital Brian 45,000 Date
3 31-Jul Bank 6,000 Bal b/d 31-Jul
4 31-Jul Realisation 80,000 Non current assets 80,000 31-Jul
5 31-Jul Realisation 34,000 Current assets 34,000 40k - 6k bank
6 31-Jul Current liabilities 30,000 Realisation 30,000
7 31-Jul Bank 50,000 Realisation 50,000
8 31-Jul Ordinary shares 100,000 Realisation 100,000
9 31-Jul Realisation 33,000 Capital Alan 33,000 (180k - 114k) x 1/2
10 31-Jul Realisation 33,000 Capital Brian 33,000 (180k - 114k) x 1/2
11 31-Jul Capital Alan 50,000 Ordinary shares 50,000 100k x 1/2
12 31-Jul Capital Brian 50,000 Ordinary shares 50,000 100k x 1/2
13 31-Jul Capital Alan 28,000 Bank 28,000
14 31-Jul Capital Brian 28,000 Bank 28,000
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 Capital account Realisation
78,000 78,000 78,000 78,000 180,000
Debit Alan Brian Date Credit Alan Brian Date Debit $
Ordinary shares 50,000 50,000 31-Jul Bal b/d 45,000 45,000 31-Jul Non current assets 80,000
Bank 28,000 28,000 31-Jul Realisation 33,000 33,000 31-Jul Current assets 34,000
31-Jul Capital Alan 33,000
31-Jul Capital Brian 33,000

Bank
56,000
Date Debit $
31-Jul Bal b/d 6,000
31-Jul Realisation 50,000
Realisation GL W2 Date Debit $ Credit $
180,000 1 31-Oct Bal b/d Capital Lee 30,000
Date Credit $ 2 31-Oct Bal b/d Capital Mick 30,000
31-Jul Current liabilities 30,000 3 31-Oct Bal b/d Bank 2,000
31-Jul Bank 50,000 4 31-Oct Realisation 50,000 Property 50,000
31-Jul Ordinary shares 100,000 5 31-Oct Realisation 20,000 Plant and machinery 20,000
6 31-Oct Realisation 3,000 Motor vehicle 3,000
7 31-Oct Capital Mick 3,000 Realisation 3,000
8 31-Oct Realisation 8,000 Inventory 8,000
9 31-Oct Realisation 12,000 Trade receivables 12,000
10 31-Oct Trade payables 6,000 Realisation 6,000
11 31-Oct Ordinary shares 120,000 Realisation 120,000
12 31-Oct Bank 20,000 Realisation 20,000
Bank CB 13 31-Oct Realisation 28,000 Capital Lee 28,000
56,000 14 31-Oct Realisation 28,000 Capital Mick 28,000
Date Credit $ 15 31-Oct Capital Lee 60,000 Ordinary shares 60,000
31-Jul Capital Alan 28,000 16 31-Oct Capital Mick 60,000 Ordinary shares 60,000
31-Jul Capital Brian 28,000 17 31-Oct Loan 11,000 Bank 11,000
18 31-Oct Lee 8,000 Capital Lee 8,000
19 31-Oct Mick 6,000 Capital Mick 6,000
20 31-Oct Capital Lee 6,000 Bank 6,000
21 31-Oct Capital Mick 1,000 Bank 1,000
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 Note Capital account
66,000 64,000 66,000 64,000
Date Debit Lee Mick Date Credit Lee Mick Date
31-Oct Motor vehicles 3,000 31-Oct Bal b/d 30,000 30,000 31-Oct
31-Oct Ordinary shares 60,000 60,000 31-Oct Realisation 28,000 28,000 31-Oct
31-Oct Bank 6,000 1,000 31-Oct Lee 8,000 31-Oct
31-Oct Mick 6,000 31-Oct
mv taken over 31-Oct
31-Oct
31-Oct

50k x 1.20 x 2

(149k - 93k) x 1/2

(149k - 93k) x 1/2
120k x 1/2 Date
120k x 1/2 31-Oct

current acc
current acc
 Realisation GL
149,000 149,000
Debit $ Date Credit $
Property 50,000 31-Oct Capital Mick 3,000
Plant and machinery 20,000 31-Oct Trade payables 6,000
Motor vehicle 3,000 31-Oct Ordinary shares 120,000
Inventory 8,000 31-Oct Bank 20,000
Trade receivables 12,000
Capital Lee 28,000
Capital Mick 28,000

