Reference no: EM131537713

Question: The Rotar Company Limited was formed to purchase the business of Roberts and Taring, who share profits, two-thirds and one-third respectively, and whose Balance Sheet was as follows:

Re-printed by courtesy of the Royal Society of Arts (R.S.A.).

The Company takes over the assets at book values with the exception of freehold property, which is taken over at £10,000. The cash and investments are retained by the firm, and the investments are sold by them for £1,600. They also discharge the loan of £400; but the Company takes over the remaining liabilities. The purchase consideration for the net assets taken over is fixed at £22,500 payable as follows: 22,000 fully paid ordmary shares of £1 each and the balance in cash. Roberts and Taring agree to divide the shares in the proportion of the balances of their respective Capital Accounts. Show the Ledger Accounts closing the firm's books, and the Journal entries opening the Company's books.