Guess and Bvlgari were equal partners in a firm of architects, providing architectural services to residents in Windhoek and across Namibia.

Their trial balance at 31 January 2020 was as follows:

On 1 January 2020, Guess and Bvlgari approached Tom Ford, who owned his own architectural firm with the idea of forming a private company, Prestige Designs Pty (Ltd). They all agreed to the idea and set out the following conditions relating to the formation of the company:

(1) They would continue to use the same set of accounting records as previously used by Guess and Bvlgari;

(2) The assets and liabilities of Guess and Bvlgari were agreed to be fairly stated on the statements of financial position, with the exception of debtors, which were considered to be overvalued by N$6 000.

(3) Work-in-progress of Guess and Bvlgari at 31 December 2019 was valued at N$160 000.

(4) Tom Ford would contribute his assets and liabilities at the following agreed valuations:

(5) The current accounts of Guess and Bvlgari are to become short-term loan accounts in the company. An amount of N$24 000 of the equity of Tom Ford is also to be established as a short-term loan account in the new company.

(6) There was no goodwill attributable to either of the two businesses.

(7) The company is formed with an authorised share capital of 500 000 shares of no-par value. Guess and Bvlgari are to be allocated share capital according to the balances in their capital accounts in the partnership. Tom Ford is to be allocated share capital according to the balance on the capital account in the sole proprietorship. All the shares are issued at a price of N$1 per share.

YOU ARE REQUIRED TO: (30 Marks)

(a) Provide the journal entries on formation of Prestige Designs (Pty) Ltd.

(b) Prepare the statement of financial position of Prestige Designs (Pty) Ltd at 1 January 2020.

Dr Cr 136 000 384 000 55 200 TRIAL BALANCE AT 31 DECEMBER 2019 Account description Creditors Debtors Bank Capital - Guess Capital - Bvlgari Current account - Guess Current account - Bvlgari Equipment at cost Accumulated depreciation Provision for credit losses 160 000 160 000 60 000 32 000 149 600 24 000 16 800 588 800 588 800 Debtors (net of a credit losses provision of N$17 200) Equipment (original cost N$72 000) Creditors Bank Work-in-progress N$ 154 800 44 000 64 000 20 000 72 000