Bank CB
20,000 20,000
Debit $ Date Credit $
Realisation 20,000 31-Oct Bal b/d 2,000
31-Oct Loan 11,000
31-Oct Capital Lee 6,000
31-Oct Capital Mick 1,000
No Date Debit $ Credit $ Note Info
1 30-Apr Land and buildings 878,000
2 30-Apr Plant and machinery 100,000
3 30-Apr Inventory 30,000 lower of cost and nrv 3
4 30-Apr Trade receivables 72,000 76k - (5k x 8/10) 2
5 30-Apr Acc dpr of lb 128,000 1
6 30-Apr 10% debentures 80,000 (8% x 100k) int / 10 x 100 4
7 30-Apr Trade payables 29,000
8 30-Apr Ordinary shares 700,000 700k x 1 4
9 30-Apr Share premium 140,000 700k x (1.20 - 1) 4
10 30-Apr Bank 3,000 1080k db - 1077k cr 4
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Notes:
1. The inventory has been valued on a line-by-line basis as identified by IAS 2,
as this is the method that Istaimy will have to use. (Chapter 16.6)

2. It has been assumed that the cash and cash equivalents in the
statement of financial position of the partners will be retained by them.

Part b
The advantages to Eric and Tia of selling their business is that they no longer have to spend
their time on or worry about managing it in the future. They have been issued with shares
in Istaimy plc on which they can expect to receive dividends in the future. Their investment
in Istaimy, being in a larger and possibly more diverse business than theirs, may be less
risky. It may be practical to sell the shares piecemeal (unlike portions of a partnership!)
and the shares may increase (or decrease) in value. Eric has also received a debenture
paying an amount equal to that which he received from their old business. They may wish
to retire, or take up employment, or they may be able to start a new business with the cash
taken from their old one, although this was not a large sum.

There are though, several disadvantages to consider. It may be that they receive less in
dividends on the shares in Istaimy plc than the profit their business previously earned.
Indeed, they may not receive any dividends at all if Istaimy plc fails to make a profit. They
will also have no involvement in the management of Istaimy plc.

The journal shows that the purchase price matched the agreed net asset values and that
Istaimy made no payment for goodwill. This is unusual (to say the least) in the acquisition
of a profitable business and indicates that they may have sold their business to Istaimy plc
too cheaply.

Overall, however, if they were looking to retire and also have some sort of income in the
future, then selling their business to Istaimy plc may have been the correct option if no
higher offers were available.
No Date Debit $ Credit $ Note Info
1 1-Apr Land and buildings 220,000
2 1-Apr Plant and machinery 170,000
3 1-Apr Inventory 128,000
4 1-Apr Trade receivables 105,000
5 1-Apr Bank 69,000
6 1-Apr Trade payables 138,000
7 1-Apr 10% debentures 125,000 (12.5% x 100k) / 10 x 100 2
8 1-Apr Ordinary shares 300,000 300k x 1 3
9 1-Apr Share premium 150,000 300k x (1.50 - 1) 3
10 1-Apr Goodwill 21,000 713k cr - 692k db
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 Trial balance at 1-Apr-16 Joel Limited
Statement of financial position at
Accounts Db ($) Cr ($) Note $
Land and buildings 1,645,000 1425k + 220k Non current assets
Plant and machinery 973,000 803k + 170k Tangible
Inventory 509,000 381k + 128k Land and buildings 1,645,000
Trade receivables 624,000 519k + 105k Plant and machinery 973,000
Cash and cash equivalents 489,000 420k + 69k 2,618,000
Ordinary shares of $1 1,650,000 1350k + 300k Intangible
Retained earnings 1,248,000 Goodwill 21,000
8% debentures 25/27 450,000 2,639,000
Trade payables 638,000 500k + 138k Current assets
Inventory 509,000
10% debentures 125,000 Trade receivables 624,000
Share premium 150,000 Cash & cash equivalents 489,000
Goodwill 21,000 1,622,000

Assets 4,261,000
Joel Limited Part b
1-Apr-16 $
$ 10% debentures 125,000
Equity Ordinary shares 300,000
Ordinary shares of $1 1,650,000 Share premium 150,000
Share premium 150,000 575,000
Retained earnings 1,248,000
3,048,000 Additional profit (25%) 143,750
Non current liabilities
8% debentures 25/27 450,000
10% debentures 125,000
575,000
Current liabilities
Trade payables 638,000
638,000

