After meeting at a convention recently, three sole traders P, Q and R discussed the restructuring of

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Question:

After meeting at a convention recently, three sole traders P, Q and R discussed the restructuring of their businesses. It was agreed that P and Q would amalgamate their businesses and would acquire the business of R as a going concern.

The assets and liabilities of the separate businesses are agreed to be fair with the exception of the following adjustments:

P	Land and Buildings, fair value	$100,000
Q	Accounts Receivable, fair value	$14,000
R	Land and Buildings, fair value	$60,000

The bank account is to be excluded from the takeover assets.

The agreed values of the businesses of P and Q are $150,000 and $120,000 respectively and the agreed purchase consideration for R’s business is $110,000.

Overdraft facilities from the bank are available if needed.

The Balance Sheets of P, Q and R prior to the restructure were as follows:

	P	Q	R
Capital	110,000	121,000	100,000
Land & Buildings	60,000	0	50,000
Plant & Machinery	40,000	35,000	25,000
Inventory	15,000	20,000	30,000
Accounts Receivable	10,000	15,000	5,000
Bank	15,000	56,000	10,000
Accounts Payable	30,000	5,000	20,000
	140,000	126,000	120,000