I. Dodgem's statement of financial position as at 31 December 2015 was as follows:

An opportunity had arisen for Dodgem to acquire the business of A. Swing who is retiring.

Dodgem agreed to take over Swing's premises, plant, inventory, trade accounts receivable and trade accounts payable.
For the purpose of his own records Dodgem valued the premises at £35,000, plant at £6,000 and inventory at £8,000.
The agreed purchase price was £50,000 and in order to finance the purchase Dodgem had obtained a fixed loan for 5 years from his bank, for one half of the purchase price on the condition that he contributed the same amount from his own private resources in cash. The purchase price was paid on 1 January 2016.
Dodgem also decided to scrap some of his oldest plant and machinery which cost £9,000 with depreciation to date £8,000. This was sold for scrap for £300 cash on 1 January 2016. On the same date he bought one new plant for £4,000, paying in cash.

Required:

(a) The purchase of business account in I. Dodgem's books.

(b) I. Dodgem's statement of financial position as at 1 January 2016 after all the above transactions have been completed.

Transcribed Image Text:

Non-current assets Premises Plant and machinery at cost less depreciation Fixtures and fittings at cost less depreciation Current assets Inventory Trade accounts receivable Cash Total assets Less Current liabilities Trade accounts payable Bank overdraft Expenses owing Net assets Capital 55,000 21,000 4,000 80,000 17,000 9,500 4,500 31,000 111,000 8,000 15,800 200 (24,000) 87,000 87,000