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Task - Purchase of a business/Conversion to a Company
Accounting and Tax Services (ATS) has decided to acquire an existing management consultancy business for $935,000 and convert it into a company structure. The transaction and conversion occurs on 1 July 20X1. The company will be called ATS Management Ltd. Prior to the conversion, the trial balance was:
Debit
Credit
$
Cash at bank
62,000
Accounts receivable
130,000
Inventory
78,000
Land
600,000
Buildings
480,000
Plant & equipment
310,000
Allowance for doubtful debts
4,500
Accumulated depreciation - buildings
80,000
Accumulated depreciation - Plant & Equip
120,000
Accounts payable
79,000
Mortgage
576,500
Capital
General reserve
200,000
1,660,000
Prior to converting the business to a company, ATS decided to get the assets independently value. The fair value of the assets was determined as:
119,000
75,000
700,000
420,000
174,500
The business' liabilities were accepted at their balance listed in the trial balance.
Required - Prepare the general journal entries to record the necessary transactions in ATS Management Ltd books in compliance with accounting standards.
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