PURCHASE OF EXISTING PARTNERSHIP AND SOLE PROPRIETOR BUSINESSES By: Mild 11RA

Goodwill  Goodwill is a long-term asset as an intangible asset. Goodwill is rise when a company acquires another entire business.

Goodwill on purchases Total purchases consideration 90,000 Less : New valuation of assets Taken over (75,000) GOODWILL 15,000

Capital reserve on purchases  The total purchases price is less that the new valuations of the assets taken over, the difference can either be treated in the purchaser’s sole partnership book as negative goodwill or as a capital reserve Total purchases consideration 55,000 Less : New valuation of assets taken over (75,000) CAPITAL RESERVE 20,000

Non-current assets££ Goodwill10,000 Fixtures30,000 40,000 Current assets Inventory8,000 Accounts receivable7,000 15,000 Total assets55,000 Current liabilities Accounts payable(3,000) Net assets52,000 Capital52,000 D. Towers Statement of Financial Position as at 1 January 2013

D. Lucas Ltd. Statement of Financial Position as at 1 January 2013 Non-current assets££ Fixtures36,000 Current assets Inventory23,000 Accounts receivable14,000 Bank6,000 43,000 Total assets79,000 Current liabilities Accounts payable(11,000) Net assets68,000 Equity Preference shares20,000 Ordinary shares40,000 Retained profits8,000 68,000

V. A. Fraga Statement of Financial Position as at 31 March 2012 Non-current assets££ Premises190,000 Current assets Inventory39,200 Accounts receivable18,417 Bank ,445 Total assets 248,445 Current liabilities Accounts payable (23,216) Net assets 225,229 Capital 225,229 Required: (a)The business of V. A. Fraga is taken over by T. Malloy in its entirety. The assets are deemed to be worth the statement of financial position values as shown. The price paid by Malloy is £260,000. Show the opening statement of financial position of Malloy. (b)Suppose instead that F. Templar had taken over Fraga’s business. He does not take over the bank balance, and values premises at £205,000 and inventory at 36,000. The price paid by him is also £260,000. Show the opening statement of financial position of Templar