NUMBER ONE JAMS and PAMS were sole traders manufacturing farm implements. On 31 March 2004, they amalgamated and traded as partners sharing profits and losses in the ratio of 3:2. One year later on 31 March 2005, they converted the partnership into a limited liability company called JAPAMS Ltd. No. adjustments have been made to record the amalgamation and conversion but the balance sheets for the sole traders as at 31 March 2004 and the partnership as at 31 March 2005 were as follows: Sole Traders balance sheet as at 31 March 2004 Jams Pams Partnership balance sheet as at 31 March2005 Sh. '000' Sh. '000' Sh. '000' Assets Freehold property 1,500 1,000 4,000 Plant and 6,800 5,600 13,000 equipment Fixtures and 1,600 1,550 3,000 fittings Inventory 1,800 350 3,350 Accounts 1,900 1,000 6,420 receivable Balance at bank 300 150 125 13,900 9,560 29,895 Liabilities Accounts payable (6,800) (4,000) (9,920) Bank overdraft (5,625) 7,1000 5,650 14,350 Additional Information: 1. On 1 April 2004, the partners agreed to take up the assets and liabilities of the individual traders at book values except for freehold property, plant and equipment and fixtures and fittings which were to be revalued as follows: Jams Sh. '000' Pams Sh. '000' Freehold 2,000 1,500 property Plant and 6,500 5,500 equipment Fixtures and 1,500 1,500 fittings 2. During the year ended 31 March 2005, Jams made drawings of Sh. 2,390,000 while Pams drew Shs. 610,000. 3. The partnership was converted into a limited company on the following terms: i) The freehold property and accounts receivable were revalued to Sh.6,000,000 and Sh.5,670,000 respectively. ii) Jams and Pams were to receive 15% unsecured debentures at par so as to provide each partner with income equivalent to a 6% return on capital employed based on capital balances as at 31 March 2005 (that is after accounting for the profit, drawings and revaluation in note (i) above). iii) Japams Ltd. Authorized share capital was made up of 150,000 ordinary shares of Sh.50 each. Out of which 130,000 shares were to be issued to the partners in their profit sharing ratio. iv) Any balances in the partners' capital accounts were to be settled in cash.