The Statement of financial position as at 31 March 2012, of Rose and Pink, equal partners, appears as shown. Current assets include £30,000 cash. Colours Ltd acquired the business on this date as a going concern. The total of the Capital and Current account balances of Rose and Pink, on this date, were £200,000 and £150,000 respectively. Partners have resolved to convert their books of account into those of a company.

(a) If purchase consideration is to be discharged by an allotment of 400,000 ordinary shares of £1 each at 120p per share and a payment of £20,000 in cash, what amounts will be reported in the Statement of financial position of Colours Ltd as goodwill and cash upon the conversion?

(b) If in addition to the information in (a) above you are informed that at conversion the tangible non-current assets are fair valued at £380,000 and an allowance for doubtful debts set up at £5,000, at what value will Colours Ltd report goodwill immediately after the conversion?

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Tangible non-current assets £300,000 Current assets £140,000 Current liabilities £90,000