Equity and liabilities 4,261,000

No Date Debit $ Credit $
1 31-Dec Bal b/d Capital Ann 35,000
2 31-Dec Bal b/d Capital Bridget 30,000
3 31-Dec Bal b/d Capital Chris 20,000
4 31-Dec Bank 3,000 Bal b/d
5 31-Dec Realisation 100,000 Property 100,000
6 31-Dec Realisation 20,000 Motor vehicles 20,000
7 31-Dec Capital Ann 4,000 Realisation 4,000
8 31-Dec Realisation 15,000 Inventory 15,000
9 31-Dec Realisation 12,000 Trade receivables 12,000
10 31-Dec Trade payables 20,000 Realisation 20,000
11 31-Dec 10% debentures 2025 24,000 Realisation 24,000
12 31-Dec Ordinary shares 100,000 Realisation 100,000
13 31-Dec Bank 28,000 Realisation 28,000
14 31-Dec Expenses 1,000 Bank 1,000
15 31-Dec Realisation 1,000 Expenses 1,000
16 31-Dec Realisation 11,200 Capital Ann 11,200
17 31-Dec Realisation 11,200 Capital Bridget 11,200
18 31-Dec Realisation 5,600 Capital Chris 5,600
19 31-Dec Capital Ann 24,000 10% debentures 2025 24,000
20 31-Dec Capital Ann 40,000 Ordinary shares 40,000
21 31-Dec Capital Bridget 40,000 Ordinary shares 40,000
22 31-Dec Capital Chris 20,000 Ordinary shares 20,000
23 31-Dec Loan Ann 30,000 Capital Ann 30,000
24 31-Dec Ann 10,000 Capital Ann 10,000
25 31-Dec Bridget 8,000 Capital Bridget 8,000
26 31-Dec Capital Chris 3,000 Chris 3,000
27 31-Dec Capital Ann 18,200 Bank 18,200
28 31-Dec Capital Bridget 9,200 Bank 9,200
29 31-Dec Capital Chris 2,600 Bank 2,600
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 Note Info Capital account
86,200 49,200 25,600
Date Debit Ann Bridget Chris Date
31-Dec Realisation 4,000 31-Dec
31-Dec 10% debentures 2025 24,000 31-Dec
31-Dec Ordinary shares 40,000 40,000 20,000 31-Dec
31-Dec Chris 3,000 31-Dec
mv taken over 1 31-Dec Bank 18,200 9,200 2,600 31-Dec

30k x 8% / 10 x 100 4
80k x 1.25 5
152k value - 24k deb - 100k ord shares 3
6

(176k - 148k) x 2/5

(176k - 148k) x 2/5
(176k - 148k) x 1/5

100k x 2/5
100k x 2/5
100k x 1/5
4
current acc
current acc
current acc
86200 - 68k
49200 - 40k
25600 - 23k
ccount Realisation
86,200 49,200 25,600 176,000
Credit Ann Bridget Chris Date Debit $ Date Credit
Bal b/d 35,000 30,000 20,000 31-Dec Property 100,000 31-Dec Capital Ann
Realisation 11,200 11,200 5,600 31-Dec Motor vehicles 20,000 31-Dec Trade payables
Loan Ann 30,000 31-Dec Inventory 15,000 31-Dec 10% debentures 2025
Ann 10,000 31-Dec Trade receivables 12,000 31-Dec Ordinary shares
Bridget 8,000 31-Dec Expenses 1,000 31-Dec Bank
31-Dec Capital Ann 11,200
31-Dec Capital Bridget 11,200
31-Dec Capital Chris 5,600

Bank
31,000
Date Debit $ Date Credit
31-Dec Bal b/d 3,000 31-Dec Expenses
31-Dec Realisation 28,000 31-Dec Capital Ann
31-Dec Capital Bridget
31-Dec Capital Chris
 GL Part a
176,000 When a business is purchased by another business then the business which has been
$ bought ceases to exist. The owners of that business will either retire or become workers or
4,000 directors in the business which bought theirs.
20,000
24,000 However, when business assets are purchased by another business that is simply a
100,000 commercial transaction. For example, Business A may decide to buy some old plant
28,000 and machinery from Business B for an agreed amount. Both businesses will continue to
operate after the transaction has been completed.

