A, B and C are partners sharing profits and losses in the ratio 2 : 2 : 1. The statement of financial position of the partnership as at 30 September 2013 was as follows:

The partners agreed to dispose of the business to CNO Limited with effect from 1 October 2013 under the following conditions and terms: (i) CNO Limited will acquire the goodwill, all non-current assets and the inventory for the purchase consideration of £58,000. This consideration will include a payment of £10,000 in cash and the issue of 12,000 10 per cent preference shares of £1 each at par, and the balance by the issue of £1 ordinary shares at £1.25 per share. (ii) The partnership business will settle amounts owing to creditors. (iii) CNO Limited will collect the debts on behalf of the vendors. Purchase consideration payments and allotments of shares were made on 1 October 2013. The partnership accounts payable were paid off by 31 October 2013 after the taking of cash discounts of £190. CNO Limited collected and paid over all partnership debts by 30 November 2013 except for bad debts amounting to £800. Discounts allowed to debtors amounted to £400. Required:

(a) Journal entries (including those relating to cash) necessary to close the books of the partnership, and

(b) Set out the basis on which the shares in CNO Limited are allotted to partners. Ignore interest. (Institute of Chartered Secretaries and Administrators)

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Freehold premises Equipment and machinery Cars Inventory Accounts receivable Bank Accounts payable Loan account - A Total liabilities Net assets Capital accounts A B 11,000 14,000 9,000 10,000 7,000 18,000 12,000 3,000 33,000 34,000 67,000 (17,000) 50,000 22,000 18,000 10,000 50,000