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Question 10 Two accountancy firms, Augustine, Phillipa and Wilson of Wa, and Elliot and Sherifa of Ho agreed to merge their practices effective 1 January

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Question 10 Two accountancy firms, Augustine, Phillipa and Wilson of Wa, and Elliot and Sherifa of Ho agreed to merge their practices effective 1 January 2020. Both firms balanced their books and made up their accounts to 31 December, 2019. Their statements of financial position are as follows: Statement of financial Position as at 31st December, 2019 APW ES Non-current Assets GHC GHC Land and Building 35000 Equipment 5000 6000 40000 6000 Add: Current Assets Trade receivables 20000 14000 Unbilled work 8000 6000 Prepayments 400 200 Bank and Cash 2000 3000 30400 23200 Total Assets 70400 29200 Equity and Liabilities Capital Accounts 24000 Augustine 16000 Phillipa 13000 Wilson 16000 Elliot 9400 Sherrita Augustine 1000 Phillipa Wilson 300 Elliot 500 Sherrifa 54900 25900 600 10 Add: Liabilities Loan from Augustine Trade Payables Accruals 10000 5000 500 15500 70400 3000 300 3300 29200 Total Equity and Liabilities The profit/loss sharing ration of Augustine, Phillipa and Wilson is 2:2:1 respectively and that of Elliot and Sherrifa is 3:2 respectively. APW partnership agreement allows for 10% interest on capital and that of ES allows for salaries to partners at GHC 5,000 to Elliot and GHC 4,000 to Sherrifa per annum. The items of PPE were transferred at the following revalued figures at 1 January, 2020: APW ES Land and Buildings 54,100 Equipment 6,000 8,100 The premises of ES are rented and will be given up after the merger. All other identifiable assets will be taken over at book values. The total value of each of the merging firms at 31 december 2019, are to be computed at the present values of their projected net earnings for the three years ended 31 December, 2022 on assumption that they are not merged and that there is no inflation, discounted at 15% per annum (assume that earnings are received at year end). The resulting goodwill for the two firms should not be kept in the books of the new firm. The projected net earnings and the discounting factors(df) for the respective years are stated below: APW ES df Year ending 31 December, 2020 50,000 20,000 0.870 55,000 25,000 0.756 2022 22,675 17,781 0.658 Profits/losses are to be shared in the new firm as follows: A = 25%; P=20%: W = 20%: E = 20%; and S = 15%. A's loan is to be recognized as a liability in the new firm. Required: Prepare the opening Statement of Financial Position of the new firm, APWES Accountancy, as at 01 January, 2020. 2021

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