CB
31,000
$
1,000
18,200
9,200
2,600
Part c
$40k shares 30,000 40k x 0.75
$24k debentures 18,000 24k x 75%
Money from sale 48,000

Bank loan 102,000 150k - 48k

Overdraft 20,000 working capital
Total money borrowed 122,000

Loan interest per annum 5,100 5% x 102k

Overdraft interest per annum 1,400 7% x 20k
Annual interest 6,500

Year 1 profit 15,000

Annual interest (6,500)
Net profit 8,500

Year 2 profit 20,000

Annual interest (6,500)
Net profit 13,500

Year 3 profit 35,000

Annual interest (6,500)
Net profit 28,500
If Ann accepts the offer for her shares and loan from Janty Limited she will receive:
$40 000 × 0.75 = $30 000 for her shares and $24 000 × 75% = $18 000 for her loan; a total of
$48 000. This will mean that she will need to borrow $150 000 − $48 000 = $102 000
plus $20 000 for working capital; a total of $122 000 in order to buy her new business.

Assuming the worst position, she will have to pay interest on the loan of $102 000 × 5% =
$5100 a year, plus $20 000 × 7% = $1 400 on the overdraft, assuming she requires it for a
year; a total of $6 500.

From her projections the profit she expects to make in the first three years is greater than
the interest she will pay. It also seems to be increasing steadily over the three year period.
On this basis, provided that she feels comfortable with the move, it makes sense for her to
buy the business. She will again be her own boss and, unlike in the previous partnership,
all the profit will belong to her. The only negative aspect is the risk of starting the new
venture and the accuracy of the profit projections. If she is happy to take the risk and
confident in the profit figures, the venture should be taken. She is giving up the interest
paid to her on the loan, but Janty Limited is not paying any dividends on the shares, so
again it points to the fact that she should start the new venture.

The apparent fall in the value of the Janty shares may reflect a real downturn, or it may
indicate the relative bargaining power of the two parties. However this position has been
reached, Ann must make her calculations based on the current value of the shares. In
theory, she could also try and find another buyer willing to pay more than 75¢ per share.
Part b Part c
Brian Maye Note Brian and Maye
Non current assets 130,000 190,000 Statement of financial position at
Inventory 25,000 24,000
Trade receivables 55,000 39,000 Non current assets
Cash and cash equivalent 2,000 1,000
Current liabilities (17,000) (29,000) Current assets
Old goodwill 30,000 20,000 info 3 Inventory
New goodwill (25,000) (25,000) (30k + 20k) / 2 info 4 Trade receivables
Cash and cash equivalents
Opening balances of capital 200,000 220,000

Assets = Capital + Liabilities Assets

Capital
Brian
Maye

Current liabilities

Capital and liabilities

 Part d
nd Maye Brian and Maye
1-Apr-15 Appropriation account for year ended 31-Mar-16
$ $ $ Note
320,000 Profit for the year 27,000

Int on cap (21,000)

49,000 Brian 10,000 5% x 200k
94,000 Maye 11,000 5% x 220k
3,000
146,000 Salaries (10,000)
Brian 6,000
466,000 Maye 4,000

Partners' loss (4,000)

200,000 Brian (1/2) (2,000)
220,000 Maye (1/2) (2,000)
420,000

46,000

466,000
Part a
A merger is when two independent businesses join together to form a new business. The
two original businesses are closed and all, or some, of their assets are transferred to the
new business, but both underlying trades continue within the new business.

When a business is sold to another business, then the business which has been sold
ceases to exist. All, or some, of the assets are sold to the new business. Both underlying
trades continue within the acquiring business. The owners of the business which has been
sold will either retire or become workers or directors (or partners) in the business which
bought theirs.

Part e
For the year ended 31 March 2016, Brian's total share of the profit for the year was $14 000
(-2k loss + 10k int on cap + 6k salary) and Maye's share was $13 000 (-2k loss +
11k int on cap + 4k salary). Thus Brian earned more than he would in his own business
and Maye earned less than she would in her own business. On this basis Brian was right to
form the partnership and Maye was wrong.

However, this is based on the profit for the new partnership for one year only. Future profits
may well give each partner a greater income than their old businesses.

Another way of looking at this leads us to conclude that they combined their businesses
on terms that were unfair to Maye. Her old business was twice as profitable as Brian’s,
suggesting in broad terms that her goodwill and her profit share could each have been
more fairly agreed at double Brian’s.